How to stay hidden, yet visible: lizards and private companies know the trick

Having two faces is never a bad idea in business or nature
By George ILIEV

The advantages of staying private

Companies that stay private achieve two conflicting objectives: they can be as visible as they want to their customers but can hide strategic information from their competitors. A public listing on the stock market opens up a company for scrutiny by competitors, as the regular reporting to the stock exchange will disclose competitive information and strategic moves.

Lizards playing with colour

The male Iberian emerald lizard achieves the same double effect with the colouration of its head, according to recent research reported by The Economist. The bright blue colouring is iridescent: 

- when seen from above (by a predator bird) it reflects the surrounding landscape and blends in with the environment;

- when seen from ground level (by other lizards), the blue stands out against the landscape, potentially attracting mating partners.

(Photo: Iberian emerald lizard. Source: Wikipedia)

Aircraft privacy intrusion

In a starkly competitive move, Boeing bought 17 new Airbus planes from Singapore Airlines in 1999 in order to replace the Airbus batch with Boeing planes and keep the Singaporean flag carrier a loyal Boeing customer. In addition to getting the planes delivered (to be resold to other airlines), Boeing also received all the technical documentation that goes with an Airbus plane, thus gaining competitive intelligence directly from the horse's mouth. 

Competitors posing as customers to gain insight into their rival's business are not a new phenomenon. However, hawks have not yet cottoned on that they need to start hunting from ground level to catch a male Iberian lizard.

Further reading

The topic of how and why animals and companies operate in stealth mode is covered in my June 2014 blog post:

Stealth mode among companies and animals: Crickets and spiders learn to lie low 

(Crickets give up chirping, spiders disguise as bird poo, companies slip under the radar to avoid corporate predators.)

Do you work in a Wolf or Dog culture?

If you answered the question you probably gave the wrong answer. Startup culture is wolf culture, while dogs revel in “corporate-style” hierarchy.

(By George ILIEV)

The phrase "dog-eat-dog" was coined for a reason. Counterintuitively, dogs do not cooperate among themselves. Wolves do. Dogs dominate or obey each other in a strict hierarchy of submission, whereas wolves are the ones who “discuss” to make group decisions. If you work for a startup, you are likely working in a “wolf culture”, grounded in cooperation and tolerance. If you work at a big corporation, your environment is probably a “dog culture”, based on domination and pecking order.

Photo: Pack of Wolves (Source: Wikimedia)

EXPERIMENT 1: Top dog dominates in "dog-eat-dog" hierarchy

Recent experiments in Austria show that a top dog will monopolise all food and will not let a lower-ranking dog eat from its bowl. A lower-ranking dog would be so intimidated it would not even dare attempt to eat with the top dog. In contrast, the same experiment with wolves shows that both high-ranking and low-ranking pack members share access to the food. There is a simple explanation why dogs have diverged so far from the cooperative nature of wolves. Dogs were bred for their obedience to man, who is seen by the dog as the “top dog”. Humans mistakenly perceive this as cooperation but from the dog’s perspective this is submission, not cooperation. A dog’s true (beige-to-grey) colours shine through when left in a group of its own.

EXPERIMENT 2: Dogs are poor at independent problem-solving

The domestication of the dog, over around 10,000 years of selective breeding, has reinforced the dog’s hierarchical perception of the world and the micro-society of the pack. This appears to impact the dog’s problem-solving skills. Experiments with dogs and wolves show that 80% of wolves manage to open a can of sausages, while no adult dogs manage to achieve this under the same conditions. The exception are dog puppies, who manage to open the can with a similar success rate as the wolves. This shows that the lack of independence in dogs is increased by their cohabitation with humans as puppies grow up.

THREE LESSONS FOR THE BUSINESS WORLD

Lesson 1: Companies are no democracies

The results of the group-feeding experiment bring to mind a well-known fact: No matter how much we praise democracy as the most sophisticated system for ruling a country , corporations are not democracies. Corporations are authoritarian organisations with an established hierarchy, just like an army, a police unit and a pack of dogs.

Lesson 2: Do not confuse submission with cooperation

Corporate executives can learn from the psychology of the dog. Your corporate subordinates might be very cooperative in their interaction with you (their boss), but that does not mean they see themselves as cooperating. Instead, they may be perceiving themselves as Yes-men who have to act submissively. This model may work for subordinates without strong independent thinking but if you want to keep the real problem-solvers working for you, you have to empower them and treat them like wolves treat each other, with a degree of equality. Otherwise your subordinates may leave for a less hierarchical organisation or for a startup.

Lesson 3: Corporations institutionalise their employees

Corporate culture institutionalises its employees just like the human “top-dog” reduces the problem-solving skills of his/her pet as the puppy grows up. Conversely, startup culture encourages problem solving and independent thinking in ways similar to what the wolf experiments show.

Hope at the end of the dog kennel

Let’s not give a dog a (completely) bad name. Corporations come in all shapes and sizes and corporate cultures vary hugely. In a similar way, there is variation among dog breeds: Labrador retrievers and poodles are more hierarchical and aggressive towards lower-ranking pack members than German shepherds are. It may be no coincidence that German shepherds physically resemble wolves much more closely.

In the corporate world, Google and Facebook have a “less-hiearchical” hierarchy than oil and mining giants like ExxonMobil and BHP Billiton. In the end, both Google and Facebook were born as startups 10-15 years ago. Would another 10,000 years of selective breeding change that?

I look forward to your thoughts in the comments below or @GeorgeILIEV

Entrepreneurship, Consulting and the MBA: The Three Stem Cells of the Business World

Three ways to maintain versatility in the age of uncertainty

By George ILIEV

An undergraduate student at the business school I graduated from recently approached me for career advice. "Is there a way you can keep your options open throughout your career?", she asked. The article below summarizes my advice to her:

Many things in life are path-dependent:
- Your second job depends on your first job;
- your first job depends on your internship;
- your internship depends on your university degree;
- your university depends on your high school,
- and so on all the way to kindergarten and even before that, possibly to the kindergarten of your parents and grandparents.

There are opportunities to get out of the rut and change direction from one stage to the next but the probability of this happening naturally is very low. Even a smaller cross-industry lateral move (say from retail manager to supply chain manager) requires a lot of effort in rowing against the current... and a dose of luck.

The Three Stem Cells of the Business World

There are three tracks in business that are immune to path-dependency and can lead naturally to a variety of different industries and functions. I call these “the three stem cells of the business world”, as they contain a high degree of versatility and can be moulded into almost anything, just like the stem cells of an embryo multiply and grow into different tissues and organs:

1. Entrepreneurship is the most functionally-versatile profession as an entrepreneur (on the business side) will perform a variety of functions. These include marketing, business planning, business development, PR (blogging), finance (raising capital), accounting, legal and at least half-a-dozen other functions before the startup grows big enough for these roles to be filled by specialists.

2. Consulting, unlike entrepreneurship, is not functionally versatile but is instead extremely industry-versatile. Management and operations consultants often clock up projects in a dozen different industries, which is the essence of consulting and the main source of value creation: the cross-pollination effect.

3. The MBA gives a graduate both functional and industry versatility, as it combines condensed educational and professional experiences in a number of fields. However, the MBA is a “stem cell” with an expiry date: after your first post-MBA job, you can no longer rely on its versatility and will invariably start specialising in your new pathway (unless you go into post-MBA entrepreneurship or consulting).

These three stem cells of the business world are crucial in our age of uncertainty. The sheer number of unemployed finance professionals after the 2008 crisis shows how path-dependent business can be. And though the trio is not entirely ploripotent, (i.e. the three cannot lead to absolutely any outcome), they are the closest we get to a business world version of the stem cell.

Energy, mass and the speed of light

If you remain unconvinced by the biology metaphor above, here is a memorably superficial analogy from physics. Einstein's fundamental equation E=MC2 (energy equals mass times the speed of light squared) has the same three elements: E(ntrepreneurship), M(BA) and C(consulting). Now, who would argue with Einstein?

(Photo credit: Stem cell, Wikipedia)

Does changing jobs make you an orangutan?

Changing jobs and moving through the jungle canopy share the same activity pattern

George ILIEV

The best avatar for someone changing jobs is the orangutan. Imagine an orangutan suspended from a tree, grasping the branches with its long arms, swinging effortlessly from tree to tree. Now imagine this orangutan is you, the branches are the different corporate departments and the trees are the different companies you will swing between in your career. If only changing jobs was always as smooth as the swinging of the organgutan.

Photo: Orangutan (Source: Wikipedia)

The corporate world and the jungle

In the corporate world you swing, rather than hop, between companies: businesses are not a flat surface for hopscotch but a hierarchical jungle canopy, with many levels up and down. Trees lumped together are companies in the same industry, so it is fairly easy for your esteemed orangutan to swing between companies while staying in the same industry. Trees far apart are companies in different industries and it takes a bigger effort to traverse a larger distance.

Losing your job and falling to the ground

The main rule in the orangutan's jungle is not to fall to the ground. In corporate speak this means not to lose your job, or else you risk entering a downward spiral.

Recruiters often cite a well-known paradox: "the most important factor for getting a job is having a job in the first place." Even without access to recruiter advice, the orangutan does exactly that: it rarely lets go of its branch before it has grasped the next one.

Once in a while the orangutan may be forced to "fly" between trees in a long jump, the equivalent of leaving a company before you have another job offer in your hand. However, in such a forced jump, the orangutan is likely to land lower than its starting position and may occasionally drop to the jungle floor.

If you've had enough of the orangutan analogy, think of the swift, one of the fastest birds in the world. The remarkable thing about the swift is it never lands on the ground. If it did, its short wings would not be able to generate the lift needed to take off again. You need to be perched somewhere high to be able to fly out to somewhere higher.

The MBA: a shortcut through the jungle

The MBA degree is one of the few shortcuts in life. It is a walkway above the jungle canopy that allows you to move to a different patch of trees (a new industry or new location), which would otherwise be either impossible, or would take a whole series of consecutive moves.

If you are ever in doubt about your career, take your cues from the orangutan: 

1) Move between trees and branches in a planned succession; and

2) If you ever lose your job, get another one as soon as you can.

On Proteges and Tidal Locking: the dangers of being too close to a star

Proteges get "tidally locked" in an unequal way. Startup co-founders get locked-in as equals.
By George ILIEV

1. Protégés
In my article on mentoring and the V-formation of flying birds, I had a passing definition of the protégé: someone who follows blindly and sycophantly their boss in order to advances in their wake. The minus side of being a protégé is that one gains protection and advancement at the expense of losing their independence.

2. Tidal locking & tidal "licking"
In planetary terms there is a related phenomenon known as tidal locking: when a planet gets too close to the star it is orbiting, it loses its own rotation and gets locked in with the star. An example to this is the Moon, which is locked in with the Earth so that only one side of the Moon always faces the Earth. The Moon plays the role of the Earth's protégé by losing its independent rotation: as a protégé it now rotates always facing its master. In the corporate world or the world of politics, tidal locking can be summarised as "tidal licking". You get the meaning.

3. Startup Co-founders
There is an "honourable" version of tidal locking when the two participants are relatively equal. When two planetary bodies of a similar size are close enough to each other, they can be tidally locked so that both rotate facing each other always with the same side. An example to this are Pluto and its satellite Charon: Charon is locked in with Pluto just as Pluto is locked in with Charon. An analogy in the business world are startup co-founders who get locked in with each other, without losing their identity and independence.

Photo: Full moon (Source: Wikipedia)

Stealth mode among companies and animals: Crickets and spiders learn to lie low

Crickets give up chirping, spiders disguise as bird poo, companies slip under the radar to avoid corporate predators.
By George ILIEV

Two recent science stories exemplify the evolutionary importance of disguise:

1. Crickets vs. Killer flies
Crickets in Hawaii have lost their ability to chirp in order to avoid attracting the attention of killer flies, their North American predator, BBC Science reports. In less than 20 generations, a mutation in their wings (the chirp-producing organ) has spread to more than 90% of the crickets on the island of Kauai. As a result, the crickets are now unable to rub their wings and produce chirping sounds but in return they survive unnoticed by the killer flies.

2. Spiders vs. Wasps
Spiders in Taiwan have learnt to disguise themselves in a decor resembling bird excrement, Discovery News reports. The spiders drag onto their web a pile of desiccated insect bodies, eggs and plant detritus to make themselves resemble bird droppings and thus avoid the attention of predator wasps.

3. Stealth mode in the corporate world
Companies of all sizes use disguise to avoid the attention of powerful competitors. Apple and Google develop new products under code names and in secretive locations, while startups often spend years in "stealth mode" to slip under the radar of large competitors. The most fascinating recent example is Google X: Google's semi-secret facility in California where at least eight new technologies are being developed.

There is only one thing Google hasn't thought of: covering up the facility in bird poo.

The Google Campus in Mountain View, California 

(Photo: Wikipedia)

IBM and the Octopus: adaptability and the benefits of severing a limb

Agility in nature and the business world sometimes requires a sacrifice:"Life and limb" becomes "life or limb".
By Nathan Hartman (nathan@hartmanprivatelaw.com)

1. The octopus has the ability to change the color and texture of its skin, and uses this ability to attract mates and increase the survivability of its young.

One of the primary defenses developed by the octopus is the ability to camouflage or hide itself by changing the color and texture of its skin. An octopus can change the tone of its skin to varying shades of yellow, orange, brown, and black to blend in with its surroundings and avoid the notice of potential predators. The octopus also uses its color-changing ability to attract mates, and the more colors an octopus can display the more likely it is to attract a mate. This then ensures that young octopi will have maximum color-changing potential, thus increasing the likelihood that they will survive into adulthood.

2. The octopus also has the ability to autotomise: it can spontaneously sever its limbs when threatened.

When threatened, and octopus can also purposefully detach its limbs to distract predators, an ability known as autotomy. The detached limbs can still move and react to touch, drawing the attention away from the fleeing octopus.

3. IBM utilizes the strategies of the octopus in the business world: it remains highly adaptable to the current economic environment and is willing to cut off portions of its business when appropriate.

IBM is one of the world’s most recognizable companies and the second largest in the United States in terms of number of employees. The company has remained flexible, developed 7 service arms, and been involved in many different enterprises, including computer development, space exploration, early forms of artificial intelligence, and weapons manufacturing. Just as the octopus changes its skin tone to increase its survivability, so too does IBM change the face of its company to remain current and innovative in the business world. More so, IBM has shown a willingness to cut parts of its business when threatened, even when those parts were strongly associated with the company. In 2005, IBM sold its personal computer business to Lenovo, ending more than 30 years of involvement in the personal computer market.

Photograph of an Octopus (Source: Wikipedia)

Rafts of ants and investment banks in distress stay afloat by "banking" on their young

Ant colonies and banks "employ" their young to improve survival chances
George ILIEV

1. Ants build floating rafts using their eggs in the foundation:
When threatened by flooding, ants build floating rafts using their own bodies and put their eggs in the foundation of the raft to increase the buoyancy of the structure. This does not damage the chances of survival of the unhatched ants in the eggs.

2. Investment banks retain the most junior people in mass redundancies:
The youngest recruits are the cheapest employees, which justifies the investment banking practice of retaining these people when cost-cutting requires mass redundancies. It is rare that the new recruits would be let go before the higher-earning mid-ranking employees.

3. Next generation often serves the present generation:
The young exist for reasons beyond merely as a vehicle to pass on your genes (or corporate culture) to future generations. In the two cases above, the young are employed to increase the chances of survival of the present generation... which isn't too different from the traditional family model where children would work on the family farm from a very young age. The ants just take it to a new level of utilitarianism - using the generation that hasn't hatched yet.

Photo: Ants (Source: Wikipedia)

(Blogging style guide: Here)

Human memory does not prioritise retaining positive experiences. Customer feedback sites: beware!

Humans remember and recognise less attractive faces better. What about a great shopping experience?
George ILIEV

Psychologists used to assume that attractive faces are remembered better and recognised more easily. It turns out they were wrong. Scientists in Jena, Germany, recently proved with experiments on test subjects that we remember unattractive faces better than attractive ones. (Read the details here.) Humans do prefer to look at a beautiful face longer, but the emotional influence actually reduces the precision of recognising this face later on.

Attractive faces also lead observers into another trap: false positives in recollection. We are more likely to think that we recognise an attractive face, even if we have never seen this face before.

All this makes sense from an evolutionary perspective. A positive experience for an animal can be finding abundant food or meeting a receptive sexual partner, while a negative experience can be dying at the claws of a predator. The positive experience can be enjoyed but only up to the point of satiation, after which life continues as normal. Whereas the negative experience may lead to a terminal outcome. Since the negative experience shapes to a bigger extent the survival chances of the animal, one would expect that evolution will remove from the gene pool those animals which do not prioritise avoiding unpleasant experiences. Thus remembering positive experiences "takes the back seat".

In a figurative way this principle applies to collecting customer feedback. Internet forums are full of irate customers who share at length their negative experience with a product or service, while much fewer stories are shared about a positive experience. It might be because customers don't remember the positive experiences as well as the negative ones. Or it might be a typically human example of selfless cooperation where irate customers try to alert fellow customers. Yet the parallel exists: a positive shopping experience can rarely be as indelibly printed in our mind as a negative experience would be. Just think of the feedback you would leave about a restaurant that gave you food poisoning.

Photo: Gisele Bundchen (Source: Wikipedia)

Photo: Sean O'Pry (Source: Wikipedia)

Daniel Kahneman's "Thinking, Fast and Slow" seen through the eyes of mantis shrimps and humans

Mantis shrimp's vision of only 12 basic colours allows it to act fast. Humans see complex colours - conducive to more deliberative decisions.
George ILIEV

As scientific trivia go, it is well known that the mantis shrimp has 12 receptors for colour in its eyes (including several in the ultraviolet spectrum), while humans and honey bees only have three and dogs have two. I used to envy this 30-cm crustacean for the myriad of colour combinations that it could potentially see. However, recent research published in the journal Science shows that the shrimp cannot see myriads of colours. Not even a hundred colours. All it can see is 12 colours, while all the variations between the 12 colours are lost on it.

Managers and CEOs are sometimes accused of being two-dimensional: of seeing things as black and white. That's an overstatement. However, even seeing in 12 finite ways would be a gross oversimplification of the world around us.

Why does the shrimp need 12 receptors? They probably evolved as a shortcut giving the shrimp a speed advantage. It is a lightning-fast predator, so by sacrificing accurate colour definition, it gained a quick way of detecting basic colours and creating a simplified image of the world. Using direct chemical/neural signals from the receptors is faster than adding the extra stage of brain simulation - as the human brain does e.g. when simulating the perception of purple from mixing red and blue. Thus the shrimp can rapidly detect prey or other predators in the coral reefs while saving the little brainpower that it has.

Shrimp vision versus human vision is exactly the same dichotomy as laid out by Nobel Prize-winning economist Daniel Kahneman in "Thinking, Fast and Slow". The shrimp deploys a fast and instinctive system while humans resort to slower and more deliberative brain simulations, which capture the world in its complexity. The lesson from all this: if it is not about shattering crab shells, better spend some time poring over your important decisions.

Photo: Mantis shrimp (Source: Wikipedia)

Startups can learn how to "fail forward" from mantis shrimp's layered clubs

Nature prevents big failures by allowing small failures. Startups succeed if they "fail fast, fail often".
George ILIEV

The mantis shrimp is a fascinating 30-cm crustacean in the tropical oceans. It is famous for its unusual colour vision (with 12 colour photoreceptors in the eyes) but also for the brutal force and lightning speed with which it stuns and catches its prey. The shrimp's sudden and powerful blow to mollusc or crab shells shatters them to pieces. It is even known to break aquarium glass with its massive clubs.

Research into the structure of the shrimp's claws carried out at the University of California, Riverside, shows that the clubs are composed of three separate layers of bony tissue. The big differences in orientation, stiffness and hardness between the layers allows small cracks to appear in each layer but stops these cracks from spreading across the entire structure. Counterintuitively, "nature prevents catastrophic failures by allowing local failures."

In the terminology of probability theorist Nassim Taleb, this would be the perfect example of anti-fragility, as described in his 2012 book "Antifragile: Things That Gain from Disorder". In the field of biomimicry, the multiple-layer structure is giving rise to bulletproof materials.

In the startup world, the principle of allowing small cracks is known as "fail fast, fail often". Small failures are part of establishing product/market fit and have saved many a startup from doom. The entrepreneurs who "fail forward" are forced to pivot towards new products, markets and business models and are thus more likely to succeed.

Photo: Mantis shrimp (Source: Wikipedia)

V-formation model aids bird flight, Asian industrialisation and mentoring

In multiple fields the first player helps the one behind – but only if lined up in strict order: slightly sideways

George ILIEV

Birds flying in V-formation need 20%-30% less energy than when flying alone. Big birds such as geese, storks and pelicans minimise their energy expenditure by capturing the uplift generated at the wing tips of the bird flapping in front, research published in the journal Nature reveals. However, for this mechanism to work, the second bird has to be located sideways from the leading bird. If flying directly behind, the follower would have to counteract a downdraft coming down the back of the leading bird.

The V-formation is clearly visible in the five-tiers of economic development of East Asia - the famous Flying Geese paradigm. As Asian countries industrialised after the 1960s, they moved in the wake of Japan and sequentially took on the older low-tech industries that Japan had outgrown. Textiles, toys, chemicals and steel, in which Japan once led the region, moved first to the four tigers (South Korea, Taiwan, Hong Kong and Singapore); then to a third tier of countries - Malaysia and Thailand; then to China; and now increasingly to Vietnam and India. Thus Japan created macroeconomic uplift for the four tiger economies behind it; they in turn passed on updraft to the ones following them and so on. And yet, the model worked so well because these countries did not exactly copy each industry but introduced slight variations - the sideshift seen in the V-formations of  birds.

Mentoring in a similar way creates metaphorical uplift for the “disciple” being mentored by a leading figure. And it is exactly the V-formation that distinguishes a "mentee" from a "protégé". The mentor-mentee relationship works best when the two are not in the same industry or organisation, i.e. when located sideways in V-formation. Otherwise when a "mentee" is moving immediately in the wake of the mentor in the same organisation, the mentee is more fittingly described with the unflattering term "protégé".

Rolled out on a grander, “open-access” scale, this model can even apply to the Linkedin influencers category, where 500+ influencers like Richard Branson and Jack Welch trample the road with their thoughts and wisdom for thousands of others to follow. A giant V-formation of birds indeed, numbering 3.5 million followers in the case of the No 1 influencer, Richard Branson.

Photo: Flying goose (Source: Wikipedia)

Photo: V-formation (Source: Wikipedia)

Decoys: favourite tools for bacteria and businesses

Bacteria secrete decoys to deflect virus attacks; Supermarkets set price decoys to distract customers.
George ILIEV

A recent MIT study published in the journal Science explores an interesting phenomenon: the ocean-dwelling photosynthesizing cyanobacteria produce bubbles of nutrients and DNA and release them “most charitably” into the ocean for other microorganisms to feed on. Cyanobacteria live in the sun-lit layers of water and account for over 50% of all photosynthesis in the ocean. As a crucial component of phytoplankton, the cyanobacteria are at the bottom of the food pyramid and are the food source for krill and other zooplankton. The mystery of the charitably secreted bubbles (vesicles) turns out to have a not-so-charitable explanation. The most intriguing hypothesis holds that the membrane-enclosed vesicles of DNA serve as decoys to attract virus attacks, thus vastly reducing the chance of viruses successfully zooming in onto the cyanobacteria themselves.

Companies use decoys in a similar way in “decoy pricing”, most eloquently described by Dan Ariely in his 2008 best-seller "Predictably Irrational" with the example of subscription plans for The Economist. When offering three or more products in the same category, supermarkets strategically price the most expensive two products at the same price level. The less attractive of the two products serves as a basis against which the customer compares (the more attractive product. Thus the customer is unconsciously nudged towards buying the more attractive expensive product as it appears to be a better deal for the same price, completely forgetting the cheapest product on the shelf.

Photo: Cyanobacteria in the ocean  (Source: Wikipedia)

Calorie restriction prevents Dutch Disease

Insufficient resources: "a blessing in disguise" for living organisms and states
George ILIEV

Calorie restriction - a diet usually containing 30% fewer calories but with the nutrients of a standard diet - is associated with increased life span in a range of living organisms, including primates, mice, drosophila flies and yeast. Restrictions in protein intake also lead to improve health as cells recycle waste protein much more efficiently and repair themselves more successfully.

The same principle is visible in a series of macroeconomic failures known as Dutch Disease. Countries with abundant natural resources, such as oil-rich states in Africa and Latin America, end up wasting these resources in a spectacularly profligate way. On the other hand, countries with limited natural resources, e.g. Japan, Singapore and Switzerland, mobilise themselves by minimising waste and building functioning institutions and thus achieve significantly higher productivity than their resource-endowed counterparts.

Photo: Oil pumpjack (Source: Wikipedia)

Why hot water freezes faster and why companies underprice their stocks in IPOs

Counter-intuitive actions/phenomena often achieve better results
George ILIEV

Nature and business sometimes make a step back in order to make a step forward. The Mpemba paradox in physics holds that hot water freezes faster than cold water, which is frustratingly counter-intuitive. Scientists from Nanyang University in Singapore recently found the explanation to this strange phenomenon. The key is the heating-triggered relaxation of the weak covalent bonds between the two hydrogen atoms in one water molecule and the oxygen atom in the adjacent molecule.

Initial public offerings (IPO) provide a similar counter-intuitive example in the business world. Companies naturally should want to sell their shares at the highest possible price. Why, then, did Twitter set its stock selling price at $26 per share in its November 2013 IPO, even though the company and its underwriter Goldman Sachs could have realistically foreseen a trading range around the current level of $41-$45. Risk aversion is probably not the whole story. Many consumer products and media companies prefer to make a splash on the market by leaving money on the table for a bunch of happy investors in a heavily oversubscribed IPO, rather than milking every single investor to the top of their willingness to pay. They see this is the way to long-term success. If you don't believe these companies, pick up John Kay's 2010 book "Obliquity" on how to achieve things indirectly.

Photo: Ice Cubes (Source: Wikipedia)

Bees and Wikipedia: quintessential generators of "invisible GDP"

Crop pollination and Wikipedia knowledge create hidden value that is not captured by conventional statistics
George ILIEV

A 2007 study estimates the value that bees and other pollinators create for farming at 153 billion euro. A more recent study shows that 84% of European crops are partially or entirely dependent on insect pollination. The former number alone equals around 0.3% of global GDP, but these significant statistics are rarely given due coverage in national and international GDP figures.

Economists have been noting in recent years that the IT revolution and the internet are not leading to increased productivity and increased output. "As early as 1987 Robert Solow, a growth theorist, had been asking why 'you can see the computer age everywhere but in the productivity statistics'."  (The Economist. Jan 12, 2013. "Innovation Pessimism: Has the ideas machine broken down?") These macroeconomic studies omit the crucial role of knowledge pollination and cross fertilisation played by Wikipedia and the other volunteer-driven IT and online platforms: the Google search engine, blogs, the Linux operating system, etc. Volunteers contribute to the economy their time and skills in writing and editing Wikipedia articles even if these are not recorded in GDP statistics. Having all the world's information at your fingertips has a visible empirical impact on research, entrepreneurship and innovation, just as bees visibly produce honey.

Photo: Bee "on" the bonnet (Source: Wikipedia)

Ambergris, Pearls & Silk serve roles similar to Lawyers, Consultants & Outsourcing Agents

Luxury products made in living organisms play roles analogous to outsourced professional services in companies
George ILIEV

Living organisms sometimes produce biologically-expensive materials to isolate themselves from harmful factors in their environment. Ambergris, a thick oily substance used in expensive perfumes, is produced in the digestive tract of sperm whales to encapsulate the beaks of squid they swallow and stop them from damaging their intestines, according to Italian research published in the journal Geology.

Similarly, pearls are produced when an oyster tries to seal off an irritant inside its shell by covering it with layers of nacre (mother of pearl). These irritants are often microscopic worms or some other organic material. Contrary to popular belief, grains of sand are rarely the cause of pearl formation.

Silkworms ensconce themselves in cocoons of silk for the same defensive reasons: the vulnerable chrysalis (pupa) needs to isolate itself from the environment during the crucial metamorphosis process of turning from a caterpillar into a butterfly.

In the corporate world there are analogous phenomena: companies use valuable resources to hire external help - lawyers and consultants - to deal with dangerous or potentially harmful situations. When a company like Apple wants to isolates itself from labour disputes and complex legal and cultural issues in its production and supply chain, all it takes is to outsource production to a faraway company like Taiwan's Foxconn. Thus Apple can stay focused on its in-house R&D and marketing - done comfortably inside its California silk cocoon - though at the price of severing valuable feedback loops from the real world.

(Photo: Akoya pearls. Source: Wikipedia)

"Taken by Storm" Applies Equally to Cyclones and Crowdfunding

Crowdfunding thrives thanks to the Internet - just like inland tropical cyclones are energised by global warming.
George ILIEV

In 2007 a tropical storm named Erin took America by surprise. Cyclones usually weaken after making landfall but Erin defied the hurricane convention: it grew stronger over Texas and even formed an eye above Oklahoma. Since Erin, scientists have defined a new category of tropical cyclone: while the usual type derive their energy from the heated surface water of the ocean, this new tropical storm category derives its energy from evaporation of soil moisture (figuratively called "brown ocean"). NASA-funded research at the University of Georgia (USA) shows that rising global temperatures and increased humidity in some areas are making this unorthodox category of hurricanes not only possible but increasingly common.

In a similar way, the spread of the Internet and growing consumer wealth create "the perfect storm" that has made a new social phenomenon possible: crowdfunding. The conventional way of funding a project or business has always been through savings and bank loans or by selling shares on the stock market (analogous to the conventional view that the warm ocean feeds tropical cyclones). Crowdfunding projects are known to have existed in the past - e.g. for raising funding for the pedestal of the Statue of Liberty in the 1880s - but were never the norm. Crowd-sourced fundraising has taken off only after the Internet and consumer wealth became widespread. Microfinance platforms such as Kiva and creative micro-investment platforms such as Kickstarter are now making a significant impact worldwide. However, unlike the hurricanes, their impact is hugely positive.

(Photo: Tropical cyclone, as seen from space. Source: Wikipedia)

Physicists Compare Embryo Development and Cancer. What Connects Google with Enron?

Good and Bad Outcomes: Common in Evolution of Multicellular Organisms and Stock Markets
George ILIEV

Here is a daring double-barrelled hypothesis - among the most daring I have produced:
1. The evolution of multicellular organisms possibly leads to both good and bad outcomes: embryos and cancer, respectively.
2. Stock markets similarly sustain good and bad outcomes: Google and Enron.

A newly founded institution in Arizona called Center for the Convergence of Physical Science and Cancer Biology straddles the border between physics and astrophysics on the one side, and cancer research on the other. Two theoretical physicists and cosmologists are exploring a (yet unproven) hypothesis linking the origin of cancer to the evolution of multicellular organisms and the development of embryos. They assert that "genes that are active in the embryo and normally dormant thereafter are found to be switched back on in cancer. These same genes are the 'ancient' ones, deep in the tree of multicellular life." The researchers expect to find that "the more malignant stages of cancer will re-express genes from the earliest stages of embryogenesis".

A similar parallel is even more evident in the impact that stock market listings have on companies. For many, including leading "goodies" such as Google and Apple, a public listing has the beneficial effect of providing resources for growth and credibility for transacting in the business world. For others, such as Enron and WorldCom, the stock market created perverse incentives for top managers to cheat and lie.

To put it simply, one man's meat is another man's, ...eh, defeat.

(Photo: Enron's logo, Wikipedia)

Quantum Physics Lends Strategies That Beat Classical Game Theory

Quantum Entanglement Is Firmly Entangled with Game Theory 
George ILIEV

Finally someone has produced a paper expressly for my blog. "Link Between Quantum Physics and Game Theory Found", published in Nature Communications, explores novel Nash Equilibria that beat the conventional Nash Equilibrium. Players in a Prisoner's Dilemma type of game who have access to using an entangled pair of quantum particles outperform classical players who are interrogated in full isolation from each other. If only Schrodinger's Cat could rise from the semi-dead and come out of its box to see that.

(Picture: Schrodinger's Cat, Wikipedia)

On investment bankers and bird excrement: Read on, it's not what you think

Birds of a feather: Seed passage through bird digestion yields positive effects similar to stint at investment bank
George ILIEV

It is no secret that many young investment bankers (analysts, associates, even VPs) work 100-hour weeks. Why do they subject themselves to such inhumane treatment? An analogy between investment banks and bird digestive systems may reveal instructive similarities.

Capiscum (chili pepper) seeds eaten by the common South American flycatcher are four times more likely to germinate after passing through the bird's digestive system, a recent paper in Ecology Letters shows. This is based on two unrelated processes: the gut passage kills a pathogenic fungus that grows on the seeds and also scrubs the seeds of an odour that would otherwise attract seed-eating ants once the seed lands on the ground.

Working for an investment bank confers similar advantages: by exposing employees to extreme pressure, it makes them resilient and possibly more likely to succeed in future careers. By doing this, banks are not too much different from the Indonesian palm civet (cat) which increases the value of the coffee beans it devours and excretes, making this coffee one of the most-expensive varieties in the world.

(Photo: Bird diversity, Wikipedia)

Green bananas and university graduates are like two peas in a pod

University graduates ripen like green bananas - on demand;
Vocational training schemes produce ripe peppers that ripen no further.
George ILIEV

It is tempting to compare corporate employees with pumpkins but I will limit the analogy to bananas and peppers. The two crops are hugely different in one respect: bananas are picked green and will then naturally ripen over time, while peppers cannot ripen once detached from the plant. Furthermore, the ripening of harvested green bananas (or green tomatoes by the same token) can be accelerated if they are exposed to ethylene gas, which is a plant hormone. Placing an apple next to a bunch of green bananas can do the trick, as apples emit ethylene. Peppers, grapes and strawberries, on the other hand, lack the ethylene receptors and genes that trigger this ripening process and can only ripen on the stalk.

Back to the analogy with employees: broad university education churns out green bananas. University graduates do not need to be perfectly ripe for the labour market - different companies will use various doses of human ethylene (i.e. training, mentoring, etc.) to make them fit for purpose. The important thing is university graduates are malleable.

On the other hand, vocational training systems (widespread in Germany and  Austria) deliver perfectly ripe employees to the labour market. However, over time these employees are not malleable. According to The Economist (June 1, 2013) "early [vocational] training can turn into a disadvantage by the age of 50. It appears that skills learnt in vocational training become obsolete at a faster rate." Once detached from the vocational training scheme, these employees cannot "ripen" much more.

The old George Bernard Shaw once said: “At my age, I don't even buy green bananas.” However, if a company or an economy can wait for the green bananas to ripen, that might be the optimal long-term choice, despite the swinging of the pendulum towards vocational training these days.

(Photo: Green bananas, Wikipedia)

Low-cost airlines: competitive advantage derived from evolution of turtle shells

Turtle shell and low-cost model both arose internally
George ILIEV

It is often the case that an internal trait can become your biggest external competitive advantage. Here is an analogy between present-day low-cost airlines and the evolution of the turtle shell 260 million years ago. The latest fascinating research by Yale and Smithsonian scientists shows that the upper and lower turtle shells have evolved from, respectively, the fused elongated vertebrae and broadened ribs of the turtle's prehistoric ancestor. Thus, two structures that were meant to provide support inside the animal's body became a signature tool giving it protection from the outside world.

In a similar way, low-cost airlines stumbled upon the low-cost model as an internal operational efficiency tool but are now thriving on it as their most distinctive marketing trait.

(Photo: Turtles from the western Black Sea coast, Aug 2011)

Why venture capitalists do not invest in flying penguins

Functional focus helps animals excel and entrepreneurs succeed
George ILIEV

Seasoned venture capitalists are known to refuse to invest in entrepreneurs who are working on more than one project at a time. Focus is the key feature that a VC looks for in a startup, as focused ventures are less likely to fail.

In the world of birds, the same principle holds true, known as the "tradeoff hypothesis". Birds that are efficient in diving are mediocre at flying, as wings optimised for diving make flying possible only at a very high energy cost. Murres and cormorants are an example of excellent divers but terrible fliers: murres are able to fly but only by burning energy at 31 times their rate at rest, which is the highest known ratio in the ornitological world. Similarly, because of the inefficiency of being able to both fly and dive, penguins gave up and lost their flying skills 70 million years ago.

Flying has evolved independently at least four times in the history of life on Earth (insects, dinosaurs, birds and bats) but the loss of flying in birds has occurred independently at least five times.

Focus appears to be the key to success in both startups and animals.

(Photo: Walking penguin, Boulders penguin colony, Cape Town, Oct 2012. Source: George ILIEV)

Big Bang matter formation resembles education: Neither represents final stage

The Big Bang created a limited number of elements just like education develops a limited set of skills
George ILIEV

Matter was created in the Big Bang in the form of only three chemical elements: hydrogen, helium and lithium.  All other elements lighter than (and including) iron are born in nuclear reactions within stars in a process known as stellar nucleosynthesis. All the elements heavier than iron are created largely in supernova explosions.

This mode of matter formation resembles education and professional development. School and university education can teach a student only so much. The rest they can only learn in their job. The more stellar the company, the more the employees will learn.

(Photo: The supernova that exploded in 1054, Source: Wikipedia)

Bigger brains lead to divergence of species and spinouts of companies

Learning animals and learning organisations evolve faster
George ILIEV

Statistical research on birds proves the old hypothesis that species with bigger brains diversify and evolve into other species faster. An analysis of over 7,000 bird species (or 3/4 of all known avian species) shows that those with the bigger brains relative to body size are also the ones that have diversified most, e.g. parrots, crows, owls and woodpeckers. Bigger brains allow animals to adopt more easily the behavioural changes needed to gain access to new environments or new resources, which in turn puts selection pressure on the species and can lead to its divergence into two or more species. Big brains thus facilitate changes in behaviour that result in adaptive divergence.

In a similar way learning organisations (i.e. companies that facilitate the learning of their members) are in a state of continuous transformation and the top-ranked research-led universities are more likely to launch spinout companies. Big brains seem to lead to hiving off not only in bees.

(Photo: Macaw parrot, Wikipedia)

Birds of a feather: nectar-robbing bumblebees and rent-seeking investment banks

"Nec-tarred" with the same brush: Robbers learn their way to take advantage of nectar and Muppets*
George ILIEV

Bumblebees rob flowering plants of their nectar by cutting holes on the side of the flower, rather than entering  through the pollen-covered opening as the other bees and insects do. As a result, bumblebees do not contribute to the pollination of the plant. This was known to Darwin 150 years ago. A recent discovery, however, shows that this behaviour is not innate: bumblebees learn  from other bumblebees how to rob flowers. This has been proven by the fact that the hole is always cut on the same side (right or left) of all flowers in a given meadow - a sign that the flower-cutting technique is being passed from one bumblebee to another.

In a similar way, investment banks did not invent independently the plethora of rent-seeking financial innovations that led to the 2007-08 financial crisis. They copied each other. Once an instrument, such as the securitisation of subprime mortgages, collateralised debt obligations (CDO), or credit default swaps (CDS) appeared at one bank (usually in America), the others would copy the model so as not to lag behind. Thus by robbing their gullible clients (referred to as "Muppets"*), they damaged the global financial system - just like the bumblebees hinder the pollination of plants and reduce the efficiency of their ecosystem.

*Investment Bank Goldman Sachs came in the news in 2012 with the nickname bankers gave to unsophisticated clients who could be easily taken for a ride: Muppets.

(Photo: Bumblebee cutting its way into a flower, Wikipedia)

Apple’s product-launch pattern resembles memory recall in young people’s brains

Too frequent switching between different areas slows down memory and hampers companies
George ILIEV

As people age, their memory worsens partly because when they try to recall things, their brain flits between different areas and categories more often than necessary/optimal, research by Warwick University shows. If an old person would be asked to name 100 animals, he/she would switch too often between predators, herbivores, pets, marsupials etc. without exhausting each category, while a young person would be more focused and would exhaust the category before moving on to the next.

Apple’s product launch strategy thus resembles the pattern of functioning of a young person’s brain, as Apple does not flit between categories unnecessarily: Six years after the iPod came the iPhone, three years after the iPhone came the iPad. Google, on the other hand, used to move between various product categories a lot more and has only recently started to narrow down its focus to a few core areas.

(Photo: The old Apple logo, Wikipedia)

Short-term hearing loss resembles bursting of asset bubbles: No physical damage in either case

Temporary loss of hearing and reduction in asset value are both psychological mechanisms
George ILIEV

Reversible short-term hearing loss after a concert or a night in the club is not the result of damage to our hearing, groundbreaking research published in the Proceedings of the National Academy of Sciences shows. It is instead a protective psychological mechanism with which the body temporarily reduces hearing sensitivity in order to continue performing normally.

This resembles the bursting of asset bubbles. When a bubble starts to deflate, the underlying assets are not lost - be they houses, IT companies or railway lines. They are simply psychologically re-evaluated in a period of moderation which is needed for the economy to continue functioning normally.

(Photo: Human ear, Wikipedia)