Time Allocation – The Only Problem That Matters ⏱️
How zooming out helps you find what opportunities that matter most
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This is Startup Builder by Henrik Angelstig. Every week I consume countless hours of books and podcasts on entrepreneurship to learn why some startups succeed while others don’t. 📚
I then distill the most non-intuitive lessons into short essays. Bringing you the most useful insights that fewest founders know.
Today’s essay will cover time allocation – and why zooming out helps you identify if an opportunity is even worth pursuing at all.
Time Allocation – The Only Problem That Matters
“How can we solve this problem?”
This might be the most common question entrepreneurs ask themselves. After all, startups are just effective problem-solving machines. And the startup literature is full of creative hacks for overcoming obstacles.
But 98% of the time, it’s the wrong question to ask.
Because it assumes we’ve found the right problem to solve – which is rarely the case.
Let’s look at PayPal as an example.
PayPal: Deciding that a problem wasn’t worth solving
It was the early days of PayPal, and transaction volume was growing exponentially at 3-5% per day.
But something far less exciting was also growing at an exponential rate:
At first, the complaints started with a trickle. But it soon turned into a torrent of 10,000 emails a month, and all the company phones ringing 24/7. Some customers even drove to the PayPal office!
Thousands of angry customers seems like a very urgent problem to solve.
So what did the PayPal team do?
They just unplugged the phones and let the angry emails pile on.
This flies in the face of perhaps the most sacred startup principle: “Listen to your customers”. So why did the PayPal team choose to ignore their customers?
Because complaints wasn’t the most important problem.
At this time, the PayPal team had much more urgent issues, such as 1) raising their first major round of capital, and 2) competing with eBay’s payment service Billpoint.
And even though customers said they were angry, PayPal usage was still growing exponentially with no sign of stopping. 1
Of course, the lesson of this story isn’t to ignore your customers. PayPal eventually set up a customer call center to address the mounting complaints.
The lesson is to realize your time is limited.
So the real question we ought to ask is:
“What opportunity – of all the ones we could pursue – offers the highest expected payoff on our time?
Stop solving problems – And start asking how to best allocate your time ⏱️
PayPal’s story is actually not about solving problems.
It’s about smart time allocation.
As a founder, you don’t want to spend your days solving any problem that happens to come your way. For two reasons:
Problems are not created equal. Some problems will get you a mile closer to your goal if solved – while others barely move you an inch forward.
Problems blind us to greater opportunities. Small problems often shriek loudly to be fixed. But large opportunities come at you silently. If all you do is juggle problems on your current path, you’ll miss the far better opportunity on the adjacent path.
Every problem requires time to solve. And your supply of time is finite.
The only problem that matters is thus how to best allocate your time to achieve your ultimate goal.
And that may mean postponing – or choosing not to solve – most of the “problems” that come at you.
Allocate your time as an investor allocates capital 💰
Smart time allocation is very similar to smart capital allocation.
Great capital allocators never look at investments in isolation. Instead, they look at multiple opportunities, and evaluate the impact of each opportunity on their overall portfolio in the long run.
Capital allocators also don’t seek to maximize the payoff of any single investment.
The goal is to maximize the AGGREGATE payoff of all your investments over your whole LIFETIME.
Because you are optimizing for the long-term whole, you can make some very smart allocations that seem bad from a narrow, short-term view.
Three examples of such allocations are:
1. Maximize A by investing in B
When Apple released the iPod, Steve Jobs realized that Apple would benefit more by slashing the advertising budget for the Mac, and focusing it all on the iPod:
"I had this crazy idea that we could sell just as many Macs by advertising the iPod. […] So I moved $75 million of advertising money to the iPod, even though the category didn't justify one hundredth of that. That meant that we completely dominated the market for music players." 2
2. Take some bets with “too high” risk
The investor Mark Spitznagel has made a fortune by betting on “Black Swan” stock market drops.
On any given day, Spitznagel’s fund is 99.95% sure to lose money on this bet. But when a financial crisis hits, such as 2008 or COVID-19, those options have offered a 3,000-4,000% return on the whole fund, while the rest of the stock market is down -40%. 3
However, this strategy only works because Spitznagel invests just a small portion of his fund in these highly risky options. The rest is put in low-risk index funds and treasury bills. 4
Neither investment offers a satisfactory risk-reward in isolation. But when blended together in the right dose, they create magic.
Similarly, life is going to offer you opportunities with a very high likelihood of failure, but with extraordinary payoff if they succeed.
Say no to some of them – or even most of them. Just don’t say no to all of them.
3. Take a short-term loss for a longer-term gain
Cutting the price of your service by 60% would strike most as madness. But that is exactly what Alibaba’s founder, Jack Ma, did by slashing the price of Alibaba’s Gold Supplier membership from 50,000 to 20,000 yuan.
Jack was serious about putting the customer first. He never espoused that they should ‘give everything for free.’
Instead, Jack was “always trying to understand how to get the money back later. He’s just not greedy about getting the money first.”
Alibaba’s revenues actually didn’t drop at all. So many new customers signed up at the new lower price that it completely offset the price reduction. Alibaba was then able to sell more value-added services, thus gaining their money back later. 5
Visionary birds allocate better than focused frogs 🦅 > 🐸
These examples demonstrate the value of zooming out when deciding how to best allocate your time.
The physicist and mathematician Freeman Dyson argues that we need both “focused frogs” and “visionary birds”:
“Birds fly high in the air and survey broad vistas […] out to the far horizon. They delight in concepts that unify our thinking and bring together diverse problems from different parts of the landscape.
Frogs live in the mud below and see only the flowers that grow nearby. They delight in the details of particular objects, and they solve problems one at a time.
It is stupid to claim that birds are better than frogs because they see farther, or that frogs are better than birds because they see deeper.” 6
The world, Dyson concludes, is both broad and deep. “We need birds and frogs working together to explore it.”
I couldn’t agree more, But there’s one caveat:
If you have already decided that a specific problem is worth solving, then use both species to help you solve it.
But when deciding which problem is most worth solving, never be a focused frog. A frog can explore one problem. But only a bird can compare multiple ones.
The PayPal team were true visionary birds. When an issue like angry customers appeared, they would first zoom out and ask questions like:
How much will the issue matter in our aggregate lifetime portfolio?
What alternative opportunities could we pursue?
What knock-on effects exist between those opportunities?
Then – once they had compared all their options – they would zoom in with ruthless execution.
Recruit a network of “focused frogs” to scout deeply for you 🔎
The weakness of a visionary bird is that many threats and opportunities don’t lie clearly on the surface. Instead, they are hidden under many layers of mud – where only a focused frog will spot them.
That’s why the best time allocators will recruit a network of focused frogs to scout for hidden gems and landmines.
The PayPal team were smart enough to realize they didn’t know all the risks of payments. So they sought advice from senior people in the banking industry, who warned them: “Fraud is going eat you for lunch”. 7
That early warning helped the team reprioritize how they spent their time, thus minimizing the damage from the previously hidden “fraud landmine”.
5 Strategies for Identifying a Better Problem to Solve
Deciding what problem might yield the most impact on your time isn’t easy.
I therefore want to leave you with 5 strategies for identifying a better problem to solve when any issue arises:
Reframing is always the first strategy to try, because it requires almost no time investment.
Instead of changing the situation itself, reframing aims to solve the issue by changing people’s perception of the situation.
For example, in the early days of the clothing company Banana Republic, the founders were able to buy a stock of hundreds of exotic Spanish paratrooper shirts for $1.50 a pair. They then tried to sell them at $6.50, but almost no customer bought one.
They then doubled the price to $12.95 – and sold a hundred shirts in one day.
Nothing had changed about the shirts.
What changed was customers’ perception of the shirts. The higher price was perceived as higher quality. 8
2. Source Focus
Source focus is the second-most impactful strategy to apply.
This strategy aims to maximize the return on your time by not solving the problem at hand, but by going to the source that created the problem.
To solve the problem of criminality, the most obvious solution would be better law enforcement. But the child development expert Richard Tremblay proposes a very different approach – prevent aggressive behavior when the criminal is still in is mother’s tummy.
By targeting the risk factors around the mother that predict physical aggression in their babies – eg smoking, poor marital relationship, and teenage pregnancy – Tremblay is not only reducing the problem of criminality.
He is also reducing all subsequent problems, such as poor health, depression, and low education, that are created by the source. 9
Consistency is the third strategy for evaluating if an issue is worth solving.
This strategy is about prioritizing issues based on how much cumulative impact an issue will have in the long run.
Toyota realizes the true importance that tiny, insignificant gains can have over time. Moving a trash bin on the assembly line just a few feet closer might only save an employee 2 seconds per trip.
But if you multiply those 2 seconds by 10 trips a day, for 220 workdays a year, over 5 years, it adds up to 6 hours saved for that one employee alone.10
In the long run, even tiny inefficiencies become big ones.
When evaluating an opportunity, you shouldn’t just consider the direct payoffs that opportunity might yield in itself.
Instead, you should also consider what new doors of opportunity the investment might open up for you.
When Marc Andreessen, co-founder of the VC firm a16z, was given the opportunity to join entrepreneur Jim Clark on a new startup, he had to consider not just the payoff of this startup, but also the new opportunities that joining the startup might expose him to.
As it turned out, the startup turned into Netscape, which 16 months later IPOed at a near $3B valuation… only to later be crushed by Microsoft. 11
But despite Netscape failing, the journey had given Marc an incredibly valuable network, including the close friend Ben Horowitz. And that relationship later led to the founding of a16z.
When trying to solve a problem, we often limit ourselves to only using our own time, money, and expertise.
Leverage is the act of using other people’s time, money, and expertise to take on the challenge at hand.
SUCCESS Magazine used this principle to turn itself from laughing stock to a million copies sold in 2008, despite not spending a dollar in advertising.
They did so by asking: “Who are the 50 people we need to sell on the idea of a magazine that teaches the secrets of success, a magazine for achievers? Fifty people who, if they believed, could bring us millions?”
Once they had their Top 50 list, they focused all their efforts on selling them (and only them) on SUCCESS. Despite only eight of those people getting on board, those eight then sold SUCCESS to their respective audiences of millions. 12
We are all busy solving problems. But that busyness blinds us to the fact that there is only ONE problem that matters:
How to allocate your time to best achieve your ultimate goal.
Every other “problem” is just a derivative of this one.
Never view a problem or opportunity in isolation, like a focused frog deep in the mud.
Instead, zoom out like a visionary bird to compare multiple opportunities, and how each opportunity will impact your overall lifetime portfolio.
Only when you know the importance of an opportunity in aggregate – will you know if it’s worth your time to pursue it at all.
Thanks for reading,
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The Dao of Capital: Austrian Investing in a Distorted World, by Mark Spitznagel