Bigville, Smallville, and cheapo heuristics
August 01, 2018
Big projects are different from small ones.
In Bigville, things are done at "industrial scale"—$500/hr lawyers, everthing licensed, insured, and bonded, full regulatory compliance, executives with media training. In short, expensive, high-end talent that's often the best in the world at what it does.
Whereas in Smallville—the land of small business, home improvement, personal projects—they can't afford to do things how they're done in Bigville. Yet somehow, they still get by. Example: how does a typical hotel, which does $1.5 million/year in revenue , secure its payment infrastructure? $1.5 million in revenue in a low-margin business means $15k/year of technology budget if you're lucky; that's barely enough to keep a property management system running, let alone buy new computers, keep things patched, make sure the firewall works, or ensure PCI-DSS compliance. It's just not going to happen.
Same problem with building permits: in Bigville, they spend $50-60 million on a building, and pay the architect $1 million in "fee", enough to afford a painstaking permit process where the drawings get reviewed, one page at a time, by the architect and the city. In Smallville, someone's spending $10k to put a patio on their roof. Good luck hiring a structural engineer for that…
Expensive experts populate Bigville; Smallville is the land of cheap. "Cheap" includes what I call "cheapo heuristics"—decision rules that are 60-70% correct, applicable at 1/10th the cost. Cheapo heuristics are 3 parts clever and 1 part horrible.
And 100% fascinating. They explain so much of what goes right, and what goes wrong.
Cheapo heuristic example #1: an investment's "payback period". As any finance academic would tell you, that's the wrong way to evaluate an investment; in Bigville, they use NPV based on incremental cashflows. Good luck explaining that to a Smallville resident, where nobody understands discount rates, and "opportunity cost of capital" might as well be Greek. On the other hand, most 5-year olds could probably understand payback period: if an investment costs $2 and puts $1/year in your pocket, that's a pretty good investment. I've lived too long in Bigville; I cringe whenever I hear "payback period".
Cheapo heuristic example #2: hiring on personal recommendations, or degrees; neither is definitive proof someone can do a job. These criteria persist because they're easy to judge, even if they aren't the best; they're also the root cause of insularity and bias.
But I think Bigville and Smallville could learn a lot from each other. I know because I mostly live in Bigville, but I spent a lot of time as a tourist in Smallville in the past couple years, doing a technology project for a hotel chain, and managing my HOA. Overall I prefer Bigville, but "study abroad", as it were, has taught me a lot.
One thing they don't understand in Smallville is how ignorant, and just genuinely bad at things, they are; they could use some humility. People in Bigville are really good at stuff—the best in the world; Smallville never wants to pay for that, preferring to go cheap, and shoot themselves in the foot. Usually it doesn't matter, but sometimes it does. Whether computer security, contract law, or finance, it's one preventable, idiotic mistake after another in Smallville, all because hiring an expert was "too expensive". It all stems from not valuing their own time, preferring to attempt everything themselves, and call an expert only after things have gone way off the rails.
Bigville  has its own blindnesses. First, it doesn't realize how small it is; easily 99.9% of the work done in IT, construction, marketing, really anything, happens in Smallville. Smallville is the world of mass retail—Home Depot—and changing your own oil. The truth is that Bigville's expertise—and the cost that goes with it—usually isn't worth it; were it not so, the world would be in shambles, since most of it is Smallville anyway. Bigville's third sin: underestimating the cost of complexity. All those spreadsheets, automation, data, complex mathematics; there's a cost, and its name is complexity, "the focus of evil in the modern world". Whereas in Smallville, they understand, at a visceral level, how much you have to fight complexity.
The key is knowing where you are, and playing by its rules. Many people spend their entire lives in either Bigville or Smallville, and never come to appreciate the other's strengths: Bigville's competence and mastery, Smallville's resourcefulness, and cockroach-like resilience.
 Per AHLA: about 60 rooms at 60% occupancy, with $110/night average rate. At 365 days/year, that's $1.45 million.
 This is related to Nassim Taleb's notion of "Harvard-Soviet knowledge".