in Business

Making good decisions requires courage and reasoning from first principles

I went out with my wife for dinner, and we had an interesting conversation about some observations that I have been having in the back of my mind. I have also been playing with ChatGPT and it seems like a great opportunity to write this blog post.

I explained to my wife that lately, I’ve been noticing two distinct types of mindsets when it comes to making decisions: the optimizer mindset and the mindset of reasoning from first principles.

I asked chatGPT what the opposite of first principle thinking was, and this is what it had to say:

The opposite of first principle thinking is relying on assumptions or preconceived notions without critically examining the underlying principles or reasoning. This type of thinking often involves accepting information or arguments without thoroughly evaluating their validity, or making decisions based on tradition, authority, or convenience rather than on reasoning from first principles. It can lead to flawed or incomplete solutions to problems and may hinder progress and innovation.

Surprisingly, chatGPT is spot on. The bolded part in particular was the argument I was trying to make at dinner, and how I’d define the optimizer mindset. When making decisions through the optimizer mindset, we choose the option that feels safe and traditional. An example of a traditional decision might be a person deciding to attend a particular university because their parents went there, or because it is the most prestigious or well-known institution in their area.

I’m guilty of this, I sometimes make decisions based on tradition, authority, or convenience, and it all comes from not truly applying first-principle thinking, and not being bold and courageous in decision-making as often as I would prefer to be.

This is also highly influenced by this idea of mimetic desire by Rene Girard. In a nutshell, we want what others have.

Copying competitors in business

Let me illustrate my point with a business case. You’ve seen it: A business does something, and the competitor then follows suit to be able to remain “competitive”.

Apple if you measure by market cap is the biggest company in the world. It’s also the boldest company that I know of when it comes to decision-making around its products.

They’re famous for making controversial decisions that from a business perspective might often time feel anti-competitive.

I asked chatGPT about some of these controversial decisions, this is what it had to say:

The removal of the headphone jack from the iPhone 7, sparked a backlash from users who were accustomed to using wired headphones.

The decision to replace the traditional charging port on the iPhone with the proprietary Lightning connector required users to purchase new cables and accessories.

The removal of the home button and Touch ID fingerprint sensor on the iPhone X, introduced new gestures for navigation and introduced Face ID facial recognition technology.

The decision to switch to proprietary screws on the MacBook Pro made it difficult for users to open and repair their own devices.

Apple’s decision of removing the headphone jack

If we evaluate this decision through the lens of the optimizer mindset you would never agree with this decision: all your other competitors have a headphone jack and this might be a significant disadvantage in the market, a headphone jack feels like an essential part of a smartphone, and its been part of it since day one, you might argue.

I asked chatGPT why Apple removed the headphone jack and this is what it had to say:

Apple has not publicly commented on the specific reasons for removing the headphone jack from the iPhone 7. However, it is likely that the decision was driven by a combination of factors, including a desire to make the iPhone thinner and more compact, the increasing popularity of wireless headphones, and the potential to create new business opportunities by selling proprietary accessories.

Removing the headphone jack allowed Apple to make the iPhone 7 significantly thinner than its predecessors, which may have been seen as a desirable feature for many users. In addition, the popularity of wireless headphones had been growing in the years leading up to the release of the iPhone 7, and Apple may have felt that the time was right to make the switch.

Finally, by removing the headphone jack and replacing it with the proprietary Lightning connector, Apple effectively forced users to purchase new headphones or adapters if they wanted to use their existing headphones with the iPhone 7. This may have been seen as a way to generate additional revenue for the company and create new business opportunities for accessory makers.

I think this is accurate enough, the analysis for Apple probably went like this:

  • People want to listen to music and audio privately, a headphone jack exists to enable that through wired headphones
  • A headphone jack is not important if we allow people to listen to music and audio privately anyway
  • We’ll continue supporting the real reason people use the headphone jack: to listen to music and general audio privately with wireless headphones that make the headphone jack obsolete, which in turn opens up a world of possibility for us:
    • We’ll differentiate ourselves in the market by not having a headphone jack
    • We’ll make the iPhone more compact, and this will increase the demand enough to justify the potential loss of demand by not having a headphone jack
    • We’ll increase the popularity of wireless headphones and create a new business unit in the process

Apple is selling as many iPhones as it ever has, the company didn’t take a hit for removing the headphone jack, and funnily enough, some competitors are copying this decision, it also created a massive business with its AirPods, in 2021 they made 12.1 billion in revenue, for context, Shopify made 4.6 billion and Spotify 9.67 billion. Adobe the creative giant made 15.8 billion, and AMD made 16.4 billion.

Was this a decision that a business or person with an optimizer mindset would’ve been willing to take though? Probably not.

The strategy that allowed Apple to remove the headphone jack and create a 12.1 billion dollar business required first-principle reasoning. However, simply having the strategy was not enough. This type of decision-making also requires confidence and courage. Without both of these qualities, it is unlikely that truly incredible decisions can be made.