Ray Dalio has a new book on the subject of principles.
You know what they say about principles. Everyone has them and they’re all different.
I first became aware of the Dalio principles when it was reported that a .pdf he had posted online had been downloaded a gajillion times.
Ray Dalio had published a Cliffs Notes version of how he ran Bridgewater, the most successful hedge fund company in history. The company currently manages over $150 billion dollars for about 350 high-end clients.
Anyway, that now famous document became the first 124 pages of his book, the manifesto known as Principles.
At Bridgewater, Dalio and his team developed an “idea meritocracy,” a think tank that cultivated a best practices rule set for managing money.
The concept worked so well, that Dalio created a similar rule set for managing people.
Principles tells the story of how this all came about and offers tips for creating similar rule sets at your company.
The book’s 569 pages are arranged as a highly organized outline featuring meticulous decision trees and “if, then” scenarios.
It’s fascinating to see how Dalio tries to establish rules to manage human foibles such as irrationality, emotion and ego.
Innovative and insightful
It’s hard to argue the success of Dalio and Bridgewater. Many of the ideas put forth in Principles are undeniably sound as business concepts.
Dalio is a big fan of leverage. He expected that an employee would spend fifty hours moving the project along for every hour that Dalio spent with her.
Some of the tips are easy victories for Ray and his readers. Bridgewater bought a house near the office that employees use for events such as celebrations that often include visiting family members.
Dalio shares lessons learned from his famous friends. The author shared ski instructors with Michael Jordan and learned that Michael apparently reveled in failing at the sport as a beginner. Patience is a virtuous characteristic for all business leaders.
I like Dalio’s prescribed procedure for solving problems. “Root cause discovery” involves asking a series of probing question in order to get to the true root of the problem.
Most organizations are bad at recruiting, opines Ray Dalio. He says that interviewers pick people they like and who are like them instead of focusing on how candidates will fit into their jobs.
Dalio warns readers to beware of group-think (or group non-think) when he writers: “The fact that no one seems concerned doesn’t mean nothing is wrong.”
In an age of political correctness where nearly every standard is portrayed as acceptable, it’s refreshing to have a leader take a stand on what will be tolerated and what will not.
Dalio’s idea meritocracy, for example, establishes “believe-ability weights” to assess nearly every possible scenario when it comes to running a business.
Much of the advice is innovative and insightful, including:
- “If you haven’t successfully done something, don’t expect others to listen to you.”
- “Everyone should report to someone.”
- “If I had to choose between assessments or just traditional job interviews…I would choose the assessments.”
- “The biggest threat to good decision making is harmful emotions.”
- “Identifying the fact that someone else doesn’t know what to do, doesn’t mean that you know what to do.”
- “Don’t expect people to recognize and compensate for their own blind spots.”
- “By knowing what someone is like, we can have a pretty good idea of what we can expect from them.”
In Dalio’s world, the above counsel is not just a set of guidelines. This is advice you can take to the bank.
But the best argument for Ray Dalio’s approach to running a business is also it’s biggest challenge.
“Speak up, own it, or get out”
Decision trees and rule sets don’t readily accommodate human foibles of emotion and ego and individual values. This can make for some thorny communication at weekly meetings.
In Ray Dalio’s world, openness and confrontation are not just required, they are an obligation. Bridgewater’s idea meritocracy doesn’t allow employees to complain or criticize in private or off the record.
This moves criticism into meetings and ongoing dialog. The resulting business culture can resemble the objective-based management style that fell out of favor a while back.
Many Dalioisms are not for the faint-of-heart:
- “Don’t expect people to be much better in the future than they have been in the past. They should be reassigned or asked to leave.”
- “Keeping people in jobs they are not suited for is terrible for them because it allows them to live in a false reality…”
- “Don’t worry about whether or not your people like you and don’t look to them to tell you what you should do.”
- “Remember that people tend to be more defensive than self-critical. It is your job as a manager to get at the truth and excellence, not to make people happy.”
- “Security controls should not be taken personally by the people being checked, just like a teller shouldn’t view the bank counting the money in the drawer as an indication that the bank thinks the teller is dishonest.”
Personally, I like it when leaders are not wishy-washy. Take a stand. There’s nothing wrong with being judgmental on important issues. More in this blog article.
But in an age of free expression and equity of opinions, rule sets can be a tough sell.
Pick and choose your Dalio principle
When you read a book that offers health advice, there’s always a disclaimer about how you should “consult your doctor” before trying the new strategy.
Articles that offer legal advice always suggest consulting your attorney.
Business owners should not read Principles and instantly decide to overhaul their business’s culture.
I’ve spent two decades in the consulting business. My guess is that hardly any business leaders will have the wherewithal to adopt Dalio’s idea meritocracy full on.
As with any professional development book, you should first try one or two of Dalio’s ideas and see how they work.
I also recommend waiting to see if Principles becomes the seminal business book of the decade or is just the flavor of the month.
In his inimitable direct fashion, Dalio writes, “If you haven’t successfully done something, don’t expect others to listen to you.”
Good advice. But just because you’ve done something successful doesn’t mean that everyone else should listen to you.