I have always been a big fan of mental models

WHY you may ask?

Because just like with everything in life, I believe in working SMARTER and not HARDER. And that’s where these mental models come into the picture.

We as human beings unfortunately continuously fall into the trap of working harder and not smarter. It gives us that satisfaction that YES we are continuously busy and have something to do.

It gives us meaning to our otherwise mundane existence.

It gives purpose.

BUT it does not make us smart, enhance our critical thinking or increase of intellectual ability.

Below are 6 mental models that have held me in good stead over the last 10 years or so and allowed me to prosper effectively at companies like IBM, PwC, & Mastercard, while generating close to $100M sales.

A mental model is not the end all solution, but it helps develop your mindset to succeed in anything you want to do. Here are the top 6 that have helped me elevate my mindset - Pareto Principle, First Principles Thinking, Occam’s Razor, Circle of Competence, Inversion Thinking, Second-Order thinking.

1. Pareto Principle 🕴️

The Pareto Principle is also known as the 80/20 rule, and is one of the most widely used mental models out there. The principle states that roughly 80% of the effects come from 20% of the causes. This means that a small proportion of inputs or efforts usually generate a disproportionate amount of outcomes or results.

To adopt the Pareto principle, you can start by identifying the 20% of efforts or inputs that are yielding 80% of your desired outcomes. You can then focus on optimizing or expanding those inputs to improve your overall results. At the same time, you can look for ways to minimize or eliminate the remaining 80% of inputs that are generating only 20% of your desired results, which may not be worth the effort or resources.

For instance, if you're running a business, you may find that 80% of your revenue comes from 20% of your customers or products. You can then focus on improving those products or catering to those customers to maximize your profits. Similarly, you may find that 80% of your customer complaints come from 20% of your products or services. You can then identify and address the issues with those products or services to minimize customer complaints and improve your overall customer satisfaction.

2. First Principles Thinking 🥇

The First Principles Thinking is a powerful mental model for problem-solving and innovation. First principles thinking involves breaking down complex problems or ideas into fundamental, foundational elements or concepts and then reassembling them from the ground up to arrive at new solutions or insights.

To adopt first principles thinking, you can start by identifying the fundamental elements of a problem or idea and questioning any assumptions or beliefs that may be limiting your thinking. You can then use logic and reasoning to build a new understanding of the problem or idea based on those fundamental elements. This approach can lead to more innovative and creative solutions that go beyond the constraints of conventional thinking.

For example, Elon Musk famously used first principles thinking to revolutionize the space industry. Instead of accepting the high costs of traditional rocket manufacturing, Musk broke down the components of a rocket to their fundamental materials and costs and then reassembled them using more efficient manufacturing methods. This approach led to the creation of SpaceX and reusable rockets, drastically reducing the cost of space travel.

Another, probably more relatable example, say you want to start a business selling high-quality coffee at an affordable price. By applying the first principles thinking, you breakdown the entire business model and supply chain to its most fundamental elements. Researching alternative coffee bean sourcing methods to reduce cost, designing a more efficient brewing process, focussing on the customer experience rather than an expensive retail space. This approach can in turn help you identify innovative, cost-effective solutions that still provide a high-quality product with the right customer experience at the right price.

3. Occam’s Razor 🪒

One of my favorite mental models out there - Occam’s Razor. A mental model often used in science and problem-solving. Occam's Razor, also known as the principle of parsimony, states that the simplest explanation or solution is usually the best one. This means that, when faced with multiple explanations or solutions to a problem, the one that requires the fewest assumptions or entities is most likely the correct one.

To adopt Occam's Razor, you can start by examining the various explanations or solutions to a problem and asking yourself which one makes the fewest assumptions or entities. You can then test that explanation or solution against available evidence or data to determine its validity. This approach can help you avoid unnecessarily complex or convoluted explanations or solutions and arrive at a clearer, more elegant understanding of a problem.

Suppose you're a data analyst working on a project for your company. You've been asked to investigate a decline in sales for a particular product line. Your task is to identify the root cause of the decline and recommend a course of action to address it. To apply Occam's Razor, you would start by gathering data on the product line, including sales figures, customer feedback, and marketing strategies. You would then generate a list of possible causes of the decline in sales, which might include pricing, product quality, marketing effectiveness, and competition.

Next, you would examine each potential cause and determine which one requires the fewest assumptions or entities. For example, if the decline in sales coincided with a price increase for the product line, the simplest explanation might be that the price increase was the cause. Alternatively, if customer feedback indicated that the product quality had declined, the simplest explanation might be that the decline in sales was due to the lower quality of the product.

By applying Occam's Razor in this way, you can identify the most likely cause of the decline in sales and recommend a course of action to address it. This approach can help you avoid overcomplicating the problem and focus on the most effective solution.

In other words - KISS (Keep it simple stupid!)

4. Circle of Competence 🧠

This one seems almost self-explanatory, but in a world of know-it-alls, probably worth explaining. This mental model is often used in investing and decision-making (or rather should be). The Circle of Competence refers to the set of skills, knowledge, and experience that a person has and is competent to apply effectively in a given field or domain.

To adopt the Circle of Competence mental model, you should start by identifying your strengths and weaknesses and determine where you have the most expertise and knowledge. This will allow you to focus on areas where you have a competitive advantage and can make the best decisions. It's also important to be honest with yourself about your limitations and avoid making decisions outside of your circle of competence.

For example, if you're considering investing in a particular company, you should analyze the company's financial statements, management team, and competitive landscape to determine if it's a good investment. If you have expertise in financial analysis and have studied the industry, you may be competent to make an informed investment decision. However, if you lack the necessary knowledge or experience, it's important to recognize that and seek advice from someone who is more knowledgeable in that area OR BUILD YOUR FINANCIAL LITERACY (little plug there).

By adopting the Circle of Competence mental model, you can focus on your areas of expertise and make better decisions, while avoiding the pitfalls of overconfidence and ignorance. This can lead to better outcomes and improved performance over time.

5. Inversion Thinking 🙃

The Inversion Thinking model, might be one that is counter-intuitive but hear me out. This is a thinking model often used in problem-solving and decision-making. The Inversion Thinking model involves looking at a problem or situation in reverse and considering what would cause the opposite outcome.

To adopt the Inversion Thinking model, you should start by identifying the desired outcome or goal and then consider what would cause the opposite outcome. This can help you identify potential obstacles or risks and develop strategies to overcome them.

For example, if you're a business owner and your goal is to increase sales, you might use Inversion Thinking to consider what would cause a decrease in sales. This could include factors such as poor customer service, ineffective marketing, or a decline in product quality. By identifying these potential issues, you can develop strategies to address them and improve your chances of achieving your goal.

By adopting the Inversion Thinking model, you can gain a different perspective on a problem or situation and identify potential issues or risks that you may not have considered otherwise. This can help you develop more effective strategies and make better decisions in a variety of contexts and generally expand your mindset of how you view things.

6. Second Order thinking 🥈

Second Order Thinking, is a mental model often used in decision-making and problem-solving. Second Order Thinking involves considering not only the immediate consequences of a decision but also the potential long-term effects and unintended consequences.

To adopt the Second Order Thinking model, you should start by considering the potential consequences of your decisions beyond the immediate or obvious ones. This can help you identify potential risks, unintended consequences, and long-term effects that may not be immediately apparent.

For example, if you're considering taking on debt to finance a business venture, Second Order Thinking would involve considering not only the immediate benefits of the investment but also the potential long-term effects of taking on debt. This could include higher interest rates, increased financial risk, and potential negative impacts on your credit score.

By adopting the Second Order Thinking model, you can develop a more comprehensive and nuanced understanding of the potential effects of your decisions. This can help you make more informed decisions and avoid unintended consequences and risks that may arise in the long-term.

In conclusion, we've explored several powerful mental models that can help you elevate your mindset and make better decisions in all aspects of your life. From the Pareto Principle to Second-Order Thinking, each of these models offers a unique perspective and set of tools that can help you think more critically and strategically.

By adopting these mental models and incorporating them into your daily life, you can gain a deeper understanding of complex issues, identify potential obstacles and risks, and make more informed decisions that lead to greater success and fulfillment.

So, take the time to explore these mental models and see how they can transform your thinking and help you reach your full potential.

Till Next Time

Adi 

You can catch me on Youtube and/or Linkedin (or my podcast)

PS - My new book on financial literacy for beginners titled “Financial Literacy Blueprint” will be launching in the next few weeks, and all you Growth Minded Ninjas will get first dibs! So stay tuned check out the images below for a sneak peak!