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  • [MUSIC]

  • I want to start out with a story.

  • This is a story about a sergeant in the Army, Edwin Montoya,

  • and he was stationed in Iraq.

  • It was just before Christmastime.

  • And he was in the mess line getting some dessert, in fact it was cheesecake.

  • And as he is sort of standing there grabbing his cheesecake about to start eating,

  • there's a major explosion, a huge explosion.

  • A terrorist has set himself off and blown up the mess hall.

  • And Sergeant Montoya dives under a table.

  • When the noise deadens he comes out, takes a look, and he's okay.

  • But he's a medic, and around him is a carnage of people.

  • All sorts of people, some not so badly injured, others very badly injured.

  • And as a medic, his job is to think about who am I going to treat,

  • and who am I going to really not be able to help

  • or who can make it on their own at least for a little while?

  • And so he's faced with that enormous complexity and enormous uncertainty,

  • and what does he do?

  • And what he does is he does what a number of people do

  • ranging from that grandmotherly Janet Yellen to crickets to Mark Zuckerberg.

  • He faces complexity with simplicity, and in particular simple rules.

  • And Sergeant Montoya invokes the simple rules of medical triage,

  • in his case Janet Yellen facing some of the complexity of the federal reserve,

  • the US economy, the global economy.

  • Actually has some relatively simple rules around interest rates that revolve around a number for inflation.

  • It's got to be over 2% and a number for unemployment,

  • it's got to be below 5% before she'll raise rates.

  • Mark Zuckerberg is also facing some complexity,

  • has some simple rules especially around hiring.

  • And crickets, you're probably wondering why crickets are in the picture.

  • Well, if you're a cricket, you've got a really short life span and

  • you've got a really small brain, you have to keep it simple if you're a cricket.

  • 什麼是簡單的規則?So they're definitely into simple rules.

  • What is a simple rule?

  • Simple rules are shortcut strategies that save time and

  • effort by focusing your attention and simplifying how we think.

  • So basically a simple rule is a rule of thumb.

  • Maybe get a little more granular though because you might have already

  • thought of that.

  • This is 1.0 on simple rules.

  • First of all simple rules are simple.

  • That means of all things, simple rules are two to five rules.

  • Not a lot of rules, two to five, something you could remember.

  • Second thing is simple rules depend on the person and situation.

  • So the rules that you have might not necessarily be my rules.

  • And then thirdly, simple rules relate to a specific activity.

  • There are not platitudes like, be nice to your mother, or

  • the customer comes first kind of platitudes.

  • Let me give you a few more specifics.

  • Some rules are simple.

  • So the three food rules of Michael Pollan.

  • Many of you know or have probably read Michael Pollan's book.

  • Michael Pollan is the Is the well-known University of California Berkeley

  • professor who wrote the Botany of Desire, The Omnivore's Dilemma, books like that.

  • On many refrigerators around the world, people have posted

  • Michael Pollan's rules for eating, and his rules are pretty simple.

  • Eat real food that your grandmother would recognize.

  • So if your grandmother wouldn't know what it is, don't eat it.

  • Small portions and eat mostly plants.

  • Now, if you think about within that, that's real easy to remember, and

  • yet you can eat cantaloupe, kale, blueberries, fish and

  • meat occasionally, lots and lots of plants, but not too much.

  • So fairly simple, yet it doesn't really restrict you all that much.

  • Second idea, several rules depend on the person's situation.

  • The skinny middle aged guy is Michael Pollan.

  • He has one set of rules.

  • The other people are Stanford football players.

  • They actually have their own eating rules.

  • Stanford football team's eating rules are, eat breakfast because they're students,

  • and if you recall your student days you stay up late, and get up late and

  • often skip your breakfast.

  • Eat your breakfast is the first rule.

  • The second rule is stay hydrated,

  • because these are active young guys and they tend to get dehydrated and

  • that's not good for your body, so they're supposed to drink water.

  • And the third rule of the Stanford football team for eating is,

  • eat as much as you want, as long as you can pick it, pluck it or kill it.

  • If you think about that and it's got some similarity to Michael Pollan right?

  • Your grandmother would recognize anything you can pick, pluck and kill so

  • basically an emphasis on non-processed foods, but

  • beyond that, the rules are pretty different.

  • Stanford football players are not into portion control.

  • They're into eating as much as you want.

  • Stanford football players are not into mostly plants.

  • They eat a lot of protein and they need a lot of protein.

  • They're growing people who need to build muscle.

  • So the point is, simple rules depend on the situation, they depend on the person.

  • Giving that we're sitting here in the business school,

  • let me give you more of a business example.

  • This is a comparison between Indiegogo and

  • Kickstarter, the two crowdfunding platforms.

  • Indiegogo has a set of rules around which kind of projects can be on Indiegogo.

  • The rule is pretty simple, it's anything goes as long as it's legal.

  • So, you can fund your root canal, you can fund your trip to Europe, you can

  • fund your business, your movie, your Jamaican bobsled team, whatever you like.

  • Or you at least attempt to fund it on Indiegogo, as long as it's legal.

  • By contrast, Kickstarter has many more rules.

  • In particular,

  • Kickstarter has some rules around that you have to fit in certain project categories,

  • typically around the arts, although they do have some business categories.

  • But you have to fit into about 13 categories, and Kickstarter over

  • the years has kicked out about 25% of the projects that are submitted to it.

  • And it's also curated by real people who are looking for the merit of the project.

  • So what's the point here?

  • The point here is the same activity, picking Crowdfunding projects,

  • different rules.

  • Why the different rules?

  • I think it partly reflects the background of the founders.

  • Indiegogo is founded by a of people, actually Berkley people

  • and it's an egalitarian philosophy.

  • Essentially the idea is, who are we to tell who can be on the internet?

  • The internet's for everybody and we're not going to be gatekeepers.

  • Everybody deserves the opportunity to grab a rich uncle off the internet.

  • In contrast, Kickstarter is coming out of a background out of the arts.

  • In fact one of the founders explicitly was thinking about Kickstarter

  • as a way to publicly fund the arts.

  • The arts are as a curation model and

  • they were simply picking up on the curation model of the arts.

  • So same process, different rules, different people.

  • Finally, simple rules refer to a specific activity that you do repeatedly.

  • So, for example, choosing foods.

  • You choose foods everyday, specific activity.

  • If you're Kickstarter or Indiegogo you pick projects everyday.

  • So these are repeated things that you do everyday, focused activities.

  • What are they not?

  • What they're not, is for example, they're not simple rules for who to marry.

  • One assumes that you only marry once or twice or maybe three times.

  • >> [LAUGH] >> But, it's not a repeated activity.

  • [LAUGH] So, there's no simple rules for eating.

  • As I said before, simple rules are not about some

  • massive opportunity or platitude.

  • So, for example, there aren't civil rules for curing world hunger,

  • that's too complex a project.

  • So, it's focused on particular activities that you do often.

  • Okay, that's the beginning of the story, simple rules 1.0.

  • Simple rules 2.0 is telling you a little bit about types of rules.

  • It turns out that there are different kinds of rules.

  • And that's relevant for a couple of reasons.

  • One is, some rules are easier to learn than other rules.

  • So some are easy, some are hard to learn.

  • Secondly, somewhat ironically,

  • harder learn to rules tend to be more high performing, lead to higher performance.

  • So learning the harder to learn rules is more related to high performance.

  • And the final reason it's important to learn the different kinds of rules is

  • because having a repertoire of rules is also more

  • effective than just having one kind.

  • So, that's why we're going to talk a little bit about kinds rules.

  • First rule I mentioned to you was a boundary rule.

  • A boundary rule people use when deciding yes or no.

  • For example, you're a judge and you want to design yes or no on bail for

  • someone who's under arrest.

  • Or which alternative do you choose among a lot of alternatives?

  • So most, two kinds of situations.

  • So whenever you have mutually exclusive alternatives or

  • you just have too many alternatives and you've gotta pick one.

  • Give you an example out of Google.

  • When Google was less complex than it is now there were some problems

  • around trying to get product development projects done quickly.

  • How to keep up with search features, for example.

  • And there was some thinking about how do you actually develop products faster?

  • And maybe we should reorganize the way we do product development.

  • A number of other ideas.

  • Finally came up with the idea what was really stopping them and

  • slowing them down was their hiring.

  • And they decided the key was, how do we hire top computer scientists faster?

  • Because in general, top computer scientists are way more productive than

  • not so top computer scientists, average computer scientists.

  • So how do we get those people?

  • And so they came up with a couple of rules.

  • Some of it was around, just go to top schools and look for

  • people with good grades and that was sort of something you would do.

  • But the other rules were more subtle.

  • One of the rules was look for people who are eccentric,

  • people who've ridden unicycles, or gone to the Himalayas for

  • six months, or been a stay at home dad or something that was out of the norm,

  • although maybe stay at home dads getting more popular.

  • But, in general, it was people had done something you had never seen before.

  • The idea behind that was they found that people who were unusual,

  • were also creative and that's the kind of person they wanted.

  • The second rule was favor, people who'd been referred to them by

  • other Googlers so, Googlers referring future Googlers.

  • And there the idea was that a Googler knows what a good Googler is, and

  • by the way they also want to work with good Googlers.

  • They'll be a good source.

  • And then the third rule was if you see any inaccuracy in the resume or

  • that comes out during the process, don't hire that person.

  • We want high integrity people,

  • any fudging any inaccuracies on your resume and you're out.

  • Within that then you can hire who you wanted but

  • it cut down the number of people that they were focusing on, and

  • they started to focus on the people they really wanted.

  • Another example of that is a company that we did some work with called

  • Frontier Dental.

  • They had an innovative products around dentistry, around in lace crowns.

  • That sort of thing.

  • And their problem was they thought they had a great product.

  • The industry, media thought they had a great product.

  • But it wasn't selling.

  • And they were going to dentists and maybe they'd call 100 dentists and maybe two or

  • three would talk to them and maybe one of them might buy it.

  • So, they were spending a lot of,

  • spinning their wheels a lot of times trying to sell the product.

  • What'd they do?

  • Whey went back and started looking at who had actually bought their product and

  • was using it.

  • They also thought about what their ideal dentist was and

  • then came up with some rules.

  • The initial rules weren't very good.

  • They were things like, the ideal dentist is between 35 and 50.

  • Well it turns out it's really hard to tell how old somebody is.

  • So what they ended up doing was going to really something very simple.

  • We'll call on dentists with innovative websites, because that's a signal that

  • that dentist has money and that dentist is forward looking.

  • So they looked at how innovative the website was.

  • Second thing they looked at was credit scores.

  • If a dentist has more than two dings on the credit report in the past year,

  • don't go there either.

  • So, they want an innovative dentist who pay their bills.

  • >> [LAUGH] >> Final example,

  • just some boundary rules, just a quick one.

  • This is the Weinstein Company, I don't, do you see that very well?

  • >> Yeah.

  • >> Can you see it okay?

  • That's a picture of the imitation game that you may recognize from

  • the movies last year.

  • The Weinstein Company as brought you The Artist, The Talented Mr.

  • Ripley, Chocolat, actually back in the day,

  • Pulp Fiction, The Imitation Game, Silver Linings Playbook.

  • A number of top Hollywood movies.

  • They are known as a movie studio that is both creative and

  • makes a bunch of money, so the nirvana of the tech world, if you will.

  • I won't go into all the rules, but one of them I think's kind of interesting is,

  • every movie has a flawed but sympathetic main character.

  • And so in the case of Alan Turing if you saw that movie he is a real jerk, but

  • you do feel empathy and you like him, I think most of us do.

  • Same with Silver Linings Playbook.

  • It's about a couple of people who are, get romantically involved,

  • who are both have mental illness issues and again,

  • they're both difficult people but you care about them.

  • So isn't that every movie, you're saying to yourself?

  • Well, if you saw The Gone Girl, or

  • Birdman, there was nobody to like in those movies.

  • So the idea here is you, they're flawed but you like them.

  • Let me go to another kind of rule.

  • This is a how-to rule.

  • Guiding the basic steps of executing a task.

  • Give you a couple ideas here.

  • What is Airbnb?

  • As I'm sure many of you have probably used Airbnb at this point,

  • you may also know that the Airbnb founders stumbled around for

  • about a year and a half after they rented out a room in

  • their apartment with an air mattress and a bagel.

  • So they sort of stumbled around trying to figure out what the model was.

  • Finally joined Y Combinator and

  • ended up going to New York to try to figure out how to build their business.

  • One of the early rules and I think one of the most important rules they developed,

  • first of all, the focus on hosts.

  • But secondly hosts always should have professional pictures taken of

  • their properties.

  • Why professional pictures?

  • What that did was it made the properties on Airbnb look slightly better than

  • those properties on sites like Home Away or Vacation Rental by Owner, whatever.

  • The other incumbents.

  • Slightly better-looking properties, slightly more likely to get the renter

  • because a virtuous cycle of more and more building of the Airbnb.

  • Host and guest size of the market.

  • Another simple rule that they had was, all hosts should leave local tips, so

  • tips about the local farmers market, the subway station maybe leave museum passes.

  • The idea there was to differentiate the Airbnb experience from a hotel.

  • It's personal, it's about you, it's local.

  • And that was a signal to people that it was a local experience.

  • The other how-to rule is actually coming out of Twitter.

  • This is from the executives at Twitter.

  • Those of you who are still working,

  • you probably spend way too much time in meetings.

  • And that was what some of the Twitter executives decided they did.

  • They decided to have some rules which kind of ironically for

  • me anyway were about PowerPoint.

  • And the rules were no PowerPoint.

  • And if you commit to going to a meeting, you have to show up.

  • So why those two rules?

  • Why no PowerPoint?

  • Well, because they decided that everybody was wasting way too much time on making

  • PowerPoints.

  • And secondly, people talk to much when they have PowerPoints.

  • So, don't waste your time making a PowerPoint,

  • don't talk too much, just come to the meeting.

  • Why the rule about you can't cancel out?

  • Because, if you have a meeting that has four or five people and

  • one person doesn't show up, it detracts from what the point of the meeting was.

  • It mattered that that person wasn't there, you can't really accomplish what

  • you've wanted to do, you've sort of wasted everybody else's time.

  • So, you gotta show up.

  • And finally, this is The White Stripes, which is a band that

  • had probably one of the number one albums of the 2000s, the White Blood Cells.

  • They're not as you would imagine from that picture.

  • There not exactly rule bound kind of guys but the point of this particular slide,

  • is to say that many people associate rules with lack of creativity.

  • And I think that's actually wrong.

  • A few rules is actually more creative than no rules at all.

  • You need some kind of constraint to play off.

  • And in the case of The White Stripes, what they did was they created their album,

  • and they did 18 songs in 10 days.

  • And they did that with, among other things, a few simple rules.

  • One of the rules was no solos.

  • No covers, which means not playing anybody else's songs.

  • No blues, no guitar solos, no bass.

  • Other than that, you can play what you wanted to play.

  • And so the point here is,

  • that again, you need some kind of constraint to be creative.

  • And what's in fact happening, people say, oh, think out of the box.

  • And I think what the real thing to say is, create your own unique box and

  • then play it within that.

  • That's where the creativity's coming from, at least part of the creativity.

  • Okay, how to and boundary rules are pretty easy to learn.

  • Let me talk a little bit about some harder leaned rules to learn.

  • Timing rules.

  • Timing rules are harder to learn, but they matter.

  • What are timing rules?

  • Deadlines, rhythms, sequences.

  • But they matter because they help you get things done,

  • they help you get things started, they help you keep momentum when you have it.

  • Given that we all got up early this morning,

  • one set of rules is timing rules are on insomnia.

  • So there's some interesting rules that seem to work, particularly for

  • elderly people.

  • And they are simple rules of, go to bed when you're tired,

  • get up at the same time every day.

  • Two simple rules about time.

  • Go when you're tired, get up at the same time.

  • Back to the business world.

  • This is actually Pixar, an example from Pixar.

  • Pixar, as you may know, the first hit was Toy Story.

  • And Toy Story was a movie that took Pixar about four years to create.

  • And, after the glow of the success of Pixar of Toy Story wore off,

  • the Pixar executives started thinking to themselves,

  • how do we make a real business if it takes us four years to create a movie?

  • That seems too long.

  • How are we going to get top talent?

  • And so they started thinking about what are they going to do about that?

  • And realized that what they really wanted to do was release a movie every year.

  • So they developed a rule that says, we'll release a movie every year and

  • we will release it at Thanksgiving, which then hits the holiday season.

  • So, every year, holiday season.

  • That is not so easy to do if you think about it,

  • because what they had to do is take a four year process, and

  • what they did was essentially chunk it into year long blocks.

  • So there'd be a year one, year two, year three, year four, roll it.

  • And then having to understand what they could get done in the first year,

  • the second year and the third year, and had teams that handled each year.

  • So you basically built a pipeline,

  • which essentially made movie-making something of a factory.

  • With a very long time in each step, about a year a step.

  • And so they don't necessarily release a movie every year and

  • occasionally they'll have a movie, in fact it just happened this year,

  • where they weren't happy with the quality of the movie.

  • And so they didn't release on time.

  • But normally they hit it.

  • Occasionally they go to say a June release.

  • But mostly they're hitting that Thanksgiving new release,

  • Thanksgiving new release.

  • Another example, is a company that you probably don't recognize.

  • It's a relatively young company.

  • It's called Primekss.

  • Their business is concrete, one of the businesses is concrete.

  • You probably haven't been thinking much about concrete lately but

  • you may know that concrete and cement,

  • it's derivative, is the third leading cause of CO2 pollution in the world.

  • So it's a massive contributor to global warming.

  • And what the guys at Primekss did was come up with a new concrete.

  • And first of all, they did that by going back to ancient Egyptian texts.

  • The Egyptians were the first to do concrete.

  • And realized that what the Egyptians, and later on, the Romans,

  • who were also heavy users of concrete, were doing, was they were adding blood and

  • horsehair to the concrete.

  • So they start thinking, well,

  • blood and horse hair's not exactly 21st century, what are we going to do?

  • And they proceeded to figure out a modern equivalent of blood and horsehair for

  • their concrete.

  • What it did was, it cut the CO2 pollution in half in the making of concrete.

  • And also allow builders to use less concrete,

  • and that concrete was less likely to crack.

  • So it was both less polluting to make, and you used less of it and

  • had to replace it less often when you actually got it in service.

  • So they had this really great product.

  • The question was how to sell it.

  • They went to Las Vegas, a Las Vegas trade show.

  • They had all kinds of partners around the world who wanted to get in on this

  • concrete.

  • How to choose, this is a small company.

  • How do we choose, who do we want to partner with?

  • They came up with a couple of simple rules to sort it out.

  • One was, don't have geographically overlapping partners.

  • If it's one geo, it's one partner, pretty simple.

  • Second thing they came up with was a little more subtle, and

  • that was partner with people who have laser screened machine.

  • You and I probably don't know what a laser screened machine is, but

  • in the concrete world, people know, and it's a signal that this is a company

  • that's innovative, and high-quality, and progressive.

  • So, similar to the Dennis website, builders with laser screen machine,

  • was a signal of a certain kind of contractor.

  • The third, because this is timing rules now, the third was a timing rule.

  • And that was, we're going to get a new partnership every three months.

  • So every three months we're going to get a new partnership.

  • Three months, three months, three months.

  • We're a small company, we can't on-board people faster than that.

  • On the other hand, we don't want it to stretch out too far.

  • They figured they had the capacity for three months.

  • Moreover, being on a rhythm, much as it did for Pixar, allowed them to

  • synchronize their internal activities around engineering, sales and so forth.

  • So they know every three months we bring on a new partner.

  • Every three months is a new partner.

  • Timing rules are fairly difficult to learn.

  • But the hardest kind of rules to learn is stopping rules.

  • We've probably all been in situations where we bought a stock and never sold it.

  • So we may have rules for buying but not selling.

  • We're in a relationship but we don't get out.

  • We have difficulty when to call it quits.

  • So most of us can choose to do things,

  • many of us have trouble getting out of things.

  • And yet it can be that we're running out of time and resources.

  • It can be that more promising opportunities exist.

  • So our friends at Primekss Not only had the rules I just told you,

  • but they had a stopping rule.

  • And that was if a partner has not sold our product within three months,

  • we end the partnership.

  • They were too slow.

  • They weren't that interested.

  • We made a mistake.

  • Time to move on.

  • This is a picture of Steve Blank, who is know for the lean launchpad.

  • He teaches, I don't think he teaches at this school, but

  • I'm in the school of engineering, and he's over with us in the engineering school.

  • But Steve has a couple of rules about starting entrepreneurial firms.

  • Some of his rules are how to rules about how to find customers.

  • He's famous for get out of the building, talk to a hundred people,

  • do it face to face.

  • That's the first step.

  • But he also has the back end of when to stop.

  • When do you decide it's time to pivot and

  • when do you decide this product is not going anywhere.

  • And his rules are after you've talked to your 100 customers out of the building

  • face to face.

  • Do customers see a problem?

  • Number one.

  • Number two, do customers want to solve that problem?

  • Number three, will customers pay to solve that problem?

  • Well, in the end, will they pay you?

  • And number four is can we actually solve the problem?

  • So yes, you solve those four questions, and if the answers are no for any one of

  • those questions, you move on because that product's not going to make it.

  • So four simple rules, does the customer see a problem?

  • Will the customer pay to solve it?

  • Will they pay us?

  • Can we do it?

  • Finally, final stopping rule, this is Mount Everest.

  • Many of you have probably read the book, Into Thin Air,

  • that talks about the death of about eight climbers in 1996 on Mt Everest.

  • And in that climbing expedition the leaders of the expedition,

  • Scott Fischer in particular, had a stopping rule, and

  • that rule was, if you're not on top by two in the afternoon, you leave.

  • You turn around, no matter where you are, you turn around.

  • On the day that these eight people died in an avalanche,

  • they were on top at four o'clock.

  • Had they followed their own stopping rule, those people would be alive today.

  • But they didn't and tragedy came about.

  • So those are some of the key rules.

  • Stopping rules being hard to learn.

  • going to say just a couple things and then maybe open it up to you all.

  • How to create simple rules.

  • I thought that'd be kind of an interesting thing to talk about.

  • Three steps, what's your objective?

  • What do you want more or less of?

  • Keep it specific.

  • Find a bottleneck.

  • What's really keeping you from your objective?

  • And craft the rules.

  • How do you actually figure out the rules?

  • Finding the bottleneck is probably the hardest thing to do.

  • Determine the objective.

  • We'll maybe mix it up a little bit, have a little bit of alumni stuff here.

  • This is the Stanford football team again.

  • What's the objective?

  • Well you've probably all wondered how Stanford went from one and

  • 11, to a football powerhouse.

  • In fact, I don't know about you,

  • I kind of find it a little strange that I went to a football powerhouse.

  • >> [LAUGH] >> [LAUGH]

  • In some ways, I was more comfortable with

  • the old four and six Stanford when you could always get a seat.

  • >> [LAUGH] >> But that's not our world anymore.

  • And you're maybe wondering how that happened.

  • One of the big, if you think about the problems a Stanford football team has

  • is there aren't that many guys who are smart enough and

  • can get into Stanford and can also play Division 1 football.

  • That's a very small pool of people.

  • And our team is a relatively thin team of talent.

  • You know, there just isn't that much talent.

  • And so it turns out there were a number of things that happened.

  • One of the major ones was a guy name Shannon Turley,

  • who is our director of strength training.

  • He has a more elaborate title now, but

  • he is basically the head of strength training for the football team.

  • The football team put a lot of emphasis on strength training.

  • But unlike other programs where the goal of strength training is to

  • bench press hundreds of pounds, and clean jerk hundreds of pounds,

  • and wear t-shirts that said your personal best in lifting was something.

  • You know, essentially being strong.

  • Shannon changed the objective, because as you think about the team, he changed

  • the objective to, it's not getting guys stronger, it's keeping guys injury-free.

  • Which is not only morally, I think, appropriate, but it also turned

  • out to be strategically important for Stanford football in particular.

  • And under Shannon, the Stanford, from basically the first couple of years,

  • Stanford dropped their serious injury rate 90%,

  • with a strategy that was around, what's our objective?

  • Our objective is to keep the guys healthy.

  • And so they're on the field.

  • because when your guys are not healthy,

  • even though they might be great, they're not on the field.

  • And so thinking back, what's our real objective,

  • what's our strategic edge, was actually very helpful for Stanford football.

  • And this focus on keeping players injury free.

  • So that's first the kind of a give you an example of objectives.

  • It's thinking harder about what it is you really want.

  • Sometimes it's revenue.

  • Sometimes it's cost.

  • Sometimes it's growth.

  • Sometimes it's profitability.

  • And sometimes it's something like,

  • in the case of Google that I mentioned before hiring top computer scientists and

  • the case of Stanford football staying injury free.

  • Second step is finding the bottleneck this is being House of Cards.

  • This is the bottleneck that Netflix had.

  • Netflix was faced with a situation as you may remember

  • where the cost of content is coming very high.

  • So Hollywood movie studios has figured out the streaming game and

  • were starting to charge Netflix a lot and their margins were being squeezed.

  • And so Netflix decided on original programming,

  • the first of which was House of Cards and this is Kevin Spacey and

  • Robin Pen writer, write pen, or write, I think it's just write now.

  • See I'm not having a simple rule for getting married.

  • Anyway, so what's the bottleneck?

  • Turns out the objective of Netflix was to a large extent, creating buzz.

  • They wanted media buzz because how else were they going to stand out against, for

  • example, HBO?

  • So they thought well for

  • most of television, what we call television, it's great writing.

  • That's what really makes a great show.

  • What makes Mad Men great, what made the Sopranos great?

  • It's great writing.

  • And so at Netflix they said well you know we have to have great writing because

  • otherwise, we can't complete.

  • But you can't win with great writing.

  • And so they thought further, what is the thing that will really win for us?

  • What will make us stand out and give us buzz?

  • And there they changed the bottlenecks, and they addressed two bottlenecks that

  • most of, in fact all of the entertainment world on television is not doing.

  • One of them was directing.

  • Let's have A-list directors.

  • And so they hired Kevin Fincher to be their director and

  • then Kevin Fincher proceeded to bring in other A-list directors.

  • Kevin Fincher did the social network, the Dragon Tattoo,

  • the movie with Brad Pitt about the guy whose life goes,

  • he starts old and becomes young, Benjamin Buttons, that movie.

  • So an A-list top director.

  • And then, he had top directors working with him as well.

  • Why that bottleneck?

  • What did that bottleneck do?

  • It gave House of Cards a unique cinematic by using top quality movie directors.

  • So House of Cards simply looked Different.

  • And that created a buzz for House of Cards.

  • It was a different looking experience on the small screen.

  • The second bottleneck they attacked was programming.

  • Traditionally in the entertainment industry, one buys pilots for

  • a show, like two or three pilots, then goes six pilots.

  • Maybe then buys a year of shows.

  • And then secondly, releases those shows one a week.

  • House of Cards changed that.

  • Netflix, not only did not buy pilots.

  • Netflix bought two years of House of Cards.

  • Two years of episodes.

  • And released, as you may remember, the first year all at once.

  • So you could binge watch.

  • Both binge watching and

  • the buying two years worth were major breaks from what most people had done.

  • It created a lot of media buzz around House of Cards,

  • got people watching House of Cards.

  • People started binge watching House of Cards.

  • People told their friends about binge watching House of Cards.

  • You didn't have to wait until the next week to see if you liked the show,

  • and so on.

  • So the point is that they went to two simples rules as they then continued.

  • Use A-list directors, on that side, but

  • also buy in bulk and let people binge watch, release it once.

  • Now that of course looked risky for

  • the average entertainment company in Hollywood.

  • It was not so risky for Netflix.

  • Because as the Netflix guys say.

  • We knew you'd like House of Cards before you knew you'd like House of Cards.

  • They knew from their data on the streaming services Netflix subscribers like

  • Kevin Spacey, they like David Fincher and they liked the old British House of Cards.

  • They were sure House of Cards was going to win.

  • They could take a bet on buying in bulk.

  • And actually ending up paying a lower price.

  • Secondly, they knew you were already binge watching.

  • Even though regular media companies didn't know it.

  • Netflix knew that their subscribers were already watching two to three, four,

  • five, six episodes of whatever at once.

  • So, what's the point here?

  • They found some unique bottlenecks and then created rules around those.

  • Finally, creating the rules.

  • I'm not going to say too much about that, but

  • we can talk a little later about it if you like.

  • Creating the rules is fairly straightforward.

  • What companies do, and

  • this is actually a restaurant chain in Europe based in Czechoslovakia.

  • And they were developing some rules around what menus to offer in their cafeterias.

  • What they did wa, first of all, what their market was, they were based in Prague.

  • And their market they decided was going to be Western European and U.S.

  • companies coming to Prague, and looking to have a better food experience for

  • their employees.

  • So the Cisco's, the Google's,

  • the Facebook's, those kinds of companies coming to Prague.

  • That was their market.

  • They got some great chefs.

  • They started serving great meals and they started losing money.

  • So everyone loved the service, but they couldn't make any money on it.

  • So what they decided was their objective was making money.

  • Their bottom like process, they decided was menu planning.

  • And then they had to figure out their rules of menu planning.

  • Prior to that, there were really no rules.

  • The chefs just had a great time figuring out whatever they wanted to make and

  • did that.

  • What they did was engage the chefs in creating the rules.

  • So that's the thing you usually want to do is have your employees engaged or

  • a family member if it's family rules.

  • Engaged in the process.

  • Started looking over their history.

  • What meals did people like?

  • What meals were profitable?

  • Started thinking about that.

  • Came up with some rules that basically put some discipline on the chefs.

  • And the rules were, set the menu by Wednesday of the prior week.

  • Five meals a day at every cafeteria, three meals have to be best sellers,

  • two meals have to be the same across all the cafeterias.

  • So we get some economies of scale.

  • Within that, oh, and try and locally source or at least seasonally source,

  • because it turned out the chefs were ordering up oranges in January.

  • And there were no oranges to be found in Prague.

  • So, those simple rules.

  • Wednesdays, five meals, two the same,

  • three best sellers, locally sourced or at least seasonally sourced.

  • Within that, do what you want to do.

  • And ending up with a, they became profitable in six months,

  • and grew their business by over 50% in a year.

  • So basically worked out well for them.

  • But the keys to finding the rules were having the people who use the rules

  • figure out the rules, looking at their own experience.

  • They also brought in an outside consultant to give

  • them just an external point of view.

  • So it's look at your experience, bring in an outside source, and

  • perhaps ask your employees who were involved to do it.

  • So to summarize, and maybe to end up with

  • Leonardo Da Vinci, simplicity is the ultimate sophistication.

  • And keep it simple.

  • So that's what I got for you and hopefully you'll have some questions.

  • >> [APPLAUSE] >> Thank you.

  • Thanks.

  • Any questions this morning, anybody's got?

  • Yeah, could you use a mic if there's one nearby?

  • >> Thank you very much for that fabulous articulation of the simple rules side

  • of the equation you presented in the beginning.

  • >> Okay. >> I wonder if you could say something

  • about what you mean by complexity.

  • And is that an assumption everybody else in the room

  • might share with you that I don't?

  • >> Okay. Oh-

  • >> And why it is,

  • what's the relationship between what you see as complexity and simple rules?

  • >> Okay. Yeah,

  • complexity means that there are too many things going on.

  • So I think most of us in our lives have too many remotes,

  • too many things our kids are doing, too many things to do at work.

  • So there's too many things to do is complexity.

  • And actually layered on it, which I didn't talk about, but

  • is even more a driver is uncertainty.

  • So not only are there many things to do and they're interconnected and

  • it's hard to figure out causality.

  • But also there's an underlying uncertainty.

  • And so not only is it complex, but it's changing.

  • And if you try to use a complicated solution,

  • lots of analysis, lots of information, there are two problems with that.

  • One is it's too slow.

  • The second is that you tend to over fit the past.

  • If you're using a lot of information you often will be over-fitting the past and

  • the past is not necessarily a predictor of the future in an uncertain world.

  • And so it's being driven both by the complexity as well as the uncertainty.

  • And so, for example, I'm now going to get a little bit techy here, but

  • if you have a big data set and you can figure out equations that fit that data.

  • The simplest fit of the data is the most predictive.

  • Not the most complex.

  • because what you're trying to do, is you're trying to predict the future.

  • Does that- >> Yes, that's very helpful.

  • And I guess my followup wold be,

  • is this why people talk about things like resilience within systems?

  • >> Oh yes.

  • >> Or that how complex systems are in fact more robust,

  • like a forest that has many species as opposed to one?

  • >> It does have to do with resilience.

  • That's right.

  • >> The ability to respond to all that uncertainty.

  • >> Right.

  • And I don't know how many of you the Santa Fe Institute and Complexity Theory.

  • The underlying scientific basis is complexity theory.

  • So if somebody wants to talk about that afterwards, I'm happy to do that.

  • Complexity theory, complex adaptive systems.

  • Yeah, question?

  • Thanks so much for the lecture, it was very interesting.

  • I have a very simple question.

  • >> Okay, I'll have a complex answer.

  • >> [LAUGH] >> Since we're here at Stanford,

  • what are the simple rules that the Stanford Admission Department uses?

  • >> [LAUGH] >> The simple rules,

  • I'm sure they have them and I'm sure they're not telling us.

  • >> [LAUGH] >> I could make a guess, but

  • I'm not sure I want that on tape.

  • [LAUGH] >> [LAUGH]

  • >> But I'm sure there are some.

  • >> Thank you. >> Welcome.

  • >> And unfortunately though it turns out we are turning down

  • a lot of great kids these days.

  • I don't know, it must be an enormously difficult task, because there are so

  • many great kids we're turning down.

  • Although as a professor every so often I'll have a student in class and

  • I'll wonder how did he or she ever get here.

  • Then I have to click back and

  • say what was I like when I was 19, oh yeah now I remember.

  • Yes?

  • >> Thank you for that.

  • Question is really about this concept of continuous improvement and

  • standardization.

  • >> Yes.

  • >> And of course the rule I see as being the plateau or

  • the standardization before you go through the next iteration.

  • How do you lead an organization through a continuous improvement process,

  • if you have rules that are established and

  • say the environment is constantly changing, how do you negotiate that?

  • >> I think what we find in working with companies, that you try to find.

  • The more the world is changing, the fewer the number of rules, and

  • that's the, if you will, the meta rule of thumb.

  • So if the world is slowing down and it's stable, you can have a lot of rules and

  • even you can start approaching bureaucracy.

  • But when the world is changing, you keep the number of rules simple, so

  • a smaller number.

  • Every so often, you do need to change the rules, the environments change, you know,

  • competitive situations change.

  • I mean, a classic case that many of you would know is Moneyball.

  • Moneyball, one of the key rules was higher,

  • signed players who have a high on base percentage.

  • Great rule until the Red Sox and every other team started doing the same thing.

  • That rule didn't work anymore.

  • You had to change the rule.

  • The environment changed.

  • So you do have to be sensitive to the number.

  • If you've got a lot of movement, and then when the competitive situation changes.

  • >> So once a year, maybe reassess or.

  • >> Reassess whether or not, are these rules making sense.

  • And I would guess many of you have, at some point in your life, raised teenagers.

  • >> [SOUND] >> Simples rules are perfect for

  • teenagers, but you have to keep updating them.

  • Simple rules, but as the child gets older you update the rules.

  • Yeah.

  • Great, thank you. Now I'll go on this side,

  • then go back to that side, yeah?

  • >> In most of the examples you gave,

  • it seemed that the simple rule was coming top down.

  • Is that a necessary precondition or did you find it the other way as well?

  • >> We found that bottom up was actually pretty useful.

  • In a lot of the companies where we're either, working with a small company,

  • let's say.

  • Not that small, but maybe 500 million and under.

  • Or business units of bigger companies.

  • It was more effective to have the individuals who are going to have to

  • use the rules be more involved with the rules.

  • Then they understood it, they had more ownership.

  • So it was actually more effective to go bottom up, using data from the past.

  • Okay, yeah?

  • >> And I come from a little bit more of a complex world.

  • I'm a general counsel of a company.

  • And what we find in our legal department, is that often times,

  • business units overlook exposures, which could be catastrophic.

  • Now there's a very small probability of them happening.

  • How do you integrate the probability of catastrophic exposures

  • in your rule making?

  • >> I haven't run into that very often.

  • I would think that one would, one would turn to perhaps someone like you and

  • perhaps operating people and say what are our biggest exposures?

  • Or what is this catastrophic risk?

  • And what's the one thing maybe we don't want to do?

  • Let me think.

  • It's not a catastrophic, but

  • I have worked with a company where they were doing a lot of joint ventures.

  • And they would always put a financial cap on the top.

  • We don't go in a venture that's bigger than this.

  • And that was a way to limit exposure.

  • As far as that real tail, I haven't thought too much about that.

  • I'll have to think about that.

  • Have you thought about it?

  • [LAUGH] >> Oh.

  • I know.

  • Your friend is rolling her eyes.

  • >> Yes, many times.

  • And I'll give you a classic example.

  • We recently opened up 26 locations, and

  • the legal department recommended putting a cap on the amount of

  • the lease exposure you could have if you had to exit the location.

  • All of the MBA said, we'll never get a lease if we do that.

  • And, of course, now some of the locations are underperforming,

  • and there are issues that are abound.

  • And which the legal department and

  • my department is having to deal with on an everyday basis.

  • [LAUGH] >> I guess the good news is you

  • still have a job?

  • >> [LAUGH] That's true.

  • >> Yeah. >> But,

  • it was a very good simple rule to start out with.

  • >> It was a good simple rule.

  • When do we get out of there?

  • >> [LAUGH] >> Yeah.

  • In the timing rules like the initial slide, it.

  • >> Yeah. >> Mentioned the timing rules can be

  • useful for getting unstuck.

  • And I was wondering if you've had examples of that?

  • >> Yeah, the idea is that.

  • That a lot of times we always mean to do something.

  • And if you have a timing rule that says well,

  • actually, I'm going to, I'll use actually, a personal example.

  • You know, I really should exercise more.

  • Which many of us probably have that dream.

  • If you actually have a time rule that says I'm going to exercise everyday at five, or

  • I'm going to exercise twice a week.

  • You put that into your head.

  • That is something you can remember.

  • That is something that becomes more concrete for you than GRI exercise.

  • So that is how it can get you unstuck.

  • Okay, I'm going to exercise every day at five.

  • I'm just going to do that for five minutes or whatever I'm going to do.

  • But creating that rule,

  • and one of the reasons why simple rules work us partty because they're fast.

  • But partly because they're easy to remember, and even when you're tired,

  • hungry, stressed, busy, you only have to remember a couple of things.

  • >> Thanks. >> Sure.

  • >> Hi. I had a question about the stop examples

  • that you gave for Steve Blane.

  • Start at the front end of making a decision whether you do something, but

  • you often have to stop projects which just aren't working.

  • >> Right, right. >> And as they,

  • since they're somewhere down the road, it's organizationally complex to do that.

  • So, it's sort of reversing bad.

  • How do you reverse bad decisions quickly

  • in a timely way in sort of simple rules that you may have seen relative to.

  • >> I"ve seen a company that was pretty successful into going into new businesses.

  • And their simple rule for

  • stopping was, if the business hasn't met certain revenue targets, and

  • they had pretty determined targets, >> In two years,

  • we either exit the business or this team at least exits the business.

  • And what that did was, everybody knew that's what the target was,

  • and so it wasn't then, at the last minute, people saying, oh, we're almost there.

  • We're almost there.

  • It ended at a certain time.

  • Maybe if I add to that.

  • Some companies have rules that it's better to fail inside the company

  • before you go out and find you're not performing well.

  • This might be in a product introduction.

  • Making a decision about stopping it there before you go through

  • all the full rollout of things.

  • So, it's even getting it back inside the company.

  • >> It's even to the point of, simple rules are situational.

  • In the situation you might find yourself, you may want to stop.

  • Let's say pharmaceuticals, somebody like Genentech,

  • I know has some rules about But when they stop a phase one clinical trial.

  • I mean, there are the FDA rules, but

  • they also have their own rules about when they stop a trial.

  • >> Thank you.

  • >> Okay, and if you have set them up ahead of time, it's a lot easier to then,

  • it becomes less political because everybody's agreed ahead of time,

  • this is the rule and we're following that.

  • It then doesn't become political around, well,

  • you know, maybe it's different this time.

  • Maybe this team's different.

  • You kind of know the rule.

  • Anything else on anybody's mind this morning?

  • Anything else?

  • Okay.

  • >> What simple rules could you apply to the complex problem of

  • humanity's unrestrained continued burning of fossil fuels?

  • >> Hm.

  • [LAUGH] That is a complex problem.

  • Simple rules are about a particular activity.

  • So simple rules could be useful for a particular thing like,

  • perhaps, automotive gas consumption.

  • In fact, I would think, this isn't climate change but it is a legal example, or

  • a government example, the Glass-Steagall Act that regulated Investment

  • banks and other kinds of banks in the 1930s is a 34-page law.

  • Dodd Frank with all its extensions is 34,000 pages.

  • A law that no one can understand.

  • No one will ever understand.

  • And the point is that for something like climate change,

  • having a zillion rules is just going to make, lawyers rich,

  • lobbyists rich and the rest of us confused and not knowing what to do.

  • And so relatively small number of rules, I would think,

  • would be helpful around let's say gas consumption or solar panels or whatever.

  • I mean, it would depend on particularly

  • what aspect of the challenge you were looking at.

  • But keeping the laws I think relatively simple so

  • that people understood them, businesses understood them so they knew how to

  • operate within the context of those laws, I think would be a big gain for us all.

  • >> Uh-huh.

  • And does it help to begin with a single vision perhaps.

  • Transforming the world's largest industry from 85% fossil to

  • 100% renewables as quickly as we prudently and profitably can do so.

  • Something simple like that?

  • >> [LAUGH] >> I think it's going

  • to be something we're all, you know I think it's hard for us to all buy in.

  • I think maybe I'm a little less grandiose than that.

  • [LAUGH] >> Thank you.

  • >> Thank you. Thanks for coming.

  • Looks like we are about the end of our time but I can hangout.

  • Should I take one more question?

  • Okay.

  • >> Simple rules are wonderful.

  • My question is in terms of reality,

  • what happens when the people start to second guess the rule or

  • make exceptions to the rule or kind of

  • blink when it's time to [CROSSTALK] >> Well then you're not enforcing

  • the rules, but also maybe if a lot of people are blinking and

  • not enforcing it it's probably time to change the rules.

  • >> And do you see that?

  • >> Yes, the rule is not working anymore, people are finding too many exceptions.

  • Maybe there's something about these rules are obsolete, let's go to something new.

  • Okay?

  • Thanks everybody, I appreciate it, and have a great weekend!

  • >> [APPLAUSE]

  • [MUSIC]

[MUSIC]

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