The Highest-Order Bit

When trying to understand how different factors impact an outcome, a useful analogy is the flipping of the highest-order bit.

Digits and bits

Numbers are represented as a set of digits, each of which can have a value from 0 to 9. The value of the number is the sum of the powers of 10 represented by each digit.

Similarly, the binary representation of a number is a set of bits. A bit is a binary digit, i.e. a digit that’s either 0 or 1. The value of the binary number is the sum of the powers of 2 represented by each 1 bit. For example, the number 13 is represented as 1101.

The value of flipping the highest-order bit to 1 outweighs the value of flipping all the lower-order bits combined. The binary number 1000 is greater than 0111.

Bits in the real world

There are two forms that high order bits can take in the real world: fungible bits and non-fungible bits

Fungible bits describe how different events contribute to the size of a winning outcome. The value added by each event is qualitatively the same and fungible. But there’s a power law distribution where higher-order events dwarf lower-order events in how much they contribute to the size of the win.

• Warren Buffet has owned 400 to 500 stocks during his life. He’s made the majority of his money on 10 of them. If you remove just a few of Berkshire’s top investments, its long-term track record is pretty average
• Less than 5% of the shows Disney has made account for over 40% of its international box office revenue.

Non-fungible bits set out the hierarchy of the different events responsible for a winning outcome. The contribution of each event is qualitatively different and higher-order events must happen first before lower-order events can happen.

• If a company runs out of money, it doesn’t matter if there are no office politics. If its product doesn’t solve a customer problem, it doesn’t matter if the website is elegantly designed. Cashflow and product-market fit are higher-order bits to company culture and product polish.
• If a country has rampant crime and violence from street gangs, it doesn’t matter how its elected leaders lean politically, they will be voted out. Basic citizen safety is a higher-order bit to political ideology.

The idea here is not just that some events are more important than others to get to a winning outcome. The point is that higher-order events so dominate an outcome that lower-order events are irrelevant and can even be a distraction. If the highest-order bit isn’t identified and flipped, you can’t make up for it by flipping every other bit.

Given the importance of the highest-order bit, it might be tempting to drop everything and focus only on flipping it first. Here’s where it starts to get complicated.

You can’t see the highest-order bit

You don’t always know which bit is the highest-order one or what the flipped version looks like. You might think that your app’s polished interface is the highest-order bit, but it’s really the fact that customers can get subsidized rides.

This should be unsurprising. Everything is vague to a degree you don’t realize until you try to make it precise. It takes time and experience with a domain to feel what the winning order of bits is, and this intuition is formed by flipping whatever bits you can see first, even if they end up being lower-order ones.

There might even be a higher-order bit that’s just not possible to see, even by seasoned practitioners. The full breadth of reality has no obligation to be comprehensible or expressible by us. If the highest-order bits are hidden, it’ll look like two companies or people are doing the same thing but are getting wild variations in the quality of their outcomes.

You can’t influence the highest-order bit

Some highest-order non-fungible bits can be governed by macro factors out of your control. Flipping it might be out of your hands. Or it might already be flipped and gets unflipped from under you by larger forces. The highest-order bit for your company to build out its popular new product prototype might be more funding. But changing central bank monetary policy makes borrowing much more expensive. The fundraising pitch that worked a year ago no longer works. You need to find another way.

Flipping highest-order fungible bits is often probabilistic. You can’t control the external factors which are pre-requisites for black swan-type traction or contagion. Warren Buffet might have made most of his money on a handful of the 400 stocks he bought. But he couldn’t predict with certainty which of the 400 would turn out to be the most valuable bits.

To win, you need to keep trying until external factors line up with what you’re doing to flip the highest-order bit.

You aren’t able to flip the highest-order bit yet

Even if you can identify and control the highest-order bit, you might not be able to flip it right now.

Maybe there isn’t enough capital, or maybe you don’t yet have the skills needed to flip the most important bit. You’ll need to start on lower-order bits first to level up. Everything is resource-constrained and you need to be strategic about charting the path to the best bits with the limited resources you have.

To unlock resources or abilities, you might even need to unflip some lower-order bits and throw away the goodwill and work done to flip them.

You find midway through your career that you’re in the wrong profession. Another occupation is what truly makes you happy. No matter which bits you flip in your current position, your highest-order bit for self-actualization lies somewhere else. You need to regress and leave your current job first before you’re able to start from scratch on the new career path. It’s what flipping your own personal highest-order bit demands.

The tyranny of the highest-order bit

Living with all these ordered bits can lead to some common frustrations:

• Your company raises a large amount of funding, hires seasoned executives with great resumes but find that customers still don’t care about your product. Popular media has fooled you into thinking that a bunch of lower-order bits are the highest-order ones. You get frustrated when you flip them but don’t win.

• Most tasks on your todo list don’t matter, but you don’t know which ones. You hustle and check off all of them, but you still don’t win. The bit that actually matters isn’t one that’s visible to you.

• You get angry when you see your boss ignore glaring flaws that are clearly damaging your work environment and instead work on less important things. Actually you just can’t see what her resource constraints are and what she’s doing to gather more resources first.

• A competing software product with a horrible user experience dominates the market. You’re annoyed that they won without flipping one of the most significant bits. But you just couldn’t see the actual highest-order bit which did end up getting flipped. It might even have gotten flipped by chance, with the competitor themselves wondering how they won the market with a sub-par product.

• You get frustrated when you see your local government neglect or even renege on the social causes that are so clearly important to your friends and community. Actually, these causes are lower-order bits for now which the administration has intentionally left to regress.

In many cases, all the bits you see are not all the bits there are.

The highest-order bit is managing psychology

Winning becomes a matter of flipping the highest-order bits you can see and have the means to flip, all while you keep looking for higher-order ones. You might even need to throw away earlier work by undoing some lower-order bits. All this is an endlessly fraught process that you’ll need to keep powering though.

The key is managing both your own psychology and the psychology of the people around you.

If you’re responsible for others and you’re letting lower-order bits fail or leaving them unflipped, let everyone know so that expectations are set correctly. Manage your own expectations as well. When lower bits are breaking, emails aren’t being answered, tensions are flaring and things get chaotic. It’s hard to understand how so much messiness can come from focusing on the optimal bit and doing the right thing. But such is the tyranny of the highest-order bit. As far as possible have the bits fail gracefully and not catastrophically. Put in place back channels to check in with others when things are blowing up.

Realize also that many of the flaws you see in the world are low-order bits that were allowed to fail or high-order bits that can’t be flipped yet. Instead of getting disillusioned, try to understand why things are the way they are and help flip some bits if you can. But at least show patience and empathy, appreciating that all you see may not be all there is.

Winning is ultimately about relentlessly flipping all the bits you can flip, starting with the highest ones. And the highest-order bit is to manage your psychology so you can keep at it.