Resource: What Entrepreneurs Can Learn from the Poor
There are people who live on $2/day and, in many ways, their financial management strategies are far more complex than ours. There’s a lot that entrepreneurs can learn from them.
There is more to income than size. There’s also regularity (how evenly/consistently the amounts are distributed) and predictability (your degree of assurance regarding when the money arrives). For the poor, all three are a problem. Income is small, irregular, and unpredictable.
For most people, the problem of finance amounts to this: Find a way to make income steady and predictable. Then find a way to make the supply meet the demand. Then find a way to create surplus. For most of us, even if our lives seem relatively difficult, we have enough stability to focus on creating surplus. For the poor, the focus heavily centered around cash flow management.
The poorer you are, the more complex your financial strategies have to be because you can’t stamp out variables simply by using more money/credit. Poverty demands greater creativity and intelligence in many ways. Being richer certainly does not make one smarter.
Loan sharks are heavily stereotyped as manipulative and exploitative, but they have a much more complex history and have often played a positive role in poor communities.
Startups are like poor people in that they often die of diseases that would have been curable with more money.
Ant/Elephant analogy for poor/rich: Ant lifts much more times its weight than elephant, but elephant seen as heavy lifters. Because of small size, ant is more vulnerable to being stamped out by the tiniest thing.
One (out of many) lessons that can be learned from the poor is the importance of seeing yourself as an investor before you’ve made it. Investing isn’t just the luxury of the rich, but it’s also a necessary strategy for survival. If you ca’t invest a lot, invest a little. If a pitiful amount is all you can afford to invest, invest a pitiful amount.
Another lesson is the value of thinking in terms of barter and other informal means of exchanging resources. Don’t limit yourself to money as your only means. Look for economic value in your relationships, talents, material possessions, and other intangible resources.
Vanketesh Rao on the surprising complexity of poverty:
“The complexity, dynamics and deep structure of poverty is just not visible on the surface. And the surface is just ugly and guilt-inducing enough to the middle class that we hurry by hastily without risking a second glance.”
Rao on why the poor need more than capitalism:
“The moral posture of the book [Portfolios of the Poor] is what I consider exactly right: yes, the poor are a hell of a lot more resourceful and entrepreneurial than we give them credit for. Yes, there is a thriving capitalist economy in every major slum. True, they don’t need our charity if it comes with a condescending view that we are somehow smarter because we happen to be richer. Yes, the “International Aid” model is beyond broken. But, the book is careful to point out, this does not mean that they are not miserable or that their lives cannot be improved beyond what free market forces can accomplish. It all starts with understanding the contours of the financial lives of the poor.”
3 characteristics of the poor’s income streams:
“The book frames the financial world of the poor as being driven by three characteristics of their income streams. They are small, irregular and unpredictable.”
How smallness of income isn’t the only problem with poverty:
“We rich people are at least aware of “small”: it is the incomprehension with which we grope around the $2/day idea. To me today, that means “cup of coffee.” When I was a student in India, it meant “fun movie+dinner night out with friends. But as it turns out, a regular and predictable $2/day income would actually be powerful enough that the poor could potential bootstrap themselves out of poverty with it. What makes their condition so difficult is irregularity and unpredictability.”
“Irregularity means that the $2/day, which amounts to $730 a year, does not come in a steady trickle. It is distributed messily through the year. For a street hawker, the week-to-week variance might be very high. For a small-holding farmer, the income might be concentrated around a single month. For a construction worker, it might vary with the business cycle.”
“Unpredictability means the $730 is not a guaranteed number but an average. There can be good and bad months, bad and terrible years.”
The surprisingly complex financial management strategies of the poor:
“The second big insight in the book is that despite these extremely severe conditions, the poor do not live hand-to-mouth. They do not spend every night in terror, wondering if they’ll eat the next day. They actually go beyond daily expenses and manage to save, buy insurance, raise capital and plan for retirement. Not very effectively by rich-world standards, but they do it. Turns out that they manage their small, irregular and unpredictable incomes with extraordinarily sophisticated financial portfolios. Reviewing the details, I was shocked: for many of the research subjects, the financial lives on display were more complicated than mine, not less. They used a wider variety of financial instruments than I do, in more complex ways.”
How the non-poor (people living on significantly more than $2 a day) are able to insulate themselves from variables that affect the poor:
“To you and me, this level of financial activity is simply not worth managing actively at all. We use our significantly larger cash reserves to just absorb all this variability, so we don’t have to actively deal with financial management decisions below about $200. For us, the fact that the income is not “small” in this sense allows us to simply swamp out the irregularity and unpredictability.”
Real poor for Educated poor:
“The idea that the poor have “more time than money” only applies to the educated kinda-poor with basic needs taken care of. The real poor work the same long hours (while burning way more calories), and at the end of the day are more tired, less informed, and less able to do the thinking and management. But they do it anyway, because they have to. And with a sophistication that would put you and me to shame.”
The two basic problems of finance:
“You could boil down all of finance to two basic problem. The first is to make money supply predictable and stable, and the second is to gain enough control over it that you can match supply to demand. If you solve those two problems, you can get to the third one: creating wealth with the surplus.”
How the basic problems of finance differ for the poor:
“Your personal life may seem very tough to you, relative to your environment, but actually your demand/supply matching problem is very easy. The evidence is that most of us do manage to solve it and move on to wealth management problems (early retirement, how to get that yacht, earning f*** you money, engineering 4-hour work-week lifestyles). For the poor, the first problem is to actively manage cash flows, which you and I solve by simply making a couple of credit card payments and writing a couple of checks a month, with the rest on autopilot.”
How lower incomes require more rather than less active financial management:
“Ants can lift many times their body weight, while elephants can only lift 4-5% (300-500 kg). Yet we think of elephants as the heavy lifters. The scale difference also causes qualitative differences: ants can walk or water or get trapped in a droplet, due to the effect of surface tension at their scale. The poor, similarly, have to deal with “surface tension” type phenomena that simply don’t affect you and me, given the scale of our financial lives (there’s an interesting “hydrodynamics of money” theory lurking here).”
The Grameen story as a lesson on entrepreneurial humbleness and learning from the poor:
“The Grameen story (and the stories of its peers and competitors), of course, features prominently in the book, but it is a story that you probably haven’t heard: how Grameen slowly grew more sophisticated as it learned to refine its offerings by mimicking what the poor were already doing. For me, this was a radical reframing of what I thought I knew about microfinance. Rather than a smart banker figuring out how to profitably service an unsophisticated market with sophisticated instruments, the story is about a humble banker starting with a relatively unsophisticated instrument for a very sophisticated market, and gradually refining it to rise to the level of sophistication the marked needed and expected.”
Some lessons entrepreneurs can learn from those who live on $2/day:
“Stop thinking around the “wealth management” milestone of “free cash-flow positive.” Start thinking around gradually stabilizing and controlling cash flows in the presence of the small, irregular and unpredictable triad of forces.Your first meaningful financial milestone is predictable quarterly revenues, not cash-flow-positive.”
“Try to simultaneously be an investor and an investee. Even if you are yourself scrambling for angel investments, you should be open to making (smaller of course) angel investments in others. Many angels already do this, but most are already successful. The strategy ought to be adopted even by those who haven’t yet “made it.””
“There is a world of cash beyond investment capital: the world of smartly-managed debt. Most startups think of debt financing later than they should, and in more limited ways than they should (there’s more to short-term debt than a credit line from a bank based on average accounts receivable). ”
“Diversify your income streams: complement your capital-asset project (say a Web product) with consulting and other short-term, non-capital-based income streams.”
“Try to cycle more money than you actually earn. Money grows when it moves, and capital must circulate. Keep the money moving.”
How startups are like poor people:
“Most startups don’t make it. They die young of various curable-with-money diseases. That harsh reality holds in the world of the poor as well. Most of the poor don’t “make it.” They die younger, poorer, and more painfully and miserably than us rich people.”
Concepts/Resources/Questions for further exploration:
Bottom of the pyramid — https://en.wikipedia.org/wiki/Bottom_of_the_pyramid
The Fortune at the Bottom of the Pyramid — https://en.wikipedia.org/wiki/The_Fortune_at_the_Bottom_of_the_Pyramid
Portfolios of the Poor — https://www.amazon.com/gp/product/0691141487?ie=UTF8&tag=ribbonfarmcom-20&linkCode=as2&camp=1789&creative=390957&creativeASIN=0691141487
History and nature of loan shark practices — Inspired by this quote here: “First, the loan “sharks” aren’t the evil oppressors we tend to imagine. The details are tricky (and the book devotes many pages to explaining them, with worked example calculations of true interest rates and meaningful cost-of-capital analyses), but if you actually examine in detail how loan “sharks” operate in poor communities, you realize that a lot of it is very humane, practical and flexible. It is actually the apparently superior low-interest banking models we use that are oppressive for the poor, due to the rigidity of how they can be used.”
Resource: Prospero’s Precepts: 11 Rules for Critical Thinking from Some of Humanity’s Greatest Minds
The true authorship of Shakespeare’s writings is a heavily disputed issue and there is much disagreement among traditional and independent scholars.
Propero’s precepts refers to 11 rules for critical thinking listed by Peter Surrock in AKA Shakespeare. Each rule comes from a different thinker.
Avoiding/eliminating errors in our thinking is more valuable than acquiring/discovering new truths.
Truths that are initially mocked eventually turns out to be part of the new status quo.
The most interest parts of the puzzle are the pieces that don’t fit.
Seek out data before invoking your theories. Otherwise, you’ll end up forcing the facts to fit your framework rather than adjusting your framework in light of the facts.
Don’t try to make your theories support all the facts because some of the facts will turn out to be wrong.
Maria Popova’s summary of the Shakespeare authorship debate:
“It’s been argued that Shakespeare changed everything. Yet even if this is true, it’s true of the literature we consider Shakespeare’s legacy — which, it turns out, might not be Shakespeare’s after all. So holds the Authorship Question — the age-old debate about whether or not a single man we refer to as Shakespeare authored the legendary sonnets and plays. Currently, there are three contenders for the authorship throne: “Startford” (the man from the town of Stratford-upon-Avon, or Traditional Shakespeare), “Oxford” (Edward de Vere, the 17th Earl of Oxford), or “Ignatus” (an unnamed and unidentified third person).”
Peter Surrock’s presentation of 11 precepts:
“All beliefs in whatever realm are theories at some level.” (Stephen Schneider) — dig into this one. I have an educated guess, but not sure what he means. I would like to know full context.
Do not condemn the judgment of another because it differs from your own. You may both be wrong. (Dandemis)
Read not to contradict and confute; nor to believe and take for granted; nor to find talk and discourse; but to weigh and consider. (Francis Bacon)
Never fall in love with your hypothesis. (Peter Medawar)
It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories instead of theories to suit facts. (Arthur Conan Doyle)
A theory should not attempt to explain all the facts, because some of the facts are wrong. (Francis Crick)
The thing that doesn’t fit is the thing that is most interesting. (Richard Feynman)
To kill an error is as good a service as, and sometimes even better than, the establishing of a new truth or fact. (Charles Darwin)
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. (Mark Twain)
Ignorance is preferable to error; and he is less remote from the truth who believes nothing, than he who believes what is wrong. (Thomas Jefferson)
All truth passes through three stages. First, it is ridiculed, second, it is violently opposed, and third, it is accepted as self-evident. (Arthur Schopenhauer)
Resource: Getting Things Done by David Allen
How mastery moves you from mechanics to mission:
“as you get better at driving a car, you are able to extend your horizon, which creates smoother moves, and you can focus more on where you’re going than on the mechanism that’s getting you there. Similarly, when you reach a certain level of maturity with the GTD process, you won’t be as focused on the system itself or how you’re working it, but will utilize it in more flexible, customized ways, as your trusted tool to facilitate control and focus over longer and larger spans. ”
High-level organization of the lower level things leads to clearer/creative big picture thinking:
“Mastery of the fundamentals, which provides the basics of effective and efficient execution, also provides the ability and room to address a higher level of control and focus—projects, and how they are identified, managed, and understood in relation to one another and to the larger frameworks within which we operate. Developing comfort with an external mind frees up and leverages one’s cognitive abilities, paving the way for many more creative and productive uses of an integrated self-management system. ”
Challenges should trigger, not thwart productivity:
“challenges and surprises trigger your utilization of this methodology instead of throwing you out of it. ”
The goal is to get to a place where projects are the driving force on your system:
“Further down the path of mastering this methodology you will reach a stage at which your Projects list becomes more the driver, rather than a reflection, of your Next Action lists, and your projects themselves will become a truer reflection of your roles, areas of focus, and interests. ”
Choosing to not do something can be a great way to “finish” a project if that choice is grounded in great reasons and systemic thinking:
Most people resist acknowledging issues and opportunities until they know they can be handled successfully, not realizing that exploring, looking into, or in some way accepting or putting something to bed because there is no solution is an appropriate outcome (project) itself.
The goal of GTD is to get to a place where you’re concentrating on the mechanics of your system (capturing, clarifying, etc.), but you’re more focused on the mission that drives your projects and plans.
You know you’re working at a higher level of master when challenges trigger rather than thwart your productivity.
Being meticulous and well-ordered with the seemingly unimportant everyday details that command your attention is the key to unlocking your potential for clear-headed and creative big picture thinking.