The Threshold Theory

I hate misunderstandings.

It’s one thing if people fundamentally disagree with each other or have competing perspectives. But the real tragedy, to me, is when people who would otherwise be well-aligned misunderstand each other.

There are a lot of reasons why this happens, but I’ve developed a theory that explains many situations. It’s a lens or framework that you can use to understand a lot of conflicting perspectives.

I call it the Threshold Theory, and it goes like this:

Conflicting advice is often a problem of sequencing. Most situations have a key transition point, or threshold, that determines the relevance of recommendations.

That’s pretty abstract, so let’s get practical. Here are some examples:

Personal Finance / Financial Wellness

This is one of the examples that became particularly clear to me while spending several years in the fintech / personal finance space. My cofounders and I were trying to help people improve their financial health, and quickly realized how broad of a spectrum that is.

Eventually, I came up with a theory of financial wellness, that there are two stages: Before-and-after financial break-even. Are you able to cover monthly expenses and are you out of debt (or, at least, do you feel like it’s under control)?

Before this point (which we could call phase 1), you have a very different perspective and priorities than you do after this point (which we could call phase 2).

And the tension arises when well-meaning people try to give advice to people, without understanding which side of the threshold they’re on.

Having read and talked to a lot of personal finance experts, it’s pretty clear to me that Phase 1 is often a fight for survival. It’s very stressful and uncertain. The best guidance is (generally): work the playbook. Whether it’s the Dave Ramsey baby steps or some other system, just do what everyone is always telling you: Spend less than you make, pay off your debt, look for ways to increase your income.

After this threshold, the situation reverses. Not that financial break-even solves all of your stress, but it becomes a different equation. At this point, you have the luxury and responsibility to decide where and how you want to spend your money. At this point, the best guidance has to do with understanding your own priorities, your specific path, and how your resources should be uniquely allocated.

So, you can start to see where misunderstanding could arise. Someone in Phase 1 will be discouraged and maybe even offended by Phase 2 advice: “I don’t need to follow my bliss or figure out my best life, I just need to be able to afford my bills and not be constantly worried about money all the time.” And the same is true on the other side: Phase 1 advice for someone in Phase 2 is just restrictive. Pushing someone in the latter stage of their journey to maintain the regimented cadence of escaping initial debt won’t help them achieve what they actually want.

So, when you see heated arguments on social media (or amongst your friends with strong opinions) about whether a given personal finance author is a genius or a complete idiot, I think it often comes down to failing to recognize the context and the thresholds involved.

Startups and Product-Market Fit

Speaking of startups, another example of this theory is the popular concept of “product-market fit.” This is the point where a new company’s product has found a resounding alignment with a specific group of customers. It’s a requirement for any successful company and I’m not the first to say that most startup journeys can be divided into “pre-PMF” and “post-PMF.”

This affects both the product and the distribution.

On the product side, I heard someone say recently,

“First, figure out the right product. Then, build the product right.”

Initially, you’re just trying to determine if people actually want the thing you’re imagining in your head. Getting things polished to perfection isn’t that useful—you may actually just be refining a feature (or entire product) that people will never buy. Once you’ve confirmed that people do want it, the need for quality emerges.

On the marketing side, you’re initially going for breadth, not depth. The goal is simply to get enough people to try the product to confirm your original hypothesis about whether people want it or not. Once this has been confirmed, you switch into a “growth” phase, where you’re scaling up your efforts and doubling down on getting as many of the right people in the door as possible.

Over my decade+ in early-stage companies, I’ve seen firsthand how often well-meaning advisors, investors, and even successful entrepreneurs fail to acknowledge this threshold: Phase 1 startups (pre-PMF) are told to adopt the latest growth marketing tactics to scale up, while Phase 2 startups (post-PMF) spend too much time tinkering and adjusting, after they’ve confirmed a direction that works.

Strategy vs. Execution

The reason I believe this theory is so valuable is because it can explain some of the thorniest debates. In the business world, I see a constant tension between those advocating for the importance of intentional strategy, and those who believe that execution is everything. So, which is it?

In this case, strategy is phase 1, and execution is phase 2.

Before you have a strategy, focusing on execution leads to a lot of motion and activity, but it’s often not in the right direction.

But, once you’ve crossed the threshold, and a viable strategy has been established: Continuing to tweak and revise is not helpful. At this point, the key is to develop consistent, recurring systems that allow your organization to drive things forward.

Prioritization vs. Productivity

Last year, one of my smartest friends made a casual observation to me: “Prioritization is more important productivity.” As someone who actively enjoys the rabid pursuit of optimization and efficiency, this felt like blasphemy. But the more I thought about it, the more I recognized that he was right. Without the discernment of choosing what to do, doing more of it won’t help. Or, as I eventually concluded: Speed in the wrong direction is worse than standing still.

But, once again: This is actually a threshold issue.

As much as I’ve come to focus on prioritization, being able to deliver on your priorities is important, too.

Yes vs. No

Once again, I’m drawn to this theory because it helps to explain very appealing arguments that seem to conflict with each other. For instance, I recently listened to Derek Sivers talking about the importance of saying Yes to everything. This can open up doors that you didn’t even know existed! At the same time, I often come back to a video I’ve watched of Jony Ive, Apple’s legendary head of design, talking about what made Steve Jobs great: A ruthless willingness to say No. Including—or especially!—to things that you’re really excited about.

These both seem like wise ideas. But they can’t both be right… right?

Well, they can, if you add in a threshold:

I think saying Yes is an ideal strategy when you’re early on. The most obvious example is age or career maturity: When you don’t have a lot of opportunity or experience, it’s tempting to say No to things, whether because it’s intimidating or just because you think it’s beneath you. During this window (phase 1), it’s important to push past this resistance and just say Yes! Open lots of doors! Accept lots of invites! Explore broadly. See what’s out there.

Phase 2 comes with maturity: Once you’ve reached a phase where you have lots of options, the requirement becomes exactly the reverse. As Kyle Westaway has framed it: “The quantity of our No’s dictates the quality of our Yes.”

We are now living in the Post-Information Age, so perhaps now, more than ever, this discipline is required.

But again: If you’re just starting out and don’t have a lot of options, an inclination toward “Yes” is probably what you need.

Quantity vs. Quality

One of the best things I’ve read recently is an essay that talks about how to produce a masterpiece. The only way to create something truly great, the author says, is to get a lot of reps. You have to put stuff out there… and just keep putting it out there.

But doesn’t that just lead to a world of cheap, poorly-made junk?

You already know where this is going: I see this as another threshold.

As someone who wants to create some sort of art, you do have to start with quantity. Our taste generally outpaces our ability (Ira Glass talks about this, here) and the only way to get better is to practice. Kind of like product-market fit for startups, you have to put a lot of things out there before you know what’s actually resonating and what’s working.

This boundary seems more squishy than some of the others, to me, and I think it may be hit pretty quickly: It might be that, even after just a few posts or pieces, it’s time to focus in on what is really good and worthwhile. The world doesn’t need more content, just for the sake of it. But it’s still true: fixating on the quality of what you’re producing, initially, is a blocker that can prevent you from taking even the first step.

Generalist vs. Specialist

At this point, I’m just listing out conundrums that have stuck in my brain. For instance: Should you be a generalist, or a specialist?

Charlie Munger and the mental-models crew often talk about the value of varied perspective, and the original “jack-of-all-trades” rhyme that’s so often used to bash the well-rounded is actually: “Jack of all trades, master of none, but oftentimes better than master of one.”

But excellence requires focus and acknowledging our limitations means accepting that we can’t be good at everything. When you do a little bit of everything, you never do much of anything.

So… which is it?

This solution actually isn’t mine: The whole premise of David Epstein’s Range is to present this progression. We should be generalists, first, and then progress to specialization.

One of his most memorable examples is Roger Federer: Despite being arguably the best tennis player of all time, he didn’t exclusively focus on that sport, early on. He was passionate about soccer and dabbled in several others for years, before eventually committing entirely to the game that gave him fame, later on.

Exploration vs. Mastery

Really just a subtle tweak of the last section, but I recently heard David Perell comment that "mastery is divergent." In other words: Developing the initial skillset in a field requires a Phase 1 approach of following the steps of your predecessors, listening to your teachers, understanding what came before. But true mastery requires transcending these frameworks and venturing out on your own.

Taking an idea from Paul Graham’s “How to do great work”—you have to get to the outer edges of the known world of a discipline or activity, first, before you start to see the cracks emerge.

Conclusion: What got you here won't get you there.

So, there you have it.

I have to acknowledge right away, that this is not a universal or necessarily precise theory.

For one, it won’t always be just two phases. Lots of scenarios have an ongoing progression, where what was initially a ‘Phase 2’ then turns another corner and is followed by a subsequent phase.

And beyond that: These phases are (as I said a couple times above) somewhat squishy. While something like pre- and post-positive cashflow for your personal finances is pretty binary, that may not be the exact moment of transition for some people. And lots of these other examples are far more ambiguous.

Despite that, I’ve found this framework to be incredibly useful. If you see conflicting advice or have a scenario where you seem to be pulled strongly in opposite directions, just consider: Is this actually a matter of sequencing? Is there a threshold, here?