The Three Levels of Evaluating Performance
Here’s a simple framework to help you think about performance.
Level 1: Consistency
Are you showing up on a regular basis for an extended period of time? For anything you want in life, half of battle is just simply showing up. 90% of the battle is showing up regularly. Consistency is an underrated superpower because it allows you to win on volume, compound interest, and luck. This is the difference from doing 150 pushups two days a week versus doing 50 pushups daily. The daily consistency will yield you 50 more pushups per week. Over the year, the difference will be an additional 2,600 pushups and over ten years, the gap jumps to 26,000. The longer you keep up with a routine the bigger the payoff over time. Additionally, sometimes amazing things happen to you just because you showed up. This is Chance II Luck caused by motion as Marc Andressen puts it. In the words of Ameet Ranadive, “Chance II luck comes from activity. Just by the sheer act of doing something, you are more likely to stumble into luck.“
Level 2: Growth
How are you performing today versus when you first started? This is about performance relative to your individual baseline. Some people move from bad to good and others are moving from good to great. Also, some people just stagnate. At this level, you are measuring growth. If you started at a D level and are now at a B, this is better than starting at a A level and ending up at a B+. In the latter, the final outcome is higher but the growth is lower. In life, we are often running our own race so it is important to know where you are now and how far you’ve come. The goal is to combine growth and consistency so that you can stay performing at a high level over a longer period of time.
Level 3: Generating Alpha
How good is your performance above the average? Generating alpha is a term taken from the investing world that measures performance above market returns. For example, imagine you came up with an investment strategy and had a gain of 50% on your capital that year. If you were just evaluating growth, this would be considered good. You’re 50% better than where you started. But what if the overall market returned 75% that year? This means that if you did nothing but blindly invested in the overall market without using your strategy that year, you’d be 25% better off. Generating alpha is about your performance being better than that of a broad population doing the minimum of just showing up. At this level, your performance is being evaluated against consistency, growth, AND outcomes. Evaluating your performance in terms of generating alpha forces you to appraise your strategy and prioritize which actions you take. Sometimes it’s better to be consistent than to look for alpha because the effort payoff is better. You should seek alpha when you believe you can generate greater returns while assuming the same amount of risk or effort. This would be like choosing to do 3 variations of pushups in your set of 50 daily ones versus just doing 50 the standard way in the example from Level 2.
As you jump into 2021 planning, think about your goals at each of these levels. Where do you want to be consistent, where do you want to see growth, and where would you like to generate alpha.