skin-in-the-game

Skin in the Game: How Nassim Nicholas Taleb Can Change Your View of the World

When I was twenty, my hero was Alan Greenspan. I know you might think who in the world – at twenty years old – has such a hero. The point is that economists and central bankers are often portrayed by media as the ones that control the economic, therefore personal destiny, of billions of humans. No surprise then that young men want to become like those heroes. That is also why I’m not surprised to see young men, in their twenties, which have as the primary aspiration to become just like Alan Greenspan. Of course, the former president of the FED is the scapegoat used for the crisis of 2008. However, the system itself allows those people to make decisions that influence billions of people without paying the price for their errors.

I was awakened from this youth deception by the book series, Incerto, by Nassim Nicholas Taleb. His book, currently available in French (Jouer sa Peau) or Skin in The Game addresses a critical issue of modern society: how we address risk.

In fact, in Taleb’s words, modern bureaucracies have created a militia of interventionistas or men that make decisions for millions of people, but then don’t pay the price for their mistakes. In fact, the book moves around three central issues of modern societies.

First, the uncertainty of knowledge and how to filter the BS. Second, the symmetry in human affairs and why hidden conflicts of interests can be neutralized by having the person making the decision also paying for its errors. Third, and foremost, rationality in complex systems is much more bound to survival mechanisms, rather than intricate psychological patterns, like many modern “scientists” make us believe.

What are the main traits of those interventionistas?

First, they think static, not dynamic. When Alan Greenspan was moving the interest rates, he felt that his moves had a direct, clear and explainable cause-effect relationship on the whole economic system. Second, they think regarding low-dimension rather than high-dimensions. In other words, in a complex system, the cause-effect relationships are way more opaque than interventionistas tend to believe. That is because, in reality, there are hundreds of variables that can influence the cause-effect relationships (high-dimensional space). Instead, interventionistas think regarding a few variables (low-dimension space).

Why is this important at all?

In short, when dimensionality increases (more variables come into play) also the volume of the space increases exponentially. Therefore, the data that before was used to describe a phenomenon becomes sparse, thus worthless. In other words, it loses statistical significance. Almost like a dog chasing its tail, that data becomes useless, that is the “curse of dimensionality.” That is because the data needed grows exponentially with the dimensionality.

What’s the third trait of interventionistas?

That leads to a third point, they think in terms of actions, rather than interactions. In a complex system made of interactions, rather than actions, the behavior is nonlinear. In short, the same input can produce several outputs, based on the state and context.

How to get rid of those interventionistas?

Taleb mentions how in ancient Rome, less than a third of emperors died in their bed. In fact, most emperors when declaring war were also the first ones in line for the war. If the battle got lost, their paid with their lives. Yet that is not how modern society works. Today, those who make decisions aren’t those who take the risk neither the ones who pay for their mistakes.

skin-in-the-game

Resources for your business:

Tech Business Model Template

business-model-template
A tech business model is made of four main components: value model (value propositions, missionvision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

Web3 Business Model Template

vbde-framework
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Business Competition

business-competition
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.

Technological Modeling

technological-modeling
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.

Transitional Business Models

transitional-business-models
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.

Minimum Viable Audience

minimum-viable-audience
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.

Business Scaling

business-scaling
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.

Market Expansion Theory

market-expansion
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.

Speed-Reversibility

decision-making-matrix

Asymmetric Betting

asymmetric-bets

Growth Matrix

growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

Revenue Streams Matrix

revenue-streams-model-matrix
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.

Revenue Modeling

revenue-model-patterns
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

pricing-strategies
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

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