This will make you a better decision maker | Annie Duke (Thinking In Bets, former pro poker player)

1. 0:00 – 3:53

   Annie’s background

   1. ADAnnie Duke0:00

      (instrumental music) It's so incredibly necessary in improving decision quality to take what's implicit and make it explicit. It's not that intuition is crap. Your intuition is sometimes right, but if you don't make it explicit, then you don't get to find out when it's wrong.

   2. LRLenny Rachitsky0:12

      When you look at companies that have read your book, what do you find are the frameworks or tactics that really stick?

   3. ADAnnie Duke0:16

      People generally think the purpose of a meeting is for three things: discover, discuss, decide. The only thing that's ever supposed to happen in a meeting is the discussion part.

   4. LRLenny Rachitsky0:25

      Something that comes up in product a lot is this idea of pre-mortems.

   5. ADAnnie Duke0:28

      So a pre-mortem is great only if you set up kill criteria. Commit to actions that you're going to take if you see those signals.

   6. LRLenny Rachitsky0:35

      You have a very interesting framework for how to think about decision quality when the outcome is very long term.

   7. ADAnnie Duke0:40

      There is no such thing as a long feedback loop. And the way you choose to shorten the feedback loop is to say, "What are the things that are correlated with the outcome that I eventually desire?" (instrumental music)

   8. LRLenny Rachitsky0:53

      Today my guest is Annie Duke. Annie is the author of the best-selling book Thinking in Bets, and also her more recent book, Quit: The Power of Knowing When to Walk Away. She's also a special partner at First Round Capital, which we spent some time on, and is incredibly fascinating. Prior to this part of her career, she was a professional poker player. She's won over four million dollars in tournaments, including winning a World Series of Poker bracelet, and she's the only woman who's won the World Series of Poker Tournament of Champions, and the National Poker Heads-Up Championship. Currently, she spends her time helping companies make better decisions. In our conversation, we cover the many lessons that she's learned from her friend Daniel Kahneman, who recently passed away, what simple change she's found has the most impact on a company's ability to make better decisions, how to make better quick decisions when the feedback loop is very long, and also why she doesn't actually believe in long feedback loops, how she changed the way that the partners at First Round Capital make decisions, which is incredibly interesting, plus why when you're thinking about quitting, that probably means you've already waited too long and you should have quit a while ago. I learned a ton from this conversation, and this is definitely going to change the way I think about a lot of things. With that, I bring you Annie Duke after a short word from our sponsors. And if you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. It's the best way to avoid missing future episodes, and it helps the podcast tremendously. This episode is brought to you by Vanta. When it comes to ensuring your company has top-notch security practices, things get complicated fast. Now you can assess risk, secure the trust of your customers, and automate compliance for SOC 2, ISO 27001, HIPAA, and more, with a single platform, Vanta. Vanta's market-leading trust management platform helps you continuously monitor compliance, alongside reporting and tracking risks. Plus, you can save hours by completing security questionnaires with Vanta AI. Join thousands of global companies that use Vanta to automate evidence collection, unify risk management, and streamline security reviews. Get $1,000 off Vanta when you go to vanta.com/lenny. That's vanta.com/lenny. This episode is brought to you by User Testing. Get fast feedback from real people throughout the development process so that you can build the right thing the first time. Companies are being asked to do more with less. They need to move more quickly while building experiences that mean changing customer expectations, all while minimizing risk and costly rework. With User Testing, you have a trusted partner who provides user research teams with the skills, tools, and data to be able to articulate the value of user research to the business so that you can make an impact and build the best experiences with confidence. Get started today at usertesting.com/lenny. (instrumental music)

2. 3:53 – 9:15

   Lessons from Daniel Kahneman: humility, curiosity, and open-mindedness

   1. LRLenny Rachitsky3:53

      Annie, thank you so much for being here, and welcome to the podcast.

   2. ADAnnie Duke3:58

      Thank you so much for having me.

   3. LRLenny Rachitsky3:59

      It's my pleasure. I was telling a bunch of people that you were coming on this podcast, and every single one of them was so excited that we were doing this, so I'm quite excited that this is happening. I want to start with a question about Daniel Kahneman. I know you two were very close. You did a podcast together. I know you grew to be good friends over the past few years. Sadly, he passed away about a week ago at this point.

   4. ADAnnie Duke4:20

      Yeah.

   5. LRLenny Rachitsky4:21

      I'm curious, what are some lasting lessons that you took away from your time with him? Maybe one or two things that stick with you and you think will stick with you.

   6. ADAnnie Duke4:31

      It's hard for me to describe properly how humble this man was. And it seems so impossible, because his influence, it was so huge, you know, and his intellect was so huge, and his insight was, was so change-making, you know, in, in the areas that he worked, but he was so humble. He really wanted to hear what you thought. He, he said "I don't know" a lot. He would change his mind. You know, it's funny, I, I got asked, uh, in a class that I was teaching about, um, Thinking Fast and Slow, and someone was talking about, you know, how there's a lot of, uh, studies in there that didn't end up replicating. And what I've seen from a lot of other people in the field who, who really, who, where their work is defined by some line of work that didn't replicate, where they're really arguing against the fact that it doesn't replicate, just sort of trying to justify or say but no or this and that, like, this real lack of open-mindedness to the idea that, you know what, may- maybe, maybe it turns out not to be true and that should be okay. But the thing about Danny was when, when you talked about it, he was the first one to tell you, like, "I wish priming wasn't in the book."

   7. LRLenny Rachitsky5:51

      Hmm.

   8. ADAnnie Duke5:51

      "It doesn't replicate." You know? Like, he was just so open-minded to the idea that, that he kind of... He knew, he knows what he knows now, but he knows that he doesn't know-... Everything.

   9. LRLenny Rachitsky6:05

      Hmm.

   10. ADAnnie Duke6:06

       A- another thing that people don't know about him that, outside of academics, they think or that he was one of the pioneers in something called an adversarial collaboration. So one of his favorite things, and he sort of in- somewhat invented it, was find someone who really disagrees with you and then write a paper with them-

   11. LRLenny Rachitsky6:23

       Hmm.

   12. ADAnnie Duke6:23

       ... and try to figure out what, with them, what's the study that would res- resolve the issue. So an example of that was Danny did work on happiness as it relates to wealth. Kahneman, uh, and a collaborator, Ag- Ag- Angus Deaton, they published a result that got a lot of press about the relationship between money and happiness, and the idea was money doesn't buy happiness beyond $75,000. So that, that got published in 2010. I'm sure if you ran that exact same study it would be more than $75,000 now 'cause you would adjust for inflation. But it was kind of like, you know, the idea being once your basic needs are met and you're not that worried about paying rent and so on and so forth, it's not gonna have that big of an effect. But then a decade later, Matthew Ki- Killingsworth said that's not true, that actually money and happiness are kind of correlated through all the income levels. The more money you have, the more happy you tend to be. Okay, so this is like a classic example where like people will tear each other down sometimes and that guy's wrong and whatever, and instead it was, Kahneman's like, "All right. Let's do it together." And they joined forces along with Barb Mellers, um, to basically try to, you know, to try to sort of resolve that issue. He was just always seeking out, like he- he- it was just like everything was like, "Why am I wrong?" And he was eager and he was excited and he wanted to... Uh, you know, I remember having a lunch with him where I realized after the lunch that the whole lunch was him asking me questions about my work. Like, why is he asking me questions (laughs) about my work, right? Like, he's Danny Kahneman. But he was just so curious about other people, and he just made time for everybody, and he just, he just loved the people around him so much. And I think that in, in the end like that, that's... It's hard, it's hard to believe but I, I just think that that dwarfs his body of work which is spectacular, but he as a human being was just so spectacular.

   13. LRLenny Rachitsky8:32

       Mm-hmm.

   14. ADAnnie Duke8:34

       And I- I do think you hear all the time like about people who are so incredibly brilliant, you know, it's sort of the brilliant but, but asshole kind of thing, and it was just so the opposite with him. He was so kind.

   15. LRLenny Rachitsky8:49

       Hmm. That's amazing. And it feels like there's probably a strong correlation between people that are curious, always looking for how they're wrong, and ha- finding time to spend with people to kind of debate and discuss and ask. Feels like there's going to be a strong correlation with that and, and finding really interesting insights, uncovering new things.

   16. ADAnnie Duke9:10

       Yeah. Yeah, yeah.

   17. LRLenny Rachitsky9:11

       Well, thank you.

   18. ADAnnie Duke9:12

       Definitely.

   19. LRLenny Rachitsky9:12

       Thank you for sharing all that. Um, I- I wish I had

3. 9:15 – 15:15

   The importance of unconditional love in parenting

   1. LRLenny Rachitsky9:15

      known him. Let's talk about decision-making. So there's kind of like two areas I want to spend time on. As one would not be surprised, decision-making and quitting. And I know that you've been on a lot of podcasts. I imagine many listeners have read your book or have heard a lot about the stuff that you teach. I'm gonna try to come at this from a bunch of different directions and do it, do it a little differently. First of all, I know you're a parent. As last I heard, you have four kids. I just had a kid. He's almost 10 months now.

   2. ADAnnie Duke9:43

      Oh, congratulations.

   3. LRLenny Rachitsky9:44

      Thank you. I'm curious which of your frameworks you find most helpful in parenting and in raising your kids that have stuck with you there.

   4. ADAnnie Duke9:53

      Well let me just first off say, I- I get a lot of people who are pregnant, like who come and ask me like for my advice about parenting, and I'm- I'm gonna- I'll tell you the two pieces of advice (laughs) I give- I give people. The first is this. There's all sorts of parenting books, there's all sorts of styles, you know, like... You know, a book needs to sell so they need to sell you something new or dif- or whatever. Okay. But the only thing that matters really is that your kids know you love them. Like really know, like deep in their bones know you love them. And like we can argue breastfeeding versus not breastfeeding or like co-sleeping versus not co-sleeping or attachment parenting or sleep training or... We can talk about all that stuff, right? Do you home school? Do you send them to private school? Do you send them to public school? We can do that. Well, we can have lots of discu- but it all dwarfs in comparison to your children know that you would lay down in the street in the front of a bus if it meant that they would be alive and happy. Like, that's the number one thing I say. Number two is at some point you will drop your baby on its head. So I- I bet this has happened to you already. (laughs) So-

   5. LRLenny Rachitsky11:17

      Um, al- well, yeah. Sort of. Okay.

   6. ADAnnie Duke11:19

      Sort of, right?

   7. LRLenny Rachitsky11:19

      Keep going.

   8. ADAnnie Duke11:20

      So here's the thing about babies is babies can't move, and so you get very used to, you know, like, you know, as a mom or a dad or... Like you're sitting on the couch and you're folding laundry and your baby is right here next to you and your baby can't move, and then one day without warning your baby can roll over and you think it's fine 'cause you like put a pillow there so... Right? (laughs) But like you turn your back for a second 'cause you're like whatever and then your baby (laughs) falls on its head. This- it happened with every single one of my children, and you know, uh, and- and they may- they don't fall that far and- and whatever, but they're totally fine and you're not a bad parent, and it's just this le- like there are things you don't know and like stuff's gonna happen and it's not gonna be perfect.... and every little thing isn't going to have some lasting impression on your child. 'Cause at some point, you will drop your baby on its head (laughs) , and you will not mean to. You didn't intend to, but, you know, in my case, it was always like, "Oh, my gosh. My baby can roll over. I did not think that was going to happen today." And gosh, by the time I got to the fourth one, it's like, I'm chasing after one baby to try to get the diaper on and this-

   9. LRLenny Rachitsky12:33

      Mm-hmm.

   10. ADAnnie Duke12:34

       ... and that, and then the other baby hits its head. So, you know, I think there's just a lesson in that, which is like, it's a small thing. Like, don't sweat it, and don't, don't, uh, get mad at yourself because you made a mistake. It's like, the mistake would be, "Oh, I realize my baby (laughs) can roll over now," so now you should make sure that you're taking extra precautions about your baby rolling over off the couch. But it's just a fun, it's just, I mean, it's really just a funny way for me to say, like, "Your baby's going to hit its head, or, you know, walk into a coffee table, or get cut, or, you know, whatever." It's like, they're very resilient, and you didn't do anything wrong as a parent. So don't beat yourself up about that. And then the, I do actually have one other thing I say-

   11. LRLenny Rachitsky13:20

       Yeah, go for it.

   12. ADAnnie Duke13:21

       ... I go, uh, be-

   13. LRLenny Rachitsky13:21

       It's great.

   14. ADAnnie Duke13:22

       Having four, uh, you have very little, you have a- no influence whatsoever basically on what your child's personality is. (laughs) Um, what you can do as a parent is make sure they say please and thank you.

   15. LRLenny Rachitsky13:34

       Hm.

   16. ADAnnie Duke13:36

       So, you know, what I find with, like, parents of one is, uh, particularly if that one is very well-behaved, (laughs) they think they're a great parent, and they may be. (laughs) That would be resulting. They may be, but once you have four, what you realize is like, "Oh, my parenting really didn't have anything (laughs) to do with it, but my children do say please and thank you."

   17. LRLenny Rachitsky14:01

       This is really valuable, good advice. I need to hear this. My wife is going to need to hear this too. She, uh, she's always worried about the soft spot on our kids' head and getting hit-

   18. ADAnnie Duke14:09

       Nope, it'll be fine.

   19. LRLenny Rachitsky14:10

       ... and stuff like this. Okay, great. (laughs)

   20. ADAnnie Duke14:11

       It's actually kind of why it's the- it's part of why it's there. (laughs) It, she'll, uh, really, your baby will be fine. Like, I mean, that's the thing. Like, you know, we used to cart babies around in the wilderness, you know? (laughs) Like-

   21. LRLenny Rachitsky14:21

       (laughs) Right.

   22. ADAnnie Duke14:22

       ... we were living in caves. Th- we're fine. We're built for it. We're built-

   23. LRLenny Rachitsky14:26

       Okay.

   24. ADAnnie Duke14:26

       ... for a much rougher world than the world the babies actually grow up in now. I will say, my, my oldest child, when she was in high school, just for whatever reason, she had no interest whatsoever in, like, alcohol or drugs or anything like that, and I remember just feeling so smug about (laughs) how well I had raised this child and how, how great she was, and, oh, these other parents who clearly weren't doing a good job. (laughs) I mean, I didn't really, but like kind of, 'cause it's hard not to, and then I had my, you know, and then my next child went through high school in a circle. (laughs) Now that, that's just a temperament thing.

   25. LRLenny Rachitsky15:06

       That's a good example of resulting in action.

   26. ADAnnie Duke15:08

       It is a good example of resulting, but, uh, all my kids have turned out fine, and they're all very different.

   27. LRLenny Rachitsky15:13

       Mm-hmm.

   28. ADAnnie Duke15:13

       Um, but yeah.

4. 15:15 – 20:06

   Mental time travel and “nevertheless”

   1. ADAnnie Duke15:15

      So, uh, but as far as decision-making (laughs) is concerned, which is a totally different thing, uh, I'll actually quote Danny Kahneman on this one, "Nothing is as important as it seems when you're thinking about it." That's a really important one. Um, one of the things that I used to try to do with my kids all the time was mental time travel, which is actually a very good decision tool. So they would be really upset about something, and it could be something that happened at school, but, or it could be, like, they were grounded for something, or whatever, and, you know, and the thing is, when you're in the moment, it just feels like so big. And the thing that I used to say, and they say all the time now is, "This is going to be so great for you when you're 40 at Thanksgiving. You're going to be able to tell these stories to your children, and it's going to be the best. Like, you should be thanking me so that you can talk about your, like, crazy mother to, (laughs) to ha- the Thanksgiving table." You know, and it allowed them to get some time and space from it to sort of realize, this is going to be funny at some point. You know? Like, at some point, it's going to be like a hilarious story that you tell people. Like, no matter how horrible it seems now, it's going to be a hilarious story at some point when you're older. You know, and it sounds like kind of a fun thing I was doing with them, but it's actually a really good decision-making tool for us in general, right? Like, look, there are absolutely things that 20 years from now are going to matter, for sure. Uh, but most things, no. Like, if you think about most things that ever happen to you, like, you know, you're 21 and your girlfriend breaks up with you or whatever, and you just think it's the end of the world and you're never going to recover, you know, and all these things, but, you know, if you could get yourself like, "Well, how do I really think I'm going to think about this in 10 years? Am I still going to be heartbroken in 10 year," prob- you know, probably not, and I think that we need to get that perspective of time so that we can get out of the, the moment, you know, 'cause in the moment, it just feels so important and the feelings are so big. And it's like, the focusing effect on, on this second and the feelings you're feeling right now are so huge that we s- we forget the scope of time. And I think that that's absolutely one of the best things you can do with your kids, and you can do it in small ways too, right? Like, "You can choose to play this video game, or you can choose to study for your test. A week from now when you get that test back, how do you think you're going to feel about those two choices?" Right? So, I mean, that was a tool that I used a ton, and it's just a generally an amazing decision-making tool, just generally for people. It's one that I happen to use with my kids all the time. And then I would say the, the other one was, um, using the word nevertheless, which is, this is a great leadership skill, the word nevertheless. So, uh, let's say my child got caught doing something wrong, I don't know, like, I found a bag of red Solo cups in my backyard that they forgot (laughs) to throw out after (laughs) a weekend that I was away. (laughs)

   2. LRLenny Rachitsky18:18

      (laughs)

   3. ADAnnie Duke18:18

      ... that's hypothetical. Um, so... (laughs) You know, so I'm grounding them, and it's a lot of argument back, right? So they're, th- they think this is a debate, and, and they're giving me all of their input and their opinions on why, uh, it's unfair, and all the other kids do it, and the other parents don't get mad, and whatever. Whatever the argument is. You have to have the balance between them feeling heard, which I think is incredibly important that your children feel heard, and following through on what you know or believe is right. So it's, "I hear you. Nevertheless, you're grounded for two weeks." Like, "I hear what you're saying, and I understand. Nevertheless, this is what's going to happen." And obviously, like, the words that you can use for that might be different. You have so much more authority, obviously, over your children, than you do in other places, but in the workplace this is very good, 'cause employees gripe all the time at decisions that you make, uh, in leadership. Because they, they think they're right, and they want their way! And to have the ability to say, "I heard you, and your input, trust me, was incorporated into the decision. Nevertheless, this is the path we're going to take." Right or wrong, "That's what we're going to do." So, you know, I think there's a lot of things that you, you basically can say, like, these are good things to do with kids, but they're actually just generally good, really good decision strategies.

   4. LRLenny Rachitsky19:48

      I'm taking notes on all these things. These are going to be extremely useful.

   5. ADAnnie Duke19:50

      Nevertheless is a really good one with children.

   6. LRLenny Rachitsky19:53

      It connects to something, uh, Dr. Becky teaches, if you know her, of telling someone, "I believe you." When they, when your kid says something and they're upset about something, start with, "I believe you."

   7. ADAnnie Duke20:02

      Never go back.

   8. LRLenny Rachitsky20:02

      And here's... Nevertheless, exactly. (laughs)

   9. ADAnnie Duke20:04

      (laughs)

   10. LRLenny Rachitsky20:05

       I think,

5. 20:06 – 24:54

   The extent of improvement possible in decision-making

   1. LRLenny Rachitsky20:06

      uh, we're going to start having to pivot this podcast, a parenting podcast, 'cause there's so much stuff here, but I'm gonna try to resist.

   2. ADAnnie Duke20:12

      Okay.

   3. LRLenny Rachitsky20:12

      Uh, something that... So we've been talking about decision-making and frameworks and things like that. Something I wanted to ask you is, how much better can someone get at making better decisions? So for example, say someone listens to all of your podcast, reads your book, studies it intensely. What's kind of the delta you find in somebody being able to make a better decision? And where this sort of comes from is Daniel Kahneman, of all people. People ask him, like, "Do you just live such a optimal life now that you know all of these biases we have and all these mental errors we make?" And he's like, "No. I can't..." I think he said famously, like, "I, I don't actually. I can't use these in practice. This is just stuff that I have learned, but it doesn't actually impact my day-to-day." So I'm curious just, how much better can someone get? What kind of delta have you found in terms of making decisions?

   4. ADAnnie Duke20:59

      Okay. So I, so it depends on whether you actually do the thing.

   5. LRLenny Rachitsky21:02

      Mm-hmm.

   6. ADAnnie Duke21:03

      I mean, I think that that's what the issue is. So, you know, I mean, I think, you know, Kahneman, uh, did some work way back when, like, that sort of started him on this journey. Uh, that was basically work on hiring. Uh, and, you know, it was taking it from completely unstructured... Lenny saying, "Oh, I just know a great product manager when I see one." (laughs) Whatever that means. To me going to Lenny and saying, "Okay. I, I understand that you think that you see a great product manager, you know one when you see one, but can you explain to me what that means? Like, in, in the abstract, what are the things that you're looking for in someone that you want to fill that role?" Uh, and we can then sort of excavate that, right? And, and make what, what is implicit, 'cause you're, you're applying some sort of implicit, like, model to h- you know, how you're thinking about the person that you're interviewing, and, and how they map onto the role that they're going to be in, but let's make that explicit. So we can make that explicit. We can turn it into a decision rubric. We can create a structured interview process out of that. And then, you know, what he found was after you've gone through that process, if you, you then sort of use your intuition, after having done that, not before, that then you actually can really drastically improve sort of your hit rate on hiring. And in that case, uh, it was from about a 50% hit rate to 65. So that's pretty huge. So that's a really big difference. Problem is, nobody does it. So I, I can tell you that most of the conversations that, that I had with Danny that were about my work in particular were just t- you know, him saying like, "How do you get anybody to do it?" Now, that's not to say that I would be better at that than him, it's that he didn't do my job, right? So he, he was an academic doing research and so on and so forth. I'm like, living in companies. Like, embedding for years. Um, you know, I've, I've been with one client for five years, one client for four years, uh, one client for... four years, (laughs) also. Almost four years, three and a half years. And then I just took on a new client who I've been with for six months, and that's my whole client roster. Because I, I stay with them so long. So if you do it, the answer is quite a bit. Like, at least in terms of Danny's work, you know, i- in relation to something pretty noisy like hiring, uh, you went from 50% hit rate to 65% hit rate, which is huge. Uh, it's enormous. The problem is that the way that you can make decisions in order to be better at them is not super natural to the way that humans make decisions. I think we think a lot more highly of our intuition than we really ought to. Uh, we think, uh, very highly of our ability to notice things in the moment and act rationally toward them in a way that really we ought not to. We tend to think that we have insight that other people don't have, when actually the other people probably have more insight into our situation than we do. So, you know, I think that the, I think the answer is a lot, with a big if.

   7. LRLenny Rachitsky24:15

      Mm-hmm.

   8. ADAnnie Duke24:16

      With an, if you can get people to do it. And that, I think that's where the issue comes in. Now, the good news is, that you can then-... reverse that and say, if I'm willing to do it, think about what an edge I'm going to have over people who aren't willing to do it. Right? So we ca- it's like tw- we could think, there's people who don't know about it. There's people who do- do know about it but don't do it. And then there's people who do know about it but do do it. And that, it's that last group that's so tiny. So the answer is, I- I think a lot, but nobody does it.

   9. LRLenny Rachitsky24:53

      (laughs)

6. 24:54 – 35:36

   Independent brainstorming for better decisions

   1. LRLenny Rachitsky24:54

      So maybe following that thread, when you l- when you look at companies that you've worked with, or companies that have read your book and really dove in and started to implement some of your piece of advice to make better decisions, if you kind of look back at the ones that had an impact, what do you find are the- the mental models or frameworks or tactics that really stick, that most often have a- an impact, and the biggest impact?

   2. ADAnnie Duke25:18

      I think the one that's easiest to implement is this. A- and it's so easy, and I just wish people (laughs) more people would do it. Um, the best way to get somebody's opinion is independently of other people's opinions. Independently asynchronously. So, you know, the way that I put it is like, I- I want people to stop talking to each other so much. When we think about, like, w- what did people generally think the purpose of a meeting is, they think it's for three things. Discovery, which is, I want to discover what your opinions are, what your judgments are of something. Right? So I want to find out what you think about something. So like, for example, if we're- if we're, um, if we're deve- you know, if we're- we're- if we're in product development and we're, uh, we're trying to figure out a timeline. You know, like, so we've got, like, we're trying to develop a product roadmap and we're trying to figure out how long it's going to take to release certain features, or something like that. We all come into a room and we start yelling it out, right? (laughs) Together. You know, that's- it's- it's just like, it's so bad for decision-making, like I can't even tell you. There's cross-influence, the loudest person in the room tends to then have a- a mu- an outsized influence on the decision, the most confident person in the room tends to have an outside influence- outsized influence on the decision. And that's great if the most confident person is also right. Uh, but the problem is, (laughs) that's not always so. Um, and so that's the discovery piece, right? And we tend to do that in a group. And then there's discussion, which is, I've now discovered the way that Lenny is modeling this problem, or what his judgments are about certain things, or his forecasts are, or his estimates are, and now we're going to discuss those ideas. And we're gonna disc- discuss your ideas in comparison to my ideas, and that's gonna happen in the group setting. And then there's also, now we're gonna decide in the group setting. So we're gonna make some set of decisions about, say what the roadmap's gonna look like. Here is the thing that I think is the easiest to change, is to realize the only thing that's ever supposed to happen in a meeting is the discussion part. So we should absolutely be coming together as human beings to discuss everybody's judgments and opinions and the way they're modeling the problem and their forecasts. In particular, it's really good to come in and discuss the places where people are different. So you've been in many meetings, I'm sure, about 80% of the time is double-clicking. "Oh, I agree, and I want to now ref- literally just use different words to say the exact same thing, 'cause I'm in agreement." If we can- if we can focus the discussion on places that people disagree, we're much better off. But we- so now we can take this discover, discuss, decide. So I'm saying discuss is only supposed to happen in the meeting. That's the only thing that's supposed to happen in the meeting. So what's happening with the other stuff, the discover and the decide? Well, and this is the thing that I think I- I actually have been pe- able to get people to do, is discover what people think before you get in a room, independently of each other. So how would you do that? Well, let's imagine that you're gonna have a meeting about the product roadmap. So you would say to yourself, "In this meeting, what are the opinions that I need to get from the people in the room?" It could be a brainstorm. "What- what are all the different features that we could develop?" It could- so that could- it could be a brainstorm. Fine. Write to them independently and say, "Hey, free-for-all. Just come up with all the different features that you think would be reasonable for us to consider developing, and then, uh, give me a force rank, from best to worst, of your own ideas with some three to five sentence rationale as to why you have these things in this order." Okay, so I could do that, but maybe we already have a list. I can send that out for a force rank to everybody. "Okay, so here's the final list of things we're really considering. Uh, k- prioritize those for me. Just force rank them. Uh, and then, again, give me a rationale. Give me a little bit of free writing as to why you think this should be- that you have these things in this order." Maybe we've decided now on what our top five priorities are. Great. Uh, I could, before the meeting, send the top five priorities out. "Hey, we've decided on this stuff. For each thing, I'd like to understand what you think a reasonable timeline is, how many sprints it's gonna take," so on and so forth, right? So we can ask for that type of information, uh, so that we can start making estimates, because that's gonna affect, like, budget, and what we're going back to the board with, and so on and so forth. But regardless, like, just figure out what- what- uh, what is the thing that we're gonna be discussing in this meeting? And I'm gonna send it out to everybody independently, and I'm gonna say, "Don't reply all." Right? "Just send it back to me independently." If it's a repeated decision, you can actually create a rubric that lives on, like, Airtable or Coda or Google Sheets or whatever. I don't really care. And people can input their decisions there where they can't see anybody else's decisions. So like with Google, you could use Google Forms...... in order to do it, and then it dumps into a spreadsheet that only you can see. That's a great way to do it. So anyway, so you do that, uh, and now you can now see everybody's opinion, that you then now send out to the group and say, "Everybody look this over before we come in and discuss." So notice, you're still working as a group, but you're working as a group where you're not in the same room together and talking at the same time. And there's a word for that, uh, uh, which is nominal group. So it's a group that, at that moment, is working independently and asynchronously of each other. Uh, so if you can get people to do that, and I- I- ha- I do have companies where I- I don't consult with them, but I just come in and talk to them briefly or whatever, that do actually implement that piece of it. That is a huge piece of it. That's ginormous. And then you do the same thing for deciding. So the decision should not- not be made in a room. It's, uh, made, uh, either... I love the one decision-maker model (laughs) but not everybody's down with that. But you can have like a vote for 'em where people go vote in private about the way they're leaning. Uh, you know, you can, the, you know, you can do a variety of things with that. But just don't do it, don't do it in, in the meeting. And then the... Just the last thing that I'll add, which, which is a muscle that you really have to exercise, is, I think it's really important to, to understand that the word alignment, in terms of we're all aligned as a group, right? The word alignment is stupid and it shouldn't be used. And I know I'm saying that very harshly. But it's true. It's dumb. Because it doesn't exist. Like, you have 10 people in a room, and they're all really different people with different opinions, and they're never gonna come out of the room agreeing with each other. And it's really bad if the expectation is that they're supposed to. And the- the re- it's really bad for a few reasons. One is, it isn't reality. And I don't like coming out of things, like, without reality actually kicking. So it's not reality. People don't actually agree. They're not actually aligned on the decision. That's just the thing that makes you feel better, right? So I- I, you know, I think that that's problem number one. But problem number two is that if the goal is alignment, if the goal is agreement, then the meeting becomes coercive. And you never want that. So it... The way that I'm supposed to talk about my ideas is to convey why I believe what I do, not to convince anybody that I'm right. Because if I'm working to convince people that I'm right, it becomes coercive, and that's horrible. So, you have to get comfortable with walking out of the room. This is the nevertheless. Walking out of the room understanding that once you have that discussion, it's not that... Lenny, your, your opinion might change. It could, right? I could say my thing and it could be just so damn brilliant that you change your mind somewhat, right? So you come, maybe you, you're like, "Oh, I'm thinking about this differently, and actually..." But maybe you don't, and you still believe a thing that's very different than me. And leadership has to say, "That's fine. I've heard both of you, and I know that this isn't going Annie's way. Nevertheless, trying to think about what all of our goals are, this is what the decision is gonna be, and it's totally fine that you ended up not agreeing with each other." Because it's reality, and what it allows me to do is get a better sense of what the space of decisions is. So those things I have been able to get people to do. And they're actually quite impactful.

   3. LRLenny Rachitsky34:17

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7. 35:36 – 42:41

   Making sure people feel heard

   1. LRLenny Rachitsky35:37

      There's kind of an implication here, you touched on it a bit, that there's a DRI, essentially, there's one decision-maker. Sometimes people start to feel like, "Oh, my voice isn't heard. I don't have a lot of say. I can't be part of this decision." And you talked a bunch about just how to make people feel included, you get feedback along the way, but any advice there, if you try to move to this model of making people feel like, "Okay, I actually have impact on where this goes"?

   2. ADAnnie Duke35:58

      Yeah, so, so here's the really wonderful thing about moving from a, a coercive model to a, to a, uh... Really, I guess you could say a model of curiosity, right? like, you wanna be curious, not coercive. Which means that the way that people in the meeting are- are- are com- are talking about what their opinions are is in the mode of conveying information, not trying to convince anybody. So e- once we move away from that coercive model... And like- and when I say coercive, like, I'm- I'm not saying anybody...... it's purposely trying to set up a culture of coercion. Sometimes that's true (laughs) . But, uh, for the most part everybody's trying to do a good job and nobody's trying to set up a culture of conver- co- coercion. But as soon as you say, "Are we all in agreement? Are we all in alignment?" And as soon as you're allowing people... And I'm sure you've been in these meetings, right? If you allow people to interrupt, if you allow people to say, "This, I think you're wrong. I disagree. Here's why," those are all very coercive things to, to have happen. You know? The silence, uh, you know, interrupts and... Interrupting someone is silencing them. Saying you're wrong, well that, now you become tribal and people aren't going to be open-minded and they're gonna stake their ground and it's, it's all really bad. So let's move away from that. Number one, that's, that's already gonna help. But when we think about the way that meetings normally happen, again, there's like all this crosstalk and some people aren't speaking and some people are and so on and so forth, and then of course not everybody feels equally heard. But when you work as a nominal group, let- let's talk about something as simple as, uh, "We're gonna make a forecast of how long it's gonna take to, uh, to launch this product feature." Okay? "So I'm gonna send out to everybody, what's your point estimate, what's your lower bound, what's your upper bound in terms of timeline?" And you could do it in some way, like, how many sprints do you think it's gonna take, whatever. You- whatever language you want to use. Now everybody independently now gives their forecast with a rationale for why they believe that, and then you come into the room and you run a discussion where everybody's getting to say what their estimate was and why they believe that, and people are getting to ask questions. Uh, "I have a question." Uh, always as a clarification, it's just, "I don't understand." And as the leadership, the way that you would do it is, um... Let me give you an example from a real one 'cause it, that'll be easy. Um, I did one of these discussions for a question about remote work, like what did the company want in terms of remote versus hybrid and that kind of thing. And so like there was a lot of disagreement about whether whatever the policy was, it should be consistent across functions. Lots of disagreement. So, you know, let's take somebody who was on the, "No, it shouldn't be consistent across functions." So they, they now say why they believe it shouldn't be consistent across functions, and they say things like, "Well, different functions have different requirements," right? "So there's some functions that have to be in the office, like if you're IT, as an example. But there's other functions which are more, uh, you know, collaborative and creative and, and whatnot, uh, where it makes sense for people to be in the office. Whereas like engineers, doesn't really matter," right? So they're like, "There's different needs of different functions in terms of how much they need to be in the same space." So I'm not agreeing or disagreeing with this, I'm just saying what, like, somebody said. So now as the facilitator, I never s- would... I never say, "Oh, I agree." What I say is, "I just want to make sure I understood what you said," and I reflect it back. So I say, "So what I heard you say is that not all functions are created equal in terms of how well they work remotely or how well they work in person, or what the flexibility might be. So what you're saying is there are some, there are some functions that have to be in person, period. And then, uh, you know, other functions where that sort of collaborative element, being in the same office, would be more important versus some functions where being remote is totally fine. Is that what you meant?" And then they have, they have the ability to say, "Yes, that is what I meant," or, "Actually, I- I meant something slightly different. Let me say what that is," and then I reflect that back. Okay. So literally you're just going around, you're calling on people to do that, and then you're reflecting back what they say without offering your own opinion. I don't know, Lenny. Tell me how someone doesn't feel heard in that situation.

   3. LRLenny Rachitsky40:47

      Hmm. Absolutely. I would love, I would feel so good if somebody just clarified and made it clear they know what exactly that I'm saying, even if the decision end up, doesn't end up the way I want.

   4. ADAnnie Duke40:57

      Right. So that- that's the thing. And then, and then what, uh, actually ends up happening is that the people in the room feel more, uh, the- the psychological term would be endowed-

   5. LRLenny Rachitsky41:06

      Mm-hmm.

   6. ADAnnie Duke41:06

      ... uh, more endowed to the decision. In other words, they feel like they have ownership over the decision. And whatever the decision is, they generally will see their, their selves reflected in it.

   7. LRLenny Rachitsky41:16

      Hmm.

   8. ADAnnie Duke41:16

      Because they were heard, you know? And, and they also will generally understand that nobody, no one really ends up with exactly every single thing that they wanted to see in the decision because they also get to see the true spread of opinions on the team. And, and what you see in that situation is that there's lots and lots and lots and lots of disagreement, which you don't see if you talk in a group.

   9. LRLenny Rachitsky41:44

      Mm-hmm.

   10. ADAnnie Duke41:45

       It, uh, narrows the- the space, right? So uh, for example, like particularly if you're senior, if you say, "I think this is gonna take three months to launch, and I was thinking four weeks," you're never gonna hear four weeks from me.

   11. LRLenny Rachitsky42:00

       (laughs) Right.

   12. ADAnnie Duke42:02

       Ever. But if we get those opinions independently, you will actually hear that I think it's gonna take four weeks. You may tend to be more right there, being more senior, but I may have something interesting to say. (laughs) Like, you should hear what I have to say, and this also allows me to learn from you too. But because I- I haven't heard your opinion first, I- I'm not, I'm not gonna conform my opinion to yours. So it actually spreads the, the, um, sort of surface area of disagreement that you see on the team, which then makes p- people feel much better about the decision not being exactly what they want because they recognize like, "Oh, this is actually a hard problem. Like, people really disagree on this stuff."

8. 42:41 – 44:49

   The “3Ds” framework to make better decisions

   1. LRLenny Rachitsky42:41

      Amazing. I think this is going to be really helpful to a lot of people. Just to kind of close the thread on this little summary maybe, is... Core advice here is: brainstorm separately. So I guess first there's discover, discuss, decide. To discover ideas completely independently. Basically brainstorms, you're a big advocate of brainstorming independently, sitting on your own, thinking through ideas. And then bringing people together to discuss all the things they've come up with and especially where they disagree. And then ha- ideally having one person that makes a decision once she or he has taken all the input.

   2. ADAnnie Duke43:11

      Yeah, you can have one person. I mean, I, I work with people where it's like a partnership and...

   3. LRLenny Rachitsky43:15

      Mm.

   4. ADAnnie Duke43:15

      ... they're six people who are gonna vote.

   5. LRLenny Rachitsky43:17

      Mm.

   6. ADAnnie Duke43:17

      Uh, but they still do it independently, they go to a forum. So I don't know what your vote is. And we... And, and all six people don't have to agree. I mean, I, I, I just think it's really important that, like, once you get above an N of 1, you (laughs) shouldn't necessarily expect the people to agree. Which I think is just really important. And this is good for more than just brainstorming. It's for, like, forecasting, any kind of project planning, uh, budgeting, um... Yeah, I mean, we do this, like, uh, for example, at First Round, we do this for... We have a structured forum for evaluating a, a company, um, in terms of whether you should invest in it. Uh, because, you know, there are facts and then there are the way that you model those facts. And so, uh, it's a lot, you know, w- what are the investors' opinion of the founder and the product and that kind of thing. And we just have structure around, uh, how we're eliciting those opinions, um, which is really helpful. The, the other thing that, um, I'll just a- kind of add to what you said is that, you can actually be in the same room together and still disc- discover information independently. So this will happen on the fly all the time, where people are talking and they, they start talk- you know, uh, something comes up, like someone suggests some new feature or something like that, and then people start saying, "Yeah, but that's gonna take..." and you go, "Stop! Okay, everybody take out a piece of paper." So you, you can still get that same independence on the fly as well as doing it in advance. But yes, that was a very nice summary.

9. 44:49 – 55:46

   Decision quality

   1. ADAnnie Duke44:49

   2. LRLenny Rachitsky44:49

      If this is just the one thing people take away from this conversation already, I think that could have a big impact. Speaking of First Round, one, we actually just had Todd Jackson on the podcast, talking about-

   3. ADAnnie Duke44:58

      Love Todd.

   4. LRLenny Rachitsky44:59

      Love Todd. Talking about product market fit. I... That episode will have come out before this episode. Uh, also, so I asked Brett Burson, your colleague at First Round, what to ask you.

   5. ADAnnie Duke45:08

      Oh, okay.

   6. LRLenny Rachitsky45:09

      Uh, by the way... Yeah, yeah, (laughs) uh, by the way, your title at First Round is amazing. Uh, special partner. I've never seen that before.

   7. ADAnnie Duke45:15

      Yeah. I am, it's a title just for me.

   8. LRLenny Rachitsky45:17

      Oh my god.

   9. ADAnnie Duke45:17

      I, I adore Brett Burson.

   10. LRLenny Rachitsky45:19

       Me too.

   11. ADAnnie Duke45:20

       So I'm interested, I'm interested in what he said you should ask me.

   12. LRLenny Rachitsky45:23

       It's nothing, nothing too spicy. Uh, it's kind of along the lines of what you talked about. So he said that you have a very interesting framework for how to think about decision quality in the short term when the outcome is very long term. For example, investing. Also, many decisions we make in business, things you need to decide now that you only find out years from now. Can you talk about your advice there and your insights there?

   13. ADAnnie Duke45:43

       Oh my gosh, I'm so happy that that's a question that he asked.

   14. LRLenny Rachitsky45:46

       (laughs) That's awesome.

   15. ADAnnie Duke45:46

       Okay, so c- can I give a tiny bit of background to this?

   16. LRLenny Rachitsky45:49

       Absolutely.

   17. ADAnnie Duke45:50

       So prior to talking to First Round, I have another client too who... They're amazing, I... Renegade Partners with Roseanne Wensek and Renata Quintini. They're, they're incredible. Uh, before kind of, like, finally hooking up with them... And they're, they sort of work at different stages. First Round's a seed, obviously. Um, Renegade is more like A, B, tiny bit of dabble in C. But, uh, before running into them, I talked to quite a few, uh, venture firms, you know, who were interested in talking to me sort of post-thinking and bets having come out, so this would be like 2018. And th- there was a theme, there was a theme across them all. The, the first one was, "Well, the, the kind of decision-making you're talking about, we don't need to do, because, uh, we just know a good founder when we see one." So, uh, that is a sentence that came out of many people's mouths. And as I just said to you, like, "Okay, I have no doubt, but don't you want to make that explicit?" There's all sorts of great things that come from making it explicit, not just in terms of, uh, the increase in decision quality in the moment, but it actually allows you to, to close feedback loops much better. So that was one thing I would- that I found quite surprising. But the one that I really found very interesting was being told, "Well, what you're talking about doesn't apply, because our feedback loops are a decade. And in poker, you got an answer ri- right away. You won or lost the hand right away. So the way that you're thinking about decision-making doesn't, doesn't really apply." Until I met First Round and then, uh, Renegade, where they actually heard what I had to say, 'cause I gave the same answer to everybody. So we'll just put aside the, "Wouldn't you want to make that explicit?" The first thing that I would say is, "Oh, poker is much noisier than you think, because when I win a hand I have no idea why." So I do actually have to wait a long time, because I have to ha- play many, many, many hands before I actually know, like, "Do I actually have an edge?" Because I can't... I, I actually don't know very much, on one hand. For one thing, I almost never see my opponent's cards, so I'm kind of left in, in a dust of uncertainty. But separately from that, the, the main thing that I said was, "What... How could you possibly think that the, the, the feedback loop is ten years?" And this is what I think really caught First Round's eye. Because when I was talking to Josh Kopelman about it, he said, "Well, what do you mean? We don't get an exit for ten years." And I said, "Oh, I'm sorry, do you invest and then you go to sleep like Rip Van Winkle, and then you wake up ten years later and you go, 'Hey, how'd that go?' Or are there all sorts of things that happen in between?" The simplest thing, the simplest thing is, does it fund at series A?You know, and, you know, the little pushback that, that I sort of would get there is, "But we're not investing for series A." And I say, "Well, I know that. But have you ever had a company that exited for more than a billion dollars that did not fund its series A?" And the answer is no. And I'm like, "Okay, so it sounds like that's necessary. Might not be sufficient, but it's necessary, and it's certainly a signal that is actually more highly correlated with exiting, uh, well than the investment at seed." Uh, and then, oh, right, you have series B. Right? And that's separate from all the other things that you can look at, like, you know, what you talked to Todd Jackson about, what's goi- is it achieving product market fit? (laughs) We know that eventually for it to be, to be, uh, successful, uh, it's going to have to achieve product market fit, right? So you can look at what's happening with that. Um, you know, just general things about traction, uh, you know, what's happening with, like, net new ARR, ability to ra- retain top talent, churn. I mean, there's a- there's so many different things that you can look at, all of which are things that you know must happen in order for the big thing to happen. Okay. So what that means is that this, this is the big, I'm gonna make a bold statement here, there is no such thing as a long feedback loop. You can make a decision about how long the feedback loop is. That is your choice to live in a long feedback loop, and you can choose to shorten the feedback loop. And the way you choose to shorten the feedback loop is to say, "What are the things that are necessary but not sufficient," that's one thing, "for getting a good exit, or what are the things that are correlated with the outcome that I eventually desire?" And what that means is that when you're at the decision point, right? Like, in first round's case, I'm gonna invest in a company. What you have to understand is that you are making a prediction about how the world is going to unfold, how the future is going to unfold. And those things that you're predicting, you can track, and you can track them back to the decision, and you can do it pretty darn fast, mind you. I mean, think about, like, think about being in 2021. There were companies that were raising in A six months after seed. You know, today, it's a little more 16 month-ish. But, but even so, let's just say that that was the only thing that you decided to do. "I'm gonna forecast the probability that this company's gonna fund at series A." And then obviously those companies start to fund or not fund at series A, and you're finding that out in 16 months. Here's my question for you, Lenny. Is 16 months shorter than 10 years? Mm-hmm. So, I mean, that- that's, you know, I mean, it's probably why he said to ask me that question 'cause I just really do. I mean, I- I'm just inq- I have a very strong opinion about this. The feedback loop is as long as you choose it to be. Mm-hmm. And if I take that back to some of the things that I heard early on when I was talking to people, what I would say is that I think that there is a certain amount of psychological safety in allowing the feedback loop to stay long because really of two main factors. One is that- Look, if, if I was early into Uber, and now I'm, like, you know, a celebrity investor or something, I don't really want to know if I'm good or not. Do I? Right? Like, I don't really want the world to know that. I mean, if I'm good, that's great, but it feels like they already believe that I'm good 'cause I happen to be early into Uber. So, so since people already think I'm good, like, I'm kind of just losing to that decision, psychologically speaking. Not investment quality speaking, but psychologically speaking. Okay. So here's the problem though. Why was I early into Uber? Did I have an insight into a real pain point in a developing market, blah, blah, blah? Or did my buddy start Uber and I was like, "Sure, I'll give you some money." Right? I mean, obviously I'm talking about the extremes here. But we don't, we don't actually know what the decision quality was, right? Like, all we know is that you had a good result. And given that you had a good result, and people think very highly of you, uh, what are you gonna gain, right? So, so it's like it's so nice to just sort of let that feedback loop sit there and allow people to have the opinion of you that is really nice, feels good, right? And not actually find out the answer, 'cause why would I want to? Unless you're really super focused on decision quality, then you would want to do that. So that's, you know, that's part of the psychological safety. A- and what that goes to is- the real core of it is that it's very, very difficult for human beings to deal with feeling wrong in the moment even if it helps them in the long run. It's just hard. And the tighter the feedback loop, the more that you risk finding out you were wrong in the short run. Now, that helps you to learn and improve your decision-making if you're, if you're focused on it and you're good at it, right? Like, that's gonna help you, and then in the long run, you're actually gonna do better. But human beings are notoriously good at trading off the long run just to feel good in the short run. That's why we're all eating chocolate and cupcakes and stuff (laughs) that we know is bad for us, 'cause it feels good. And w- so much of our decision-making is trying to advance this positive self-narrative. Hmm.... and the idea that, yeah, we're going to have a more nar- positive narrative of ourselves in five years if we do some stuff. You know, most of us are like, "No, I don't really want to make that trade. I'd rather just kind of feel good now," and I can kind of use the fact that, you know, we're living in power law, you know, under the influence of power law. I can kind of use that to sort of, just sort of confirm a lot of things that I wish to, to believe that, that are true of me, and if you kind of take that away from me and you take the uncertainty away from me, it's going to be really hard. And I will tell you, that's what I love about both Renegade and FirstRound, is that they're just like, "I want to know." It would be such a horror for me to think that I was making good decisions when I actually wasn't, and that's what really matters to me, and I, I think that it's just, like, so

10. 55:46 – 1:05:05

    Improving decision-making at First Round Capital

    1. ADAnnie Duke55:46

       special.

    2. LRLenny Rachitsky55:47

       Hearing all this makes me, uh, makes me want to be an LP in FirstRound. Not that they would let me in there, but just knowing that you're in there futzing with everything and the way they're thinking is, uh, is really inspiring. I'm curious if you could share an example of anything that they tweaked as a result of this analysis that you did and how they evaluate.

    3. ADAnnie Duke56:05

       Well, first of all, let, let me just say, uh, they didn't really record a lot about their decisions, uh, when I first came in. They voted, uh, and they had a record of the vote, so they, they knew who said yes and who said no. But they didn't, they didn't really have any... They didn't ha- have a lot of other information. So, the first thing that happened was just that. Okay, what do we really think, uh, is the way that you would model, like, whether you should invest or not invest in... You know, broadly, very broadly, we'd say, like, you're, you're rating the market, the, the team, the founder, the product, broadly. We're gonna make sure that those opinions aren't just like, it's good or it's bad, but it's, you know, on a scale of one to seven so that we can actually get some precision and some spread, uh, among the partners in terms of, say, strength of market. We're gonna make sure that we have shared, uh, definitions of those things, which you'd be surprised people don't. Uh, so what I th- when I, when I'm thinking about market and market quality, I might be thinking about something very different than you, so we want to make sure that, uh, we have a shared definition of that. And that's reflected in, in something that we call mediating judgments, which are, uh, judgments that you make related to market prior to actually judging what you think of the market in general. So, you could think of, of something like, um, competitive landscape. Uh, so you might... You, you would judge that. So, so we ha- that turns into what these mediating judgments are, which is, uh, basically an implied definition. So, you create that and then you also think about what are the forecasts that are important. One thing that you already know is, uh, you're going to forecast the probability the company funds at Series A. So, that was, like, a huge change. Uh, just a very different way of making decisions. What we've been able to do with that now, 'cause I've been there for five years, is we now can actually look, say, at the partnership as a whole and look at these ratings that they're making of these, the component pieces of, of, you know, parts of how they're modeling, like, what makes a good investment, these forecasts that they're making, and we actually know how these companies have now unfolded. So, in the simplest sense, we know whether hundreds of companies have funded at Series A or not, and now we can actually look and say, "How good are, are the partners at actually forecasting this thing?" Right? Are they random? Are they better than random? And we, we actually know that and we can feed that back to them so that they can understand their own accuracy around these pieces of the decision, because the fact is that whatever a, a seed investor says to you, whether that company is going to fund at Series A is part of their decision. It's included in the decision. So, they're making that forecast whether they make the forecast explicitly or not. So, what we're saying over at FirstRound is, "Let's make it explicit, because you're doing it implicitly anyway, and then we can actually start to look at your accuracy. We can now feed that back to you and let you know how accurate you are, which will then help you to become more accurate," right? We can also look because we, we know sort of, you know, in any given vintage, uh, sort of what are the best companies or what are the worst companies. Remember, we're having people do these ratings, like, on a scale of one to seven of, say, the quality of the market, and we can look across the partnership and say, "Look, Lenny, when you're, when you think the market is great, how does that map onto how well the company is doing in the future? When you say the market is terrible, how well does that map onto, you know, how that company is doing, how that company ends up doing in the future?" And I can come to you and I can say, "Oh, Lenny, by the way, your judgments about market are amazing. You're, you really could... W- you know a good market when you see one and it's really mapping on in a great way onto how that company unfolds. But you're not so great with founder. Or maybe you're great across the board, or maybe you're not." So, we can, we can now start to give people... We can give the partners insight into their own decision-making, not only to allow them to improve the decision-making, but also to allow them to understand that they... Not to over-index on certain things that maybe aren't as predictive, as an example for them. It allows us to, uh... We also can change the rubric based on the evidence now. So, the first version of the rubric is always, uh, taking the intuitions of the partners and making those explicit. But, um, then we can start to loop those back together and understand, uh, well, maybe this thing that the partners thought was important actually isn't predictive across any partner, for example, and we can start to develop the rubric based on, on the data. These were all things that weren't possible, because prior to that, if I had come in and said, "Well, let's look at decision quality," how would I do that?... you know? I mean, I have no idea why people were ... I don't, just know whether they said yes or no. And so it's, it's very difficult to then s- to start do, to do some really serious refining of, of the decisions if I don't, if I don't have that information.

    4. LRLenny Rachitsky1:01:08

       I desperately want to know which partner makes the best decisions. I know you're not going to share that. (laughs)

    5. ADAnnie Duke1:01:13

       Oh, no, I'm not going to. (laughs) The partnership as a whole is excellent, as we know. And this is what I will tell you, is that all partners have strengths and all partners have weaknesses, and they are not perfectly overlapping, which is wonderful, right? I mean, that, that's one of the things. It's like, what's really wonderful, and I think it shows the power of, you know, why would you have, uh, more than one person having input into a decision, is some people are very strong on, you know, rating a particular aspect of market, or some people are very strong on rating a particular aspect of the founder. There's overlap and there's, you know, and then there's things where, you know, Todd is uniquely great at something, or Josh is uniquely great at something, or Bill is uniquely great at something. So that's a wonderful thing about it, is that everybody has strengths and everybody has weaknesses, and they're not perfectly overlapping. So this is where, where you can see, like, getting that spread of opinions and really understanding, you know, breaking that decision down into its component parts really shows you the value of, of diverse opinions, you know, in, in being, as input into a decision.

    6. LRLenny Rachitsky1:02:21

       I could talk about this thread forever. Maybe let me just ask one more question, just 'cause I'm super curious. Is there anything surprising that stands out that came out of this analysis so far? Just like-

    7. ADAnnie Duke1:02:30

       Mm-hmm.

    8. LRLenny Rachitsky1:02:30

       ... "Oh, wow, maybe market isn't as important as we thought," or, "This person is amazing at..."

    9. ADAnnie Duke1:02:34

       Yes. So I think there have been ca- uh, just generally speaking, there, you know, when you're creating the initial decision rubric, there are people that, there are things that people are really pounding the table about that they think is, like, e- especially important in making a decision. And one of the things that we found is that sometimes their intuition was absolutely right. The thing that they were pounding the table about is incredibly predictive, not just for them but other pe- other partners. But sometimes, it's not at all predictive, and, you know, and these are equal table-pounding situations. So let's say you're pounding the table about something. Sometimes the thing you're pounding the table about, it is predictive for you and for e- all the other partners, that it's actually quite predictive about how the company does. But sometimes when you're really pounding the table r- about something, it's not just that it's not predictive for the other partners, it's not predictive for you. And I think that what's really important to understand about this, and this is why it's so incredibly necessary in improving decision quality, to take what's implicit and make it explicit, is that our intuition is sometimes right and sometimes wrong. It's not that intuition is crap and you sh- your intuition is just completely wrong. I mean, obviously that can't be true. We would die, right? (laughs) So your intuition is sometimes right, but it's also sometimes wrong. And if you don't make it explicit, then you don't get to find out when it's wrong. You don't get to find out when it's off-base, and that's a disaster. So, so that's the thing that I think is, is really interesting, is that, like, you have equal vehemence and confidence that this particular factor is really important, and sometimes it is and sometimes it isn't. And it's so surprising, because we're talking about people who are true experts, who are great, and you know, we j- I think that we all just have intuition about intuition, right? Like, you just intuit that if they're so amazing, clearly their intuition about h- about what's important would have to be good. But not necessarily. That's the thing. Not necessarily. Yeah. I think that was, that was probably the most exciting thing.

    10. LRLenny Rachitsky1:04:56

        Keeping it mysterious, but I still appreciate you sharing.

    11. ADAnnie Duke1:04:59

        Well, I have to keep it mysterious. It's, you know? (laughs)

    12. LRLenny Rachitsky1:05:02

        Yes. I understand.

    13. ADAnnie Duke1:05:03

        I can't give away the trade secrets.

11. 1:05:05 – 1:10:15

    Using pre-mortems and kill criteria

    1. ADAnnie Duke1:05:05

       (laughs)

    2. LRLenny Rachitsky1:05:06

       (laughs) I wanted to touch on a different framework that I've heard a lot of companies actually using, and something that comes up in product a lot is this idea of pre-mortems, which is essentially think ahead of time of what might go wrong. Can you talk about this? 'Cause I think that's something that's easy to implement, really powerful, and a lot of people are actually doing this.

    3. ADAnnie Duke1:05:25

       Yes. Okay. So a pre-mortem is great, but only if you attach a pre-commitment with it.

    4. LRLenny Rachitsky1:05:31

       Mm.

    5. ADAnnie Duke1:05:32

       Uh, so I just want to be super clear about that. What you find with pre-mortems, this actually work, I actually did this work with Marie Schweitzer and Linnea Gambi, who, who are both at Penn, that when you have people do pre-mortems, uh, it generally doesn't actually change their plan very much or change their behavior. So I think that we have the feeling that if you do a pre-mortem and you think, like, "What are the ways that things might go wrong?" that that's gonna change your plan. But, uh, probably not unless you're specifically using it for that purpose, and you say, "Okay, like, we're gonna do this, but let's think about how we might change our plan in light of this information." But I think what's actually more important than that is what a pre-mortem allows you to do is to set up kill criteria. So kill criteria are just, uh, a set of signals that you might see that would tell you that it's time to pivot or, or stop. Because once we, we're actually, once we actually launch something, we're very, very slow to decide to quit. I'm sure that everybody has felt that way before. Uh, things go on way too long, even, like, they're over budget and you blow the timeline, and when you finally shut it down you realize you should've done it a lot earlier. Um, and this is kind of true across the board because of a variety of biases. The str- the most well-known and probably the biggest influence is something called sunk cost.... which is that feeling, "But then I'll have wasted all the time and effort that I've put into this already." So it's taking into account what you've put in in the past and deciding whether to continue, uh, uh, on in the future. Um, so what we want to do is actually just get better at that thing. So sort of understanding that when you've gotten to the pre-mortem process, you probably are, you probably are gonna launch it, like it's probably gonna be the case. Use the pre-mortem to set up kill criteria. So I- I'll give you an example from a sales team that I worked with. Uh, basically, when I... I sent them out a prompt, all the ICs a prompt, um, that was, "Imagine that you got a lead through an RFP or RFI, (smacks lips) and you worked on it for six months. And now, it's six months later, and the deal is dead. Looking back, you realize there were early signals that that was gonna be the case. What were they?" So this is a pre-mortem, like, "What are the things that you saw that would tell you that this was gonna go south?" And they came up with all sorts of ideas. Uh, notice this doesn't mean they're not gonna start off pursuing the lead, right? But they came up, they saw, they, they came up with all, all sorts of signals. So I'll just give you three of them. Um, uh, "The RFP/RFI was clearly written with a competitor in mind." So they felt that was a very bad signal, uh, that was like, "Hmm, probably gonna go badly." Another one was, uh, "The customer didn't want a demo, they only wanted to talk about price." Obviously, that's quite bad. (laughs) And another one was, "After the first few meetings, they couldn't get a decision-maker in the room." All right, so, uh, they... It was a much longer list than this, but that, those are three. So for each of those, you now, that now becomes a kill criteria, "If I see this thing..." And now, you attach an action with it. So in the case of price, they actually just said, "We should kill it." If, if they literally don't want a demo and they're only asking about price, they're just trying to beat up somebody else on price, like that's, th- we're a box-checking exercise. So there, they just said, "We're gonna kill it. We're not gonna pursue the deal anymore." So this is great, 'cause salespeople will not, will pursue deals forever. And leadership is like, "Well, why did you stop pursuing that deal?" And they get in trouble for it. So this is gonna help with that problem, right? Uh, in the case of, "The RFP/RFI was written with a competitor in mind," they have an action associated with that as well, which is, ask them directly if they're working with a competitor and how far down the road they are. Depending on the answer, you would kill or pursue. In the case of, "We couldn't get a decision-maker in the room," offer up executive alignment at the next meeting. And if you, they say, "Sure," great, and if they say, "No," kill. So that's actually the, what I feel is the best use of a pre-mortem is to say, "I'm gonna try to figure out what those signals are along the way that things are going badly." And now, instead of just kind of hoping that when I see those signals, I actually act rationally, which is a hope that, uh, will not come true. That's why there's many people who climb Everest in the middle of a blizzard, even though they shouldn't be doing that. Use the pre-mortem to now create structure around those signals that you've spotted and commit to actions that you're gonna take if you see those signals. And I think that's the best use of a pre-mortem.

12. 1:10:15 – 1:10:55

    Making explicit what’s implicit

    1. ADAnnie Duke1:10:15

    2. LRLenny Rachitsky1:10:15

       That's really helpful. And it's interesting how many of your examples come back to just, uh, framework that you often talk about, which is make explicit what is implicit. There's another example that the, uh, th- the first-round example is a great example of that, where it's just here's all our assumptions, let's just make them actually explicit, and just-

    3. ADAnnie Duke1:10:31

       Right, because then-

    4. LRLenny Rachitsky1:10:31

       ... shows how much power there is in that.

    5. ADAnnie Duke1:10:32

       ... you can examine them. You can examine them, you can, people can discuss them, you can figure out if they're wrong or right or whatever. It's like, I, I want to be very clear, like, I'm not anti- what, you know, anti- your gut or your in- your intuition. I think it's probably sometimes pretty good. I just want you to make it explicit, that's all.

13. 1:10:55 – 1:19:23

    The challenges of quitting and knowing when to walk away

    1. ADAnnie Duke1:10:55

    2. LRLenny Rachitsky1:10:55

       Okay. So we didn't have time to get into Quitting, which is your more recent book. Maybe we'll do a followup episode-

    3. ADAnnie Duke1:11:01

       Right.

    4. LRLenny Rachitsky1:11:01

       ... specifically thinking about quitting. But let me just ask-

    5. ADAnnie Duke1:11:03

       It's my fault, 'cause my answers are long.

    6. LRLenny Rachitsky1:11:05

       It's my fault.

    7. ADAnnie Duke1:11:05

       I apologize to everybody.

    8. LRLenny Rachitsky1:11:06

       No apology is necessary. We'll have plenty of time in the future, hopefully. But let me just ask one question. I found this one quote from you where you said, "I- you should assume that if you're thinking about quitting, it's already probably past the time that you should've quit." Do you still believe that? Is that generally a good rule of thumb? And just any takeaway, tip, lesson on quitting as our one question on quitting.

    9. ADAnnie Duke1:11:29

       So the data is pretty strong that by the time you quit, it's probably long after you should've. (laughs) Uh, and it's, it's really just because, look, when we start things, we're, we're starting things under difficult circumstances, uh, which come from the uncertainty of the decision to start something. Uh, so when we start something, uh, luck is gonna have an influence on the outcome, which obviously we have no control over, 'cause luck isn't in our control. And then there's also hidden information. So what happens is that after the fact, we know that we're gonna learn new information, and it can make it very hard to start things, 'cause we, we sort of want to be more sure than we actually need to be. It's why, you know, Bezos has the 70% rule to try to roll people back and be willing to accept that uncertainty in the starting decision. Now, the good news is that when you learn that new stuff and the new stuff that you learn is, "Ooh, if I had known this, I wouldn't have started it," uh, you have the option to quit generally. So that's the good news. The bad news is that the same difficulties that apply to the decision to start apply to the decision to stop. In other words, we're making that decision under uncertainty as well. So we're, we're not gonna know for sure whether it would've turned out well or poorly unless we continue to do the thing that we already started. And we don't like to walk away from things unless we know for sure. So as Richard Thaler put it, "Most people won't quit until it actually isn't a decision." In other words, the, the whole thing is blown up, your, you know, or the startup has no money, or you're up on Everest and the blizzard is literally upon you, um, and you're stuck in it.Um, uh, or I think as he said, uh, they won't ... Until you've fallen in the crevasse already, then, then you'll make the decision to quit 'cause you, then you know how it was really bad. So, you know, people generally, like for example, don't quit their jobs until they sort of feel they have no other choice or, um, relationships or projects or products that they're developing. It all applies 'cause we want to know, we're, we're just sort of, we want to know for sure. And then on top of that is the fact that there is this issue of sunk cost, which is, uh, when we walk away, we feel like we'll have wasted everything that we've already put into what we're doing. But of course, waste is a, a prospective problem, not a retrospective one, even if we treat it like a retrospective one because it's the prospective one. Well, if you wouldn't start this today, then that means that everything that you're putting into this going forward is the actual waste, right? But we do that all the time. We go forward with things, uh, that we ought not to be going forward with because we're trying to protect the, the resources that we've already sunk into it in the past. And then there's other issues that have to do with, for example, endowment, uh, the ownership over the things that we've built. This is particularly bad in product 'cause we're building things, and once we build things, we own them, and, uh, once we own them, we don't want to give them up, and we actually value them more highly than identical things that we don't own. And then there's issues of internal and external validity, which is really just a fancy way to say your identity. How do other people view you? How do you view yourself? Do you feel like you failed? And what that means is that by the time ... There's so many biases against stopping, that by the time you're actually even thinking about quitting, like that, it's probably already past the time that you ought to have quit, but we'll still continue on until we know for sure we didn't have any choice 'cause here's the thing. When you walk away from something and someone's like, "Hey, why'd you stop that?" and you're like, "Oh, I had no choice," and you tell them everything that went wrong, and, uh, nobody's going to question you. They're going to be like, "Ah, well, it sounds like you put in your, your best effort." But if you walk away early, people are like, "What?" So just quickly, like I'll, I'll tell you, like, I think just one of the best stories of this, uh, that I've got in my pocket here. Uh, let me pull it out before the end. Um, so-

    10. LRLenny Rachitsky1:15:23

        (laughs)

    11. ADAnnie Duke1:15:23

        ... Stewart Butterfield creating a product called Glitch, and Glitch is a, a massive multiplayer online world-building cooperative game. Um, releases it, this is in the 00s, uh, and it's like a huge hit with the critics. It's Monty Python meets Dr. Seuss. It's incredible, whatever. They're getting tons and tons of great word of mouth and, you know, PR, not doing any paid marketing. They have incredible investors in Andreessen Horowitz and Xcel. They have $6 million in the bank, and they have 5,000 diehard users, meaning users who use the game, uh, who play over 20 hours a week. The issue is that customer acquisition was a beast, that for every one person who was playing over 20 hours a week, there were like between 95 and 99 people who, uh, came for five minutes and left. So, obviously this is a customer acquisition problem, which, which everybody kind of knows. So, they make an agreement in 2012 that they're going to do paid marketing, which they do for six weeks, and during that six weeks, their, their acquisition of new users is growing like, uh, 6 to 7% week over week, which is amazing. And at the end of that six weeks, this is November of, of 2012. At the end of that six weeks, that Monday morning, Stewart Butterfield writes a note to his investors and co-founders and says, "I woke up this morning with the dead certainty that Glitch was over." Now notice, nobody would do this in this case, right? Like, but this is what happened, is that the issue is that you really kind of have to see like, is this worthwhile or not? Would I start this today? That's a forecast of the future, right? And what he did was some back of the envelope math, and he said, "Look, if we continue to acquire customers at the rate that we've been acquiring them, at the cost that we've been acquiring them, uh, it's going to be 31 weeks till we break even." But that's an abs- absurd assumption because customer acquisition costs, it's going to go up. CA- CA- has to rise because we're going to saturate the core gaming market. So it's got to rise. So, what he realized at that point was that this was not a venture scale business, and he was in this for a venture scale business. So, even though nobody else saw that he was supposed to shut it down, he saw he was supposed to shut it down. And not only that, he saw that he was supposed to shut it down for his employees who were working for equity, and he had now realized that the equity wasn't worth their time and that he, it wasn't fair to them to keep going with this. So, he shuts it down. Obviously that feels ... Who does that, right? But that, that ... And he will actually tell you that he knows he should have shut it down before the marketing push. But he needed the marketing push to prove it to himself that he was seeing the future clearly. Now, the coda to this story, just quickly, is two days later he's like, "Well, I'm a startup guy. I want to start something." And he's got this internal communication tool that his team is using, uh, in order to develop this product that everybody loves, and he says, "Actually, they really like that. Maybe that should be the next product." So, he goes and talks to the investors. They roll their money over into that, and that thing, which had no name at the time now gets a name, which is Searchable Log of All Company Knowledge, which is Slack. And so, I think this is the important thing to realize, is that we get so focused on, "But what about everything that I've put into it?" When what we forget is that when you're doing something, there's a h- not just the cost of doing something that's not worthwhile that's direct, but there's also the cost of not being able to devote your attention to other opportunities that might be available to you. And as smart as Stewart Butterfield is, he couldn't see Slack until he quit Glitch, and that is a true cost that he would have borne of continuing with Glitch. If he had continuing with Gli- continued with Glitch, Slack would not be something that we're all using today.

Episode duration: 1:21:00