A Real Estate Career: Lessons Learned (2004-2005)

I graduated from Penn in 2004.  I had no job or any prospects to speak of, so I moved back home to LA after spending a summer in Philadelphia fruitlessly looking for a job.

Back home, I saw that the majority of my high school class had become loan brokers at names like New Century Financial, Countrywide, and Washington Mutual.

I grew up in the San Gabriel Valley, which among other things was famous for suburban pot farms, and I also noticed that a not-insignificant percentage of my high school class had gone in the marijuana business.

One guy I knew from high school told me point blank that he liked the mortgage business because it “was like drug-dealing: you give people a fix, and they keep coming back for more.  They can’t resist.”  I remember that he used to drug deal in high school, too.  I guess he had chosen the more lucrative route.

It’s hard to express the sentiment of that time.  Everyone was getting rich off real estate.

I remember the fact that some of my friends who hadn’t even gone to college, were giving no down payment loans to people and making $20,000 a month, did give me pause about how the world wasn’t the way I had learned it to be.

But I liked the idea of real estate because it was tangible.  My senior year at Penn, I had interned for the largest campus housing landlord, and they all seemed like a bunch of easy-going, Philly wiseguys.  I liked that.

When you graduate from Wharton, half the class goes into banking.  I heard stories about how you worked 120 hours a week in banking.  And I didn’t like that.

And with a lack of prospects, no interviews, and no jobs to speak of, I made the decision to go into real estate.

At first, I thought I might like going into the public sector.  I interned at Senator Feinstein’s office in San Diego and researched the economic impact of military bases.  The internship paid no money, so I worked as a picker in a t-shirt factory part-time.  In the other remaining time, I surfed.

But most importantly, I rented a room from a woman, who I’ll call Lucy, who had no discernible job.

My lasting memory of her was of her sitting on a couch, eating ice cream, and watching tv – both when I left for work, and also when I came home.  And it was during one of her ice cream-eating sessions that we struck up a conversation and she mentioned to me that she was in real estate.

When I asked what she did, she said she bought houses.  She had three already, she said.  It was so easy, she said.  She was planning to buy a few more.  Because all you had to do was take out loans and wait for the prices to go up.  In fact, her agent was one of her best friends and later moved in to my room when I moved out.

Midway through the internship, I decided that the public sector was not as fast or impactful as I had imagined.  I wanted to see some action.

So, I applied for a job at Marcus and Millichap, the real estate brokerage.  Almost immediately, I was invited to an info session where I was witness to a presentation that should be enshrined somewhere in the historical annals.

My lasting memory from that presentation was towards the end when the agent put up a slide.

The slide was a grid whose rows were Years 1-5, and whose 3 or 4 columns represented duds, high performers, and rockstars.  In the cells were numbers that represented the incomes that each of these categories of people in the world, stood to make at Marcus and Millichap.

I noticed that the duds started at $80,000 and climbed their way north of six figures in the second year.  The rockstars started in the mid-six figures and were making millions by year three.

These numbers all sounded great, and I decided to sign up.  But there was a catch.  Unfortunately, they said, the job was commission-only so they recommended that you have a savings fund of at least six months to live off of, while you “learned”.

This sounded a lot like school, so I passed on that opportunity and told myself the numbers were probably all fake, anyway.

I moved up from San Diego and stayed with a friend who was in his final year at UCLA.  There, while looking for jobs, I opened the newspaper and spotted a posting with Marcus and Millichap in the El Segundo office.  It was paid.

That paragraph makes me sound ancient, but trust me, there were online job posts and applications back in 2004 too.  Maybe it was dying out, but still.  That’s just how things happened.

I interviewed and got the job.  My salary, if you can call it that, was $12/hour with no benefits, and my job was to maintain the internal database.

At the end of 2004 and during 2005, money was falling from the sky.  And that’s what the theme of those years was: money.  Money, so much of it, that numbers became meaningless.  Hundreds of thousands, millions, and NBA superstar money, being earned by agents in their 20s and early 30s for essentially, making phone calls.

And before you get the wrong idea, the money wasn’t going into my pockets.  I was still at $12/hr.  I was poor enough and without benefits that sometimes in restaurants, if people at the tables next to me left food untouched, I would eat it.  Sometimes after they left, and other times I asked nicely.

My job at the Harris Group of Marcus and Millichap was to maintain and ensure the integrity of the database of leads.  This meant a lot of searching online through other databases to validate information.  It was boring, so I quickly asked for other things to do.

And so over the next year, while helping maintain that database, I also helped underwrite and package deals totaling maybe more than a billion dollars in nominal value.

For a long time afterwards, this entire experience working on the “sell-side”, so to speak, at a real estate brokerage, made me skeptical almost to the point of cynical, about actually investing in real estate.

In my naivete, I first thought that the prices we were going to sell buildings for, were what they were worth.  So I pored over rent rolls and looked up market averages for rates and prices.  What I learned instead, what that there is no such thing as anything actually being ‘worth’ anything.  The sales price is what a broker wants to sell it for, and all the numbers surrounding it are the supporting props that have been artfully arranged to convince you that this price is the right and true one.

And if you think the price is too high, based on the market comps, you are entitled to your opinion, and may be mathematically correct – but if someone else comes by, who is using a tax advantaged scheme to roll out of a previous property and is under a time crunch to park their funds in something else and so snatches up this expensive property, at or higher than listing price because of a false perception that they are competing, then…what was it actually worth?  Who’s right?  You or them?

On our packages, we sometimes photoshopped gangsters out of the roof of some of our building photos, and photoshopped luxury cars into the streets in front of them.  And sometimes I would discover mistakes I had made in the modeling, much later – and it didn’t matter, because the deals had already sold anyway with the buyers scarcely looking at the cash flow.

During a bubble, money becomes divorced from the effort required to earn it.  In our office, there were agents who worked an average of two hours a day, three days a week.  There was one who was making a million dollars a year from having landed a single big-time client on a lucky phone call.  And sometimes these agents would go into the offices of the harder-working agents and steal leads off their desks and make six figure commissions.

Even though my job was to maintain a database of leads, that last reason is why sometimes people sabotaged my work by trying to pay me on the side to not do my job, or to give them contact information for their own use.  In reality, not many people wanted me to share the hard-won contact information for potential leads across the whole office.  They wanted it for themselves.  This is when I learned about misalignment of incentives.

I don’t want to give the impression that no one in the office worked.  The Harris Group was named after Greg Harris, who was and probably still is, a legendary superagent.  Greg’s stare was of the laser beams shooting out of his eyeballs variety, and he was always on the phone, always in that rapid-fire staccato voice that hammered poor clients down out of their illusions of paying less for a building than it was ‘worth’.

One of my lasting impressions of Greg is a time I walked into the men’s room and saw, under the stall doors, someone sitting on the toilet with pants around his ankles, doing a real estate deal at full volume.  It was Greg.

His work ethic was legendary, and when he was first starting out, I heard he hired interns even younger than he was to drive him from his home to the office at 4 am – no one else was up at that time, except the elderly landlords and investors who he would be calling, and who would remember that he had been the first to call them that day.

And this is also when I learned about money.  They say money makes you more of what you already are.  That is true.

I also think money, in some deep way, also reveals your deepest held beliefs.

The agents in our office were split into two camps.  The ones who worked two hours a day, bought nice cars and homes, partied mid-week in Ibiza and Miami, and had no compunction or even deep thought about living through a bubble of historical proportions.

We had other agents who made just as much money but who were deeply terrified of the state of the world and felt that something was deeply, utterly wrong, and sought to serve penance for it, in a way, by working even harder.  These agents, I think, sometimes felt guilty.  Like when they did deals that caused market rents for an entire town to double.

But if I really think about it, the two camps weren’t so different, fundamentally.  The first camp spent their money as soon as it came in, like they were laundering it.  Perhaps from feeling like it wasn’t really theirs.

During this job, I also learned about the power of sales.  Selling is storytelling, and sales is an art form that needs to be taught in school, because the basis of our shared reality as humans exists as a series of beliefs and stories.

I learned that during a bubble, the best salesmen are the people who deliver their message with absolute conviction, no matter how outrageous it is.

Actually, the more outrageous, the better to catch your attention.  Because during times like that, peoples’ beliefs are being tested.  And during periods when peoples’ beliefs are being tested, they want to listen to people who sound like prophets.

At the time, real estate cap rates of 4-5%, even on trophy properties, were considered unbelievably low.  And sales prices of $200,000/unit on multifamily residential were considered high.  In any case, the actual figures don’t really matter.

What matters is that the best agents in our office were the ones who could talk about cap rates of 4% and prices of $250,000/door as if they were universal constants like e or pi – and often, I noticed, the less the agent actually knew about market conditions, the lower his doubt, so the higher his conviction, the higher his credibility, and the higher his closing rate.

Meanwhile, those who overanalyzed (like me), stood by in disbelief.  In times like those, the best storytellers don’t even need a firm grasp of English.  Just belief.

And my last point is that when you’ve worked around people in real estate for a long time, you’ll pick up a pattern of speaking.

This pattern of speaking is whereby crazy claims are stated boldly as to make others doubt, waver, to ultimately put them at a disadvantage.  This is a variation of the anchoring effect/bias.

This technique absolutely ravages weak souls, conciliatory/nice people, and those who are unsure of themselves.  Let’s say you’re trying to sell me a car and we meet, go through the pleasantries, and after I look at your car, the first thing I say at the top of my lungs is that I’m going to offer 20% of your list price for it because the bumpers of your car model cause cancer.

Now if you’re inured to this type of speaking then you’ll just shake your head no or tell me to GTFO.

But if you’re a nice person, or out of practice with this type of aggression, you’ll start doubting yourself.  Your initial reaction to the 20% was shock and disbelief, but you’ll start thinking…maybe I did price it too high.  Your initial reaction to the cancer claim was the same, but now you’re thinking about it – maybe the metal or the paint in it does cause cancer, but the incidence of cancers from bumpers is very, very low.  What you’ll do is start to explain this it depth and try to argue it logically.  Now you’ve lost because you’re playing my game.

You’ll try to bring reason into, and analyze/dissect a fundamentally illogical and absurd claim.  Congratulations, you’ve lost.  The discussion will go into the finer points of airborne carcinogens and colors – and you’re in a hole because you’re tacitly implying there may be some truth to the cancer claim instead of making ground in the other direction.  And with the doubt of the price lingering over your head, the price will slowly creep down to my target.

I mention all this because this was the prevailing way we all talked to each other in the office, whether discussing foods, sports, real estate, or even pets, the latter of which actually led some people to start believing that such a thing as a pig-dog (a cross between a pig and a dog), existed.  And this is the way of speaking that during a bubble, or times of distortion and change, lead people to believe insane things, like that prices will keep going up forever.

The only way to counter this technique is to: a) recognize it immediately, and either b) counter with an equally insane, but opposite claim so the discussion grounds still stay somewhere in the middle, or c) drop it and walk away.

I also note that our current president (who is a real estate guy, by the way) has taken this technique all the way to the top.  He says outlandish things and has the other side/media actually take it seriously and try to refute his claims by logic.  If you do that, you start playing the other person’s game so you’ve lost.

As I see it now, the Democrats seem to have stopped their full-fledged losing campaign, and moved from c) the outraged dismissal phase, to b) full communism.

Wrong End of a Telescope

Multiple times during my early twenties, I tried to destroy all remnants of my past.

I purged emails, I tossed journals and letters, burned pictures.  This was usually after great disappointment, during periods when I learned that life was not going to follow my Grand Script.

During these times, I wanted to change everything about myself, because I didn’t like the person I had become.  But now I regret it, and I would urge any person of any age to keep a journal.

There are lots of reasons to keep one.  It’ll remind you of the person you once were.  In recent years I’ve been searching for who I was at 20, 25, even 30.  It’ll remind you of why you made certain decisions – so you can make better ones in the future.  It’ll keep you honest, even if you sometimes don’t like the memories.

Another important reason is it’ll give you hope for the future – because of how much things change, and that in many ways, the present is beyond the wildest imaginings of our past selves.

At some point for everyone, you’ll wake up one day and feel old.  This has officially happened to me in the last few months.  There’s a lot to this I’ll discuss later.  But in the meantime I’ve been doing a little reminiscing…

  • In my elementary school during the ’80s, I remember having emergency nuclear war drills.  They were kind of like earthquake drills, where you had to crawl under your desk.  In the event of a war with the USSR, who I always remember was this weird figment of an enemy, imbuing things with a malaise I couldn’t quite name.
  • In elementary through high school during the ’90s, there were gangs everywhere and you couldn’t wear certain colors: red, blue.  In elementary school I remember it was a little more strict, and there were even more colors like purple and black, because some of the gangs wore Raiders gear.  I remember our sixth grade teacher telling us all these salacious stories of older kids murdering each other in terrible ways.  Those older kids, to me now, are just kids.  I remember going through junior high and high school always with a low level of terror about getting jumped or tailed somewhere and jumped because I was in the wrong place at the wrong time.  I remember some kids I know getting stabbed, shot, hit with baseball bats, going to jail, overdosing, etc.
  • I remember as a kid not having to wear seatbelts, and falling asleep standing up in the center back seat.
  • I also remember the seatbelt law taking effect in LA, and hating it, as I chafed and sweated under it.
  • I remember when I was a toddler, my dad telling me to wait outside a liquor store as he went in and bought something.  I was 3, and this was Koreatown, LA.
  • I remember living in that neighborhood, on Mariposa, and hearing gunshots all the time – pop, pop, pop – and being terrified whenever my dad went jogging.
  • I remember on flights there being a ‘smoking’ section, and hating having to fly to see family because where there were smoking sections, there is no such thing as the ‘non-smoking’ section.  I remember smoking sections in restaurants too.  How idiotic.
  • I remember that growing up, in our home, the phone line was the scarcest resource.  Not only did my sister and I spend hours talking to friends on it, it was also the only way to log onto AOL – and the internet.
  • I remember first using the internet and chatting with people.  I remember distinctly feeling like the access to information was changing my brain.  There was a point, as I chatted on AIM and surfed the internet at the same time, that I remember thinking that my old ways of writing letters by hand, of doing research using encyclopaedias, taking notes, etc., were gone and had been erased.
  • I remember some of my closest friends getting suspended or expelled for having marijuana at school.  Now it’s almost banal.  I remember when dealing was a lucrative and highly illegal trade, and sometimes there were kids who all of a sudden came to school with nice cars, dropped with rims and insane stereo systems that would pop your eardrums out, new jewellery, all from this trade.
  • I remember when Facebook first came out, and my friends and I being confused about what social network to go all-in on: Myspace, Friendster, Facebook.  It was too much trouble trying to update all three at the same time.
  • I remember learning, in the supposed best business school in the world, about the neat way that interest rates and the economy were managed by the Fed, about neat formulas on how to value things, about supply and demand curves, and a lot of discussion on Japan, and nothing on China.  Right now I use almost nothing I learned there, except accounting.
  • I remember 2001 when the planes hit the WTC, I was in finance class and a kid ran in and shouted that a plane had taken out one of the towers.  Blankly, the professor looked at him and kept talking.  Some kids shuffled out.  Later, I turned on the tv and watched the smoke billowing out of the tower, thinking it was surreal.  But classes still went on.
  • A few months later, after a rash of suicides, a malaise settled over campus and I remember a group of my friends sitting in my dorm, all talking.  The two girls huddled next to me were my friends who I regarded/regard as sisters.  I remember the service guys coming in to install unopenable windows to prevent the aforementioned suicides, seeing me in particular, chuckling, and saying that they wished they were still in college.  I didn’t think of it as any big deal, but now I know what they meant 🙂
  • At my graduation, I remember seeing a fairly big celebrity who happened to be the father of one of my classmates, as he posed for pictures in front of Huntsman Hall.  Who would have thought he would be our current president.
  • I remember the real estate bubble.  When I returned home after graduating college, all my friends were either loan officers in Orange County or directly/indirectly involved in the marijuana trade.  I remember when LA/South Bay/Westside buildings used to trade for 6-8% cap rates and the astonishment in our office when things traded at 4-5% because it was “expensive”.
  • 12 years ago when I started my first job, I remember spending a lot of downtime downloading videos from all over the internet for my colleagues’ amusement.  I remember Youtube coming out, and thinking it would fail because it had none of the videos we wanted to watch.
  • 11 years ago I remember looking at my friend’s iPhone and feeling that the world had changed.  This is an appropriate time to use the phrase mind blown, because it is one of the few times in my life I actually felt this.  The time before that was the internet.
  • I remember taking my first international business class flight around this time and thinking it was so cool, feeling smug and satisfied, and wishing that flying around the world could be my job.  Now I hate traveling.
  • 10 years ago I used to drive 40-50 minutes to travel 3 miles to work.  If I still had to do that hellhole of a commute again, I would Uber.
  • 8 years ago I remember in Silicon Valley, thinking that my bschool classmates who wanted to go work for Twitter and Zynga and companies like that were making a crazy choice.  I remember Uber first coming out and thinking it was the dumbest thing I had ever heard of.

I wish I had kept a journal.  Keeping one is probably one of the best habits I could have had.

Besides that, I’m positive that the next 10 to 20 years will be beyond anything we’ve ever imagined.  In a good way.

What Jiu-Jitsu Teaches You About Life (Part I)

Some notes from a white belt.  More to follow from the journey.

I find core concepts in BJJ readily translatable to my daily life.  Here are some of the core ones.

There’s time, don’t panic

When you’re first starting out, every guard pass, every mount, side control, beginning of a choke or other submission, even a hand on a lapel, however loose and untechnical, is reason to panic.

You just don’t have the ability to distinguish tight, real attacks from wrong ones.  What I’ve learned so far in this particular journey, above all, is the value in cultivating clarity.  And you can only have clarity when you don’t panic.

This is a general life lesson applicable to all activities and practices like investing or business.  You can work for a day in a state of heightened anxiety and get less done than an hour of complete clarity.  This is another way of saying work smart, not hard.  Although both is better.

Staying calm gives you room to think, and it’s often the case in BJJ that you have a lot more time than you think.  It’s when you’re spazzing or panicking that you make yourself more prone to random attacks and armbars.

There are situations in jiujitsu where nothing but technique will get you out of it.  And a methodologically executed action, even if slower, is superior to doing things at random.

Cultivate mental clarity above all else.

Attack/defend the center

You realize this doing most other sports, but still.  The core is your literal and metaphorical center.  Your escapes emanate from your core.  Your core is your hips and ass, and move your core, and every other part of your body follows.  Leave your core exposed and under the control of your opponent, and there’s little you can do.  Move the core to escape, control the core of an opponent to control them.

This may be common sense, but I find it amazing how there are parallels with this in every physical activity I know.  In weightlifting, your clean/snatch power emanates from your legs and back.  In muay thai, your kicks emanate from the torque and power of your hips and core.  Calisthenics, gymnastics, surfing, everything.  Lifting something off the ground.

In most activities in life, there’s the meat, the priority, the 1-2 core things that obviate or solve all the secondary issues.  This is true in executive decision-making, investing, event planning, even baby-rearing 🙂

Everyone has core values, a core rhythm or pattern to their day, core components of happiness, etc.  Throw these off even for a day and it’s easy to become disoriented, that’s how important it is.  Preserve and protect your core.

Don’t take things head-on, approach things laterally

Both submissions and escapes only happen because you move your own, or your opponent’s limbs in a path outside of the typical range of motion.

It’s hard to throw or sweep an opponent that is digging in.  Same with a submission.  But this rigidity along a particular angle opens up opportunities to throw or attack them, usually perpendicularly or outside the normal range of motion.

This is a good reminder for any type of activity.

Technique beats raw strength

A practiced, 120-lb woman can submit a savage 200-lb bodybuilder.  A nimble company can disrupt a conglomerate with an order of magnitude more resources.  A dozen hackers can throw an election of another sovereign nation.

Attack, not withdraw

Defense doesn’t win, only action and aggression wins.  In my first few months of jiujitsu, all I did was try to pull out of closed guards and escape submissions.  It made me better at escaping, but did nothing in terms of helping me win.

My instructor’s constant admonishment was that instead of my constant withdrawals, I needed to get in closer.

BJJ is the opposite of striking arts in this respect, in that you can’t defeat someone from a distance.  You have to be in close, committed, in the game.

Whatever game you’re playing, if you’re playing the game, play to win, you can’t be halfhearted, you can’t be withdrawn.  If you play to not lose, you will actually lose.

Trust the process/muscle memory

For the first few months; actually, even now, I can barely register perceptible improvement.

The process, according to my instructor, was to show up and roll on a consistent basis.  And after being on the receiving end of what seemed like magical attacks, I was ready to trust whatever he said.

It’s only after a few months where I began getting submitted much less, and actually submitting others, that I realized that my subconscious was stronger than I knew.

This is scientific fact, by the way, the power of the subconscious.

Don’t be rigid

Being rigid makes you prone to takedowns, sweeps, throws.  Rigid arms are targets for armbars, and rigid game plans make you predictable and easily defeated.  There is a time for rigidity and raw strength, but this must be interspersed with absolute flexibility.

A relaxed body is harder to lift than a tense one, a flexible plan of attack that counters counters, will win against a one-trick opponent.

Be humble

Losing, in a physical activity, to a 13-year old kid 30 pounds lighter than you, is enough to humble you.  But also, you’ll realize that everyone gets caught.  Everyone.

The first principle and this one might be the most important of all.

Things I’ve Learned as a Consultant – Part II

  • As an extension of the last point of the last post, when you’re in professional services, whether banking, law, design, consulting, whatever, you’re trying to sell someone something that there are no physical results of. And sometimes, not even precedents. You’re saying ‘trust us’. So how do you build that trust? A brand goes a long way.
  • But having been on both sides of this — the salesman and the person doing the contracting/hiring, I believe the absolute best thing that will help you nail the pitch, without question, is a sample. Samples are the strongest test, for the simple fact that having something that addresses the requirements perfectly makes you impossible to ignore. This not only makes them know you are capable of doing the job, but that you’ve listened. It is a rare client that knows 100% exactly what he or she wants before the service has started, because as I’ve written in the previous post, clients engage you based on a dark nebula of capabilities they imagine you can do. In the beginning, it is important for them to know that you are responsive, that you can react to their feedback.
  • But I cannot stress this enough: “Let em test the product, give em a promo show/Just a breeze, not enough to catch a real vibe/Then we drop a maxi single and charge em two for five/Ain’t tryin to, kill em at first just, buildin clientele/So when the album drops the first weeks it’s gon’ sell” — Jay-Z (Rap Game/Crack Game)
  • The reason is that if you have a sample or a pitch that addresses their requirements, it will cause them anguish if they have to pick someone over you. It will cause them to justify their own metrics. You will be remembered.
  • If you are in a profession that does not allow you to provide a work sample, just be aware that a buyer of services, especially if they are purchasing a particular service for the first time, will latch onto other things (attribute substitution). For example, how polished of a speaker are you? Do you buckle under pressure? Do they like you? Do you have the proper gravitas? Are you older, do you have a few grey hairs? Many of them are unfair and irrelevant, but this is what happens, so it helps to be aware.
  • Related to that last point, there are people in the consulting business who dye their hair grey and wear glasses in order to appear older and more experienced. Just saying. When you’re a bright young person it’s easy to become disillusioned about this. But if you encounter this situation, it is better to step back. What is it really telling you? That as much as you think clients are paying for the actual insight, they’re paying for reassurance. They are buying the brand.
  • The higher your fee, and the longer you take, the higher the expectations of your client. They will grow. And grow. It is better to program in interim deliverables to anchor their expectations early and allow for feedback. This is as a result of differing perceptions of time between those in the flow of doing work, and those waiting for something.
  • But curiously, even if you are able to finish something ahead of schedule, having any extra time left leads to doubts. You’ll check and recheck your work. Due to Parkinson’s law, the project has a good chance of actually always ending up taking the amount of time allotted to it.
  • Everything is about good communication. It’s not just about having the facts or a superior product. You can have a superior product and still lose the pitch, you can have all the facts and insights but fail to engender understanding. And you can have titular authority in your firm, but fail in managing or marshaling the resources of the people under you. Good communication includes soft skills, connecting with people, speaking with enthusiasm, being authentic, etc.
  • Smaller clients are good because often you work directly with the person who is both the decision-maker and stakeholder in the service. But smaller clients have less to lose when they try to negotiate your fee — down — after you’ve already performed. They can also be demanding, and your interactions will be subject to the whims of the person buying your service, who is often the same person writing your check. Big clients will often have no problem paying you, but because the stakeholders, decision-makers, and people you are interacting with can be three different sets of people, the layers of hierarchy and management can lead to confusion, delays, conflicting directives, which ultimately means, more time spent on it and more work for you.
  • Since consulting is the business of selling brains, the necessary conclusion to this premise is that the better the brains perform within a given length of time, the more value you can capture, and the less costs you incur. Research has shown that cognitive thinking is a physiological process, meaning it’s another body function regulated by energy levels. Keep up your energy levels and you have the potential for longer periods of higher thought. Exercise, meditate, eat right. This cannot be stressed enough, and goes back to the athletic component of traveling for consulting.

Things I’ve Learned as a Consultant

  • As in any other job, being good at the job is a process, not an outcome. Pursuit of the frontiers of the field, a focus on incorporating new ideas, relentless introspection and feedback, hard work, and constant improvement of technical skills will help you stay ahead.
  • Identifying and improving the necessary technical skills was the easy part. Merely recognizing what the other necessary skills were, like salesmanship, self-discipline, introspection, hard work, was harder, and it was hard to miss that I didn’t even have them.
  • Consulting is a lifestyle choice. This is not only when it comes to travel, although that is a significant portion of it. The consulting lifestyle revolves around the project lifecycle. It starts with the pitch and sale, moves onto research and analysis, and concludes with presentation and feedback and iteration — with different required skills in each portion of the cycle.
  • When extensive travel is required across multiple time zones, being good contains a physical, athletic aspect to it as well. Maintaining clarity of thought, focus, and polished communication skills when I am physically in a meeting with a client while my biological clock is deep in an REM cycle, is as physically demanding as being in minute 32 of an intensive Muay Thai workout.
  • There is another, longer cycle, which is the lifecycle of a consultant himself or herself. As an entry-level person, you are primarily engaged in research, analysis, report preparation. As you progress out of the back office (figuratively speaking) and into more of a client-facing role, you are called on to do more meetings, pitches, presentations, face-to-face communications with the client. Before you know it, your job is no longer research and analysis; it turns into that of a representative, salesman, and manager of the younger versions of you. As with the project-cycle, different skills are required at different points in the cycle.
  • There are several things about the nature of the job itself. First, a consultant is a paid outsider, so that no matter how convincing you are, nor how much you know, you have no inherent power to actually implement your ideas. Clients can and will ignore your advice. This can be demoralizing.
  • Another important thing about the nature of the job itself is that that you’re in the business of selling time — your time, which is finite. Consulting is the business of selling your capabilities to achieve a recommendation, insight, or strategy, which in itself is the product of human minds working in real-time. If that sounds vague, that’s because it is. And because what you’re selling is so undefined, there is naturally a huge variability to it, regarding both the actual product and your client’s expectations. Managing both of these things becomes a huge drain on resources and time. Clients will, almost as a rule, demand that you do anything and everything for them that they’ve seen you do, read about you doing, heard about you doing, and imagine that you can do.
  • Because of this variability (also known as customization), scaling a consulting practice is difficult. Consulting is the business of leasing a limited portion of human brainpower for a limited period of time to accomplish a task. Unless the human brains in your employ can be programmed to think faster and more effectively at the same time, increasing the productivity of the fundamental resource (brains) has natural limits.
  • But scaling can be done, and in order to do so, the metric that I find natural and easy to focus on is the implied professional fee that is being charged to the client. This can be done in almost any service industry: think about what you’re charging the client in terms of an implied per hour cost. Take your fee and divide it by the number of hours you or your people will work. Whether it is $100, $200, $500, $1000+, the principle is the same.
  • If you want to scale and grow, you need to ruthlessly outsource tasks that can be performed at an equivalent level to those with the lowest rate. If your rate is $500/hour, does it make sense for you to be doing document preparation or formatting that you can pay $15 to $20/hour for? Or even to be maintaining a model yourself? The argument to this is that by removing yourself from the work, the overall work will lose quality. As a thought experiment, does a film lose quality because a director is not doing the cinematography or acting himself? This is a big problem in small consulting companies where everyone is expected to do everything. My experience has suggested to me that this is immensely inefficient.
  • Merely going through this exercise will force you to develop systems, templates, methods, and training, which will increase the productivity of the entire team. Another issue at play here is the sheer economics of batch tasking and the costs of switching. Switching tasks incurs mental and thus temporal costs. Even if, theoretically, there were a ‘superstar’ consultant who could do each of 5 individual tasks at a superior rate than anyone else in the organization, this person may still be slower to complete the entire ‘set’ of tasks than 5 different people specializing in those tasks, because of the switching costs.
  • This is the kind of issue you deal with as you make the transition from entry-level positions to higher ones, and you’ll have to abandon old habits and gain new ones. This is the kind of struggle you experience at any professional services firm. Where you go from being a person who produces work, to the one who guides and oversees it, and then finally who ‘manages’ and sells it. You remove yourself from the work that you were originally hired to do, and you need to develop new skills to adapt.
  • It may very well be the case that you are content with the level of sales and work-to-reward ratio you are experiencing. Then none of this applies. But in a changing world, stagnation is by definition a regression. To even keep up, we must keep growing and optimizing.
  • More on people — who as brain-carriers, are a consulting firm’s primary asset, as the saying goes. Programmers talk about the 10x programmer, and to a certain extent I believe this is true of people in any service-oriented industry. Performance conforms to a distribution with fat tails on either end. 80% of the people are in the middle, which does not imply mediocre. It just means everyone is clustered there. Then there are the 1–5% who are outliers in either direction. Alternatively, if you think about the 80/20 rule, it is saying that a sufficing level of work, the 80%, is easy to achieve. This is the equivalent to getting a solid B in a bell-curve weighted class. I hated this system in college, by the way. But the 20% is the spread field, where you distinguish yourself from others. It’s a wide open field. 20% is the details, and this is where people differentiate themselves by adding more value than others.
  • Think of it this way. Say you hire a painter to paint your walls. Both cover the walls in paint, but one of them pays attention to the details. He covers your existing furniture, he pays attention to the finishes, making sure the edges and corners are perfect, nothing is smudged, no glue is on the ground, nothing has been broken, making sure there is absolutely no blemish anywhere, everywhere. Conscientiousness and care go a long way in differentiating yourself from the pack. To use a consulting example, at the analyst level, this would be someone who works faster and harder than others, builds new frameworks and approaches, even while paying attention to formatting and presentation, to typos, wording, someone who builds models that can be easily followed by others, someone who integrates frameworks located across different sources, someone who doesn’t hard-code inputs in Excel, etc.
  • All of the above is in the name of widening the gap between implied hours charged for, and hours actually worked. The other way to do this, obviously, is by increasing the number of implied hours charged for; i.e. charging more. The easiest thing to envision, in theory, is the hardest to pull off, and this is to develop a truly unique skill. A moat skill, a monopoly skill, one that no one else has. As in the story of the repairman and the hammer. When you develop a skill like this, you can charge whatever you want. But this is incredibly difficult to do.
  • The more realistic thing that can be done is develop a brand and a reputation for good work. A brand is something that does marketing for you even while you sleep. A brand helps you charge more for work of an equivalent quality, because in consulting, the hardest thing to realize is that people are not buying the service itself — they are buying the reassurance. This is why lawyers can get paid even when there is a risk of losing, and consultants can get paid when there is the clear possibility of finding nothing new. This relates back to the old saying that consultants are in the business of using the client’s watch and getting paid to tell them what time it is. But people hire them anyway.

Great Life (& Investing) Lessons/Reminders from Dune

It embarrasses me somewhat that it took me so long to read this masterpiece by Frank Herbert.  Without a doubt, one of the most fully-imagined and creative sci-fi worlds I’ve ever had the pleasure to visit.  And written first in the mid-1960s!  Undoubtedly the entire scifi canon that came after it owes it a debt.

Also, the influences on Star Wars storylines, which came after it, are almost too obvious.  Takes the latter down a notch for me.

Paul sensed his own tensions, decided to practice one of the mind-body lessons his mother had taught him. Three quick breaths triggered the responses: he fell into the floating awareness… focusing the consciousness… aortal dilation… avoiding the unfocused mechanism of consciousness… to be conscious by choice… blood enriched and swift-flooding the overload regions… one does not obtain food-safety-freedom by instinct alone… animal consciousness does not extend beyond the given moment nor into the idea that its victims may become extinct… the animal destroys and does not produce… animal pleasures remain close to sensation levels and avoid the perceptual… the human requires a background grid through which to see his universe… focused consciousness by choice, this forms your grid… bodily integrity follows nerve-blood flow according to the deepest awareness of cell needs… all things/ cells/ beings are impermanent… strive for flow-permanence within…. Over and over and over within Paul’s floating awareness the lesson rolled.
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I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain.
These passages are one of the best arguments for, and descriptions of, meditation and mindfulness I’ve ever read.  The mind’s ability to tame itself and the body is one of our species’ superpowers.
Once, men turned their thinking over to machines in the hope that this would set them free. But that only permitted other men with machines to enslave them.
This could not be more relevant today.  Self-sufficiency of thought, thinking from first principles, will always be in demand.
Also, those who do not have the discipline or fortitude to think for themselves will be subjugated by others who do.
Very well: ‘That which submits rules…The willow submits to the wind and prospers until one day it is many willows—a wall against the wind. This is the willow’s purpose.
Don’t fight inexorable forces, whether it’s nature or the markets or whatever else.
Think you of the fact that a deaf person cannot hear. Then, what deafness may we not all possess? What senses do we lack that we cannot see and cannot hear another world all around us? What is there around us that we cannot—’”
It is 100% true that our conscious minds miss almost everything as it processes reality through a series of filters.
The mind commands the body and it obeys. The mind orders itself and meets resistance.
the proximity of a desirable thing tempts one to overindulgence. On that path lies danger.
Balance in all things.  Maintain discipline in all circumstances.
Greatness is a transitory experience. It is never consistent. It depends in part upon the myth-making imagination of humankind. The person who experiences greatness must have a feeling for the myth he is in. He must reflect what is projected upon him. And he must have a strong sense of the sardonic. This is what uncouples him from belief in his own pretensions. The sardonic is all that permits him to move within himself. Without this quality, even occasional greatness will destroy a man.
Be humble.  Always.
“Most educated people know that the worst potential competition for any young organism can come from its own kind.”
Internecine and intra-group struggles are often more vicious and insidious than inter-group ones.
“Growth is limited by that necessity which is present in the least amount. And, naturally, the least favorable condition controls the growth rate.”
Look for bottlenecks, in processes or organizations or resources.  This is a meaningful heuristic to approach any analysis.
that polish comes from the cities, wisdom from the desert.
Do you wrestle with dreams? Do you contend with shadows? Do you move in a kind of sleep? Time has slipped away. Your life is stolen. You tarried with trifles, Victim of your folly.
Always try to see reality for what it is, rather  than what you would like or fear it to be.
“Mood’s a thing for cattle or for making love. You fight when the necessity arises, no matter your mood.”
Discipline in all matters.
Muad’Dib could indeed see the Future, but you must understand the limits of this power. Think of sight. You have eyes, yet cannot see without light. If you are on the floor of a valley, you cannot see beyond your valley. Just so, Muad’Dib could not always choose to look across the mysterious terrain. He tells us that a single obscure decision of prophecy, perhaps the choice of one word over another, could change the entire aspect of the future. He tells us “The vision of time is broad, but when you pass through it, time becomes a narrow door.” And always, he fought the temptation to choose a clear, safe course, warning “That path leads ever down into stagnation.”
We came from Caladan—a paradise world for our form of life. There existed no need on Caladan to build a physical paradise or a paradise of the mind—we could see the actuality all around us. And the price we paid was the price men have always paid for achieving a paradise in this life—we went soft, we lost our edge.
Beware of paradises and complacency.
Keep in mind, though, that we need control only three per cent of the energy surface—only three per cent—to tip the entire structure over into our self-sustaining system.
This recalls the fact that seawater is less than 5% salt, and that the actual percentage that makes a system ‘tip’ is about 10%.  Often the characteristic that defines or moves an entire system is in the superminority!
Then, as his planet killed him, it occurred to Kynes that his father and all the other scientists were wrong, that the most persistent principles of the universe were accident and error.
The Fremen were supreme in that quality the ancients called “spannungsbogen”—which is the self-imposed delay between desire for a thing and the act of reaching out to grasp that thing.
A leader, you see, is one of the things that distinguishes a mob from a people. He maintains the level of individuals. Too few individuals, and a people reverts to a mob.
“When your opponent fears you, then’s the moment when you give the fear its own rein, give it the time to work on him. Let it become terror. The terrified man fights himself. Eventually, he attacks in desperation. That is the most dangerous moment, but the terrified man can be trusted usually to make a fatal mistake. You are being trained here to detect these mistakes and use them.”
Fear does not only kill minds.
The concept of progress acts as a protective mechanism to shield us from the terrors of the future.
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Deep in the human unconscious is a pervasive need for a logical universe that makes sense. But the real universe is always one step beyond logic.
Narrative fallacy and a teleological view of history are related; how we understand ourselves and the universe are on the basis of stories.  Indeed this may be how we understand everything.
“I would take them in small groups, not larger than platoon strength,” Hawat said. “I’d remove them from their oppressive situation and isolate them with a training cadre of people who understood their background, preferably people who had preceded them from the same oppressive situation. Then I’d fill them with the mystique that their planet had really been a secret training ground to produce just such superior beings as themselves. And all the while, I’d show them what such superior beings could earn: rich living, beautiful women, fine mansions… whatever they desired.”
A great tactic of recruiting to breed mindless and fanatical followers, whether the Ottomans and the Mamluks, or investment banks from the Ivy Leagues.
Yet, it is possible to see peril in the finding of ultimate perfection. It is clear that the ultimate pattern contains its own fixity. In such perfection, all things move toward death.
Great expression for antifragility.
When law and duty are one, united by religion, you never become fully conscious, fully aware of yourself. You are always a little less than an individual.
This is what makes theocracies extremely strong, whether in the past or in the present day.  This is also what makes high performing teams extremely strong.  When the individual disappears, the group is indomitable.
“They’ve lost the initiative, which means they’ve lost the war.”
This doesn’t mean always to take action, as waiting itself is a kind of action.  It points only to the necessity of being alert and aware.
A sum of decisions had accumulated in his awareness.
This is a great pithy phrase for what I’ve often longed to express an
How often it is that the angry man rages denial of what his inner self is telling him.
Anger, fear, emotions cloud our judgement.
Time could be made to serve the mind. One concentrated the entire attention.
The way it is made to serve the mind is nothing more than taking the time and effort to concentrate and focus, and that is the way great things are accomplished.
“It’s been so long since guerrillas were effective that the mighty have forgotten how to fight them,”
Be a student of history.
“The power to destroy a thing is the absolute control over it. You’ve agreed I have that power. We are not here to discuss or to negotiate or to compromise.
You cannot win against people who have less to lose than you.  The side that has a lower BATNA (best alternative to a negotiated agreement) has the upper hand in a negotiation.
They’re accustomed to seeing the future, Paul thought. In this place and time they’re blind… even as I am.
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“Expect only what happens in the fight. That way you’ll never be surprised.”
Do not expect anything to happen, this is a basis for fallacies, mistakes, error.  Those who live constantly in the future or who are certain, are prone to disappointment, denial, paralysis when something serves to challenge their worldview.
“There will be flowing water here open to the sky and green oases rich with good things. But we have the spice to think of, too. Thus, there will always be desert on Arrakis… and fierce winds, and trials to toughen a man. We Fremen have a saying: ‘God created Arrakis to train the faithful.’ One cannot go against the word of God.”
Do not try to create utopias, accept the struggle.  The Way is through the struggle.  It is worthwhile to even artificially create hardship in your life.  When dynasties, families, organizations forget where they came from, that is usually the beginning of the decline.

What We Call Luck or Success is Actually Investing Well

Or, even a lottery winner had to buy a ticket.

Not to conflate the above with investing, but the point is that what we often call luck or success is the result of hundreds or thousands of low-cost (or high) and invisible options working in concert.

Every time you move through this world, incurring costs in the form of time, effort, pain, you are building a portfolio of invisible options.  Whether its learning a language, attending a course or university, traveling out of town, a conversation, going to a party (“networking event”), reading something, learning anything.

Options can develop on their own, with little effort, with the addition of time; i.e., the proverbial investor who buys a building in a dilapidated neighborhood and reaps the rewards decades later when it gentrifies.

These options are hidden and hard to quantify and so we often dismiss them, but I believe they’re a true source of wealth.  Think about the saying ‘right place, at the right time’.  Well, that person had to travel to or be at that place, with that particular mix of skills or mindset.  Traveling somewhere is an option, the mix of skills and experience you carry with you are also a compounded, well-mixed option.

This is why the young are wealthy beyond imagination, although they don’t even know it – not only do they have more time, they also are able to accumulate options more quickly and cheaply than older people who have entrenched obligations, deteriorating energy levels, higher opportunity costs, etc.

A thought experiment: What low-cost options am I picking up every day?  What can I do, to drench myself in optionality?  🙂