Disruption happen at the Fringes
The general knowledge that schools are based on can now be accessed in milliseconds via the internet. What was the date of a specific event in history? How do you compute that math equation? Which country is a certain city in? It isn’t that this type of information is not valuable, but rather that it is less important than the mental models and first-principles perspective that ultimately leads to value creation. You can think of it like this — the internet now serves as the database for most of the information that our schools previously obsessed about downloading into students’ brains.
Critical thinking skills are moving from a nice-to-have to a need-to-have skill in the modern world. Most people have access to the same information, so how you process that information — and how you apply it — becomes the differentiator. Let’s look at some historical examples of people who used their lack of general knowledge in industry to ultimately become successful:
Elon Musk was an outsider to the automobile and space industries. He was able to drive innovation in both by critically thinking of specific problems from a first-principles perspective. Today we have semi-autonomous electric vehicles and reusable rockets as a result. Musk was able to apply computer science, mental models, to physical products, which increased technological innovation and decreased costs.
Oprah Winfrey grew from television news anchor to daytime show host to successful billionaire. At each inflection point, she applied a business owner mindset to her compensation, while the industry incumbents were focused on talent deals. When they were seeking cash deals, she was seeking equity deals. When they were looking for equity deals, she was asking for equity and royalties. When they were looking for royalties, Oprah was spending $16 million of her own money to buy back the content IP from the distribution company. This type of outsider thinking kept her one step ahead of the competition and ultimately led her to build one of the largest media empires in recent history.
Mark Spitznagel has a unique investing strategy — he intentionally loses money every day. Spitznagel’s strategy is to purchase out of the money options that only pay off when there is a significant market decline. He loses money every day until this moment, but when the market decline occurs, Spitznagel will drive thousands of percent in financial returns. His hedge fund returned more than 4,000% earlier this year, which made him the greatest hedge fund manager in the last decade. He has done the exact opposite of what every investor is trying to do — lose money — but his first principles thinking and intellectual courage created outsized returns.
Cathie Wood, a multi-billion dollar hedge fund manager, prioritizes the hiring of people with non-traditional backgrounds for her investment team. Her thesis is that a scientist may not initially know how to invest, but they are better suited to evaluate the prospects of a company’s gene-editing technology. The same is true with a battery engineer who is dissecting the electric vehicle industry — investing may not be a core skill, but they will understand the technology better than almost anyone else. Wood and her team can teach someone how to invest, but the non-consensus thinking and industry expertise has proven to be a game-changer for her investment business. As of this writing, Cathie Wood and her team manage 5 of the 10 best performing ETFs so far in 2020.
Chance the Rapper turned down many record deals in order to pursue his music aspirations as an independent artist. It was previously believed that the only way to find success in the music industry was to leverage a record deal and the plethora of resources and experience that came with them. Chance and his manager decided that they would attempt the seemingly impossible — go it alone. Their strategy was to cut out the middle man and execute a digitally-native campaign that focused on building a fanatical base of followers. This differentiated approach ultimately led Chance the Rapper to success, where he now regularly sells out arenas, has made millions of dollars from his merchandise business and is the sole owner of his music.
These examples highlight that there is no single recipe for success. You can do it the traditional way or you can forge your own path. However, true innovation and disruption come from those outsiders courageous enough to believe they can enter a field and do it differently. The lesson here is that how you think is always more valuable than what you think.
The ability to think from first principles may be the most highly-coveted skill in today’s technology-driven world. The greatest innovators of our time have proven it over and over again. Maybe we should start paying attention.