know where you want to go? use the table of contents to navigate the principles
follows are three distinct parts that can be read either independently or as a connected
whole. Part 1 is about the purpose and importance of having principles in general, having
nothing to do with mine. Part 2 explains my most fundamental life principles that apply to
everything I do. Part 3, explains my management principles as they are being lived out at
Bridgewater. Since my management principles are simply my most fundamental life principles
applied to management, reading Part 2 will help you to better understand Part 3, but it’s not
required—you can go directly to Part 3 to see what my management principles are and how
Bridgewater has been run. One day I’d like to write a Part 4 on my investment principles. If
you are in looking to get the most bang for your buck (i.e., understanding for the effort), I
suggest that you read Parts 1 and 2, and the beginning of Part 3 (through the Summary and
Table of Principles) which will give you nearly the whole picture. It’s only about 55 pages
of a normal size book.
all else, I want you to think for yourself—to decide 1) what you want, 2) what is true and 3)
what to do about it. I want you to do that in a clear-headed thoughtful way, so that you get
whatyouwant. I wrote this book to help you do that. I
am going to ask only two things of you—1) that you be open-minded and 2) that you honestly
answer some questions about what you want, what is true and what you want to do about it. If
you do these things, I believe that you will get a lot out of this book. If you can’t do
these things, you should reflect on why that is, because you probably have discovered one of
your greatest impediments to getting what you want out of life.
Table of Contents
Part 1: The Importance of Principles
Part 2: My Most Fundamental Life Principles
Part 3: My Management Principles
Principles are concepts
that can be applied over and over again in similar circumstances as distinct from narrow
answers to specific questions. Every game has principles that successful players master to
achieve winning results. So does life. Principles are ways of successfully dealing with the
laws of nature or the laws of life. Those who understand more of them and understand them
well know how to interact with the world more effectively than those who know fewer of them
or know them less well. Different principles apply to different aspects of life—e.g., there
are “skiing principles” for skiing, “parenting principles” for parenting, “management
principles” for managing, “investment principles” for investing, etc and there are
over-arching “life principles” that influence our approaches to all things. And, of course,
different people subscribe to different principles that they believe work best.
I am confident that
whatever success Bridgewater and I have had has resulted from our operating by certain
principles. Creating a great culture, finding the right people, managing them to do great
things, and solving problems creatively and systematically are challenges faced by all
organizations. What differentiates them is how they approach these challenges. The principles
laid out in the pages that follow convey our unique ways of doing these things, which are the
reasons for our unique results. Bridgewater’s success has resulted from talented people
operating by the principles set out here, and it will continue if these or other talented
people continue to operate by them. Like getting fit, virtually anyone can do it if they are
willing to do what it takes.
What is written here is
just my understanding of what it takes: my most fundamental life principles, my approach to
getting what I want, and my “management principles,” which are based on those foundations.
Taken together, these principles are meant to paint a picture of a process for the systematic
pursuit of truth and excellence and for the rewards that accompany this pursuit. I put them
in writing for people to consider in order to help Bridgewater and the people I care about
Until recently, I didn’t
write out these principles because I felt that it was presumptuous for me to tell others what
would work best for them. But over time, I saw the people who I cared about most struggling
with problems and wanted to help them; I also found that their problems were almost always
the result of violating one or more of these principles, and that their problems could be
solved by applying these principles. So I began writing down the types of problems and the
broken principles that caused them. When I began, I didn’t know how many principles I would
end up with but, through this process, I discovered that about 200 principles pretty much
cover all the problems.I’m sure that I will come up with
more as I learn more.
When I say that these are
my principles, I don’t mean that in a possessive or egotistical way. I just mean that they
are explanations of what I personally believe. I believe that the people I work with and care
about must think for themselves. I set these principles out and explained the logic behind
them so that we can together explore their merits and stress test them. While I am confident
that these principles work well because I have thought hard about them, they have worked well
for me for many years, and they have stood up to the scrutiny of the hundreds of smart,
skeptical people, I also believe that nothing is certain. I believe that the best we can hope
for is highly probable. By putting them out there and stress testing them, the probabilities
of their being right will increase.
I also believe that those
principles that are most valuable to each of us come from our own encounters with reality and
our reflections on these encounters not from being taught and simply accepting someone else’s
principles. So, I put these out there for you to reflect on when you are encountering your
realities, and not for you to blindly follow. What I hope for most is that you and others
will carefully consider them and try operating by them as part of your process for
discovering what works best for you. Through this exploration, and with their increased
usage, not only will they be understood, but they will evolve from “Ray’s principles” to “our
principles,” and Ray will fade out of the picture in much the same way as memories of one’s
ski or tennis instructor fade and people only pay attention to what works.So, when digesting each
Before I discuss the
management principles themselves, it’s important for me to articulate my own most fundamental
life principles because my management principles are an extension of them.
In Part 1, I explain what
I mean by principles, why I believe they are important, and how they are essential for
getting what you want out of life.
Part 2 explains my most
fundamental life principles. I describe what I believe are the best ways of interacting with
reality to learn what it’s like, and how to most effectively deal with it to get what you
want. I also discuss what I believe are the most common traps that people fall into that
prevent them from getting what they want, and how people’s lives can be radically better by
avoiding them. I wrote this so you can better understand why my other principles are what
they are, though you don’t need to read this part to understand the others.
Part 3 is about my
management principles. As I have run Bridgewater for more than 35 years, it explains
Bridgewater’s approach up till now. It begins at the big-picture, conceptual level, with an
explanation of why I believe that any company’s results are primarily determined by its
people and its culture. It then drills down into what I believe are the important principles
behind creating a great culture hiring the right people, managing them to achieve excellence,
solving problems systematically, and making good decisions.
There are of course lots
of other types of principles. For example, I hope to one day write about my investment
principles. However, management principles are now what we need most, so here are the ones
that I think make sense and have worked for me.
Part 1 The Importance of
I believe that having
principles that work is essential for getting what we want out of life. I also believe that
to understand each other we have to understand each other’s principles.That is why I believe we need to
talk about them.
We will begin by examining
the following questions:
principles come from?
have principles that you live your life by? What are they?
do you think they will work, and why?
Answer all questions with
complete honesty, without worrying what I or others might think. That honesty will allow you
to be comfortable living with your own principles, and to judge yourself by how consistently
you operate by them. If you don’t have many well-thought-out principles, don’t worry. We will
get there together, if we remain open-minded.
What are principles?
Your values are what you
consider important, literally what you “value.” Principles are what allow you to live a life
consistent with those values. Principles connect your values to your actions; they are
beacons that guide your actions, and help you successfully deal with the laws of reality. It
is to your principles that you turn when you face hard choices.
Why are principles important?
All successful people
operate by principles that help them be successful. Without principles, you would be forced
to react to circumstances that come at you without considering what you value most and how to
make choices to get what you want. This would prevent you from making the most of your life.
While operating without principles is bad for individuals, it is even worse for groups of
individuals (such as companies) because it leads to people randomly bumping into each other
without understanding their own values and how to behave in order to be consistent with those
Where do principles come from?
Sometimes we forge our own
principles and sometimes we accept others’ principles, or holistic packages of principles,
such as religion and legal systems. While it isn’t necessarily a bad thing to use others’
principles—it’s difficult to come up with your own, and often much wisdom has gone into those
already created—adopting pre-packaged
principles without much thought exposes you to the risk of inconsistency with your true
values. Holding incompatible principles can lead to
conflict between values and actions—like the hypocrite who has claims to be of a religion yet
behaves counter to its teachings. Your principles need to reflect values you really believe
Do you have principles that you live your life by? What are
Your principles will
determine your standards of behavior. When you enter into relationships with other people,
your and their principles will determine how you interact. People who have shared values and
principles get along. People who don’t will suffer through constant misunderstanding and
conflicts with one another. Too often in relationships, people’s principles are unclear.
Think about the people with whom you are closest. Are their values aligned with
What do you
value most deeply?
How well do you think they will work, and why?
Those principles that are
most valuable come from our own experiences and our reflections on those experiences. Every
time we face hard choices, we refine our principles by asking ourselves difficult questions.
For example, when our representatives in Washington are investigating whether various
segments of society are behaving ethically, they are simultaneously grappling with questions
such as, “Should the government punish people for bad ethics, or should it just write and
enforce the laws?” Questions of this kind—in this case, about the nature of government—prompt
thoughtful assessments of alternative approaches. These assessments in turn lead to
principles that can be applied to similar occasions in the future. As another example, “I
won’t steal” can be a principle to which you refer when the choice of whether or not to steal
arises. But to be most effective, each principle must be consistent with your values, and
this consistency demands that you ask: Why? Is the reason you won’t steal because you feel
empathy for your potential victim? Is it because you fear getting caught? By asking such
questions, we refine our understanding, and the development of our principles becomes better
aligned with our core values. To be successful, you must make correct, tough choices. You
must be able to “cut off a leg to save a life,” both on an individual level and, if you lead
people, on a group level. And to be a great leader, it is important to remember that you will
have to make these choices by understanding and caring for your people, not by following
You have to answer these
questions for yourself. What I hope for most is that you will carefully consider the
principles we will be exploring in this document and try operating by them as part of the
process of discovering what works best for you. In time, the answers to these questions will
evolve from “Ray’s principles” to “my principles,” and “Ray” will fade from the picture in
much the same way as memories of your ski instructor or basketball coach fade after you have
mastered the sport.
So, as I believe that
adopting pre-packaged principles without much thought is risky, I am asking you to join me in
thoughtfully discussing the principles that guide how we act. When considering each
principle, please ask yourself,“Is it
true?”While this particular document will always express
just what I believe, other people will certainly have their own principles, and possibly even
their own principles documents, and future managers of Bridgewater will work in their own
ways to determine what principles Bridgewater will operate by. At most, this will remain as
one reference of principles for people to consider when they are deciding what’s important
and how to behave.
Part 2 My Most Fundamental Life
Time is like a river that
will take you forward into encounters with reality that will require you to make decisions.
You can’t stop the movement down this river, and you can’t avoid the encounters. You can only
approach these encounters in the best way possible.
That is what this part is
Where I’m Coming From
Since we are all products
of our genes and our environments and approach the world with biases, I think it is relevant
for me to tell you a bit of my background so that you can know where I’m coming
I grew up in a
middle-class neighborhood on Long Island, the only son of a jazz musician and a stay-at-home
mom. I was a very ordinary kid, and a less-than-ordinary student. I liked playing with my
friends—for example, touch football in the street—and I didn't like the school part of
school, partly because I had, and still have, a bad rote memoryand partly because I couldn’t get
excited about forcing myself to remember what others wanted me to remember without
understanding what all this work was going to get me. In order to be motivated, I needed to
work for what I wanted, not for what other people wanted me to do. And in order to be
successful, I needed to figure out for myself how to get what I wanted, not remember the
facts I was being told to remember.
One thing I wanted was
spending money. So I had a newspaper route, I mowed lawns, I shoveled the snow off driveways,
I washed dishes in a restaurant, and, starting when I was 12 years old, I caddied.
It was the 1960s. At the
time the stock market was booming and everyone was talking about it, especially the people I
caddied for. So I started to invest. The first stock I bought was a company called Northeast
Airlines, and the only reason I bought it was that it was the only company I had heard of
that was trading for less than $5 per share, so I could buy more shares, which I figured was
a good thing. It went up a lot. It was about to go broke but another company acquired it, so
it tripled. I made money because I was lucky, though I didn’t see it that way then. I figured
that this game was easy. After all, with thousands of companies listed in the newspaper, how
difficult could it be to find at least one that would go up? By comparison to my other jobs,
this way of making money seemed much more fun, a lot easier, and much more lucrative. Of
course, it didn’t take me long to lose money in the markets and learn about how difficult it
is to be right and the costs of being wrong.
So what I really wanted to
do now was beat the market. I just had to figure out how to do it.
The pursuit of this goal taught me:
It isn’t easy for me to be confident that my opinions are
right.In the markets, you can do a huge amount of work and
still be wrong.
Bad opinions can be very costly.Most people come up with opinions and there’s no cost to them. Not so in the
market. This is why I have learned to be cautious. No matter how hard I work, I really can’t
The consensus is often wrong, so I have to be an independent
thinker.To make any money, you have to be right when
I worked for what I wanted, not for what others wanted me to
do.For that reason, I never felt that I had to do anything.
All the work I ever did was just what I needed to do to get what I wanted. Since I always had
the prerogative to strive for what I wanted, I never felt forced to do anything.
I came up with the best independent opinions I could muster
to get what I wanted.For example, when I wanted to make
money in the markets, I knew that I had to learn about companies to assess the attractiveness
of their stocks. At the time,Fortunemagazine had a
little tear-out-coupon that you could mail in to get the annual reports of any companies on
the Fortune 500, for free. So I ordered all the annual reports and worked my way through the
most interesting ones and formed opinionsabout which companies were
I stress-tested my opinions by having the smartest people I
could find challenge them so I could find out where I was wrong.I never cared much about others’
conclusions—only for the reasoning that led to these conclusions. That reasoning had to make
sense to me. Through this process, I improved my chances of being right, and I learned a lot
from a lot of great people.
I remained wary about being overconfident, and I figured out
how to effectively deal with my not knowing.I dealt with my
not knowing by either continuing to gather information until I reached the point that I could
be confident or by eliminating my exposure to the risks of not knowing.
I wrestled with my realities, reflected on the consequences
of my decisions, and learned and improved from this process.
By doing these things, I
learned how important and how liberating it is to think for myself.
In a nutshell, this is the
whole approach that I believe will work best for you—the best summary of what I want the
people who are working with me to do in order to accomplish great things.I want you to work for yourself, to come up with independent
opinions, to stress-test them, to be wary about being overconfident, and to reflect on the
consequences of your decisions and constantly improve.
After I graduated from
high school, I went to a local college that I barely got in to. I loved it, unlike high
school, because I could learn about things that interested me; I studied because I enjoyed
it, not because I had to.
At that time the Beatles
had made a trip to India to learn how to meditate, which triggered my interest, so I learned
how to meditate. It helped me think more clearly and creatively, so I’m sure that enhanced my
enjoyment of, and success at, learning.Unlike in high school, in college I did very well.
And of course I continued
to trade markets. Around this time I became interested in trading commodities futures, though
virtually nobody traded them back then. I was attracted to trading them just because they had
low margin requirements so I figured I could make more money by being right (which I planned
By the time I graduated
college, in 1971, I had been admitted to Harvard Business School, where I would go in the
fall. That summer between college and HBS I clerked on the floor of the New York Stock
Exchange. This was the summer of the breakdown of the global monetary system (i.e., the
Bretton Woods system). It was one of the most dramatic economic events ever and I was at the
epicenter of it, so it thrilled me. It was a currency crisis that drove all market behaviors,
so I delved into understanding the currency markets. The currency markets would be important
to me for the rest of my life.
That fall I went to
Harvard Business School, which I was excited about because I felt that I had climbed to the
top and would be with the best of the best. Despite these high expectations, the place was
even better than I expected because the case study method allowed open-ended figuring things
out and debating with others to get at the best answers, rather than memorizing facts. I
loved the work-hard, play-hard environment.
In the summer between my
two years at HBS, I pursued my interest in trading commodities futures by convincing the
Director of Commodities for Merrill Lynch to give me a job as his assistant. At the time,
commodities trading was still an obscure thing to do.
In the fall I went back to
HBS, and in that academic year, 1972-73, trading commodities futures became a hot thing to
do. That is because the monetary system’s breakdown that occurred in 1971 led to an
inflationary surge that sent commodity prices higher. As a result of this, the first oil
shock occurred in 1973. As inflation started to surge, the Federal Reserve tightened monetary
policy to fight it, so stocks went down in the worst bear market since the Great Depression.
So, commodities futures trading was hot and stock market investing was not. Naturally,
brokerage houses that didn’t have commodities trading departments wanted them, and there was
a shortage of people who knew anything about it. Virtually nobody in the commodities futures
business had the type of Harvard Business School background that I had. So I was hired as
Director of Commodities at a moderate-size brokerage and given an old salt who had lots of
commodities brokerage experience to help me set up a commodities division. The bad stock
market environment ended up taking this brokerage house down before we could get the
commodities futures trading going. I went to a bigger, more successful brokerage, where I was
in charge of its institutional/hedging business. But I didn’t fit into the organization well,
so I was fired essentially for insubordination.
So in 1975, after a quick
two-year stint on Wall Street after school, I started Bridgewater. Soon after, I got married
and began my family.
Through this time and ‘til
now I followed the same basic approach I used as a 12-year-old caddie trying to beat the
market, i.e., by1) working for what I
wanted, not for what others wanted me to do; 2) coming up with the best independent opinions
I could muster to move toward my goals; 3) stress-testing my opinions by having the smartest
people I could find challenge them so I could find out where I was wrong; 4) being wary about
overconfidence, and good at not knowing; and 5) wrestling with reality, experiencing the
results of my decisions, and reflecting on what I did to produce them so that I could
Since I started
Bridgewater, I have gained a lot more experience that taught me a lot more, mostly by making
mistakes and learning from them. Most importantly:
I learned that failure is
by and large due to not accepting and successfully dealing with the realities of life, and
that achieving success is simply a matter of accepting and successfully dealing with all my
I learned that finding out
what is true, regardless of what that is, including all the stuff most people think is
bad—like mistakes and personal weaknesses—is good because I can then deal with these things
so that they don’t stand in my way.
I learned that there is
nothing to fear from truth. While some truths can be scary—for example, finding out that you
have a deadly disease—knowing them allows us to deal with them better. Being truthful, and
letting others be completely truthful, allows me and others to fully explore our thoughts and
exposes us to the feedback that is essential for our learning.
I learned that being
truthful was an extension of my freedom to be me. I believe that people who are one way on
the inside and believe that they need to be another way outside to please others become
conflicted and often lose touch with what they really think and feel. It’s difficult for them
to be happy and almost impossible for them to be at their best. I know that’s true for
I learned that I want the
people I deal with to say what they really believe and to listen to what others say in reply,
in order to find out what is true. I learned that one of the greatest sources of problems in
our society arises from people having loads of wrong theories in their heads—often theories
that are critical of others—that they won’t test by speaking to the relevant people about
them. Instead, they talk behind people’s backs, which leads to pervasive misinformation. I
learned to hate this because I could see that making judgments about people so that they are
tried and sentenced in your head, without asking them for their perspective, is both
unethical and unproductive.So I learned to love real
integrity (saying the same things as one believes)and to despise the lack of
I learned that everyone
makes mistakes and has weaknesses and that one of the most important things that
differentiates people is their approach to handling them. I learned that there is an
incredible beauty to mistakes because embedded in each mistake is a puzzle, and a gem that I
could get if I solved it, i.e., a principle that I could use to reduce my mistakes in the
future. I learned that each mistake was probably a reflection of something that I was (or
others were) doing wrong, so if I could figure out what that was, I could learn how to be
more effective. I learned that wrestling with my problems, mistakes, and weaknesses was the
training that strengthened me. Also, I learned that it was the pain of this wrestling that
made me and those around me appreciate our successes.
I learned that the popular
picture of success—which is like a glossy photo of an ideal man or woman out of a Ralph
Lauren catalog, with a bio attached listing all of their accomplishments like going to the
best prep schools and an Ivy League college, and getting all the answers right on tests—is an
inaccurate picture of the typical successful person. I met a number of great people and
learned that none of them were born great—they all made lots of mistakes and had lots
weaknesses—and that great people become great by looking at their mistakes and weaknesses and
figuring out how to get around them. So I learned that the people who make the most of the
process of encountering reality, especially the painful obstacles, learn the most and get
what they want faster than people who do not. I learned that they are the great ones—the ones
I wanted to have around me.
In short, I learned that
being totally truthful, especially about mistakes and weaknesses, led to a rapid rate of
improvement and movement toward what I wanted.
While this approach worked
great for me, I found it more opposite than similar to most others’ approaches, which has
produced communications challenges.
Specifically, I found that:
While most others seem to
believe that learning what we are taught is the path to success, I believe that figuring out
for yourself what you want and how to get it is a better path.
While most others seem to
believe that having answers is better than having questions, I believe that having questions
is better than having answers because it leads to more learning.
While most others seem to
believe that mistakes are bad things, I believe mistakes are good things because I believe
that most learning comes via making mistakes and reflecting on them.
While most others seem to
believe that finding out about one’s weaknesses is a bad thing, I believe that it is a good
thing because it is the first step toward finding out what to do about them and not letting
them stand in your way.
While most others seem to
believe that pain is bad, I believe that pain is required to become stronger.
One of the advantages of
my being over 60 years old—and there aren’t many—is that we can look back on my story to see
how I came by these beliefs and how they have worked for me. It is now more than 35 years a
after I started Bridgewater and about the same number of years since I got married and began
my family. I am obviously not your Ralph Lauren poster child for success, yet I’ve had a lot
of successes, though they’re probably not what you’re thinking.
Yes, I started Bridgewater
from scratch, and now it’s a uniquely successful company and I am on the Forbes 400 list. But
these results were never my goals—they were just residual outcomes—so my getting them can’t
be indications of my success. And, quite frankly, I never found them very rewarding.
What I wanted was to have
an interesting, diverse life filled with lots of learning—and especially meaningful work and
meaningful relationships. I feel that I have gotten these in abundance and I am happy. And I
feel that I got what I wanted by following the same basic approach I used as a 12-year-old
caddie trying to beat the market, i.e., by 1) working for what I wanted, not for what others
wanted me to do; 2) coming up with the best independent opinions I could muster to move
toward my goals; 3) stress-testing my opinions by having the smartest people I could find
challenge them so I could find out where I was wrong; 4) being wary about overconfidence, and
good at not knowing; and 5) wrestling with reality, experiencing the results of my decisions,
and reflecting on what I did to produce them so that I could improve. I believe that by
following this approach I moved faster to my goals by learning a lot more than if I hadn’t
Here are the most
important principles that I learned along the way.
My Most Fundamental
In pursuing my goals I
encountered realities, often in the form of problems, and I had to make decisions. I found
that if I accepted the realities rather than wished that they didn’t exist and if I learned
how to work with them rather than fight them, I could figure out how to get to my goals. It
might take repeated tries, and seeking the input of others, but I could eventually get there.
As a result, I have become someone who believes that we need to deeply understand, accept,
and work with reality in order to get what we want out of life. Whether it is knowing how
peoplereallythink and behave when dealing with them, or how thingsreallywork on a material
level—so that if we do X then Y will happen—understanding reality gives us the power to get
what we want out of life, or at least to dramatically improve our odds of success. In other
words, I have become a “hyperrealist.”
When I say I’m a
hyperrealist, people sometimes think I don’t believe in making dreams happen. This couldn’t
be further from the truth. In fact, I believe that without pursuing dreams, life is mundane.
I am just saying that I believe hyperrealism is the best way to choose and achieve one’s
dreams. The people who really change the world are the ones who see what’s possible and
figure out how to make that happen. I believe that dreamers who simply imagine things that
would be nice but are not possible don’t sufficiently appreciate the laws of the universe to
understand the true implications of their desires, much less how to achieve them.
Let me explain what I
I believe there are an
infinite number of laws of the universe and that all progress or dreams achieved come from
operating in a way that’s consistent with them. These laws and the principles of how to
operate in harmony with them have always existed. We were given these laws by nature. Man
didn’t and can’t make them up. He can only hope to understand them and use them to get what
he wants. For example, the ability to fly or to send cellular phone signals imperceptibly and
instantaneously around the world or any other new and beneficial developments resulted from
understanding and using previously existing laws of the universe. These inventions did not
come from people who were not well-grounded in reality.The same is true for economic,
political, and social systems that work. Success is achieved by people who deeply understand
reality and know how to use it to get what they want. The converse is also true: idealists
who are not well-grounded in reality create problems, not progress. For example, communism
was a system created by people with good intentions who failed to recognize that their
idealistic system was inconsistent with human nature. As a result, they caused more harm than
This brings me to my most
While I spend the most
time studying how the realities that affect me most work—i.e., those that drive the markets
and the people I deal with—I also love to study nature to try to figure out how it works
because, to me, nature is both beautiful and practical.
Its perfection and
brilliance staggers me. When I think about all the flying machines, swimming machines, and
billions of other systems that nature created, from the microscopic level to the cosmic
level, and how they interact with one another to make a workable whole that evolves through
time and through multi-dimensions, my breath is taken away. It seems to me that, in relation
to nature, man has the intelligence of a mold growing on an apple—man can’t even make a
mosquito, let alone scratch the surface of understanding the universe.
Though how nature works is
way beyond man’s ability to comprehend, I have found that observing how nature works offers
innumerable lessons that can help us understand the realities that affect us. That is
because, though man is unique, he is part of nature and subject to most of the same laws of
nature that affect other species.
For example, I have found
that by looking at what is rewarded and punished, and why, universally—i.e., in nature as
well as in humanity—I have been able to learn more about what is “good” and “bad” than by
listening to most people’s views about good and bad. It seems to me that what most people
call “good” and “bad” typically reflects their particular group’s preferences: the Taliban’s
definitions are different from Americans’, which are different from others’—and within each
group there are differences and they are intended to paint a picture of the world the way
they’d like it to be rather than the way it really is. So there are many different takes on
what is good and bad that each group uses to call others “bad” and themselves “good,” some of
which are practical and others of which are impractical. Yet all of them, and everything
else, are subject to the same laws of nature–i.e., I believe that we all get rewarded and
punished according to whether we operate in harmony or in conflict with nature’s laws, and
that all societies will succeed or fail in the degrees that they operate consistently with
This perspective gives me
a non-traditional sense of good and bad: “good,” to me, means operating consistently with the
natural laws, while “bad” means operating inconsistently with these laws. In other words, for
something to be “good” it must be grounded in reality. And if something is in conflict with
reality—for example, if morality is in conflict with reality—it is “bad,” i.e., it will not
produce good outcomes.
In other words, I believe
that understanding what is good is obtained by looking at the way the world works and
figuring out how to operate in harmony with it to help it (and yourself) evolve. But it is
not obvious, and it is sometimes difficult to accept.
For example, when a pack
of hyenas takes down a young wildebeest, is this good or bad? At face value, this seems
terrible; the poor wildebeest suffers and dies. Some people might even say that the hyenas
are evil. Yet this type of apparently evil behavior exists throughout nature through all
species and was created by nature, which is much smarter than I am, so before I jump to
pronouncing it evil, I need to try to see if it might be good. When I think about it, like
death itself, this behavior is integral to the enormously complex and efficient system that
has worked for as long as there has been life. And when I think of the second- and
third-order consequences, it becomes obvious that this behavior is good for both the hyenas,
who are operating in their self-interest, and in the interests of the greater system, which
includes the wildebeest, because killing and eating the wildebeest fosters evolution, i.e.,
the natural process of improvement. In fact, if I changed anything about the way that dynamic
works, the overall outcome would be worse.
believe that evolution, which is the natural movement toward better adaptation, is the
greatest single force in the universe, and that it is good.It affects the changes of
everything from all species to the entire solar system. It is good because evolution is the
process of adaptation that leads to improvement. So, based on how I observe both nature and
humanity working, I believe that what is bad and most punished are those things that don’t
work because they are at odds with the laws of the universe and they impede
believe that the desire to evolve, i.e., to get better, is probably humanity’s most pervasive
driving force.Enjoying your job, a craft, or your favorite
sport comes from the innate satisfaction of getting better. Though most people typically
think that they are striving to get things (e.g., toys, better houses, money, status, etc.)
that will make them happy, that is not usually the case. Instead, when we get the things we
are striving for, we rarely remain satisfied.It is natural for us to seek
other things or to seek to make the things we have better. In the process of this seeking, we
continue to evolve and we contribute to the evolution of all that we have contact with. The
things we are striving for are just the bait to get us to chase after them in order to make
us evolve, and it is the evolution and not the reward itself that matters to us and those
It is natural that it
should be this way—i.e., that our lives are not satisfied by obtaining our goals, but rather
by striving for them—because of the law of diminishing returns.For example, suppose making a lot
of money is your goal and suppose you make enough so that making more has no marginal
utility. Then it would be foolish to continue to have making money be your goal. People who
acquire things beyond their usefulness not only will derive little or no marginal gains from
these acquisitions, but they also will experience negative consequences, as with any form of
gluttony. So, because of the law of diminishing returns, it is only natural that seeking
something new, or seeking new depths of something old, is required to bring us
In other words, the
sequence of 1) seeking new things (goals); 2) working and learning in the process of pursuing
these goals; 3) obtaining these goals; and 4) then doing this over and over again is
thepersonal evolutionary processthat fulfills most of us and moves society forward.
I believe thatpursuing self-interest in harmony with the laws
of the universe and contributing to evolution is universally rewarded, and what I call “good.” Look at all species in action: they are constantly
pursuing their own interests and helping evolution in a symbiotic way, with most of them not
even knowing that their self-serving behaviors are contributing to evolution. Like the hyenas
attacking the wildebeest, successful people might not even know if or how their pursuit of
self-interest helps evolution, but it typically does.
society’s interests are generally symbiotic: more than anything else, it is pursuit of
self-interest that motivates people to push themselves to do the difficult things that
benefit them and that contribute to society. In return, society rewards those who give it
what it wants. That is why how much money people have earned is a rough measure of how much
they gave society what it wanted—NOT how much they desired to make money. Look at what caused
people to make a lot of money and you will see that usually it is in proportion to their
production of what the society wanted and largely unrelated to their desire to make money.
There are many people who have made a lot of money who never made making a lot of money their
primary goal. Instead, they simply engaged in the work that they were doing, produced what
society wanted, and got rich doing it.And there are many people who
really wanted to make a lot of money but never produced what the society wanted and they
didn’t make a lot of money. In other words, there is an excellent correlation between giving
society what it wants and making money, and almost no correlation between the desire to make
money and how much money one makes. I know that this is true for me—i.e., I never worked to
make a lot of money, and if I had I would have stopped ages ago because of the law of
diminishing returns. I know that the same is true for all the successful, healthy (i.e.,
non-obsessed) people I know.
This process of
productive adaptation—i.e., the process of seeking, obtaining, and pursuing new goals—does
not just pertain to how individuals and society move forward. It is equally relevant when
dealing with setbacks, which are inevitable. That is why many people who have had setbacks
that seemed devastating at the time ended up as happy as (or even happier than) they were
before, once they successfully adapted to them. The faster that one appropriately adapts, the
better. As Darwin described, adaptation—i.e., adjusting appropriately to changes in one’s
circumstances—is a big part of the evolutionary process, and it is rewarded.That is why some of the most
successful people are typically those who see the changing landscape and identify how to best
adapt to it.
So, it seems to me that
desires to evolve are universal and so are symbiotic relationships that lead to the evolution
of the whole via the pursuit of individuals’ self-interests. However, what differentiates man
from other species is man’s greater ability to learn. Because we can learn, we can evolve
more and faster than other species.
I also believe that all
things in nature have innate attributes that are both good and bad, with their goodness and
their badness depending on what they are used for. For example, the thorns on a rose bush,
the stinger on a bee, the aggressiveness of a lion, the timidity of a gazelle are all both
good and bad, depending on their applications. Over time, nature evolves toward the right
balance through the process of natural selection—e.g., an overly aggressive animal will die
prematurely, as will an overly timid animal. However, because man has the ability to look at
himself and direct his own change, individuals have the capacity to evolve.
Most of us are born with
attributes that both help us and hurt us, depending on their applications, and the more
extreme the attribute, the more extreme the potential good and bad outcomes these attributes
are likely to produce. For example, highly creative, goal-oriented people who are good at
imagining the big picture often can easily get tripped up on the details of daily life, while
highly pragmatic, task-oriented people who are great with the details might not be creative.
That is because the ways their minds work make it difficult for them to see both ways of
thinking. In nature everything was made for a purpose, and so too were these different ways
of thinking. They just have different purposes. It is extremely important to one’s happiness
and success to know oneself—most importantly to understand one’s own values and abilities—and
then to find the right fits. We all have things that we value that we want and we all have
strengths and weaknesses that affect our paths for getting them.The most important quality that differentiates successful
people from unsuccessful people is our capacity to learn and adapt to these
Unlike any other species,
man is capable of reflecting on himself and the things around him to learn and adapt in order
to improve. He has this capability because, in the evolution of the species, man’s brain
developed a part that no other species has—the prefrontal cortex. It is the part of the human
brain that gives us the ability to reflect and conduct other cognitive thinking. Because of
this, people who can objectively reflect on themselves and others—most importantly on what
their weaknesses are—can figure out how to get around these weaknesses, can evolve fastest,
and can come closer to realizing their potentials than those who can’t.
defensive, emotional reactions—i.e., ego barriers—stand way of this progress. These reactions
take place in the part of the brain called the amygdala. As a result of these reactions, most
people don’t like reflecting on their weaknesses even though recognizing them is an essential
step toward preventing the problems they cause. Most people especially dislike others
exploring their weaknesses because it makes them feel attacked, which produces fight or
flight reactions; however, having others help one find one’s weaknesses is essential because
it’s very difficult to identify one’s own. Most people don’t like helping others explore
their weaknesses, even though they are willing to talk about them behind their backs, For
these reasons most people don’t do a good job of understanding themselves and adapting in
order to get what they want most out of life. In my opinion, that is the biggest single
problem of mankind because it, more than anything else, impedes people’s abilities to address
all other problems and it is probably the greatest source of pain for most people.
Some people get over the
ego barrier and others don’t. Which path they choose, more than anything else, determines how
good their outcomes are. Aristotle defined tragedy as a bad outcome for a person because of a
fatal flaw that he can’t get around. So it is tragic when people let ego barriers lead them
to experience bad outcomes.
The Personal Evolutionary
As I mentioned before, I
believe that life consists of an enormous number of choices that come at us and that each
decision we make has consequences, sothe
quality of our lives depends on the quality of the decisions we make.
We aren’t born with the
ability to make good decisions; we learn it.We all start off as children with
others, typically parents, directing us. But, as we get older, we increasingly make our own
choices. We choose what we are going after (i.e., our goals), which influences our
directions. For example, if you want to be a doctor, you go to med school; if you want to
have a family, you find a mate; and so on. As we move toward our goals, we encounter
problems, make mistakes, and run into personal weaknesses. Above all else, how we choose to
approach these impediments determines how fast we move toward our goals.
I believe that the way we
make our dreams into reality is by constantly engaging with reality in pursuit of our dreams
and by using these encounters to learn more about reality itself and how to interact with it
in order to get what we want—and that if we do this with determination, we almost certainly
will be successful. In short:
So what is success? I
believe that it is nothing more than getting what you want--and that it is up to you to
decide what that is for you. I don’t care whether it’s being a master of the universe, a
couch potato, or anything else--I really don’t. What is essential is that you are clear about
what you want and that you figure out how to get it.
However, there are a few
common things that most people want.
As I mentioned, for most
people success is evolving as effectively as possible, i.e., learning about oneself and one’s
environment and then changing to improve. Personally, I believe that personal evolution is
both the greatest accomplishment and the greatest reward.
Also, for most people
happiness is much more determined by how things turn out relative to their expectations
rather than the absolute level of their conditions. For example, if a billionaire loses $200
million he will probably be unhappy, while if someone who is worth $10,000 unexpectedly gets
another $2,000, he will probably be happy. This basic principle suggests that you can follow
one of two paths to happiness: 1) have high expectations and strive to exceed them, or 2)
lower your expectations so that they are at or below your conditions. Most of us choose the
first path, which means that to be happy we have to keep evolving.
Another principle to keep
in mind is that people need meaningful work and meaningful relationships in order to be
fulfilled.I have observed this to be true for virtually
everyone, and I know that it’s true for me.
Regardless of others’
principles, you will need to decide for yourself what you want and go after it in the best
way for you.
Your Most Important Choices
As I mentioned, as we
head toward our goals we encounter an enormous number of choices that come at us, and each
decision we make has consequences. So,the
quality of our lives depends on the quality of the decisions we make. We literally make millions of decisions that add up to the consequences that
are our lives.
Of these millions, I
believe that there are five big types of choices that we continually must make that radically
affect the quality of our lives and the rates at which we move toward what we want. Choosing
well is not dependent on our innate abilities such as intelligence or creativity, but more on
what I think of as character. For this reason, I believe that most people can make the right
The following five
decision trees show these choices. I believe that those who don’t move effectively to their
goals do the things on the top branches, and those who do move to them most quickly do the
things on the bottom branches.
It is a
fundamental law of nature that to evolve one has to push one’s limits, which is painful, in
order to gain strength—whether it’s in the form of lifting weights, facing problems head-on,
or in any other way.Nature gave us pain as a messaging
device to tell us that we are approaching, or that we have exceeded, our limits in some way.
At the same time, nature made the process of getting stronger require us to push our limits.
Gaining strength is the adaptation process of the body and the mind to encountering one’s
limits, which is painful. In other words, both pain and strength typically result from
encountering one’s barriers. When we encounter pain, we are at an important juncture in our
Most people react to pain
badly. They have “fight or flight” reactions to it: they either strike out at whatever
brought them the pain or they try run away from it. As a result, they don’t learn to find
ways around their barriers, so they encounter them over and over again and make little or no
progress toward what they want.
Those who react well to
pain that stands in the way of getting to their goals—those who understand what is causing it
and how to deal with it so that it can be disposed of as a barrier—gain strength and
satisfaction. This is because most learning comes from making mistakes, reflecting on the
causes of the mistakes, and learning what to do differently in the future. Believe it or not,
you are lucky to feel the pain if you approach it correctly, because it will signal that you
need to find solutions and to progress. Since the only way you are going to find solutions to
painful problems is by thinking deeply about them—i.e., reflecting—if you can develop a knee-jerk
reaction to pain that is to reflect rather than to fight or flee, it will lead to your rapid
So, please remember
How big of an
impediment is psychological pain to your progress?
People who confuse what
they wish were true with what is really true create distorted pictures of reality that make
it impossible for them to make the best choices. They typically do this because facing “harsh
realities” can be very difficult. However, by not facing these harsh realities, they don’t
find ways of properly dealing with them. And because their decisions are not based in
reality, they can’t anticipate the consequences of their decisions.
In contrast,people who know that understanding what is real
is the first step toward optimally dealing with it make better decisions.
…because knowing what is
true is good.
How much do you
let what you wish to be true stand in the way of seeing what is really true?
who worry about looking good typically hide what they don’t know and hide their weaknesses,
so they never learn how to properly deal with them and these weaknesses remain impediments in
the future.These people typically try to
prove that they have the answers, even when they really don’t. Why do they behave in this
unproductive way? They typically believe the senseless but common view that great people are
those who have the answers in their heads and don’t have weaknesses. Not only does this view
not square with reality, but it also stands in the way of progress.
I have never met a great
person who did not earn and learn their greatness.They have weaknesses like
everyone else—they have just learned how to deal with them so that they aren’t impediments to
getting what they want. In addition, the amounts of knowledge and the capabilities that
anyone does not have, and that could be used to make the best possible decisions, are vastly
greater than that which anyone (no matter how great) could have within them.
This explains whypeople who are interested in making the best
possible decisions rarely are confident that they have the best possible answers.So they seek to learn more (often by exploring the thinking of
other believable people, especially those who disagree with them) and they are eager to
identify their weaknesses so that they don’t let these weaknesses stand in the way of them
achieving their goals.
So, what are your biggest
weaknesses? Think honestly about them because if you can identify them, you are on the first
step toward accelerating your movement forward. So think about them, write them down, and
look at them frequently.
One of my biggest
weaknesses is my poor rote memory: I have trouble remembering things that don’t have reasons
for being what they are, such as names, phone numbers, spellings, and addresses. Also, I am
terrible at doing tasks that require little or no logic, especially if I have to do them
repeatedly. On the other hand, I have a great contextual memory and good logic, and I can
devote myself to things that interest me for untold hours. I don’t know how much of what I am
bad at is just the other side of what I am good at—i.e., how much of what I am good at is due
to my brain working in a certain way that, when applied to certain tasks, does well and when
applied to others does poorly—and how much of what I am good at was developed in order to
help compensate for what I am bad at. But I do know that I have created compensating
approaches so that what I am bad at doesn’t hurt me much; e.g., I surround myself with people
who have good rote memories who do the things that I am bad at, and I carry around tools like
How much do you
worry about looking good relative to actually being good?
who overweigh the first-order consequences of their decisions and ignore the effects that the
second- and subsequent-order consequences will have on their goals rarely reach their
goals.This is because first-order
consequences often have opposite desirabilities from second-order consequences, resulting in
big mistakes in decision-making. For example, the first-order consequences of exercise (pain
and time-sink) are commonly considered undesirable, while the second-order consequences
(better health and more attractive appearance) are desirable. Similarly, food that tastes
good is often bad for you and vice versa, etc. If your goal is to get physically fit and you
don’t ignore the first-order consequences of exercise and good-tasting but unhealthy food and
connect your decisions with their second- and third-order consequences, you will not reach
Quite often the
first-order consequences are the temptations that cost us what we really want, and sometimes
they are barriers that stand in our way of getting what we want. It’s almost as though the
natural selection process sorts us by throwing us trick choices that have both types of
consequences and penalizing the dummies who make their decisions just on the basis of the
first-order consequences alone.
By contrast, people who
choose what they really want, and avoid the temptations and get over the pains that drive
them away from what they really want, are much more likely to have successful
How much do you
respond to 1st order consequences at the expense of 2nd and 3rd order
People who blame bad
outcomes on anyone or anything other than themselves are behaving in a way that is at
variance with reality and subversive to their progress.
Blaming bad outcomes on
anyone or anything other than one’s self is essentially wishing that reality is different
than it is, which is silly.And it is subversive because it
diverts one’s attention away from mustering up the personal strength and other qualities that
are required to produce the best possible outcomes.
Successful people understand that bad things come at everyone
and that it is their responsibility to make their lives what they want them to be by
successfully dealing with whatever challenges they face.Successful people know that
nature is testing them, and that it is not sympathetic.
How much do you
let yourself off the hook rather than hold yourself accountable for your success?
summary, I believe that you can probably get what you want out of life if you can suspend
your ego and take a no-excuses approach to achieving your goals with open-mindedness,
determination, and courage, especially if you rely on the help of people who are strong in
areas that you are weak.
If I had to pick just one
quality that those who make the right choices have, it is character. Character is the ability
to get one’s self to do the difficult things that produce the desired results. In other
words, I believe that for the most part, achieving success—whatever that is for you—is mostly
a matter of personal choice and that, initially, making the right choices can be difficult.
However, because of the law of nature that pushing your boundaries will make you stronger,
which will lead to improved results that will motivate you, the more you operate in your
“stretch zone,” the more you adapt and the less character it takes to operate at the higher
level of performance. So, if you don’t let up on yourself, i.e., if you operate with the same
level of “pain,” you will naturally evolve at an accelerating pace. Because I believe this, I
believe that whether or not I achieve my goals is a test of what I am made of. It is a game
that I play, but this game is for real. In the next part I explain how I go about playing
In summary,I don’t believe that limited abilities are an
insurmountable barrier to achieving your goals, if you do the other things right.
As always, it is up to
you to ask yourself if what I am saying is true. As the next part delves into this concept
more, you might want to reserve your judgment until after you have read it.
Your Two Yous and Your Machine
Those who are the most
successful are capable of “higher level thinking” —i.e., they are able to step back and
design a “machine” consisting of the right people doing the right things to get what they
want. They are able to assess and improve how their “machine” works by comparing the outcomes
that the machine is producing with their goals. Schematically, the process is as shown in the
diagram below. It is a feedback loop.
That schematic is meant
to convey that your goals will determine the “machine” that you create to achieve them; that
machine will produce outcomes that you should compare with your goals to judge how your
machine is working. Your “machine” will consist of the design and people you choose to
achieve the goals. For example, if you want to take a hill from an enemy you will need to
figure out how to do that—e.g., your design might need two scouts, two snipers, four
infantrymen, one person to deliver the food, etc. While having the right design is essential,
it is only half the battle. It is equally important to put the right people in each of these
positions. They need different qualities to play their positions well—e.g., the scouts must
be fast runners, the snipers must be precise shots, etc. If your outcomes are inconsistent
with your goals (e.g., if you are having problems), you need to modify your “machine,” which
means that you either have to modify your design/culture or modify your people. Do this often
and well and your improvement process will look like the one on the left and do it poorly and
it will look like the one on the right, or worse:
it “higher level thinking” because your perspective is that of one who is looking down on at
your machine and yourself objectively, using the feedback
loop as I previously described. In other words, your most important role is to step back and
design, operate and improve your “machine” to get what you want.
Think of it as though
there are two yous—you as the designer and overseer of the plan to achieve your goals (let’s
call that one you(1)) and you as one of the participants in pursuing that mission (which we
will call you(2)). You(2) is a resource that you(1) have to get what you(1) want, but by no
means your only resource. To be successful you(1) have to be objective about
Let’s imagine that your
goal is to have a winning basketball team. Wouldn’t it be silly to put yourself in a position
that you don’t play well? If you did, you wouldn’t get what you want. Whatever your goals
are, achieving them works the same way.
If you(1) see that you(2)
are not capable of doing something, it is only sensible for you(1) to have someone else do
it. In other words, you(1) should look down at you(2) and all the other resources at your(1)
disposal and create a “machine” to achieve your(1) goals, remembering that you(1) don’t
necessarily need to do anything other than to design and manage the machine to get what
you(1) want. If you(1) find that you(2) can’t do something well,fire yourself(2) and get a
good replacement! You shouldn’t be upset that you found out that you(2) are bad at
that—you(1) should be happy because you(1) have improved your(1) chances of getting what
you(1) want. If you(1) are disappointed because you(2) can’t be the best person to do
everything, you(1) are terribly naïve because nobody can do everything well.
biggest mistake most people make is to not see themselves and others objectively.If they could just get around this, they could live up to their
How much do you intellectually agree with what I just said?How good are you in approaching life as a “higher level thinker” rather than as a doer?How much would you like to get better at this?How much do you think that reading this is a waste of time?
My 5-Step Process to Getting What You Want Out of Life
There are five things
that you have to do to get what you want out of life. First, you have tochoose your goals, which
will determine your direction. Then you have todesign a planto achieve
your goals. On the way to your goals, you willencounter problems. As I
mentioned, these problems typically cause pain. The most common source of pain is in
exploring your mistakes and weaknesses. You will either react badly to the pain or react like
a master problem solver. That is your choice. To figure out how to get around these problems
you must be calm and analytical to accuratelydiagnose your problems.
Only after you have an accurate diagnosis of them can youdesign a plan that will get you around your problems. Then you have to dothe tasksspecified in the
plan. Through this process of encountering problems and figuring out how to get around them,
you will become progressively more capable and achieve your goals more easily. Then you will
set bigger, more challenging goals, in the same way that someone who works with weights
naturally increases the poundage. This is the process of personal evolution, which I call my
In other words, “The
Process” consists of five distinct steps:
Have clear goals.
Identify and don’t tolerate the problems that stand in the way of achieving your goals.
Accurately diagnose these problems.
Design plans that explicitly lay out tasks that will get you around your problems and on to your goals.
Implement these plans—i.e., do these tasks.
You need to do all of
these steps well in order to be successful.
Before discussing these
individual steps in more detail, I want to make a few general points about the
You must approach these as distinct steps rather than blur
them together.For example, when setting goals, just set
goals (don’t think how you will achieve them or the other steps); when diagnosing problems,
just diagnose problems (don’t think about how you will solve them or the other steps).
Blurring the steps leads to suboptimal outcomes because it creates confusion and
short-changes the individual steps. Doing each step thoroughly will provide information that
will help you do the other steps well,since the process is iterative.
Each of these five steps requires different talents and
disciplines.Most probably, you have lots of some of these
and inadequate amounts of others. If you are missing any of the required talents and
disciplines, that is not an insurmountable problem because you can acquire them, supplement
them, or compensate for not having them, if yourecognize your weaknesses and design around them.So you must be honestly self-reflective.
It is essential to approach this process in a very
clear-headed, rational way rather than emotionally.Figure
out what techniques work best for you; e.g., if emotions are getting the better of you, take
a timeout until you can reflect unemotionally, seek the guidance of calm, thoughtful others,
To help you do these
things well—and stay centered and effective rather than stressed and thrown off by your
emotions—try this technique for reducing the pressure:treat your life like a gameor a martial art. Your mission is to figure out how to get around your
challenges to get to your goals. In the process of playing the game or practicing this
martial art, you will become more skilled. As you get better, you will progress to
ever-higher levels of the game that will require—and teach you—greater skills. I will explain
what these skills are in the next section. However,the big and really great news is that you don’t need to have
all of these skills to succeed!You just have to 1) know
they are needed; 2) know you don’t have some of them; and 3) figure out how to get them
(i.e., either learn them or work with others who have them).
game—i.e., your life—will challenge you in ways that will be uncomfortable at times. But if
you work through this discomfort and reflect on it in order to learn, you will significantly
improve your chances of getting what you want out of life.By and large, life will give you what you deserve and it
doesn’t give a damn what you “like.” So it is up to you to take full responsibility to
connect what you want with what you need to do to get it, and then to do those things—which
often are difficult but produce good results—so that you’ll then deserve to get what you
That’s just the way it
is, so you might as well accept it. Once you accept that playing the game will be
uncomfortable, and you do it for a while, it will become much easier (like it does when
getting fit). When you excel at it, you will find your ability to get what you want
thrilling. You’ll see that excuses like “That’s not easy” are of no value and that it pays to
“push through it” at a pace you can handle. Like getting physically fit, the most important
thing is that you keep moving forward at whatever pace you choose, recognizing the
consequences of your actions. When you think that it’s too hard, remember that in the long
run, doing the things that will make you successful is a lot easier than being unsuccessful.
The first-order consequences of escaping life’s challenges may seem pleasurable in the
moment, but the second- and third-order consequences of this approach are your life and, over
time, will be painful. With practice, you will eventually play this game like a ninja, with
skill and a calm centeredness in the face of adversity that will let you handle most of your
numerous challenges well.
However, you will never
handle them all well: mistakes are inevitable, and it’s important to recognize and accept
this fact of life. The good news, as I have mentioned, is that most learning comes through
making mistakes—so there is no end to learning how to play the game better. You will have an
enormous number of decisions to make, so no matter how many mistakes you make, there will be
plenty of opportunities to build a track record of success.
That’s basically the
Let’s pause and reflect
on this before moving on.
Does what I am saying make sense to you?Do you agree that it is true?If not, why not?
If you can’t work through
your doubts alone, speak to me or to others about it, but PLEASE do not proceed until you
agree with the basic logic behind the 5-Step Process. Either you will get comfortable with it
and internalize it or you will point out something that is wrong and the process will get
What follows now is a
closer examination of each of the five steps.
The 5 Steps Close-Up
have virtually anything you want, but you can’t have everything you want.
The first, most
important, and typically most difficult step in the 5-Step Process is setting goals, because
it forces you to decide what you really want and therefore what you can possibly get out of
life. This is the step where you face the fundamental limit: life is like a giant smorgasbord
of more delicious alternatives than you can ever hope to taste. So you have to reject having
some things you want in order to get other things you want more.
Some people fail at this
point, afraid to reject a good alternative for fear that the loss will deprive them of some
essential ingredient to their personal happiness. As a result, they pursue too many goals at
the same time, achieving few or none of them.
So it’s important to
remember: it doesn’t really matter if some things are unavailable to you, because the
selection of what IS available is so great. (That is why many people who had major
losses—e.g., who lost their ability to walk, to see, etc.—and who didn’t narrow-mindedly
obsess about their loss but rather open-mindedly accepted and enjoyed what remained, had
equally happy lives as those who didn’t ever have these losses.)
In other words, you can
have an enormous amount: much, much more than what you need to have for a happy life. So
don’t get discouraged by not being able to have everything you want, and for God’s sake,
don’t be paralyzed by the choices. That’s nonsensical and unproductive. Get on with making
Put another way,to achieve your goals you have to prioritize, and
that includes rejecting good alternatives(so that you have
the time and resources to pursue even better ones—time being probably your greatest limiting
factor, though, through leverage, you can substantially reduce time’s
It is important not to
confuse “goals” and “desires.”
Goals are the things that
you really want to achieve, while desires are things you want that can prevent you from
reaching your goals—as I previously explained, desires are typically first-order
consequences. For example, a goal might be physical fitness, while a desire is the urge to
eat good-tasting, unhealthy food (i.e., a first-order consequence) that could undermine you
obtaining your fitness goal. So, in terms of the consequences they produce, goals are good
and desires are bad.
Don’t get me wrong. I
believe you can choose to pursue any goal you want as long as you consider the consequences.
So, staying with this example, I think it is perfectly OK for you to make your goal to enjoy
eating good-tasting, unhealthy food if that choice will bring you what you really want. As I
said earlier, if you want to be a couch potato, that’s fine with me—seriously. But if that’s
not what you want, you better not open that bag of chips. In other words, failing to make the
distinction between goals and desires will lead you in the wrong direction, because you will
be inclined to pursue things you want that will undermine your ability to get things you want
more. In short, you can pursue anything you desire—just make sure that you know the
consequences of what you are doing.
Another common reason
people fail at this stage is that they lose sight of their goals, getting caught up in
setting goals based on what you think you can achieve.
As I said before, do each
step separately and distinctly without regard to the others. In this case, that means don’t
rule out a goal due to a superficial assessment of its attainability. Once you commit to a
goal, it might take lots of thinking and many revisions to your plan over a considerable time
period in order to finalize the design and do the tasks to achieve it. So you need to set
goals without yet assessing whether or not you can achieve them.
This requires some faith
that you really can achieve virtually anything,even if you don’t know how you
will do it at that moment. Initially you have to have faith that this is true, but after
following this process and succeeding at achieving your goals, you will gain confidence. If
you like, you can start with more modest goals and, when you build up the track record to
give you faith, increase your aspirations.
Every time I set goals, I
don’t yet have any idea how I am going to achieve them because I haven’t yet gone through the
process of thinking through them. But I have learned that I can achieve them if I think
creatively and work hard.
I also know that I can
“cheat.” Unlike in school, in life you don’t have to come up with all the right answers. You
can ask the people around you for help—or even ask them to do the things you don’t do
In other words, there is
almost no reason you can't succeed if you take the attitude of 1) total flexibility—good
answers can come from anyone or anywhere (and in fact, as I have mentioned, there are far
more good answers “out there” than there are in you) and 2) total accountability: regardless
of where the good answers come from, it’s your job to find them.
This no-excuses approach
helps me do whatever it takes to get whatever I want most. Not all goals are achievable, of
course. There are some impossibilities or near-impossibilities, such as living forever, or
flying with just the power of your arms. But it’s been my experience that if I commit to
bringing creativity, flexibility, and determination to the pursuit of my goals, I will figure
out some way to get them, i.e., almost all goals are attainable. And as I don’t limit my
goals to what seems attainable at the moment I set them, the goals I set tend to be higher
than they would otherwise be. Since trying to achieve high goals makes me stronger, I become
increasingly capable of achieving more. Great expectations create great capabilities, in
other words. And if I fail to achieve my goal, it just tells me that I have not been creative
or flexible or determined enough to do what it takes, and I circle back and figure out what I
need to do about this situation.
Achieving your goals isn’t just about moving
Inevitably, you must deal
with setbacks. So goals aren’t just those things that you want and don’t have. They might
also be keeping what you do have, minimizing your rate of loss, or dealing with irrevocable
loss. Life will throw you challenges, some of which will seem devastating at the time. Your
goal is always to make the best possible choices, knowing that you will be rewarded if you
do. It’s like playing golf: sometimes you will be in the fairway and sometimes you will be in
the rough, so you have to know how to play it as it lies.
Generally speaking, goal
setting is best done by those who are good at big-picture conceptual thinking, synthesizing,
visualizing, and prioritizing. But whatever your strengths and weaknesses are, don’t forget
the big and really great news here: it is not essential that you have all of these qualities
yourself, because you can supplement them with the help of others.
In summary, in order to
get what you want, the first step is to really know what you want, without confusing goals
with desires, and without limiting yourself because of some imagined impediments that you
haven’t thoroughly analyzed.
How well do you know what you want most out of life?What are your most important goals?Are you good at setting your goals?How confident are you that your assessment of your ability to set goals is right?If you are confident of your self-assessment, why should you be confident (e.g. because you have a demonstrated track record, because many believable people have told you, etc.)?
Identifying and Not Tolerating Problems
After you set your goals,
you must come up with a plan or a design to achieve them and then you must execute that plan
by doing the tasks. On the way to achieving your goals and executing your design, you will
encounter problems that have to be diagnosed, so that the design can be modified to get
around these obstacles. That’s why you need to identify and not tolerate problems.
problems are potential improvements screaming at you.
Whenever a problem
surfaces, you have in front of you an opportunity to improve.The more painful the problem, the louder it is
screaming.In order to be
successful, you have to 1) perceive problems and 2) not tolerate them.
If you don’t identify
your problems, you won’t solve them, so you won’t move forward toward achieving your goals.
As a result,it is essential to bring
problems to the surface.
Most people don’t like to
do this. But most successful people know that they have to do this.
The most common reasons
people don’t successfully identify their problems are generally rooted either in a lack of
will or in a lack of talent or skill:
be“harsh realities”that are unpleasant to look at, so people often subconsciously put them “out of
sight” so they will be “out of mind.”
problems that are difficult to solve can produceanxietythat stands in the
way of progress.
oftenworry more about appearing to not
have problemsthan about achieving their desired results,
and thereforeavoid recognizing that their
own mistakes and/or weaknessesare causing the problems.
This aversion to seeing one’s own mistakes and weaknesses typically occurs because they’re
viewed as deficiencies you’re stuck with rather than as essential parts of the personal
people are simplynot perceptive
enoughto see the problems.
areunable to distinguish big problems
from small ones. Since nothing is perfect, it is possible
to identify an infinite number of problems everywhere. If you are unable to distinguish the
big problems from the little ones, you can’t “successfully” (i.e., in a practical way)
Remember, you don’t have
to be good at any of the five steps (in this case, identifying problems) to be successful if
you get help from others.So push through
the pain of facing your problems, knowing you will end up in a much better place.
identifying problems, it is important to remain centered and logical.
While it can be tempting
to react emotionally to problems and seek sympathy or blame others, this accomplishes
nothing.Whatever the reasons, you have to
get over the impediments to succeed. Remember that the pains you are feeling are “growing
pains” that will test your character and reward you if you push through them. Try to look at
your problems as a detached observer would.Remember that identifying problems is like finding gems
embedded in puzzles: if you solve the puzzles you will get the gems that will make your life
much better.Doing this continuously will lead to your rapid
evolution. So, if you’re logical, you really should get excited about finding problems
because identifying them will bring you closer to your goals.
How good are you at perceiving problems?How confident are you that your assessment of you ability to perceive problems is right?If you are confident of your self-assessment, why should you be confident (e.g.. because you have a demonstrated track record, because many believable people have told you, etc.)?
precise in specifying your problems.
It is essential to
identify your problems with precision, for different problems have different solutions. For
example, if your impediments are due largely to issues of will—to your unwillingness to
confront what is really happening—you have to strengthen your will, for example by starting
small and building up your confidence.
If your problems are
related to lack of skill or innate talent, the most powerful antidote is to have others point
things out to you and objectively consider whether what they identify is true. Problems due
to inadequate skill might then be solved with training, whereas those arising from innate
weaknesses might be overcome with assistance or role changes. It doesn’t matter which is the
case it only matters that the true cause is identified and appropriately addressed.
The more precise you are,
the easier it will be to come up with accurate diagnoses and successful solutions. For
example, rather than saying something like “People don’t like me,” it is better to specify
which people don’t like you and under what circumstances.
confuse problems with causes.
“I can’t get enough
sleep” is not a problem, it is a cause of some problem. What exactly is that problem? To
avoid confusing the problem with its causes, try to identify the suboptimal outcome, e.g., “I
am performing badly in my job because I am tired.”
you identify your problems, you must not tolerate them.
Tolerating problems has
the same result as not identifying them (i.e., both stand in the way of getting past the
problem), but the root causes are different. Tolerating problems might be due to not thinking
that they can be solved, or not caring enough about solving them.People who tolerate problems are
the worse off because, without the motivation to move on, they cannot succeed. In other
words, if you are motivated, you can succeed even if you don’t have the abilities (i.e.,
talents and skills) because you can get the help from others. But if you’re not motivated to
succeed, if you don’t have the will to succeed, the situation is hopeless.
How much do
you tolerate problems?
are you that your assessment of how much you tolerate problems is right?
If you are
confident of your self-assessment, why should you be confident (e.g,. because you have a
demonstrated track-record, because many believable people have told you, etc.)?
People who are good at
this step—identifying and not tolerating problems—tend to have strong abilities toperceiveandsynthesizea clear and accurate picture, as well as demonstrate a
fierceintolerance of badness(regardless of the severity).
Remember that you need to
do each step independently from the other steps before moving on.
Can you comfortably
identify your problems without thinking about how to solve them? It is a good exercise to
just make a list of them, without possible solutions. Only after you have created a clear
picture of your problems should you go to the next step.
For a more detailed
explanation of identifying and not tolerating problems, please read my management
Diagnosing the Problems
will be much more effective if you focus on diagnosis and design rather than jumping to
It is a very common
mistake for people to move directly from identifying a tough problem to a proposed solution
in a nanosecond without spending the hours required to properly diagnose and design a
solution. This typically yields bad decisions that don’t alleviate the problem. Diagnosing
and designing are what spark strategic thinking.
must be calm and logical.
When diagnosing problems,
as when identifying problems, reacting emotionally, though sometimes difficult to avoid, can
undermine your effectiveness as a decision-maker. By contrast, staying rational will serve
you well. So if you are finding yourself shaken by your problems, do what you can to get
yourself centered before moving forward.
must get at the root causes.
Root causes, like
principles, are things that manifest themselves over and over again as the deep-seated
reasons behind the actions that cause problems. So you will get many everlasting dividends if
you can find them and properly deal with them.
It is important to
distinguish root causes from proximate causes. Proximate causes typically are the actions or
lack of actions that lead to problems—e.g., “I missed the train because I didn’t check the
train schedule.” Proximate causes are typically described via verbs. Root causes are the
deeper reasons behind the proximate cause—e.g., “I didn’t check the schedule because I am
forgetful.” Root cause. Root causes are typically described with adjectives, usually
characteristics about what the person is like that lead them to an action or an
Identifying the real root
causes of your problems is essential because you can eliminate your problems only by removing
their root causes. In other words, you must understand, accept, and successfully deal with
reality in order to move toward your goals.
Recognizing and learning from one’s mistakes and the mistakes
of others who affect outcomes is critical to eliminating problems.
Many problems are caused
by people’s mistakes. But people often find it difficult to identify and accept their own
mistakes. Sometimes it’s because they’re blind to them, but more often it’s because ego and
shortsightedness make discovering their mistakes and weaknesses painful. Because people are
often upset when their mistakes are pointed out to them, most people are reluctant to point
out mistakes in others. As a result, an objective diagnosis of problems arising from people’s
mistakes is often missing and personal evolution is stunted. (As I mentioned in the last
chapter, most learning comes from making mistakes and experiencing the pain of them—e.g.,
putting your hand on a hot stove—and adapting.) It is at this stage that most people fail to
progress.More than anything else, what
differentiates people who live up to their potential from those who don’t is a willingness to
look at themselves and others objectively.
I call the pain that
comes from looking at yourself and others objectively “growing pains,” because it is the pain
that accompanies personal growth. No pain, no gain. Of course, anyone who really understands
that no one is perfect and that these discoveries are essential for personal growth finds
that these discoveries elicit “growing pleasures.” But it seems to be in our nature to overly
focus on short-term gratification rather than long-term satisfaction—on first-order rather
than second- or third-order consequences—so the connection between this behavior and the
rewards it brings doesn’t come naturally. However, if you can make this connection, such
moments will begin to elicit pleasure rather than pain. It is similar to how exercise
eventually becomes pleasurable for people who hardwire the connection between exercise and
Much as you might wish
this were not so, this is a reality that you should just accept and deal with. There is no
getting around the fact that achieving success requires getting at the root causes of all
important problems, and people’s mistakes and weaknesses are sometimes the root causes.
Soto be successful, you must be willing
to look at your own behavior and the behavior of others as possible causes of
Of course, some problems
aren’t caused by people making mistakes. For example, if lightning strikes, it causes
problems that have nothing to do with human error. All problems need to be well-diagnosed
before you decide what to do about them.
most important qualities for successfully diagnosing problems are logic, the ability to see
multiple possibilities, and the willingness to touch people’s nerves to overcome the ego
barriers that stand in the way of truth.
For a more detailed
explanation of diagnosing problems, please read my management principles.
problems, how willing are you to “touch the nerve” (i.e., discuss your and others possible
mistakes and weaknesses with them)?
willing to get at root causes, like what people are like?
Are you good
at seeing the patterns and synthesizing them into diagnoses of root causes?
are you that your assessment of your ability to diagnose is accurate?
If you are
confident of your self-assessment, why should you be confident (e.g., because you have a
demonstrated track record, because many believable people have told you, etc.)?
Designing the Plan (Determining the Solutions)
In some cases, you might
go from setting goals to designing the plans that will get you to these goals; while in other
cases, you will encounter problems on the way to your goals and have to design your way
around them. So design will occur at both stages of the process, though it will occur much
more often in figuring out how to get around problems. In other words, most of the movement
toward your goals comes from designing how to remove the root causes of your problems.
Problems are great because they arevery
specificimpediments, so you know that you will move forward
if you can identify and eliminate their root causes.
Creating a design is like writing a movie script in that you
visualize who will do what through time in order to achieve the goal.
Visualize the goal or
problem standing in your way, and then visualize practical solutions. When designing
solutions, the objective is to change how you do things so that problems don’t recur—or recur
so often. Think about each problem individually and as the product of root causes—like the
outcomes produced by a machine. Then think about how the machine should be changed to produce
good outcomes rather than bad ones. There are typically many paths toward achieving your
goals, and you need to find only one of them that works, so it’s almost always
But an effective design
requires thinking things through and visualizing how things will come together and unfold
over time. It’s essential to visualize the story of where you have been (or what you have
done) that has led you to where you are now and what will happen sequentially in the future
to lead you to your goals. You should visualize this plan through time, like watching a movie
that connects your past, present, and future.
Then write down the plan
so you don’t lose sight of it, and include who needs to do what and when. The list of tasks
falls out from this story (i.e., the plan), but they are not the same. The story, or plan, is
what connects your goals to the tasks. For you to succeed, you must not lose sight of the
goals or the story while focusing on the tasks; you must constantly refer back and forth. In
My Management Principles (Part 3), you can see one such plan.
When designing your plan,
think about the timelines of various interconnected tasks. Sketch them out loosely and then
refine them with the specific tasks. This is an iterative process, alternating between
sketching out your broad steps (e.g., hire great people) and filling these in with more
specific tasks with estimated timelines (e.g., in the next two weeks choose the headhunters
to find the great people) that will have implications (e.g., costs, time, etc.). These will
lead you to modify your design sketch until the design and tasks work well together. Being as
specific as possible (e.g., specifying who will do what and when) allows you to visualize how
the design will work at both a big-picture level and in detail. It will also give you and
others the to-do lists and target dates that will help direct you.
Of course, not all plans
will accomplish everything you want in the desired time frame. In such cases, it is essential
that you look at what won’t be accomplished and ask yourself if the consequences are
acceptable or unacceptable. This is where perspective is required, and discussing it with
others can be critical. If the plan will not achieve what’s necessary in the required time,
so that the consequences have an unacceptably high probability of preventing you from
achieving your goal, you have to either think harder (probably with the advice of other
believable people) to make the plan do what is required or reduce your goals.
It doesn’t take much time
to design a good plan—literally just hours spread out over days or weeks—and whatever amount
of time you spend designing it will be only a small fraction of the time you spend executing
it. But designing is very important because it determines what you will have to do to be
effective. Most people make the very big mistake of spending virtually no time on this step
because they are too preoccupied with execution. This process is explained in detail in my
People successful with
this stage have anability to
visualizeand apractical understandingof
how things really work. Remember, you don’t have to possess all these qualities if you have
someone to help you with the ones you are missing.
How good is
your ability to visualize?
are you that your assessment of your ability to visualize is accurate?
If you are
confident of your self-assessment, why should you be confident (e.g., do you have an
excellent track record of visualizing and making what you visualized happen, have other
believable parties told you that you are good at this)?
Remember: Designing precedes doing!The design will give you your to-do list (i.e., the tasks).
Doing the Tasks
Next, you and the others
you need to rely on have to do the tasks that will get you to your goals. Great planners who
don’t carry out their plans go nowhere. You need to “push through” to accomplish the goals.
This requires the self-discipline to follow the script that is your design.I believe the importance of good work habits is
vastly underrated.There are lots of books written about
good work habits, so I won’t digress into what I believe is effective. However,it is critical to know each day what you need to
do and have the discipline to do it. People with good work
habits have to-do lists that are reasonably prioritized, and they make themselves do what
needs to be done. By contrast, people with poor work habits almost randomly react to the
stuff that comes at them, or they can’t bring themselves to do the things they need to do but
don’t like to do (or are unable to do). There are lots of tools that can help (e.g., thank
God for my BlackBerry!)
You need to know whether
you (and others) are following the plan, so you should establish clear benchmarks. Ideally
you should have someone other than yourself objectively measure if you (and others) are doing
what you planned. If not, you need to diagnose why and resolve the problem.
People who are good at
this stage can reliably execute a plan. They tend to beself-disciplinedandproactiverather
than reactive to the blizzard of daily tasks that can divert them from execution. They
areresults-oriented: they love to push
themselves over the finish line to achieve the goal. If
they see that daily tasks are taking them away from executing the plan (i.e., they identify
this problem), they diagnose it and design how they can deal with both the daily tasks and
moving forward with the plan.
As with the other steps,
if you aren’t good at this step, get help. There are many successful, creative people who are
good at the other steps but who would have failed because they aren’t good at execution. But
they succeeded nonetheless because of great symbiotic relationships with highly reliable
For a more detailed
explanation of doing what you set out to do, please see My Management Principles.
How good are
you at pushing through?
are you that your assessment of your ability to push through is accurate?
If you are
confident of your self-assessment, why should you be confident (e.g. because you have a
demonstrated track-record, because many believable people have told you, etc)?
The Relationships between These Steps
Designs and tasks have no
purpose other than to achieve your goals. Said differently, goals are the sole purpose of
designs and tasks. So you mustn’t forget how they’re related. Frequently I see people feel
great about doing their tasks while forgetting the goals they were designed to achieve,
resulting in the failure to achieve their goals. This doesn’t make any sense, because the
only purpose of tasks is to achieve goals. In order to be successful, your goals must be
riveted in your mind: they are the things you MUST do. To remember the connections between
the tasks and the goals that they are meant to achieve, you just have to ask, “Why?” It is
good to connect tasks to goals this way (with the “Why?”), because losing sight of the
connections will prevent you from succeeding.
Again, this 5-Step
Process is iterative. This means that after completing one of the steps you will probably
have acquired relevant information that leads you to modify the other steps.
If this process is
working, goals will change much more slowly than designs, which will change more slowly than
tasks. Designs and tasks can be modified or changed often (because you might want to reassess
how to achieve the goal), but changing goals frequently is usually a problem because
achieving them requires a consistent effort. I often find that people who have problems
reaching their goals handle these steps backwards; that is, they stick too rigidly to
specified tasks and are not committed enough to achieving their goals (often because they
lose sight of them).
Weaknesses Don’t Matter if You Find
To repeat, the best
advice I can give you is to ask yourself what you want, then ask ‘what is true,’ and then ask
yourself ‘what should be done about it.’ If you honestly ask and answer these questions you
will move much faster toward what you want to get out of life than if you don’t!
Most importantly,ask yourself what is your biggest weakness that
stands in the way of what you want.
As I mentioned before,
everyone has weaknesses. The main difference between unsuccessful and successful people is
that unsuccessful people don’t find and address them, and successful people do.
It is difficult to see
one’s own blind spots for two reasons:
Most people don’t go looking for their weaknesses because of “ego
barriers”—they find having weaknesses painful because society has taught them that having
weaknesses is bad. As I said early on, I believe that we would have a radically more
effective and much happier society if we taught the truth, which is that everyone has
weaknesses, and knowing about them and how to deal with them is how people learn and
Having a weakness is like missing a sense—if you can’t visualize what it is,
it’s hard to perceive not having it.
For these two reasons,
having people show you what you are missing can be painful, though it's essential for your
progress. When you encounter that pain, try to remember thatyou can get what you want out of life if you can
open-mindedly reflect, with the help of others, on what is standing in your way and then deal
What do you
think is the biggest weakness you have that stands in the way of what you want–the one that
you repeatedly run into?
People who don’t get what
they want out of life fail at one or more of the five steps. Butbeing weak at any one of these steps is not a problem if you
understand what you are weak at and successfully compensate for that weakness by seeking
help. For example, a good goal-setter who is bad at doing
tasks might work well with a bad goal-setter who is great at doing tasks—i.e., they will be
much more successful working together. It is easy to find out what weaknesses are standing in
your way by 1) looking at where you are failing and 2) getting the feedback of people who are
successful at doing what you are having problems with.
Because I believe that
you will achieve your goals if you do these five steps well, it follows that if you are not
achieving your goals you can use the 5-Step Process as a diagnostic tool. You would do this
by 1) identifying the step(s) that you are failing at, 2) noting the qualities required to
succeed at that step, and 3) identifying which of these qualities you are missing.
To repeat, the five steps
and the qualities that I believe are required to be good at them are as follows.
At which step
do you have the most problems?
qualities needed do you wish you had more of?
In a nutshell, my 5-Step
process for achieving what you want is:
Your values determine
what you want, i.e., your goals. In trying to achieve your goals, you will encounter problems
that have to be diagnosed. Only after determining the real root causes of these problems can
you design a plan to get around them. Once you have a good plan, you have to muster the
self-discipline to do what is required to make the plan succeed. Note that this process
starts with your values, but it requires that you succeed at all five steps. While these
steps require different abilities, you don’t have to be good at all of them. If you aren’t
good at all of them (which is true for almost everyone), you need to know what you are bad at
and how to compensate for your weaknesses. This requires you to put your ego aside,
objectively reflect on your strengths and weaknesses, and seek the help from
As you design and
implement your plan to achieve your goals, you may find it helpful to consider
Life is like a
game where you seek to overcome the obstacles that stand in the way of achieving your
You get better
at this game through practice.
consists of a series of choices that have consequences.
You can’t stop
the problems and choices from coming at you, so it’s better to learn how to deal with
You have the
freedom to make whatever choices you want, though it’s best to be mindful of their
The pain of
problems is a call to find solutions rather than a reason for unhappiness and inaction, so
it’s silly, pointless, and harmful to be upset at the problems and choices that come at you
(though it’s understandable).
We all evolve
at different paces, and it’s up to you to decide the pace at which you want to evolve.
goes better if you are as accurate as possible in all respects, including assessing your
strengths and weaknesses and adapting to them.
While all this may sound
very theoretical, it is integral to how we operate every day. For example, my management
principles, which are explained in the next section, are based on the principles that I
described in this section. So, Bridgewater is based on the core belief that everyone here is
evolving together. How well and how quickly we do that will have a huge effect on our
well-being and the well-being of all the people we have contact with (e.g., our clients, our
families, etc.). These two things are inextricably linked. Bridgewater is also based on the
belief that to be successful and happy, not only do we have to be excellent, we have to
continue to improve at a surprisingly fast rate. Bridgewater operates consistently with the
belief that to be excellent and improve at a fast rate, we must be hyper-realistic and
hyper-truthful. We therefore need to overcome any impediments to being realistic and
truthful, and the biggest impediment is people’s reluctance to face their own mistakes and
weaknesses and those of others. Bridgewater is based on the belief that both meaningful work
and meaningful relationships are required to be happy and successful. So, our relationships,
like our work, must be excellent; as a result, we expect people to be extremely considerate
and caring with each other. This does not mean being soft on each other, especially if that
means avoiding harsh realities to avoid causing discomfort. It means true caring, which
requires recognizing and successfully dealing with our realities, whatever they
The management principles
that follow reflect these core values and the specific ways that they are lived out at
Part 3 My Management Principles
In Part 1 I explained why
I believe having principles is important and that I believe that it is up to each person to
decide what principles are best for them. In Part 2 I explained my most fundamental
principles. In this part I explain my management principles. Naturally, my management
principles reflect the principles I believe are best throughout my life. But before I get
into my particular management principles, I’d like to touch on management principles in
If you read any of the
earlier parts you know that I believe that having principles is essential for getting what
you want out of life. That is as true for groups of people (e.g., companies, schools,
governments, foundations, etc.) as it is for individuals. While individuals operating
individually can choose whatever values and principles they like, when working in a group the
people must agree on the group’s values and principles. If the group is not clear about them,
confusion and eventually gravitation toward the population’s averages will result. If the
group’s values and principles are clear, their way of being (i.e., their culture) will
permeate everything they do. It will drive how the people in the group set goals, identify
problems, diagnose problems, design solutions and make sure that these designs are
implemented. So I believe this relationship looks like this:
While having a clearly
conveyedgreat cultureis important, that’s only half of the magic formula. The other half is
havinggreat people—i.e., people who have the values, abilities, and skills that fit the
In other words, I believe
that to have a great company you have to make two things great—thecultureand thepeople. If
these two things are great your organization can navigate the twists and turns to get you
where you want to go.
Of course, you have to
know where you want to go. Organizations, like individuals, have to choose what they are
going after (i.e., their goals), which influences their directions. As they move toward their
goals, they encounter problems, make mistakes and discover weaknesses. Above all else, how
they choose to approach these impediments determines how fast they move toward their
Every organization works
like a machine to achieve its goals. This machine produces outcomes. By comparing the
outcomes to the goals, those running the machine can see how well the machine is working.
This is thefeedback loopthat those who are responsible for the machine need to run well in
order to improve the machine. Based on the feedback, the machine can be adjusted to improve.
The machine consists of two big parts—thecultureand thepeople. If the
outcomes are inconsistent with the goals, something must be wrong with the machine, which
means that something must be wrong with the culture and/or the people. By diagnosing what is
wrong, designing improvements and implementing those improvements, the machine will evolve.
In short, the evolutionary process is as follows. Take a minute to look it over and see what
The more frequently and
effectively those in the machine go through this process, the more rapidly they and the
machine will evolve. An effective evolutionary process looks like this—i.e., lots of quality
feedback loops produces a steep upward trajectory.
evolutionary process—i.e., one in which mistakes are infrequently looked at and weaknesses
are not well identified—looks like that shown below, i.e., fewer and/or less effective
feedback loops produces a slower upward trajectory. In fact, if there are too few and/or bad
quality feedback loops, there will be a decline because you won’t identify and deal with the
problems that will kill you.
I believe that this is
equally true for individuals and organizations. I also believe that the most important
difference between great organizations and bad ones is in how well they manage their feedback
Bridgewater’s Culture and
Naturally, the culture
and people that I have chosen for Bridgewater are extensions the principles that I believe
work best, which I explained in Part 2. Most importantly I value meaningful work and
meaningful relationships that are obtained by striving for truth and excellence with great
people. I am confident that through this constant striving, we will evolve rapidly
As you might have guessed
from reading Part 2, I want Bridgewater to
be a company in which people collectively:
for what they want and not for what others want of them.
up with the best independent opinions they can muster to move toward their goals,
stress-test their opinions by having the smartest people they can find to challenge them so
they can find out where they are wrong,
wary about overconfidence, and good at not knowing
wrestle with reality, experiencing the results of their decisions, and reflecting on what
they did to produce them so that they can improve.
And when faced with
difficult choices, I want them to see the choices as follows.
While I recognize that
being this way is challenging, I am also confident that it is what is required to get the
most out of out of life. I am confident for two reasons. First, it is logical that the
cause-effect relationships are such that being this way produces good results. Second, this
theory has been tested over the last 40 years and has worked. While 40 years ago being this
way seemed logical, back then that was an untested theory. Now that we have 40 years of
testing to look back on, we can see that the results verify the theory.
Fleshing Out This Way of Being
The best advice I can
give you is to ask yourself what do you want, then ask ‘what is true’—and then ask yourself
‘what should be done about it.’ I believe that if you do this you will move much faster
toward what you want to get out of life than if you don’t!
Because what I have said
is pretty abstract, I need to spell out exactly what it means to run a company this way. I
need to get very specific. Over time, I have collected and refined my principles so that they
now encompass almost all aspects of management. I believe that virtually all problems you
might encounter are addressed by one or more of the principles that follow.
There are too many
principles to read this as a book. What follows is not a few rules to go by presented in an
easily digestible form that’s easy to remember. That wouldn’t have been specific enough to be
of much help to you. There are over 200 principles here that are well-explained and are meant
to be used more as a reference book than a book that is read from cover to cover.
I’ve created an outline
that serves the purposes of being both a summary of my management principles and a table of
contents for a more complete explanation of them. Said differently, these principles are
presented in a big picture way in this Summary and Table of Principles and in a more
thoroughly explained way in the section that follows. If you want to understand the
principles in brief, just read what’s said in the outline (swipe toward the right to pull
this outline into view) and if you want to delve into them, go to the individual principles
To Get the Culture Right...
Trust in Truth
Realize that you have nothing to fear from truth.
accepting, and knowing how to effectively deal with reality are crucial for achieving
success. Having truth on your side is extremely powerful. While the truth itself may be
scary—you have a weakness, you have a deadly disease, etc.—knowing the truth will allow you
to deal with your situation better. Being truthful, and letting others be truthful with
you, allows you to explore your own thoughts and exposes you to the feedback that is
essential for your learning. Being truthful is an extension of your freedom to be you;
people who are one way on the inside and another on the outside become conflicted and often
lose touch with their own values. It’s difficult for them to be happy, and almost
impossible for them to be at their best. While the first-order effects of being radically
truthful might not be desirable, the second- and third-order effects are great.
Do you agree
Create an environment in which everyone has the right to understand what
makes sense and no one has the right to hold a critical opinion without speaking up about
Be extremely open.
Openness leads to truth
and trust. Being open about what you dislike is especially important, because things you
don’t like need to be changed or resolved. Discuss your issues until you are in synch or
until you understand each other’s positions and can determine what should be done. As
someone I worked with once explained, “It’s simple–just don’t filter.” The main reason
Bridgewater performs well is that all people here have the power to speak openly and
equally and because their views are judged on the merits of what they are saying. Through
that extreme openness and a meritocracy of thought, we identify and solve problems better.
Since we know we can rely on honesty, we succeed more and we ultimately become closer, and
since we succeed and are close, we are more committed to this mission and to each other. It
is a self-reinforcing, virtuous cycle.
Do you agree
Have integrity and demand it from others.
Integrity comes from
the Latin wordinteger, meaning “one.” People who are one way on the inside and another
way outside lack integrity; they have duality.
The second- and
third-order effects of having integrity and avoiding duality are great. Thinking solely
about what’s accurate instead of how it is perceived helps you to be more focused on
important things. It helps you sort the people you are around and the environments you are
in. It improves the organization’s efficiency and camaraderie because the secret things
that people think and don't say to each other drive resentment and key issues underground
and don’t lead to improvement. Having nothing to hide relieves stress. It also builds
trust. For these reasons:
Never say anything about a person you wouldn’t say to them
directly, and don’t try people without accusing them to their face.
behind their backs shows a serious lack of integrity and is counterproductive. It
doesn’t yield any beneficial change, and it subverts both the people you are
badmouthing and the environment as a whole. Next to being dishonest, it is the worst
thing you can do at Bridgewater. Criticism is both welcomed and encouraged at
Bridgewater, so there is no good reason to talk behind people’s backs. You need to
follow this policy to an extreme degree. For example, managers should not talk about
people who work for them without those people being in the room. If you talk behind
people’s backs at Bridgewater, you are called a slimy weasel.
Don’t let “loyalty” stand in the way of truth and
In some companies,
employees hide their employer’s mistakes, and employers do the same in return. In these
places, openly expressing your concerns is considered disloyal, and is discouraged.
Because it prevents people from bringing their mistakes and weaknesses to the surface
and because it encourages deception and eliminates the subordinates’ right of appeal,
unhealthy loyalty stands in the way of improvement. I believe in a truer, healthier
form of loyalty, which does the opposite. Healthy loyalty fosters improvement through
openly addressing mistakes and weaknesses. The more people are open about their
challenges, the more helpful others can be. In an environment in which mistakes and
weaknesses are dealt with frankly, those who face their challenges have the most
admirable character. By contrast, when mistakes and weaknesses are hidden, unhealthy
character is legitimized.
Be radically transparent.
Provide people with as
much exposure as possible to what’s going on around them. Allowing people direct access
lets them form their own views and greatly enhances accuracy and the pursuit of truth.
Winston Churchill said, “There is no worse course in leadership than to hold out false
hopes soon to be swept away.” The candid question-and-answer process allows people to probe
your thinking. You can then modify your thinking to get at the best possible answer,
reinforcing your confidence that you’re on the best possible path.
Record almost all meetings and share them with all relevant
Provide tapes of
all meetings that don’t contain confidential information to enhance
transparency.Of course, there
are some times when privacy is required. If someone gives you confidential information,
keep it confidential until you have permission to disclose it.
Don’t tolerate dishonesty.
People typically aren’t
totally honest, which stands in the way of progress, so don’t tolerate this. There’s an
adjustment process at Bridgewater in which one learns to be completely honest and expect
the same from others. Increasingly you engage in logical, unemotional discussions in
pursuit of truth in which criticisms are not viewed as attacks, but as explorations of
possible sources of problems.
Don’t believe it when someone caught being dishonest says
they have seen the light and will never do that sort of thing again.
Chances are they
will. The cost of keeping someone around who has been dishonest is likely to be higher
than any benefits.
Create a Culture in Which It Is OK to Make Mistakes but Unacceptable Not to Identify,
Analyze, and Learn From Them
Recognize that effective, innovative thinkers are going to make
mistakesand learn from them because
it is a natural part of the innovation process.
For every mistake that
you learn from you will save thousands of similar mistakes in the future, so, if you treat
mistakes as learning opportunities that yield rapid improvements, you should be excited by
them. But if you treat them as bad things, you will make yourself and others miserable, and
you won’t grow. Your work environment will be marked by petty back-biting and malevolent
barbs rather than by a healthy, honest search for truth that leads to evolution and
improvement. Because of this, the more mistakes you make and the more quality, honest
diagnoses you have, the more rapid your progress will be. That’s not B.S. or just talk.
That’s the reality of learning.
Do not feel bad about your mistakes or those of others. Love
Remember that 1) they
are to be expected, 2) they’re the first and most essential part of the learning process,
and 3) feeling bad about them will prevent you from getting better. People typically feel
bad about mistakes because they think in a short-sighted way that mistakes reflect their
badness or because they’re worried about being punished (or not being rewarded). People
also tend to get angry at those who make mistakes because in a short-sighted way they focus
on the bad outcome rather than the educational, evolutionary process they’re a part of.
That’s a real tragedy.
I once had a ski
instructor who had taught Michael Jordan, the greatest basketball player of all time, how
to ski. He explained that Jordan enjoyed his mistakes and got the most out of them. At the
start of high school, Jordan was an unimpressive basketball player; he became a champion
because he loved using his mistakes to improve. Yet despite Jordan’s example and the
example of countless other successful people, it is far more common for people to allow ego
to stand in the way of learning. Perhaps it’s because school learning overemphasizes the
value of having the right answers and punishes wrong answers. Good school learners are
often bad mistake-based learners because they are bothered by their mistakes. I
particularly see this problem in recent graduates from the best colleges, who frequently
shy away from exploring their own weaknesses. Remember that intelligent people who are open
to recognizing and learning from their weaknesses substantially outperform people with the
same abilities who aren’t similarly open.
Observe the patterns of mistakes to see if they are a product of
Connect the dots
without ego barriers. If there is a pattern of mistakes, it probably signifies a weakness.
Everyone has weaknesses. The fastest path to success is to know what they are and how to
deal with them so that they don’t stand in your way. Weaknesses are due to deficiencies in
learning or deficiencies in abilities. Deficiencies in learning can be rectified over time,
though usually not quickly, while deficiencies in abilities are virtually impossible to
change. Neither is a meaningful impediment to getting what you want if you accept it as a
problem that can be designed around.
Do not feel bad about your weaknesses or those of others.
They are opportunities
to improve. If you can solve the puzzle of what is causing them, you will get a gem—i.e.,
the ability to stop making them in the future. Everyone has weaknesses and can benefit from
knowing about them. Don’t view explorations of weaknesses as attacks. A person who receives
criticism-particularly if he tries to objectively consider if it’s true-is someone to be
Don’t worry about looking good-worry about achieving your
Put your insecurities
away and get on with achieving your goals.
To test if you are
worrying too much about looking good, observe how you feel when you find out you’ve made a
mistake or don’t know something. If you find yourself feeling bad, reflect—remind yourself that the most valuable comments
are accurate criticisms.Imagine how silly and
unproductive it would be if you thought your ski instructor was blaming you when he told
you that you fell because you didn’t shift your weight properly. If a criticism is
accurate, it is a good thing. You should appreciate it and try to learn from it.
Get over “blame” and “credit” and get on with “accurate” and
When people hear, “You
did XYZ wrong,” they have an instinctual reaction to figure out possible consequences or
punishments rather than to try to understand how to improve. Remember that what has
happened lies in the past and no longer matters, except as a method for learning how to be
better in the future. Create an environment in which people understand that remarks such as
“You handled that badly” are meant to be helpful (for the future) rather than punitive (for
the past). While people typically feel unhappy about blame and good about credit, that
attitude gets everything backwards and can cause major problems. Worrying about “blame” and
“credit” or “positive” and “negative” feedback impedes the iterative process essential to
Don’t depersonalize mistakes.
Identifying who made
mistakes is essential to learning. It is also a test of whether a person will put
improvement ahead of ego and whether he will fit into the Bridgewater culture. A common
error is to say, “We didn’t handle this well,” rather than, “Harry didn’t handle this
well.” This occurs when people are uncomfortable connecting specific mistakes to specific
people because of ego sensitivities. This creates dysfunctional and dishonest
organizations. Since individuals are the most important building blocks of any organization
and since individuals are responsible for the ways things are done, the diagnosis must
connect the mistake to the specific individual by name. Someone created the procedure that
went wrong, or decided we should act according to that procedure, and ignoring that fact
will slow our progress toward successfully dealing with the problem.
Write down your weaknesses and the weaknesses of others to help remember
and acknowledge them.
It’s unhealthy to hide
them because if you hide them, it will slow your progress toward successfully dealing with
them. Conversely, if you confront and don’t tolerate them, you will inevitably evolve past
When you experience pain, remember to reflect.
You can convert the
“pain” of seeing your mistakes and weaknesses into pleasure. If there is only one piece of
advice I can get you to remember it is this one. Calm yourself down and think about what is
causing your psychological pain. Ask other objective, believable parties for their help to
figure it out. Find out what is true. Don’t let ego barriers stand in your way. Remember
that pains that come from seeing mistakes and weaknesses are “growing pains” that you learn
from.Don’t rush through them. Stay
in them and explore them because that will help build the foundation for improvement. It is
widely recognized that 1) changing your deep-seated, harmful behavior is very difficult yet
necessary for improvement and 2) doing this generally requires a deeply felt recognition of
the connection between your harmful behavior and the pain it causes. Psychologists call
this “hitting bottom.” Embracing your failures is the first step toward genuine
improvement; it is also why “confession” precedes forgiveness in many societies.If you keep doing this, you
will learn to improve and feel the pleasures of it.
Be self-reflective and make sure your people are
differentiates those who evolve fast from those who don’t. When there is pain, the animal
instinct is "fight or flight" (i.e., to either strike back or run away) -reflect instead.
When you can calm yourself down, thinking about the dilemma that is causing you pain will
bring you to a higher level and enlighten you, leading to progress. That is because the
pain you are feeling is due to something being at odds-maybe it’s you encountering reality,
such as the death of a friend, and not being able to accept it. If when you are calm, you
can think clearly about what things are at odds, you will learn more about what reality is
like and how to better deal with it. It really will produce progress. If, on the other
hand, the pain causes you to tense up, not think, feel sorry for yourself, and blame
others, it will be a very bad experience. So, when you are in pain, try to remember: Pain +
Reflection = Progress. It’s pretty easy to determine whether a person is reflective or
deflective: self-reflective people openly and objectively look at themselves while
deflective people don’t.
Teach and reinforce the merits of mistake-based learning.
We must bring mistakes
into the open and analyze them objectively, so managers need to foster a culture that makes
this normal and penalizes suppressing or covering up mistakes. Probably the worst mistake
anyone can make at Bridgewater is not facing up to mistakes-i.e., hiding rather than
highlighting them. Highlighting them, diagnosing them, thinking about what should be done
differently in the future, and then adding that new knowledge to the procedures manual are
all essential to our improvement.
The most valuable tool we have for this is the issues log
(explained fully later), which is aimed at identifying and learning from
Using this tool is
mandatory because we believe that enforcing this behavior is far better than leaving it
Constantly Get in Synch
Constantly get in synch about what is true and what to do about
Getting in synch helps
you achieve better answers through considering alternative viewpoints. It can take the
forms of asking, debating, discussing, and teaching how things should be done. Sometimes it
is to make our views on our strengths, weaknesses, and values transparent in order to reach
the understanding that helps us move forward. Sometimes it is to be clear about who will do
what and the game plan for handling responsibilities. So this process can be both a means
of finding the best answers and pushing them ahead. Quality conversations about what is
true and what should be done will produce better outcomes and many fewer misunderstandings
in the future.
Talk about “Is it true?” and “Does it make sense?”
In a culture that
values both independent thinking and innovation, each individual has both the right and the
obligation to ensure that what they do, and what we collectively do, in pursuit of
excellence, makes sense to them. So, get in synch about these things.
Fight for right.
Discuss or debate
important issues with the right relevant parties in an open-minded way until the best
answers are determined. This process will maximize learning and mutual understanding.
Thrash it out to get to the best answer.
Be assertive and open-minded at the same time.
Just try to find out
what is true. Don’t try to "win" the argument. Finding out that you are wrong is even more
valuable than being right, because you are learning.
Ask yourself whether you have earned the right to have an
Opinions are easy
to produce, so bad ones abound. Knowing that you don’t know something is nearly as
valuable as knowing it. The worst situation is thinking you know something when you
Recognize that you always have the right to have and ask
Distinguish open-minded people from closed-minded
seek to learn by asking questions; they realize that what they know is little in
relation to what there is to know and recognize that they might be wrong. Closed-minded
people always tell you what they know, even if they know hardly anything about the
subject being discussed. They are typically made uncomfortable by being around those
who know a lot more about a subject, unlike open-minded people who are thrilled by such
Don’t have anything to do with closed-minded, inexperienced
They won’t do you
any good and there’s no helping them until they open their minds, so they will waste
your time in the meantime. If you must deal with them, the first thing you have to do
is open their minds. Being open-minded is far more important than being bright or
Be wary of the arrogant intellectual who comments from the
stands without having played on the field.
And avoid that trap
Watch out for people who think it’s embarrassing not to
Make sure responsible parties are open-minded about the questions and
comments of others.
They are required to
explain the thinking behind a decision openly and transparently so that all can understand
and assess it. Further, in the event of disagreement, an appeal should be made to either
the manager’s boss or an agreed-upon, knowledgeable group of others, generally including
people more believable than and senior to the decision-maker. The person(s) resolving the
dispute must do this objectively and fairly; otherwise our system will fail at maintaining
its meritocracy of ideas.
Recognize that conflicts are essential for great relationships because they
are the means by which people determine whether their principles are aligned and resolve
I believe that in all
relationships, including the most treasured ones, 1) there are principles and values each
person has that must be in synch for the relationship to be successful and 2) there must be
give and take. I believe there is always a kind of negotiation or debate between people
based on principles and mutual consideration. What you learn about each other via that
“negotiation” either draws you together or drives you apart. If your principles are aligned
and you can work out your differences via a process of give and take, you will draw closer
together. If not, you will move apart. It is through such open discussion, especially when
it comes to contentious issues, that people can make sure there are no misunderstandings.
If that open discussion of differences doesn’t happen on an ongoing basis, the gaps in
perspectives will widen until inevitably there is a major clash. Ironically, people who
suppress the mini-confrontations for fear of conflict tend to have huge conflicts later,
which can lead to separation, precisely because they let minor problems fester. On the
other hand, people who address the mini-conflicts head-on in order to straighten things out
tend to have the great, long-lasting relationships. That’s why I believe people should feel
free to say whatever they really think.
Expect more open-minded disagreements at Bridgewater than
at most other firms.
They fuel the
learning that helps us be at our best. Sometimes when there are disagreements, people
get angry. But you should remind them that the management at most other companies
doesn’t welcome disagreement or encourage open debate. As a result, there is less of
both. So instead of getting angry, they should welcome the fact that disagreements and
open debate are encouraged here.
There is giant untapped potential in disagreement,
especially if the disagreement is between two or more thoughtful people
—yet most people
either avoid it or they make it an unproductive fight. That’s tragic.
Know when to stop debating and move on to agreeing about what should be
I have seen people who
agree on the major issues waste hours arguing over details. It’s more important to do big
things well than to do small things perfectly. Be wary of bogging down amid minor issues at
the expense of time devoted to solidifying important agreements.
However, when people disagree on the importance of debating
something, it should be debated.
would essentially give someone (typically the boss) a de facto veto right.
Recognize that “there are many good ways to skin a
Your assessment of
how responsible parties are doing their jobs should not be based on whether they’re
doing it your way but whether they’re doing it in a good way.
For disagreements to have a positive effect, people
evaluating an individual decision or decision-maker must view the issue within a
For example, if the
responsible party being challenged has a vision, and the decision under disagreement
involves a small detail, evaluate the decision within the context of the broader
vision. The ensuing discussion resulting from challenging someone’s decision will help
people understand all the considerations behind it.
Distinguish between 1) idle complaints and 2) complaints
that are meant to lead to improvement.
Appreciate that open debate is not meant to create rule by
It is meant to provide
the decision-maker with alternative perspectives in anticipation of a better answer. It can
also be used to enhance understanding of others’ views and abilities and, over time, assess
whether someone should be assigned a responsibility. It doesn’t mean there can’t be some
designs in which a group oversees a person. But that’s designed and embedded in the
organizational structure, specifying the people responsible for oversight who are chosen
because of their knowledge and judgment.
Evaluate whether an issue calls for debate, discussion, or
Debate, discussion, and
teaching are all ways of getting in synch, but they work differently and the approach you
choose should reflect your goal and the relative believability of the people involved.
Debate is generally among approximate equals; discussion is open-minded exploration among
people of various levels of understanding; and teaching is between people of different
levels of understanding.
To avoid confusion, make clear which kind of conversation
(debate, discussion, or teaching) you are having
and recognize that
the purpose is ultimately to get at truth, not to prove that someone is right or
Communication aimed at getting the best answer should
involve the most relevant people.
Not everyone should
randomly probe everyone else, because that’s an unproductive waste of time. People
should consider their own levels of believability and understanding to assess if the
probing makes sense. As a guide, the most relevant people are your managers, direct
reports, and/or agreed experts. They are the most impacted by and most informed about
the issues under discussion, and so they are the most important parties to be in synch
with. If you can’t get in synch, you should escalate the disagreement.
Communication aimed at educating or boosting cohesion
should involve a broader set of people than would be needed if the aim were just
getting the best answer.
less believable people will be included. They may not be necessary to decide an issue,
but if you aren’t in synch with them, that lack of understanding will likely undermine
morale and the organization’s efficiency. In cases where you have people who are both
not believable and highly opinionated (the worst combination), you will drive their
uninformed opinions underground if you don’t get in synch. Conversely, if you are
willing to be challenged, and others behave the same way, you can demand that all
critical communication be done openly.
Imagine if a group
of us were trying to learn how to play golf with Tiger Woods, and he and a new golfer
were debating how to swing the club. Would it be helpful or harmful to our progress to
ignore their different track records and experience? Of course it would be harmful and
plain silly to treat their points of view equally, because they have different levels
of believability. It is better to listen to what Tiger Woods has to say, without
constant interruptions by some know-nothing arguing with him. While I believe this is
true, it would be most productive if Tiger Woods gave his instructions and then
answered questions. However, because I’m pretty extreme in believing that it is
important to obtain understanding rather than accepting doctrine at face value, I also
think the new golfer shouldn’t accept what Tiger Woods has to say as right only because
he has won loads of tournaments and has years of experience playing golf. In other
words, I believe the new golfer shouldn’t stop questioning Tiger until he is confident
he has found truth. At the same time, I also think the new golfer would be pretty dumb
and arrogant to believe he’s probably right and the champion golfer is wrong. So he
should approach his questioning with that perspective rather than overblown confidence.
It would be really bad for the group’s learning if all the people in the group treated
what the new golfer and Tiger Woods had to say as equally valuable. I feel exactly the
same way about getting at truth at Bridgewater. While it’s good to be open-minded and
questioning, it’s dumb to treat the views of people with great track records and
experience the same as those without track records and experience.
Leverage your communication.
communication is very important, the challenge is figuring out how to do it in a
time-efficient way. It is helpful to use leveraging techniques like open e-mails posted
on a FAQ board. If the reporting ratios are organized as described in the principles on
organizational design, there should be ample time for this. The challenges become
greater the higher you go in the reporting hierarchy because the number of people
affected by your actions and who have opinions and/or questions grows larger than just
two reporting levels down. In such cases, you will need even greater leverage and
prioritization (e.g., having some of the questions answered by a well-equipped party
who works for you, asking people to prioritize their questions by urgency or
Don’t treat all opinions as equally valuable.
Almost everyone has an
opinion, but many are worthless or harmful. The views of people without track records are
not equal to the views of people with strong track records. Treating all people equally is
more likely to lead away from truth than toward it. People without records of success who
are nonetheless confident about how things should be done are either naïve or arrogant. In
either case, they’re potentially dangerous to themselves and others. However, all views
should be considered in an open-minded way, albeit placed in the proper context of
experience and track record. Ultimately, the proof is in the pudding: can you handle your
responsibilities well? As a general rule, if you can, then you can have an opinion of how
to do it—if you can’t, you can’t.
A hierarchy of merit is not only consistent with a
meritocracy of ideas but essential for it.
Not only is better
decision-making enhanced, so is time management. It’s not possible for everyone to
debate everything all the time and still get work done effectively.
Consider your own and others’ “believabilities.”
By believability, I
mean the probability that a person’s view will be right. While we can never know this
precisely, we can roughly assess it according to the quality of a person’s reasoning and
their track record. Of course, different people will have different views of their own and
other’s believability, which is fine. Just recognize that this is a reality that is
relevant in a number of ways. Ask, “Why should I believe you?” and “Why should I believe
Ask yourself whether you have earned the right to have an
As a general rule,
if you have a demonstrated track record, then you can have an opinion of how to do
it—if you don’t, you can’t, though you can have theories and questions.
People who have repeatedly and successfully accomplished
the thing in question and have great explanations when probed are most
Those with one of
those two qualities are somewhat believable; people with neither are least
At the same time,
people’s ideas should always be assessed on their merit in order to encourage them to
always think in an open-minded way. I have seen that inexperienced people can have
great ideas, sometimes far better than more experienced people, though often much
worse. So we must be attuned to both the good and the bad and allow people to build
their own track records and their own levels of believability. Because of Bridgewater’s
radical openness, you can see how we make our assessments of that.
Someone new who
doesn’t know much, has little believability, or isn’t confident in his views should ask
questions. On the other hand, a highly believable person with experience and a good
track record who is highly confident in his views should be assertive. Everyone should
be upfront in expressing how confident they are in their thoughts. A suggestion should
be called a suggestion; a firmly held conviction should be presented as such. Don’t
make the mistake of being a dumb shit with a confident opinion.
If someone asks you a question, think first whether you’re
the responsible party/right person to be answering the question.
Spend lavishly on the time and energy you devote to “getting in synch”
because it’s the best investment you can make.
You will inevitably
need to prioritize because of time constraints, but beware of the tremendous price of
skimping on quality communication.
If it is your meeting to run, manage the conversation.
There are many reasons
why meetings go poorly, but frequently it is because of a lack of clarity about the topic
or the level at which things are being discussed (e.g., the principle/machine level, the
case-at-hand level, or the specific-fact level). To manage the meetings well:
Make it clear who the meeting is meant to serve and who is
directing the meeting.
Every meeting is
for the purpose of meeting someone’s goals; that person is the responsible party for
the meeting and decides what s/he wants to get out of it and how s/he will do so.
Meetings without a clear responsible party run a high risk of being directionless and
Make clear what type of communication you are going to have
in light of the objectives and priorities.
For example, if the
goal of the meeting is to have people with different opinions work through their
differences to try to get closer to what is true and what to do about it (i.e.,
open-minded debate), you will run it differently than if the meeting is meant to
educate. Debating issues takes time. That time increases geometrically depending on the
number of people participating in the discussion, so you have to carefully choose the
right people in the right numbers to suit the decision that needs to be made. In any
discussion try to limit the participation to those whom you value most in light of your
objectives. The worst way to pick people is based on whether their conclusions align
Lead the discussion by being assertive and
solo-think are both dangerous.
A small group (3 to 5) of smart, conceptual people seeking
the right answers in an open-minded way will generally lead to the best
Next best is to
have decisions made by a single smart, conceptual decision-maker, but this is a much
worse choice than the former. The worst way to make decisions is via large groups
without a smart, conceptual leader. Almost everyone thinks they’re smart and
conceptual, but only a small percentage of any group really is. Even when there is a
large number of smart, conceptual leaders, more than five trying to make a decision is
very inefficient and difficult. This is especially the case when people think they need
to satisfy everyone.
Two people who
collaborate well will be about three times as effective as the two of them operating
independently because they will see what the other might miss, they can leverage each
other, and they can hold each other to higher standards. This symbiotic relationship of
adding people to a group will have incremental benefits (2+1=4.25) up to a point at
which there are no incremental gains and beyond which adding people produces
incremental losses in effectiveness. That is because 1) the marginal benefits diminish
as the group gets larger-e.g., two or three people might be able to cover most of the
important perspectives so adding more people doesn't bring much more, and 2) larger
group interactions are less efficient than smaller group interactions. Of course,
what's best in practice is a function of 1) the quality of the people and the
differences of the perspectives that they bring and 2) how well the group is managed.
As noted before, each group should have someone who is responsible for managing the
flow to get out of the meeting the most possible.
Navigate the levels of the conversation
When considering an
issue or situation, there should be two levels of discussion: the case at hand and the
relevant principles that help you decide how the machine should work. Since the case at
hand is a manifestation of one or more relevant principles, you need to clearly
navigate between these levels in order to 1) handle the case well, 2) improve the
machine so that cases like this will be handled better in the future, and 3) test the
effectiveness of your principles.
Watch out for “topic slip.”
Topic slip is the
random and inconclusive drifting from topic to topic without achieving completion. Tip:
Avoid topic slip by tracking the conversation on a whiteboard so everyone can see where
Enforce the logic of conversations.
There is a tendency
for people’s emotions to heat up when there is a disagreement, so focusing on the logic
of your exchange will facilitate communication. If you are calm and analytical in
listening to others’ points of view, it is more difficult for them to shut down a
logical exchange than if you get emotional or allow them to get emotional.
Worry about substance more than style.
This is not to say
that some styles aren’t more effective than others with different people and in
different circumstances, but don’t let style or tone prevent you from getting in synch.
I often see people complain about the delivery of a criticism in order to deflect from
its substance. If you think someone’s style is an issue, box it as a separate issue to
get in synch about (start by asking whether it’s true and whether it’s
Achieve completion in conversations.
The main purpose of
discussion is to achieve completion and get in synch, which leads to decisions and/or
actions. Conversations often fail to reach completion. This amounts to a waste of time
because they don’t result in conclusions or productive actions. When there is an
exchange of ideas, especially if there is a disagreement, it is important to end it by
stating the conclusions. If there is agreement, say it; if not, say that. Where further
action has been decided, get those tasks on a to-do list, assign people to do them, and
specify due dates. Write down your conclusions, working theories, and to-do’s in places
that will lead to their being used as foundations for continued progress.
Have someone assigned to maintain notes in meetings and
make sure follow-through happens.
to avoid distraction during the discussion itself, prioritizing follow-ups and
assignments should be done afterwards.
Be careful not to lose personal responsibility via group
Too often groups
will make a decision to do something without assigning personal responsibilities so it
is not clear who is supposed to do what. Be clear in assigning personal
Make sure people don’t confuse their right to complain, give advice, and
debate with the right to make decisions.
Discussion does not
mean rule by referendum. While our culture is marked by extreme openness, some people
mistakenly assume we have group decision-making in which all views are treated equally and
consensus rules. Since not all views are equally valuable, I don’t believe in consensus
decision-making or referendums. We operate not only by open debate but also by clearly
assigning personal responsibility to specific people. While these two values might seem at
odds, personal responsibility and open debate work together to synthesize effective
decision-making at Bridgewater. Everyone does not report to everyone here. Instead,
responsibility and authority are assigned to individuals based on our assessment of their
ability to handle them. I want the most capable individuals assigned to each job. We hold
them accountable for their outcomes, but we also give them the authority to achieve those
outcomes. It is perfectly OK for a responsible party to carry through a decision he thinks
is best even when others who are knowledgeable disagree, although this disagreement should
be considered and weighed seriously. We have, and should have, an explicit decision-making
hierarchy, ideally based on merit.
Recognize that getting in synch is a two-way responsibility.
In any conversation
there is a responsibility to transmit and a responsibility to receive. Misinterpretations
are going to take place. Often, difficulty in communication is due to people having
different ways of thinking (e.g., left-brained thinkers talking to right-brained thinkers).
The parties involved should 1) realize that what they might be transmitting or receiving
might not be what was meant, 2) consider multiple possibilities, and 3) do a back and forth
so that they can get in synch. People do the opposite—confidently thinking that they’ve
communicated their intent clearly, not considering multiple possibilities and then blaming
the other parties for the misunderstanding. Learn lessons from your problems in
communications to improve.
Escalate if you can’t get in synch.
If you can’t understand
or reconcile points of view with someone else, agree on a third party to provide guidance.
This person could be your manager or another agreed-upon, believable person or group who
can resolve the conflict objectively, fairly, and sensibly. This mechanism is a key element
of our culture and crucial for maintaining a meritocracy of ideas.
To Get the People Right…
The the Most Important Decision You Can Make is Who You Choose as Your Responsible Party
Remember that almost everything good comes from having great people
operating in a great culture.
I cannot emphasize
strongly enough how important the selection, training, testing, evaluation, and sorting out
of people is. If you put the goals and the tasks in the hands of people who can do them
well, and if you make crystal clear that they are personally responsible for achieving the
goals and doing the tasks, they should produce excellent results. This section is about the
people part of the feedback loop process, diagramed below.
First, match the person to the design.
attributes matter most for a job, and then ascertain whether an individual has them.This
matching process requires 1) visualizing the job and the qualities needed to do it well and
then 2) ascertaining if the individual has those qualities.
Look for believable
responsible parties who love producing great results.Remember that values are most
important—e.g., if “work” is what people have to do to make money, I don’t want people to
“work” here. I only want people at Bridgewater who are joining us on an important, shared
mission to do great things.
Most importantly, find people who share your
those key values are a drive for excellence, truth at all costs, a high sense of
ownership, and strong character (by character, I mean the willingness to do the good
but difficult things).
Look for people who are willing to look at themselves
objectively and have character.
These are not
natural talents—they are qualities that anyone can acquire. They are also the qualities
that have the biggest influence on whether or not I respect someone. They are essential
Conceptual thinking and common sense are required in order
to assign someone the responsibility for achieving goals (as distinct from
Recognize that the inevitable responsible party (RP) is the person who
bears the consequences of what is done.
Because of this, the RP
must choose wisely when delegating responsibilities to others, and he must incentivize and
manage them appropriately. There is no escaping that. For example, you are the inevitable
RP for taking care of your health because you’re the one who inevitably bears the
consequences. If you’re sick, you might choose to delegate the responsibility of figuring
out what do to about it to a doctor. However, it is your responsibility to pick the right
doctor because you will bear the consequences of that decision. While it is, of course,
also the doctor’s responsibility to handle the responsibilities that you delegate to him,
you still need to make sure that his incentives are aligned with his responsibilities and
that he is doing his job well. The inevitable responsible party can’t delegate all his
responsibilities away and expect good outcomes, even in cases in which he has no expertise.
So you can’t escape hiring and managing properly.
By and large, you will get what you deserve over time.
The results that you
end up with will reflect how you and your people learn to handle things. So take control of
your situation and hold yourself and others accountable for producing great results. People
who wish for a great result but are unwilling to do what it takes to get there will
The most important responsible parties are those who are most responsible
for the goals, outcomes, and machines (they are those higher in the pyramid).
Give me someone who can
effectively be responsible for an area—i.e., who can design, hire, and sort to achieve the
goal-and I can be comfortable about all that is in that area. Therefore, they are the most
important people to choose and manage well.
Choose those who understand the difference between goals and tasks to run
Otherwise you will have
to do their jobs for them. The ability to see and value goals is largely innate, though it
improves with experience. It can be tested for, though no tests are perfect.
Recognize that People Are Built Very Differently
Think about their very different values, abilities, and skills.
Values are the
deep-seated beliefs that motivate behaviors; people will fight for their values, and values
determine people’s compatibility with others. Abilities are ways of thinking and behaving.
Some people are great learners and fast processors; others possess common sense; still
others think creatively or logically or with supreme organization, etc. Skills are learned
tools, such as being able to speak a foreign language or write computer code.
While values and
abilities are unlikely to change much, most skills can be acquired in a limited amount of
time (e.g., most master’s degrees can be acquired in two years) and often change in worth
(e.g., today’s best programming language can be obsolete in a few years).
It is important for you
to know what mix of qualities is important to fit each role and, more broadly, with whom
you can have successful relationships. In picking people for long-term relationships,
values are most important, abilities come next, and skills are the least
Understand what each person who works for you is like so that you know what
to expect from them.
Recognize that the type of person you fit in the job must match the
requirements for that job.
How People's Thinking Abilities Differ
In my many years of
running Bridgewater, I have learned that people’s thinking abilities differ and that it is
important to understand these differences so that they are appropriately considered when
assigning people to roles. I have tried to find experts who understand these differences to
help me better understand and test for them. I have found a few truly insightful people
amid a mass of mediocrity.I have also found that there are all sorts
of theories from all sorts of people about how people think and why, so very little should
be treated as fact. It seems that “political correctness” and the reluctance to objectively
discuss differences in innate abilities have stood in the way of forthright and thoughtful
research on this important subject. While the search for good advice and tests has been
challenging, it has also been invaluable. What follows is a mix of my theories based on my
personal observations and a collection of valuable things I have learned from
others.I know I have only scratched
the surface of learning about how people think, why they think differently, and how to test
for these different thinking abilities, so I am excited about the potential of learning
I believe, but am not
certain about, the following:
There are two big differences in how people think that are
due to the brain’s coming in two big halves and different people relying differently on
them. This was explained by Caltech
Professor Roger Sperry, who won a Nobel Prize in medicine for attributing these two ways of
thinking to different reliances on the two hemispheres. As a result of this discovery,
these two ways of thinking are called “left-brained” and “right-brained.” Professor Sperry
helped us understand that:
hemisphere reasons sequentially, analyzes details, and excels at linear analysis.
Left-brained thinkers do these things well. They are also called linear thinkers. When they
excel at this type of thinking they are called “bright.”
hemisphere reasons holistically, recognizes themes, and synthesizes the big picture.
Right-brained thinkers do these things well. People who think this way are also called
lateral thinkers. Those who excel at this kind of thinking are called “smart.”
Long before I knew that
there was a Professor Sperry I saw these differences. I bet you’ve seen them
On a scale of -5 to +5–left-brained to right-brained–where do you think you fall?How confident are you that your self-assessment is right?
Some people see details (trees), and others see big
pictures (forests).Those who “see trees” see the parts
most vividly and don’t readily relate the parts to each other in order to see the big
picture—e.g., they might prefer more literal, precise paintings. They are typically
left-brained. Others connect the dots to pictures. In fact, they typically don’t even see
the dots; they just see the pictures. They are typically right-brained. You can detect
which type people are by observing what they focus on. Detailed thinkers can lose sight of
the big picture and are more likely to focus in on a part than to go to the higher level
and see the relationship between parts. For example, a person who focuses on details can be
thrown off by word mistakes like “there“ instead of “their,” while big-picture thinkers
won’t even notice the mistake. Similarly, big-picture thinkers can often understand the
meaning of sentences even when key words are reversed—e.g., when “up” is mistakenly used
instead of “down,” they understand that the person speaking couldn’t have meant “up” in
that context. That is because their attention is focused on the context first and the
details second. When describing the same meeting, these two different types will frequently
focus on completely different things and disagree on their interpretations. In discussions,
they can frustrate each other and discount what the other is saying. Similarly, a person of
one type interviewing another type will usually yield an unsatisfactory result.
On a scale of -5 to +5–“detailed” to “big picture”–where do you think you fall?How confident are you that your self-assessment is right?
Some people rely more on remembering what they were taught
when making decisions, and others rely more on their independent reasoning.Let’s call the first group memory-based learners and the second
group reasoning-based thinkers. When using the word “learning” I intend to convey
“acquiring knowledge by being taught,” and when using the word “thinking” I mean “figuring
it out for oneself.” Memory-based learners approach decision-making by remembering what
they were taught. They draw on their memory banks and follow the instructions stored there.
They are typically left-brained. Reasoning-based thinkers pay more attention to the
principles behind what happens. They are typically right-brained. You can tell the
difference when what is learned (e.g., CAPM) conflicts with what is logical (e.g., All
Weather). People who rely on memory-based learning will typically be more skeptical of
unconventional ideas because their process is to more readily accept what they have been
told and because they are less able to assess it for themselves. Those who rely on more on
reasoning won’t care much about convention and will assess ideas on their merits. Those who
rely on memory-based learning also tend to align themselves with the consensus more than
people who rely on reasoning. Memory-based learners are more willing to accept the status
quo, while reasoning-based thinkers are less biased by it. They are more likely to be
innovative, while those who rely on learning are likelier to be cautious. Performance in
school will correlate well with the quality of one’s learning-based thinking, but will not
reliably correlate with one’s reasoning-based thinking. The most able learners are easily
found, since they are, or were, the best students from the best schools. The best thinkers
are tougher to find, as there are no obvious funnels through which they pass, especially
before they develop track records in the “real world.”
On a scale of -5 to +5—“learning” to “thinking”—where do you think you fall?How confident are you that your self-assessment is right?
Some people are focused on daily tasks, and others are
focused on their goals and how to achieve them.Those who
“visualize” best can see the pictures (rather than the dots) over time. They have a strong
capacity to visualize and will be more likely to make meaningful changes and anticipate
future events. They are the most suitable for creating new things (organizations, projects,
etc.) and managing organizations that have lots of change. We call them “creators.” They
are typically right-brained thinkers. By contrast, those who are focused on the daily tasks
are better at managing things that don’t change much or require repetitive processes done
reliably, and are typically best at doing clearly specified tasks. They see things much
more literally and tend to make incremental changes that reference what already exists.
They are slower to depart from the status quo and more likely to be blindsided by sudden
events. They are typically left-brained thinkers.
On a scale
of -5 to +5—“tasks” to “goals”—where do you think you fall?How
confident are you that your self-assessment is right?
Some people are “planners,” and others are
“perceivers.”Planners like to focus on a plan and stick
with it, while perceivers are prone to focus on what’s happening around them and more
readily adapt to it. Perceivers see things happening and work backward to understand the
cause and how to respond; they work from the outside in; they also see many more
possibilities that they compare and choose from; often they see so many that they are
confused by them. In contrast, planners work from the inside out, figuring out first what
they want to achieve and then how things should unfold. Planners and perceivers have
trouble appreciating each other. While a perceiver likes to see new things and change
directions often, this is discomforting to planners, who prefer to stick to a plan.
Planners weigh precedent much more heavily in their decision-making, and assume that if it
was done before in a certain way, it should be done again in the same way, while perceivers
tend to optimize on the spot. Planners are typically left-brained, and perceivers are
On a scale
of -5 to +5—“planner” to “perceiver”—where do you think you fall?How
confident are you that your self-assessment is right?
Some people are driven more by their emotions, and others
are driven more by their intellect.We all have emotions
and intellect. When they conflict, some people will give in to their emotions, while others
maintain control of their emotions and are driven by their intellect. I am told this is
more due to relative reliance on the amygdale and the prefrontal cortex, but I’m not sure.
Once again, these two different types typically can’t understand and typically frustrate
On a scale
of -5 to +5—“driven by emotion” to “driven by intellect”—where do you think you
confident are you that your self-assessment is right?
Some people are, risk-averse and others are
On a scale
of -5 to +5—“risk-averse” to “risk-taker”—where do you think you fall?How
confident are you that your self-assessment is right?
Some people are introverts, and others are
extroverts.The most important difference between them is
their willingness to fight for truth. Introverts tend to find the necessary conflicts more
On a scale
of -5 to +5—“introvert” to “extrovert”—where do you think you fall?How
confident are you that your self-assessment is right?
There are lots of
important ways in which people think differently that I won’t continue on about.
Use personality assessment tests and quality reflections on experiences to
help you identify these differences.
These should be done
openly so that these important differences are embraced and considered in our
Understand that different ways of seeing and thinking make people suitable for different jobs.
Since nature created
different ways of thinking and since nature never creates anything without a
purpose,each way of thinking has
purposes. Often, thinking well for some purposes necessitates thinking poorly for others.
It is highly desirable to understand one’s own ways, and others’ ways, of thinking, and
their best applications. While there is no best quality, there are certainly some qualities
that are more suitable for some jobs (e.g., being a math wiz is important for a job that
requires a math wiz). So don’t treat everyone the same.
Sometimes I see people
dealing with each other, especially in groups, without regard for these differences. This
is nonsensical. Both people expressing their own views and those considering others’ views
need to take into account their differences. These differences are real, so it’s dumb to
pretend they don’t exist.
People are best at the jobs that require what they do
If you’re not naturally good at one type of thinking, it
doesn’t mean you’re precluded from paths that require that type of
but it does require
that you either work with someone who has that required way of thinking (which works
best) or learn to think differently (which is very difficult and sometimes
Don’t hide these differences. Explore them openly with the goal of figuring
out how you and your people are built so you can put the right people in the right jobs
and clearly assign responsibilities.
This is good for both
your team and for Bridgewater as a whole.
Remember that people who see things and think one way often have difficulty
communicating and relating to people who see things and think another way.
Keep in mind how
difficult it is to convey what it means to think in an alternative way for the same reason
it would be difficult to convey what the sense of smell is to someone who doesn’t have the
ability to smell.
Hire Right, Because the Penalties of Hiring Wrong Are Huge
Think through what values, abilities, and skills you are looking
A lot of time and
effort is put into hiring a person, and substantial time and resources are invested in new
employees’ development before finding out whether they are succeeding. Getting rid of
employees who aren’t succeeding is also difficult, so it pays to be as sure as possible in
hiring. Refer to our diagram that shows how to achieve your goals by comparing them with
the outcomes you’re getting, and think of the people part as shown below. By constantly
comparing the picture of what the people are like with the qualities needed, you will hire
better and evolve faster.
Weigh values and abilities more heavily than skills in deciding whom to
Avoid the temptation to
think narrowly about filling a job with a specific skill.While having that skill might
be important, what’s most important is determining whether you and they are working toward
the same goals and can work in the same ways and share the same values.
Write the profile of the person you are looking for into the job
Select the appropriate people and tests for assessing each of these
qualities and compare the results of those assessments to what you’ve decided is needed
for the job.
Synthesize the results
of those tests to see if there is a “click.”
Remember that people tend to pick people like themselves,
so pick interviewers who can identify what you are looking for.
For example, if
you’re looking for a visionary, pick a visionary to do the interview where you test for
vision. If there is a mix of qualities you’re looking for, put together a group of
interviewers who embody all of these qualities collectively. Don’t choose interviewers
whose judgment you don’t trust (in other words, choose believable
Understand how to use and interpret personality
These can be
fantastic tools in your arsenal for quickly getting a picture of what people are
like—abilities, preferences, and style. They are often much more objective and reliable
Pay attention to people’s track records.
Dig deeply to discover why people did what they
Knowing what they
did is valuable only in helping you figure out what they are like. Understanding the
“why” behind people’s actions will tell you about their qualities and, as a result,
what you can probably expect from them.
Recognize that performance in school, while of some value
in making assessments, doesn’t tell you much about whether the person has the values
and abilities you are looking for.
processing speed tend to be the abilities that determine success in school (largely
because they’re easier to measure and grade) and are most valued, so school performance
is an excellent gauge of these. School performance is also a good gauge for measuring
willingness and ability to follow directions as well as determination. However, school
is of limited value for teaching and testing common sense, vision, creativity, or
decision-making.Since those traits all
outweigh memory, processing speed, and the ability to follow directions in most jobs,
you must look beyond school to ascertain whether the applicant has the qualities you’re
Ask for past reviews.
exclusively on the candidate for information about their track record; instead, talk to
people who know them (believable people are best), and look for documented
Look for people who have lots of great questions.
These are even more
important than great answers.
Make sure candidates interview you and Bridgewater.
Show them the real
picture. For example, share these principles with them to show how we operate and why. Have
them listen to the tapes to see the reality.
Don’t hire people just to fit the first job they will do at Bridgewater;
hire people you want to share your life with.
The best relationships
are long-term and based on shared missions and values. Also, turnover is generally
inefficient because of the long time it requires for people to get to know each other and
Bridgewater. Both the people you work with and the company itself will evolve in ways you
can’t anticipate. So hire the kind of people you want to be with on this long-term
Look for people who sparkle, not just “another one of those.”
I have too often seen
people hired who don’t sparkle, just because they have clearly demonstrated they were “one
of those.” If you’re looking for a plumber, you might be inclined to fill the job with
someone who has years of experience, without confirming whether he has demonstrated the
qualities of an outstanding plumber. Yet the difference between hiring an ordinary versus
an extraordinary plumber (or any other expert) is huge. So when reviewing a candidate’s
background, you must identify how this person has demonstrated himself to be outstanding.
The most obvious demonstration is outstanding performance within an outstanding peer group.
If you’re less than excited to hire someone for a particular job, don’t do it. The two of
you will probably make each other miserable.
Hear the click: Find the right fit between the role and the
Remember that your goal
is to put the right people in the right design. First understand the responsibilities of
the role, then what qualities are needed to fulfill them excellently, and then ascertain
whether an individual has them. This matching process requires 1) visualizing the job and
the qualities needed to do it well and 2) ascertaining if the individual has those
qualities. I describe this process as “hearing the click,” because that’s the sound of
finding the right fit between the role and the individual.
Pay for the person, not for the job.
Look at what they were
paid before and what people with comparable credentials get paid and pay some premium to
that, but don’t pay based on the job title.
Recognize that no matter how good you are at hiring, there is a high
probability that the person you hire will not be the great person you need for the
“interviewing” process as intensely after they are on the job as before, and don’t
Manage as Someone Who Is Designing and Operating a Machine to Achieve the Goal
Understand the differences between managing, micromanaging, and not
telling the people who work for you exactly what tasks to do and/or doing their tasks for
them. Not managing is having them do their jobs without your oversight and involvement.
Managing means: 1) understanding how well your people and designs are operating to achieve
your goals and 2) constantly improving them. To be successful, you need to
Managing the people who report to you should feel like
Like a ski
instructor, you need to have close contact with your people on the slopes so that you
can assess their strengths and weaknesses as they are doing their jobs. There should be
a good back and forth with trial and error. With time you will be able to decide what
they can and can’t effectively handle on their own.
An excellent skier is probably going to be more critical
and a better critic of another skier than a novice skier.
A student probably
thinks his ski instructor is fabulous, while an Olympic skier looking at the same ski
instructor would assess him to be at a much lower level.
Constantly compare your outcomes to your goals.
Identify problems and
diagnose whether the problems are with the way the organization is designed or with the way
the people are handling their responsibilities. So remember how the following feedback loop
to rapid improvement works.
And remember to do this
constantly so you have a large sample size. You want to have a large sample size because 1)
any one problem can either be a one-off imperfection or symptomatic of root causes that
will show up as problems repeatedly; and 2) looking at a large sample size of problems will
make clear which it is. Also, the larger your sample size, the clearer the root causes of
your problems and the more obvious your solutions will be.
If you do this
constantly in this way, your evolutionary process should look like this:
Look down on your machine and yourself within it from the higher
doesn’t mean the thinking done by higher-level beings. It means seeing things from a
top-down perspective—like looking at a photo of Earth from outer space, which shows you the
relationships between the continents, countries, and seas, and then going down to a photo
of your country, then down to your neighborhood, then down to your family. If you just saw
your family without the perspective of seeing that there are millions of other families,
and there have been many millions of other families over thousands of years, and observing
how your family compares and how families evolve, you would just be dealing with the items
that are coming at you as they transpire without the perspective.
Connect the case at hand to your principles for handling cases of that
Remember that every
problem and task is just another “one of those”—i.e., another one of a certain type.
Figuring out what type it is and reflecting on principles for handling that type of issue
will help you do a better job. Whether or not you use the principles written here, you
still must decide on a course of action and what guiding principles will be effective.
Through this process, you will improve your principles as well as handle your issues
Conduct the discussion at two levels when a problem occurs: 1) the
“machine” level discussion of why the machine produced that outcome and 2) the “case at
hand” discussion of what to do now about the problem.
Don’t make the mistake
of just having the task-level discussion, because then you are micromanaging—i.e., you are
doing your managee’s thinking for him and your managee will mistake your doing this as
being OK, when that’s not OK (because you will be micromanaging). When having the
machine-level discussion, think clearly how things should have gone and explore why they
didn’t go that way. If you are in a rush to determine what to do and you have to tell the
person who works for you what to do, point out that you are having to do this, make clear
that you are having to do this and that is what you are doing, and make it a training
experience—i.e., explain what you are doing and why.
Don’t try to be followed; try to be understood and to understand
Your goal is to
understand what is true and improve together. If you want to be followed, either for an
egotistical reason or because you believe it more expedient to operate that way, you will
pay a heavy price in the long run. If you are the only one thinking, the results will
Don’t try to control people by giving them
They will likely
resent the orders, and when you aren’t looking, defy them. An authoritarian approach
also means you aren’t developing your employees, and over time they will become
increasingly dependent on you, which damages all parties. Instead, the greatest power
you have over intelligent people—and the greatest influence they will have on you—comes
from constantly getting in synch about what is true and what is best so that they and
you want the same things. People must desire to do the right things, and this desire
must come from them. You can, however, show them the connection between fulfilling
their responsibilities and their own well-being. Reaching agreement will come only from
radically open discussions in which you are fair, reasonable, and
Communicate the logic and welcome feedback.
When making rules
or changes, explain the principles behind the decision. We want reasonable thinkers to
operate sensibly. We achieve this through principles that are sound and well
understood, applied and tested through open discussion. It is each person’s job to 1)
evaluate whether he agrees with a decision, and if not, explain why; and 2) hold each
other accountable for operating consistently within the organization’s principles. We
want people who understand the principles that allow our community to succeed and
possess strong ethics that motivate them to work by our rules, rather than to sneak
around them. We want people who know that if the community works well, it will be good
for them. We don’t want people who need to be ordered and threatened. We don’t want
people who just follow orders.
Clearly assign responsibilities.
Eliminate any confusion
about expectations and ensure that people view the failure to achieve their goals and do
their tasks as personal failures.The most important person is
the one who is given the overall responsibility for accomplishing the mission and has both
the vision to see what should be done and the discipline to make sure it’s accomplished by
the people who do the tasks.
Hold people accountable and appreciate them holding you
It’s better for them,
for you, and for the community. Slacker standards don’t do anyone any good. People can
resent being held accountable, however, and you don’t want to have to tell them what to do
all the time. Instead, reason with them, so that they understand the value and importance
of being held accountable. Hold them accountable on a daily basis. Constant examination of
problems builds a sample size that helps point the way to a resolution and is a good way to
detect problems early on before they become critical. Avoiding these daily conflicts
produces huge costs in the end.
Distinguish between failures where someone broke their
“contract” from ones where there was no contract to begin with.
If you didn’t make
the expectation clear, you generally can’t hold people accountable for it being
fulfilled (with the exception of common sense—which isn’t all that common). If you find
that a responsibility fell through the cracks because there was no contract, think
about whether you need to edit the design of your machine.
Avoid the “sucked down” phenomenon.
This occurs when a
manager is pulled down to do the tasks of a subordinate without acknowledging the problem.
The sucked down phenomenon bears some resemblance to job slip, since it involves the
manager’s responsibilities slipping into areas that should be left to others. Both
situations represent the reality of a job diverging from the ideal of that job. However,
the sucked down phenomenon is typically the manager’s response to subordinates’ inabilities
to do certain tasks or the manager’s failure to properly redesign how the responsibilities
should be handled in light of changed circumstances. You can tell this problem exists when
the manager focuses more on getting tasks done than on operating his machine.
Watch out for people who confuse goals and tasks, because
you can’t trust people with responsibilities if they don’t understand the
One way to test
this: if you ask a high-level question (e.g.,) “How is goal XYZ going?”) a good answer
will provide a synthesis upfront (e.g., of how XYZ is, in fact, going overall), and
then support that assessment with the tasks done to achieve the goal. People who see
the tasks and lose sight of the goals will just explain the tasks that were done and
not make the connection to how those tasks relate to the machine that produces outcomes
and achieves goals.
Think like an owner, and expect the people you work with to do the
You must act in the
interest of our community and recognize that your well-being is directly connected to the
well-being of Bridgewater. For example, spend money like it’s your own.
Force yourself and the people who work for you to do difficult
It’s usually easy to
make things go well if you’re willing to do difficult things. We must act as trainers in
gyms act in order to keep each other fit. That’s what’s required to produce the excellence
that benefits everyone. It is a law of nature that you must do difficult things to gain
strength and power. As with working out, after a while you make the connection between
doing difficult things and the benefits you get from doing them, and you come to look
forward to doing these difficult things.
Hold yourself and others accountable.
It is unacceptable
for you to say you won’t fight for quality and truth because it makes you or other
people uncomfortable. Character is the ability to get yourself to do the difficult but
right things. Get over the discomfort, and force yourself to hold people accountable.
The choice is between doing that properly or letting our community down by behaving in
a way that isn’t good for you or the people you are “probing” and coaching.
Don’t worry if your people like you; worry about whether you are helping
your people and Bridgewater to be great.
One of the most
essential and difficult things you have to do is make sure the people who work for you do
their jobs excellently. That requires constantly challenging them and doing things they
don’t like you to do, such as probing them. Even your best people, whom you regularly
praise and reward, must be challenged and probed. You shouldn’t be a manager if you have
problems confronting people or if you put being liked above ensuring your people
Know what you want and stick to it if you believe it’s right, even if
others want to take you in another direction.
Communicate the plan clearly.
People should know the
plans and designs within their departments. When you decide to divert from an agreed-upon
path, be sure to communicate your thoughts to the relevant parties and get their views so
that you are all clear about taking the new path.
Have agreed-upon goals and tasks that everyone knows (from
the people in the departments to the people outside the departments who oversee
This is important
to ensure clarity on what the goals are, what the plan is, and who is responsible to do
what in order to achieve the goals. It allows people to buy into the plan or to express
their lack of confidence and suggest changes. It also makes clear who is keeping up his
end of the bargain and who is falling short. These stated goals, tasks, and assigned
responsibilities should be shown at department meetings at least once a quarter,
perhaps as often as once a month.
Watch out for the unfocused and unproductive “we should…(do
Remember that to
really accomplish things we need believable responsible parties who should determine,
in an open-minded way, what should be done; so it is important to identify who these
people are by their names rather than with a vague “we,” and to recognize that it is
their responsibility to determine what should be done. So it is silly for a group of
people who are not responsible to say things like “we should…” to each other. On the
other hand, it can be desirable to speak to the responsible party about what should be
Constantly get in synch with your people.
Being out of synch
leads to confused and inefficient decision-making. It can also lead you in conflicting
directions either because 1) you are not clear with each other, which often generates
wildly differing assumptions, or 2) you have unresolved differences in your views of how
things should proceed and why. Getting in synch by discussing who will do what and why is
essential for mutual progress. It doesn’t necessarily entail reaching a consensus. Often
there will be irreconcilable differences about what should be done, but a decision still
needs to be made, which is fine. The process of getting in synch will make it clear what is
to be done and why, even if it cannot eliminate difference. One of the most difficult and
most important things you must do, and have others do, is bring forth disagreement and work
through it together to achieve a resolution. Recognize that this process takes time. It can
happen any way people prefer: discussion, e-mail, etc. You must have a workable process for
making decisions even when disagreements remain. I discuss such a process in the earlier
section on getting in synch.
Get a “threshold level of understanding”
—i.e., a rich enough
understanding of the people, processes, and problems around you to make well-informed
Avoid staying too distant.
You need to know your
people extremely well, provide and receive regular feedback, and have quality discussions.
Your job design needs to build in the time to do these things.
Tool: Use daily updates as a tool for staying on top of
what your people are doing and thinking.
Daily updates are
brief descriptions of what the person did that day, what they are planning to do the
next day, their problems, their questions, and their observations. They typically take
about five minutes to write and do wonders for staying in touch.
Learn confidence in your people—don’t presume it.
It takes time to learn
about people and what confidences can be placed in them. Sometimes new people are offended
we don’t yet have confidence in how they are handling their responsibilities. They think
it’s a criticism of their abilities when, in fact, it’s a realistic recognition that we
simply haven’t had enough time or direct experience with them to form a point of view. No
manager (including myself) should delegate responsibilities to people we don’t yet know
well enough to have confidence in. And new people shouldn’t be offended if we haven’t yet
formed that confidence.
Vary your involvement based on your confidence.
consists of scanning and probing everything for which you are responsible to identify
suspicious signs. Based on what you see, you should vary your degree of digging, doing more
of it for people and areas that look more suspicious, and less of it where probing instills
you with confidence. With the right tools in place and performing well, your scanning will
include both reviewing the output of these tools (e.g., “issues log,” “metrics,” “daily
updates,” and “checklists”) and spot-checking.
Avoid the “theoretical should.”
The theoretical should
occurs when a manager theorizes that people should be able to do something when they can’t
or without actually knowing whether they can do it.
Care about the people who work for you.
If you are not working
with people you care about and respect, this whole thing ain’t worth it. If you don’t
believe that, you probably shouldn’t work at Bridgewater. While it’s desirable to convey
these feelings, having them is more important. It is good to share your lives together, but
not required. Be there for weddings, births, and funerals. This is something that I try to
do but fail to do enough because of the numbers, so I convey that I will be there for
anyone who really needs me. Personal contact at the time of personal difficulty is a
Logic, reason, and common sense must trump everything else in
While logic drives our decisions, feelings are very relevant.
A feeling is a
reality—and a good reality—and it’s up to management to deal with all realities sensibly.
Good emotions are important. In fact, they are probably most important since they are the
reasons behind the good things we do, e.g., satisfaction with a job wonderfully done and
love of others. Emotions are bad only if they cloud judgment and take us away from what we
Escalate when you can’t adequately handle your responsibilities, and make
sure that the people who work for you do the same.
Escalating means saying
that you don’t believe that you can successfully handle a situation and that you are
passing the “responsible party” (RP) job to someone else. The person you are escalating
to—the person to whom you report—can then decide whether to coach you through it, take
control, have someone else handle it, or do something else. However, the boss should avoid
being drawn into doing the job of the person who is failing without exploring why the job
has not been done successfully without help. It’s very important to get an accurate
assessment of what each person can and can’t do and why. If the boss just does the job for
the person, even if it produces good results, we will lack the right attribution of success
and failure. Remember that an important goal is to learn about what a person is like from
testing, and that we want to get that information without crashing the car. So, the RP must
either say that he can handle his job or that he cannot. And it is the responsibility of
the boss to make the assessment of whether to remove the RP from the driver’s seat because
he might crash. We learn from mistakes by seeing our failures, feeling the pain of them,
and reflecting and gaining insight. If the boss and the RP don’t recognize the RP’s
failures to fix things, and the RP lacks the ability to do the job, trouble will result.
Remember that life is the best teacher—“the proof is in the pudding.” So going through this
process is essential to real learning.
Make sure your people know to be proactive.
Demand that they
speak up when they won’t meet agreed-upon deliverables or deadlines. This communication
is essential to getting in synch on both a project level and on a personal
Tool: An escalation button.
Because there is
confusion at times about whether responsible parties are conveying to their managers
their problems or whether they are escalating, use an escalation button. This is a tool
that makes clear to the manager that the managee is escalating.
Involve the person who is the point of the pyramid when encountering
material cross-departmental or cross sub-departmental issues.
organizational chart as a pyramid that consists of numerous pyramids, so:
When issues involve
parties that are not in the same part of the pyramid, it is generally desirable to involve
the person who is at the point of the pyramid. The individual at the point has the
perspective and knowledge to weigh the trade-offs properly and make an informed decision.
Not involving the person at the point of the pyramid will likely cause problems. In the
diagram above, if persons G and H are having an issue, who is the point of the pyramid? If
persons F and I are having an issue, who is the point of the pyramid?
Probe Deep and Hard to Learn What to Expect from Your “Machine”
Know what your people are like, and make sure they do their jobs
constantly challenging them and probing them. That’s true even if your people are doing
their jobs well, even though those people can be given more leeway.
Constantly probe the people who report to you, and encourage them to probe
Managers are much less
able to discover the right things to do than most people assume. I know that’s true for me.
The people who work for you should constantly challenge you, in order for you to become as
good as you can be. Also, inviting criticism brings to the surface any subterranean
discontent and makes the people working for you responsible for helping to find solutions.
It’s much easier for people to remain spectators offering unchallenged comments from the
stands than to become players on the field. Forcing people onto the field strengthens the
whole team. Communication is a two-way responsibility.
Remind the people you are probing that problems and
mistakes are fuel for improvement.
They ought to
understand that probing is good for them and everyone else. The main reason Bridgewater
has improved at a much faster rate than most other companies over the past 30 years is
that we seek out problems and find systematic ways of eliminating them. This approach
has given us an unlimited supply of practical ways to improve.
Probe to the level below the people who work for you.
You can’t understand
how the person who reports to you manages others unless you know their direct reports and
can observe how they behave with them. Also encourage the people who work two levels below
you to bring their disagreements with their bosses to you.
Remember that few people see themselves objectively, so it’s important to
welcome probing and to probe others.
Probe so that you have a good enough understanding of whether problems are
likely to occur before they actually do.
If problems take you by
surprise, it is probably because you are either too far removed from your people and
processes or you haven’t adequately thought through how the people and processes might lead
to various outcomes.
When a crisis appears to be brewing, contact should be so
close that it’s extremely unlikely that there will be any surprises.
Investigate and let people know you are going to
investigate so there are no surprises and they don’t take it personally.
Don’t “pick your battles.” Fight them all.
If you see something
wrong, even something small, deal with it. Because 1) small badnesses can be symptomatic of
serious underlying problems; 2) resolving small differences of perception may prevent more
serious divergences of views; and 3) in trying to help to train people, constant
reinforcement of desired behavior is helpful. The more battles you fight, the more
opportunities you will have to get to know each other and the faster the evolutionary
process will occur.
Don’t let people off the hook.
Ask the important,
difficult questions, and independently audit.
Don’t assume that people’s answers are correct.
They could be erroneous
theories or “spin,” so you need to occasionally double-check them, especially when they
sound questionable. Some managers are reluctant to do this, feeling as though it is the
equivalent of saying they don’t trust them. These managers need to understand and convey
that trust in the accuracy of people’s statements is gained or lost through this process.
People will learn to be much more accurate in what they say to you if they understand
this—and, increasingly, you will learn who and what you can rely on.
Make the probing transparent rather than private.
That will help to
assure the quality of the probing (because others can make their own assessments), and it
will reinforce the culture of transparency and freedom to find truth.
Evaluate People Accurately, Not “Kindly”
Make accurate assessments.
Since truth is the
foundation of excellence and people are your most important resource, make the most precise
personnel evaluations possible. This accuracy takes time and considerable back-and-forth.
Your assessment of how responsible parties are performing should be based not on whether
they’re doing it your way but on whether they’re doing it in a good way. Speak frankly,
listen with an open mind, consider the views of other believable and honest people, and try
to get in synch about what’s going on with the person and why. Remember not to be
overconfident in your assessments as it’s possible you are wrong.
Use evaluation tools such as performance surveys, metrics,
and formal reviews to document all aspects of a person’s performance. These will help
clarify assessments and communication surrounding them.
Maintain “baseball cards” and/or “believability matrixes”
for your people.
Imagine if you had
baseball cards that showed all the performance stats for your people: batting averages,
home runs, errors, ERAs, win/loss records. You could see what they did well and poorly
and call on the right people to play the right positions in a very transparent way.
These would also simplify discussions about compensation, incentives, moving players up
to first string, or cutting them from the team. You can and should keep such records of
your people. Create your baseball cards to achieve your goals of conveying what the
person is like. I use ratings, forced rankings, metrics, results, and credentials.
Baseball cards can be passed to potential new managers as they consider candidates for
Evaluate employees with the same rigor as you evaluate job
Ask yourself: “Would I
hire this person knowing what I now know about them?” I find it odd and silly that
interviewers often freely and confidently criticize job candidates despite not knowing them
well, yet they won’t criticize employees for similar weaknesses even though they have more
evidence. That is because some people view criticism as harmful and feel less protective of
an outsider than they do of a fellow employee. If you believe accuracy is best for
everyone, then you should see why this is a mistake and why frank evaluations must be
Know what makes your people tick, because people are your most important
Develop a full profile
of each person’s values, abilities, and skills. These qualities are the real drivers of
behavior, and knowing them in detail will tell you which jobs a person can and cannot do
well, which ones they should avoid, and how the person should be trained. I have often seen
people struggling in a job and their manager trying for months to find the right response
because the manager overlooked the person’s “package.” These profiles should change as the
Recognize that while most people prefer compliments over criticisms, there
is nothing more valuable than accurate criticisms.
While it is important
to be clear about what people are doing well, there should not be a reluctance to profile
people in a way that describes their weaknesses. It is vital that you be
Make this discovery process open, evolutionary, and iterative.
Articulate your theory
of a person’s values, abilities, and skills upfront and share this with him; listen to his
and others’ response to your description; organize a plan for training and testing; and
reassess your theory based on the performance you observe. Do this on an ongoing basis.
After several months of discussions and real-world tests, you and he should have a pretty
good idea of what he is like. Over time, this exercise will crystallize suitable roles and
appropriate training, or it will reveal that it’s time for the person to leave
Provide constant, clear, and honest feedback, and encourage discussion of
Don’t hesitate to be
both critical and complimentary—and be sure to be open-minded. Training and assessing will
be better if you frequently explain your observations. Providing this feedback constantly
is the most effective way to train.
Put your compliments and criticisms into
I find that many
people tend to blow evaluations out of proportion, so it helps to clarify that the
weakness or mistake under discussion is not indicative of your total evaluation.
Example: One day I told one of the new research people what a good job I thought he was
doing and how strong his thinking was. It was a very positive initial evaluation. A few
days later I heard him chatting away for hours about stuff that wasn’t related to work,
so I spoke to him about the cost to his and our development if he regularly wasted
time. Afterward I learned he took away from that encounter the idea that I thought he
was doing a horrible job and that he was on the brink of being fired. But my comment
about his need for focus had nothing to do with my overall evaluation of him. If I had
explained myself when we sat down that second time, he could have better put my
comments in perspective.
Remember that convincing people of their strengths is
generally much easier than convincing them of their weaknesses.
People don’t like
to face their weaknesses. At Bridgewater, because we always seek excellence, more time
is spent discussing weaknesses. Similarly, problems require more time than things that
are going well. Problems must be figured out and worked on, while things that are
running smoothly require less attention. So we spend a lot of time focusing on people’s
weaknesses and problems. This is great because we focus on improving, not celebrating
how great we are, which is, in fact, how we get to be great. For people who don’t
understand this fact, the environment can be difficult. It’s therefore important to 1)
clarify and draw attention to people’s strengths and what’s being done well; and 2)
constantly remind them of the healthy motive behind this process of exploring
weaknesses. Aim for complete accuracy in your assessments. Don’t feel you have to find
an equal number of “good and bad” qualities in a person. Just describe the person or
the circumstances as accurately as possible, celebrating what is good and noting what
Encourage objective reflection
—lots and lots of
should be constant, reviews are periodic. The purpose of a review is to review the
employee's performance and to state what the person is like as it pertains to their
doing their job.
A job review should
have few surprises in it—this is because throughout the year, if you can’t make sense
of how the person is doing their job or if you think it’s being done badly, you should
probe them to seek understanding of root causes of their performance. Because it is
very difficult for people to identify their own weaknesses, they need the appropriate
probing (not nitpicking) of specific cases by others to get at the truth of what they
are like and how they are fitting into their jobs.
these specific cases and getting in synch about them, agreed-upon patterns will emerge.
As successes and failures will occur in everyone (every batter strikes out a lot), in
reviewing someone the goal is see the patterns and to understand the whole picture
rather than to assume that one or a few failures or successes is representative of the
person. You have to understand the person’s modus operandi and that to be successful,
they can’t be successful in all ways—e.g., to be meticulous they might not be able to
be fast (and vice versa). Steve Jobs has been criticized as being autocratic and
impersonal, but his modus operandi might require him being that way, so the real choice
in assessing his fit for his job is to have him the way he is or not at all: that
assessment must be made in the review, not just a theoretical assessment that he should
do what he is doing and be less autocratic.
In some cases, it
won’t take long to see what a person is like—e.g., it doesn’t take long to hear if a
person can sing. In other cases, it takes a significant number of samples and time to
reflect on them. Over time and with a large sample size, you should be able to see what
people are like, and their track records (i.e., the level and the steepness up or down
in the trajectories that they are responsible for, rather than the wiggles in these)
will paint a very clear picture of what you can expect from them.
If there are
performance problems, it is either because of design problems (e.g., the person has too
many responsibilities) or fit/abilities problems. If the problems are due to the
person’s inabilities, these inabilities are either because of the person’s innate
weaknesses in doing that job (e.g., if you are 5-foot-2, you probably shouldn’t be a
center on the basketball team) or because of inadequate training to do the job. A good
review, and getting in synch throughout the year, should get at these
The goal of a
review is to be clear about what the person can and can’t be trusted to do based on
what the person is like. From there, “what to do about it” (i.e., how these qualities
fit into the job requirement) can be determined.
Understand that you and the people you manage will go through a process of
occurs first by identifying your strengths and weaknesses, and then by changing your
weaknesses (e.g., through training) or changing jobs to play to strengths and preferences.
This process, while generally difficult for both managers and their subordinates, has made
people happier and Bridgewater more successful. Remember that most people are happiest when
they are improving and doing things that help them advance most rapidly, so learning your
people’s weaknesses is just as valuable for them and for you as learning their
Recognize that your evolution at Bridgewater should be relatively rapid and
a natural consequence of discovering your strengths and weaknesses; as a result, your
career path is not planned at the outset.
Your career path isn’t
planned because the evolutionary process is about discovering your likes and dislikes as
well as your strengths and weaknesses. The best career path for anyone is based on this
information. In other words, each person’s career direction will evolve differently based
on what we all learn. This process occurs by putting people into jobs that they are likely
to succeed at, but that they have to stretch themselves to do well. They should be given
enough freedom to learn and think for themselves while being coached so they can be taught
and prevented from making unacceptable mistakes. During this process they should receive
constant feedback. They should reflect on whether their problems can be resolved by
additional learning or stem from innate qualities that can’t be changed. Typically it takes
six to 12 months to get to know a person in a by-and-large sort of way and about 18 months
to change behavior (depending on the job and the person). During this time, there should be
periodic mini-reviews and several major ones. Following each of these assessments, new
assignments should be made to continue to train and test them. They should be tailored to
what was learned about the person’s likes and dislikes and strengths and weaknesses. This
is an iterative process in which these cumulative experiences of training, testing, and
adjusting direct the person to ever more suitable roles and responsibilities. It benefits
the individual by providing better self-understanding and greater familiarity with various
jobs at Bridgewater. This is typically both a challenging and rewarding process. When it
results in a parting of ways, it’s usually because people find they cannot be excellent and
happy in any job at Bridgewater or they refuse to go through this process.
Remember that the only purpose of looking at what people did is to learn
what they are like.
Knowing what they are
like will tell you how you can expect them to handle their responsibilities in the future.
Intent matters, and the same actions can stem from different causes.
Look at patterns of behaviors and don’t read too much into
any one event.
Since there is no
such thing as perfection, even excellent managers, companies, and decisions will have
problems. It’s easy, though often not worth much, to identify and dwell on tiny
mistakes. In fact, this can be a problem if you get bogged down pinpointing and
analyzing an infinite number of imperfections. At the same time, minor mistakes can
sometimes be manifestations of serious root causes that could cause major mistakes down
the road, so they can be quite valuable to diagnose. When assessing mistakes it is
important to 1) ask whether these mistakes are manifestations of something serious or
unimportant and 2) reflect on the frequency of them. An excellent decision-maker and a
bad decision-maker will both make mistakes. The difference is what causes them to make
mistakes and the frequency of their mistakes.
There is also a
difference between “I believe you made a bad decision” and “I believe you are a bad
decision-maker,” which can be ascertained only by seeing the pattern. Any one event has
many different possible explanations, whereas a pattern of behavior can tell you a lot
about root causes. There are many qualities that make up a person. To understand each
requires 1) a reliable sample size and 2) getting in synch (i.e., asking the person why
and giving feedback). Some qualities don’t require a large sample size—e.g., it takes
only one data point to know if a person can sing—and others take multiple observations
(five to 10). The number of observations needed to detect a pattern largely depends on
how well you get in synch after each observation. A quality discussion of how and why a
person behaved a certain way should help you quickly understand the larger
Don’t believe that being good or bad at some things means
that the person is good or bad at everything.
Realize that all
people have strengths and weaknesses.
If someone is doing their job poorly, consider whether this is due to
inadequate learning (i.e., training/experience) or inadequate ability.
A weakness due to a
lack of experience or training or due to inadequate time can be fixed. A lack of inherent
ability cannot. Failing to distinguish between these causes is a common mistake among
managers, because managers are often reluctant to appear unkind or judgmental by saying
someone lacks ability. They also know people assessed this way tend to push back hard
against accepting a permanent weakness. Managers need to get beyond this
In our diagram of
thinking through the machine that will produce outcomes, think about…
Remember that when it comes to assessing people, the two biggest mistakes
are being overconfident in your assessment and failing to get in synch on that
assessment. Don’t make those mistakes.
Get in synch in a non-hierarchical way regarding
The greatest single
discrepancy between a manager and a managee is how well each performs his job. In most
organizations, evaluations run in only one direction, with the manager assessing the
managee. The managee typically disagrees with the assessment, especially if it is worse
than the employee’s self-assessment, because most people believe themselves to be
better than they really are. Managees also have opinions of managers that in most
companies they wouldn’t dare bring up, so misunderstandings and resentments fester.
This perverse behavior undermines the effectiveness of the environment and the
relationships between people. It can be avoided by getting in synch in a high-quality
Learn about your people and have them learn about you with
very frank conversations about mistakes and their root causes.
You need to be
clear in conveying your assessments and be open-minded in listening to people’s
replies. This is so they can understand your thinking and you can open-mindedly
consider their perspectives. So together you can work on setting their training and
career paths. Recognizing and communicating people’s weaknesses is one of the most
difficult things managers have to do. Good managers recognize that while it is
difficult in the short term, it actually makes things easier in the long term, because
the costs of having people in jobs where they can’t excel are huge. Most managers at
other companies dodge being as open with assessments as we insist on; more typically,
managers elsewhere tend to be less frank in conveying their views, which is neither
fair nor effective.
Help people through the pain that comes with exploring their
Emotions tend to heat
up during most disagreements, especially about someone’s possible weaknesses. Speak in a
calm, slow, and analytical manner to facilitate communication. If you are calm and open to
others’ views, they are less likely to shut down logical exchanges than if you behave
emotionally. Put things in perspective by reminding them that their pain is the pain that
comes with learning and personal evolution—they’re going to be in a much better place by
getting to truth. Consider asking them to go away and reflect when they are calm, and have
a follow-up conversation in a few days.
Recognize that when you are really in synch with people about weaknesses,
whether yours or theirs, they are probably true.
Getting to this point
is a great achievement. When you reach an agreement, it’s a good sign you’re there. This is
one of the main reasons why the person being evaluated needs to be an equal participant in
the process of finding truth. So when you do agree, write it down on the relevant baseball
card. This information will be a critical building block for future success.
Remember that you don’t need to get to the point of “beyond a shadow of a
doubt” when judging people.
Instead, work toward
developing a mutually agreed “by-and-large” understanding of someone that has a high level
of confidence behind it. When necessary, take the time to enrich this understanding. That
said, you should not aim for perfect understanding. Perfect understanding isn’t possible,
and trying to get it will waste time and stall progress.
Understand that you should be able to learn the most about what a person is
like and whether they are a “click” for the job in their first year.
You should be able to
roughly assess someone’s abilities after six to 12 months of close contact and numerous
tests and getting in synch about them. A more confident assessment so that you can make a
more confident role assignment will probably take about 18 months. This timeline will, of
course, depend on the job, the person, the amount of contact with that person, and how well
you do it. As I will explain in the section on design, the ratio of senior managers to
junior managers, as well as the ratio of managers to the number of people who work two
levels below them, should be small enough to ensure quality communication and mutual
understanding. Generally, that ratio should not be more than 1:10, preferably more like
Continue assessing people throughout their time at Bridgewater.
You will get to know
them better, it will help you train and direct them, and you won’t be stuck with an
obsolete picture. Most importantly, assess what your people’s core values and abilities are
and make sure they complement Bridgewater’s. Since core values and abilities are more
permanent than skills, they are more important to ascertain, especially at Bridgewater. As
mentioned, you should be able to roughly assess people’s abilities after six to 12 months
of close contact and confidently assess them after 18 months.
Don’t rest with that
evaluation, however. Always ask yourself if you would have hired them for that job knowing
what you now know. If not, get them out of the job.
Train and Test People Through Experiences
Understand that training is really guiding the process of personal
It requires the trainee
to be open-minded, to suspend ego in order to find out what he is doing well and poorly,
and to decide what to do about it. It also requires the trainer to be open-minded (and to
do the other things previously mentioned). It would be best if at least two believable
trainers work with each trainee in order to triangulate views about what the trainee is
like. As previously explained, the training should be through shared experiences like that
of a ski instructor skiing with his student—i.e., it should be an apprentice
Know that experience creates internalization.
A huge difference
exists between memory-based “book” learning and hands-on, internalized learning. A medical
student who has “learned” to perform an operation in his medical school class has not
learned it in the same way as a doctor who has already conducted several operations. In the
first case, the learning is stored in the conscious mind, and the medical student draws on
his memory bank to remember what he has learned. In the second case, what the doctor has
learned through hands-on experience is stored in the subconscious mind and pops up without
his consciously recalling it from the memory bank. People who excel at book learning tend
to call up from memory what they have learned in order to follow stored instructions.
Others who are better at internalized learning use the thoughts that flow from their
subconscious. The experienced skier doesn’t recite instructions on how to ski and then
execute them; rather, he does it well “without thinking,” in the same way he breathes
without thinking. Understanding these differences is essential.Remember that experience
creates internalization. Doing things repeatedly leads to internalization, which produces a
quality of understanding that is generally vastly superior to intellectualized
Provide constant feedback to put the learning in perspective.
Most training comes
from doing and getting in synch about performance. Feedback should include reviews of what
is succeeding and what is not in proportion to the actual situation rather than in an
attempt to balance compliments and criticisms. You are a manager, and you want your machine
to function as intended. For it to do so, employees must meet expectations, and only you
can help them to understand where they are in relation to expectations. As strengths and
weaknesses become clearer, responsibilities can be more appropriately tailored to make the
machine work better and to facilitate personal evolution. The more intensely this is done,
the more rapid the evolutionary process will be. So you must constantly get in synch about
Remember that everything is a case study.
Think about what it is
a case of and what principles apply.
Teach your people to fish rather than give them fish.
It is a bad sign when
you tell people what they should do because that behavior typically reflects
micromanagement or inability on the part of the person being managed. Instead, you should
be training and testing. So give people your thoughts on how they might approach their
decisions or how and why you would operate in their shoes, but don’t dictate to them.
Almost all that you will be doing is constantly getting in synch about how they are doing
things and exploring why.
Recognize that sometimes it is better to let people make mistakes so that
they can learn from them rather than tell them the better decision.
However, since the
connections between cause and effect can be misunderstood, providing feedback for these
people is essential to the learning process.
When criticizing, try to make helpful
Your goal is to
help your people understand and improve, so your suggestions are important. Offering
suggestions also helps those being criticized to understand that your goal is to help
them and Bridgewater, not to hurt them.
Learn from success as well as from failure.
Point out examples
of jobs that are well done and the causes of success. This reinforces good behavior and
creates role models for those who are learning.
Know what types of mistakes are acceptable and unacceptable, and don’t
allow the people who work for you to make the unacceptable ones.
When considering what
failures you are willing to allow in order to promote learning through trial and error,
weigh the potential damage of a mistake against the benefit of incremental learning. In
defining what latitude I’m willing to give people, I say, “I’m willing to let you scratch
or dent the car, but I won’t put you in a position where I think there’s a significant risk
you could total it.”
Recognize that behavior modification typically takes about 18 months of
The first step is
intellectualizing the best way of doing things. If you’re out of shape you must understand
that you are out of shape, you must want to get in shape, and you must understand the way
to get in shape: “I want to be fit by eating well and exercising.” Then the intellect will
fight with desires and emotions. With determination, the intellect will overcome the
impediments to doing what’s necessary to achieve the goal, and the desired behavior will
occur. After doing that consistently for 18 months, the new behavior will be
Train people; don’t rehabilitate them.
Training is part of the
plan to develop people’s skills and to help them evolve. Rehabilitation is the process of
trying to create significant change in people’s values and/or abilities. Since values and
abilities are difficult to change, rehabilitation typically takes too long and is too
improbable to do at Bridgewater. If attempted, it is generally best directed by
professionals over extended periods of time. People with inappropriate values and
inadequate abilities to meet their job requirements have devastating impacts on the
organization. They should be properly sorted (see the principles section on
A common mistake: training and testing a poor performer to
see if he or she can acquire the required skills without simultaneously trying to
assess their abilities.
Skills are readily
testable, so they should be easy to determine. Knowing them is less important than
knowing people’s abilities. That makes picking people with the right skills relatively
easy. Abilities, especially right-brained abilities, are more difficult to assess. When
thinking about why someone is a poor performer, openly consider whether it is a problem
with their abilities. Values are the toughest and take the longest to
After you decide “what’s true” (i.e., after you figure out what your people
are like), think carefully about “what to do about it.”
As mentioned before,
it’s important to separate thinking about “what’s true” and thinking about “what to do
about it.” Figuring out what’s true takes time—often several months filled with a large
sample size. Figuring out what to do about it (i.e., designing) is much faster—typically
hours or days—but it isn’t instantaneous. Too often people either jump to decisions or
don’t make them.
Sort People into Other Jobs at Bridgewater, or Remove Them from Bridgewater
When you find that someone is not a good “click” for a job, get them out of
If you are
expecting/wishing people to be much better in the near future than they have been in the
past, you are making a serious mistake—instead, sort the people. People who repeatedly
operated in a certain way probably will continue to operate that way because that behavior
reflects what they’re like. Since people generally change slowly (at best), you should
expect slow improvement (at best), so instead of hoping for improvement, you need to sort
the people or change the design to supplement them. Since changing the design to
accommodate people’s weaknesses is generally a bad idea, it is generally better to sort the
Sometimes good people
“lose their boxes” because they can’t evolve into responsible parties soon enough. Either
there is a problem with their qualities or it will take too long to train them well. Some
of these people might be good at another position within Bridgewater. Remember that
identifying failure and learning from it are part of the evolutionary process. Make sure
you record the reasons on the relevant “baseball card” and think about what a good next
step would be for that individual.
Know that it is much worse to keep someone in a job who is not suited for
it than it is to fire someone.
Don’t collect people.
Firing people is not a big deal—certainly nowhere near as big a deal as keeping badly
performing people, because keeping a person in a job they are not suited for is terrible
both for the person (because it prevents personal evolution) and our community (because we
all bear the consequences and it erodes meritocracy). Consider the enormous costs of not
firing someone unsuited for a job: the costs of bad performance over a long time; the
negative effect on the environment; the time and effort wasted trying to train the person;
and the greater pain of separation involved with someone who’s been here awhile (say, five
years or more) compared with someone let go after just a year.
When people are “without a box,” consider whether there is an open box at
Bridgewater that would be a better fit. If not, fire them.
Remember that we hire
people not to fill their first job at Bridgewater nor primarily for their skills. We are
trying to select people with whom we’d like to share our lives. We expect everyone to
evolve here. Because managers have a better idea of people’s strengths and weaknesses and
their fit within our culture than what emerges from the interview process, you have
invaluable information for assessing them for another role at Bridgewater.
Do not lower the bar.
If a person can’t
operate consistently with our requirements of excellence and radical truth and can’t get to
the bar in an acceptable time frame, they have to leave. We want to neither lower the bar
nor enter into a long-term rehabilitation program.
To Perceive, Diagnose, and Solve Problems…
Know How to Perceive Problems Effectively
Keep in mind the 5-Step Process explained in Part 2.
Recognize that perceiving problems is the first essential step toward great
As in nature, if you
can’t see what’s happening around you, you will deteriorate and eventually die off. People
who can 1) perceive problems, 2) decide what to do about them, and 3) get these things done
can be great managers.
Understand that problems are the fuel for improvement.
Problems are like wood
thrown into a locomotive engine, because burning them up—i.e., inventing and implementing
solutions—propels us forward. Problems are typically manifestations of root causes, so they
provide clues for getting better. Most of the movement toward excellence comes from
eliminating problems by getting at their root causes and making the changes that pay off
repeatedly in the future. So finding problems should get you excited because you have found
an opportunity to get better.
You need to be able to perceive if things are above the bar (i.e., good
enough) or below the bar (i.e., not good enough), and you need to make sure your people
can as well.
That requires the
ability to synthesize.
Don’t tolerate badness.
Too often I observe
people who observe badness and tolerate it. Sometimes it is because they don’t have the
courage to make the needed changes, and sometimes it is because they don’t know how to fix
it. Both are very bad. If they’re stuck, they need to seek the advice of believable people
to make the needed changes, and if that doesn’t work, they need to escalate.
“Taste the soup.”
A good restaurateur
constantly tastes the food that is coming out of his kitchen and judges it against his
vision of what is excellent. A good manager needs to do the same.
Have as many eyes looking for problems as possible.
Encourage people to
bring problems to you and look into them carefully. If everyone in your area feels
responsible for the well-being of that area and feels comfortable speaking up about
problems, your risks of overlooking them will be much less than if you are the only one
doing this. This will help you perceive problems, gain the best ideas, and keep you and
your people in synch.
“Pop the cork.”
responsibility to make sure that communications from your people are flowing
Hold people accountable for raising their
Ask yourself: 1)
Does someone think there’s something wrong? 2) Did this lead to a proper discussion?
and 3) If they felt raising the issue didn’t lead to the proper response, did they
escalate it? That’s how it should be.
The leader must encourage disagreement and be either
impartial or open-minded.
The people closest to certain jobs probably know them best,
or at least have perspectives you need to understand, so those people are essential
for creating improvement.
To perceive problems, compare how the movie is unfolding relative to your
—i.e., compare the
actual operating of the machine and the outcomes it is producing to your visualization of
how it should operate and the outcomes you expected. As long as you have the visualization
of your expectations in mind to compare with the actual results, you will note the
deviations so you can deal with them. For example, if you expect improvement to be within a
… and it ends up
looking like this…
… you will know you
need to get at the root cause to deal with it. If you don’t, the trajectory will probably
Don’t use the anonymous “we” and “they,” because that masks personal
responsibility—use specific names.
For example, don’t say
“we” or “they” handled it badly. Also avoid: “We should...” or “We are...” Who is “we”?
Exactly who should, who made a mistake, or who did a great job? Use specific names. Don’t
undermine personal accountability with vagueness. When naming names, it’s also good to
remind people of related principles like “mistakes are good if they result in
Be very specific about problems; don’t start with
For example, don’t say,
“Client advisors aren’t communicating well with the analysts.” Be specific: name which
client advisors aren’t doing this well and in which ways. Start with the specifics and then
Tool: Use the following tools to catch problems: issues logs, metrics,
surveys, checklists, outside consultants, and internal auditors.
Issues log: A problem or “issue” that should be logged is easy to identify:
anything that went wrong. The issues log acts like a water filter that catches garbage. By
examining the garbage and determining where it came from, you can determine how to
eliminate it at the source. You diagnose root causes for the issues log the same way as for
a drilldown (explained below) in that the log must include a frank assessment of individual
contributions to the problems alongside their strengths and weaknesses. As you come up with
the changes that will reduce or eliminate the garbage, the water will become cleaner. In
addition to using issues logs to catch problems, you can use them to measure the numbers
and types of problems, and they can therefore be effective metrics of performance. A common
challenge to getting people to use issues logs is that they are sometimes viewed as
vehicles for blaming people. You have to encourage use by making clear how necessary they
are, rewarding active usage, and punishing non-use. If, for example, something goes wrong
and it’s not in the issues log, the relevant people should be in big trouble. But if
something goes wrong and it’s there (and, ideally, properly diagnosed), the relevant people
will probably be rewarded or praised. But there must be personal accountability.
Metrics: Detailed metrics measure individual, group, and system performance.
Make sure these metrics aren’t being “gamed” so that they cease to convey a real picture.
If your metrics are good enough, you can gain such a complete and accurate view of what
your people are doing and how well they are doing it that you can nearly manage via the
metrics. However, don’t even think of taking the use of metrics that far! Instead, use the
metrics to ask questions and explore. Remember that any single metric can mislead. You need
enough evidence to establish patterns. Metrics and 360 reviews reveal patterns that make it
easier to achieve agreement on employees’ strengths and weaknesses. Of course, the people
providing the information for metrics must deliver accurate assessments. There are various
ways to facilitate this accuracy. A reluctance to be critical can be detected by looking at
the average grade each grader gives; those giving much higher average grades might be the
easy graders. Similarly helpful are “forced rankings,” in which people must rank coworker
performance from best to worst. Forced rankings are essentially the same thing as “grading
on a curve.” Metrics that allow for independent grading across departments and/or groups
are especially valuable.
Surveys (of workers and of customers).
The most common reason problems aren’t perceived is what I call the “frog
in the boiling water” problem.
Supposedly, if you
throw a frog in a pot of boiling water it will immediately jump out. But if you put a frog
in room-temperature water and gradually bring the water to a boil, the frog will stay in
place and boil to death. There is a strong tendency to get used to and accept very bad
things that would be shocking if seen with fresh eyes.
In some cases, people accept unacceptable problems because they are
perceived as being too difficult to fix. Yet fixing unacceptable problems is actually a
lot easier than not fixing them, because not fixing them will make you
They will lead to
chronic unacceptable results, stress, more work, and possibly get you fired. So remember
one of the first principles of management: you either have to fix problems or escalate them
(if need be, over and over again) if you can't fix them. There is no other, or easier,
Problems that have good, planned solutions are completely
different from those that don’t.
The spectrum of
badness versus goodness with problems looks like this:
b) Identified but
without a planned solution (better)
c) Identified with
a good, planned solution (good)
However, the worst
situation for morale is the second case: identified but without a planned solution. So
it’s really important to identify which of these categories the problem belongs
Diagnose to Understand What the Problems Are Symptomatic of
Recognize that all problems are just manifestations of their root causes,
so diagnose to understand what the problems are symptomatic of.
Don’t deal with your
problems as one-offs. They are outcomes produced by your machine, which consists of design
and people. If the design is excellent and the people are excellent, the outcomes will be
excellent (though not perfect). So when you have problems, your diagnosis should look at
the design and the people to determine what failed you and why.
Understand that diagnosis is foundational both to progress and quality
An honest and
collaborative exploration of problems with the people around you will give you a better
understanding of why these problems occur so that they can be fixed. You will also get to
know each other better, be yourself, and see whether the people around you are reasonable
and/or enforce their reasonableness. Further, you will help your people grow and vice
versa. So, this process is not only what good management is; it is also the basis for
personal and organizational evolution, and the way to establish deep and meaningful
relationships. Because it starts and ends with how you approach mistakes, I hope that I
have conveyed why I believe this attitude about and approach to dealing with mistakes is so
Ask the following questions when diagnosing.
These questions are
intended to look at the problem (i.e., the outcome that was inconsistent with the goal) as
a manifestation of your “machine.” It does this first by examining how the responsible
parties imagined that the machine would have worked, then examining how it did work, and
then examining the inconsistencies. If you get adept at the process, it should take 10 to
20 minutes. As previously mentioned, it should be done constantly so that you have a large
sample size and no one case is a big deal.
Ask the person who experienced the problem: What
suboptimality did you experience?
Ask the manager of the area: Is there a clear responsible
party for the machine as a whole who can describe the machine to you and answer your
questions about how the machine performed compared with expectations? Who owns this
Do not mask personal responsibility—use specific
Ask the responsible party: What is the “mental map” of
how it was supposed to work?
A “mental map” is essentially the visualization of what
should have happened.
To be practical, “mental maps” (i.e., the designs that
you would have expected would have worked well) should account for the fact that people are
imperfect. They should lead to success anyway.
Ask the owner of the responsibility: What, if anything,
broke in this situation? Were there problems with the design (i.e., who is supposed to do
what) or with how the people in the design behaved?
Compare the mental map of “what should have happened” to
“what did happen” in order to identify the gap.
If the machine steps were followed, ask, “Is the machine
designed well?” If not, what’s wrong with the machine?
Ask the people involved why they handled the issue the
way they did. What are the proximate causes of the problem (e.g., “Did not do XYZ”)? They
will be described using verbs—for example, “Harry did XYZ.” What are the root causes? They
will be descriptions. For example: inadequate training/experience, lack of vision, lack of
ability, lack of judgment, etc. In other words, root cause is not an action or a
reaction—it is a reason.
Be willing to touch the nerve.
Ask the people involved: Is this broadly consistent with
prior patterns (yes/no/unsure)? What is the systematic solution? How should the
people/machines/responsibilities evolve as a result of this issue?
Confirm that the short-term resolution of the issue has
Determine the steps to be taken for long-term solutions
and who is responsible for those steps. Specifically:
Are there responsibilities that need either assigning or
Are there machine designs that need to be
Are there people whose fit for their roles needs to be
Remember that a root cause is not an action but a reason.
It is described by
using adjectives rather than verbs. Keep asking “why” to get at root causes, and don’t
forget to examine problems with people. In fact, since most things are done or not done
because someone decided to do them or not do them a certain way, most root causes can be
traced to specific people, especially “the responsible party.” When the problem is
attributable to a person, you have to ask why the person made the mistake to get at the
real root cause, and you need to be as accurate in diagnosing a fault in a person as you
are in diagnosing a fault in a piece of equipment.
For example, a root
cause discovery process might proceed like this:
- “The problem was due
to bad programming.”
- “Why was there bad
- “Because Harry
programmed it badly.”
- “Why did Harry
program it badly?”
- “Because he wasn’t
well trained and because he was in a rush.”
- “Why wasn’t he well
trained? Did his manager know that he wasn’t well trained and let him do the job anyway, or
did he not know?”
Ultimately it will come
down to what the people or the design is like.
Identify at which step failure occurred in the 5-Step Process.
If a person is
chronically failing, it is due to either lack of training or lack of ability. Which was it?
At which of the five steps did the person fail? Different steps require different
Setting goals: This
thinking,vision, andvalues that are consistent with those of
our community. (It is helpful to ask whether the
responsible party lost sight of the goals or whether he or she set goals that are
inconsistent with Bridgewater’s.)
ability to synthesize, and anintolerance of badness(i.e., some people see badness but aren’t sufficiently bothered by it to push
themselves to eliminate it). Of course, having perspective (typically gained via
experience) helps at all steps.
must be willing to have open and/or difficult discussions to get at the truth.
Doing thetasks: This
If you 1) identify at
which of these steps the chronic failures are occurring and 2) see which, if any, of these
abilities the person is short of, you will go a long way toward diagnosing the
Remember that a proper diagnosis requires a quality, collaborative, and
honest discussion to get at the truth.
Don’t just give your
verdict without exploring the mistake, because there’s a reasonably high probability that
you don’t know the answer. Do not be arrogant. You might have a theory about what happened,
and that theory should be explored with relevant others. If you and others are open-minded,
you will almost certainly have a quality analysis that will give everyone working theories
to explore or you will reach conclusions that can be used for the design phase. And if you
do this whenever problems recur, you and others involved will eventually uncover the root
Keep in mind that diagnoses should produce outcomes.
Otherwise there’s no
purpose in them. The outcome might not take the form of an agreement, but at a minimum it
should take the form of theories about root causes (which should be written down so you
have a collection of synthesized dots to use for identifying patterns) and clarity about
what should be done in the future to protect against them, or to gather information to find
Don’t make too much out of one “dot”—synthesize a richer picture by
squeezing lots of “dots” quickly and triangulating with others.
A dot is a particular
outcome. When you diagnose to understand the reason it occurred, you are “squeezing” the
dot. Don’t try to squeeze too much out of a single dot—it can only tell you so much.
Rather, try to collect and squeeze a bunch of dots in an 80/20 way, triangulating with the
dots of others, so that you can synthesize a pointillist painting of what the person is
Maintain an emerging synthesis by diagnosing continuously
—You must be able to
categorize, understand, and observe the evolution of the different parts of your
machine/system through time, and synthesize this understanding into a picture of how your
machine is working and how it should be modified to improve. But if you don’t look into the
significant bad outcomes as they occur, you won’t really understand what they are
symptomatic of, nor will you be able to understand how things are changing through time
(e.g., if they are improving or worsening).
To distinguish between a capacity issue and a capability issue, imagine how
the person would perform at that particular function if they had ample
Think back on how they
performed in similar functions when they had ample capacity.
The most common reasons managers fail to produce excellent results or
They are too removed.
They have problems discerning quality differences.
They have lost sight of how bad things have become because they have
gradually gotten used to their badness (the “frog in the boiling water”
They have such high pride in their work that they can’t bear to admit they
are unable to solve their own problems.
They fear adverse consequences from admitting failure.
Avoid “Monday morning quarterbacking.”
That is, evaluate the
merits of a past decision based on what you know now versus what you could have reasonably
known at the time of the decision. Do this by asking yourself, “What should a quality
person have known and done in that situation?” Also, have a deep understanding of the
person who made the decision (how do they think, what type of person are they, did they
learn from the situation, etc.).
Identify the principles that were violated.
Identify which of these
principles apply to the case at hand, review them, and see if they would have helped. Think
for yourself what principles are best for handling cases like this. This will help solve
not only this problem, but it will also help you solve other problems like it.
Remember that if you have the same people doing the same things, you should
expect the same results.
Use the following “drilldown” technique to gain an 80/20 understanding of a
department or sub-department that is having problems.
A drilldown is the
process by which someone who wants to do so can gain a deep enough understanding of the
problems in an area as well as the root causes, so that they can then go on to design a
plan to make the department or sub-department excellent. It is not a “diagnosis,” which is
done for each problem. A manager doing ongoing diagnosis will naturally understand his
areas well and won’t have to do a drilldown. Drilling down is a form of probing, though it
is broader and deeper. Done well, it should get you almost all the information needed to
turn a department around in about five hours of effort.
A drilldown takes place
in two distinct steps: 1) listing problems and 2) listing causes/diagnosing. It is followed
by 3) designing a plan. If done well, getting informed via the first two steps typically
takes about four hours (give or take an hour or so), with the first step of listing the
problems typically taking one to two hours and the second step of diagnosing them typically
taking two to four hours, if done efficiently.
It’s very important
that these steps are done separately and independently. That’s because going into two or
three directions at the same time causes confusion and doesn’t allow adequate discussion of
each of the possible causes and solutions.
Having the people from
the area under scrutiny actively participate in all three steps is critical. You need to
hear their descriptions and allow them to argue with you when they think you are wrong.
This way you are much more likely to come up with an accurate diagnosis and a good
After the drilldown,
you will create the plan or design, which typically takes two to three hours. So the whole
process, from asking the first question to coming up with the detailed plan, typically
takes about five to night hours spread over three or four meetings. Then there is step
four—the executing, monitoring, and modifying of the plan—which typically takes six to 12
Here is more detail on
each of the steps:
1—List the problems.Don’t confuse problems with possible
solutions. Sometimes problems occur for rare or insignificant reasons because nothing is
perfect. Don’t pay much attention to those. But more often than not, they are symptomatic
of something malfunctioning in your machine, so it pays to investigate what that is. For
example, not having enough capacity is not a “problem”; it might cause problems, but it’s
not a problem. Having people work so late that they might quit, getting out reports too
late, etc., might be problems that are caused by a lack of capacity. But the lack of
capacity itself is not a problem. To fix problems, you need to start with the specific
problems and address them one by one and come up with very specific solutions. That’s
because there are lots of ways to solve problems. The problem of people working late at
night might be solved by gaining capacity, or it might be solved by shifting work to
another department, or by doing less, etc. To assume that lack of capacity is the problem
could lead to inferior problem-solving. So unless you keep in mind the very specific
problems, you will not be effective at solving them. In the process of solving problems,
you will often see that several problems are due to the same cause (e.g., lack of capacity,
a shortage of tech resources, bad management, etc.), but that is not the same thing as
starting at the more general level (like saying that bad management or lack of capacity,
etc., are problems), which is why I am saying you must start with very specific problems
before making generalizations. For example, when you have a “people problem,” be specific.
Specify which people you are having what problems with and avoid the tendency of saying
things like, “People in operations aren’t…” Avoid the tendency not to name names for fear
2—Identify root causes.Root causes are the deep-seated
reasons behind the actions that caused the problems. It is important to distinguish between
proximate causes, which are superficial reasons for what happened (e.g., “I missed the
train because I didn’t check the train schedule”), and root causes (e.g., “I didn’t check
the schedule because I am forgetful”). Typically a proximate cause is the action that led
to the problem while a root cause is the fundamental reason that action occurred. So, when
diagnosing, if you are describing what happened or didn’t happen to cause the problem, you
are probably describing proximate causes. When you start describing the qualities that were
behind these actions, you are probably getting at the root causes. To get at the root
cause, keep asking why. For example, if the problem is that people are working late and the
direct cause was that there wasn’t enough capacity, then ask why there wasn’t enough
capacity. Then you will get closer to the root cause.
If your machine is
producing outcomes that you don’t want, either the design is flawed or the parts/people
that you dropped into the design are malfunctioning. Most, but not all, problems happen
because 1) it isn’t clear who the “responsible party” is for making sure things go
wellor 2) the responsible party
isn’t handling his or her responsibilities well (in other words, isn’t operating according
to the principles to eliminate the problem). So first ask, “Is it clear who the responsible
party is?” If not, specify that. If it is clear, then ask, “Why isn’t he or she doing a
good job?” There are two possible reasons for someone doing a poor job: insufficient
training or insufficient ability.
Though it is essential
to connect problems to the responsible parties, this can be difficult if the responsible
parties don’t acknowledge their mistakes and fail to diagnose why they made the mistakes.
Still, clarity about responsibility and the problems’ root causes must be achieved because
otherwise there is no hope for improvement. If the responsible parties do not explicitly
take responsibility for ensuring that their areas operate smoothly, their areas will not
operate smoothly. An important first step toward achieving clarity is to remove the
mentality of blame and credit, because it stands in the way of accurately understanding
problems, and that’s a prerequisite for producing improvements. Also, it is important not
to judge too quickly what the root causes are. Instead, you should observe the patterns of
problems using the issues log as a tool and discuss with the responsible parties what the
root causes might be each time a problem arises. You probably won’t initially be able to
come to conclusions with a high degree of confidence, because there are many possible
reasons for any one problem. But over time, the problems’ patterns and causes will become
clear to everyone.
As mentioned, there are
two possible reasons why the responsible party handled something badly: 1) the responsible
party didn’t encounter this problem enough times previously to learn from it and prevent it
in the future (by using the principles) or 2) the responsible party is unsuited for that
job. And there are also two possible reasons the person is not suited for that job: 1) not
enough experience or training and 2) lack of values and/or abilities required to do the job
well. So getting at the root causes is largely a matter of figuring out:
Who is the responsible party for what went wrong?
Did that person encounter the problem enough times that he or she should have
either learned how not to repeat it or elevated it to someone who could have helped learn
how to solve it? The conclusions could be the following: 1) If the person did encounter the
problem enough times to have resolved or elevated it, then the person is not suitable for
the job; 2) if the person did not
encounter the problems enough times to resolve or elevate it, what are the probable root
causes? The most common root causes are: 1) the person is not suitable for the job in some
way (doesn’t learn from mistakes, doesn’t have a high sense of responsibility, is lazy,
etc.); 2) the design of the process is flawed (e.g., the person is doing things in a way
that can be improved); or 3) there is no possible solution. If it’s the first root cause,
the person should have their job changed; if it’s the second, you and the person need to
properly diagnose the problem and come up with a different process that will work; and if
it’s the third, you won’t know that until you have thoroughly explored whether the process
can be remediated.
That second alternative
of trying to find a better process takes time and patience (involving you and the person
properly diagnosing the problem and finding a different approach that works). Normally,
this is the point at which most companies and people fail. That is because people often
take the identification of a “mistake” as the equivalent of an accusation that they are
flawed (dumb, lazy, etc.), so they become defensive. If instead they view the exercise as
an investigation into how the process might be flawed, it’s easier to make progress. So
when criticizing, it’s sometimes helpful to convey explicitly the point of the exercise:
mutually diagnosing the problem and exploring the pros and cons of alternative approaches.
You both need to be mindful that doing this well typically takes time and patience. One of
the purposes of the brainstorming session is to do this, ideally with an agreed diagnosis
resulting from it.
3—Create a plan (brief notes):
Look at each
root cause and ask yourself what should be done about it.
plan is like writing a movie script in that you visualize who will do what through time in
order to achieve the goal.
from the group to reflect and work on the plan, then bring it back to the group to discuss
developing the plan, iterate through multiple possibilities and play them out in time to
help determine the best choice.
to assign who is supposed to do what with rough target dates for achieving individual tasks
of the plan. Once the plan design is complete, make sure the tasks, responsible parties,
and timelines are reasonable and doable.
everyone does not need to agree with the plan, it is important that the key people agree
that it will work.
4—Implement the plan (brief notes):
person a monthly to-do list to provide clarity and transparency around responsibilities and
expectations for that month. Then plot the progress in open, monthly meetings with all the
relevant parties. Explicitly assess how the plan is working and deal with problems that
aren’t being resolved.
to hold responsible parties accountable for target dates and develop metrics around how
they are meeting their commitments.
look at that list of assigned tasks to track progress and determine if any adjustments are
transparency around the plan by posting it publicly and reviewing it regularly with the
group. This helps people see the ways in which all of the problems are being addressed and
Do not exclude any
relevant people from the drilldown: besides losing the benefit of their ideas, you
disenfranchise these people from the game plan and reduce their sense of
Remember that people
tell you things they want and tend not to be self-critical.It is your job as a manager to get at truth and excellence,
not to make people happy.For example, the correct path
might be to fire some people and replace them with better people, or to put people in jobs
they might not want, etc. The brainstorming session must include a discussion of people’s
weaknesses and failings to get at truth and excellence. Everyone’s objective must be to get
at the best answer, not the answer that will make people happy. This is especially true for
managers. In the long run, the best answers will be the ones that make the people we want
to be at Bridgewater happiest.
Put Things in Perspective
Go back before going forward.
Before moving forward,
take the time to reflect on how the machine worked. By diagnosing what went right and what
went wrong (especially what went wrong), you can see how the machine is operating and how
it should be improved. People who are just focused on what they should do next are overly
focused on the tasks at hand and not on how the machine is working; so they don’t make
Go back by “telling
the story” to help put things in perspective. Sometimes people have problems putting
current conditions into perspective or projecting into the future. Sometimes they disagree
on cause-effect relationships, or focus on details rather than addressing the big picture.
Sometimes they forget who or what caused things to go well or poorly. By asking them to
“tell the story” of how we got here, or by “telling the story” yourself, you put where you
are in perspective. Doing this highlights important items that were done well or poorly in
relation to their consequences, draws attention to the overarching goals, and helps achieve
agreement. By telling the story from the past to the present, it will help you continue it
into the future (i.e., design a plan). Making a good plan involves sketching out the
important events through time and thinking through the specifics in sequence so that when
you are done, the final story is vivid and easy to visualize. Then other people can
understand the plan, comment on it, and eventually believe in it. It’s also required for
specifying who should do what and when.
Tool: Have all new employees listen to tapes of “the story”
to bring them up to date.
Listen to some of
the associated tapes about Bridgewater’s story. Imagine how much better informed you
would be than a person who just joined Bridgewater and hadn’t listened to these
Understand “above the line” and “below the line” thinking and how to
navigate between the two.
There are different
levels and themes going on in any one conversation. It is important to know how to navigate
them. If you imagine main points and subordinate points organized in outline form, an
above-the-line discussion addresses the main points. That doesn’t mean you shouldn’t
reference details, because some details might be necessary to the discussion. But reference
details solely for the purpose of understanding major points rather than dissecting minor
For example, suppose
your major point is: “Sally can do that job well.” In an above-the-line conversation, the
discussion of her qualities would target the question of Sally’s capacity to do her job. As
soon as agreement was reached on whether she could perform competently, you would pass to
the next major point—such as what qualities are required for that job. In contrast, a
below-the-line discussion would focus on Sally’s qualities for their own sake, without
relating them to whether she can do her job well. The discussion might cover qualities that
are irrelevant to the job. While both levels of discussion touch on minor points, “above
the line” discourse will always move coherently from one major point to the next in much
the same way as you can read an outline in order to fully understand the whole concept and
reach a conclusion. You go “below the line” to the minor points only to illustrate
something important about the major points and progress in an orderly and accurate way to
the conclusion. Your ability to do this is partially innate but can be improved with
Design Your Machine to Achieve Your Goals
Remember: You are designing a “machine” or system that will produce
This machine will
consist of distinct parts (i.e., people and other resources as well as the way they
interact with each other).
A short-term goal probably won’t require you to build a
But for an ongoing
mission, you will need a well-designed and efficient machine.
Beware of paying too much attention to what is coming at
you and not enough attention to what your responsibilities are or how your machine
should work to achieve your goals.
your machine’s outcomes to your goals in order to reflect on how well the machine is
operating. Examine both the design and how the individual parts are
Don’t act before thinking. Take the time to come up with a game
Take at least a few
hours to think through your plan. Those hours will be virtually nothing in relation to the
amount of time that will be spent doing, and they will make the doing radically more
The organizational design you draw up should minimize problems and maximize
capitalization on opportunities.
Make the design an
extension of your understanding of your problems and opportunities.
Put yourself in the “position of pain” for a while so that you gain a
richer understanding of what you’re designing for.
yourself into the flow to gain a real understanding of what you are dealing with (the
process flow, the type of people needed, the potential problems, etc.) and to visualize a
clear picture of what will work. You can accomplish this in a number of ways (reviewing
work, doing work at different stages in the process, etc.).
Recognize that design is an iterative process; between a bad “now” and a
good “then” is a “working through it” period.
That “working through
it” period involves trying processes and people out, seeing what goes well or poorly,
learning from the iterations, and moving toward having the right people in the ideal
systematic design. Even with a good future design picture in mind, it will naturally take
time, testing, mistakes, and learning to get to a good “then” state.
Visualize alternative machines and their outcomes, and then
A good designer is
able to visualize the machine and its outcomes accurately, though imperfectly. First
visualize the parts and their interactions, and then find the parts to fit the design. Look
at all the system’s pieces and their interactions. Imagine how goals 1, 2, and 3 can be
achieved. Imagine how Harry, Larry, and Sally can operate in various ways with various
tools and different incentives and penalties in place to achieve those goals. Then imagine
how the system would work differently if you replaced Harry with George, or if it was
configured in an entirely different way. Do this iteratively. Think through what the
products and people and finances will look like month by month (or quarter by quarter) over
the next year given one system; then change the system and visualize the outcomes again. At
the end of this process, your plan should look like a realistic movie script, which
describes the parties and their interactions through time. Remember that everything takes
longer and costs more than you plan for. Recognize that some people are relatively better
or worse at visualization. Accurately assess your own abilities and those of others so you
can use the most capable people to create the visualization.
Think about second- and third-order consequences as well as first-order
The outcome you get as
a first-order consequence might be desirable (or undesirable), while the second- or
third-order consequences could be the opposite, so focusing solely on first-order
consequences, which people tend to do, could lead to bad decision-making. Though I might
not like the first-order consequences of a rainy day, I might love the second-order
consequences. So if I were in a position to choose whether or not there should be rainy
days, I would need to look at the second- and third-order consequences to make the right
decision. For example, for every person you plan to hire, you will have to hire more to
support them. I call this “The 1.6 Effect.” as you’ll have to bring on another 0.6 of a
person to help manage each additional person you bring on.
Most importantly, build the organization around goals rather than
As an example of
building the organization around goals rather than tasks, we have traditionally had a
marketing department (goal: to market) that is separate from our client service department
(goal: to service clients), even though they do similar things and there would be
advantages to having them work together. But because marketing and servicing clients are
two distinct goals, we have a separate department for each. If they were merged, the
department head, salespeople, client advisors, analysts, and others would be giving and
receiving conflicting feedback. If asked why clients were receiving relatively poor
attention, the answer might be: “We have incentives to raise sales.” Asked why they weren’t
making sales, the merged department might explain that they need to take care of their
clients. Keeping the two areas separate gives each department a clear focus and the
appropriate resources to achieve its goals, makes the diagnosis of resource allocations
more straightforward, and reduces “job slip.” Of course, when building departments around
goals, your goals have to be the right size to warrant these resources. An organization
might not be big enough to warrant having a few salesmen and its own analytical group.
Bridgewater has successfully evolved from a one-cell organization, in which most people
were involved in everything, to the current multi-cell organization because we retained our
ability to efficiently focus as the organization grew. Also, I want to make clear that
temporarily sharing or rotating resources is OK, and is not the same thing as a merging of
responsibilities. I will discuss merging later in this document, as well the coordination
required to maintain focus in large organizations.
First come up with the best workflow design, sketch it out
in an organizational chart, visualize how the parts interact, specify what qualities
are required for each job, and, only after that is done, choose the right people to
fill the jobs
(based on how
their capabilities and desires match up with the requirements).
Organize departments and sub-departments around the most
naturally gravitate toward one another. Trying to impose your own structure without
acknowledging these magnetic pulls is ineffective and likely will result in a bad
Make departments as self-sufficient as possible so that
they have control over the resources they need to achieve the goals.
We do this because
we don’t want to create a bureaucracy that forces departments to requisition resources
from a pool that lacks the focus to do the job. People sometimes argue that we should
have a technology department, but I am against that because building technology is a
task, not a goal in and of itself. You build technology to perform valuable tasks. If
we kept the tech resources outside the department, we would have people from various
departments arguing about whose project is most important in order to garner resources,
which isn’t good for efficiency. The tech people would be evaluated and managed by
bureaucrats rather than the people they do the work for.
The efficiency of an organization decreases and the
bureaucracy of an organization increases in direct relation to the increase in the
number of people and/or the complexity of the organization.
Build your organization from the top down.
An organization is the
opposite of a building—the foundation is at the top. The head of the organization is
responsible for designing the organization and for choosing people to fill its boxes.
Therefore, make sure you hire managers before their direct reports. Managers can then help
design the machine and choose people who complement the machine.
Everyone must be overseen by a believable person who has
strong oversight, there is potential for inadequate quality control, inadequate
training, and inadequate appreciation of excellent work. Do not “just trust” people to
do their jobs well.
The people at the top of each pyramid should have the
skills and focus to manage their direct reports and a deep understanding of their
Here’s an example
of the confusion that can arise when that understanding is absent: It was proposed that
the head of technology have the facilities group (the people who take care of
facilities like the building, lunches, office supplies, etc.) report to him because
both are, in a sense, “facilities” and because they have some things in common, such as
the electrical supply. But the head of technology didn’t understand what the facilities
people do. Having people who are responsible for the janitorial services and meals
reporting to a technology manager is as inappropriate as having the technology people
report to the person who is taking care of facilities. These functions, even if they’re
considered “facilities” in the broadest sense, are very different, as are the
respective skill sets. Similarly, at another time, we talked about combining folks who
work on client agreements with those who do counterparty agreements under one manager.
That would have been a mistake because the skills required to reach agreements with
clients are very different from the ones required to reach agreements with
counterparties. It was wrong to conflate both departments under the general heading of
“agreements,” because each kind called for specific knowledge and skills.
The ratio of senior managers to junior managers and to the
number of people who work two levels below should be limited, to preserve quality
communication and mutual understanding.
ratio should not be more than 1:10, and preferably closer to 1:5. Of course, the
appropriate ratio will vary depending on how many people your direct reports have
reporting to them, the complexity of the jobs they’re doing, and the manager’s ability
to handle several people or projects at once.
The number of layers from top to bottom and the ratio of
managers to their direct reports will limit the size of an effective
The larger the organization, the more important are 1)
information technology expertise in management and 2) cross-department communication
(more on these later).
Do not build the organization to fit the
Jobs are created
based on the work that needs to be done, not what people want to do or what people are
available. You can always search outside Bridgewater to find the people who “click”
best for a particular role.
Have the clearest possible delineation of responsibilities and reporting
It’s required both
within and between departments. Make sure reporting lines and designated responsibilities
are clear. To avoid confusion, people should not report to two different departments. Dual
reporting (reporting across department lines) causes confusion, complicates prioritization,
diminishes focus on clear goals, and muddies the lines of supervision and accountability,
especially when a person reports to two people in two different departments. When
situations require dual reporting, managers need to be informed. Asking someone from
another department to do a task without consulting with his or her manager is strictly
prohibited (unless the request will take less than an hour or so). However, appointing
co-heads of a department or a sub-department can work well if the managers are in synch and
combine complementary and essential strengths to this area; dual reporting in that case can
work fine if properly coordinated by the co-heads.
Create an organizational chart to look like a pyramid, with
straight lines down that don’t cross.
A series of
descending pyramids make up the whole pyramid, but the number of layers should be
limited to minimize hierarchy.
Constantly think about how to produce leverage.
For example, to make
training as easy to leverage as possible, document the most common questions and answers
through audio, video, or written guidelines and then assign someone to regularly organize
them into a manual. Technology can do most tasks, so think creatively about how to design
tools that will provide leverage for you and the people who work for you.
You should be able to delegate the details
If you can’t, you
either have problems with managing or training or you have the wrong people doing the
job. The real sign of a master manager is that he doesn’t have to “do” practically
anything. Of course, a great manager has to hire and oversee the people who do things;
but a “supreme master” manager can even hire a person or two to do this and has
achieved such leverage that things are effortlessly running superbly. Of course, there
is a continuum related to this. The main message I’m trying to convey is that managers
should strive to hire, train, and oversee in a way in which others can superbly handle
as much as possible on their own. Managers should view the need to get involved in the
nitty-gritty themselves as a bad sign.
It is far better to find a few smart people and give them
the best technology than to have a greater number of ordinary and less well-equipped
First of all,
great people and great technology are almost always a great value because their
effectiveness in enhancing the organization’s productivity can be enormous. Second, it
is desirable to have smart people have the widest possible span of understanding and
control because fragmented understanding and control create inefficiencies and
undermine organizational cohesion. Usually it is the person’s capacity that limits the
scope of his understanding and control. So the mix of really smart people operating
with really great technology in a streamlined organization is optimal for
capable of doing a lot to get your concepts implemented. Conceptualizing and managing
are most important and take only about 10% of the time needed for implementing; so if
you have good leveragers, you can accomplish a lot more with relative ease.
Understand the clover-leaf design.
Find two or three
responsible parties who have overlapping believabilities and responsibilities and who are
willing to challenge and check each other. If you do this, and those people are willing to
fight for what they believe is best by being open-minded and assertive at the same time,
and if they escalate their disagreements and failures to you, this process will have a high
probability of sorting issues that they can probably handle well from issues that you
should examine and resolve with them.
Don’t do work for people in another department or grab people from another
department to do work for you unless you speak to the boss.
Watch out for “department slip.”
This happens when a
support department, such as HR or facilities, mistakes its responsibilities to provide
support with a responsibility to determine how the thing they are supporting should be
done. An example of this sort of mistake is if those in the recruiting department think
they should determine whom we should hire or if people in HR think they should determine
what our employment policies should be. Another example would be if the Facilities group
determined what facilities we should have. While support departments should know the goals
of the people they’re supporting and provide feedback regarding possible choices, they are
not the ones to determine the vision.
Assign responsibilities based on workflow design and people’s abilities,
not job titles.
What people do should
primarily be a function of the job they have, and it should be pretty obvious who should do
what (if they’re suited for the job). For example, just because someone is responsible for
“human resources,” “recruiting,” “legal,” “programming,” etc., doesn’t necessarily mean
they are the appropriate person to do everything associated with those functions. For
example, though “human resources” people help with hiring, firing, and providing benefits,
it would be a mistake to give them the responsibility of determining who gets hired and
fired and what benefits are provided to employees. When assigning responsibilities, think
about both the workflow design and a person’s abilities, not the job title.
Watch out for consultant addiction.
Beware of the chronic
use of consultants to do work that should be done by employees.
Tool: Maintain a procedures manual.
This is the document
in which you describe how all of the pieces of your machine work. There needs to be enough
specificity so that operators of the different pieces of the machine can refer to the
manual to help them do their job. The manual should be a living document that includes
output from the issues log so that mistakes already identified and diagnosed aren’t
repeated. It prevents forgetting previous learning and facilitates
Tool: Use checklists.
When people are
assigned tasks, it is generally desirable to have these captured on checklists so they can
check off each item as it is done. If not, there is a risk that people will gradually not
do the agreed tasks or there will be lack of clarity. Crossing items off a checklist will
serve as a task reminder and confirmation of what has been done.
Don’t confuse checklists with personal
People should be
expected to do their job well, not just what is on their checklists.
Remember that “systematic” doesn’t necessarily mean
It might mean
having people do specified tasks and indicate that they have done them with
Use “double-do” rather than “double-check” to make sure
mission-critical tasks are done correctly.
double-check someone else’s work, there is a much lower rate of catching errors than
when two parties independently do the work and the results are compared. Double-doing
is having two different people do the same task on the same job so that two independent
answers are derived. By comparing them you will not only assure better answers but you
will see the differences in people’s performances and make much more rapid improvement.
I use double-dos in critical areas such as finance, where large amounts of money are
Watch out for “job slip.”
Job slip is when a job
changes without being explicitly thought through and agreed to, generally because of
changing circumstances or a temporary necessity. Job slip will generally cause bad job
design. It often leads to the wrong people handling the wrong responsibilities and
confusion over who is supposed to do what.
Think clearly how things should go, and when they aren’t going that way,
acknowledge it and investigate.
First, decide which
issue to address first: finding the reason the machine isn’t working well or executing the
tasks required to get past the problem (in which case you need to come back to the reasons
later). Either way, don’t pass the problem by without discussing the reasons. Otherwise,
you will end up with job slip.
Have good controls so that you are not exposed to the dishonesty of others
and so that trust is never an issue.
A higher percentage of
the population than you might imagine will cheat if given an opportunity, and most people
who are given the choice of being “fair” with you and taking more for themselves will
choose taking more for themselves. Even a tiny amount of cheating is intolerable, so your
happiness and success will depend on your controls. Security controls should be viewed as a
necessary tool of our profession, not as a personal affront to an individual’s integrity.
Just as a bank teller doesn’t view a check on the money in his drawer as an indication that
the bank thinks he is dishonest, everyone here should understand the need for our security
controls. Explain this to your people so they see it in the proper context. Even the best
controls will never be foolproof, and trustworthiness is a quality that should be
People doing auditing should report to people outside the
department being audited, and auditing procedures should not be made known to those
Remember: There is no sense in having laws unless you have
Do What You Set Out to Do
You can make great
things happen, but you must MAKE great things happen. Times will come when the choice will
be to plod along normally or to push through to achieve the goal. The choice should be
To Make Decisions Effectively…
Recognize the Power of Knowing How to Deal with Not Knowing
Recognize that your goal is to come up with the best answer, that the
probability of your having it is small, and that even if you have it, you can’t be
confident that you do have it unless you have other believable people test
Understand that the ability to deal with not knowing is far more powerful
That is because
there’s way more that we don’t know than what we could possibly ever know.
Embrace the power of asking: “What don’t I know, and what
should I do about it?”
should find believable people and ask their advice, remembering that you are looking to
understand their reasoning rather than get their conclusions.
Finding the path to success is at least as dependent on
coming up with the right questions as coming up with answers.
are great at asking the important questions and then finding the answers. When faced
with a problem, they first ask themselves if they know all the important questions
about it; they are objective in assessing the probability that they have the answers;
and they are good at open-mindedly seeking believable people to ask.
Remember that your goal is to find the best answer, not to give the best
one you have.
The answer doesn’t
have to be in your head; you can look outside of yourself. In life the goal is for you to
do the right thing, considering the probability that you might be wrong. So it is
invaluable to know what you don’t know so that you can figure out a way to find out and/or
to get help from others.
While everyone has the right to have questions and theories, only
believable people have the right to have opinions.
If you can’t
successfully ski down a difficult slope, you shouldn’t tell others how to do it, though you
can ask questions about it and even express your views about possible ways if you make
clear that you are unsure.
Constantly worry about what you are missing.
Even if you
acknowledge you are a “dumb shit” and are following the principles and are designing around
your weaknesses, understand that you still might be missing things. You will get better and
be safer this way.
Successful people ask for the criticism of others and
consider its merit.
Triangulate your view.
Never make any
important decisions without asking at least three believable people. Don’t ask them for
their conclusions or just do what they tell you to do. Understand, visualize, and
assess their reasoning to see if it makes sense to you. Ask them to probe your own
reasoning. That’s critical to your learning as well as to your successful handling of
Make All Decisions Logically, as Expected Value Calculations
Considering both the probabilities and the payoffs of the consequences,
make sure that the probability of the unacceptable (i.e., the risk of ruin) is
The cost of a bad decision is equal to or greater than the
reward of a good decision, so knowing what you don’t know is at least as valuable as
Recognize opportunities where there isn’t much to lose and
a lot to gain, even if the probability of the gain happening is low.
It is a reality
that there are always multiple possibilities and nothing is certain. All decisions are
therefore risk/reward bets. Know how to pursue fabulous risk/reward ratios that have a
huge upside and very little downside, albeit a small probability of happening. My life
has been filled with these.
Understand how valuable it is to raise the probability that
your decision will be right by accurately assessing the probability of your being
I often observe
people giving opinions as soon as they have them, which seems at about the point that
they think there’s more than a 50% chance of them being right. Often they don’t pay any
attention to the value of raising the probability of being right (e.g., from 51% to
85%) by reflecting harder on whether the answer is right and doing the investigations
and double-checking with others to make sure that the answer is right. Remember that,
in an expected value sense, raising the probability of being right (e.g., from 51% to
85%) can be worth more than just going from probably being wrong (e.g., 45%) to
probably being right (e.g., 51%) because we are all playing probabilities. Think about
the effects of altering the probabilities of achieving must-do's: if you have a 51%
probability of handling a “must-do” correctly, it means that only a bit more than half
of your must-do's will be done appropriately, whereas an 85% probability of handling a
decision well means that only 15% of the must-do's will be handled badly.
Don’t bet too much on anything. Make 15 or more good,
Remember the 80/20 Rule, and Know What the Key 20% Is
Distinguish the important things from the unimportant things and deal with
the important things first.
Don’t be a perfectionist,
perfectionists often spend too much time on little differences at the margins at the
expense of other big, important things. Be an effective imperfectionist. Solutions that
broadly work well (e.g., how people should contact each other in the event of crises)
are generally better than highly specialized solutions (e.g., how each person should
contact each other in the event of every conceivable crisis), especially in the early
stages of a plan. There generally isn’t much gained by lots of detail relative to a
good broad solution. Complicated procedures are tough to remember, and it takes a lot
of time to make such detailed plans (so they might not even be ready when
Since 80% of the juice can be gotten with the first 20% of
the squeezing, there are relatively few (typically less than five) important things
to consider in making a decision.
For each of them,
the marginal gains of studying them past a certain point are limited.
Watch out for “detail anxiety,”
inappropriately about unimportant, small things.
Don’t mistake small things for unimportant things, because
some small things can be very important
(e.g., hugging a
Think about the appropriate time to make a decision in light of the
marginal gains made by acquiring additional information versus the marginal costs of
postponing the decision.
There are some
decisions that are best made after acquiring more information, and some that are best made
sooner rather than later. The later a decision is made, the more informed it can be;
however, making it later can also have adverse consequences (e.g., postponing progress).
Understanding the trade-off between the marginal gains of acquiring the extra information
against the marginal costs of postponing a decision is an important factor in the timing
and preparation of decision-making.
Make sure all the “must-do’s” are above the bar before you do anything
between your “must-do’s” and your “like-to-do’s”. Don’t overlook any “must-do’s,” and don’t
mistakenly slip the “like to do’s” onto the list. Then, get all the “must-do’s” above the
bar. Then get all the “must-do’s” excellent. If you have time, turn to the “like to do’s”
and try to get them above the bar. Only if you have time (though you certainly will not if
you are thinking broadly), turn toward making things perfect. Chances are, you won’t have
to deal with the unimportant things, which is better than not having time to deal with the
important things. I often hear people say, "Wouldn’t it be good to do this or that,”
referring to nice-to-do’s rather than must-do’s that have to be above the bar. Chances are,
they are being distracted from far more important things that need to be done
Remember that the best choices are the ones with more pros than cons, not
those that don’t have any cons. Watch out for people who tend to argue against something
because they can find something wrong with it without properly weighing all the pros
against the cons.
Such people tend to be
Watch out for unproductively identifying possibilities without assigning
them probabilities, because it screws up prioritization.
You can recognize this
with phrases like “It’s possible that...” then going on to say something that’s improbable
and/or unimportant, rather than something like, “I think there’s a good chance that…”
followed by something that’s important or probable. Almost anything is possible. All
possibilities must be looked at in terms of their likelihoods and prioritized.
Understand the concept and use the phrase “by and large.”
Too often I hear
discussions fail to progress when a statement is made and the person to whom it is made
replies, “Not always,” leading to a discussion of the exceptions rather than the rule. For
example, a statement like “The people in the XYZ Department are working too many hours”
might lead to a response like “Not all of them are; Sally and Bill are working normal
hours,” which could lead to a discussion of whether Sally and Bill are working too long,
which derails the discussion. Because nothing is 100% true, conversations can get off track
if they turn to whether exceptions exist, which is especially foolish if both parties agree
that the statement is by and large true. To avoid this problem, the person making such
statements might use the term “by and large,” like “By and large, the people in the XYZ
Department are working too many hours.” People hearing that should consider whether it is a
“by and large” statement and treat it accordingly.
When you ask someone whether something is true and they
tell you that “It’s not totally true,” it’s probably true enough.
Understand and connect the dots.
To do this well, you
have to synthesize what is going on. Usually it takes diagnosing a few (e.g., five or so)
dots of the same type to get at the true root cause so that you can see how the machine
should be modified to produce better outcomes. For example, one type of outcome involves
someone, let’s call him Harry, handling a type of responsibility (entering an order). You
will need at least a few experiences to learn about Harry doing this. It will pay for you
to understand Harry and his handling of orders and have him understand you by looking
objectively at the outcomes and by getting in synch, especially about the bad outcomes. The
quality of your understanding of your machine and its constituent parts will depend on how
well you diagnose and process the important outcomes. If you don’t do this continuously and
you don’t synthesize well, you will fail. This isn’t easy.
See how the dots
connect through time. This requires collecting, analyzing, and sorting lots of different
types, and it ain’t easy for most folks. Imagine a day in which eight outcomes occur. Some
are good, some bad. Let’s represent this day as follows, with each type of event
represented by a letter and the quality of the outcome represented by its
In order to see the
day this way, you must categorize outcomes by type and quality, which will require
synthesizing a “by and large” assessment of each. If you didn’t examine the bad outcomes as
they occurred, you couldn’t understand what they are symptomatic of. Keep in mind our
example is a relatively simple one: only eight occurrences over one day. Now let’s look at
what a month looks like.
Confusing, eh? Some
people are much better at this than others.
In order to understand
how your machine is working to achieve your goals, you have to perceive change over time,
charting improvement versus deterioration. The chart below plots just the type X dots,
which you can see improving. As mentioned in the section on diagnosis, you must categorize,
understand, and observe the evolution of the different parts of your machine through time,
and synthesize this understanding into a picture of how your machine is working and how it
should be improved. People who do this well are rare and essential. As with most abilities,
synthesizing well is partially innate and partially learned through practice.
Understand what an acceptable rate of improvement is, and that it is the
level and not the rate of change that matters most.
I often hear people
say, “It’s getting better,” as though that is good enough when “it” is both below that bar
and improving at an inadequate rate. That isn’t good enough. For example, if someone who
has been getting 30s and 40s on tests raised his grade to the 50s, you could say he’s
improving, but the level is still woefully inadequate. Everything important you manage has
to be on a trajectory to be “above the bar” and headed for “excellent” at an acceptable
pace. For example, in the chart below, the trajectory of A might be acceptable, but B’s
trajectory is not. A gets us above the bar in an acceptable amount of time.
If your best solution isn’t good enough, think harder or escalate that you
can’t produce a solution that is good enough.
A common mistake is
accepting your own best solution when it isn’t good enough.
Avoid the temptation to compromise on that which is
You must have and
achieve high standards. This is particularly difficult when two uncompromisable things are
at odds. At such times, there is a tendency to let one of them go. However, at such times,
you have to allocate more time to figure out how to best handle this, be more creative, and
ask for more input. But don’t compromise on one of the things that shouldn’t be
compromised. For example, one of the uncompromisable things I regularly get pressure from
people to compromise on is letting great people avoid exploring their mistakes and
weaknesses because they find it painful. For reasons articulated throughout these
principles, I believe we can’t compromise on this because that process of exploration is
healthy for Bridgewater, healthy for them, and key to our culture. I also believe that to
allow opt-outs would legitimatize two sets of rules and put our radically honest way of
being in jeopardy. But I want great people.
Don’t try to please everyone.
Not everyone is going
to be happy about every decision you make, especially the decisions that say they can’t do
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