Metaphor Malware: The Clumsy Thinking That Is Crippling Your Business Understanding

Why you should fire your analyst who keeps calling everything "the Uber of _____"

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How Metaphors Disable your Mind.

How many times has an idea been pitched as the “Uber of” something, or as an “arms dealer”, or as “the next Amazon”? Such regurgitations may seem innocuous enough, but the truth is they are debilitating your ability to understand an investment opportunity clearly.

Metaphors and analogies are used to create a quick understanding when none is present. Like drawing a bridge to an unknown cliff, a metaphor connects two ideas that previously had no relationship. In doing so, novel areas may be explored, and a new understanding formed.

This isn’t a novel idea. The great Charlie Munger was adamant that you must read regularly and broadly in order to build up your lattice work of metal models. Key to the “lattice” part is being able to draw connections between disparate fields. Munger was a big fan of psychology and his talk, “psychology of human misjudgment”, is riddled with examples on how psychological principles explain business problems, whether that be the Super Response Tendency and Xerox’s failure to sell their original machine or the Deprival-Super Reaction Tendency driving Munger to miss a $5.4mn gain in Belridge oil stock. Buffett too commonly draws on metaphors to understand business concepts, the most famous of which is of course the very idea of a “moat”.

A metaphor is a relationship, but also a short story. Stories aid our understanding, but can just as easily push us to get subsumed in an untrue narrative. In using a metaphor that doesn’t fit, or worse, a cliché, you are circumventing critical thinking all together. Your desire for a pithy understanding comes at the cost of the understanding itself.

Neuroscience Researcher Iain McGilchrist notes in the quote below not only on the importance of metaphor, but also how once something becomes a “cliché” there is no active thinking going on. (Interestingly, the part of the brain the deals with new concepts and generalizations is only activated with new metaphors. Once a metaphor becomes familiar, it bypasses that part of the brain).

“Metaphor is not just a reflection of what has been however, but the means whereby the truly new, rather than just novel, may come about. When a metaphor actually lives in the mind it can generate new thoughts or understanding. —it is cognitively real and active, not just a dead historical remnant of a once live Metaphor, a cliché”

Narrative Fallacy.

We want to make sense of the world, but the world isn’t easy to make sense of. We have a set of limited observations and facts which we weave into a narrative to placate our minds since we are ever uncomfortable with the idea that we can’t truly know something. If we ran a simulation 1,000 times with Jeff Bezos founding Amazon again in 1994, how many end with Amazon being the success it is today? Bezos talks about how he started with books because there was more items in the category than could ever be fit in a single bookstore and they were hard to damage in shipping. Was starting with books really that essential?

Jeff Bezos in an early Amazon warehouse when they only sold books.

Marc Lore picked baby products since the period after a couple has a baby is a time where most of their habits change. Their core product was Diapers, which were regularly purchased by new parents, giving them ample opportunity to cross-sell other baby items. Overseas, Forrest Li who founded Sea Limited (which is nearing $100bn in annual GMV) spoke of starting with women’s fashion since young women tend to be “taste-makers”. Importantly though, apparel also was very light weight, making shipping cheaper, and the hard-to-break nature of clothing, with a ton of different selection, made it a category Sea focused on early. Richard Liu founded JD.com in China by first focusing on the so called “3Cs”, computers, communication, and consumer electronics device. His reasoning was that there were few relevant brands making it easier to fully stock everything a customer could want and the high ASPs made it easier for customers to accept paying for shipping. Notably though, this category is fairly delicate compared to books or blouses. 

JD.com started out as a small kiosk that sold hard drives and CDs and was called JD Multimedia. JD originally stood out for its authentic products, which later helped them transition to online sales easier since trust issues were common.

While of course with different countries, cultures, and points in time, different initial ecommerce categories may have made sense. Our point is that nowhere else where we see a successful ecommerce company was books the first category they focused on. It doesn’t prove books wasn’t the best category for Amazon to have started with in 1994, nor does it prove books was the best category. In fact, we can draw precisely nothing! And that is the point.

The “books are the best category to launch an ecommerce company with” hypothesis cannot be tested because we can only run one experiment once. But key to our point, no matter what the outcome of that experiment, we will start to concoct stories on the outcomes inevitability.

Whether we properly understand why Amazon was so successful or not isn’t the real issue. The issue is when we import fallacious reasoning to novel situations and try to contextualize them with old (and often irrelevant) understandings. Can you imagine an investor lecturing Marc Lore, Richard Liu, or Forrest Li on how mistaken they are to start their ecommerce company with their respective categories because “books” is clearly the best one? We can.

The Wrong Take-away.

In order to grasp the depth of the problem, you need to understand that your brain has a tendency to group together gaps in knowledge, made-up stories, and absolute confidence—a lethal combination. These so-called confabulations are haphazardly created by the mind, and then “you” actually believe them, thinking there is some sort of inner genius coming from this thought exhaust. 

Ian McGilchrist again:

The brain, not being able to recall something, rather than admit to a gap in its understanding, makes up something plausible, that appears consistent, to fill it. Thus, for example, in the presence of a right-sided lesion, the brain loses the contextual information that would help it make sense of experience; the left hemisphere, nothing loath, makes up a story, and, lacking insight, appears completely convinced by it. Even in the absence of amnesia, the left hemisphere exhibits a strong tendency to confabulate: it thinks it knows something, recognizes something, which it doesn't, a tendency that may be linked to its lack of ability to discriminate unique cases from the generalized categories into which it places them. The left hemisphere is the equivalent of the sort of person who, when asked for directions, prefers to make something up rather than admit to not knowing.

While these findings are most extreme with split-brain patients, a person with a fully functioning brain still exhibits a common thread of such behavior. Ask anyone how Tesla, Google, or Apple succeeded, and you will get an answer. Of course, any such answer, even if not incorrect, will only note a couple variables of perhaps thousands that needed to come together in order for the observed outcome to have taken place.

Compounding Fiction.

This problem of never truly knowing all of the variables that created an outcome is then compounded by applying the wrong frameworks to the wrong situations. This is most commonly done through a metaphor.

A metaphor is a prepackaged thought that doesn’t require exerting any incremental intellectual exertion to come up with. Calling something the “Uber of X”, disengages the part of your mind that critically thinks in anomalous situations. Rather than understand the nuance of how short-haul trucking, dog walking, or car sales are not like Uber, the mind is left with a familiar mental model that provides the investor comfort… that is at least until reality hits them that their investment has little to do with Uber.

What you want to do instead is to conceptualize the industry, competitive dynamics, and product before bringing in a “pre-processed” understanding on what the outcome of that analysis should yield. If you hear someone describe their product as “the next Airbnb”, they are already trying to commandeer control of your ability to critical think. Don’t let them.

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