Can’t Solve a Problem, Maybe Its The Wrong Problem

Can’t Solve a Problem, Maybe Its The Wrong Problem

Often we have a problem we are trying to solve. In our life, at work, in design, product, or solution. However, if you are struggling, you are probably trying to answer the wrong question. Dr. Paul MacCready, one of the best mechanical engineers of the 20th century, said it, “The problem is we don’t understand the problem.” Inversion is an excellent tool because it exposes errors and problems that are not immediately obvious. What if the opposite is true? What if I focus on the reverse of this situation? Instead of seeking how to do something, ask what the opposite is and who do I ensure that I don’t do that. The stoics visualized the worst of all situations, i.e., death so that they would appreciate life. Groundbreaking artists invert the status quo to succeed. Effective leaders ask, “What stops us succeeding” as much as they chase the skills that accelerate it.

More often, we should try Inversion. Inversion is a crucial skill that nearly all great thinkers use to their advantage. Carl Jacobi, the German mathematician, who was known for his ability to solve hard problems by following a strategy of man “Man muss immer umkehren” or, “invert, always invert.” Jacobi believed that to clarify, your thinking was to restate the problem in inverse form. He found that if he wrote down the opposite of the problem, he was trying to solve the solution came to him more easily.

Charlie Munger took Jacobi’s lesson and introduced it to value investors. When deciding on the purchase of a stock is to estimate intrinsic value in the long run, we typically ask the following questions:

  1. How much will I make?
  2. How long will it take, or what are the growth drivers are there?
  3. What is the stock worth, or what is a fair discount rate?
  4. What is the future growth rate?

All these questions are forward-looking, and if the prospects are there, we are about to dive in. However, Jacobi and Munger would invert the problem. What is the inverted question? Well, if the problem is, “How much money I can make?” the inversion is “How do not lose money?” Or, as Warren Buffett says, “Rule No 1: Never Lose Money. Rule No. 2: Never Forget Rule 1.” Thus if we look to questions about how to prevent losing money instead of making money, our four items above become:

  1. How can I make money?
  2. How much is the stock worth?
  3. What can go wrong?
  4. What is the market-implied discount rate?
  5. What is the market-implied growth rate?

By focusing on the inverted questions, we get a better idea if this is a good stock. Listening to a recent interview with Steven Schwarzman, CEO of The Blackstone Group, he has applied Munger’s approach to investing. The concept of inversion is applicable across many areas.

In 1959 Henry Kremer, a British industry magnate, left a haunting question: “Can an airplane fly powered only by the pilot’s body power?” Kremer believed it was possible, so he offered the Kremer prize – £50,000 ($1.3 million today) to the first person to build a human-powered plane that could fly a figure eight around two markers one half-mile apart. Furthermore, he offered an additional £100,000 ($2.5 million today) for the first person to fly a human-powered plane across the English Channel. Kremer effectively offered the first X-Prize.

Over twenty years, dozens of teams tried and failed to build an airplane that could meet the requirements. It looked impossible. However, MacCready decided to try and win the prize. As he looked at the problem, why the existing solutions failed, and how teams iterated their planes, he came to the startling realization that people were solving the wrong question. “The problem is,” he said, “that we don’t understand the problem.”
MacCready’s insight was that everyone would spend over a year building an airplane on conjecture and theory without the grounding of empirical tests. With much fanfare, they would wheel it out for a test flight, and minutes later, a year’s worth of work would smash into the ground. Even successful flights ended in a couple of meters, with the pilot physically exhausted. With a new single data point, the team would work for another year to rebuild, retest, relearn. Resulting progress was slow, but everyone accepted that it was just how it was.

The problem was the problem. If he inverted the problem, Paul realized that the problem was not succeeding at human-powered flight, as that was a red-herring. The issue was minimizing the time not flying due to failure. He came up with a new problem: can you build a plane that could be fixed and flying again in hours, not months. Making a plane with Mylar, aluminum tubing, and wire, Paul succeeded.

The first airplane didn’t work. It was too flimsy. But, because the problem Paul set out to solve was creating a plane he could fix in hours, Paul was able to iterate quickly. Flying three or four different planes in a single day, the rebuild, retest, relearn cycle went from months and years to hours and days.

Paul MacCready got involved eighteen years following the challenge and changed the understanding of the problem to be solved. Within half a year, MacCready’s Gossamer Condor flew 2,172 meters to win the prize. Just over a year later, the Gossamer Albatross successfully crossed the Channel.

What’s the take-away? When you are solving a difficult problem, re-ask the question. To quote Jacobi again, “invert, always invert.” If the issue you are trying to solve involves creating a magnum opus, you are answering the wrong problem.

A Vistage Group is a great way to have a Peer group challenge you to look at the problem from a different perspective. In our issue processing process, after asking questions and before getting input from the members, we always check, “Is the problem asked the actual problem faced?”

 

© 2019 Marc Borrelli All Rights Reserved

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Like Wine? You Better Pay Attention to Climate Change

Like Wine? You Better Pay Attention to Climate Change

Some of you may have read my recent blog post on Greta Thunberg, the Swedish climate change activist, and her mission to wake people up to the threats of climate change. While there is a consensus older white males revile her, one segment of that group that may start to pay attention is the many oenophiles, as climate change is possibly the most significant threat coming after their wine.

Growing grapes is a tricky business; first, the terroir, the unique aspects of a place that influence and shape the wine made from it, needs to be correct. For great wines this requires:

  • poor soil,

  • in either a Mediterranean, a maritime, or a continental climate;

  • certain climate-soil-water relationships; and

  • lots of sunshine, but not heat.

Winemakers have kept careful track of harvest dates for centuries, with some records going back to the Middle Ages, as the harvest dates are crucial for the quality of the wine. Harvest too early, the grapes might not have developed the right balance of fragrant chemicals that give the wine its characteristic flavors. Too long and the grapes will have too much sugar, making the wine will be more alcoholic, and the acids that give the wine some of its feel in the mouth may disintegrate.

Scientists and historians realized in the 1800s that these careful records could be used to provide an insight into how climate has changed in different parts of Europe has over time. “Grape harvest date records are the longest records of phenology in Europe,” says Elizabeth Wolkovich, a biologist at the University of British Columbia who studies wine and climate relationships. “We have these hundreds of years of records of what the summer temp was like, and we can use them like a thermometer.” With the winemakers’ records, scientists and historians were able to stitch together a history of grape harvest dates going back to 1354.

The data showed that over the past few hundred years, temperatures wobbled around, skewing warm for short stretches and cooling down in others. But overall, climate rocked up and down around a relatively consistent average value—until recently. Now, the nearly 700-year-long record of harvest dates from the town of Beaune, in Burgundy, shows that early harvest dates like the one from 1540 when there was extreme heat, are now par for the course, thanks to climate change.

Thus, for decades, the traditional climate changes were not dramatic enough to be a problem; however, the sudden rise in temperatures over the last three decades has changed the status quo. The sudden increase in temperatures is impacting the global wine industry in many ways.

High temperatures are lowering acidity in grapes and increasing sugar, which yeast turns into higher alcohol during fermentation. As a result, the alcohol content of wines has climbed to about 14% from about 12% in the 1970s. Warmer conditions shift red wine flavors from red fruit notes like raspberry and cherry toward black fruit tastes such as blackberry. As a result, aromas are flattened, and the refreshing brightness that gives wines energy is gone. Heat also affects trace compounds in the grapes that contribute to flavor and aroma. “Wines are becoming fuller-bodied, more alcoholic, and riper in flavor,” said Gaia Gaja, whose family owns an eponymous winery in Italy’s Piedmont. She worries that subtle notes and fleeting, delicate aromas that add so much to wine’s drinkability are at risk. “Finding the sweet spot, when sugar, acid, color, tannin, and flavor in the grapes are in perfect harmony, will be more and more difficult,” according to Kimberly Nicholas, senior lecturer at Lund University Centre for Sustainability Studies in Sweden.

Finally, climate change is also causing more frequent extreme weather events, i.e., flooding, fires, and surprise frosts—that can damage vines. The severe weather has most recently been evident in California, where fires significantly or destroyed 11 wineries. Six were in Napa, including Patland Vineyards, Roy Estate, Signorello Estate, VinRoc, Sill Family, and White Rock Vineyards; Sonoma’s Paradise Ridge Vineyards and Helena View Johnston and Mendocino’s Oster, Frey Vineyards and Backbone Vineyard & Winery.

It is not all bad news, though, with rising temperatures, regions that were once too cold are becoming more suitable for wine-growing, and the world’s wine map is shifting. Familiar grapes planted in surprising new regions and terroirs will offer an even more intriguing taste difference. However, world wine production is set to fall to its lowest levels in decades, primarily due to the weather, according to estimates from the International Organization of Vine and Wine. More specifically:

 

France

In one French winemaking town, according to 700 years of records harvest dates have moved up two weeks from the historical norm, and during this past summer, with temperatures hitting 115°F, some winegrowers lost half their crop. Pomerol’s Château Lafleur and other top châteaux are cutting back on early ripening merlot because it produces wines too high in alcohol. With rising temperatures, though, Burgundy may say goodbye to the silky, elegant style pinot lovers prize. However, the upside is that Burgundy may produce more exceptional vintages, says Philippe Drouhin of Maison Joseph Drouhin. “Even if the flavor profile changes in the future, that doesn’t mean the wines won’t be as good,” he says. In the Rhône Valley, the summer heat is already pushing alcohol levels to 16%, about the strength of sherry.

 

England

As the climate has changed, the South Downs region in England has developed weather similar to the Champagne region, and it happens to boast already the chalky, clay soil that characterizes the iconic part of France. Thus, sparkling wine accounted for 68% of the wine produced in England and Wales or four million bottles in 2017, and estimates for 2018 are 10 million bottles, a record high. English sparkling wines have risen in prominence since the late ’90s due to awards from competitions like the IWSC, served at the Queen’s golden wedding anniversary, and banquets for the visits of the Emperor of Japan and the President of China. The French Champagne house Taittinger planted its first vines in Kent in 2017, for a new venture into English sparkling wine, and the first bottle will be ready in 2023.

 

Scandinavia

Sweden, Denmark, and Norway had a hobby industry in the ’90s. Over the last 20 years, this has changed dramatically with articles on wineries in Sweden and Denmark now appearing in Wine Spectator and other publications as they expand production, varietals grown, and quality of the wine produced. “Sweden has about 30 to 40 vineyards now,” said Elin McCoy, author and wine critic for Bloomberg News. “There’s a new vineyard up on one of the Norwegian fjords at the same latitude as Alaska, so that is a real change.” By 2050, Norway, and Sweden may be the source of some of the world’s great wines.

 

Argentina

Mendoza remains the center of Argentina’s wine production, but with climate change, production in Patagonia is increasing. Patagonia is producing good Pinot Noir, Merlot and Sauvignon Blanc, wines which are benefiting from the colder Patagonian conditions. Patagonian wines are considered fruitier and much more vibrant, with the mineral-enriched soil gifting bursts of flavor, while climatic conditions are stressing vines to an optimal level.

 

Germany

While the country has produced pinot noir for a long time, its wines have lacked the depth and complexity of their counterparts from Burgundy. As climate change warms the growing season, German pinots are delivering “previously unattainable heft and nuance.”

 

USA

States like Montana and Michigan are becoming the new producers. Montana boasts just eight wineries now but expects the western half of the state to be a player in the wine scene by 2050. Michigan, while already producing wine on a small scale, is scaling up as the climate warms. The number of wineries has gone from 16 to 130 in the last ten years.

 

Australia

The overall number of wineries in Australia may be dropping, but winemaking is on the rise in Australia’s southernmost state. As a result, Australia’s famed Barossa Valley may be under threat from climate change and Tasmania. Climate change is making Tasmania’s weather even better for the production of dry rieslings to sauvignon blancs, which are vastly different from what the rest of Australia is offering.

 

China

China is undertaking a multibillion-dollar project to transform its Ningxia desert region into a wine oasis. Currently, there are about 50 wineries in Ningxia, which is about 500 miles west of Beijing. The area boasts 80,000 acres of vineyards, and that number is expected to more than double by 2020, nearly triple the acreage of the Napa Valley. China is expected to overtake the US as the most significant wine consuming nation in the next twenty years. As a result, the recent release by the Rothschilds of their first vintage produced in China may be perfect timing as the young, middle-class nationalist drinkers seek local brands.

 

Ethiopia

To date, South Africa has been the leading wine producer in Africa; however, Ethiopia, with its high, central plateaus and temperate climate, could be uniquely placed to be the second-largest African wine producer by 2050. Castel Group, the largest wine producer in Europe, in 2007 agreed with the Ethiopian government, planting 750,000 Merlot, Syrah, Cabernet Sauvignon, and chardonnay grapes vines of near the Rift Valley town of Ziway. In 2014, the company celebrated the production of its first 1.2 million bottles. Producing wine in Ethiopia does have its unique challenges: the vineyards are surrounded by a two-meter-wide trench to deter pythons, hippopotamuses, and hyenas.

 

Russia

By 2050 it is expected that large areas of western Russia will be suitable for wine grape-growing. In support of the growing wine industry, Russians are developing the requisite thirst as reflected in the skyrocketing imports of Georgian wine in 2016, which were up over 150%. Besides, hard liquor sales are falling across the board.

 

The Rearguard Action

Most winemakers can’t just pick up and move, so they have to get creative to fight climate change. They’re coming up with crafty solutions:

  • Bordeaux began loosening appellation regulations that permit the planting of only classic red and white varieties this summer.

  • Higher elevations offer cooler temperatures and more significant “diurnal shifts,” which helps grapes ripen at a more even pace.

  • Some planters are moving to slopes with less direct sunlight/heat exposure to prevent over-ripening.

  • In Bordeaux and Napa, growers are planning for the day that their current champions hand their crowns to zinfandel, petite sirah, or foreign strains like tempranillo and other grapes from southern Europe that better tolerate heat and drought and maintain high levels of acidity. Dan Petroski, the winemaker at Larkmead in Calistoga, has planted a parcel with zinfandel, tempranillo, and more varieties to blend with cabernet in the future, to add color and density to keep the valley’s elegant, sun-kissed style. “With wine, you better think 20 years ahead,” he says.

  • At a “research vineyard” in Israel’s Negev Desert, scientists are studying how to grow grapes in harsh environments successfully. Possible solutions include shade nets, thermal cameras, and soil humidity sensors.

  • In Spain, Miguel Torres is reviving almost extinct grapes that thrive in hotter, drier climates. He has identified five that offer exceptional flavors, such as floral-scented forcada, a white with striking citrus, herb, and mineral notes.

 

Implications

For you savvy wine connoisseurs, new markets trying to prove themselves = top-shelf wines at mid-shelf prices. All of this should make for some exciting changes. A chance to get in on some new great wines, and also to invest in some that will never return. In the meantime, drink those you enjoy. As Maya said in Sideways

“Wow, this is really starting to open up, what do you think? I started to appreciate the life of wine, that it’s a living thing, that it connects you more to life. I like to think about what was going on the year the grapes were growing. I like the think about how the sun was shining that summer and what the weather was like. I think about all those people who tended and picked the grapes. And if it’s an old wine, how many of them must be dead by now. I love how wine continues to evolve, how if I open a bottle the wine will taste different than if I had uncorked it on any other day, or at any other moment. A bottle of wine is like life itself – it grows up, evolves and gains complexity. Then it tastes so good.”

If you are interested in an excellent discussion of the current status of climate change, I would recommend listening to Sean Carroll’s Mindscape podcast, where he interviews Michael Mann.

For everyone, look at your businesses and see what climate change is going to do to your business. How will affect your clients, suppliers, production facilities, and supply lines?

 

© 2019 Marc Borrelli All Rights Reserved

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Airline Awards, US Carriers Are Not to be Seen

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The 2019 awards for the best airlines are out. As there are a number of different award rankings, I will compare those of AirlineRatings.com, an aviation safety- and product-rating site based in Australia, and Skytrax, a consumer-aviation website based in the UK. The top ten for each are set out below:

Skytrax

  1. Qatar Airways
  2. Singapore Airlines
  3. ANA All Nippon Airways
  4. Cathay Pacific Airways
  5. Emirates
  6. EVA Air
  7. Hainan Airlines
  8. Qantas Airways
  9. Lufthansa
  10. Thai Airways

AirlineRatings.com

  1. Singapore Airlines
  2. Air New Zealand
  3. Qantas
  4. Qatar Airways
  5. Virgin Australia
  6. Emirates
  7. All Nippon Airways
  8. EVA Air
  9. Cathay Pacific
  10. Japan Airlines

No American carriers again struggled to break into the top-ten rankings this year for either ranking. No US-based airlines made it into the top 35 spots year for Skytrax, for whom JetBlue was the top-ranked US carrier No. 40.

Following the US carriers’ failed attempts at launching budget carriers, remember Song and TED, they are now following a two-prong strategy – mediocre or better in the front and budget carrier in the back. The problem with a two-prong strategy as was discussed above is that you cannot go down two different paths, you are either A or B. The high-end strategy for the front of the aircraft requires different service levels on call centers, lounges, check-in desks, flight attendants, crew, and different investments in IT, fleet types, etc. than for budget carriers. Thus as the company drives down two different paths, the employees and investment decisions fail as it tries to satisfy two different masters and end up satisfying none.

I find it amusing to see Delta’s advertising “Delta, voted the best Business Class Airline,” as often I wonder, by who, obviously someone who does not travel internationally? Although Delta did recently introduce a new all-suite business class last year, albeit long after the advertising started, that didn’t help it move into the top rankings. The reason is that equipment alone is not the deciding factor; it is service levels across the entire client experience. But if the majority of your client service experience is providing a budget carrier experience, it is hard for your employee base to suddenly pivot to offer the superior experience needed for the business class passenger, reinforcing the prior point. Choose your strategic decision and stick with it. For a reminder, look at Joel Spolsky old blog post, “Ben and Jerry’s vs. Amazon.” Joel, who has seen several companies succeed and fail, suggests the worst thing you can do is fail to decide what strategy you will choose.

Another airline that has been following a variation of the two-prong strategy is British Airways (BA). BA, long known as the “World’s Favourite Airline,” has relied on their control at London Heathrow to drive their higher value to their long haul traffic – especially business and first-class, while treating short-haul traffic as a budget airline. While British Airways is very profitable at present, it has failed to invest in IT over the last few years. As a result, this summer, there was the second massive IT outage in two years. While the latest one is expected to cost Brtish Airways about £10 million the first one cost the company about £100 million. Also, BA’s failure to secure customers’ credit card data on its website, is resulting in £183 million fine for data theft. Final, BA”s pilots are upset with the level of profitability compared to their pay offer and are now striking for better pay. The strikes started in September with the cancellation of thousands of flights and cost the company over £200 million.  If the strikes last over the Christmas holidays, the price will rise dramatically! Two-prong strategies that conflict are hard to make work successfully in the long term!

Since the majority of US flyers are flying coach, the consensus will undoubtedly become that the US carriers are really just budget carries masquerading as real carriers. How long will it be before they are all charging for carry-on luggage like Spirit?

While milage points and hub control still make a difference in attracting passengers, it is the budget carrier mentality, cause, vision and focus that allows carriers like JetBlue and Southwest to continue to make inroads into the legacy carriers market and make more money.

In 2018, Southwest was the second most profitable airline in the US behind Delta.

 

Southwest Delta
Revenue $21.96 $44.44
Operating Profit $3.21 $5.26
Operating Margin 14.6% 11.8%

While the US legacy carriers continue to make money, it is only through the consolidation and lack of competition. If competition were allowed to enter the market, then all bets would be off.

For the most part, flying in the US is like Greyhound without the view, and until the government is willing to ignore the lobbyists and allow more competition, and local governments allow more competition at the hubs, not much is likely to change, forcing more pain on the flying public.

Bon voyage!

 

© 2019 Marc Borrelli All Rights Reserved

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