Perceive and Don’t Tolerate Problems. On your way to your goals, you will inevitably encounter problems. To be successful you must perceive and not tolerate them. Problems are like coal thrown into a locomotive engine because burning them up, inventing and implementing solutions for them, propels us forward. Every problem you find is an opportunity to improve your machine. Identifying and not tolerating problems is one of the most important and disliked things people can do. For a lot of people identifying problems is difficult to do. Most people would rather celebrate all the things that are going well while sweeping problems under the rug. Those people have their priorities exactly backward, and there is little that can be more harmful to an organization. Don’t undermine your progress in pursuit of a pat on the back; celebrate finding out what is not going well so you can make it go better. Thinking about problems that are difficult to solve may make you anxious, but not thinking about them (and therefore not dealing with them) should make you even more anxious. Having this kind of anxiety about what can go wrong is extremely useful. It is what drives one to develop systems and metrics for monitoring the outcomes your machine is producing and motivates those who manage well to constantly taste-test the outputs of the system and to look for problems in its nooks and crannies. Having that constant worry and doing the double-checking is important to maintaining quality control. Making sure that little problems don’t exist is important because, if they’re allowed to continue, they will grow into big problems. To convey the point, I will tell you about a case in which we initially failed to maintain excellence, then perceived the problem, got at its root causes, designed changes, and pushed those changes through to produce excellent results. When I started Bridgewater, I was responsible for everything. I made the company’s investment decisions and its management decisions and then I built the organization to support me and eventually to carry on excellently without me. As Bridgewater grew, the standard I set was uncompromising and straightforward: The analysis we provide to clients should always be of the same quality it would be if I did it myself. That’s because when clients ask what “we” think, they aren’t asking what just anyone thinks, they want to know what I and the other CIOs, who are in charge of our investments, are thinking. To achieve that goal, Bridgewater’s Client Service Department either handles the questions they get from clients themselves or passes them on to people with various levels of expertise who are assigned to answer questions based on their level of difficulty. The client advisor (who is a knowledgeable professional designed to be the interface between Bridgewater and the client) has to understand the questions well enough to know who they should be routed to, and they need to review the answers before they go back to the client to ensure they are excellent. To be certain that always happens, I created a checks-and-balances system in which some of our best investment thinkers both draft memos to clients themselves and quality-control their colleagues’ work, grading it to provide traceable metrics that can be followed to monitor how well things are going and make changes as needed. In 2011, as a part of my management transition, I handed the oversight of this process to others, and several months later one of the people in the Client Service Department began noticing problems. It started with one memo, which two senior investment advisors noticed had gone out the door to a client even though it contained errors. Though these were minor errors, they were important errors to me. With my prodding, the new management team began investigating other memos and discovered that this poorly prepared memo wasn’t just a one-off; it was symptomatic of a more widespread breakdown in the quality control machine. Worse still, the investigation revealed the Responsible Parties were failing to perceive and diagnose these problems. And most worrisome, it wasn’t clear that, without my pushing, anyone else would have taken the time to investigate. This initial failure to perceive and not tolerate problems did not happen for lack of caring; it happened because most of the people in the process paid more attention to getting the tasks done than assessing whether the goals were being achieved. They had become more like rubber stampers than craftsmen, while the top people who were supposed to “taste the soup” to make sure it was excellent were focused on other things. Discovering this was disappointing to all of us, because it showed that the high standards that for so long had been the reasons for our success were slipping. Facing this reality was painful, but ultimately healthy. The existence of a problem like this one, whether from a flaw in the design of one’s machine or from one’s own or others’ inabilities, is not shameful. Acknowledging a weakness isn’t the same thing as accepting it. It’s a necessary first step toward overcoming it. The pain one feels, whether from shame and embarrassment, or frustration at one’s inability to get the better of it, is like the pain one feels at getting flabby that motivates one to go to the gym.