Doing one thing means giving up on another. Opportunity cost is about tradeoffs: comparing an option against its alternatives to decide the best use of scarce resources. The adage “there is no such thing as a free lunch” summarizes the concept of opportunity cost well. To make it more vivid, imagine buying a car. You […]

Imagine:  All of these stop or slow a flow: of water, blood or traffic. All of these are bottlenecks. Bottlenecks are all around us but are especially important in business. One small part in our manufacturing process or in our sales funnel can greatly (negatively) affect our overall performance.  As Thomas Reid once said: “A

Incentives are anything that persuades a person to change their behaviour. In English we know incentives as “the carrot and the stick,” but it’s such a proven and time-tested system that every culture has a version of this in its own language. It’s a force that exists throughout nature. Plants, animals and humans are constantly

A feedback loop is created when reactions affect themselves: A causes B, which in turn influences A (and C), and so on – it feeds back into itself. The continual movement of the loop frequently results in higher-order effects. Feedback loops can be positive or negative: Positive feedback, by itself, leads to instability via exponential

Arbitrage is the practice of taking advantage of a price difference between two or more markets. A simple example: you may find a luxury product costing $50 at a thrift store or an auction, but luxury-conscious customers may pay $500 for that same luxury product at a boutique or online. That $450 is the arbitrage

Margin of safety is an engineering concept used to describe the ability of a system to withstand loads that are greater than expected by building reserve capacity or “slack” into the system. Warren Buffett explains it best with two analogies – one for investing and one for building a bridge: “You don’t try to buy

In the 19th century, Italian economist Vilfredo Pareto found that approximately 80% of the land in Italy was owned by 20% of the population. The Pareto Principle, which we commonly know as the 80/20 rule (or law of the vital few), was born and states:  80% of the outcomes are due to 20% of the

Simply stated: start with the end in mind. Take your desired goal or outcome and work backwards to identify the steps that get you to that outcome.  Working backwards is one of the most useful and powerful mental models. It takes away uncertainty and anxiety: you no longer wonder if and how you can reach

Probabilistic Thinking is trying to estimate the likelihood of any specific outcome, using logic and a bit of math. This helps us improve the accuracy of our decisions and focus on the most likely outcomes. You’ll be less influenced by the words of others, recent developments skewing your opinion (recency bias) and less likely to