We can all anticipate the immediate effects of our actions. But very few of us take the time to consider the second-order effects. In other words, the effects-of-the-effects.
And this is where you’ll find the best opportunities to gain a significant advantage over your competitors.
🔥 The second-order problem
To illustrate what can happen when second-order thinking is not considered, Warren Buffett famously uses the following metaphor of a crowd at a concert:
Once a few people decide to stand on their tip-toes, everyone has to stand on their tip-toes. No one can see any better, but they’re all worse off.
It shows that one short-sighted action has very quickly led to a far worse outcome than initially anticipated
💡 The second-order opportunity
It's human nature to seek instant gratification. But, when we make the effort to consider the subsequent effects of each of our decisions, we are able to see past the immediate wins to identify the long-term gains we want.
This is what's known as second-order thinking. And this is where the biggest growth happens. Dave Gerhardt illustrates the power of second-order thinking in his tweet below:
😍 Adopting this mindset in marketing
Not only is this mental model useful for prioritising long-term business interests over short-term gains but it also provides us with a framework for trust-based marketing.
As we know, trust and trustworthiness are the results of multiple interactions. When you go for the immediate payoff – the cold call, or the pushy ad – you can almost always guarantee that it will be a one-off interaction.
Sure, the voicemail might be listened to. But the call will never be returned.
However, when you adopt second-order thinking, you are willing to forgo the immediate rewards in order to maximise the gains over time.
Yes, it might be unscalable in the short term. But you recognise that it’s a necessary sacrifice to be able to reap consistent benefits in the long run.
📝 Putting it into practice
Here are 3 habits that you can instil today to put second-order thinking into practice:
Always ask yourself “And then what?”
Imagine yourself in 30 minutes, 30 days or 30 years looking back at your decision. Picture what the consequences of the decision might look like.
Create a grid similar to the first image above with 1st, 2nd, and 3rd order consequences and work through your decision by writing out the possible good/bad consequences.
Remember, just because something doesn’t provide an immediate payoff, it doesn’t mean that in the long run, it won’t become a fantastic compounder for you.
P.S. If you’d like to learn more about how to use second-order thinking to outperform your competition, listen to my podcast or watch a short clip here: