“[Checklists] catch mental flaws inherent in all of us—flaws of memory and attention and thoroughness. And because they do, they raise wide, unexpected possibilities.” – Atul Gawande
Benchmark Capital’s Bill Gurley recently sat down to talk with Recode’s Kara Swisher on her podcast about the state of the venture capital world (he’s worried). He also shared some background on how he got his start in the business and how that’s shaped his philosophy over the years. Swisher asked Gurley what some of his rules are. He flipped that question around and talked about when it makes sense to break your own rules:
You can get into trouble. And one of the games you play in venture is to know which rules to break at the right time. And so we constantly challenge ourselves. Like, “Should we maybe be dropping this rule at this moment in time because things are changing?”
Everyone from business owners to investors to coaches to parents and beyond has rules, guidelines and policies that they follow. Some are more stringent than others, but laying out your plans in rules-based fashion is one of the most helpful ways to keep your emotions in check.
Before deciding whether or not to break your own rules, you have to figure out how to structure those rules in the first place.
The best book on this subject is The Checklist Manifesto: How to Get Things Right by Atul Gawande. Gawande is a surgeon who has spent years experimenting with checklists in a wide range of fields. Documenting your process can be seen as a minor step in any planning situation, but the benefits can be enormous because it can allow you to avoid unecessary mistakes. Having an if/then framework is a great way to prepare for the future without knowing exactly what’s going to happen.
The thing that people get hung up on with checklists is how rigid they can be. People want to know what to do in uncertain situations, but they also want to have the freedom to break their own rules, as Gurley discussed. In the book Gawande lays out two different kinds of checklists that can be applied in different areas depending on the decisions at hand.
The first is a READ-DO checklist. Think of this like a recipe — you read the instructions and do what it says. These checklists can be great for ensuring you have all of the basics down without missing any important steps along the way. Gawande says that these types of checklists have been very helpful for pilots in the routines that they perform on a regular basis:
The test pilots made their list simple, brief, and to the point—short enough to fit on an index card, with step-by-step checks for takeoff, flight, landing, and taxiing. It had the kind of stuff that all pilots know to do.
The second is called a DO-CONFIRM checklist. This is where you do your job from memory and experience but have certain checkpoints along the way where you stop and confirm that everything was done as it should be. This is the type of checklist that Gawande prepared as a surgeon:
We adopted mainly a DO-CONFIRM rather than a READ-DO format, to give people greater flexibility in performing their tasks while nonetheless having them stop at key points to confirm that critical steps have not been overlooked. The checklist emerged vastly improved.
The point of documenting your process is not that it will tell you the perfect thing to do at the perfect moment. That would be asking too much. The most important aspect of a checklist or written plan is to help you make good decisions under pressure situations, which is when people tend to make poor decisions because stress is running high. When your emotions are overloaded you don’t want to put too much strain on your brain, so you can use checklists to decrease that workload by making good decisions ahead of time.
A good checklist can never spell everything out — even pilots eventually have to fly the plane themselves — but they can provide valuable reminders of the most important steps and goals along the way.
Knowing when to step in and change your own rules should work much in the same way. Pilots have to make certain course corrections on occasion when Mother Nature or some other outside force intervenes. But you don’t want to get in the habit of consistently changing the rules when things aren’t going your way.
The whole point of a checklist is to plan things out in advance so you know how to react. Life will always get in the way and rules will have to get broken on occasion, but in most instances it’s probably best to stay out of your own way and follow your pre-determined plan of attack.
A Deep Dive on Contingency Plans
One housekeeping note: Myself and Michael Batnick will be heading out to Portland to visit Joey Fishman at our west coast office the first week of November. If anyone lives in the Portland area and wants to hear more about our firm or simply get together to say hi, get in touch.
Now here’s the stuff I’ve been reading lately:
- Great investors all have one thing in common (Irrelevant Investor)
- Are you tactical or just a performance chaser (Backcourt Report)
- A better way to think about stocks, bonds and cash (Fortune Financial)
- Stop using financial jargon (Morningstar)
- Two types of knowledge (Shane Parrish)
- How to give advice people will actually take (iwillteachyoutoberich)
- Understanding the low interest rate era (Monevator)
- Learning from Jesse Livermore’s mistakes (A Teachable Moment)
- Should Harvard’s endowment be managed by a robot? (Meb Faber)
- The 3 most important questions in investing (Pension Partners)
- What would we learn if we had 10,000 years of market data? (Abnormal Returns)
- The most overlooked trait of investing success (Collaborative Fund)
- “Life is a balance between holding on and letting go.” (CBS)
- The art & science of learning anything faster (Tim Ferriss)