Inversion is not a new concept or technique. Charlie Munger, who is Warren Buffet’s business partner and a very successful investor in his own right, espouses inversion for solving difficult business problems and evaluating investment decisions:
Invert, always invert: Turn a situation or problem upside down. Look at it backward. What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead — through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where I’m going to die, that is, so I don’t go there. — Charlie Munger
Inversion is frequently used by investors and traders. Before entering an investment, rather than thinking about all the potential profits, it is more useful to invert and consider all the ways it could possibly go wrong. Successful investors are therefore more concerned with minimizing losses, while letting the winners take care of themselves.
Listing potential failures and worst-case scenarios may at first seem negative or cynical. When people are filled with excitement and optimism about a new investment idea or business initiative, the last thing they want want to think about is all the ways it could fail. However, simply avoiding failures and problematic behaviors is a good place to start and will at least keep you out of serious trouble!
I first learned about inversion through my own investment and trading experience. At first, it was difficult to play devil’s advocate and objectively look at both sides of a trade. Over time, I’ve come to see inversion as indispensable, not only for trading and investing, but for other areas of my personal, professional and business life.
Why Invert Values and Principles?
People strive to live by certain values and principles, both in their personal life and coming into alignment with the principles and values of their employer and profession. Inversion is a simple but powerful tool to identify then avoid problematic behaviors and other conduct which doesn’t live up to these values or principles.
It is sometimes difficult to think of a value or principle in positive terms. Off the top of my head, I can think of a few ways to earn trust with people, but many ways to erode their trust.
It is also useful to invert values or principles to evaluate how robust and universally applicable they are. For example, “avoid rules” may work for Netflix, but would not be applicable to companies producing safety-critical products. Arguably, a principle or value which can be readily inverted is more “black and white” and can be effectively put into practice.
What’s the Difference between Values and Principles?
Before delving into the inversion of values and principles, it is important to better understand these terms and how they differ.
Both of these terms have well-defined origins, but have taken on different meanings over time. The difference between values and principles could be an entire discussion in itself. In general, values are more relative, subjective, based in opinion or personal belief, context-sensitive, and may vary over time. Principles are more universal, objective, timeless, and oriented towards ethical conduct.
For example, “honesty” is a timeless, objective principle and helps to govern ethical behavior. A value like “creativity” differentiates a company or individual, but is more subjective and its importance may vary over time.
What’s confusing is businesses often use these two terms interchangeably. One could argue companies should therefore focus solely on values, leaving the principles to a code of conduct manual. In the context of defining a company’s overall purpose and direction and differentiating themselves from other companies, I agree values are more important. However, I do see the added benefit of identifying some high priority principles. Nonetheless, inversion works equally well on both principles and values.
Business Values and Principles
Almost every company has a set of core values and principles. These are a reflection of the organization’s leadership, help to define the culture, and set expectations with employees. For example:
- “Earn Trust” — one of Amazon’s leadership principles.
- “Diversity and Inclusion” — one of Microsoft’s values.
- “Taking care of our people” — one of Home Depot’s values.
- “Service to the customer” — Walmart core values.
- “Avoid rules” — A value which is part of the unique culture at Netflix.
Someone who works for or interfaces with a company will at some point take the company’s values and principles into consideration. For example:
- When starting a business or reconsidering a company’s purpose and direction, business leaders will formulate a company’s values and principles.
- In their day-to-day work, employees are expected to come into alignment with, exemplify and behave according to principles and values.
- Job candidates may be asked to give a prior example when they’ve exemplified a given principle. For example, “Tell me about a time when you earned somebody’s trust”.
- To the extent a company’s principles and values are publicly stated, customers or shareholders can evaluate a company’s actual behavior and practices versus these principles and values. When a company diverges from its values or principles, it is not uncommon for a company to be called out and held accountable.
Inverting ‘Earn Trust’
After inverting, I find it much easier to think about earning trust. Inversion identifies things not to do if you want to earn trust. For example, at some point or another, I’ve experienced or witnessed each of the following:
- A manager in another department sends an email asking an employee to do something, but copies 4 levels of the employee’s management (all the way up to a corporate vice president). This type of heavy-handed treatment most certainly would not build trust.
- Being notified a day before a project task is due that the completion date will slip at least a week or two.
- Despite being talented and capable, an employee doesn’t carry their own weight on a project.
- Taking an action item in a business meeting, then “dropping the ball” and not following through. To earn trust, you need to follow through 100% of the time.
The good news is the types of failures listed above are easily avoided. If an occasional breach of trust does occur, most people are reasonably forgiving, so an apology and reconciliation is possible.
Many companies and organizations value creativity from their employees, encouraging them to “think outside the box” and find new and innovative solutions. Creativity is a value which can easily be inverted. Some things which impede creativity or cause it to fail include:
- Not giving full consideration to alternative solutions proposed by employees. In other words, dismissing these solutions out of hand.
- Letting an employee’s seniority be an overriding factor for choosing the final solution.
- Not giving employees enough time in their schedule to explore creative solutions.
- Even though a creative solution results in significant savings or increased revenue, not properly rewarding an employee for their innovation and creativity.
- Being intolerant of failure. Creativity often requires some trial and error.
- Managers taking credit for subordinate employees’ creative solutions.
In the case of creativity, inversion exposes things which inhibit creativity. These are useful to know, since not everyone at a company frequently engages in creative tasks. For example, a manager might prioritize and track the creative output from a team, but not directly engage in creative work. In these types of leadership roles, not inhibiting the creativity of others is paramount.
Inverting Personal Values and Principles
Most individuals have a set of personal values and principles they prescribe to and live by. For example, a few of my own values and principles include: Perseverance, preparedness, simplification, ownership, benevolence, fidelity, curiosity, and frugality.
Similar to business principles and values, an excellent way to more fully understand, test and live by your own principles and values is to invert them.
As an employee, potential employee, customer or shareholder, it is also useful to consider the extent to which your own personal values agree or conflict with a company’s. You may not want to work for, or do business with a company whose values or business practices fundamentally conflict with your own.
Summary and Conclusions
On a practical level, inverting principles and values gives individuals, business leaders and employees a list of worst-case scenarios and failures to avoid. Day to day, it is often easier to simply avoid failure-causing behaviors than to engage in behaviors which positively exemplify a given principle or value.
As an exercise, inversion is an engaging and thought-provoking way to more fully understand and come into alignment with principles and values. For example, when business leaders are formulating principles and values for their own organizations, inversion would be an effective analysis tool. Similarly, managers could use inversion as part of an engaging team-building activity to help employees come into alignment around a set of existing principles and values. Finally, individuals can also invert their personal values to identify behavior or conduct which is preventing them from living by their principles and values.
Inversion is a powerful analysis tool to help solve business problems and make decisions. Instead of only focusing on the desired, successful outcomes, it also exposes potential failures and worst-case scenarios. These failures and worst-case scenarios can then be mitigated or avoided. Although inversion is frequently used with business investment decisions, it is equally applicable to principles and values.