Ray Dalio is the founder of Bridgewater Associates (an investment firm).
He’s one of the world’s wealthiest people, so he must know one thing or two about business.
But, as you know, running a successful business isn’t rocket science.
Anyone can lead a great organisation by having a set of core principles that are always there to keep them on the right path.
Understanding what’s most important in your company is a personal matter that you have to figure out for yourself.
But from a business standpoint, values like being honest with your staff to create an environment of trust and transparency.
It will keep problems from festering.
- how running a business is like being a mechanic;
- why kindness isn’t always the best policy;
- how to build your business from the top down.
See the big picture
Look to nature and evolution to keep your eye on the big picture.
Sometimes life can be so overwhelming, with so many questions coming at you from every direction.
It feels like you’re trapped in a blizzard, unable to see more than a metre in front of your face.
In such conditions, it’s impossible to tell which way you have to turn or what decisions you should make.
This is why you need a concrete set of guiding principles in your life.
Like having a compass in a blizzard, being equipped with such principles means you’ll always know exactly where you’re heading and which choices will keep you on that path, no matter the circumstances.
In short: having the right principles will provide you with fundamental truths that can be applied to any situation, allowing you to move toward your goals and the life you want to live.
When you’re figuring out what your guiding principles are it’s important to keep a realistic outlook on life.
Don’t fool yourself into thinking that life won’t be messy and uncomfortable from time to time.
Ray is keenly aware that reality isn’t always pretty, and this understanding led to one of his principles: to let rational thinking be your guide, not emotions.
Sooner or later you’ll know for the fact that life isn’t always ideal, and it’s important to keep this in mind.
Think of nature.
It’s sad to see a beautiful gazelle get eaten by a pack of vicious hyenas.
But this is just a natural fact of life – part of the balanced ecosystem that has evolved.
If you were to deny this reality and try to intervene, it would have dangerous repercussions.
So remember that things do go wrong sometimes.
And keep in mind that failure often provides a valuable chance to learn, adapt and evolve.
Any business that’s been around for a long time has had to adapt to change and bounce back from hard times.
Choose the right goal
It’s important to choose the right goal and to keep learning and improving.
You don’t have to be a professional athlete to put athletic training methods to work.
Thinking of life as a game can help keep you focused on getting results and reaching your goals.
This perspective can also make it easier to get through the bad times.
Even the best athletes have dry spells.
So it’s wise to remember that life won’t be one long winning streak.
When things aren’t going perfectly, it’s best to keep calm until things turn around.
But you can’t start playing without having an ultimate goal in mind.
The secret to good goal-setting is to prioritise and narrow things down.
Nearly anything is possible in life, but you can’t have it all.
A common mistake is to reach for too many goals, all at once.
But the truth is, whenever you choose one goal, you’re automatically ruling out some other goals in the process.
So the smart thing is to choose wisely by looking within and identifying what you desire most.
Now, if there is something you feel passionate about but don’t feel skilled enough to master, that doesn’t mean you should push it aside.
Remember, it’s never too late to continue your education, learn new skills and improve the ones you already have.
Once your goal is in place, the next step is to methodically examine the situation and identify any challenges or obstacles that are in your way.
This is where being realistic is key.
Don’t ignore problems because they’re too personal and don’t underestimate a potential issue by being overly optimistic.
If you have a personality trait like a tendency to be easily distracted, you shouldn’t avoid it.
Acknowledging your weaknesses isn’t the same as letting them control you.
Admitting they exist is the first step to improving yourself and learning how to control your shortcomings.
What is radical truth?
Radical truth and transparency are key to meaningful and long-lasting work relationships.
The other Dalio’s principles of doing business are: extreme truth and transparency.
Radical truth is about making sure that important issues don’t remain hidden.
It means creating an environment where employees feel free to speak their mind.
This kind of transparency is a safeguard against poor decisions since coworkers will constantly be exchanging criticisms, making improvements and catching mistakes before they happen.
At Bridgewater Associates, radical truth applies to the executives as well.
When most companies are considering closing or selling one of their divisions, many executives usually decide to keep things quiet and only tell their employees at the last minute.
But when this happened at Bridgewater, the senior managers held an employee meeting and were completely honest about the pending sale.
Here’s the thing: if managers aren’t upfront about an upcoming sale, it can cause a great deal of distrust and animosity among employees
It is because, in all likelihood, rumours about the sale will spread no matter what.
So why not show respect by telling the truth?
What is Radical Transparency?
Radical transparency is similar to the radical truth.
It means being open about the kind of behaviour and work that management expects from employees, and vice versa.
Managers and employees should treat one another as they would a partner in a long-term relationship.
This means showing mutual respect, looking out for what’s in the other’s best interest and being crystal clear about who’s responsible for what.
You’ll find that a workplace is at its best when employees show more consideration for their colleagues than they expect to be shown.
Yes, this is a radical approach since most people might be used to cutthroat workplaces where everyone is only looking out for him or herself.
But you’ll find that productivity and quality will improve when employees drop the selfish behaviour and start developing strong relationships based on generosity, cooperation and honest transparency.
How to evaluate performance
Radical truth extends to performance evaluations.
Being dishonest isn’t always a malicious act.
Indeed, people are often the most dishonest when attempting to be kind.
Once, Ray was considering promoting an employee to the Department Head.
He knew that many of this employee’s coworkers felt he deserved the job.
However, when Ray looked at the company’s performance tracking system, which contained hundreds of pieces of data on every employee, the evidence told a different story.
The employee considered for promotion simply didn’t have the right qualities for the job.
You may think the nice thing to do in this situation would be to give the employee the position based on the praise of his colleagues.
But the secret to success isn’t radical kindness, it’s radical truth.
You’ll be doing everyone a disservice by ignoring the evidence that the employee isn’t ready for the promotion.
As most people overestimate their capabilities and the amount of work they do, performing accurate evaluations is essential to preventing problems.
When Bridgewater Associates polled their employees and asked them to estimate what % of the company’s achievements they were personally accountable for, the combined percentages added up to 301%.
Clearly, managers must have an accurate understanding of how much work each person is doing, because employees usually don’t.
But accuracy and honesty are not only good for the overall business; they’re also good for each employee.
Psychologists believe the biggest motivator for personal improvement is the pain you feel after making a mistake.
When you feel so terrible about having done something wrong that you never want to feel that way again.
It’s called “hitting bottom” and it’s often what a person needs to finally change his or her ways.
It’s also important to remember that sorting out an employee’s shortcomings is time-consuming.
So it should be given priority over celebrating success.
When dealing with strengths, it’s a relatively simple matter of encouraging an employee to keep up the good work.
For problems, you need to identify the cause and work out the solutions
All of which can take much more time and resources.
How to enhance your team’s performance
Flowcharts and metrics are great tools for enhanced performance.
When you have a goal in place for your business, you can start to think of your employees as parts within an engine
An engine that’s powering your company, or machine, down the path toward its goal.
For Ray Dalio, his goal was to provide clients with the best possible ROIs.
He often felt like a mechanic, popping open the hood to improve the engine of his company’s machine.
This analogy, of the manager as a mechanic and the company as a machine, is a great way to keep your mind focused on the responsibilities of the job and what needs to be repaired.
Every machine should have a process flowchart that clearly shows how work enters and travels from one employee to the next until completion.
With this tool in hand, you’ll always be able to spot the exact place where problems are occurring and what you, the mechanic, need to do.
No one likes to reprimand or fire an employee, but remember that one of the fundamental principles of success is to be realistic.
This means you can’t fool yourself into thinking there’s a way to avoid unpleasant business.
Other great tools to check your machine for possible maintenance needs are metrics / performance measurements.
When you have a system in place to accurately measure performance, it’s like having a dashboard for your machine, complete with flashing lights to alert you the moment something goes wrong.
Metrics can provide a considerable boost to productivity.
Since metrics are unbiased, accurate and reliable, they’re perfectly suited to an environment that practices radical truth and transparency.
With an accurate view of exactly what employees are doing, and how well they’re doing it, you’ll find that the job of supervision almost takes care of itself!
Now that you know how to keep your engine running smoothly, let’s look at how to build a solid machine.
Why problems are good for you
Build organisations from the top down and keep an eye on manager-to-employee ratios.
As you move toward your goals, it’s only a matter of time before problems arise.
But you don’t need to panic and don’t let these road bumps deter you.
Developing solutions for problems is how many companies improve.
In other words, most problems will end up providing fuel for your machine.
However, if you hope to turn problems into advantages, you need to design your business so that you notice any problems and implement solutions straightaway.
One of the best ways to build your organisation is from the top down.
You can think of a good business structure as being the opposite of a building.
Your foundation is located at the top, which means that, first and foremost, you need to make sure you have great managers.
Every manager should be trustworthy and have high standards.
If this isn’t the case, their weaknesses and poor performance will eventually spread to their staff.
On the other hand, managers who show their appreciation for excellent work, and have strong oversight and strict quality control, will lead teams of employees who rise to their level of great performance.
So that they can deal with problems swiftly, each department should be given a certain amount of self-sufficiency and control over the resources they require.
If bureaucracy is keeping departments from acting fast, your teams simply won’t be able to do their job.
The good balance ratio of managers to staff
A good rule of thumb is not to exceed a ratio of ten to one.
The ideal ratio is closer to 5 employees for every manager.
This will give your managers the best chance of having meaningful relationships and mutual understanding with each employee.
But rather than setting strict rules on team sizes, you’ll get the best results by assessing each manager’s capabilities and proceeding accordingly.
So now you have a basic idea of the principles Ray Dalio has used to find amazing success.
It’s up to you to start putting them to use and turning your organisation into a constantly evolving and constantly winning enterprise.
The Key Takeaways
A collection of firm principles will help you make decisions, even during the most chaotic and confusing times.
These principles depend on you, but it’s always a good idea to build radically truthful and transparent relationships with all your colleagues.
As a manager, you are like a mechanic, and your company is like a machine.
You can use flowcharts and metrics to keep things running smoothly and ensure that your company is solid by building it from the top-down and keeping manager-to-employee ratios relatively small.
- Identify your blind spots.
- Everyone has areas where they’re closed-minded – that is, where they have blind spots.
- Unfortunately, it’s very difficult to see where your blind spots are.
- So to identify them, keep a list of the circumstances surrounding bad decisions you’ve made in the past.
- You could ask other people – especially people who spotted what you missed – to help you in this endeavour.
Put this list up on the wall and look at it every time you’re making a decision in your blind-spot area.
And don’t be afraid to consult others before moving forward.