entrepreneurship on Ray Yang, Ph.D.

the Success Formula for Entrepreneurs

Wed, 01 Dec 2021 00:00:00 +0000

the Formula

\(y = f(x) + \epsilon\)

the Four Elements

\(y\): success level (the dependent variable): something you can keep in mind but is NOT under your control. It’s the outcome that “depends” on something else (on the right-hand side of the formula).

\(x\): the input (the independent variable): something you can control.

\(f\): your method (the functional form): something that determines how your input converts into your outcome.

\(\epsilon\): noise (the error term): good luck and bad luck that are totally inevitable and completely out of your control. But it is very important so you should take notice and be mindful of it.

How to Use the Formula

setting goal

Set and Forget. An entrepreneur should first model his/her \(y\) (success level). Set a goal on \(y\) but learn to shift focus to \(f(x)\). By making the shift, it is important to be emotionally detached from \(y\) when working on \(f(x)\). This is because if you are so emotionally fixated on \(y\), you will forget \(f(x)\). Then your formula will become merely “\(y = \epsilon\)”, which means your outcome will totally depend on luck. In this case, you will learn nothing and control nothing.

Challenging, Specific, and Multi-level. Setting a fixed, challenging goal (\(y\)) helps you search for a better \(f\). The right way is to be fixed on your \(y\) but be flexible on your \(f\), because \(y\) (what you will achieve) depends on \(f(x)\) (your method applied to your input), but not the other way around. Also, write down your goals at multiple levels. Don’t fall into the “security trap.” If you only have a “capped”, single-level goal for success, your learning and exploration for better \(f\) will slow down or even stop as soon as you hit your first-level goal.

shifting focus

Understand the “\(=\)”: Goal is NOT Method. \(f(x)\) is the working process of how you use a given “method” \(f\) to transform your input \(x\), e.g., how you structure your schedule, how you organize your resources, how you utilize your skills, and, in the most general term, your “way of thinking.” When you understand this part, you will never mess up your goal \(y\) with your method \(f\) and your input \(x\).

Avoid “Short-term” Traps. Whenever you feel pressures from short-term \(y\) or are eager to receive instant gratifications from short-term \(y\), your should try to get your focus back on \(f(x)\). \(f(x)\) is under your control “right here and right now,” \(y\) is not. You won’t be successful by focusing on success itself (\(y\)). What you should do is to learn this simple trick: “do the right things; success will follow.” Pressures and temptations from short-term \(y\) can only take your productivity (your creativity and your concentration) away from you. Moreover, the transformation process of \(y = f(x)\) typically takes time to present itself. In the short term, you only tend to see \(\epsilon\).

Develop a Skill of Focus-shifting:

When tasking on \(x\), you should concentrate at “right here and right now” and throw \(y\) completely into the back of your mind.
When taking a break from \(x\), revisit your \(y\) and analyze \(\epsilon\) to improve your \(f\).
When implementing on \(f(x)\), use schedules to develop routines for making plans and doing reflections, and let a well-paced, non-stopping process to carry you through.

developing advantage

Accept and Learn. The best part is that your outcome depends on how you deal with \(\epsilon\), be it flukes or failures. You need to do two things. First, remember that \(\epsilon\) is not the whole part of \(y\). Otherwise, you will give up easily after encountering failures. The secret behind most success is that “winners never quit.” Second, learn from it. Understand that different people have different versions of the formula. Your \(\epsilon\) can also be other people’s \(\epsilon\). But if you can carve out a portion of \(\epsilon\) and put it into your \(f(x)\), which is a trick you figure out before others, or something you know but others don’t, you will have an unfair advantage. In this case, the \(\epsilon\) turns around to help you, by setting up a barrier to prevent others from stealing your success.

Stone to Gold. How to do it? Analyze \(\epsilon\) carefully, and treat it as the “feedback” on your new \(f\) (method) and different combinations of \(x\) (input), you will develop a refined \(f(x)\) with private knowledge to create and sustain your advantage. Now, your \(f(x)\) (method on input) is others’ “luck and miracles” \(\epsilon\). The most amazing thing is that only you know how to use a reliable system \(f(x)\) to mass-produce “luck and miracles” in the eyes of others, and only you know there is no such things as “luck and miracles.”

Own your Errors. \(\epsilon\) has another nice name – error. Most successful people crack the code from trials and errors. Learning from feedback is key. The progress of learning is a function of the number of iterations \(x\). A greater number of iterations can generate more helpful data for us to learn from. But sometimes the feedback can be quite subtle. Without smoking-gun evidence on whether your method \(f\) will work, we have to rely on our own judgment, a leap of faith, or risk-taking. When you feel it’s too hard, it might be worth holding on to your old way \(f\), or it might be a good time to change your method \(f'\). But never quit too soon, because the path to success is typically non-linear, so it is often critical to hold on until your hit the “critical mass” for any good methods \(f\) to work.

Plug Your Life into the Formula

\(y_{t} = f(x_{t-1}) + \epsilon\) (\(\text{your present outcome = your old method applied to your old input + luck}\))

\(y_{t+1} = f'(x_t) + \epsilon\) (\(\text{your future outcome = your new method applied to your new input + luck}\))

Only by taking full responsibility of your present outcome \(y_{t}\) as a result of your old method \(f(x_{t-1})\) and setting a new goal \(y_{t+1}\) can you feel a strong desire for new method \(f'(x)\).
Take control of your new method \(f'(x)\), by preparing yourself to learn and master \(f'\) with inevitable \(\epsilon\).
Take actions, and most importantly, hold on to process in \(x_t\) that will guarantee your future success \(y_{t+1}\).

the Backend Story

An entrepreneur friend asked me for something that is worth hearing. This is what I told him––a regression model.

Cognitive Biases to Avoid in Decision Making

Mon, 20 Apr 2020 00:00:00 +0000

Affect Heuristic
Letting current positive and negative emotions (e.g., fear, pleasure, surprise) influence decisions.
Ambiguity Aversion
Tendency to prefer known/certain probabilities over uncertain probabilities.
Anchoring Bias
Letting an initial piece of information influence decisions.
Availability Bias
Letting instances that came to mind at ease influence decisions.
Bandwagon Effect
Doing what others do.
Confirmation Bias
Tendency to filter information that confirms one’s prior beliefs.
Decoy Effect
Letting asymmetrically dominated alternatives influence choice.
Default Bias
The psychological inertia to remain at the status quo.
Framing Effect
Letting the way the options are framed influence decisions.
Impact Bias
Overestimate the long-term impact of an event.
Loss Aversion
Letting losses loom larger than corresponding gains.
Overconfidence
Overvalue the benefit and underestimate the risk.
Outcome Bias
Letting a prior decision outcome influence subsequent independent decisions.
Representativeness Bias
Tendency to compare a new event with a prototype in mind.
Selective Perception
Tndency to ignore information to avoid emotional discomfort and contradictpry beliefs.
Sunk-cost Bias
Tendency to continue an endeavor once an investment (money, effort, or time) has been made.

Aim, Think, and Act: System Maps for Mental State

Tue, 31 Mar 2020 00:00:00 +0000

We all walk around and live a life based on a set of internal assumptions and logics in our minds, which continuously process the information from the external reality and produce the results in life. If you don’t like the results in your life, simply change your mind, and life will change for you.

The three system-maps below illustrate three types of self-motivators (about future, past, and present) and the corresponding pitfalls to avoid. Remember, if you don’t take effort to make your mind work in a better way, it will continue to work in the old way, keep falling into the pitfalls, and produce the same results that you hate.

Aim High and Prevent ‘Stopping Search’

Keep aiming high.
Search more (frequency) and search farther (space).
Don’t estimate the time needed for making improvement based on the current solution.

The first type of self-motivator is goal-setting. For the future, not only you need to have a CLEAR goal, but also you need to make it CHALLENGING¹ and even seem impossible². Aiming high generates aspiration, which will trigger SEARCH behavior³. The more you keep aiming high, the more frequently and farther you search for alternative solutions. It is natural and typical that you don’t find a solution each time you search. But the more you search, the more likely you will experience an epiphany and find the ONE idea among a series of many ideas to improve your condition effectively and drastically. Keep aiming high, because the fulfillment of your aspiration from an improvement of your condition will also weaken your aspiration.

The pitfall: not to repeatedly and frequently energize your aspiration by keeping a clear and challenging goal, because it may seem to take a long time. You develop a false belief when you estimate the time needed to make improvement based on the current rate of progress. It seems to take a long time because you have not yet found the solution to expedite your growth. Finding a solution requires more search. More search is driven by your aspiration, which is energized by your goal. Take as much time as you need to set your goal. Write it on your wall.

Think Deep and Prevent ‘Shifting Burden’

Employ fundamental solutions.
Expect the DELAY to use the right solution to solve the right problem.
Avoid quick fix (e.g. instant gratification).

The second type of self-motivator is problem-solving. Your success is the way you spend your time doing your BEST—the way you take the talent you were born with and all the knowledge and skills you’ve since developed in the past and using them toward a problem at present. We have limited mental capacity to mobilize rationality and need time to reason⁴. It takes time for us to think through to find the most important problem to solve. It also takes time to find the fundamental solution—the right one. If you use the right solution to solve the right problem, you also solve all the problems. It is once and for all.

The pitfall: not to take time and think deep enough to find the fundamental solution. This critical step only requires patience. But since there is a DELAY for the fundamental solution to takes effect in addressing the problem, your emotional thinking and physiological drive will offer a quick fix. The less patience you have, the more you are tempted to use the quick fix. However, the quick fix, such as an instant gratification or a duct tape, can only solve your current problem by shifting the burden to the near future—leaving you with more problems to solve. Think hard before you act.

Act Fast and Prevent ‘Eroding Goals’

FOCUS on the action.
Expect the DELAY.
FIX the goal (and never compromise).

The third type of self-motivator is action-taking. A quote by Jack Welch: “you pick a general direction and implement it like hell.” Expect the DELAY for the action taken to take effect. Live in the PRESENT. Focus on the task flow⁵, in which you are fully immersed in a feeling of energized focus and enjoyment in the process. This is a simple 3-step process: fix your goal in your mind, rest your focus in the action, and let the action take its course to improve the condition.

The pitfall: not to focus on the action with a fixed goal but too much on the gap between your current condition and your goal. It is easy to think fast than act fast. Usually when people don’t act fast, they think too much. The more you move your mental energy away from the action to worry about the condition, the more psychological stress you imprudently develop, urging you and tempting you to compromise your goal. When you tune your mind into such a compromise channel, the delay for action to improve condition will seem forever and become so hard to endure. If you don’t like a mixed feeling of relaxing and helpless, fix your goal and focus on your action, not your condition.

Locke, E. A., & Latham, G. P. 2002. Building a practically useful theory of goal setting and task motivation: A 35-year odyssey. American Psychologist, 57(9): 705–717.↩
Collins, J. C., & Porras, J. I. 1996. Building your company’s vision. Harvard Business Review, 74(5): 65.↩
Cyert, R. M., & March, J. G. 1963. A behavioral theory of the firm. Englewood Cliffs, NJ, 2.↩
Simon, H. A. 1997. Models of bounded rationality: Empirically grounded economic reason, vol. 3. MIT press.↩
Nakamura, J., & Csikszentmihalyi, M. 2014. The concept of flow. Flow and the foundations of positive psychology: 239–263. Springer.↩

System Mapping in Business Modeling

Thu, 28 Feb 2019 00:00:00 +0000

In the past several years, I spent quite some time coaching college students in the business major on their individual/team projects. These include business model design (BUS146), strategic audit (BUS109), and marketing plan (BUS103). In each quarter, there are around 100 students enrolled in BUS103/BUS109, and 50 in BUS146. And they typically select different companies and different entrepreneurship ideas to work on.

At some point, I realized it is crucial for them to quickly “model” a business so they can have a very clear picture of how businesses work. I also usually suggest they put all their thoughts on one paper. So they can have the big picture without missing out any important information. This is where “system mapping” can come in handy.

It involves three simple steps. First, brainstorm the essential components in a business system. Second, identify the causal linkages and loops. Third, mark the positive/negative relationships (and the leverage in the system). I find that most students can master this skill very quickly and can generate a good graph with some practice.

I also push for simplicity, as I notice the more I ask them to succinctly define the components, the more they move away from perceptual experiences to critical thinking. Such a map can be a helpful starting point for us to keep questioning ourselves on further facts, proofs, and underlying mechanisms.

Here is an example of a generic “precision online marketing” model (e.g., Google, Facebook, Youtube, etc.), made with iGraph.