The Affordable Loss Principle

• Although Hewlett Packard found its initial success by making little bets, once it got big it only made big gets, many of which resulted in big losses. When HP made it’s first handheld calculator, it was expensive and they didn’t think it would sell. Bill Hewlett decided to make 1,000 and see what happened. Soon they were selling 1,000 a day. The key idea here is the affordable loss principle. Pixar was a hardware and software company, but it’s president Ed Catmull always wanted to make feature-length animated films. At the time, the owner was Steve Jobs who let them make a series of short subjects. This allowed them to develop their software and story telling skills even though it was clear that they weren’t going to make any money. What it did was allow them to convince Disney to parter when them to create Toy Story.
• The other focus here is on how American military tactics were ill suited to the adaptive guerrilla warfare they were up against in Viet Nam. During the cold war, the US military prepared for a possible ground war with the Soviet Union. When it came time for more adaptive guerrilla warfare in Iraq and Afghanistan, it was necessary to adapt. No longer could top down plan ahead tactics carry the day. To their credit, they realized that adaptive decision making had to happen by the soldiers in the field. What was needed was critical, creative thinking to describe ill-structured problems and develop approaches to solve them. Rather than use the information you have to devise a battle plan, troops now gather information in the field and use it to plan as they go.

The Mindset Effect

• The focus of this chapter is on Carol Dweck’s work on mindsets. Her book Mindset: The New Psychology of Success: How We Can Learn to Fulfill Our Potential. is summarize here. In short, we all have varying degrees of fixed and growth mindsets. If you have a fixed mindset, you let failure be transformed from an action (I failed) to an identity (I am a failure). If you have a growth mindset, failure can be painful, but you don’t let it define you. You face it, deal with it, and learn from it.
• Peter uses the example of Pixar where people mostly have growth mindsets. They encourage disagreement, and assume that they haven’t got everything figured out. They demand that employees not be complacent and that they constantly challenge themselves. The good news is that like your brain, your mindset isn’t fixed. You can develop more of a growth mindset, but you have to actively try to reframe situations as opportunities to learn.

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