by Dan Roam
On long rail journies across Russia, Mendeleyev played with his chemical cards.
Eventually he noticed that when he placed the elements in order horizontally according to their number of protons71 and vertically according to their properties, a repeating pattern emerged.
In the end, he found several recurring patterns among all the elements. He called these “periods.”
He called these repeating patterns “periods” and mapped out the whole thing on a single sheet of paper, creating what became the world’s greatest organizational chart: the periodic table of the elements.
Mendeleyev’s breakthrough. The periodic table showed a single structured map that could account for all elements.
By not making a tradeoff between element number and element property—but rather by intentionally searching for a way to combine them—Mendeleyev revealed the underlying pattern of all elements. The pattern had been there all along; it just took someone willing to span differences to find it.
Watching the Meltdown
We shouldn’t be surprised by this “Hey, you got chocolate in my peanut butter!”72 approach, but we always are. Throughout the economic meltdown of the past few years, the most frequent defense from the bankers and regulators who should have seen it coming was “Sorry, but the system got too big and complex. Nobody really knew what was going on.”
According to Michael Lewis, in his 2010 book The Big Short: Inside the Doomsday Machine, that’s not true. At least one person knew exactly what was going on: Michael Burry. Like Mendeleyev spanning differences in chemistry, Burry spanned differences in the finance industry and saw precisely what was coming. Burry was up-front with his investors and the big banks about what he saw. And while his investors made a lot of money from his insights, the big banks failed, taking much of the economy with them.
The differences that Burry spanned were two wildly divergent financial tools: “shorting” and mortgages. Traditionally, these two investment approaches have had nothing to do with ea R occuppr facech other. Shorting is how savvy investors bet against companies, the ultimate tool of the financial pessimist. Mortgages are how banks loan people money to buy a home, the ultimate tool of the eternal optimist. These two opposites were Burry’s chocolate and peanut butter.
To understand what Burry saw that the banks didn’t requires only a couple of simple pictures. Not surprisingly, the words-only way the economic story usually gets told makes it appear deceptively complicated.73 Vivid grammar can clear most of it up. Had the bankers drawn pictures of what they were doing, I suspect they could have avoided their biggest mistakes.
BURRY’S YIN: “SHORTING”
The first piece of Burry’s taijitu was shorting. Shorting is a way for investors to make money by betting that a business is going to fail. A complex and risky strategy, it is typically practiced only within the domain of large investors. (Unlike buying stocks in the hopes that their value will rise—something any of us with a few extra dollars can do—shorting requires a lot of money up front and enough guts to keep that money in play for a long time.) Because shorting involves betting against individual companies (or bonds), it had traditionally been limited to the stock and bond markets.
BURRY’S YANG: MORTGAGES
The second piece of Burry’s taijitu was the good old-fashioned mortgage. (Actually, not so old-fashioned, as Burry saw.) Since houses have always cost more money than people actually possess, home loans have long been the cornerstone of retail banking. Home loans were good for consumers (if we could prove a stable income, we could borrow the amount we needed to buy a home), good for the economy (high home ownership statistically drives a whole slew of other positive economic indicators), and good for the banks (the more banks loan, the more they earn—and home loans earn the most). As a win-win-win, the traditional mortgage was always viewed as the basis of a solidly growing economy.
These two pieces represented the extremes of the finance world that Burry entered in 2000. On the one hand, he saw shorting: risky, adventurous, and pessimistic. On the other hand, he saw the mortgage: solid, conservative, and optimistic. There had never been a better set of opposites to put together.
BURRY SPANS THE DIFFERENCES
By 2004, having spent years reading the fine print that banks passed out with their home loa Rm">
Knowing what he did about shorting, he put two and two together: “What would happen,” asked Burry, “if I could find a way to short those crazy mortgages?” With so many loans about to go bad, it was an unprecedented opportunity to bet against the insanity of the entire financial services industry.74 Burry knew it was impossible, of course: While there were lots of bundled-mortgage bonds called “CDOs” being traded among the big financial players,75 there was no way to short individual mortgages, no matter how bad they might be.
But then the lightbulb went off, the yin and yang slid together, and Burry spanned the opposites: Why not short the mortgage bundles?
Hmm: What would happen if you could “short” mortgages?
It was an audacious idea. Burry’s greatest insight was to realize it could be done at all, through a financial tool called a “credit default swap.” Invented only a decade before as a way for big financial players to hedge against potentially bad loans they made to big companies, credit default swaps could be traded like stocks—and if you can short a stock, why not a CDO-mortgage-bond-credit-default swap?76
With the pieces in place, Burry founded an investment company called Scion Capital and went to work.
Mortgages + CDOs + credit default swaps = all the pieces needed to short the housing market.
It worked. Buying up and selling credit default swaps between the big financial houses (few of whom seemed to care what Burry was doing), Burry made a mint for his investors. If you had invested one dollar with Scion Capital in 2000, by 2008 it would have been worth nearly five dollars. If you had invested that same dollar at the same time in the stock market, by 2008 it would have been worth . . . $1.02.
Shorting the housing market worked for Burry and his investors, earning five dollars for every dollar. (Meanwhile, the stock market earned essentially zero.)
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Burry didn’t invent the crazy mortgages, didn’t force banks to lower their lending standards, and didn’t coerce homebuyers to borrow more than they could afford. He didn’t even invent the tools he used, the CDO and the credit default swap. But it was his ability to see how opposite pieces fit together that heralded the collapse of Wall Street. Love him or hate him, Burry’s secret wasn’t so much that he looked at everything differently; he just really looked.
TRIZ
Yin and yang remind us of the need to account for opposites, but they don’t offer any practical advice for finding them. For the how-to, we need another set of “difference-spanning” tools. The best set ever written comes from another Russian77 scientist, one whose work remains largely unknown in the West.
Born in 1926, Genrich Altshuller was trained as an engineer and pilot by the Soviet navy. When the Second World War broke out, Altshuller was tasked with reviewing patent ideas coming from within the Soviet armed forces. As thousands of ideas poured across his desk, Altshuller increasingly noticed recurring patterns among them.78
After the war, Altshuller reviewed his notes and distilled them into a list of “forty principles for discovering new ideas.” All forty relied on looking at problems in specific ways, and all were highly visual. This list included such insights for innovation as:
Segmentation: See what happens when you divide a single object up into individual parts.
Asymmetry: If an object is symmetrical, see what happens when you make it asymmetrical.
Merge: See what happens when you bring together similar parts.
Universality: See what happens when you make one part perform multiple functions.
Taken together, Altshuller’s forty principles formed the basis of a tool set he called TRIZ.79 Although TRIZ itself is highly theoretical,80 Altshuller
’s essential idea is brilliantly simple: The best way to invent someth R-1" fly > 81
This is exactly what Eberhard and Tarpenning did with Tesla, Mendeleyev did with elements, and Burry did with the finance industry—and this is what Vivid Thinking does for us.
The Vivid Stretch Test
By forcing us to span both the verbal and the visual, Vivid Thinking exposes unexpected connections and illuminates innovative ideas. “Spanning differences” stretches the possibilities of an idea far beyond what first occurs to our fox. To put our hummingbird to practical use, we can use the “Vivid Stretch Test.”
The Vivid Stretch Test makes spanning differences practical.
Here’s how the Vivid Stretch Test works. (It’s kind of like mental Pilates or conceptual yoga.)
THE VIVID STRETCH TEST, STEP 1: FIND THE FORM
Let’s say we’ve got the beginnings of a good idea—our GPS-enabled mobile phone from Chapter 5, for example—and in the hopes that we can come up with something really innovative, we want to see how far we can stretch it. (As a reminder, we started with a lost user, a GPS-enabled mobile phone, and a mapping application.)
A vivid reminder of our GPS-enabled mobile phone from Chapter 5.
Recalling the essentials of everything we’ve covered so far, we use Vivid Grammar to find the form of our idea. In this case, we draw a timeline. (Depending on the essence of our idea, we could draw any picture from the Grammar Graph: a portrait, a chart, a map, a flowchart—even a multivariable plot.)
There it is, the essential form of our idea: A lost user pulls out his phone, sees his location, and isn’t lost anymore.
Looks good. Now let’s stretch it.
Here is the vivid form of our idea: a simple timeline showing how a user becomes un-lost.
THE VIVID STRETCH TEST, STEP 2: PICK ANY ESSENTIAL R
The next step in the Vivid Stretch Test is to pick any single element in the form of our idea and find its opposite. Flip the element around, turn it upside down, imagine it doesn’t exist at all—whatever it takes to see the element differently. This is where our hummingbird excels, so now is the time to let her go.
Looking for opposites is when we unleash our hummingbird.
In this case, let’s start with the first element, the lost user. What might be the opposite?
A user who isn’t lost? (Good opposite, but we’ve already solved for that problem, so no need to include it.)
A user who isn’t alone?
A user who wants to be lost?
A user without a phone?
A user who doesn’t exist?
Yes, this feels a little crazy, but don’t worry: That is precisely the point—to see how many new ways of looking at our idea we discover by simply asking, “What is the opposite of my idea?” Any one of these could lead to a new—and potentially better—idea.
For this example, let’s pick the second opposite, the user who isn’t alone, to continue the test.82 Rnt>
THE VIVID STRETCH TEST, STEP 3: DRAW A PICTURE THAT ACCOUNTS FOR BOTH
Now that we’ve got an original element (a lost user with a phone) and one possible opposite (a group of lost users), the next step is to find a way to account for both. To do that, we refer back to our original elements . . .
And add the new one . . .
And now we’ve got something even more interesting than we started with: a GPS-enabled phone location application that allows you to find other users. In other words, by spanning differences, we’ve gone from a single-user mapping application to a socially networked friend finder. Now that is a Vivid Idea.83
CHAPTER 12
T Is for Targeted: Vivid Ideas Matter to Me
he last stop on our journey through the forest is the one that prepares us for our way out. T stands for “targeted”—and targeting helps us get ready to return to the world of blah-blah-blah. In the forest so far, we’ve been refining our idea mostly by ourselves. Targeting helps us look at our idea from everyone else’s perspective.
The fact that we need to “target” our ideas is the result of a simple truth of human nature: An idea aimed at no one is an idea no one sees.
An idea aimed at no one is an idea no one sees.
There are only three points in every PowerPoint presentation at which we can absolutely guarantee that everyone is awake: the beginning, the end, and the slide that shows how everyone is going to get paid.84 Why? Because the things we notice most are the things pointed personally toward us. That’s S usone that what targeting is about: helping other people see our idea as vividly as we do—by pointing it toward them.
Vivid Ideas have a target.
The Killer Cloud
We started this forest tour with F, for “form.” We said that many ideas are like clouds just passing by: fluffy, vague, nondescript, and easy to forget. To fight that—to make our ideas visceral and memorable—we learned to give them form. Now we end our tour with another way: We give them a target.
As a teenager in the early 1980s, I learned to fly a small plane. One day, on a solo flight across the mountains of Montana, I did exactly what my instructor had told me a hundred times never to do: I flew into a cloud. Fluffy and nondescript from the outside, the moment I flew in, I knew that cloud wanted to kill me. As I bounced around within solid walls of gray, that cloud got personal. From the second it targeted me, my sole purpose in life was to fight it. I fought it and I finally flew out, shaken but in one piece. To this day I’ve never forgotten that cloud.
The cloud that targeted me is the one I will always remember.
Was that particular cloud any different from the hundreds of others floating through the sky that afternoon? No. Do I remember any of those other clouds? No. Do I remember the one that targeted me? Absolutely.
Thanks hummingbird. Lesson learned.
Vivid Targeting: Two Steps
We’ve worked through all the steps of the forest to make our cloud stand out. We’ve made this idea of ours as clear, visceral, and memorable as we can. Now we have to share it. Whether our goal is to offer people a new idea, to try to change people’s minds, or to change people’s actions, we can’t know what people are willing to do until we know something about them. The first step in vivid targeting is to get to know our audience. We do that by either talking about them (good); or talking with them (even better) and drawing them. We’ll call this the “dramatis personae” side of vivid targeting.
Once we know something about our audience, we can begin to make educated guesses about the best way to approach them. The second step of vivid targeting means using what we know about our audience to deduce how they will likely see our idea. We do that by looking at our audience through the Vivid LENS.
Making a list and checking it twice: idea targeting via dramatis personae and the Vivid LENS.
Dramatis Personae
The ancient Latin term dramatis personae (“persons of the drama”) first appeared in English usage three hundred years ago as the name for the list of characters that appear in a play. Since then it has become the standard opening element of any dramatic script. By listing all the players (with name and brief description) up front, the dramatis personae introduces us to all the characters we are about to meet before the action begins. As we saw when trying to make sense of a complex story,85 having this list up front helps us create a mental map of who is who before we get lost in the drama of all the goings-on.
The opposite is also true: Creating a dramatis personae not only helps us see who plays what role in our idea; it also helps us anticipate who is likely to be in our audience.
A dramatis personae lets us know who is who before the action begins. It also tells us who is in our audience.
Creating a useful audience list involves more than just writing down a bunch of names: We need to get our hummingbird involved as well; after all, she recognizes far more people than our fox ever will. We create vivid dramatis personae using our now familiar process of alternating words with pictures.
Fi
rst Come the Names . . .
First, we write down as many audience categories and members as we can anticipate. If we’re going to give a formal speech, we ask the sponsor what sorts of people we can expect to be there. If we’re going to introduce our idea in an in-person or virtual meeting, we send out a note in advance to see who is planning to attend; if we’re going to introduce our idea among a small group of colleagues, we already know who is coming.