Category Archives: professional

Life decision making process with acceptable worst case and unlimited upside

Barbell strategy decision making heuristic

When making an important, potentially life changing choice where some of the options may be irreversible, it is important to thoroughly analyze the different options before choosing one. But it is impossible to weigh options against each other if you don’t have objective criteria against which they can be measured.

I will propose here that because of the uncertainty in future prediction, and the existence of so called positive and negative “black swans” (unexpected, impossible to predict, high consequence events), the best strategy is the “barbell” strategy.

In the context of this post, a barbell strategy means that you choose the option which, given high volatility, the worst possible outcome (worst case) of your choice is acceptable, and most optionality.

(To understand the reasoning behind this and why optionality is good, it is probably best to read the thought-provocing book Antifragile by Nassim Nicholas Taleb.)

Thus, the decision making criteria against which you will measure your options will be as follows:

Which choice brings an acceptable worst case, while maximizing optionality?

Note that we are not looking for the BEST worst case, instead we are disqualifying all options which have non-acceptable worst case scenarios.

Out of the remaining, we are choosing the one which gives us most optionality.

What is optionality in the context of decision making?

Optionality can be defined as:

The ability to discover and take advantage of unexpected opportunities.

Notice that this is two pronged: discover and take advantage of. In general, in order to be able to take advantage of any opportunities, you have to control your own time.

In general, all of us have more or less control over our own time as defined by the below parameters:

  • The amount of free time we have
  • The amount of flexible time we have

In order to survive, we all have to fulfill a baseline living standard (at least food and shelter), which translates to a baseline income stream. This is non-free time, and the rest is free time. How much free time we have, then, is defined by how much of our time needs to be tied up to income-generating activies. (Notice that I say “needs to be tied up to” and not “is tied up to” – because if you tie up more of your time than necessary on such activities, that is a choice, thus defined as you choosing to spend your free time on income-generating activities rather than other activities.)

How much of our time needs to be tied up to income-generating activities is defined by the following factors:

  • The amount of money you already have “in the bank” which you can spend on both living and on opportunities before it “dries up”
  • How much time it costs you to get income (income is very cheap in terms of time if you have a passive income flow or if someone is simply handing you money for free, otherwise it is determined by your hourly rate – actual or calculated based on salary vs. time spent on job)
  • Your “happiness cost” of actual cost of living (meaning can you live really cheaply and still be happy, or do you need luxury roof over your head, food, activities in order to be happy?)

Based on all this, an example of a lifestyle which brings incredible amount of optionality would be as follows:

You live alone (don’t have to support anyone) in a house you fully own with no rent, you eat very cheap food with no demands, you meet a lot of interesting people through various online groups, and you have both a passive income stream exceeding your living standard plus a lot of money in the bank which you can spend on any opportunity you wish.

An example of a lifestyle with a very low degree of optionality (which unfortunately, as far as I can see most people in the western world seem to live under), is as follows:

High mortgage with borrowed money and bad housing market (basically already at this pointyour optionality is gone since you cannot get out of having to pay a certain amount of money per month in mortgage, forcing you to spend all your time on activities which bring immediate income, with no ability to focus your efforts on longer-term opportunities regardless of how good those opportunities may be), a large family with a luxurious (expensive) lifestyle to support, no money in the bank (or less money than debts even after including the value of your assets that you could potentially sell), a job that demands all your free time (even after minimizing the amount of sleep and family time you get – because now you can’t even spend your time on potential opportunities, even if you had the money to do it), and meeting only the same closed group circle of people (you meet only them, and they meet only you and each other – no outside influence) that you meet through your work and family every day – and, in addition to that, when meeting them you only have time and energy to talk about short-term work related issues rather than potential long-term opportunities (long term opportunities can be translated as simply “enjoying yourselves” and talking about ideas, things you have seen, gossiping, and philosophizing, since those activities are what breed ideas, and ideas are in fact long-term opportunities).

Note that in such a situation, regardless of whether you have superhuman intelligence, abilities, control over yourself, multitasking ability, and experience – there is simply no way that you can get out of that situation unless you do one of the following:

  • Being lucky and stumbling upon a more passive or higher income stream (since you can’t search for such income streams, you rely do have to rely on luck – luck such as someone randomly approaching you on the street and offering you a job, or you overhearing a conversation which prompts you to ask for a potential new job)
  • Reducing your living costs (most likely by reducing your lifestyle requirements, which though is very difficult considering you have a family to support – something you should have thought about before getting children), which will enable you to reduce your working hours by taking a new job

What is an acceptable worst case scenario when making decisions?

An acceptable worst case is:

Any option which is reversible (meaning even in the worst case, with the amount of time and/or money at your disposal before you die or loose your freedom permanently, you can return back to any of the previous good points you have been at from a free and flexible time at your disposal point of view, at an acceptable level of happiness)

With that worst case locked in, choose the option that brings most optionality. Optionality means that you can make many small bets, hoping that one of the bets will pay off big time (for example invest in businesses or stocks, starting companies, meeting a lot of people which can show new opportunities, etc.)

Some practical implications of this decision making heuristic

  • Education raises your worst case. With a degree, you always have a good chance to go off and take a lot of risky bets, but you can always change your mind and go back to a reasonably well paying job (assuming your degree doesn’t deteriorate when you don’t entertain it)
  • Taking rare, well paying jobs that forces you to work a lot are two-pronged: On one hand, they lock you into a rich lifestyle and reduces your possible worst case options – because if you try any other option, you will not likely be able to get back to your current situation. On the other hand, you can use these jobs as temporary platforms for saving money, which doesn’t put you in a situation which you can’t go back to easily as you haven’t really raised your living standards, plus having a lot of money in the bank is in itself an improvement of your worst case (the more money you have, the more flexibility you have in avoiding potentially irreversible situations).
  • The poorer you are able to live happily, the better your optionality is. Because whatever you do, you can’t do worse than you are doing today, but you have enormous upside. Basically, the poorer you are, the more free you are to use your time on anything you want (however, not having money in itself can be a limitation, as you may then not have access to tools, resources, geography that would give you optionality – so this is a tricky balancing act).
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An Easy Keyword Classification Method

You have hundreds of keywords, and no way of knowing what to do with them..

I’m going to show you an easy way of classifying them.

There are several benefits of doing this. The most obvious one is the ability to search your keywords when you’re in need for an idea to write about. It allows you to focus on the ones that will give the greatest yields. A less obvious, but very important, benefit is that this will allow you to see which types of keywords drive the most revenue. And it will allow you to have different strategies for managing keywords in different strategies (I will get to this one later).

Let’s get started with the classification methodology!

Keyword Classification Criteria

There are two criteria that, in this methodology, each keyword should be judged against: Relevance and Stage In Funnel.

When judging the keyword’s relevance, ask yourself: “Is the keyword related to a feature that my product/service has or a specific problem that it solves?”

When judging the keyword’s stage in funnel, ask yourself “When someone googles this keyword, is it likely that they are just searching for information or are they looking for solutions to possibly buy?”

Keyword Classifications

When you have done this, you have classified each keyword into one of the following groups:

  • Good relevance + Late in funnel: “Here’s your solution”
  • Good relevance + Early in funnel: “Here’s info about the topic you’re interested in and how we can help you”.
  • Poor relevance + Late in funnel: “Here’s an alternative solution that might be better.”
  • Poor relevance + Early in funnel: “Here’s info about the topic you’re interested in. and by the way, we might have a software that’s interesting for your company.”

Some keywords might not fit into any of these classifications but they might still be interesting. Simply put them in a separate category called “Other keywords” so that you have somewhere to keep them in case you figure out what to do with them in the future.

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Example: You are a company who provides e-learning software. Your software enables your customers’ employees to learn internal courses in front of their computer at their leisure, rather than going to costly group training sessions. This saves them time, and you money.

Below are keyword examples for each of the categories for this company:

Good relevance + Late in funnel: enterprise employee training software, e-learning solutions

Good relevance + Early in funnel: training employees in-house benefits, employee training expensive

Poor relevance + Late in funnel: employee training courses, safety training outsourcing solutions

Poor relevance + Early in funnel: employee safety training benefits, enterprise safety course best practices

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Keep these keywords and their classifications either in your dedicated keyword tool or a simple spreadsheet. As an example, Hubspot’s Keyword Grader allows you to rank each keyword from a scale from 1-5. You could simply define each of the above classifications as one of the numbers and keep track of them that way. Putting them in a spreadsheet will allow you to manipulate them in various ways, for example link them with performance or integrate them with tracking systems to see which keywords produce the best results.

In my next post, I’ll go through how these classifications can allow you to have different strategies for the corresponding groups of keywords.

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