How "Second-Order Thinking" Can Supercharge Your Career In 2021
The concept of second-order effects isn’t new or hard to understand. Every event has consequences. Second-order effects are the consequences of consequences. The ability to anticipate and act on second-order effects — to “skate to where the puck is going, not to where it has been” to use Wayne Gretzky’s famous formulation — represents a serious strategic advantage for leaders and entrepreneurs.
Rarely has this been more true than right now. The pandemic’s second-order effects will dominate people’s lives for decades to come. How we eat, work, shop and go to school will never be quite the same. And they’ll create once-in-a-lifetime opportunities for businesses and professionals prepared to grab them.
But while second-order thinking is easy to conceptualize, it’s not always that easy to do. I’ve made a career out of spotting and acting on second-order effects of past tech innovations. Here are some hacks to jumpstart your second-order mindset in 2021.
Imagine five years from now and work back
Too many leaders and entrepreneurs operate on instant gratification. They focus on what they can do or sell today to boost performance this quarter.
Start instead with a vision of what things will look like five years down the road. What fundamental needs will people have, and how will you address them? What nascent or emerging technologies will be table stakes then? What pieces of the puzzle can you provide?
Telemedicine, for example, has emerged as a first-order opportunity at a time when in-person doctor appointments are risky. But what new products or services will telehealth users need five years from now? Inexpensive IoT devices for home checkups? Cheaper, higher bandwidth for remote communities? Platforms that crunch aggregate data to predict emerging health threats?
Once you decide on your solution, ask what you need to build it. Tracing those incremental steps opens up a world of second-order effects and opportunities.
Don’t be afraid to look dumb
No one wants to be the emperor with no clothes. It’s easier to avoid risk and follow the pack. But you can’t imitate what other people do and outperform them. Succeeding as a second-order thinker requires taking chances, including the chance you’ll look foolish.
Remember how Bitcoin was belittled initially? (And still is.) Or the cannabis sector? Or online gaming? I placed winning bets on all of those. Was there risk? Absolutely. But as Will Rogers said, “You’ve got to go out on a limb sometimes because that’s where the fruit is.”
To be clear, any risk should be calculated. Weigh potential upsides, odds, costs, obstacles and more — but don’t let looking dumb factor into that calculation. Competitors mocked the world’s most revolutionary products when they first came out — Apple’s iPhone, Google’s search engine, Alexander Graham Bell’s original telephone — but the risk-taking disruptors got the last laugh.
Ask: What are people saying “can’t be done”
The power of second-order thinking is it lets you uncover greenfield opportunities. Instead of fighting hordes of competitors, you’ll have a space to yourself and the opportunity to build a moat around it.
When people say something can’t be done, that’s a great clue you’ll have little competition. Naysayers have hounded Tesla throughout most of its existence, saying the upstart would never be able to make electric cars good enough and affordable enough to sell more than a handful. Today, with many jurisdictions setting deadlines to ban internal combustion vehicles, Tesla’s competitors are still struggling to reach the starting line in terms of sales and performance.
People said my first business couldn’t be done either, an online dating company called iFlurtz that I started in university. The internet was fairly new, and dating online was completely taboo. You’d only meet crazies, critics insisted. But can’t-be-done meant there were few other sites around in an industry with a massive addressable market. By getting in early, we attracted a critical mass of users, which only snowballed as the space went mainstream.
Think about what doesn’t change
Second-order effects are all about change, but seizing them requires understanding what never changes. Whether you subscribe to Maslo’s Hierarchy, McClelland’s Acquired Needs Theory, or The Secret, the fact is we all have a common core of fundamental human needs — to eat, to work, to have fun, to gather resources (shop), to connect with other people, etc. They have been with us since the dawn of humanity, and will remain with us through the pandemic and beyond.
The best entrepreneurs leverage new technology to fill these abiding needs in new and more efficient ways, as circumstances demand. One of my portfolio companies, for instance, helps people bet on sports. When the pandemic wiped out live sports this spring, we realized that the fundamental need — to gamble — was still there. So we turned to e-sports betting to help users scratch that itch.
Just look at the technologies that have come to be synonymous with the crisis, tools like Zoom and Slack and Shopify. They’re all satisfying unchanging needs — to communicate, to work, to shop — in new ways. Hardly a surprise that their valuations have all skyrocketed in the past year.
Systems knowledge is your biggest risk mitigator
I don’t want to romanticize second-order thinking. It’s difficult, and the answers aren’t found in the back of a textbook. To succeed, you not only have to think differently, you have to be right, at least some of the time.
So how can you best mitigate risks and reduce your chances of being wrong? As Batman would say, “learn to mind your surroundings.” Know your space. Understand the environment and systems around your company. Gather and leverage insights from experts around you.
Only once you have a full grasp of your field and the players in it can you really start to anticipate where the puck is going. (Gretzky wasn’t born a hockey god, after all; a lifetime of training and a voracious hockey mind underlay his success.) A real-world example: right now, it’s pretty clear climate concerns will escalate demand for electric cars, solar panels and wind turbines. But only entrepreneurs with deep knowledge of the industry would see the opportunities to supply carbon-neutral graphite to battery makers.
Ultimately, while second-order thinking may not come easily, it’s one of the few real differentiators that business leaders and entrepreneurs have left today. The digital revolution has given us all access to the same data, at the same time. Capital is more plentiful than it’s ever been, and access to money is no longer a guarantee of success for startups.
But what to do with that data and how to spend that money is where second-order thinking comes into play. Seeing what others don’t see — and recognizing opportunities before they materialize — is the key to thriving during the current crisis and in the dramatically changed world that awaits us on the other side.
A version of this article was originally featured in Forbes. Keep up with my latest posts by following me here or on Twitter and Instagram.