Chapter 2: Stochasm
How to notice the gap between what you think you know and what you actually know.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
— Mark Twain
What will I learn in this chapter?
We’ll show you how closing the stochasm — the gap between what you think you know and what you actually know — can lead to smarter decision-making that reduces the mistakes and vulnerabilities others could exploit. You’ll discover why it’s vital to set aside the pride of your beliefs and assume there’s always something you could benefit from learning. Here are your key takeaways:
Confronting and closing the stochasm is a means to defeat under-certainty while also opening up future possibilities.
Most people find confronting and closing the stochasm deeply uncomfortable because they must admit that much of their understanding of reality has been, or is now, wrong.
Some people falsely believe leadership is all about having the answers so others will follow you with confidence. But throughout human history, the stochasm dictates that asking the right questions is the principle value of leadership for followers of any kind.
Contradictions are valuable because they prove reality is hidden from you, at least in part. Reconciling contradictory evidence across more than one perspective can unleash tremendous potential for growth and innovation.
Mercenary stakeholders will ignore or fight those who contradict them, but Missionaries will seek out conflicting opinions to reveal the whole truth.
Doctrine and Tradecraft
Imagine you’ve been invited to a special event. You need to figure out what you’ll wear. You pull out an outfit you like but haven’t worn in a while. As you get dressed, you discover the clothes won’t button like they used to or even make it past your thighs.
What went wrong? The clothes didn’t magically shrink. Something you assumed was true — that your clothes would fit — is no longer true.
In the larger world beyond your closet, mistaken beliefs are everywhere. No one is immune to them. We all suffer from our own unique combinations of biases and information gaps.
We call this abyss between wishful thinking and reality the stochasm.
The fact that incorrect or incomplete beliefs are so common doesn't mean they aren’t potentially disastrous; arguably, that’s where all the disasters begin! You might have heard Christopher Columbus worried he might sail off the edge of a flat Earth. It was a common misunderstanding that people never learned: The Earth is a sphere. This misconception continues to color modern understanding of medieval history and the intellect of people who lived at the beginning of the Renaissance.1
Business leaders and other people of influence can find themselves in jeopardy as well if they operate on untruths or faulty assumptions. For example, if you’ve grown complacent due to past success, you might overestimate the need for your new product. You might even skip the market research that would inform better launch decisions. Extrapolating past performance is the source of many business failures.
Leaders seeking to minimize risk and act in the best interests of shareholders, customers, employees, and the greater world must acknowledge there are “facts” they fiercely believe in that are demonstrably false. We must constantly confront our ignorance and close the gap between what we wish to be true and the actual truth.
Closing the stochasm gap is the secret mission of all intelligence.
There are only two ways to achieve it — create new knowledge or challenge false assumptions. Usually, it’s a bit of both. The latter is much harder and more painful because your pride prevents recognition that you’ve been bamboozled. As the saying goes, “It is easier to fool a man than to convince him he’s been fooled.”
To the Mercenary, the universe and everything in it is disorderly — even random. It is unthinkable to the Mercenary that a stochasm exists at all because they assume their short list of under-certainties must have accounted for anything important. It’s easier on their ego for them to add to what they already know than it is for them to accept their beliefs were wrong.
The Mercenary also doesn’t prioritize leaving behind an improved state of affairs for others. They care most about getting rewarded for a job well done that produces the desired result for their client. Sometimes, they’re even forced to accept falsehoods to survive the moral cost of their actions, including the lie that they have no responsibility to consider their long-term impact on the world at large.
Most business leaders lean toward Mercenary in their mindset, but this tendency is not limited to commercial matters. Leaders of all kinds have trouble appreciating the consequences of their actions beyond their own leadership tenure. Without properly aligned incentive structures, this Mercenary mindset can spin out of control with disastrous implications.
The Missionary, on the other hand, sees where others are encumbered by faulty assumptions designed to boost their ego. Confronting and correcting those lies replaces misconceptions with clear, complete, and accurate truth. As Nassim Nicholas Taleb suggests in Fooled by Randomness,2 many of the forces surrounding us produce random effects. How we respond, however, must be deliberate. The Missionary must leave behind conditions improved from those that existed before they were involved by honestly parsing fact from fiction. Just as the Mercenary is adept at defeating finite under-certainties, the Missionary thrives while confronting untruths one at a time, wherever they arise.
The Mercenary questions: What is truth?
The Missionary answers: Truth is simply facts in harmony with reality.
Contemporary, post-modern society has challenged this basic principle and asserted that there is a different truth for everyone. This is incorrect. There is only one truth, one reality. Your perspective is subject to the facts you’ve been presented with.
Objective reality has an infinite number of these perspectives available. Subjectivity means one person’s view of reality is different from all others, but it’s the same reality everyone is looking at. A diversity of perspectives lends greater resolution to any situation, but truth is never relative.
Consider the geometric shape of a chisel tip. When you look at a chisel tip from one perspective, it looks like a rectangle from the side. If you turn the chisel tip 90 degrees, it looks like a triangle. Another 90 degree turn on end and it becomes a circle. When you shine a light from three perpendicular viewing angles, the chisel tip creates three contradictory shadows — rectangle, triangle, and circle.
Figure 5: The three contradictory-yet-true perspectives of a chisel tip truth
So, is the chisel tip a rectangle? A triangle? Or a circle? Paradoxically, it’s all three. Based on one’s point of view, rectangle, triangle, and circle are all true. To be clear, there are not three truths; there is one truth called reality. There are not three perspectives — there are an infinite number of perspectives that can all be true about that singular reality.
But the chisel tip is the truth.
This observation about points of view more broadly reveals how valuable paradoxes can be. One seldom sees reality — the truth — until we step away and look from another’s point of view. Innovation happens when we systematically step back to appreciate the equally true contradictions that coexist in our macro-environment. The Missionary helps others gain the perspective they’re missing to achieve a higher-resolution understanding of their shared reality.
The Mercenary does not lack the ability to see the stochasms of others. In fact, they will exploit such knowledge gaps to win. By contrast, the Missionary will never find justice being rewarded for a job well done when everyone else suffers the consequences. The ends never justify the means. Missionaries have a moral advantage over amoral Mercenaries since Missionaries cannot operate on false beliefs. They must reconcile contradictions to take advantage of life’s paradoxes in service to the higher calling of an infinite universe. The philosophers of antiquity echoed this mindset. As Socrates famously remarked, “I know that I am intelligent because I know that I know nothing.”
In business, the Missionary’s search for truth and commitment to refine the resolution of reality protects a Mercenary’s ability to compete over time. Missionary dedication to their perfect vision of the future precedes Mercenary success in executing the strategy to achieve it. Executives are unencumbered by such standards of perfection when pragmatic reality imposes daily compromises.
“Talent hits a target no one else can hit; Genius hits a target no one else can see.”
– Arthur Schopenhauer
This is why founders struggle to manage in the long term. The compromises an executive leader deals with all day long are unthinkable to a founder’s vision. But that vision seems naive when confronting practical reality. Executive talent complements visionary genius by redefining perfection as “good enough” to get the job done day to day.
Applied Case Examples
Even the most successful companies in history, sooner or later, will lose their Missionary advantage by failing to confront a stochasm. We can see this in the story of Sears.
In 1966, the company, headquartered on Chicago’s west side since 1906, determined that its existing offices were no longer adequate. By 1969, Sears had become the world’s largest retailer, with a payroll of nearly 350,000 people. Sears contracted Skidmore, Owings & Merril to design and construct an office tower to consolidate its Chicago-area workers.3 The building was as much a testimony to Sears’ corporate dominance as it was an attempt to put headquarters staff in a single location to improve efficiency.
Construction on Sears Tower — later renamed Willis Tower — started in 1970 and was finished in 1974. The building was the tallest in the world, and it helped rejuvenate Chicago’s West Loop. But by 1989, Sears was looking to cut operating costs and was at risk of abandoning downtown Chicago. Edward Brennan, then Chairman of the Board, met with Illinois Governor James Thompson in an attempt to devise financial incentives to keep Sears — one of the state’s largest employers — from relocating to another state. The pair cut a deal that gave Sears the largest package of governmental incentives ever given to a single company in Illinois history, and the company relocated operations from Sears Tower to a new headquarters in Hoffman Estates.4
The building was sold in 1994. In 2018, after years of financial turmoil, Sears filed for bankruptcy. In 2021, Sears announced plans to sell the Hoffman Estates headquarters, and in 2022, the company’s bankruptcy filing was approved.5,6,7
How could such a thriving company fall so far from grace?
Part of the issue was that Mercenary bias had clouded leadership’s ability to see how the company’s dominant market position might ever be threatened. At the same time, Sears didn’t appreciate Walmart’s effect on retail and consumer expectations. Sears was paying premium rent to lease anchor store floor space in shopping malls, but consumers had started migrating away from malls as Internet-powered e-commerce technology offered new, more convenient ways to shop from multiple stores at once.
Walmart, by contrast, had grown by expanding into underdeveloped communities and investing in significantly cheaper real estate to build its retail outlets and supercenters. Meanwhile, Sears cannibalized assets to stay afloat by liquidating brands consumers had come to associate with Sears’ central value proposition, exemplified by selling off iconic names like Craftsman.8
Had Sears confronted its stochasm — declining foot traffic at shopping centers — leadership might have focused on serving customers with a value proposition to attract them back into stores or to new retail possibilities. The company’s story might have ended differently — or not at all.
Sears is not alone. Other contemporary market leaders, such as Blockbuster and Kodak, failed to confront knowledge gaps and false assumptions to innovate value for customers. Blockbuster tried unsuccessfully to buy Netflix when it realized, too late, that streaming would topple DVD rentals. Kodak invented digital photography, but the innovation was too big a threat to its hyper-profitable film business to let it succeed.
Not all corporate titans doom themselves to failure however.
In the early 1990s, IBM nearly went belly up until a CEO with a bolder vision, Lou Gerstner, was recruited to slash operating costs and divest from sacred but unprofitable businesses. IBM’s confrontation of its stochasm restored the competitive advantage that had eluded its corporate contemporaries, Blockbuster and Kodak. Gerstner was the first IBM CEO hired from outside the company. Had IBM chosen a new leader from inside the business, that restoration would have been a lot less likely.
Missionaries understand they’re better equipped to escape oblivion by admitting they don’t know as much as they thought they knew. But we must also reflect on how much we’ve come to rely on experts. Rather than relying on our own experience or intuition to tell us what is and is not true, we seek out experts with a Mercenary mindset instead. But only you will live with the consequences of your choices. Take responsibility for your outcomes personally.
We must claim sovereign responsibility over our own long-term future, rather than passively submitting to the conditioning of others and the competing agenda they might serve. We must not surrender our own destiny to those temporarily influencing us under the allure of safety or convenience. The Missionary advantage in closing a stochasm will always serve long-term sustainability better than the Mercenary’s focus on short-term results.
Which mindset is strongest in you?
Unlike the Mercenary’s winning aspiration, the Missionary serves a just cause.
The most contrasting aspect of a just cause is that it is unlikely to be achievable in the Missionary’s lifetime. So, they won’t benefit directly from their contributions to its progress. They are discovering unknowns beyond their personal experience and assume other perspectives add resolution to the truth. They want to understand everything they can about the people who are put in their path. They make friends out of enemies, assuming a higher power directed them there for a reason. Their solemn and prophetic responsibility can’t be offended by mere human opinions.
The Mercenary, in comparison, prefers a winning aspiration that temporarily rewards them for a job well done. After all, nothing is eternal to them. Subjective personal experience supports their belief more than objective, up-to-date evidence. This singular perspective can cause more mistakes than it avoids. When teammates have conflicting viewpoints, they are simply mistaken. To the Mercenary, people are more often obstacles than opportunities. If someone is in their way, they will ignore or neutralize that person so they can stay focused on results. That’s why they usually prefer to work alone.
We see starker versions of these personalities in literature. In Ayn Rand’s novel The Fountainhead, the architecture school Dean asks the hero, Howard Roark, whether he’s serious about constructing a building the way he designed it. The Dean speaks as a Missionary might and asks, “My dear fellow, who will let you?” Roark asks back, as a Mercenary, “That’s not the point. The point is, who will stop me?”
Which fairy tales, fables, and other stories come to mind that demonstrate the comparative strengths of each perspective — Missionary vs. Mercenary? How heroic could anyone be without an adversary to overcome? When you look closely enough, you will see that even adversaries are the heroes of their own story.
Memoirs
The overwhelming majority of our clients respond positively to the truths we aim to provide in our briefings. But this isn’t one of those stories.
Once, when we delivered our findings to an enterprise software client to close out a market sizing engagement, we presented a contradictory estimate of reality compared to what they expected to hear. In fact, they produced an onslaught of accusations: You’re wrong. Your source made that up. We don’t believe this is true.
Our shock at their disbelief gave way to resolve. We had to explain the unthinkable truth to those about to allocate capital based on false assumptions. We might have been tempted to soften the blow of facts running counter to their preconceived expectations to keep our client happy and eager for follow-up work. But we’re not in the expectations business. We’re in the business of truth.
The lead analyst who presented our findings believed only in delivering the truth, as disappointing as it was. Avoiding mistakes is more important than pleasing a client with wishful thinking — in this case, that their target market was bigger than it really was. Our analyst refused to back down and backed up everything presented with cross-referenced sources. We eventually convinced the client stakeholders we had discovered a flaw in their growth strategy, and they avoided a serious investment mistake.
Standing your ground to close a stochasm is anything but easy. In a professional setting, such as the market sizing story above, you might confront stakeholders who are challenged by your findings and insult your skills to make the conflict personal. Like our analyst, you’ll need to practice standing your ground with conviction every time you take the field.
When was the last time you had to stand your ground when everyone was against you?
Questions to Activate Stochasm
Who do you work with today that contradicts or challenges whatever you have to say, seemingly for no apparent reason?
Invite that person and their team into a room for 30 minutes of examining assumptions about your shared reality without judgment. Rather than assume a contradictory conclusion is wrong, work together to understand how that result or conclusion was discovered from the perspective of that other observer. Why did they arrive at their conclusions? Is their logic sound? Might you be wrong yourself? Where is the truth between you, created through new knowledge or partnering to defeat false assumptions that might no longer be true?
If you can’t find that sparring partner at work, another option for exploring your own personal stochasm is to seek out a 30-minute conversation with someone who disagrees strongly about something that matters to you both. If you can find someone willing to do that nowadays, you’ll come away with a different point of view. That alternative perspective might not change your mind. But you might be able to offer a new way of looking at the truth that changes theirs.
In today’s world, that kind of dialogue has become unthinkable for most of us. People tend to walk away from confrontational facts that threaten their carefully groomed worldview. Nobody likes to be proven wrong, especially about things they were so sure of! But nothing attacks a confirmation bias like being forced to admit you’ve overlooked contradictory data.
The Discovery process is all about creating borders around your operating environment and trying to establish constraints inside those boundaries. Making sound decisions from Discovery demands a commitment to truth. Asking questions enables your stakeholders and teammates to admit the knowledge gaps they face. The challenge is developing exceptional listening skills to discern real needs from wishful thinking.
Allocating precious capital without first closing the stochasm is foolhardy.
How would you feel accepting that you’re not as smart as you think you are? By accepting our own lack of knowledge, we reduce the potential negative influence mistakes might have on our results. Confronting the stochasm allows us to cope better with risk. Conversely, ignoring the stochasm allows existential risks to inevitably hurt us. There will be options we might never notice because we can’t pursue them without damaging our self-confidence.
Do you remember the chisel tip with its singular geometry and diverse shadows — rectangle, triangle, and circle? Interpreting a shadow that contradicts another doesn’t mean one of you must be wrong. It simply means you both have an incomplete understanding of the reality producing those shadows. You can both benefit from the perspective you each have to offer.
Closing the stochasm for others requires compassion and patience. If those you serve could find their own way without you, they would. When you lead with your Missionary, your teammates follow because they cannot lead themselves as confidently as you can. Be on guard that your confidence is authentic. They need you to provide a higher resolution of the truth than they can themselves.
As in our Sears example, past success can be burdensome, misleading us to believe in our own infallibility. It’s often based on achievements enjoyed in a world that no longer exists. Chapter 3: Control will introduce you to control factor theory and complete your understanding of Discovery, also known as Strategic Intelligence. You’ll learn how the issues, stakeholders, and trends in your macro-environmental landscape are to be survived so your strategy can succeed.
References:
Lesley Cormack, “Flat Earth or round sphere: misconceptions of the shape of the Earth and the fifteenth-century transformation of the world.” Ecumene 1, no. 4 (1994): 363-85. http://www.jstor.org/stable/44251730
Nassim Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets (New York: Random House Trade Paperbacks, 2005).
“Willis Tower,” Encyclopedia Britannica, accessed December 19, 2022 from https://www.britannica.com/biography/Fazlur-R-Khan.
David Bernstein, “Sears’ Headquarters Was Supposed to Turn a Sleepy Suburb Into a Boomtown. It Never Happened,” ProPublica, 2020, https://www.propublica.org/article/sears-headquarters-was-supposed-to-turn-a-sleepy-suburb-into-a-boomtown-it-never-happened.
Robert Channick, “Sears Plans to Sell Hoffman Estates Headquarters,” Chicago Tribune, 2021, https://www.chicagotribune.com/business/ct-biz-sears-selling-hoffman-estates-headquarters-20211216-qb4gkujqebemxfg7fkgvzdop2u-story.html.
“Sears Merchandise Group moves to the ‘burbs,’” UPI, 1992, https://www.upi.com/Archives/1992/08/03/Sears-Merchandise-Group-moves-to-the-burbs/5600712814400/.
Alex Wolf, “Sears’ $175 Million Bankruptcy Deal With Ex-CEO Lampert Approved,” Bloomberg Law, 2022, https://news.bloomberglaw.com/bankruptcy-law/sears-175-million-bankruptcy-deal-with-ex-ceo-lampert-approved.
Paul La Monica, “Sears Sells Craftsman to Stanley Black & Decker,” 2017, https://money.cnn.com/2017/01/05/investing/sears-sells-craftsman-stanley-black-decker/index.html.
Bethania Palma, “Did Ayn Rand Say ‘The Question Isn’t Who Is Going to Let Me; It’s Who Is Going to Stop Me’?,” 2017, https://www.snopes.com/fact-check/ayn-rand-quote/.