Aaron Dignan: Change The Way You Work

What if you could change the way your company operates, even if you’re not the CEO? Aaron Dignan believes it’s possible, and in this episode he’s offering a wealth of insights into how organizations are run, the perils of stagnant bureaucracy, and all the various hurdles keeping us from doing our best work. As the founder of The Ready - a global organizational transformation and coaching practice - Dignan helps companies large and small adopt new forms of self-organization and dynamic teaming. He’s worked with clients such as American Express, Microsoft, Citibank, Hyatt, Johnson & Johnson, Airbnb, and Sweetgreen. He’s also an active angel investor who helps build partnerships between the startups and end-ups he advises. Dignan is also the author of Brave New Work, co-host of the Brave New Work podcast and founder of Murmur. -- Want even more? Members get early access, hand-edited transcripts, member-only episodes, and so much more. Learn more here: https://fs.blog/membership/ Every Sunday our Brain Food newsletter shares timeless insights and ideas that you can use at work and home. Add it to your inbox: https://fs.blog/newsletter/ Follow Shane on Twitter at: https://twitter.com/ShaneAParrish Our Sponsors: MetaLab: Helping the world’s top companies design, build, and ship amazing products and services. https://www.metalab.com Aeropress: Press your perfect cup, every time. https://aeropress.com Athletic Greens: Comprehensive nutrition and gut health support in one simple scoop. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  I mean, there's no such thing as a big company, really. I think it's the main thing I deal with when folks ask me about doing this at scale is like, there's no such thing as Apple or Amazon, right? Like, that's not actually a real thing. There are groups of 150, 300, 500 people that live their whole lives with each other and just like very rarely interface with other divisions and units. And, you know, it's 50 small companies that are just under the same banner with a set of shared principles. And that's kind of it. And that's your company.

• 0:45Shane Parrish?

  Welcome to the Knowledge Project Podcast. I'm your host, Shane Parrish. The goal of this show is to master the best what other people have already figured out. To do that, I sit down with people at the top of their game to uncover the useful lessons you can learn and apply in life and business. If you're listening to this, you're missing out. If you'd like special member-only episodes, access before anyone else, hand-edited transcripts, and other member-only content, you can join at fs.blog/membership. Check out the show notes for a link. Today, I'm speaking with Aaron Dignan. As the founder of The Ready, he helps companies, large and small, work better. To many of us, work feels broken. While no one sits down and designs the ridiculous processes, they have been.

• 1:30Shane Parrish?

  Bureaucracy happens unless you ruthlessly stamp it out, and very few people have an incentive to get rid of it. The result is slow organizations that gradually, and then all at once, become uncompetitive and lose their place. Not only that, it's no fun to work there. The problem isn't the people. The problem isn't the lack of communication or no one knowing the corporate values. This episode looks at what's keeping us from doing our best work and what we can do about it. It's time to listen and learn.

• 2:08Shane Parrish?

  Work isn't working. What's stopping us from doing our best work?

• 2:13Speaker 00

  Well, I think the problem with work is that most of the way that we work is inherited from the generations that came before us. And the way we work today, when you think about hierarchies and bosses and managers and boxes and lines and Gantt charts and schedules and quarterly plans and budgets, all that stuff came about roughly 80 to 120 years ago. And it came about in the time of the factory floor, when we were trying to make sure that size nine shoes fit the same across the country and cornflakes wouldn't kill us. And everything was about reliability and consistency and scale. And so that entire, what I call operating system, that way of working was born for that purpose. And now, here we are

• 2:56Speaker 00

  100 years later, most of the problems we solve are not cornflake problems. And so there's a huge disconnect between the way we work today that we think is normal, that we think is kind of inevitable, and the reality that we actually get to choose how we work, and how we make decisions, and how we organize, and how we allocate power and resources. And we don't. We generally don't.

• 3:18Shane Parrish?

  And was it Frederick Taylor who came up with this sort of like method of organization?

• 3:23Speaker 00

  I'm glad you brought that up. Yeah, I actually have his original book right here on my shelf, The Principles of Scientific Management. Yeah, he was one of that generation. There was a whole generation of folks, actually, that that saw the opportunity to help apply the principles of science and numbers and analysis and stopwatches to the way we work in order to make those factories and those businesses that were focused on scale really work. And so he was a guy who would literally spend his weekends figuring out, what is the optimal number of pounds of coal in a shovel that would give you the maximum amount of shoveled coal in an hour? And then he would go back to the factory and actually say, hey, I'll make you a deal. I'll give you a small raise if you agree to shovel

• 4:08Speaker 00

  exactly how I show you. And so this whole idea of the one best way was really born with him. And the idea of like best practice. And that that infected the mindset of workers everywhere. He also really gave birth to the management class for the first time because they're they were charged with insuring that stuff.

• 4:28Shane Parrish?

  Are there sort of benefits to this hierarchical management? You know, we've all seen these org charts. And I know we're going to talk at length today about some of the disadvantages of this, but like, are there advantages to sort of organizing a workplace that way? Like, why has this lasted 80 years?

• 4:45Speaker 00

  Yeah, it works so well for certain things. And I think that is really the, the crux of it is recognizing that there are different contexts and different problem types that we encounter in the world. If somebody says, I've got 40 pounds of pasta in the basement and I need to get it out to the truck as fast as possible, there is a tailorific way of doing that that's going to be optimal. You don't want a bunch of people brainstorming about how to do that and think about it for six hours and then try five different ways. Like, you really just want to get the stopwatch out and basically make a line, do a factory line and hand the pasta up. So I think there are problems and contexts where hierarchy makes sense. There are problems and contexts where you actually need command and control because of the nature of the environment.

• 5:29Speaker 00

  For example, in a fire, in a chaos issue where you're dealing with some immediate emergency, there's no time for consensus. There's no time for, let's all sit in a circle and talk about our feelings, right? We need someone to say, all right, whether I have it, you know, through virtue of power and position or because you gave it to me, I'm the one that everyone's going to turn to in this moment and I'm going to say, we're going to go left or we're going to go right. And that way we can actually move as one and act quickly. So there are plenty of places like that where those things make sense. And certainly, like we talked about in the factory context where we're trying to optimize certain practices, certain ways of having a hierarchy or optimizing for a way of doing something that's very specific and very mandated, works great.

• 6:14Speaker 00

  I think sometimes we get a little too heavy-handed with that and we dehumanize each other. But nonetheless, there are certainly times and places where that kind of stuff works well. My contention is just, most of those contexts are well figured out and are not the center of the universe anymore. That's not where most of the interesting work is happening.

• 6:34Shane Parrish?

  How is it that organizations lose their way? I mean, I'll put this in the context of my experience. I worked for a three-letter agency.

• 6:43Speaker 00

  Okay.

• 6:43Shane Parrish?

  Started pre nine eleven. And by the time I left circa twenty sixteen-ish, we became like the poster child for bureaucracy.

• 6:56Speaker 00

  Yeah.

• 6:57Shane Parrish?

  And that all happened over these fourteen, fifteen years that I was there. And so it went from high pace to low pace. It went from solving problems instead of addressing the person. We would solve problems with process or bureaucracy. And nobody seemed to fight any of this. And then you ended up in these incredibly stupid processes, which nobody would inherently design.

• 7:26Speaker 00

  Yeah.

• 7:26Shane Parrish?

  But has grown and evolved and nobody wanted to remove anything. How do we lose our way?

• 7:31Speaker 00

  Essentially, we lose our way because we believe in a false choice. So most people believe that the pattern of organizational evolution is from chaos to bureaucracy. So you start in chaos with a startup. You have a handful of people around the kitchen table or the kitchen door, in the case of Amazon. And everybody's doing a lot of different things. There's no clarity about roles. There's no clarity about what we do for a living. We don't have product market fit yet. Everything is about search and figure out and experiment and try. And so the level of chaos is quite high. And some people are kind of off put by that. But a lot of startup folks are like, that's what I thrive on. I thrive on that energy of like all hands on deck. And then you figure something out usually. Otherwise, you die, right? So either you go out of business and that's that.

• 8:16Speaker 00

  Or you figure something out. Oh, people like it when we do this. Oh, we have ten engineers. We better have somebody to manage them. Oh, we have a process that's starting to emerge. How do we hire people? We better figure out a hiring process. And as you figure things out, you dial them in because you think, I want certainty. I want control. I want reliability. And so what I'm going to do is I'm going to nail this stuff to the wall. So like this is the hiring process. This is the business model that we use. This is what we charge. This is what we do. This is what we don't do. And you take a lot of joy in clarifying that stuff in those early years because it feels like building a business. It feels like we're getting everything specified.

• 8:55Speaker 00

  And then what tends to happen is a combination of things, but essentially you start to figure everything out and then there's a rule and a role for everything. And now the, the space for human judgment and creativity is much, much narrower. It's much smaller and harder to find. Like, when can I do something that hasn't already been thought about or planned? When can I do something without permission? When can I do something that doesn't match the strategy we already have? And so you kind of eliminate the serendipity and the randomness from the organization's operations and day-to-day reality. And it gets pretty static. And then to even make things worse, you tend to get expectations from outside players. So you've taken on investors, or you've gone public, or you've been acquired.

• 9:37Speaker 00

  Someone else is now setting the agenda in terms of the goals and they're hoping for more juice out of the orange. So they start to squeeze the orange, even in the midst of all that structure. And what you tend to do is you double down. You're like, we need a better hiring process. We need even higher goals. We need more engineers. We need more layers. We need to push the managers to manage harder. And you sort of, you, you turn away from the skid essentially and end up making things, you know, compounded. And typically what, what happens if you don't end up failing for lack of agility is that you end up becoming so big that you realize, all right, we have a cash machine that nobody really loves to work in and we're missing that innovation. We're missing that spirit, that, that energy that we had when we were young. What should we do? Let's go buy some companies.

• 10:21Speaker 00

  And so you start acquiring that innovation. And then to finish the doom loop that we're talking about, you bring in those acquired companies with all that creativity and judgment and you squash it by conforming them to your operating system. And then you start over. And that's essentially how the economy works.

• 10:38Shane Parrish?

  You sow the seeds of your own destruction. There's a couple of things that I, I want to dive into that you mentioned there.

• 10:43Speaker 00

  Sure.

• 10:44Shane Parrish?

  One of which is sort of the external players, investors or other people involved.

• 10:49Speaker 00

  Oh, yeah.

• 10:49Shane Parrish?

  And there seems to be also a timing mismatch. In this case, between people often, how does that affect how organizations are run? If I'm an investor, let's say I'm in a fund or I'm a GP, I have a seven-year horizon, eight-year horizon, maybe. I need to get my money out. So, once you've found something that works, I want you to maximize that. And then I want you to, I want you to stop looking for new things. And if you were the CEO, but you took the perspective of I'm going to own this company for the next 100 years, you'd run it very differently.

• 11:23Speaker 00

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• 12:24Speaker 00

  Yeah, and actually, that that short termism is a relatively novel phenomenon. So if you roll the clock back on the stock market, even 20, 30, 40, 50 years, we didn't buy and sell companies like this. People would make an investment and they'd hold it for 10, 20, 30 years. It would be part of their portfolio. They would kind of play the game more like Warren Buffett plays the game and less like, you know, the average swing trader. But the actual time to hold has gone down to the point where now it's like it can be measured in days or hours on average. And so we're really just looking for, as investors, an edge. When you said seven years, I was like, shit, I would, I'd love seven years. If everybody actually had a seven year time horizon, that would be amazing. But in reality, it's mostly a quarterly time horizon.

• 13:09Speaker 00

  It's like, when's the next earnings call? That's the time horizon of my commitment, unless I'm private equity or I'm doing like a multi-year bet. But even then, PE swings in two, three, four years now. They don't, you know, it's just that horizon is so different, which is one of the reasons why you hear, you know, Bezos talking about like, if I make a seven year bet, I'm already winning because nobody else will. It really does feel like that out there and that optimization has come at the expense of our ability to operate in a sustainable way. It's prioritizing this external stakeholder who doesn't really have to stay with the program. They have to live in society with us, but they don't have to stay with the company. They don't have to, they're not committed to anything other than that return.

• 13:50Speaker 00

  So it's actually quite dangerous and that's why I'm a big fan of what Eric is doing with long-term stock exchange and other things like that. Like we need to, we need to reorient around the time horizon of our commitments if we want to have a community and a society that we actually enjoy living in.

• 14:06Shane Parrish?

  But it seems also like an indefinite time horizon creates the same problems and government is a perfect example of that where

• 14:14Speaker 00

  Sure.

• 14:14Shane Parrish?

  you have multiple stakeholders, if you consider the citizen stakeholders, but government doesn't operate on a quarterly basis.

• 14:22Speaker 00

  Sure. The difference though is that there are very few feedback loops for the government. So one of the early kind of theories that I, that I pull from a lot is sociocracy and, and the guy that kind of created the modern version of it talked about feedback constantly as like the lifeblood of everything. And so not just feedback at a person-to-person level, but system-to-system and marketplace-to-marketplace. And so with government, the feedback loops tend to be really, really poor because it has to be there, it's going to be there forever. To your point, there's a time horizon to it, but also it doesn't really get like defunded next year if it doesn't do a good job. But a public company does. So even if you did have a hundred-year time horizon and you owned, I don't know, if you

• 15:05Speaker 00

  owned Apple outright, if they just blow it year after year after year, the value of your asset is going to go down and down and down. And if they do a great job, in theory, that, that asset will go up and up and up. And the externality is what you get to kind of see around that business, what it does to the environment, what it does to society is also on your mind and on your conscience. And I think in general, government is also a little bit removed from that. It feels like these wild swings between parties and these kind of deep institutions don't feel like they're really affecting anything at some level.

• 15:37Shane Parrish?

  Go deeper on the feedback loop thing a little bit there because what I'm thinking is your distance from feedback also separates you from reality. And if you're separated from reality, you can't touch it, you can't feel it, you can't try things. And the more people between you and the feedback or the more time between you and the feedback, you create problems.

• 15:57Speaker 00

  Hundred percent, yeah. I mean, feedback is, the feedback essentially is tension. It's dynamism in the system and you can quite literally make the argument that life, being alive, is about needing feedback. Like, everything you touch, as you walk, as you listen, as you feel the air on your skin, as you communicate with others, as you run, there are millions of points of feedback entering and leaving your brain. And that is, that is essential. If you take away your senses, I've taken away your feedback. And so you can't really operate in the world. And the same thing is true of a business. And he used to use a bike as a metaphor. So he'd say, you know, if I put you on a bike and I say, lock the handlebars and go, how far can you go with the handlebars locked?

• 16:41Speaker 00

  And the answer is like, not very far at all. If you ever tried this, you fall over within like 10 or 15 feet. But instead, if you can have the feedback from the road and the resistance and the gravity, and then slightly turn, you know, left and right as you go, that's what you're actually doing when you go straight. You're kind of in a dance with the information that you have. And as you move from point A to point B, you're going to do some steering. And so I think for organizations and for people in teams and for people in relationships, that's what we're trying to do at our best, is steer dynamically based on the feedback we're getting, based on what we value. So based, whatever your principles, whatever your values are, whatever you care about, whatever winning means to you, you're going to steer in the direction of that based on the input that you get.

• 17:26Speaker 00

  But if you live in a system that's far removed from feedback, then it's problematic. Or even worse, if the feedback you're getting is actually disconnected from reality. Because you were talking about that, that part of being disconnected from reality. And it can happen a different way where the only feedback I get is from a boss. The boss is telling me what they think is important. That is not what the customer cares about. It's not what the market cares about. And so I'm actually serving the wrong master, so to speak, and end up, end up getting stuck in a feedback loop that's inaccurate and inauthentic.

• 17:57Shane Parrish?

  That's so fascinating. So in response, I mean, it's... It's almost an argument for private businesses over public ones where you can take a longer term time horizon. It's very hard in a public company to do that.

• 18:09Speaker 00

  Sure.

• 18:09Shane Parrish?

  And the examples that all seem to come to mind all have a large inside shareholder or founder still in charge of the organization.

• 18:18Speaker 00

  Yeah, they really do. It's a common pattern across. I mean, we looked at 68 for the original book Brave New Work and yeah, it's a strong pattern.

• 18:26Shane Parrish?

  So with that said, what are the ways that organizations sabotage themselves from the inside?

• 18:32Speaker 00

  Essentially, what tends to happen is that you have a few things that go on. The first thing is that we tend to do what Jason Fried calls scarring on the first cut. So when something doesn't work or goes wrong, or there's an issue, or somebody steals a laptop, the organization freaks out and it immediately reacts with a policy or a procedure or a, you know, new security protocol or something.

• 18:55Shane Parrish?

  Just fire the person.

• 18:57Speaker 00

  Exactly. Right. Like just let it go and then move on. They don't wait for patterns, right? We don't wait for patterns generally. We just overreact and try to systematize everything. So that tends to sabotage us quite a bit. The other thing that we do is that we really get stuck focusing on metrics that become incentives, that become ways to drive mismanagement. And so there are many different names for this law. But when a metric becomes a goal, it ceases to become a good metric. And the idea is that we're optimizing for something that is a proxy for reality instead of reality itself. And again, we're putting our judgment down and just focusing on like click through rate. Like I'm just, I just have to hit this click through rate and I'll do whatever

• 19:41Speaker 00

  it takes to get it. And so that sort of over optimization on proxies or abstract goals rather than absolute principle driven goals is really problematic. And then I guess the last one is that we, and I talk about this a ton, but we confuse the context that we're operating in. So I talk a lot in my work about the difference between complicated and complex. And you've had some people on your show talk about complexity before as well. But the complicated context is like the engine of a car or a watch. It is predictable. There's cause and effect inside it. The parts fit in a way that if you're an expert, you kind of know how to take it apart and put it back together again.

• 20:22Speaker 00

  And so if there's a problem, it can be solved and it can be delivered and it can be, you know, working again. No problem. There's very high confidence in, in solutioning in those areas. But in a complex system, which would be like weather or traffic or gardens or six year olds. They are dispositional, so they have an attitude, a way they're trending, but you can't fundamentally predict them. You can't be sure what'll happen if you try something. And if you bring that complicated approach, the checklist, the Gantt chart, the quarterly goals, the objectives, the management to that context, you tend to really struggle and fail. And what we see is that, is that organizations tend to just over index on everything must be complicated. And so we're going to treat everything that way.

• 21:06Speaker 00

  And I routinely get brought into boardrooms with, with executives and teams that are like, look, we changed our company values and behaviors last year. We put them on coffee mugs and posters all over the world, all over the office, and nobody's behaving differently. Why? It's like, well, because you're yelling at the weather, right? You're yelling at the garden. That's not how these sorts of systems work. If you have a manufacturing problem where you don't have a tolerance, get that checklist out. If you have a broken engine, take it into the dealership. But if you're trying to raise a human being or build a successful team or create a culture of trust, that, that playbook doesn't work. And so we sabotage ourselves by constantly bringing it to the table and being like,

• 21:47Speaker 00

  the culture change initiative will be done in June of 2024 and we will achieve these five metrics along the way. And that's our, you know, those are our pillars. That's just all complicated talk brought to a complex party.

• 21:59Shane Parrish?

  I have a heuristic and you can, you can correct this because you've worked with more companies than I have. But the heuristic is the more a company espouses their values, the less they actually value.

• 22:11Speaker 00

  Yeah, yeah, that is funny because it's sort of like, yeah, when you're when you protest too much, right? That would be the Shakespeare of it, right? Thou doth protest too much. When you when you're speaking constantly about these are our values and they're so important, integrity, integrity, integrity, that that's a clue that something is going on that's not healthy, when in fact, good change and good patterns and culture are quite fluid. And so it should be moving effortlessly and behaviorally through the culture, through modeling and through storytelling, not through, you know, the poster with the five pillars.

• 22:43Shane Parrish?

  It also works for people, right? On the outside, where the people who expouse happiness the most on social media are probably inherently the most unhappy.

• 22:52Speaker 00

  Yeah, yeah. Anyone who says, let me be honest with you, right? Just take a big.

• 22:56Shane Parrish?

  Yes. So one of the things you said there was sort of like, we put procedures in place to lower variation to reduce mistakes because we're trying to avoid mistakes at some level. One thing I noticed is that procedures eventually circumvent judgment. And so what happens is if you follow the procedure, you never get in trouble, even if what you're doing is absolutely the wrong outcome, and you should know it's going to lead to the wrong outcome, you can just throw your hands up and be like, well, I followed the procedure. So therefore, I'm absolved of all accountability for exercising judgment.

• 23:32Speaker 00

  Yeah, I mean, that is 100% what happens. And in fact, I believe there's a German word for that, that that you are essentially saying it's I'm compliant. So it's the bureaucracy's fault. It's the system's fault. And that's because you've given away your right to think or your right to be accountable, your right to be responsible in the ecosystem. And it's a it's a lovely trade for most people because they're like, here, I just have to be compliant. And then when things don't work, it's not my fault. And it's, you know, we have the term CYA, cover your ass in business for a reason. People do a lot of things to CYA and and it doesn't tend to lead to good outcomes. So we have a lot of models that we use to

• 24:13Speaker 00

  explain this to people and to try to get them thinking about different ways of accomplishing the same goal. But yeah, it's as soon as you get into process and compliance theater, everything goes downhill pretty quickly.

• 24:26Shane Parrish?

  I always noted this and I wasn't sort of familiar with the cover your ass thing before, but the way that this sort of seemed to me is like, we would always do what's defendable, even if we should be doing what's right. But what's right might be complicated and hard to explain and it could even be a feeling, right? It could be intuition in some cases, but you know that following the procedure is easily defendable and so you follow that path and you know the outcome before you even follow it. And in certain cases, you should follow the procedure, but you, the judgment comes from sort of knowing when to deviate from that procedure.

• 25:03Speaker 00

  We talk a lot about the difference between standards and defaults at our companies. And so

• 25:08Shane Parrish?

  Oh, talk to me about that.

• 25:09Speaker 00

  Yeah, so a standard is the idea that we've all agreed that this is kind of the bar, like this is the way we're going to do it. You could replace that with like the word policy or, or procedure or, you know, bright red line, red tape, whatever. But the, the standard is basically saying, this is it. This is all, this is the only way. And, and so you expect people to comply. A default says, if you don't know better, try this. And so a default would be like, if we're doing a workshop, the default agenda is this and then this and then that. So that's the default agenda. If you're brand new to our company, if you're brand new to this industry, that's a real good place to start. Like that's, that's kind of, have you heard of the framework called shuhari?

• 25:50Shane Parrish?

  No.

• 25:50Speaker 00

  Yeah, so shuhari is a, is a Japanese idea in terms of like a ladder of mastery. And so the shoe level is play by the book. So you kind of learn the martial art or the, or the art form or how to make tea or whatever it is. This is the by the book way to do it. And then the ha level is I'm going to break the rules occasionally. So occasionally I will improvise, occasionally I will do things a little differently. And then the re level is I'm going to write a new book. I'm going to write new rules. So I'm actually innovating so far beyond the category that I'm now creating a new art form. And now it'll be, I mean, sort of like Bruce Lee with his Jeet Kune Do, like he's inventing a next level thing.

• 26:30Speaker 00

  And so in any art form, in any, you know, function and any skill, those levels of mastery exist. And the fun thing about the default is it basically says, we just want you to, here's the shoe level way of doing this. Now, if you've got five years of experience, if you're doing podcasting, for example, it would be like, put it out every week. That's the shoe way to do a podcast. But if you're Shane, you might be like, I have a better, I have an idea, I'm gonna break that rule a couple of times because whatever. And then you can, you can sort of improvise. And then if you're somebody who is like gone, gone beyond all of us, then you're like, I'm gonna actually reinvent podcasting. And it's gonna look like this. And then everybody's gonna kind of follow in my stead. And you see that happen with TV shows and movies

• 27:13Speaker 00

  and Olympians and all kinds of stuff like that, where they kind of reinvent the art form. So, so default says, if you don't know better, do this. And then in cultures that I work with that do that well, they have an expectation of announcing when you're veering from the default and why. So like, I'm not gonna do the default workshop, I'm gonna do this other design, and I'll get back to you on how it goes. And so what you're actually allowing is you're allowing a system to have these veered off experimental spaces, sort of a barbell strategy, like the way Taleb would talk about it, like you have the safe bets, and then 10, 20% of your workshops are different agenda. And so you get the benefit of like, yeah, some of them won't work, but they won't be that bad, because

• 27:56Speaker 00

  the person that veered at least knows their stuff. So they can kind of manage the fact that they improvise. And then the ones that actually work, you bring back to the whole group, hey, I did this other module and it crushed. I tried this other way of designing and it was absolutely phenomenal. And then the team can incorporate those learnings into the default over time. And you can have what we call a steward or an owner of the default that's like incorporating those experimental learnings over time, so that five years later, the default is 100% different, but every step along the way, it was a sure thing.

• 28:28Shane Parrish?

  The young man knows the rules, the old man knows the exceptions. I think that's how the proverb goes.

• 28:33Speaker 00

  Exactly. Yeah, yeah, that's shuhari in a nutshell, for sure.

• 28:37Shane Parrish?

  As you were saying that, one of the things I was thinking is sort of, should we be operating under principles then? And the principle being like, maybe in your organization, the customer, always do what's best for the customer, what's in the customer's best interests. And then judging people based on those principles, instead of having these procedures, because the principles would allow for variation. But they would allow for variation with sort of guardrails around what those principles are. And that variation is occasionally gonna flip up these ideas that we hadn't thought of that are amazing, and we'd see them. And it's sort of a very evolutionary approach to it, where we're gonna constantly try things, even though they've failed in the past, but we're gonna let you try them, as long as your judgment is in line with those principles.

• 29:20Speaker 00

  Yeah, I love that. We talk about and teach principles constantly. And in fact, we even get pretty aggro about not talking about values. Because it's the reality is that human beings have values and can hold values. But organizations don't really. They have ways of operating and beliefs about how the world and reality works. And so it's a little bit more in the Dalio school of like, the way reality works is this. And so my principle is going to be measure twice, cut once. And that's going to be how I operate. Or I'm going to have a principle about transparency. And so we're just going to say like default to transparency. So we have a whole host of principles. And in fact, our whole business, both businesses are built on a stack of principles that are what we call agreements about how we operate in the world.

• 30:05Speaker 00

  But they found they form this like foundational infrastructure for the company. So the principle of transparency says, unless there's a good reason for it not to be transparent, make it transparent. And so that gives you something. Or the principle of autonomy says, you know, you have the right to kind of control your own work life and what you do and when you do it, unless you make an agreement that says otherwise. And so or unless we have an agreement that says otherwise. And so like these principles do create a lot of room. But to your point, they do also give you a benchmark to say like, are you upholding this agreement? Are you upholding this principle in your in your activity? And that's what makes us us.

• 30:42Shane Parrish?

  Transparency is a super interesting one to mention because it's easy to say and it's easy to do when it's easy. But then biologically, we're also self preserving creatures.

• 30:52Speaker 00

  Oh, yeah.

• 30:52Shane Parrish?

  And in the context of a workplace, if there's layoffs or something like that, the first thing that goes in a knowledge organization is communication and transparency. You're communicating just as much, but you're not communicating nearly as effectively. Because people, what do they want to do? They want to hoard information because I want to be valuable. I don't want to get laid off. I want to be the only one who knows how to do my job. I want to be the only the only one who knows this certain thing. So therefore I'm protecting myself. And nobody's doing this consciously.

• 31:21Speaker 00

  No, no.

• 31:21Shane Parrish?

  Right? Like, I don't think anybody's maliciously trying to do this. But I've noticed that people just stop sharing information.

• 31:28Speaker 00

  Yeah.

• 31:29Shane Parrish?

  When they feel a threat to their their sort of existence or their identity.

• 31:33Speaker 00

  Yeah.

• 31:33Shane Parrish?

  And how do we how do we deal with that level? Where we have words on one level and then we have this biology, this core biology, on the other hand, that is self preserving.

• 31:44Speaker 00

  Yeah. It's so interesting. I spend an enormous amount of time looking at the biological story versus the kind of behavioral one. And the first thing that I think is challenging is it's hard to pull apart what is biology versus what is socialization. So there are certainly biases, and Kahneman and others have like proven that they're just deeply wired into our brains. But also, there's a lot of patterns of socialization and power and safety that get drilled into our heads by the time we're six years old that we might not naturally have. And so I think it's important to notice that like, the way we operate in, let's say, a kindergarten recess is very different than the way we operate in a boardroom. But fundamentally, it's the same

• 32:29Speaker 00

  person. And so that we used to be more socially coordinating, we used to be more fluid and improvisational, we used to be more carefree. But we learn these patterns of self-preservation, and risk, and safety, and fear through the course of our lives. Nonetheless, I agree with your premise, which is like, there is a bit of a self-preservation instinct, and it's a good one, because we want to survive. What I tend to do with things like transparency is first, make it as habitual and operational and normy as possible. So when we think about where we work, the tools that we use, the meetings that we hold, the way that we share information, if you could just make the normal way of doing things more transparent, that helps a lot. And as an example, you know, Slack channels are default public. And so just

• 33:14Speaker 00

  by making them default public, there are millions of conversations in the world happening that would have been private in email, otherwise. So there's just a natural sort of momentum to the category. And I think that kind of stuff helps a lot. So having those norms, rituals, systems that default transparency helps. And also, just having the discussion even when we go to that instinct of like, is there a good reason for this conversation or this information to be private? And if all we do is just have the discussion of, is it viable? Is there a reason? Can we rationalize our way to why it should be? And challenging that a little bit, that's enough to eliminate a further 50% of those scenarios where you might do that just on instinct. But in actuality, you don't need to be so worried.

• 33:58Speaker 00

  And in fact, a lot of the organizations that we've studied have a story somewhere in their history of like times got really tough or things got really bad and a leader chose to just go public to the group without a solution and and people really rise to the occasion. So there there is evidence to suggest that even when it feels like it would be toxic to share, there's actually a way to share it and a way to invite collaboration that can overcome that. So not every situation, there's always places, I like to be private sometimes, but it's it's a 90 10 thing or a 95 5 thing with me, not the other way around.

• 34:33Shane Parrish?

  Two rabbit holes there. One, sort of going back to biology versus sort of what's been socialized in us. Is is one way to assess the difference than what exists across all animals? Like self preservation sort of exists across every animal?

• 34:49Speaker 00

  Sure. Sure. Yeah, I think biology is a good a good place to look for lessons. And in fact, that's one of the places that I went when I first went down this whole rabbit hole on self management and self organization is looking at complex adaptive systems like ants and bees and fish and murmurations and neurons and immune systems. And they all have a ton to teach us about how to organize to solve problems. But to your point, certainly we can also see just by looking at mammals that we're going to react in in fear and scarcity when we feel threatened. And so the job of the organization designer or the founder is actually to focus on the don't feel threatened part, not the human nature part. Like, let's

• 35:33Speaker 00

  just let human nature be what it is and say, if people don't feel threatened, they won't go into fight or flight. So how do we actually create an environment where the threat level is different in nature than the traditional system where it's kind of like, if you don't do this, you're fired?

• 35:47Shane Parrish?

  You just asked my question for me. How do we do that?

• 35:53Speaker 00

  So there's a lot of arguing and thinking going on about this right now. Amy Edmondson kind of coined the term psychological safety that was then used in the Google Project Aristotle research that like teams that have psych safety tend to outperform ones that don't. And psych safety was defined essentially as you can take interpersonal risks at work without fearing for your very existence, fearing that you'd be, you know, unduly criticized or even or even let go. So it's about people taking risks and the way we tend to do this is by recontextualizing failure.

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• 37:27Speaker 00

  So failure is, as you know, and you've talked about it on the show quite a bit, actually. Failure is perceived as this like real death of the ego, like it's a toxic, terrible, scary, horrible thing, and nobody wants to fail. But then whenever you hear anyone who has achieved anything, they always talk about learning and failure and how they go hand in glove and how important that is. And so you have to have a culture where failure, we call it noble failure, is is understood and appreciated as a necessary ingredient in learning. And you have to have a culture where the idea of what it means to be a leader is not about ensuring perfect execution, which is what that tailoristic version of management was. That was you ensure perfect execution.

• 38:12Speaker 00

  That is your job. And now the idea is I want you to ensure continually growing capability. Which is a totally different animal. And so a continuing going capability means I need a system that is learning all the time while it's executing. And that means I'm going to have to make trade offs in terms of the short term performance for the long term performance. And so that is, and again, that's, that's part of so many stories of turnarounds where we had 50% performance. The leader comes in who understands this principle, implements a bunch of things that are challenging for the group socially and operationally. It gets worse. The board freaks out, the market freaks out, and then the, the big arc up starts to happen. And then it goes to 90, 95, 99%.

• 38:56Speaker 00

  And you see the turnaround and it's, and basically, basically people are like, oh, they're so brave to like, hold fast through that downturn. But really, they just understand the nature of learning.

• 39:06Shane Parrish?

  What is the psychology behind people not wanting to take risks in an organization? Is it simply loss aversion where I stand to lose more individually than I gain if I'm right? Is it something else?

• 39:19Speaker 00

  I think it's a combination of things. I think number one, there's just an emotional, like, lower brain component to this that has been beaten into us over the years. You get Fs in red in school, you get punished, you get sent to the corner, you get sent home, you don't get a trophy. There's just a lot of things that, that are reinforcing the importance of winning in a young person's life. And so I do think you come with baggage day one. But then there's also just the incentive side of the game. And I can't remember the name of the guest, but you had someone I was talking about this not that long ago, which was like, when you, if you, if you play by the rules, if you don't take a risk and you, and you don't fail, you know, the, the consequences are X. But if you, but if you take a risk and you fail, the consequences are much, much higher.

• 40:03Speaker 00

  And so you end up just, the odds don't work in your favor in a system that doesn't recognize this principle. And you end up in a scenario where you're the rogue or the vanguard, and those people often leave. They either get fired because they're too radical, or they leave of their own volition because they're like, I can't make the kind of bets here that I want to make in my career. So I'm going to go to a place that is willing to take bets and, and, and try to actually change things. It's a it's a talent leakage. So I do. Yeah, I think it's a mix of like the nurture that tells us that it's so bad. And and which is really just moving away from a growth mindset. I mean, the number of the number of people now who are 18, who who don't have a fundamental growth mindset, who believe that their skills and their capabilities are fixed.

• 40:45Speaker 00

  And the and the skills and capabilities of systems are fixed is pretty high. It's kind of staggering, actually. So we have, we have a ton of work to do to kind of rewrite that that script. And that's what we tend to have to do in these systems. It's like rewrite it one experience at a time.

• 41:00Shane Parrish?

  Yeah, we tend to be creating that though, right? Like, we're sort of starting to get rid of gifted programs. We're telling everybody they have the same skills and everything. And the reality outside of this world, the bubble that we're creating is not like that.

• 41:15Speaker 00

  Well, it's it's even worse than that. So the old one is wrong and the new one is wrong. It's not true that nobody's gifted. It's also not true that being gifted is only about math and reading.

• 41:25Shane Parrish?

  Yeah, totally.

• 41:26Speaker 00

  And so the reality is like every kid in the class is gifted at something. What are they gifted at?

• 41:30Shane Parrish?

  Yeah.

• 41:31Speaker 00

  And and we just don't have any modality for that in our education system. Our education system is monolithic because it was designed to produce people for that system I told you about at the beginning of our conversation. It was designed piece by piece to produce factory workers. So of course, it's gonna it's gonna reinforce those same ideas.

• 41:51Shane Parrish?

  It's so interesting because I've run three different homeschools over the last two and a half years. And it's and there's no rules, right? There's no sort of like pre-designed formation to how we did this.

• 42:03Speaker 00

  Yeah.

• 42:03Shane Parrish?

  And it's been incredible to sort of watch the kids grow as we did this in ways that traditional school would never sort of allow, accept, or even experiment with.

• 42:14Speaker 00

  It's astounding. Yeah. And I'm I'm thrilled to hear you say that because it is, it's been an opportunity. I think the pandemic has been an opportunity to. Play with these ideas, but hilariously, a lot of the ideas that I'm talking about around sociocratic operations were actually born in a school.

• 42:30Shane Parrish?

  Yeah.

• 42:31Speaker 00

  In the Netherlands. And so it was actually a school environment where Endenberg went to school and experienced making decisions by consent.

• 42:38Shane Parrish?

  Yeah.

• 42:39Speaker 00

  Operating in linked circles, having transparency, having agreements. All that stuff was present in the education and then he brought it into his engineering firm and brought it into the professional setting. So it's been a long history, actually, of school being kind of a breeding ground for new ideas for this kind of stuff.

• 42:58Shane Parrish?

  I'm super happy they're back in school now, just as a parent.

• 43:03Shane Parrish?

  One of the other things you mentioned that I thought was powerful was sort of habits as a counterbalance to some of these things where we can use culture or rituals to counterbalance some of our maybe instincts, like making the default slap conversation open. But by all of these other things, are there other ways that you've seen sort of habits and rituals have positive effects on an organization?

• 43:26Speaker 00

  Yeah, I love it. I mean, change the system, not the people is definitely our battle cry. And it's, it's my favorite example of this is probably in the DEI space where you see a lot of people talking about inclusion and share of voice and bias and things like that. And it's like, we got to make sure that we, you know, give a, give part of the stage to other people and people that don't look like us. And what is so challenging about that, if you think of it from a change the people side, is you're like, okay, great. I'm just gonna go coach Shane and Aaron until they stop talking so much and stop, you know, jumping in front and having ideas and whatnot. And the, and the reality is like, if you've done that before, good luck. Like, it works okay for a minute when you're being watched and when you're reminded of what's happening,

• 44:09Speaker 00

  but you go back to your natural way of working real fast because it's hard to hold all that in your brain and still execute at the same time. It's like when you're trying to change your golf swing or how you're jumping on the trampoline with a technique, it only in the moment of holding it in your head can you really do it. But, but we have this practice that we use on the podcast and with clients and in our own organizations that is called the check-in round. And we do it at the beginning of, of every major meeting and of every podcast with the guest. And the check-in round is a very simple idea. It's just, we're going to ask a question. Doesn't really matter what it is, but could be interesting, could be boring. And everyone's going to have a chance to check in, in turn, and answer the question in a few sentences. Seems like such a fundamentally

• 44:52Speaker 00

  simple and boring idea. You're just like, yep, everyone's going to answer a question. And it's almost, it almost reminds you of that bad trope of like, the corporate meeting where it's like, I'm Phil and I'm the VP of Finance and I like, you know, the color red. But actually done well when the question is like, what has your attention today, personally or professionally? Or, you know, what's, what's your favorite season? What's something that has surprised you? What's something you're looking forward to? What have you learned this week? Whatever it might be. Getting everyone to answer in turn starts a pattern. And the pattern is everyone's talking. So the very first thing that has happened in this meeting is it wasn't the EVP talking for five minutes and then we start a meeting. It was, everybody talked for a few seconds and now we start a meeting. And so the pattern

• 45:36Speaker 00

  has already been disrupted. And what we find is that empirically, for the rest of the meeting, that equal talk time plays out. It carries through. And another example of a ritual we do in meetings is called rounds. So it's the same idea, but applied to different things. So we might be making a decision and we'll do a round of questions, or a round of suggestions, or a round of objections. And the rounds, again, reinforce this idea of equal talk time, so that you'll have a leader who's used to being a blowhard and talking all the time. And you're coaching them in this setting and you're like, all right, it's time for a round of suggestions. They give their suggestions and then the next person starts and they're like, but- And you're like, I'm sorry, it's like, it's not your turn. It's their turn and then there's and then there's and you kind of had your chance to,

• 46:21Speaker 00

  to talk for this round. And you can see him squirm and man, when I learned this, I squirmed like I was so miserable, so uncomfortable, not being able to correct things I heard and build on things I heard. But in the end, what you find is like, the quality of decisions goes up. The quality of participation goes up. The share of voice stays equal and we know that that's a predictor of team success. So you end up realizing like, wait a second. Me saying every single thing that I think in my head is actually not important. Which is a wild revelation for someone that has been like, the center of the universe leader for a long time. And you realize like, actually, the 20% that I offer is really important. The other 80% is not. And I heard several things from the group that I wouldn't have heard had I took the stage

• 47:06Speaker 00

  and owned it the whole time. Great ideas can come from multiple places. So you sort of force that lived experience and that learning of that new behavior through a practice and a ritual. Instead of taking that leader aside before the meeting and being like, give other people a chance, Phil. Cause like, that's never gonna work. But a really solid practice with a high level of structure works a charm. And after the third or fourth time, the suffering ends and the insights begin. And then it becomes second nature and it's ritual. And now, I swear to God, if you show up at any meeting at our companies, any day of the week, anywhere in the world, the first thing you'll hear is, hey, welcome to the meeting, let's check in. It's not even a question. And so it just becomes second nature.

• 47:47Shane Parrish?

  I want to make sure I understand that correctly. You're advocating that everybody should have an equal opportunity to contribute or equal time to contribute to the problem?

• 47:57Speaker 00

  A little bit of both. So certainly having everyone, if you invite someone to the conversation, which is a choice you should make right out of the gate. So way, way too many meetings have way too many people, right? Like if I consciously, I'm like, I'm gonna invite Shane to the meeting. Then there must be a reason. And so I need to make sure that we have ample opportunity for that reason to manifest itself. So that could be through questions, that could be through suggestions, could be through decisions we make together. We do want to have the opportunity to contribute, be present. We build all of our agendas on the fly. So we don't have pre-planned meeting agendas that are politically aligned with whoever sidled up to the leader to get the time on the agenda. We just build the agendas on the fly. We sort them on the fly. So a lot of things to try to keep that contribution open. And then to your point

• 48:42Speaker 00

  about equal talk time, it doesn't always happen and it doesn't always need to happen. But on balance, when they looked at the research in Project Aristotle, having equal share of voice over time was a really strong predictor of team success because it's actually a bunch of different perspectives weighing in on what's going on in the world, what's reality. And what we know about complexity versus complicatedness is that we can't describe complexity from one perspective. So if you try to describe how the world works, or the political situation, or how to win the Olympics, from one perspective, you're going to fail. But if you actually bring multiple perspectives to the table, and they integrate themselves, your likelihood of describing reality goes way, way up. Actual reality, not your reality.

• 49:26Shane Parrish?

  Right. So what you're saying is when there is no sort of objective truth, you have a lens into the problem, and I have a lens. We might be equally wrong, but if we combine those lenses, now we're narrowing sort of the bandwidth into something more accurate.

• 49:41Speaker 00

  Yeah, absolutely. And there are very basic diversions of this, like in Wisdom of the Crowd, you know, James talks about like guessing the weight of a cow. And the reality is like any one person guessing the weight of a cow is rubbish, but a thousand people guessing get within like a half an ounce. You know, it's just, it's just the nature of how these things work. And the same thing is true of managing complexity. Now, that doesn't mean that we don't have moments of leadership, moments of driving things, moments of innovation that not everybody agrees with. It just means that we perspective take before we do that stuff. So if there's an opportunity to get advice and to understand the bigger picture a little bit better before I make a call. I'm gonna do that.

• 50:25Speaker 00

  And if it's a decision that we've all chosen to make together, it's an agreement we made that we're gonna make this kind of decision collectively, then we all agree to show up and do that. So it depends on the nature of the problem. The thing people often mistake when they hear me talk about this stuff is like, I'm just trying to create a full consensus culture, which is, nothing could be further from the truth. That's absolutely obnoxious. What I'm talking about is creating an environment where people create the conditions for success together through consent. So if we choose to give me total privilege over our marketing decisions, that's fine. I can go do that and I can go be the king of marketing. But we made that choice together through consent by perspective taking,

• 51:08Speaker 00

  to make sure that it was the right choice in the way we can find it and constrained it was the right way. And then it's off to the races. As opposed to all these decisions being made by fiat.

• 51:18Shane Parrish?

  What insights into decision making do you have that you think other people miss?

• 51:24Speaker 00

  That's a great question. And how long have you had? How long do you have? I think the first thing about decision making is actually to talk about what kind of decision making culture you're gonna have, what kind of agreements culture you're gonna have. And there are effectively two options. You can have a permission culture or a constraint culture. So a permission culture is a culture where, you guessed it, you have to ask permission to do anything. So the default assumption is you can't do anything until you're told that you can. So the bathroom pass that you had in school, perfect example of a permission culture. You can't even go to the bathroom without asking. That's how badly we're gonna drill that into your head. And so that way you understand that that's how the world works. And there are so many examples of this in the form of instructions

• 52:07Speaker 00

  and protocols and guidelines and manuals and all that. And permission can come in many forms. It can come in the form of like a promotion. Like now you're the head of marketing. So now you get to make choices about what we invest our money in. But that's still a form of permission. It's still me giving you this position that I have deigned to like put you in.

• 52:27Speaker 00

  And permission cultures tend to have a problem, which is that they then have to define everything. Because to your point earlier about judgment, there's no room for judgment in a permission culture unless you have the permission already. So you get a lot of people sitting on their hands, and these are the sorts of cultures where a leader will walk into the room and the trash hasn't been taken out, and people will say, "Not my job. It's not my job to take the trash out. It's her job to take the trash out, so I'm not going to do it because I only do what I'm told." So that's one option. The other option is the culture of constraint, which is the absolute inverse. So you can do anything unless we say that you can't. So now our job with our agreements and our policies and our processes and our roles and our team structures is to clarify what the edges are, to actually constrain the system

• 53:12Speaker 00

  in some way, shape, or form. So when we create a purpose statement for the organization in a constraint culture, we're actually constraining directionality. We're saying like, "The vector of this company is towards, we're going to be, you know, we're going to get the world on electric cars." So that, I've de-scoped the rest of the stuff that we could do. We're not going to make mops. We're going to make electric cars. I've sort of focused our energy. And a hiring process is a constraint, where I say, "Instead of doing all the possible ways of hiring, we're going to hire this way." A, you know, a policy about harassment, anti-harassment policy is a constraint. It's basically saying, "Don't do this." So I've eliminated this option from the surface area of all possible options.

• 53:55Speaker 00

  What's cool about building a constraint-based culture is, when you eliminate all those risk surfaces that are what we call not safe to try, or like fatal, what's left is all this space, all this space to think. So if I say it's not mops and it's not cars, you get everything else. And so the room for people to innovate and use judgment and use creativity in solving problems is just massively higher, and they get to navigate that. Now, they're not used to that. So for an example, like, we have a constraint in our system that if you spend more than $10,000 on something, you should probably seek advice first. But anything under that, it's like, you know, "Use your human judgment. We trust you. Do what's best for the business, right? Spend the money like it was your own."

• 54:40Speaker 00

  So somebody engaging with that who's coming from a permission culture is like, "I need a new computer. What can I spend?"

• 54:49Speaker 00

  And they freak out and they literally freak out and they start like trying to talk to other people and like I can I get the MacBook Pro? Can I get the extra RAM like what should I do? Give me permission and the system is like, no, there's no permission for that. You already have permission to do that. You only need to seek advice if you're over a limit. You just need to use your own judgment. And it's this first moment often in many people's careers where they're like, holy shit, I'm 100% trusted. And I don't even know how to operate in this judgment space of like, how much should I spend? So they didn't really answer your question yet, but that's the bedrock of the answer to your question is once we know which of those lanes we're in, permission or constraint, then we know how to approach decision making for the next layer of the cake. And that starts to set up the possibilities.

• 55:35Speaker 00

  Keep going. You have more to say on this, I can tell. So in the, so in the constraints based system, we need to create constraints. And so if you think about when you create a company, when you founded, you know, your, your business, et cetera. At one point, there's just the founder or founders. So there's a handful of people around the table and there's no constraints effectively. And the first constraint we're going to create is like, what are we here to do? Or what are we trying to do, right? So you might make a purpose or a mission statement or something like that. It's your first agreement is what it is. And so that idea of making that agreement, now you've put down the first constraint. And what you're going to do is you're going to then operate, everyone's making decisions, having conversations, you know, socially coordinating.

• 56:16Speaker 00

  And then you're going to get to a point where you, you run into another unknown thing or a thing that needs to be clarified. And usually that shows up in either debate or confusion. So people will be like, we're arguing about what our engineering standards should be, which, which stack should we use? Which tool should we use? That's a debate you might hear, or you hear confusion like, I don't know what our priorities are this quarter. I don't know what to focus on. I know we're trying to like build electric cars, but what, what should I be focused on right now? So you hear the confusion or the, or the lack of clarity. And so another agreement is called for and you have to figure out a way to make it. And so what we do is we talk about consent based decision making at the earliest days of, of the business, consent, not consensus.

• 56:59Speaker 00

  So there are many ways to make a decision. Autocracy, monarchy is kind of one way, which is like the boss says, so the CEO just makes the final call. And that has some pros, it's fast, often it's innovative, but it has some cons too. It's often biased and it's often wrong. And so it's also a little disheartening for everyone else that just kind of has to fall in line. So there's a challenge there. The consensus view is great because it feels like family vibes. Everybody weighs in, everybody shapes it, everybody touches it. But it's slow and worst of all, it makes the idea average. So, you know, a camel is a horse designed by committee. I don't know if you've ever heard that, but it's like, yeah, the rounded corners of everybody putting their mark on something slowly makes it average.

• 57:41Speaker 00

  And so when you have a consensus operation, you basically have a bunch of average ideas doing average stuff for average people. That's how you end up with some of those companies that you're just like, man, it must be boring to work there. You know, that's really, really wild. And then the third option is consent, and that's the one that we advocate for, at least to start. And the idea of consent is, is it safe to try? Is it good enough for now, safe enough to try that all of us agree? So if you think about your zone of tolerance, you have some, put a circle around it like this is everything you could tolerate. If I was like, let's change the knowledge project in this direction. You'd say, all right, I have a range of things that I could stand. And then I have my preference and my preference is a smaller circle, right? So like the thing you want to do, the thing you think is smart and perfect and genius, that's a small circle.

• 58:25Speaker 00

  The thing you can tolerate is a bigger circle. And then there's things you can't tolerate. If I was just like, we're going to change the name to the Aaron project. You'd be like, eh, cannot tolerate that. So that's out, that's the biggest outside circle, right? So, or rather, that's the, that's the smallest inside circle, excuse me. So, so now we both have those planes and they're running into each other. We have two, two Venn diagrams that are kind of being created here. And in the middle are things that you and I both tolerate where it's like, you know what? That seems safe to try. That's interesting. That's intriguing. We might learn something from that. So that's the bar for this collaborative decision-making that we do in the company. And actually, that's what the, the product murmur that we built is literally like the tool to do that with. So we're making an agreement and we're making it with consent.

• 59:10Speaker 00

  And so we might clarify that set of priorities. We might clarify a role, for example, we might be like, you know what? We're all trying to do marketing. Not very many of us are good at it. Sally is best at it. Let's make a role for marketing. And we would actually write that role as an agreement. Here's the purpose of the role. Here are the responsibilities of the role. Here are the decision rights of the role importantly. So like this role can choose what we spend on marketing or can do whatever. Right, we're actually concentrating that authority. And not to get too inside baseball. So like unpack this with me if I'm being too ridiculous. But in the permission based economy, when I give you that role, those decision rights are something I'm giving you. You didn't have before. So I'm actually saying you can now decide the marketing spend.

• 59:56Speaker 00

  And in a constraints based economy, I'm actually doing what's called concentrating the authority. So I'm saying only this role can decide what we spend on marketing. Before it was everybody. Before it was a free for all. It was a shit show. Now only the marketing role can decide this particular decision. And if I don't list it there, it hasn't yet been concentrated. So we make a role together as a set of founders. And we say, marketing's a role. Here's all the details. Here are the qualifications. Here are the evaluation criteria for that role. We've now created an agreement. It's written down. And now we put Sally into it and we elect her into it even. Let's be really radical. So we don't even just pick. We elect who's going to fill the role. And now Sally has an agreement that is a constraint on the system.

• 1:00:40Speaker 00

  It's actually constraining our energy around marketing into that role with that person in it. And it was done together collaboratively fairly quickly. Maybe in the space of, you know, a half an hour or 15 minutes. It could even be done asynchronously. And now we have clarity there. And what we're going to do in this constraints game is we're going to keep making decisions that way to clarify the territory, to concentrate authority where we need to, to eliminate risks of ridiculous things. Nobody's allowed to buy a Ferrari. We're going to get rid of all the blast radius, all the risk, and then just focus on the decision space that's left, which is all this rich. Creativity and judgment that people can hold. And along the way, if we're creating teams and we're creating roles,

• 1:01:22Speaker 00

  we've also done a pretty good job of concentrating authority to make different kinds of decisions. So the person that got that marketing role doesn't have to come back to us and do the whole consent dance to get a decision about that marketing spend. We gave that right away. So now they are gonna, they're gonna be able to execute quickly and effectively. And if they do something we don't love, or they fail in that role, well, we can propose to change the agreement and change the nature of the role and what power it has or what focus it has. We can propose an election to change who holds the role. We have a lot of levers at our disposal. But essentially, we're building the operating system of the company, one agreement at a time through consent, which then allows us to create other ways of deciding.

• 1:02:07Speaker 00

  We can consent to a vote. We can consent to a role that has total authority. We can consent to a decision that has to be made by bingo winner. We can do whatever we want, but we're building that latticework one step at a time. And when you then look five years later, you have one system here on the right that is like really spacious, only has the minimum viable agreements necessary to de-risk it, and has a lot of agents in the system that have had a lot of voice and understanding and commitment to that operating system. And you have another system that is basically the vision of one person expressed through their minions in a way where everybody's waiting for orders. And that is really the delineation between the two, and that creates the decision ecology.

• 1:02:50Speaker 00

  And so when I first worked with teams, I kind of have to start there because how we made X, Y decision is not even foundational yet. That's not even relevant. Like, that is the symptom of the problem. But the actual problem is what kind of decision culture do we have? And how good are we at architecting it?

• 1:03:07Shane Parrish?

  So if we get out of the org structure or the operating system and go down to the individual level, where is it that you see people make mistakes in decision making at that sort of micro level that are correctable or predictable?

• 1:03:22Speaker 00

  Well, I think the first, the first place that we make mistakes is perhaps not understanding our own freedom. So in systems like that, what tends to happen is people are hesitant to make a decision because it doesn't feel like I should be able to. So there's a lot of blaming the system and a lot of looking for guidance and permission and all that kind of stuff that still exists, when it's like, you can just go do what you need to do. You can go, you can go play and you can deal with the consequences. So that's one piece of the puzzle. The other piece is that we're not great at telling the difference between type one and type two decisions, the, the kind of one-way door, two-way door metaphor that people use. Just on balance, folks struggle a little bit with like, how

• 1:04:04Speaker 00

  would I roll this back versus how is that something I can't roll back? We like to believe that every decision we make is like the end of the world. And it just really is not, you know, even things that feel really final are just not final. And so I think getting into that iterative mindset around decision making is important. And then the last thing is we just don't have a lot of practice or experience with decision science. And so we, we haven't spent a lot of time learning what makes a good decision or a bad decision, how to think about building context, how to think about risks and assumptions and alternatives. And so really building the proposal for a decision in the right anatomy, like we have

• 1:04:45Speaker 00

  the context or the tension that's driving this, the recommendation, the risks, the assumptions, the alternatives, the ways to know if this worked, that structure is not intuitive for most folks. And so when they make a decision, they just make it. They're just like, hmm. Blue and then and then we make the decision and then we never go back. And in fact, when I was studying some of the biggest decisions we make in companies, I did a big analysis on M and A for the book.

• 1:05:13Speaker 00

  We don't even look back on that stuff very often. The number of firms that look back and really analyze the M and A activity of buying another company and did it work and was it a good idea is vanishingly small. Like two years later, it's basically just like that was somebody else's decision and somebody else's problem. And it's just like, I guess we bought Tumblr, you know, and and they just kind of roll with it as opposed to really learning from those decisions. So having the right structure going in, having the right method for making the decision. It should this be collaborative? Should it be individual? Should it be with advice? Should it not be with advice? Should it be, you know, a collective consent based decision based on the risk profile? We don't do that. And then when we do have the right way of making it,

• 1:05:56Speaker 00

  we often don't have the right structure to think about it and then we very rarely look back on it. So it's a whole apparatus. And frankly, if we just did what we do with product in decision making and in culture design, we would be very well off. Like product is so much more oriented, right? We figure out what we listen to customers, figure out what's important. We make a bet, we build it, we ship it, we instrument the hell out of it. We study what worked and what didn't based on what outcomes we want. And then we come back and we riff again and we actually look at like, did that feature work? At least good teams do. I mean, not every team does, but I would say more than half the teams in the SaaS game are like doing that every day with their product. But they're not doing that with their decision making.

• 1:06:39Speaker 00

  They're not doing that with their cultural apparatus or their agreements or any of that stuff.

• 1:06:44Shane Parrish?

  The retrospective is so interesting because it's like free learning just hanging there, but nobody wants to take it.

• 1:06:49Speaker 00

  Yeah, it's um, it's like, uh, it's a lot like exercise, honestly. Like most people that I know, there are exceptions that I'm very jealous of, but most people that I know are like, I kind of don't want to go in when I get to the gym. Like I'm not, I'm not like pumped to go work out. But when they finish, they feel great. Like they walk out and they're like high on life, you know, I'm walking on sunshine. Like they're so proud, they feel good, they've got those endorphins running. Same thing is true of retrospectives having facilitated, I don't know, god, ungodly amounts of them. Everybody coming in is like, we could be doing real work right now and instead you're making us do this. And then coming out, everybody's like, why don't we do that more often? Why don't we do that more often?

• 1:07:30Speaker 00

  And what I find is wild is that that pattern persists long after people know better. Like even after you've done a dozen retrospectives monthly, you still go in like, oh, do we really need this today? Do we really need this today? And then you walk out going like, yep, we really needed it today. And I don't know how long it takes for that to sink in.

• 1:07:50Shane Parrish?

  What have you learned from doing so many retrospectives? Like what makes for a good retrospective versus a poor one? What should companies track at the moment they're making a decision to make it easier to look back and do a good retrospective?

• 1:08:03Speaker 00

  I think there's probably three things about retrospectives that are interesting. It's the before, during and after aspect of it. So the before aspect is if you don't have a culture of communication and authentic communication, what Jim would talk about, right? Like really, you know, Jim Dethmer talking about like being conscious and authentic and being in that kind of connection. If you don't have that, then you can show up to the, to the retro and everybody's clenched. Everybody's tight because we haven't, we have no information essentially about how we did. And so we're just waiting to see like what, what negative or fearful or challenging or threatening things might come up. But if you have a culture of feedback and constant flow, if you have, we do, um, my, my co-host Rodney talks about them as hot washes.

• 1:08:48Speaker 00

  Like a hot wash after every engagement, every major milestone, you sort of say like, hey, what, what did we notice? What stood out? What would we do differently next time? Just micro retros. Then when you get to the big one, it's kind of like a little bit of the air's out of the balloon. And you have a little sense of like where your colleagues' heads are at and where you're at. So now it's safe and now it's like, all right, let's actually make sense of this thing. So that's the, that's sort of the before aspect is coming in with a little bit of flow already happening, not clenched. The middle part is about having the right questions and the right structure. So it's really easy to have a retro that is boring and stale and asks a question that doesn't provoke. And ideally, you want to have a retro that that really challenges you. And so a friend of ours, actually a former colleague of mine, started a company called Paraball.

• 1:09:32Speaker 00

  And they and they have software that does this, but the prompts are really, really good. And that helps to to make the conversation more profound. And in fact, the the answers people give when they first feed the beast of like noticing and observations. That's sort of important, but it's actually the conversation that happens as you start to group them and talk about them and theme them and figure out what went on that's most important. So it's the it's the group sense making that matters most. So if I don't see conversation happening when I'm facilitating a retro, that's my first clue that we're not doing the right stuff. And so I'll try to figure out why is the conversation not happening? Is it not? And and it's bubblyness, it's burstiness, I think, is what Adam Grant would call it. Like, you want burstiness in the conversation where people are talking over each other.

• 1:10:16Speaker 00

  They're so excited to to share what they're noticing about that particular issue or area. If you don't see that, then you may have to change the question, or you may have to change the participants, or have some people step forward and step back, or or put on music, or who knows what, right? But you got to do something. And then the last bit, which is the one I'm most obsessed with, with what we're building and thinking about, is what do you do with the insights? And that's where most teams really fall down. So they have good inputs, they have good sorting, they have good conversations, and they really come up with some cool ideas, like, we need to change the way we do this process. We need to change the way we pair program. We need to think about this customer issue that we didn't think about this time. And then it kind of goes to die. Like, it kind of just, it goes on the cutting room floor because we don't have a way of operationalizing that stuff.

• 1:10:59Speaker 00

  And that's where it can be really, really cool to have a culture of agreements already in place, is that you know what to do with it. You're like, oh, this feels like an agreement that we need to make, or this feels like we need to change an agreement we already have. And so it moves into the governance space instead of the like to do list space. And you actually change the fabric of the company as a result, or the fabric of the team as a result of that retro in in two or three small ways. And then you've got your juice for the squeeze. And then if other things change too, because individuals take action, that's great. Like, we always want to hope for that. But if I don't get two or three agreement shifts out of a retro, I'm really disappointed.

• 1:11:39Shane Parrish?

  As I'm listening to this, I'm thinking about the sort of person listening to this podcast. And it sounds great if I'm the CEO or maybe a vice president. What am I to do if I'm a junior employee? I don't have a lot of sort of formal power. How can I make the organization run better just with what I can control? What can I do?

• 1:12:03Speaker 00

  Yeah, it's a great question. We get this a lot. And the reality is that a few things are true. The first is that most people underestimate their power, actually, even in cultures of permission. They have been told no so many times. They just assume the answer to everything is no. But if you sit down with the team and you're like, let's list everything we can decide as a team without talking to anyone else. It's a surprising number. It's not 100%, but it might be 30% or 40% of all the possible things. And certainly, they can decide how and when they meet and how they treat each other and how they talk to each other and how they make decisions together. And you know, what their interpretation of the mission is. And like, they have, they have more territory than they think. So at a minimum, if at least you're a leader of a team anywhere in the hierarchy,

• 1:12:48Speaker 00

  you have a, you have a large menu of options of things you can do. And we have found through trial and error that when those individual teams start to operate differently and then interface differently with other teams, it spreads. Like, people want to know, when you see a really good dish go by you at the restaurant, everybody's like, what's she having? Like, people want to know what that team is doing. And they start to ask questions that allows you to engage them in a dialogue about, hey, well, what's stopping you from doing the best work of your life on your team? What's stopping your team from doing its best work? And then they say, and you're like, well, we did experiment around this. You should try and experiment around that. So you sort of open up the aperture. If you're an individual player, if you're like an IC, I think you have some choices to make, really important choices.

• 1:13:30Speaker 00

  One of them is to decide if you think the people in power around you are going to be open to any of this or not. And if they're not, then I think you have career choices to make, assuming that you have the privilege to to make career choices. And often people will jump. They will think about like, where can I actually bring these ideas to life in a more meaningful way? And it changes the way they interview. You know, they used to interview for just like, what are the stock options going to be worth? And now they start to interview for like, is this a culture of permission or constraint? You know, they like change the orientation of their of their approach. So that's a piece of the puzzle. And also, you can engage people in conversation and you can be a thought sharer in a system like that in a way that's really, that's really quite useful.

• 1:14:12Speaker 00

  So just sharing examples of companies where you're like, hey, look what Patagonia did, look what Hire did, look what Buffer did, look what Bridgewater did, look what Burning Man does, look what Mondragon does, look what W L Gore does, or Pixar, or Netflix, or Morningstar, or Burt's. I mean, it's just like, you go down and down and down the list, and people start to see a pattern. And then maybe you find a leader, maybe it's yours, maybe it's someone else's, who's like, I kind of see the same stuff. Like, I'm kind of interested in the same stuff. I'm a rebel too. And and that's, that's where you start. That's the spark. So you kind of have to start by sharing and see if there's any pull at all. And if there's no pull, then then maybe look at greener pastures. And if there's any pull at all, that's, that's the spark. And one can become two, and two can become 10.

• 1:14:55Speaker 00

  And we have found that you actually need a surprisingly small percentage of the organization to get hip to this stuff for it to really start to turn. It's not, it's not even 20%. Like, 5% can be enough to really change the story.

• 1:15:10Shane Parrish?

  Have you seen examples of that, where it's like 5%, and they've sort of changed the org culture from the bottom up, and it's been sustainable?

• 1:15:17Speaker 00

  Yeah, I mean, I think you see, you see a combination of things. Number one, you see what's possible when the leader gets on board, which is hard enough. Like, you know, the example of like, the transformation at Hire in in China is a super profound one, because it was a traditional system, and it became non-traditional. And that was, that was wild and super hard at that scale, 60,000 people. But by the same token, you see little changes every day in the companies that we work with. So, I mean, we work with everybody from the CDC, to the Fed, to Lockheed Martin, to Boeing, to GE in the past, et cetera. And, you know, you, you never see the whole system change on a dime, of course. It's never, you never stand back two years later, and you're like, wow, 100,000 people work differently.

• 1:16:01Speaker 00

  But what you do see are entire functions change. So as an example, we worked with a company called Bloomin' Brands. They're a restaurant chain that owns Carrabba's and Outback Steakhouse and those sorts of companies. And working with their support team, their technical support team in-house. One of our teams was in there for a while and really just, you know, kind of button button up against it. It's not not immediately obvious that it's going to work, but people were kind of into it. And that maybe the, you know, the top leadership was not aware or totally supportive of what they were doing. But they started to play with, can we make our own schedules? Can we make our own teams? Can we make our own, you know, solutions about how we solve these problems?

• 1:16:42Speaker 00

  And try to drive our support score up from where it was to to a higher number. And we had them on our show like two years later. We hadn't talked to them in years and years. And it was like, man, a fire had caught. They leaned in and all that stuff. They practiced, the performance got worse before it got better. But in the end, they were getting like, they were having like 99th percentile outcomes after two years of fighting. And there's this little pocket inside this bigger system that may or may not support those ideas. And that's enough. Like if 300 people or 500 people or 1,000 people or 5,000 people can change the way they work materially. It's enough to A, really start a pattern in the business.

• 1:17:22Speaker 00

  And B, to me, my bigger ambition is even if they leave or when they leave in their career shifts, they are dandelions that are just blowing out into the work culture that we have, bringing some of these ideas and a lived experience of them working with them. So I think in time scales of decades, not not years or months, because we're we're in such an uphill battle against this other system. But I do, I see, I see hundreds of people or thousands of people every day at work get it right, even in the midst of a system that is dealing with a bunch of shareholders or a board that doesn't get it, or a government that doesn't get it. So it is possible to to be a rebel. But the most profound examples, like you mentioned earlier,

• 1:18:05Speaker 00

  are almost always where the power holder has had that experience as well.

• 1:18:10Shane Parrish?

  It's like we've come full circle, right? So we've talked about timelines from quarterly to century. And we've talked about organizations, starting the seed of an organization all the way to its destruction, which creates the seeds of other organizations, or even pockets of organizations sort of operating differently than the whole, but within that corporate structure or the principles writ large.

• 1:18:35Speaker 00

  I mean, there's no such thing as a big company, really. I think it's the main thing I deal with when folks ask me about doing this at scale is like, there's no such thing as Apple or Amazon, right? Like, that's not actually a real thing. There are groups of 150, 300, 500 people that live their whole lives with each other and just like very rarely interface with other divisions and units and kind of, you know, it's 50 small companies that are just under the same banner with a set of shared principles in a marketplace with each other. But, but the reality is like, day to day, the Dunbar's number phenomenon kind of defines our working lives. And you can work with about 150, 250 people, and that's kind of it. And that's your company. That's your culture. That's your environment.

• 1:19:18Speaker 00

  And so, yeah, if I can get a few Dunbars to, to shift and, and change and, and see the difference between, you know, a roundabout and a traffic light, I'll, I'll take it.

• 1:19:40Shane Parrish?

  Well, thank you, Aaron. That's a great place to end this.

• 1:19:44Speaker 00

  Perfect. Thank you.

• 1:19:51Shane Parrish?

  Thanks for listening and learning with us. For a complete list of episodes, show notes, transcripts, and more, go to fs.blog/podcast.

• 1:20:03Shane Parrish?

  Or just Google The Knowledge Project.

• 1:20:08Shane Parrish?

  Until next time.