Category Archives: Business

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“Tune Out The Noise”

In lieu of a broader blog post this month, I’m sharing a link to a documentary film recently released on YouTube entitled “Tune Out the Noise.” It was featured in the Wall Street Journal this past weekend and tells the story of Dimensional Fund Advisors (DFA), a pioneering investment firm born out of exhaustive academic research at the University of Chicago. That graduate school of business, now known as the Booth School, is named for David Booth, a generous contributor to the university and a co-founder with Rex Sinquefield of DFA.

This 86-minute documentary, directed by the masterful Errol Morris, frames the practical application of decades of study by multiple Nobel Prize laureates around the triumph of passive investing over active investing. If you’re not familiar with the difference between index investors (passive) and stock pickers (active), or the alleged controversies surrounding the comparison, this film will provide an entertaining primer to one of Wall Street’s greatest battles for the hearts and minds of ordinary people putting their money to work for the long-term, particularly into retirement. I won’t spoil the punchline, but you won’t have to wait for the end of the movie to understand its thesis.

The DFA leadership team sponsored the production and made it available free of charge because they want to broaden the public’s perspective on the mathematics underlying equity markets, generation after generation. I have been a massive fan of DFA almost since its inception. Whether or not you agree with the firm’s approach to investing, I believe you owe it to yourself to better understand what they set out to do, how it has played out, and how many believers have been fortunate enough to benefit from so many serious, critical thinkers who set out to change their corner of the world and pulled it off in spectacular fashion.

I hope you enjoy the show as much as I did, and come to respect this brilliant group of financial leaders as much as I do.

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Video: YouTube

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What Does Winning Look Like?

If you’ve ever been in a planning meeting with me, you are familiar with this question: What does winning look like? This is how I like to frame decisions around initiatives we are considering. If we can define success in advance, we will know if we achieve it. If we have no idea what winning looks like before we commit resources to a project, how do we know if it was worth it once we deliver the work product?

We all know what winning looks like in sports. If one team has a higher score than its opponent, that team wins. Simple enough, but is it also winning if there were so many injuries in the latest game that half the team can’t play in the next game? What if the team’s coach coach delivers the win, but on a series of controversial decisions that damage team morale for the rest of the season? What if someone cheats? Some of winning is straightforward, but not all of it.

Let’s consider a working example in business.

Let’s say we have an idea for a new set of features we think we want to create for our e-commerce platform. One way to decide what winning looks like is a simple ROI (return on investment) calculation. Suppose the project cost is a million dollars. The first thing we want to do is get back that million dollars through incremental profits. Remember always that revenue is not profit. We have to take all our fixed and variable costs out of sales before we achieve a contribution to earnings. A million dollars of revenue does not pay back a million-dollar investment, but if our contribution margin on those sales is 20%, then we need an incremental $5m of revenue to produce $1m of incremental cash (presume that general and administrative costs are unchanged to simplify things).

Let’s say then we’ve articulated the minimum payback to break even we need on $1m of investment is $5m of incremental sales (that is, revenue we would not have received without the new initiative). Of course, no one wants to break even in business, we want a multiple of that investment back. Do we want 5x, 10x, or more? A lot of that depends on the scale of the business, but let’s say we want 5x our investment to call it a win. That’s $25m of sales generating $5m of cash for a 5x return.

The next question we might ask is how soon do we want that return. Some of that will depend on the numerous initiatives competing for investment. If two potential initiatives are evaluated to deliver the same 5x return, but one can do it in six months and one can do it in a year, I’d say we go with six months. So the cash we produce is important, but so is the time we have to wait to get it back.

Does winning end there? Is selecting an initiative solely based on return on investment and time? Seldom are those the only factors in play. We need to think about the strategic value of our initiative. Does it lift our customer count? Sometimes that is even more important than the incremental cash we are producing, particularly if we are focusing on the lifetime value of a customer. In this case we might set a goal that the new initiative increases our customer count by 5% in no less than a year. If we know what those customers are worth to us in the long run, we might go back and pick the initiative with the one year return on investment over the six month time frame if the additional customers we are acquiring are all the more valuable.

Another factor in winning might be market positioning in the competitive environment. Let’s say we’re convinced the feature we’re considering is something our customers have been requesting in customer service feedback, because no one else does it very well. Winning in this instance might be about acquiring market share above other metrics. When we launch the feature, if we see our online orders increase by 5% while a competitor’s volume stays the same or declines, we might call that winning, particularly if we can translate that gain in market share into higher customer count or improved lifetime value.

The point here is not to enumerate all the ways we might factor winning, but to force a robust dialogue ahead of committing to an initiative that builds a consensus around the work we will do together. If we collect data in advance, set goals for the improvement of key performance indicators (KPIs), ardently debate the relative merits of the various initiatives before us, and then make an informed choice, we can clearly measure the success or failure of the initiative. If we just reach to heaven for inspiration, how can we know if we won or lost?

Wise business leaders know that if we discuss upfront what winning looks like and then fail to achieve it, there is no blame to be assigned. We haven’t failed at all, we have learned in an experiment that mattered and held consequence. The argument is for better process management, to spend the time in advance discussing what winning looks like so we know it when we see it or don’t see it. Failure to invest that time ahead of committing resources to an initiative is indeed a form of failure, even if the initiative happens to succeed (how you know it succeeded when you didn’t address that in advance is another story entirely).

Don’t move forward without deciding what winning looks like. Crafting a thesis of the change you are trying to affect and the benefits you intend to bring establishes a benchmark for measurement. Insisting on this step early in product development will not only improve the odds of success, it will improve the teamwork and ability to share in the success a team creates together.

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Photo: Pixabay

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Knowing You Are There

It has been a harrowing start to 2025.

The change in Presidential administrations has further divided the nation. My own sense of the shared values that I presumed were unquestionable leaves me confused. I can’t make sense of the logic patterns laying the foundation for our future. The disorientation of those with opposing views seems to be intentional, and sadly, effective.

Closer to home, the wildfires in Southern California came about as close to our home as one could imagine. My wife and I are safe and without major damage to our home after a period of evacuation. We are among the lucky ones.

Everyone we know in the Los Angeles County area knows several people who have lost their homes. The damage we’ve observed can’t be described adequately in words. Whenever a natural disaster occurs, we see people on television attempting to find words to describe it. There’s a reason they mostly just cry. Experiencing the loss is not something words are meant to convey. Words fail us for a reason. Words are inadequate to express the true pain of total loss.

My point in writing here is different. It is meant as an expression of gratitude to all of you who contacted us during the fires. There were calls, texts, emails, social media posts — the kindness was endless. To say I was surprised at the expanse of outreach from around the globe would be another failure of words. Your concern wasn’t just heartening. It was rejuvenating. It was uplifting. It was empowering. It was an inspiration.

The words each of you shared meant the world to us, but more than that, the collective of those words enriched our lives with a sense of hope too easily lost in a time of crisis. We knew we had friends and people who cared about us. We had no idea how many of you there were.

Knowing you are there has proven a more powerful force than you can imagine. I tell you this because as the lucky ones, we are driven to pay it forward. One way to do that is to thank you for your graciousness of spirit. Another is to let you know your words matter more to all the people you offer them than you might think. Of course, actions of support matter in concert with words, but the words you choose to share hold a power all their own. When people know you are there, it gives them the strength to rise up.

Alone very little is possible. Together resilience is possible.

In this time of recovery, please know you are part of the solution when you choose to express kindness. It’s more than words. It’s the fuel of reenergizing those who need a boost. Where there is support, we can rekindle our dreams and muster the strength to find a direction forward. You make this possible in the very evidence of expressing care. Our humanity cannot be taken from us if we maintain the good sense to express it lavishly and without expectation.

Caring and the willingness to express it isn’t just how we get through the wildfires. It’s how we remain on course in our humanity no matter the obstacles thrown at us. Obstacles however great can be overcome when authentic charity overpowers the spoils of dislocation. This I believe is what is meant by community.

Knowing you are there has been a revelation that perhaps should have been more obvious. We can’t thank you enough, and we can only hope you continue that kindness to those who need it much more than we do.

Community is amazing. You are amazing. Together we rise.

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Image: Los Angeles County Recovers

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How Sure Are You?

Lately I’ve been struck by a surprising phenomenon finding its way into all kinds of discussions. That would be the expression of certainty.

It seems increasingly in many of the conversations I’m having that others have reached conclusions they feel no further need to revisit. It’s more than certainty. It’s absolute certainty.

Here are some varied examples:

Let me tell you what the Fed is going to do at its next meeting.

Let me tell you what the NASDAQ will do between now and Christmas.

Let me tell you how the conflict in the Middle East will end.

Let me tell you what Elon Musk is really after.

Let me tell you what’s ultimately behind climate change.

Let me tell you who is going to win the presidential election.

Let me tell you what’s going to happen to the nation after the election.

Note the lack of the words might, probably, likely, or even most likely. The statements above are followed by declarations of certainty. Needless to say, these utterances do not come from people who are experts in all areas of knowledge. Who can claim broad insight — approaching clairvoyance — across such a broad spectrum of complex topics? These statements are offered by ordinary folks whose opinions form much the way too many undisciplined declarations emerge in real time.

These days, I often find myself the least certain person in the room. I wonder, how can everyone be so sure about what they are proclaiming?

I work in a business where decision-making is data-driven. We have spirited arguments about work strategies all the time, and the boss doesn’t always win the debate. We argue with facts because there is shared value in our outcomes. Sometimes opinion prevails, but only when subjectivity is guided by objectivity.

We also require a lot of close listening before we get to conclusions. We know our choices have consequences on our company’s results, the actions of our customers, the well-being of our employees, and the financial impact on all our stakeholders. Data drives rigorous thinking. We take our choices seriously.

I realize company culture has little to do with random conversation or even the talking heads clamoring for attention on the media platforms that flood our lives. We are aware fake news creeps into all corners of communication. Somehow a justification for lying has woven its way into popular opinion, where the deliberate application of false information seems to some less of a vice in mainstream conflict if it is deemed a means to an end. Still, when I hear people parrot incoherent arguments expressed by others either for some concocted agenda or strictly entertainment value, it surprises me how willing we can be to compromise our credibility for nothing that would warrant it.

I wonder how so much claimed certainty continues to pierce our uncertain world. The internet fills our lives with noise. You’d think it would humble us to seek more truth before we convince ourselves we have found an answer. You’d think our personal character and integrity would matter more to us. We are endlessly willing to let a social media algorithm drive conflict in our discussions and stir our ire, rather than invest a bit of time validating our expressions before we pile onto the verbal brawl.

Do I expect this to change broadly anytime soon? Probably not. It’s too easy to speak without citing facts, to claim the right to say what we want, when we want, how we want, and believe this is without consequence because one voice self-corrected has little bearing on arena spectacle.

Yet that’s not true. One voice self-corrected is an example that leads to another and another. If those with authority won’t lead by example, imagine the influence of the broad population accepting the burden of that same leadership by caring enough to speak with a tad more precision.

I’m not suggesting anything outlandish. It’s a matter of individual commitment to modest self-reflection over boisterous hubris. Before you say something with absolute certainty, simply ask yourself: How sure are you?

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Photo: Pexels