Mental Models to Help You Cut Your Losses

Astro Teller is the CEO of X, though his actual job title is “Captain of Moonshots.” His only requirement for accepting the position, granted by Google’s founders, was that he had complete autonomy over the company. Even though X is a subsidiary of Alphabet, he has always insisted on cultural separation.

X has become a famous incubator and developer of ideas in the nontraditional tradition of Bell Labs, Xerox PARC, and Thomas Edison’s laboratories. X’s mission is to build and launch technologies to “improve the lives of millions, even billions of people.”

They’re specifically in the business of identifying and accelerating world-changing ideas. That means they reject plenty of good ideas because the change those ideas create would be too incremental for their mission. One of X’s slogans is “10x impact on the world’s most intractable problems, not just 10% improvement.”

X is an innovation hub but it’s not about any innovation at any cost or on any time horizon. X has a very specific charter: to take their best ideas from concept to commercial viability in a five-to-ten-year time horizon. It’s not enough that the idea is a world-changing solution, or even that the proposed solution is possible. They also have to know that the economics will work, so that it will become self-supporting and profitable.

The reasoning behind the five-to-ten year time horizon is that if the solution could be developed in fewer years, somebody else is probably already working on it. If it is going to take longer than a decade, the technology might be outdated by the time it gets to market.

X takes a lot of big swings, knowing that most will be whiffs. Teller looks at each project as buying an option on the future. Like most options, you have to keep paying to hold it, in increasing amounts.

To pursue radical ideas, he has to be a radical loss-cutter. Every dollar they save by getting to no quickly is a dollar they can spend on something that could change the world.

As he told me, “We’re going to buy a thousand options over the next couple of years. We need only four a decade to get to Sundar [Pichai, CEO of Alphabet].” Teller sees his job as being smart about building a portfolio of value as cheaply as possible.

Even when your owner is Alphabet, you have limited resources of time, money, and attention. What that means is Teller has to identify the projects that aren’t going to pan out as quickly as possible. To pursue radical ideas, he has to be a radical loss-cutter. Every dollar they save by getting to no quickly is a dollar they can spend on something that could change the world.

Monkeys and pedestals

To help X-ers become better quitters, Teller has come up with a unique mental model that has been woven into the fabric of X: monkeys and pedestals.

Imagine that you’re trying to train a monkey to juggle flaming torches while standing on a pedestal in a public park. If you can achieve such an impressive spectacle, you’ve got a moneymaking act on your hands.

Teller recognizes that there are two pieces to becoming successful at this endeavor: training the monkey and building the pedestal. One piece of the puzzle presents a possibly intractable obstacle in the way of success. And the other is building the pedestal. People have been building pedestals since ancient Greece and probably before. Over two-plus millennia, pedestals have been thoroughly figured out. You can buy one at a furniture store or a hardware store, or turn a milk crate upside down.

The bottleneck, the hard thing, is training a monkey to juggle flaming torches.

The point of this mental model is to remind you that there is no point building the pedestal if you can’t train the monkey. In other words, you ought to tackle the hardest part of the problem first.

There is no point building the pedestal if you can’t train the monkey. In other words, you ought to tackle the hardest part of the problem first.

Years ago, X looked into developing what’s now known as a hyperloop, an experimental high-speed rail system. The concept was fine. Building the physical infrastructure wouldn’t be very hard from an engineering standpoint.

The monkeys for the hyperloop to be viable were things like whether you could safely load and unload passengers or cargo, and whether you could get the system up to speed and get it to brake without incident. A couple hundred yards of track wouldn’t tell you anything about whether you could conquer those challenges. In fact, Teller and the team at X figured out that you would have to build practically the whole thing before you knew whether it worked. You would have to build a bunch of pedestals before you could find out if the monkeys were intractable.

They quickly decided not to pursue it.

One of Teller’s valuable insights is that pedestal-building creates the illusion of progress rather than actual progress itself. Teller also realizes that when you’re building pedestals, you are accumulating sunk costs that make it hard to quit even as you find out that you may not be able to train the monkey to juggle those torches.

Butting up against a monkey that you can’t solve and turning to pedestal-building is a disaster on two fronts. Not only are you continuing to pour resources into something after the world is giving you signals that you won’t succeed, but those are resources you could be devoting to something better.

But there is something that can help.

Kill criteria

If we can identify in advance what the signals are that we should pay attention to and make a plan for how we will react to them, we can increase the chances that we’ll cut our losses when we ought to.

Essentially, when you enter into an endeavor, you want to imagine what you could find out that would tell you it’s no longer worth pursuing. Ask yourself, “What are the signs that, if I see them in the future, will cause me to exit the road I’m on? What could I learn about the state of the world or the state of myself that would change my commitment to this decision?”

That list offers you a set of kill criteria, literally criteria for killing a project or changing your mind or cutting your losses. It’s one of the best tools for helping you figure out when to quit closer to on time.

Kill criteria could consist of information you learn that tells you the monkey isn’t trainable or that you’re not sufficiently likely to reach your goal, or signs that luck has gone against you.

The best quitting criteria combine two things: a state and a date. A state is just what it sounds like, an objective, measurable condition you or your project is in, a benchmark that you have hit or missed. A date is the when.

The best quitting criteria combine two things: a state and a date. A state is just what it sounds like, an objective, measurable condition you or your project is in, a benchmark that you have hit or missed. A date is the when.

Kill criteria, generally, include both states and dates, in the form of “If I am (or am not) in a particular state at a particular date or at a particular time, then I have to quit.” Or “If I haven’t done X by Y (time), I’ll quit.” Or “If I haven’t achieved X by the time I’ve spent Y (amount in money, effort, time, or other resources), I should quit.”

For mParticle, a SaaS (software as a service) company I’ve worked with, one of the kill criteria was a lack of a decision-maker in the room, triggering an offer of executive alignment for the next meeting. If there was no executive in the room during the first few meetings (a less certain kill criterion), the seller was instructed to offer up executive alignment at the next meeting. The seller would explain to the potential customer that, in their experience, deals go more smoothly when there are executives from both sides in the room, and offer to make sure to have an executive from their side at the next meeting if the potential customer would do the same. If the lead refused the offer, the seller would kill the deal. Translated into states and dates, “If I can’t get an executive in the room (the state) by the next meeting (the date), then I’ll kill the deal.”

And you don’t have to look any further than X’s charter for an example of the interaction of states and dates. X’s projects must have the potential to be 10x world-changing (a state), capable of becoming commercially viable (a state), within five to ten years (a date).

Better, not perfect

When I was playing poker, I applied a bunch of kill criteria that helped me be a better quitter (of hands and of games). One example was a stop-loss. If I lost a certain amount, I would quit.

This was especially important at the start of my career, because novice players are particularly poor at judging whether they’re losing due to their poor play or because of bad luck. After turning pro, I still maintained a stop-loss. Elite poker players are still going to be worse at making quitting decisions when they’re in it, especially if they’re in it and losing. So, even after I gained experience and got a better understanding of the quality of my play and the short-term swings of luck, I still set loss limits.

I also realized that I played better in sessions of six to eight hours or less, so I committed to quitting after I played that long. Because I was more aware of the importance of game conditions, I also committed to quit if the quality of the players in the game drastically changed in an unfavorable way as some players cashed out and new ones took their seats.

Those kill criteria helped me to become better at quitting games. But was I perfect? Not even close.

I was far from flawless, but I did better than I would have without kill criteria. In the one long game of my poker career, I’m confident my bottom line benefited because I was able—some of the time—to reduce the mental and financial resources I spent in negative expected-value situations.

The important thing is to be better, not perfect. After all, we’re only human and we’re operating under conditions of uncertainty. It’s hard to time quitting decisions perfectly.

The monkeys-and-pedestals mental model and kill criteria help us overcome our aversion to closing accounts in the losses.

Astro Teller knows that they don’t always quit at the exact right moment at X. He’s fine with that because they do better overall since they are always trying. “This is exactly why X produces such outsized returns. Not because we’re perfect at what we aspire to, but because we’re so relentlessly aspiring to it that we’re modestly successful and that turns out to be enormous.”

Taken together, the monkeys-and-pedestals mental model and kill criteria help us overcome our aversion to closing accounts in the losses. First, they both get you to no faster, which naturally limits the losses that you have to absorb when you quit. And the less you are down, the easier it is to walk away.

Second, when you set clear kill criteria in advance and make a precommitment to walk away when you see those signals, you are just more likely to follow through, even when you are losing. Anytime you can make a decision about cutting your losses in advance, you’ll do better at closing those mental accounts.


Adapted from Quit: The Power of Knowing When to Walk Away by Annie Duke, Copyright © 2022 by Annie Duke. Used by permission of Portfolio, an imprint of Penguin Publishing Group, a division of Penguin Random House LLC. All rights reserved.