Potential is an idea that has always fascinated me. How good can someone or something get?
In order to explore potential, you have to take risk. You have to give up the comfort of the known, and actively seek the unknown.
In finance this is expressed as the risk premium, but in life, its expressed as sweaty palms and an elevated heart rate.
Convexity
We have to learn to love taking small risks that could pay off huge. Simultaneously, we have to become systematic at avoiding risks that can ruin us.
Risk seeking on one hand, extreme paranoia on the other.
In Nassim Taleb's Black Swan and Antifragile, he talks about convexity.
Basically asking the question Whats the worst that can happen and what’s the best that can happen? When thinking about risk taking and potential, we should only evaluate the extremes.
**If the downside is small then it is okay to proceed, if the downside threatens your survival then proceed with extreme caution. This seems obvious, but in reality we often misinterpret the safe for what actually threatens our survival. An absence of stressors and shocks in fact makes a system more susceptible to threats.
Convexity in product
This applies to product building in a really neat way. I often see products make changes that are small improvements, giving users want they say they want. Faster, cheaper, easier.
In reality, users of products want better lives, not better products.
Thus, applying convexity - product builders should focus on radically improving users' lives (Huge payoffs) whilst maintaining the table stakes functionality and maintenance of the product (survival).
Everything in between is a waste of time.
Crypto and crossing the chasm
Right now in crypto I see a lot of potential. Using $DAI to send money across the world, or using $CHAI to send a portion of interest bearing account to a friend or family member in seconds truly gives me goose bumps. Yet, we are still far from mainstream use.
Why? We need to take more bets. We need to seek more convexity. We need to take the functionality that these products provide and start experimenting in areas that have small downside and infinite upside.
Two ways that I think this could happen are (1) Developers, developers, developers and (2) Habitual momentum.
(1) Make Crypto the most developer friendly environment such that they experiment in their areas. Money is a global phenomena that is highly cultural, locals should build for locals.
(2) Humans are habitual creatures. We are literally wired to continue patterns of behaviour. We should probably start thinking about how to embed crypto products into existing habits that people engaged in around the globe. Libra or whatever it’s called now got this right.
How
All this is nice to think about, but everything easier said than done. The risk of ruin is usually easier to asses. The simple question does this threaten survival? can usually be effective enough for knowing what risks not to take.
But when assessing risk around small bets, around experiments, the mental model is less well defined. For this I think one quote sums it up best.
“Make mistakes of ambition and not of sloth”