#17 🚀 "Streetlight Effect" by Ivan Taboga

The Newsletter of High Frequency folks

👋 Hello! Dr. Molina here! 👨‍🔧

🤗 Thank you for reading and welcome to the show my Newsletter.

I’m Founder and CEO at Frenetic, where we train and create Great Magnetic Engineers 🚀.

Engineers spend a lot of hours solving their problems in the codes or hardware. Most of the time, they are only able to search for problems in the places where they use to be, based on their experience. However, problems can be everywhere. This is also true for talent. We use to look for talent and skills we know, but we don´t see the talent we haven´t seen before.

👉 This week, I leave the stage to my friend and CFO of Frenetic, Ivan Taboga who will talk about the Streetlight effect.

Streetlight Effect

All serious finance topics start with a funny story. Here we go:

At night, there is a guy searching on the floor under a streetlight.

Another guy passes by and asks:

“What´s going on?”

“I lost my keys”.

“Can I help you to search? Have you lost them here?”.

“No, I lost them over there, one block away”.

“And why are you searching them here??!”

“Because this is where the light is”.

This joke is used to describe the so-called “streetlight effect”: an observational bias that drives us, when we face a problem, to focus our efforts on the things we see and we know. Kind of “knowledge comfort zone”. I believe it affects basically all of us.

If there´s a finance-related problem (project profitability, cash flow issues, credit collection, whatever), it´s pretty common to start to look for a solution that is immediately visible, that you have seen before and that, normally, works. The more experienced you are and the easier is to fall for recognizable patterns and apply the same recipe. The problem is that the lost keys might be somewhere else (spoiler: normally in more than one place…).

For example: when you give for granted that with a specific customer you make money because you have a good direct margin, you might not dig into all the necessary details: is the cost-to-serve well calculated, how about dedicated customer service costs, financial costs for long payment terms, management time and efforts, product customizations for that customer, hidden costs that you don´t allocate by account…

Lately, I have been involved in activities outside of the pure finance zone, like helping the marketing team effort. I love it. But it´s the ideal situation for the Streetlight effect to blossom. You get the overall principles but you don´t know the technical part (SEM, SEO, etc) and how the different pieces come together. In those situations, the dark outside the light beam is very deep, and common sense might not be enough.

Is there a way to eliminate this bias? Not that I know! The only suggestion is to be aware of it, try to fight it (in yourself and others when you observe it), ask for second opinions, and be humble: know that you don´t know and keep on learning.

Last point: it could be very dangerous when this bias kicks in during a recruitment process: you overestimate the skills that you recognize, often because they are similar to yours. And you omit the candidate strengths that you don´t understand. Because they are far away from your streetlight. And this could strongly limit the diversity within your organization. But maybe this is a topic for next time.

Road to APEC

Next week, we will be back in California. We are already establishing our base there. In two weeks, we will be at the APEC conference, the exciting event of the year! 🥳🥳🥳

and before APEC, we have the PSMA Magnetic Workshop, a great event where I’m part of the organizing committee. This year it would be great to be back to a face-to-face event.

If you are in APEC, see you there!

That’s all for today. If you have found this article interesting, please, share it with your friends. Thank you in advance!

Sincerely,

Chema 👋