Podcast 014 Decomposition

On today’s episode of the Modern Polymath, we continue our discussion on how to think like a polymath by talking about decomposition and why it’s important on how to think, meaning to decompose something or to break it down into different pieces to make sense of it.

014 Decomposition Transcript

Heather McKee:

Welcome to the Modern Polymath, where we discuss topics in technology, economics, marketing, organizational behavior, market research, human resources, psychology, algorithms, higher education, cybersecurity …

Heather McKee:

Hey, podcast universe. Thanks for tuning in. On today’s episode of the Modern Polymath, we continue our discussion on how to think like a polymath by talking about decomposition and why it’s important on how to think. Decomposition in this conversation is going to mean to decompose something or to break it down into different pieces to make sense of it. As always, we have with us Dr. Jon Christiansen, John David McKee, Will Callaway and I am Heather McKee.

Heather McKee:

Now, let’s get this podcast started.

Heather McKee:

What were you guys … Y’all were giving, Jon and JD that is, were giving some examples this morning of decomposition. Jon, especially you, you were spouting off a lot of different random examples. Do y’all want to talk about or maybe work into this and how y’all even got on the topic of composition and why that came up?

John-David McKee:

Well, the reason we were talking about it was we were trying to decide where to get started with a potential business opportunity. And as with any business opportunity or business that you want to run, well, you have to figure out how to optimize it. And to do that, you got to know where to start. And if you don’t have an understanding of the major components, who are your customers, who are your most profitable customers, where are you wasting your time, what products are you selling them, can you get an additional revenue from any individual customer, which … To know where to spend your time, you have to go beyond the anecdotal. You have to break it down and understand where the real value is and in each opportunity that’s in front of you.

John-David McKee:

We were looking at how do we take a database of customers for this group that we’re talking about working with and break it down to say, “This is the strategy we should be running with. Stop calling these people because it’s not worth your time.” Or “It looks like you think that your target customer is X, but it’s actually, if you stop and look at it, you’re only looking at net worth and maybe you should be looking at other variables.” And to do that, you got to first … What we’re talking about is how we take the data and analyze it to decide what actually is important. Is it a geographic radius kind of issue? Is it what products you’re selling? Is it who you’re targeting? Is it where you’re spending your time, how much time you’re spending in the car driving to people that you could be spending elsewhere?

John-David McKee:

In every five percent that you improve something makes a big difference. But in order to understand that, you have to break it down and you have to have an empirical understanding of what’s really going on, not the anecdote that you think is what’s going on.

Heather McKee:

Yeah. That’s, I guess where y’all got to decomposition, like you’re decomposing the data. Is that right?

John-David McKee:

Yeah.

Heather McKee:

Am I hearing that correctly?

Jon Christiansen:

Sort of.

Heather McKee:

You’re decomposing the question.

Will Callaway:

First principles of thinking is one of the best ways to reverse engineer complicated situations and unleash creative possibilities, sometimes called reasoning from first principles. It’s a tool to help clarify complicated problems by separating the underlying ideas or facts from any assumptions based on them. What remains are essentials. If you know the first principles of something, you can build the rest of your knowledge around them to produce something new.

Jon Christiansen:

All right. Decomposition takes all of that but doesn’t remove the assumptions because you have to have them. Because basically, the premise is, and I liken it to any of my doc students writing a dissertation. It’s like if you look at it as the big product of all of the citations and it’s 500 pages with tons of figures, you’re never going to get it done. But if you look at chapter two, which is your lit review, which makes it look like you’ve read 500 articles, which nobody ever does … If you write them as eight different sections, which are eight different short papers, which actually really aren’t that hard because you probably read a bulk of them anyway, then it looks a whole lot different.

Jon Christiansen:

It’s decomposing this massive complex, seemingly overwhelming, daunting task and breaking it down into manageable parts. But this, in that regard, is taking that … The first principle is about here’s our base layer of what we understand and then applying assumption so that we can make a reasonable estimate about what the outcome is without …

Jon Christiansen:

Imagine you’re applying … You’re sitting in an interview and they’re going through your resume and they’re saying, “All right, you had three years at Apple. Tell me about your day-to-day tasks and what it was like to do X, Y, and Z.” And then here comes Reggie from the back row. We all know a Reggie. And Reggie says, “All right, I’ve got a question for you. You went to Clemson, right? Death Valley, the football stadium, how many people fit in there? 80 something thousand? All right. How many pizza boxes would you put in that place?”

Jon Christiansen:

Now you’re like, wait, I went from explaining how I faked my way to my job at Apple and lied about most of the things I did to now having to lie about this? But the reality is you don’t have to because it’s a spastic question that in reality is not life or death because a lot of questions of this type tend not to be, because if you really needed to answer the question, you could probably Google some version of it. But you really don’t need to because there’s a few … This is where you start making assumptions.

Jon Christiansen:

It’s like, okay, well let’s first of all define … We know what stadium we’re talking about. We know it’s a football stadium. We know the dimensions of a football field. Okay, now let’s start making assumptions. Let’s call the size of a pizza box a 12-inch pizza. Well, they go from end to end. They’re perfectly square, so 12 by 12. Lay that out on the floor of the football field, which is 60 by 120. Okay. Now work up. All of a sudden you filled a pretty substantial portion of it and you pretty much have a strategy that you would to answer a pretty ridiculous question.

Jon Christiansen:

Enrico Fermi, the Nobel Laureate physicists that did something that I can’t even remember what he did specifically in physics but was world renowned for his teaching methods, one of the major things he would do in his graduate seminars is he would ask questions like this. And what they ended up calling it was a Fermi decomposition. And the question he would ask that’s pretty famous is: Estimate the number of piano tuners that are in the city of Chicago.

Jon Christiansen:

And it’s like, all right. Well, first of all, clearly this was more than a couple of years ago because apparently piano tuners were a job then. I doubt if you went into the Bureau of Labor statistics, that’s still a thing.

Heather McKee:

My job category.

John-David McKee:

I’ve looked into it, though.

Jon Christiansen:

Audio engineer.

John-David McKee:

That’s a tough job, just side note.

Jon Christiansen:

It’s got to be.

John-David McKee:

Oh, it is. I was like, “I can DIY that,” and I was like, “I don’t want to try.”

Jon Christiansen:

Oh, that’s right, because you guys have [crosstalk 00:07:53]-

John-David McKee:

Because there’s a hundred plus strings. You have to tune each one individually. It’s just lot.

Jon Christiansen:

You need a metronome thing to do that?

John-David McKee:

Yeah. You have to have-

Jon Christiansen:

Forget about it. All right. How many hours would you estimate that takes for somebody that’s professional?

Heather McKee:

20.

John-David McKee:

No, three to four, half day.

Jon Christiansen:

Okay. That said, 1.2 million housing units in the city Chicago. I happen to know that because we write novels about it that have taken four years. In that same amount of time, we could have bought a publishing company by laying brick.

John-David McKee:

By laying bricks, yeah.

Jon Christiansen:

Then the next question would be, well, how many pianos do you think are … Let’s say it’s an apartment building of 100 units. How many pianos are in it? Okay. Well, I guess now we can kind of apply some level of heuristics and say the best I can do is go through my … randomly draw 10 people I know or maybe it required 20. How many people do you know that own a piano?

Heather McKee:

Not a lot.

Jon Christiansen:

Well, you guys do and my sister does. All right. Let’s say like now thinking of two, three, four, five, six … All right, so two of 10. You guys might have one of 15, whatever, but it’s better than just … At least now I have an assumption that I’ve used based on some underlying something.

John-David McKee:

You call it 10% in this case.

Jon Christiansen:

I’m not pulling a number out of air.

John-David McKee:

Right. Call it 10% to be easy here. What was it? 1.2 million. Is that what you said?

Jon Christiansen:

Mm-hmm (affirmative). It’s 120,000.

John-David McKee:

120,000 pianos in the city. Now, how many people can service that? How many can you do in a day? How often do you get that piano tuned.

Jon Christiansen:

Now we work from that part. Okay. The next assumption would be that a piano tuner’s A, not going to work for free, B, has to be able to make enough to occupy probably a full week’s worth of time. Okay. The city is Chicago is pretty well spread out. You figure that if it takes three hours, it’s probably an hour of travel time, I would think. They’re probably doing two a day if they’re booked full.

John-David McKee:

Yeah. Book full, so 10 a week and 120, so there’s 12,000 cases that could be done. There’s how many weeks in a year? 50. 12,000 … That means there’s room for …

Will Callaway:

Just call it 50 just to be [inaudible 00:10:30].

Jon Christiansen:

Yeah. Because they’re probably doing it 50 anyway. They’re taking two weeks vacation.

Heather McKee:

Right, exactly. Or holidays or whatever. Yeah.

John-David McKee:

Yeah. That then leads you to how many piano tuners there can be if everybody’s a max capacity. They’re not going to be because you’re going to have a lot of part-timers in there that just do it on the side.

Jon Christiansen:

But that doesn’t matter because we’re just looking for an estimate.. We’re using base level assumptions of what we know about simple things. Let’s see. 52 … 240. That’s the number we got.

John-David McKee:

240.

Heather McKee:

240 piano tuners.

Jon Christiansen:

I’m pretty sure the actual number was like 200 and something.

Heather McKee:

Whoa.

John-David McKee:

And what’s funny is that doesn’t mean the math would have to work out, but it will over time because the market will define how many it can support. And people are going to drop off automatically. It’s not like every piano tuner sat there and ran those calculations and say, “Oh, it’s a saturated market. I shouldn’t get into it.” The market will do what it does, and it’ll take care of that over time. The actual number is 125, Jon.

Will Callaway:

All right. But from when, though?

John-David McKee:

Yeah. Yeah, that’s true. Well, the math was dividing gives 125 piano tuning per year in Chicago … 105,000. 1,000 piano tunings per year per piano tuner, 125 piano tuners. We also were guessing on how long it took. Oh, here we go. All right. It’s Fermi. How many piano tuners are there in Chicago? Approximately 5 million people. Yes. This is dated.

Heather McKee:

What year?

John-David McKee:

I don’t know, but-

Jon Christiansen:

I think it was the 1930s.

John-David McKee:

It would make sense. All right. You start … There’s five million people living in Chicago, according to this. On average, there are two persons in each household in Chicago. Neat. There’s your household level. Roughly one household and 20 has a piano that is tuned regularly, which is important because a lot of people don’t, so one in 20. [inaudible 00:12:20] five percent. Okay, cool. Pianos that are tuned regularly are tuned on average about once per year, which is what you’re supposed to do, but most don’t do it. Oh, it takes about two hours to tune a piano.

Heather McKee:

That’s all?

John-David McKee:

Including travel time.

Heather McKee:

Whoa.

John-David McKee:

I was way underestimating their skills. They’re really good, apparently those in Chicago, at least. If each piano tuner works eight hours a day, five days in a week and 50 weeks in a year, you go that to break this down, the assumptions … From that, you can compute the number of piano tuners in a single year … There’s five million people in Chicago divided by two is 2.5 million. One piano in 20 households times five percent. One piano tuning per year for each of those equals 125,000 piano tunings per year.

John-David McKee:

And then if you calculate based on the individual performance, 50 weeks in a year, five days in a week, eight hours in a day, one piano tuning per two hours per piano tuners is 1,000 tuners per year per piano. Therefore, there’s 125,000 divided by a 1,000 is 125 piano teachers. There, decomposed it. We do this process all the time though. It’s all addition, subtraction, multiplication, and division.

Jon Christiansen:

Simple, simple question that we can just play around with right now. How much money would it be worth? Actually, before you even do that, let’s just ask a simple, wide open question. Should we go acquire a restaurant that might close down in the next six months here in the city?

John-David McKee:

No. Okay.

Jon Christiansen:

That’s a simple answer.

Will Callaway:

Acquire the restaurant or acquire the space?

John-David McKee:

How many people eat out? No, a given restaurant. How many restaurants are there? How many people are there? What’s the average capacity per restaurant? Where’s it located? How far do people drive to get to said restaurant? How likely do they go more than once a month? Things like that.

Jon Christiansen:

Yeah. Really, what you would need … It all goes back to how much money could you generate and then what would it cost? Really, what you need is-

Will Callaway:

Yeah, I think you start at cost.

Jon Christiansen:

… the population, the competition and how frequently the population goes out. And how much of that I think I can capture.

John-David McKee:

There’s your tier in that. You got your regulars, you got your every now and thens, you got your everydayers, which is more than a regular.

Jon Christiansen:

But you could draw a line in the sand.

John-David McKee:

You can.

Jon Christiansen:

You can say it’s two times a week.

John-David McKee:

Exactly. Because the average piano tuner is not actually doing that number. Somebody’s a superstar and some of them are underperforming. Real estate agents make between several million dollars a year and five dollars a year depending on how good they are and how much they work, and where they are and everything else

Jon Christiansen:

I would love to meet the five dollars a year guy.

John-David McKee:

By the way, there’s, the updated numbers, about 200 tuners needed in Chicago. I thought the updated number was somewhere around 200 because I remember those numbers because the German tank problem is very similar. When you actually look at the conversion and the story goes … Maybe we’ll probably cover this another time, but during World War II, the Allied powers were looking to try to estimate the number of tanks that the German military was rolling out. And estimates were coming in the multiple thousands. And then there’s this Einsteiny mathematician that came out of nowhere and said, “No, it’s something like a hundred and something.” And they’re like, “What? How are you getting that?”

John-David McKee:

And basically all he did was he looked at the serial numbers, said how many serial numbers have we actually captured from them, because that’s how they’re running them. You take the high, the low, divide it by the number that we’ve counted. And it’s some kind of math around that. And actually, the actual number was within 12 of whatever the estimate was by the time the war was over.

Heather McKee:

Oh wow.

Jon Christiansen:

The whole premise is establishing a methodology for some kind of an estimate for a pretty wide open question, which sometimes requires a number and other times it’s just yes, no. And then it comes to a threshold, like, “Should I have another kid?” If this is something we really desire, it’s like, “Well, how old are we? What’s our health risk?” Whatever. “What does my income trajectory look like? What is the lifetime cost of a child?” If we’re being responsible about it.

John-David McKee:

You’re looking at the important factors, right. Interestingly, they’ve updated the number again with nine million people living in Chicago. And the most recent numbers are the calculation comes out at 225 piano tuners in Chicago. However, in 2009, there were actually 290, which means there’s a lot of part-timers out there that makes up the difference.

Jon Christiansen:

Wasn’t your number like-

Heather McKee:

240.

John-David McKee:

  1. Pretty good because the point here is-

Jon Christiansen:

What’s an average of 200 and 290?

Jon Christiansen:

245.

John-David McKee:

Thereabouts, yeah. Yeah. That’s exactly what it is. And so yay, we’re really good at this. Pat on back here.

Jon Christiansen:

Yeah, but the funny thing is … You see this happen all the time. The assumptions we made were different.

John-David McKee:

Yeah, yeah, yep. But we still got to this. Because you’re not going for an exact number. That’s the thing. It’s a back of the envelope kind of calculation. If you try to get too specific upfront, why? Because you need to answer the broad question and figure out what question you’re trying to ask and answer and then you get a broad answer. And then if you need to dive into it more, if we’re actually going to invest in a restaurant, we would go beyond that. We would get into some real hard numbers. But it might be a hard no real fast once you run through the plausibility of it and run through some basic decomposition numbers and say, “You know what? There’s enough restaurants.”

Jon Christiansen:

Well, this goes back to William Hubbard. And I read one of the original versions of his book and now he’s done so many in different spaces, but how to measure anything. And one of the questions he asks is, “What are some of the questions you should ask around opening an insurance business that specializes in car insurance?” Okay. And it’s like, all right, well one simple assumption we know is there’s probably one car per person unless you’re in my family. Then there’s like four, but none of them work.

Heather McKee:

You still have to be insured.

Jon Christiansen:

And it’s a state requirement in South Carolina where you have to be insured. Take the number of people times one. That’s the number of insurance policies that you need to write. I don’t see why you need more than one. Then you kind of factor in how much money can I make on a given policy depending, and I think the average take is 12 and a half, something between 10 and 15, something like that. It ain’t 40. Otherwise, we’d probably all be competing over that space.

Jon Christiansen:

And then it’s like, all right, we’ll take that number and then pull up the phone book. How many are there in this geographic area because let’s just eliminate Geico and everybody else. Let’s just assume that all the people we pull up in the phone book are X, and there might be 10. By the time you calculate the math, it’s like assuming I could get two percent of that universe away from them, or assuming Greenville’s growing at the rate of 30 people a day, which at some point it was, could I try to get five percent of that. And then by the time you net it out, it’s like, okay, my take home would be X.

Jon Christiansen:

And then you got to ask, let’s say it’s 80 grand. After taxes, I’m at 50, 55, 60, depending on cost. Is that worth it? [crosstalk 00:19:52]-

John-David McKee:

Yep. Yep. There’s so many ways to apply this, right? There’s so many questions you can answer by breaking it down and looking at it this way that most people don’t stop, take the time to do this. Most business strategies should start here, looking at all the key variables that make up your business and what’s important and what you’re able to actually measure. And you can get a good sense of, “Maybe we should stop trying to sell to this group because it’s not worth our time.”

Will Callaway:

Well, it’s one of the first premises in the Blue Ocean Strategy, because you need to figure out if [crosstalk 00:20:28]-

John-David McKee:

Thank you. That’s what I was going to say, long tail. Long tail … Most successful businesses right now ascribed to the long tail mentality of making a very specific solution for a very specific customer. You don’t need to try to be Coca-Cola because you can get anything you want now on the internet. Is it worth it for me to go in this space? Are there enough people that want to buy my widget, whatever it is here that would see the value in it compared to what else is out there.

Jon Christiansen:

But it gets at a few core principles, which is number one, what’s my primary objective in this thing. And for the business side, it’s make money and, at a minimum, break even, at a minimum. We’re not talking about tax sheltering here and any of that other stuff over there. It’s like, okay-

John-David McKee:

Right. Assuming it’s your primary.

Jon Christiansen:

The primary premise is we want to be able to live, and in order to do that, we don’t need to talk about cost of living. No, it’s like, can this work? Okay. Well, in order for it to work, we need to make some level of money. And from there, it’s like, “Well, what does it take to make it and what’s it going to cost us and what do we have to compete with?”

John-David McKee:

And will your customers pay your bills?

Heather McKee:

These questions are interesting because as I’m hearing them in this whole decision making process, it’s a good analogy for strategic thinking and tactical thinking, because a lot of the questions that we’ve brought up or some that we’ve brought up have been much more tactical. And it’s like even in this case, we got to start at the cost first. We’re not worried about how much traffic goes through here or anything like that. We’re starting first at this, what’s the highest level … Or in this case, the lowest foundational piece of information. But yeah-

John-David McKee:

Yeah, that.

Heather McKee:

Yeah. But it just kind of just shows another example of strategy versus tactic.

John-David McKee:

There’s no point in looking at breaking up your different types of customers that you may be serving if there’s not enough revenue to support you to begin with. It’s first thing’s first mentality.

Heather McKee:

First thing’s first, yeah.

John-David McKee:

But you have to break it down and know what you’re looking for to decide what goes first and what is most critical. If you don’t look at that from the holistic perspective and know what you’re trying to answer, it’s common sense at that point once you do. But if you don’t, you’re never going to get there.

Heather McKee:

It is. And I think it’s so easy, though, especially if people are really passionate about whatever this opportunity is that they want to do or business that they want to create, they will, not accidentally, but just go ahead and skip ahead because they are already so excited and won’t take that time to actually sit back and answer the simple questions.

Will Callaway:

Yes. Don’t let your passions be blinders.

John-David McKee:

Most restaurants don’t close because the food isn’t good. Sure, that that happens a lot of times. It’s usually not managed correctly, not in the right location. Why do you think Walmart, CVS and all these other groups spend so much time on site location, Chick-fil-A? Because you got to be in the right market. There’s going to be enough people coming in the door, driving by and everything else.

Heather McKee:

But that wasn’t the first question that they answered. The first question they answered was would this city support. Okay, this city would support a restaurant. Okay, now let’s pick-

John-David McKee:

Where.

Heather McKee:

… which part of the city we’re going to put it in.

John-David McKee:

Yeah, it’s like in Florence where I’m from. When we finally got an Olive Garden, it was like we had finally made it, man.

Jon Christiansen:

I say that about Outback now. If the city doesn’t have an Outback, it pretty much doesn’t exist to me.

John-David McKee:

It’s true. It goes Outback, then Olive Garden, or it used to. We’re now on the-

Heather McKee:

What about Applebee’s?

Will Callaway:

Yeah, what happened to the Bee’s, dude?

John-David McKee:

Yeah, Applebee’s. I don’t know.

Will Callaway:

Bee’s on Friday?

Jon Christiansen:

Bee’s is straight gone, bud. Us millennials put them out of business.

John-David McKee:

Yeah, it’s true. But we had an Outback. Everybody’s got an Outback.

Jon Christiansen:

No, you don’t.

John-David McKee:

But we got … Whenever Florence got the Olive Garden-

Heather McKee:

Olive Garden.

John-David McKee:

… it was big news, boy. Because there had been lobbying going on for years. There had been people saying, “We’re ready for it. We can support it. People will eat here.” And finally they listened, and they’ve done well. Hey. But then they had decide where to put it. Where do they put it? By the mall. It made sense. It was a pretty obvious choice, [crosstalk 00:00:24:21].

Will Callaway:

I feel like that kind of happened with Top Golf recently.

Heather McKee:

That’s true.

John-David McKee:

That’s a great example.

Will Callaway:

It was like, is your city big enough to support Top Golf.

Heather McKee:

You’re right.

Will Callaway:

Okay, let’s calm down driving range with beer.

John-David McKee:

Expensive beer.

Will Callaway:

Yeah. Expensive pretzels [crosstalk 00:24:36]-

Heather McKee:

Expensive beer and [crosstalk 00:24:37].

John-David McKee:

Although it’s fun. I would love to own it.

Jon Christiansen:

Okay. I would, too.

John-David McKee:

Yeah. We’d definitely just spend a lot of money there. But that’s it. I think that’s what decomposition is really about and then you can use it for everything, right? Here’s something I’m terrible at. We need to clean the house. Where do we get started? What do you do? You break down what’s possible in a day, what are the chores that need to be done, how long is each going to take? If it’s something that has to sit for a while, you probably need to get it done sooner because you may not … It’s like, if you’re going to paint a wall, you got to do a second coat, but the first coat’s got dry first.

John-David McKee:

It’s thinking through all of those different things and you’re basically aligning these pieces after you’ve broken them down. And then they come together at the end to an end result. That sums up to a hole.

Heather McKee:

Right. Yep. You make these types of decisions every day, whether it be about everyday life things or business.

John-David McKee:

Yeah. Even with that example, the starting premise, I need to clean the house. In the end, what you say is, I cleaned the house.” It starts and ends at the same point, but that starting, I need to clean the house is a very naive statement. Then you have to go through the whole process of what do I have to do, what can I get done, what’s feasible, what supplies do I have? You get very sophisticated. And then whenever I’ve done it, I’m very sophisticated while still saying the same thing. But you can’t just run around with a sponge and … I don’t think. Can you run around with a sponge and clean the house?

Heather McKee:

I think it’d be a waste of your … You could. It’d be a waste of your time.

John-David McKee:

I’m not good at it, like I said. I don’t know. Anyway, yeah, that.

Heather McKee:

But yeah. All right,

Heather McKee:

Well, that’s all we have for you today. Don’t forget to subscribe so you automatically get the next episode. Also, be sure to visit our website insandouts.org to find in-depth content for all things to be discussed on the podcast. Catch you later.

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