so I thought I'd share with you some new stuff that I'm working on because it's fun and then we'll spend most of the time just Q&A because that's also fun . So I'm working on a new book and I've recently become completely smitten by game theory. Specifically finite and infinite games. In game theory there are two types of games finite and infinite games. A finite game is defined as known players , fixed rules and an agreed upon objective. like baseball. We all agree to the rules .we all agree that whoever has more runs at the end of nine innings as the winner and the game ends. we all go home. nobody ever says that we can just play three more innings .I know we can come back from this deficit it doesn't happen that way . An infinite game is defined as known and unknown players , the rules are changeable and the objective is to keep the game and play to perpetuate the game. When you pit a finite player versus a finite player the system is stable .baseball is stable . When you pit an infinite player versus an infinite player the system is also stable like the Cold War. was stable because there cannot be a winner and there cannot be a loser. So we just try and keep the game and play And in infinite games because there are no winners and losers .what happens is players drop out of the game when they run out of the will or the resources to continue to play . Right?So technically the United States didn't win the Cold War, the Soviets dropped out because they ran out of the resources of the world to continue to play . Problems arise however when you pit a finite player versus an infinite player.because one is playing to win and the other one is playing to keep playing. Right? so invariably what happens is the finite player will always find themselves in quagmire . So this was the United States in Vietnam .The United States was fighting to win and the North Vietnamese were fighting to survive .Very different set of standards. This was the Soviet Union in Afghanistan .The Soviets were fighting to beat the Mujahideen and the Mujahideen would fight for as long as is necessary and invariably what happens is the finite player will find themselves in quagmire until they drop out of the game and leave the game because they run out of the will or the resources to stay in the game. Right ?so this gets me thinking.
Let's look at business. the game of business is an infinite game.Right?It pays all the rules. There are known and unknown players .you don't know all the competitors necessarily in one industry to another .The rules are changeable. we haven't all agreed what the rules are and there is no winning the game of business .Right? The game just perpetuates In fact the game of business has existed longer than every single company on the planet today and it will outlast every single coming up company on the planet today . If you look at the Dow index of 30 something odd companies that make up the down decks something like 70 or 80% of those companies are 35 years or younger. Right? so it gets me thinking. If you listen to the language that companies use they don't know what game they're in. They talk about being number one .Talk about beating their competition based on what agreed upon criteria ,based on what agreed-upon timeframe. Is that market share ?Is a profits? Is it revenues ? Square footage ?Number of employees ?Over what one month?5or 6 months?A year ?Five years? Ten years? The life of the company? I haven't agreed to those rules and so companies can arbitrarily declare themselves number one and anything they want if they set the standards in the time frames.And the only reason we do these things on annualized basis .we tend you .we tend compare ourselves to other organizations annually is only because we pay taxes annually. If we pay taxes every 18 months that would be sort of the standard but again we still haven't agreed what the metrics are to be number one. That means the companies that are playing the infinite game are playing against most of the others were playing the finite game means those finite companies find themselves in quagmire. Almost every single bankruptcy , not almost ,every single bankruptcy is a company that's run out of the will or the resources to play they drop out of the game. The game will persist .Another company will fill their space . It's not like the business stops of the industry ends and the companies that are playing the infinite game will frustrate those finite players which I absolutely adore. So I spoke at an education summit for Microsoft .I also spoke in an education summit for Apple . Now I would say about 70 to 80 percent of the executives at Microsoft spent about 70 to 80 percent of their powerpoints , talking about how to beat Apple. At the Apple Summit, a hundred percent of the executives spent a hundred percent of their presentations talking about how to help teachers teach and how to help students learn . One was obsessed with their journey with their vision with their cause the other one was obsessed with their competition. Guess who's stuck in quagmire.Guess who's frustrated by their competition. So at the end of my talk in Microsoft , they gave me a gift .They gave me the new Zune when it was a thing and I have to tell you this was one of the most remarkable beautiful pieces of technology I've ever used . The UI was gorgeous .The design of the actual hardware was beautiful. It was a logical in the way I could use it .It was intuitive. It was absolutely fantastic. Now, it didn't work with iTunes . which means I couldn't use it .That's a different problem altogether but this was a magical piece of technology . So at the end of my talk at Apple I'm sharing a cab with one of the senior Apple executives or but sort of an employee number 12 gunner guy and I decide to stir the pot . So I turned him in it's a-“you know I spoke at Microsoft and they gave me the new Zune it is so much better than your iPod touch” and he turns to me and he says “ I have no doubt” conversation over. Because the infinite player understands sometimes your product is better and sometimes it's not Sometimes you're ahead and sometimes you're behind. The goal is not to beat your competitor. The goal is to outlast your competitor . What you find is that the infinite players don't actually compete against their competition. They compete against themselves .The finite players the ones who wake up every day trying to beat somebody else but Infinite players the ones who say how can we be a better version of ourselves? how can we advance our metrics ?how can we make our products more refined ?more beautiful than they were last week . It's totally fine to study our competition tactically nothing wrong with knowing what our competitors are doing but the number of companies that study their competition strategically blows my mind . They look at what their competition is doing and they make sudden sharp left and right turns to change the course of their company based on the movement of their competition. That's the point.That's what rate wait wastes resources. The constant changing of your mind. The constant going in this direction that direction based on the wind of your competition . Assuming that they know what they're doing. I find that fascinating! and the number of companies that play finite is the vast vast vast majority . So it begs the question how does one play the infant game? How does one build an organization constructed for for the infinite game?
so up here you have the infinite game. this is where the why exists? I talk about the why the purpose ,cause our belief about the organization. This is where our values lie . These are never changing .They are permanent .They will outlast all of us and they should at last they've been here from the birth of the company and they should last the length of the company . Right? The infinite stuff , the why stuff and the value stuff is inherently intangible and it's inherently difficult to measure. Right? Now , down here you have the finite game and this is where our interests lie . This is where what I would call your what's lie . Right? this is where our products lie and things like that. It is inherently tangible and inherently very easy to measure . Now , the goal is to run all decisions through our values, through our purpose , Of course first and then through our interests. So what is a values based decision ?What does that even look like? So here's a values based decision When our military goes into battle and we shoot a bad guy . We will take their injured body .We will send our medics onto the battlefield to rescue the injured body of our enemy .We will put them on our helicopters .fly them to our hospitals .put them in our hospital beds .our doctors we use our medicine to nurse them back to health. That is not in our interest however that's kind of who we are . Right? it's what if it finds us ? In other words we're wasting our resources because our values are more important than saving those resources doing something purely in our interests . It's like torture. Right ? the reason torture was done offshore and the reason we try to keep it a secret is because it kind of everybody kind of knew it violated our values. because if we were totally fine with it everybody would like just do it here. it's totally fine. why 'sons somewhere in Wyoming? Right? and that's the point .So , great organizations are making values based decisions all the time and then our interests come into play but the problem is when you're playing a finite these things get ignored and every time we make a decision we decide what to what we do in a vacuum . So , your competitor comes out with a new product how do we react quickly .come out with something similar . what's going on with the marketplace you make some other reaction .
what's going on in this particular country and every single decision we make in a vacuum seems perfectly good we're making rational decisions based on our interests . Right?The problem is when we pull back and look at all of the decisions , all the people we've hired .This is what happens when you only hire people based on their resumes . For example, smart guy! get that person on board .Right? When you pull back your culture is a mess and nobody knows what you stand for . The whole idea of making values-based decisions is we can look at almost all of a decision there every now then one can go sideways but we look at all the decisions , the people you hire , the things you do , the things you believe in , the things you stand for ,everything tangible and we can say of you or your organization, I know what you stand for. I believe what you believe .I would like to be a part of your organization .I'd like to buy from the organization. This is where loyalty lies .Right? but the only way we can judge each other is down here. It's like human beings . Right ? we want our friends to act and speak and do the things based on who they are . we went our friends to be you know that word that's always Stern about authentic which means saying and doing the things we actually believe . That's what we mean and the reason is because we want to know who they are .we know what we want them to be predictable .Right?
But that's the idea .So , this is what I'm doing I become fascinated by this game theory stuff and I'm running it through all kinds of scenarios. I'm looking at relationships .I'm looking at business .I'm looking at politics .I'm looking at war and nation-states and how this plays out in the real world because the game is the game We don't get to change the rules .There of course there are always finite games within the infinite It's the difference between a goal and a vision. Right? a goal is 26.2 miles. Count the metrics. count the mile markers and when you reach the goal you the game ends .it's over. A vision is having a crystal-clear sense of what the finish line looks like far up in the distance putting but having no idea how far away it is . So far away that for all practical purposes we'll never get there . take the United States .the Declaration of Independence . Here's a nation who declared why we needed our own country and it didn't start off by complaining or griping about the King and Great Britain. It started off with an ideal .We believe that all men are created equal. that all of us are endowed with certain unalienable rights amongst which include life liberty and pursuit of happiness. We'll never actually get there but the goal is that we will die trying and within that infant contest , there are many finite games that we hope to advance that infinite contest or even little infinite games within that. Like civil rights we've never actually reached the point where we have perfect civil rights but we'll continuing to get better and better and better . that's the point .it's constant refinement .It skies end .It's no matter how good we do .we can always do better. Right? but the goal is we have a North Star we have a thing to point us in the direction it's not random .So , in the United States , we have civil rights or women's suffrage or gay rights or education for everyone or healthcare for everyone however what form it takes . It's our way of trying to get closer and closer and closer to the ideal upon which the nation was founded .I wish all organizations they don't have to be nation states. I wish all organizations did the same thing operated not just in their interests but also have a sense of code or values in a sense of purpose and vision .it matters. Because we want to stand for something .We want to work for something .We want all of our hard work the products we produce .everything! we want it to count towards something that some not simply be against something or make something in the short-term . I see this so often with senior executives with people who are making more money than they've ever made they've more power and influence than they've ever had and yet later on in their careers they don't feel as successful as they did when they were junior . when we're junior the first promotion we get , the first raise we get ,the first bonus we get ,the first client we win whatever it is it's all very exciting. Right? we're living down here and everything's very exciting but after you've had a bunch of bonuses , you want a bunch of clients and you've had a bunch of product releases and a bunch of promotions it's exciting for a little bit .like go out for a nice dinner with your family that's about it and then it wears off . Right? and so what starts to happen is our work no longer feels like it has any sense of purpose and so we default back to when we were young .We thought well when I won the client win more clients will when I reached a million dollars get more millions of dollars that gave me the feeling the first time it'll get me the feeling again.It doesn't . That's like winning one marathon .Thinking it's amazing .you keep running marathons for the rest of your life and at some point you're like why am i running all these marathons?
They have to contribute to something .They have to contribute to something .So , I'm fascinated by the companies that play the infinite game because they frustrate inherently they frustrate their competition . For years Apple frustrated Microsoft's especially when it was run by Steve Ballmer.It was a guy run who ran the company based on interests alone versus competing against an organization that was doing something bigger you know .Costco versus Walmart .Southwest Airlines versus everybody. Right? Organizations that seem to not care about what Wall Street thinks about the quarter of the year and when you listen to the language of people like Jim Senegal who's the founder of Costco , he says I don't care about Wall Street . Wall Street's worried about well how my company does in a month or in a year .I care about what my company does for the next 50 years. That's the company , I'm building you.Listen to the language .Ones who are focused on teaching kids how to learn and teaching ,helping teachers how to teach versus how to beat our competition. It makes for much more fulfilling life and it makes for much more realistic existence when your competition slightly had and you think .That's okay! You know can't stay ahead forever based on some arbitrary perspective .arbitrary metrics anyway . Anyway so that's what I'm working on I think it's fun. I think it's interesting .We've made some changes even in the way we do business based on this we become more infinitely organized which means we are much more interested in trends than we are in absolutes. Right? because absolutes exist down here but ongoing exists up here.So for example ,let's say you will get a bonus if you hit a certain target by a certain date . That target is arbitrary. That date is arbitrary . Right? somebody made it up .That's how most of our bonus structures are built .On arbitrary numbers .On arbitrary days . Let's say that that person is doing good work and building good systems but they miss the target .They miss the number . Right? but if you were to pull back and look at how they've been doing and you see this beautiful steady line .we can see that they're doing good work .That they're building good systems .There's huge stability there .They just miss the arbitrary number on the arbitrary date give that person a bonus because we want that person to continue building those systems and the odds are they're probably hit the number two or three months later which is totally fine.Because then it's going to grow grow and grow .Versus the person who stabs people in the back plays politics.Their performance looks like this .There's no stability .It's all over the place.They have to meet the number on an arbitrary date. Give that person a bonus. Why? they're breaking the company along the way. The point is the finite player only looks at these discrete moments in time where the infinite player is much more preoccupied with the trend of things. So in our in our business we've become absolutely preoccupied with the trend. There is some projects that we've wanted to implement that I wish took a year and they took years and I can it doesn't matter how much I say “I want to done at the end” . we missed it .but you know what we were building good systems along the way we just missed the prediction and the result is we have much better systems much better product and will much more motivated by it . Because nobody was penalized for missing arbitrary numbers on an arbitrary date .I'm sort of learning how to I'm learning how to build and run a business for the infinite.And somebody asked me recently in an interview about my competition .like how do I compete against the people in my space .The answers “what? compete against what? like what am i competing for? like am I going to compare many views on Ted or how many book sales or how much my personal income is or how much my corporate income is like ?
What's the arbitrary standard? because I can be a head on some metrics and behind on others. I could drive myself crazy or I can be really proud of myself .Worse. I'm choosing who my competitive set is but the competitive set is way larger than I can imagine . It's like I love it when the networks .Declare that they're number one .you do realize they're only comparing themselves to the few other networks that they want to compare themselves .NBC , ABC ,CBS and Fox compare themselves to each other.They ignore Netflix ,Hulu ,HBO, YouTube and the rest of them. But that's the point if you'd make your own competitive set you'll be number one . Everybody will have their day in the Sun. I get a kick out of that . I get a kick out of that so especially for an organization like YouTube the question is who's your Competition? competition is yourself .Wish everybody the best of luck . Let them make their own metrics. Let them declare themselves number one .Who cares? They'll fall out of the game before you that's the goal .that's the goal...