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The Mental Model of “Inversion” in Business

You know the story of the man who wanted to know where he was going to die, so he could make sure not to go there?

That’s a favorite story of Charlie Munger’s to explain the concept of inversion.

Munger credits mathematician Carl Jacobi (who famously said: “Invert, always invert”) who recommended working through math problems in reverse.

As A Margin of Safety wrote in Invert, Always Invert, an example of inversion (working through a problem backwards) came from University of Florida professor Jay Ritter who looked at the problem of whether to invest in Facebook around the time of its IPO.

To cut through the hype of Facebook, he pre-supposed what an investment in Facebook would look like if it had a best-case scenario of becoming as valuable in 10 years as the most valuable company currently in the world (Exxon Mobil) was the day of the analysis (which was $380 billion).

He calculated that if Facebook were to grow from its then-$50 billion value to $380 billion over the next 10 years, it would produce an annual return of 22.5%.

And if you consider the probability of Facebook becoming the most valuable company ever, a 22.5% return starts to look more risky.

Inverting can be as simple, as you’ll see in this Munger speech to USC grads, as doing the opposite of what you do not desire.

For example, Munger told the grads that if you can avoid (i.e. invert) being sloth-like and unreliable, the inversion of that is that you will be active and reliable: two traits of successful people.

An example of inversion in sales & marketing is also simple. For example, let’s say that you are trying to sell a software service to a large prospect and you learn that the prospect is hesitant to buy your software because their information technology (IT) department is focused on other projects. You could invert their problem (“no IT resources”) to become a benefit by proactively messaging that there is “no IT required” to use your software product. If you know that many of your prospects have this same worry/problem (no IT resources), then you could even put the “No IT Resources Required” bullet on your home page or marketing material so that your product will be more attractive to other prospects.

In that case, inversion is just taking a problem and working backwards it to make it a solution.

This may all seem very basic — but it’s still powerful.

If you can guarantee to invert a negative outcome or problem, you can guarantee to provide a positive outcome/solution!

This article on Inversion continues my quest to list out the Top 100 Mental Models Needed to Succeed in Business, inspired by Charlie Munger.

1 Comment

  • http://www.kevinrandom.com/ Kevin Gao

    I love this simple and effective thought process!