Six Reasons Business Leaders Must Understand Islamic Finance

[photo by ecreyes]

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To be blunt, Islamic finance will change the world. It already is—which is why every business student and aspiring leader must understand this fast-growing force in the financial marketplace.

As long time readers of this blog know, I like to talk about our worldview. It’s what makes us who we are. I have talked about worldview in relation to developing vision and inspiring everyone to want to be a leader. Also in my post on what every leader needs to know about human nature.

I believe our worldview informs our opinion of what facts to accept and which to reject. It is the primary filter for our biases. One of my favorite Talmudic verses says, “We see the world not as it is, but as we are.”

When most westerners think of Islam they see images of nomadic camel caravans, blowing desert sands and white robed Arabs. While these images are not entirely inaccurate given Islam’s origins, they reflect a sadly outdated perception of the Islamic World today.

“According to economic theory interest rates should tame the business cycle.”

During Islam’s Golden Age (~700-1200 C.E.), Muslim societies ruled from Mauritania and Spain in the west, encompassed most of central Asia and stretched as far east as New Guinea. While ruling parties and political systems have changed over the years, most of these countries still contain Muslim majorities.

This diversity of culture, climate and ethnicity defies the simplistic stereotyping of Islam as a Middle-Eastern religion. As different as these nations are however, there are many similarities in their social norms and laws depending on how closely the government embraces Islam.

In many of these countries there has been a resurgence of Islamic pride and a desire to practice Islam more devoutly. This has led to a rapid expansion of Islamic financial institutions throughout the Muslim world and beyond.

What is Islamic Finance?

Islamic finance differs from conventional finance in that Islam prohibits charging interest on loans. It is sometimes referred to as ethical investing as it prohibits investment in organizations which are involved in any immoral activity such as the production of pork products, alcoholic goods or gambling operations.

The prohibition on interest is particularly interesting to me as a conventional economist. Interest is fundamental to our system—indeed our entire understanding—of capital markets. Interest is the price of money and regulates the supply and demand for present and future resources.

According to economic theory interest rates should tame the business cycle. As we’ve seen in recent years, it’s not doing its job very well.

“You can easily see how this would artificially inflate the money supply.”

Advocates of Islamic finance believe that by not allowing interest they in essence create a full reserve banking system rather than the fractional reserve banking system we use in the United States and throughout most of the western world.

In a fractional reserve banking system banks only have to hold a small percentage of their inventory of money on hand, in the U.S. about 10%. This means for every $1000 a person deposits in the bank, the bank can lend out $10,000. You can easily see how this would artificially inflate the money supply.

By creating a de facto full reserve banking system, Islamic banking should not fall victim to such inflationary pressures. It’s not a sure bet but apparently neither is fractional reserve banking.

Six Reasons Why Understanding Islamic Finance Is Essential:

1. The Islamic world is growing. Muslims are 20% of the world’s population and the pace of population growth in majority Muslim countries is nearly 1% higher than the rest of the world. In a competitive economy, it will become increasingly important to cater to this growing market.

Most of these countries lie in a corridor from Northern Africa through the Middle East and throughout Central Asia. Many forward thinking businesses regard this region as a candidate for rapid economic development in the coming decades.

2. In the last thirty years, the Islamic world has become more devout. This has led to a steep rise in Shari’ah compliant banking practices in majority Muslim countries and in some western countries where there is a high concentration of Muslims (such as the United Kingdom and Canada). Much of the world’s energy wealth is concentrated in majority Muslim countries and there is a desire to invest these funds in halal (Shari’ah compliant) financial instruments.

3. Islamic finance is growing. Since the mid-1970s, Islamic financial institutions (IFIs) have grown at an explosive rate of 20-30% a year. The Banker magazine’s November 2009 survey confirmed that in 2008 - during the worst financial crisis in global memory- IFIs experienced an amazing 28.6% growth rate. There are now more than 600 IFIs worldwide with assets of nearly $1 trillion.

4. Islamic financial products don’t appeal only to Muslims. Many non-Muslims IFI clients appreciate the application of Islamic financing principles such as asset-backed lending and full-reserve banking. These principles are built on the holistic concept of community responsibility and benefit.

Citizens of many countries are asking themselves if the beneficial effects of easily available unsecured credit are worth the social consequences (for example, where debt is more freely available, people have a tendency to underestimate risks).

5. Financial institutions are reevaluating their approach to risk management. Even though they may not refer to their products as “Islamic”, many banks are increasingly offering essentially Shari’ah compliant options for their customers.

In fact, Silicon Valley venture capital firms have been practicing Islamic financial principles for years without explicitly stating this fact. In November 2009 GE Capital, tacitly acknowledging the appeal of Islamic finance, announced it would issue a $500 million Shari’ah compliant sukuk (Islamic bond).

6. Because—as Thomas Friedman famously observed—the world is flat. As business leaders today look for ways to break into new markets and find blue water opportunities, they will increasingly find themselves interacting with Islamic customers. While oil prices have receded from their 2008 highs, they are still high by historical standards and the world shows no sign of weaning itself from this precious resource anytime soon.

Money will continue to pour into Middle Eastern sovereign wealth funds for decades, making Muslim customers an attractive demographic. An understanding of Islamic principles will be essential in developing relationships with these customers.

Biased companies will lose economically

While some in the west will continue to resist integrating Islamic financial principles into their portfolio due to religious biases, history has shown they will cede a competitive advantage by doing so. It’s ridiculous to me that any business would voluntarily choose to forego profits bases solely on an uninformed worldview.

Those bold enough to examine their own cultural biases will see there is no reason to recoil from doing business with Muslim countries. Yet too often when I talk to people about Islamic finance their first reaction is to make some joke about Muslims.

I recognize we all have biases. I have struggled to become aware of the lens through which I am viewing the world and to set it aside as much as possible, or to at least acknowledge its presence. In the process of discovering my own paradigm I recognized how much our cultural paradigms influence every aspect of our behavior; not only our behavior but the very perceptions which lead to our behavior.

“Knowing my bias exists I’m willing to grant there are other ways of seeing the world.”

When I first went visited a Muslim country I wasn’t sure what to expect but I soon realized people there are much like people in every other country. Their customs may be peculiar to us but their human desires align very closely with our own.

I do not know that Islamic finance is superior to conventional finance nor am I trying to imply that it is. I merely recognize it as a growing part of the accepted business practices throughout the world. My own worldview makes it difficult to see anything besides conventional finance as viable, but knowing my bias exists I’m willing to grant there are other ways of seeing the world.

If there are people who want to try a system of banking independent of interest I believe we can find a way to accommodate it.

Experimentation is the heart of adaptation. When we try new things we can see what works, what doesn’t work and what works best. It’s the only way we improve.

(9:19) Six Reasons Business Leaders Must Understand Islamic Finance

Six Reasons Business Leaders Must Understand Islamic Finance by Siddhartha Herdegen  
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You Can’t Predict the Past

[photo by The Wandering Angel]

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Sometimes there is a convergence of ideas on the internet. Maybe we’re all reading the same sources so we’re all thinking the same thing. Maybe it’s in the water. But for whatever reason it happens from time to time that bloggers express similar ideas at the same time, independently.

In the past two weeks several posts have got me thinking about the same concept. They may not seem related but they fit together in my mind. A couple weeks ago Justin Kownacki wrote a post about the future of media.

In his post he talks about how successful filmmakers are always pushing boundaries and experimenting. Doing something new instead of what other people were doing, or what they did in the past. They broke out by not following the rules. They made their own rules and other people followed.

Are you thinking what I’m thinking? Sounds a lot like a leader.

“Predicting the future instead of just repeating the past.”

He makes some other good points too. Like creating an experience people enjoy. But I’ll let you read the post. It’s worth the trip. I just wanted to point out the part I thought was pertinent to my thought process.

The next thing that caught my attention around this business of what’s next and predicting the future instead of just repeating the past was a tweet by Chris Brogan. Chris tweets a lot and I’m not on Twitter all that much but fortunately I caught this one. A simple, short tweet with a link to Rentalic.com.

On June 8 Chris tweeted this: “@chrisbrogan Interesting. Peer to peer renting - http://bit.ly/98AZJG”

Interesting to be sure. It’s a site where ordinary people, not businesses, rent out common household items at nominal rates. The site coordinates the process of linking owners and renters, processes the financial transaction, and provides an umbrella organization to facilitate trust.

Economic viability produces unpredictable opportunities

As an economist I was instantly intrigued. There are many items which are used infrequently and require a significant financial investment yet still fall below the threshold of profitability to make them a commercially viable item for rental companies.

These would be things like bread machines, ice cream makers, cameras, bicycles.

Or items which would be profitable for commercial ventures but which the owner uses frequently enough that it makes more sense to buy it rather than rent it every time.

Things like tents and camping equipment, skis, power tools, perhaps artwork.

It’s interesting to see what people will come up with to rent once there is an efficient system for doing so. And that’s really the point. This would not have been practical prior to the internet NOT because people didn’t have the same stuff lying around and the same desire to use it.

“These didn’t exist, not because there was no need but because they weren’t viable.”

It didn’t happen because there was no efficient mechanism for coordinating it. That’s what the internet does best: coordinates people. It reduces the transaction costs for bringing buyers and sellers together in the marketplace.

We’ve seen what this can do with companies like eBay, Amazon marketplace and Etsy. Suddenly the ability to open a store with practically zero overhead cost is available to everyone. Then peer to peer lending services like Prosper, Lending Club and Kiva became practical.

Book lending sites like Paperback Swap and now peer to peer rentals are made possible by the great coordinating power of the internet. These are all service which didn’t exist ten years ago not because the need did not exist but because it wasn’t economically viable.

So the internet, by reducing coordination and transaction costs, provided an environment where these latent needs could be fulfilled.

How we can be ready to take advantage

On June 9, Julie Roads wrote a piece which really resonated with me. It was titled I’m Training for Everything. It was ostensibly about exercise but it was really about how we live our lives. If we’re improving ourselves, educating ourselves and informing ourselves we’ll be ready to take advantage of opportunities as they arise.

This is essential training because we don’t know what will happen in the future, what opportunities there will be for us. We can’t predict what doors will open or what possibilities, not economically viable now, will become economically viable in the future due to technological advancement.

Successful people are often those who have the right skill set when an opportunity presents itself. They did not know those opportunities were coming, could not have predicted them, but they had to prepare for them in the past.

How do we do that? How do we know what to prepare for? I suggest we do two things: pay attention to what’s happening today and consciously think about future applications. And do what Julie does; get the most out of the experiences that are given to us.

We can also think about what’s going on around us rather than simply passing through. As Julie says, “there are always lessons to be learned.”

Don’t waste your time predicting the past

Another post that needled me this week was by Shawn Christenson writing on Nathan Hangen’s blog Build Your Empire. On June 10 he wrote a post on marketing but it was really about doing something new. It was about all the people who are shouting, “Look what I’ve done. You can do it too by doing the same thing I did.”

The problem is, the landscape is changing. Technology is making things possible which weren’t possible before and some things which worked in the past won’t work now or in the future.

I know, I know, some things never change. There are bedrock marketing principles and business models but let’s face it, the people who are touting their plan aren’t going to teach you some tried and true marketing principle you heard when you were in high school. They’re going to give you some tip or trick which worked for them and tell you it will work for you too.

“You have to predict the future, not what’s happened in the past.”

I’m not saying it won’t. A lot of people made money flipping houses in the early part of this decade, but it’s not the right environment for it now. You have to know what is coming in the future not what happened in the past.

It does no good to predict the past. What we need to think about today is what’s coming in the future.

Where are consumers going? What needs do they have which could not be filled before but can be filled in the future?

Finally, Jane Friedman sent me a link to a video she took at BEA 2010. It’s a short video of Clay Shirky talking about the future. As always with Clay, insightful and entertaining stuff. He gives a great example of how McDonalds was doing research on what to serve next for breakfast.

It’s about knowing what people are looking for or as Justin Kownacki put it, pleasing the audience. It’s about thinking through the opportunities available with new technologies.

Predicting customer needs

What’s different today then twenty years ago? Ubiquitous credit cards, online payment mechanisms which make micro-payments possible, internet coordination, lower retail overhead, location specific mobile devices.

Think about all the services you use today which would be impossible without those advances. What other opportunities are they opening up?

I was on a conference call today with Chris Brogan and Sonia Simone talking about figuring out how to monetize a blog. The biggest take away from their conversation: figure out what the customer needs to buy not what you need to sell.

Brilliant.

Leadership is being bold; it’s thinking audaciously, not just following those who went before you but figuring out what’s next. Leaders challenge the status quo. They don’t ask “how do I do that?” they ask themselves “what’s next?” They develop and innovate by using their creative brain to link concepts.

As Julie said, “train for everything” by developing an inquisitive intellect. Since we can’t predict the past, let’s work on predicting the future.

(8:18) You Can’t Predict the Past

You Can't Predict The Past by Siddhartha Herdegen  
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When You Shouldn’t Give 110%

[photo by Julian Mason]

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I have to tell you I’m sick of the whole notion of giving 110%, and here’s why: it’s a meaningless phrase without a timeframe.

In order to figure out what 110% is you first have to know what 100% is and if you’re talking about a person’s ability to perform, the very idea of knowing what 100% looks like is dubious. It’s highly doubtful the person themselves know what they’re capable of so it’s impossible for anyone else to know.

To back up my point on this let me refer you to Holly Brooks who said, “…I suppose you could say that I didn’t know what I was capable of.” And Lindsay Dominguez, “I didn't know what I was capable of until I dove right in the deep end and swam to the surface.” And to countless others who would say the same thing.

We have no idea what our physical, mental or emotional limits are.

Some would say, sure you don’t know what you’re capable of but saying give 110% means give it all you’ve got. Push yourself until you’re at what you think is 100% and then push some more out. That’s what it means to give 110%.

“Our maximum sustainable capacity would be something much less.”

Okay, let’s go with that premise. So, 100% would be the maximum we’re capable of. We should be striving for our maximum capacity and then, since we don’t really know what that is, go a little further. Our perception of what we can do is the theoretical 100% and when we give 110% we’re really just reaching our actual 100%.

Seems pretty sound as a theory, but let me point out this maximum capacity is only achievable for a very short time. For all physical activities we can perform at such high levels of intensity for a few minutes at best.

It’s unlikely our boss wants to see maximum performance for five minutes out of the day. More likely she wants our maximum sustainable effort which would be something much less. As we have all experienced, the less we push ourselves the longer we can perform at that level.

It would be wonderful if we could perform at our level of maximum capacity indefinitely but sadly this is not the case. There are limits to everything, including our ability to think in a focused way.

I would venture to estimate a level of about 60-70% of maximum effort to be sustainable for an entire day. And repeatable the following day ad infinitum assuming we get a full nights’ sleep.

Added effort comes at a cost

Because I’m giving 65%, when my boss says, “Folks, I need you to give 110% on this,” I’ve got some reserves. I can pull out the stops and surge ahead. The question now is, for how long?

There’s a tradeoff between extra effort today and my ability to give extra effort tomorrow. The general rule in running is to rest for one day for each mile you race. So, for example, I may run several miles every day at my 60-70% pace but if I race a 5K on the weekend I should take three days off running for recuperation.

Presumably in the race I’m going all out, 100%.

Following this formula, marathon runners should not run for almost a month after a competitive race. I don’t know many marathoners who follow this guideline (but then I don’t know many competitive marathon racers) but a lot of my friends take a couple weeks off and then only run very light days. Short runs at a slower pace than normal training runs.

“Both come at a cost to future performance.”

The same thing happens with our mental capabilities. We can exceed our normal, sustainable limits for a while but only at a cost. The payback comes over the days or weeks following the intense effort.

Even while we’re exerting ourselves we need to know how long it must be sustained so we can pace ourselves. I don’t run marathons at the same pace I run 5Ks. I’m capable of running faster than my marathon pace, but not for 26 miles.

When your boss says, “Okay folks we’ve got to step it up. Everyone give 110%.” The next thing to follow should be a timeframe for how long maximum effort needs to be sustained. This rarely happens.

Instead we’re left to wonder whether we should be running our 5K pace or our marathon pace. Both are faster than our indefinitely sustainable pace, and both come at a cost to future performance.

When do we recuperate?

The unfortunate thing about putting in maximum capacity performance at work is we usually end up having to recover on our own time. That means our evenings and weekends are full of substandard capability if not all out lethargy. Our families end up paying for the cost of increased productivity for the company.

The bottom line is that old economic saw, there’s no such thing as a free lunch. Any performance beyond our maximum sustainable level is going to cost us capacity later. Someone has to bear that cost, the company in decreased performance later or our family who suffers from decreased capacity during our leisure hours.

So, when should we not give 110%? That’s up to you to decide. But when you’re making the decision take into account the fact you’re increased performance is a subsidy to the organization. In most cases I would make this investment.

“Yes and no are not concepts on a graduated scale.”

But if you don’t think the investment will be compensated later, either in decreased workload or increased compensation, I would seriously consider maintaining a sustainable pace.

Just because you’re capable of increasing your performance doesn’t mean you’re obligated to.

On a side note, I wanted to point out to Randy Jackson (whom I suspect reads this blog), there are cases where exceeding 100% makes sense. If we define 100% as the maximum sustainable effort then clearly we have the capacity to achieve 167%.

But when we’re talking about “yes” and “no” these are concepts not on a graduated scale. We can have less than 100%, as in 60% yes, but we can’t have any more than 100%.

In this case 110% yes doesn’t make any sense, nor does 10,000%, 1,000,000%, or 1,000,000,000% yes. Once you’ve reached the maximum, you’ve got all there is.

On a related note, I wanted to point out to my daughter, repetition of the word “please” falls into a similar category. Once you’ve said please once, additional instances do not add to the politeness of the request and do not increase the likelihood of it being granted.

(7:10) When You Shouldn’t Give 110%

When You Shouldn't Give 110% by Siddhartha Herdegen
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Five Steps to Evaluate a Good Idea

[photo by qwrrty]

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I was at a friend’s house recently and their kid was being obnoxious. I mean, seriously obnoxious.

(If you’re one of my friends who have children and I was recently at your house you’re probably starting to get offended because you think this was you. Don’t be so narcissistic, more than likely it wasn’t you.)

But I was at their house and their darling offspring was driving me nuts. Just being a child mostly—whining, throwing stuff, complaining—but in the most irritating way possible. And I remembered something I had learned about myself when I was in my youth. I don’t really like children.

I have four children of my own, by the way. And I love them dearly. I just don’t like other people’s children.

How can this be? How can a person who doesn’t like children love his own children so deeply? I don’t know. It’s a psychological trick our minds play on us to perpetuate the species I suppose. But it’s a fact of life; we all love our own children.

“I just don’t like other people’s children.”

This is not just true of heartless childhaters like me; it’s true of people who coo and goo over the little bundles of joy as well. They may adore all children, but there’s a special place in their heart for their own little darlings.

Perhaps we love them so much because they are a part of ourselves and we all love ourselves.

We love the way we look, the way we think, the way we smell. Have you ever looked in the mirror and thought the person looking back at you was ugly? Okay, maybe I have too, but only on rare occasions. Usually when I see myself I’m pretty impressed.

Sometimes walking quickly past a store window I’ll just catch a glimpse of my reflection and think, “Wow! Who was that handsome guy?”

Idea happy

We are all in love with our own ideas too. The ones we come up with are the ones we think are best. It’s hard to evaluate them objectively. So, if we’re bound to like our own ideas, how do we know if our ideas are any good? It’s like asking, how do I know if I have an annoying child?

You need to be able to view your darling from another person’s perspective. We haven’t yet figured out how to do that with children but we do know how to do it with ideas.

It’s a five step process:

1. Write it down

2. Evaluate your stake

3. Vet your information

4. Question assumptions

5. Examine the consequences

1. Write it down

The first thing you need to do is write it down. Our brains are squishy—they’ll change quickly and easily, switching from one side of an argument to another. We naturally evaluate all sides of an issue.

If I were to ask you whether it’s a good idea to include discount coupons inside boxes of cereal you could probably think of several reasons it would increase sales and several reasons it wouldn’t. If I later told you studies had shown it to be ineffective you would probably say to yourself, yeah, that’s what I thought.

“Your mind would tell you that’s what you thought all along.”

You would think that was your conclusion because you actually did think about it. The problem is, you also thought it might be a good idea too and you didn’t commit to one answer. So whether it turned out to be a good idea or a bad idea your mind would tell you that’s what you thought all along.

Our brains think of a lot of variations and adaptations to our ideas. Unless we capture our ideas in black and white, our minds will dance around situations and come up with the feeling our idea works when, in fact, it wouldn’t have worked if we hadn’t changed it for one scenario and then changed it back for the next.

2. Evaluate your stake

Ask yourself what you have invested in the outcome. This is essential because the more you have to gain from your idea being right, the more you will think it is right. Likewise, the more you have to lose if it’s wrong, the less likely you will be able to find its flaws.

This is what happens when I play chess. I’m evaluating three moves ahead but I’m not seeing my opponent’s best moves, I’m seeing the moves my opponent could make which would be best for me. I’m convinced they’re his best moves because I have something to gain from being right.

Many people earning under $36,000 a year think it’s a great idea to increase taxes on those making over $250,000. Predictably, those earning over $250,000 a year don’t agree. Why do you think this is? There are some cogent arguments for both positions but my guess is neither group is evaluating this proposition on the merits of those arguments alone.

You may not always be for the idea which benefits you—especially if there is a strong moral prohibition against it, such as cheating. And just because it benefits you don’t necessarily mean it’s a bad idea either. It just means you need to look at it closely, knowing you’re going to be predisposed to like it.

3. Vet your information

It’s helpful to nail down exactly what information it is you’re using to develop your idea. Our brains are incredible repositories of information and many octogenarians can remember things they learned in elementary school without much effort. Like the world being flat or the sun revolving around the earth.

Sometimes these facts are outdated. By being specific about sources of information it allows you to check their currency and accuracy. Look at the sources and see if they’re reliable.

If you’re relying heavily on one source of information you should ask yourself what their stake is in the information being accepted as accurate. Just because a study was conducted by scientists doesn’t mean it’s free from bias. Scientists are human too and when they evaluate their data there is often room for judgment.

In some cases it would also be wise to talk to people who are currently working in the field and see what sources of information they use and trust.

4. Question assumptions

Aside from facts our ideas frequently make use of assumptions. We don’t have information on everything so we have to make a lot of assumptions. It’s not a bad thing. But you want to be aware of what assumptions you’re making.

It’s best to write these down too as you’ll want to examine each one carefully.

Ask what facts the assumption is descended from and whether it is a logical assumption based on the facts. Then ask what other assumptions could be made. Is it a reasonable conclusion based on the facts? Is it the only conclusion?

“What are the implications if your idea is widely adopted?”

Again, be careful about bias. Assumptions are the area it’s easiest for our biases to influence our decisions because once an assumption has been accepted our mind treats it as a fact and no longer questions it. We see no need to continually evaluate it.

This is particularly dangerous when the facts change due to new information but our assumptions never get questioned because we don’t recognize the connection between those changed facts and our inferences.

5. Examine the consequences

Once you’ve determined the veracity of the information your idea is based on it’s time to follow it to a logical conclusion. What are the implications if your idea is widely adopted? What ideas does it conflict with?

This is sometimes done first but should usually be done last. If it’s done in the early stages of evaluating an idea and a conflict with a previous idea or viewpoint arises, it’s easy to throw out the new idea. But sometimes the new idea is actually more sound and if you’ve done the background evaluation recommended above, you’ll know this.

When you determine there is a conflict with a previously held thought or belief use this five step process again on the existing idea and see where its weaknesses are. You may find upon reflection, the old idea wasn’t as robust as you’d always thought.

Finding our ideas flawed is never fun, no one wants to believe they’ve got a rotten child. But by using these five steps we can dispassionately determine if we’ve got a child we can let out in public or whether they should be locked in the basement.

In my experience, more should be kept indoors.

(8:38) Five Steps to Evaluate a Good Idea

Five Steps To Evaluate A Good Idea by Siddhartha Herdegen
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Why You Don’t Need Passion To Be Successful

[photo by Afroswede]

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You don’t need to follow your passion to be successful; you need to follow your passion to be happy. There’s a big difference.

We’re all looking for satisfaction in life. This generally comes when we can do the things we’re passionate about. So passion is helpful in selecting a career that will be fulfilling.

In the past we’ve put off pursuing our passions until tomorrow preferring to work hard today to prepare for a future free from anxiety about the necessities of life. At which point we could wholeheartedly pursue our passions without defaulting on our financial obligations or risking financial ruin.

Two things have happened to make us rethink that plan.

Unrestrained consumption and black swans

The first thing that happened was that we found ourselves spending instead of saving. Working for the future is fine, but you can’t have your cake and eat it too.

We were both working like dogs at jobs we hated in order to enjoy life later and spending the money today on things we wanted right now. It doesn’t take Adam Baker to figure out you’re not going to have money to retire on if you’re spending it all today.

The second thing that happened was a realization that investments we thought were safe turned out not to be. Not just money invested in the stock market, which went down instead of up, but money invested anywhere whose value was diminished by inflation.

“You’re not going to have money to retire on if you spend it all today.”

So, we had to recalculate our economic choices. Our mental discussion probably sounded something like this: “If I’m going to have to work forever, I might as well do something I love.” And thus started the pursuit of our passion-as-vocation dream.

But the word “passion” gets thrown around a lot. I’ve heard it when successful people talk about any number of activities concerning both vocations and avocations. Everyone, it seems, needs to be passionate about what they’re doing. There’s a passion for passion out there.

It seems anything we want to be successful at we need to be passionate about. Aside from just a “gee-shucks” homey truism that seems like it ought to be right, is there anything to be said for this aphorism? Let’s examine this proposition in a critical way.

What people mean when they say this

We all know, people will repeat anything that sounds good without giving it much thought. So we need to ask, what do people mean when they talk about passion and, is it true we need to be passionate in order to be successful?

There are certainly plenty of examples of people who are passionate and successful, but the question is, do you need passion? To show that passion is essential it’s not enough to show multiple examples of successful people with passion, there needs to be an absence of successful people without passion. And this is simply not the case.

There are many highly successful people who have succeeded through a combination of dedication and hard work. The vast majority of successful people are the ones who have a plan and just keep plugging away rain and shine.

“Everyone, it seems, needs to be passionate about what they’re doing.”

Some of them are passionate about what they’re doing, but most of them aren’t. Some people are just committed to seeing it through. Others are successful because they are able to muster a lot of enthusiasm for the projects they’re involved in.

There are many paths to success, but most successful people take one of these two routes. So it seems that while there’s no single formula for success a good start is commitment and enthusiasm. If you have these two things, you stand a good chance of being successful.

People who are passionate about their work are excited about what they’re doing and they’re also dedicated to it.

So does that mean we do need passion?

I think most people use the word passion as a proxy for excited and dedicated, but passionate doesn’t just mean excited and dedicated.

It makes sense to use it this way. You have to be excited about your business or you’ll never convince people to buy from you or follow you. And you have to be dedicated to sticking with it even when progress is slow and times are tough.

There is a certain degree of contagiousness to excitement. When I’m around a person who is excited about what they’re doing it often makes me excited too. But I’ve also been around a lot of successful people who express themselves in an understated way but nevertheless connect with me on a deep level because of the strength of their idea.

And I’ll say this about commitment; I’m not passionate about car maintenance, but I’m committed to it. There are many things I don’t want to do yet am willing to do out of a sense of dedication or devotion. I wouldn’t say I’m passionate about any of those things.

I’ve discussed the idea of developing vision in a previous post. You will recall it was a process of discovering what is unique and compelling about our personal worldview. When arrived at in this way, our vision is likely to be something we’re passionate about.

The intersection of excitement and commitment

I would say passion is a deeper form of connection than either enthusiasm or dedication. Excitement and devotion may flow from passion but you don’t need to feel passionate to get excited or be committed. In other words, while passion can contain excitement and commitment, it does not mean excitement and commitment.

This is a common logical fallacy which assumes if all squares are rectangles, than all rectangles are also squares. Clearly this is not true. Neither is it true that simply because a passionate person has enthusiasm and devotion that passion is the only way to obtain these characteristics.

It is also true a person can have both excitement and commitment without being passionate. From a business perspective it could be represented by the Venn diagram below.

I can run a business without passion and I can have a hobby I’m interested in but not committed to. Many people will tell you, you have to be passionate about writing if you want to be successful. But an author can write without needing to write.

John Gregory Dunne, a prolific and successful author, said famously, “Writing is the manual labor of the mind.” Not the sort of thing you say about your passion.

Sure, there are people who are compelled to write but these writers are not the only successful ones. In fact, there are people who feel passionate about writing who remain unpublished and unread.

The ‘True Meaning’ of passion

Some people prefer the ocean, others the mountains. There are city people and country people, folks that like going out and those that like to stay in. We all have individual preferences.

And passions, like individual preferences, appear from nowhere, beyond our understanding and control, to dictate how we live our lives. In many ways the supposed necessity for passion appears to be just another reason to explain and justify failure.

One can be forgiven for not having a natural endowment of passion for your chosen field. (Though there’s a subtle condemnation here for those who chose their field poorly. “You should have followed your passion” they will be told.)

“I’m not passionate about car maintenance, but I’m committed to it.”

So when we talk about excitement and commitment as being synonymous with passion we’re devaluing and manipulating the word for our own benefit, bending it to our desires. Let’s leave passion in its rightful place, a place of honor and awe, as the most personal of connections.

A better definition of passion would be: Passion is a deep connection to an idea, a strong bond which creates a feeling of desire. It contains elements of both commitment and excitement but is not limited to them.

When we have used the techniques I discussed previously to develop our vision, we will naturally be passionate about it because they come from our unique and deeply held beliefs. But our vision does not have to be our vocation.

We don’t need passion to be successful; we need it to feel fulfilled.

(8:28) Why You Don't Need Passion To Be Successful

Why You Don't Need Passion To Be Successful by Siddhartha Herdegen  
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SEEKING: Fresh Observations

[photo by dalbera]

[Note: You can also listen to this post as a podcast]

My father was a creative type, always looking for something new. His vision kept him seeking a different situation, a better life. We moved from small town to small town as he pursued his dreams enthusiastically yet unsuccessfully. In the height of my youth we lived on a half acre lot in Kent, Ohio.

It was a residential neighborhood but my father plowed up half the back yard and put in a garden. Yes, half the back yard. That’s a pretty big garden. I have no idea why he did it, I just came home from school one day and he was in the back yard with a rented Rototiller churning the grass into rich, black soil. I stood dumbfounded.

Not that I had any respect for landscaping. The previous summer I had been bored to death and when my dad couldn’t take it anymore he told me to go out back and dig a hole. I took our spade to the far end of the yard and started digging for China.

“In elementary school, art was a subject just like math.”

It was an enormous pit by the time I was done, it could easily hold three adolescent boys and must have been five feet deep. My older brother and I played in it all summer. It was like a reverse tree house. I had watched plenty of episodes of Hogan’s Heroes and had visions of digging a network of tunnels all around the neighborhood.

That made perfect sense to me; tilling up half the yard for a garden didn’t. Knowing my dad, he was just trying to save a few bucks on groceries. That was the kind of thing he did though. He’d get an idea in his head and just wouldn’t let it go.

How we view creativity

It’s interesting how we’ve come to view creativity as something you’re born with. It seems a convenient classification for anything that’s difficult because, after all, if you have to be born with it you can be forgiven for not having that particular talent.

Many people put leadership in the same basket. There’s no sense putting time and effort into developing leadership skills since it’s either something you’ve got or you haven’t. Yet it’s been shown repeatedly that people can learn to be better leaders.

“Companies are increasingly seeking out those with creative talents.”

I’m not saying everyone who practices enough can play the cello like Yo-Yo Ma, there are people with unique gifts, but certainly everyone can learn to play the cello. Everyone can learn to be a leader. And everyone can learn to think creatively.

Society has undervalued creativity for a long time, opting instead to focus on math and science. Do you remember when you first started elementary school? Art was a subject just like math. But after a couple years, unless you were highly talented, the art classes went away and the math stayed.

Working in the garden

The garden became “family time”. We had long conversation in that garden about my father’s plans and dreams while he was pulling weeds and I was avoiding pulling weeds. I kept making him show me what the leaves of a carrot looked like.

“You see how that looks like grass,” he’d explain once again. “That’s a weed. The one with all the tiny leaves, the kind of bushy looking one, that’s a carrot.”

“Oh, that’s the carrot.”

“You know, Siddhartha,” he smiled at me, “The day is coming when a single carrot, freshly observed, will set off a revolution!”

“Yeah, I guess.”

“That’s Cezanne,” he explained.

“The guy with the dome house?”

My dad talked endlessly about building a geodesic dome house. “They’re the most energy efficient structure you can build because of the spherical design,” he would say. I didn’t know anything about heating or cooling costs but I knew they looked awesome so I loved to hear him talk about it.

“No,” he said, not taking the bait, “the artist.”

So we all need to be artists?

I was never going to be a great artist but I certainly enjoyed art more than math. Why not give me the option of studying art instead of math?

Imagine a school curriculum where they only taught math for a few years and, unless you were really good at it, the math classes went away and everyone studied art. Would we see creativity as the natural path and only people who were born with a unique talent for math became engineers and scientists?

I’m not an expert in epistemology but I have a feeling the outcomes we get are based not on a natural endowment of gifts but on the talents we value. Our culture has placed a great deal of emphasis on math-based knowledge for quite a while but we are beginning to see a shift toward creativity-based knowledge.

“The revolution is in valuing fresh observations, in seeing things creatively.”

It’s going to take a new way of thinking about what’s “natural” and what can be taught. We are seeing companies increasingly seeking out those with creative talent. In a recent survey 1500 CEOs were asked which leadership quality would be most important for CEOs to possess over the next five years. Their overwhelming response was “creativity”.

The last few decades have belonged to a certain kind of person with a certain kind of mind – computer programmers who could crank code, lawyers who could craft contracts, MBAs who could crunch numbers.

But the keys to the kingdom are changing hands. The future belongs to a very different kind of person with a very different kind of mind – creators and empathizers, pattern recognizers, and meaning makers. These people – artists, inventors, designers, storytellers, caregivers, consolers, big picture thinkers – will now reap society’s richest rewards and share its greatest joys.

Daniel Pink A Whole New Mind: Why Right-Brainers Will Rule the Future

Cezanne’s revolution

Perhaps the revolution is in valuing fresh observations, in seeing things creatively. When we allow ourselves to think of creativity as a valuable asset we don’t need to feel indulgent when we practice our favorite creative activity.

Whether your preference is photography, painting, poetry or prose each of us has a creative outlet. From dancing, sculpting and decorating to singing, playing music and composing, we can nurture the part of our brains which has been neglected for so long and given short shrift.

We no longer are a society whose fortunes rise and fall on the number of scientists and engineers we produce but increasingly on the ability of our business leaders to develop innovative approaches and new solutions to vexing problems.

There is room for creativity at every level in an organization. Every employee should see their position as an opportunity to improve the overall enterprise and develop unique ways of examining their responsibilities.

As a society we all benefit from new innovation. What have you freshly observed?