Archive | December, 2012

Ideas from Stelios, the founder of Easyjet

22 Dec

Another interesting person who recently spoke at the LSE was Stelios, the founder of Easyjet (and an LSE graduate). Here are some of the notes I took during his speech.

They revolve, albeit perhaps unintentionally, around the concept of Antifragility as developed by Prof. Thaleb and as outlined in my previous post. The world we live in is inherently volatile and unpredictable and therefore we need to structure our businesses in a way which would allow them to withstand this volatility.

Stelios does not believe in research, he prefers to learn by trial and error. Invest a (relatively) small sum, see how it goes and learn from it. Closely related to this is his second piece of advice – do not bet your farm. Learning by doing is all good but do not make a bet you cannot afford to loose.

Antifragility pertains also to his choice of industries to get into – the best markets are those benefiting from volatility. If the economy slows down, people start trading down and will fly Easyjet as opposed to legacy carries. If the market goes up, more people will be able to afford to travel and Easyjet will benefit as well. He was in a shipping business before which is very commoditised and when the market went down, everybody suffered.

The founder of Living Spaces, a room letting agency in London, spoke recently about a similar idea. It is best to focus either on the bottom segment of the market because if your product is relevant, the worst thing that can happen is that people will trade down, or on the other hand on the top segment where margins are fatter and better insulated from day to day volatility.

Finally, Stelios said that hard work breeds luck, a bit of cliche but a true one and that a good age to start a business is 28. By that time, one would have completed his/her studies, have worked for a couple of years and therefore would have identified what he/she is passionate about and are his/her strengths to build on.

Living in a volatile world

14 Dec

Prof. Nassim Taleb gave a talk last week at the LSE on his new book – Antifragile. It is essentially about how to live a volatile world as defined by him in his earlier book – The Black Swan. I read most of The Black Swan and went to the talk so here is my take on it.

Our inability to forecast

Let me start by telling you a story Prof. Taleb presents in The Black Swan. Imagine you are a turkey. Every day a man comes to feed you and over time, you really get to like him. He gives you food and looks after you and therefore you conclude he must be a nice guy. One day however, he kills you and eats you for his thanksgiving dinner. How come you were so fatally wrong?

It is because you, same as most other ordinary people as well as experts, based your judgement on retrospective analysis. Things always appear to be orderly and seemingly logical when looked at retrospectively – we start suffering from an illusion of understanding. This is because we base our thinking only on what we know which are only things that happened in the past and equally importantly, things that somebody was able to/took the effort to note down. The problem comes with trying to predict what has not happened yet.

Prof. Taleb concludes that it is virtually impossible to do so and that if we attempt it, we can experience phenomena of Black Swans. People thought for centuries that swans can only be white as all swans around them had been until somebody found black ones on a remote island. A modern day equivalent would be for example the 2008 global financial crisis which nobody was expecting and therefore did not prepare for it and which had severe consequences. So if we cannot predict the future, what should decision makers do?

What does not kill you makes you stronger

This is where his book on antifragility comes in. We can image the world as consisting of two basic systems – fragile and antifragile ones. A glass is an example of a fragile system. If exposed to volatility, it cannot become any better, it will remain being a glass, and if exposed to significant volatility or stress it will break.

Our body on the other hand, is an antifragile system. If exposed to stress up to a certain point such as in a gym or by application of a live vaccine, it becomes stronger and therefore more able to cope with such situation in the future.

We should therefore attempt to build systems which can benefit from volatility. Such systems can gain strengths from fragility of its components as is the case e.g. with the aviation industry. Whenever a plane crashes, others learn from the mistakes and prevent them from happening again. Such systems also often rely on trial and (small) error for learning rather than on predictions. Stelios, the founder of Easyjet, who spoke at the LSE couple days later said that he does not believe in research – he claims to learn by trial and error as well. See my next article for some more relevant ideas by Stelios.

Prof. Taleb also thinks that some volatility in our world is necessary, just as our body needs to stretch every now and then and cannot lay in a bed all the time. He extends this to policy makers and argues that it is a mistake to smooth things beyond the necessary. Perhaps Europe’s labour and welfare systems can take a lesson here.

So what is the takeaway this time? I guess it would be something along the lines of:
Do not spend too many resources on trying to exactly anticipate the future and rather invest them in building systems robust enough to withstand volatility, to learn from it and capable of utilising those leanings.

PS: A joke I heard some time ago relevant to antifragility came to my mind. How did Goldman Sachs react to the global Occupy movement? By setting up a new fund investing in companies making protective clothing, tear gas and rubber bullets :)

Keeping mice out of the LSE library

4 Dec

Let me ask you a question at the beginning (do not scroll down to the picture yet). What is the best way of preventing students from eating in a library?

I would imagine there is a range of possible approaches. A simple polite notice saying ‘Please do not eat in the library’ might be one of them. If that one fails, one might add a statement that a £30 fine will be levied on anyone breaching the rule. They can also ban offending students from entering the library for a period of time or kick them out of the school all together. Or they can do a night-club style security check upon entering the library, confiscating any food found in bags.

While some of these are ineffective (such as the first one), others are too strict or too expensive to implement given the relatively low risk/increase in costs resulting from this undesirable behaviour to the LSE community.

So how about creating an environment in which the students would police themselves? Firstly, one needs to come up with a reason why would anyone bother telling somebody next to them to stop eating here. Things like increase in cleaning costs/increased noise levels/making books dirty are not on their own strong enough to spring people into action. We need something that resonates deep into all of us. Well, even if it only gets half of us going, it would be enough. What are girls really afraid of? Mice!! There you go!

Let’s tell the girls that food dramatically increases the number of MICE in the library and nudge them towards not only not eating food themselves while there but also towards telling all their male friends to bloody stop eating here as there are going to be lots of mice otherwise.

Somebody is yet to carry out a study if the poster worked or not but it is a great example of using behavioural science to influences people’s daily actions in a cost effective way.

The only thing on my mind now is, if it will not backfire and boys will not start leaving lots of food around the library in order to support the mice and therefore keep girls out of the space so that consequently they can easily find a free table to study…