The Craft by Openspace: Rory Sutherland On Alchemy

Hian Goh
May 4, 2022

The Craft series from Openspace explores leadership today through conversations with people with storied experiences.

In this conversation with Rory Sutherland, Vice Chairman Ogilvy and author of several books, the world-renowned behavioral scientist discusses why a great leader needs to embrace alchemy in their decision-making.

Hian opened with his own vision of Rory and his team sitting in a smokey underground basement cooking up crafty ideas that don’t make sense (until they do.) In fact, that might not be far from the truth - Rory’s practice is all about shifting perspective through small contextual and psychological changes in order to create a big impact.

Kickstarting the interview, Rory said that we need to rethink the economic theory of value, in that people pay for what things mean and not what are objectively. When each of us looks at a business or sector, there is a tendency to optimize around what is easy to measure and not what is actually important. Once you realise that, you realise that you can change what something means or how it feels with a small, low-cost intervention and open up possibilities for butterfly effects in value creation.

Uber is a great example. A conventional taxi firm would have said that they have it on good authority that people don’t like waiting a long time. So, they’d spend a lot of time and development effort on reducing the waiting time. They might put more taxis on the road or create a predictive algorithm that puts those taxis at the point of need in advance of demand. When Uber released the map feature, which is technologically  relatively trivial, they created a psychological solution to the same problem.

The real pain is not the wait in a temporal sense, but the uncertainty of wondering whether your taxi is, when it will show up, whilst half-expecting the driver may have lied about some of these facts. It’s a mental state thoroughly disliked by our lizard brain. But the map reduced the pain of waiting - and created exponential value in doing so.

“The world has no shortage of logical people or people trying to look logical”

Rory went on to say that when it comes to problem solving, the best ideas are often the most irrational because simply put: if there was a logical solution, somebody would have already thought of it.

He says that the really big problems are probably best solved obliquely rather than directly - because in the complex systems we operate in you don’t intervene in direct opposition to the thing you’re trying to challenge. Creativity is required in obliquity. That same creativity is required in venture capital, where brilliant irrationality is needed to see an opportunity before others do, or to reframe what exists into something bigger.

“Unconventional thinking is less likely to succeed on average but when it does succeed, it’s disproportionately valuable.”

Take Nespresso. If it had been sold it in a jar like Nescafe, nobody would have bought it, because it would seem expensive. In individual pods it makes the consumer price comparison Starbucks, not Nescafe - and because one pod is cheaper than a visit to Starbucks, they see it as a cost saving device rather than an extravagance.

Building on the theme of irrationality, Rory went on to say that often the things that the finance director hates are the most precisely meaningful because they are slightly gratuitous. This poses a challenge. It’s not easy to get these ideas past the more rational thinkers because they tend to be hard to test, quantify the value and attribute the outcome - especially for longer-term gestures further from the point of purchase. However, we need to fight to acquire the power to occasionally do things that annoy the finance director, because those are the things that deliver disproportionate meaning. That means escaping the morass of quantification. Remember, Rory reminds us, that the person who first said that what gets measured gets managed meant it as a criticism not an exhalation.

To achieve this, we need to acknowledge that models assume a symmetric world and assume that what is good for the average person is good for everyone, and what is good now is good tomorrow. But, in many cases, those symmetries simply aren’t there. Looking for the invisible aysmmeteries is actually a great description of what venture capital intends to do. In the end, the challenge venture faces is that there are many more good ideas out there that you can post-rationalise than pre-rationalise. So, if you make pre-rationalisation a requisite for investment, we are limiting ourselves to  exploring only a narrow part of the total solution space. Red Bull, Five Guys, Dyson - none of them made sense in advance. Right?

Hian then went on to pose the question, “what’s the biggest problem with problem solving?” Rory responded by saying often we people quit too soon, and that lots of ideas are killed before they get a chance to be good. He encourages us to not ask ourselves  whether the balance sheet looks good and how fast the business is growing, but rather how many people who now use our product would go back to something else or choose to stick with us. Ultimately, some products, and even attitudes, are slow to grow but once they do they grow very fast: it’s a sigmoid curve. This is especially true for network technologies. For example,  Zoom built habits and social norms, but until everyone else was on it, it was difficult to be on it yourself.

In closing out the Craft episode, Rory gave some final advice. He reminded us to that capitalism is not an efficiency optimization process, but rather it is, of necessity, a discovery process. In the capitalist system then, the chances for success are small to begin with. Referencing the Austrian School of Economics, he says that people don’t know what people want because most people don’t know what they want until they have it or have discovered it.

With that knowledge in mind, we are urged to chase the slightly irrational spaces because they are less contested than the highly rational spaces. So, look for spaces that have an element of counterintuitive logic or creativity because they have the advantage that if you discover something consumers want, your success will be significantly greater.

Remember that with Uber, nobody (yourself included) was saying standing on the street demanding our taxi provider gives us more certainty about where the car was. It’s because we didn’t know expliciltly what the source of our discomfort was: we thought it was delay, when in fact, it was uncertainty.

To conclude: stay hungry, and stay foolish, said Hian.

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