Upgrading Our Strategic Thinking Through Mental Models

Our team was recently tasked with evaluating insetting opportunities for a prominent climate tech VC fund. Insetting involves companies investing to reduce emissions within their own value chains or supplier networks, rather than purchasing offsets. With complex considerations around carbon accounting, supply chain logistics, emerging technologies, and financial modeling, this represented a highly nuanced and multifaceted challenge. To bring clarity and strategic alignment, we turned to a powerful set of mental models - concepts and thinking patterns that enhance our decision-making abilities. Here are four models that meaningfully upgraded our approach: 

The OODA Loop

The OODA loop outlines an iterative cycle of Observation, Orientation, Decision, and Action. In the Observation phase, we gathered wide-ranging data - academic studies, corporate reports, expert interviews, and climate tech market analysis. One teammate, with her environmental science background, took the lead here leveraging her subject matter expertise. We then Oriented by analyzing the information through various lenses - environmental science, finance, operations, and strategy. This allowed us to combine a team member’s financial modeling skills, another’s operational experience, my strategic viewpoint, and finally another’s scientific knowledge into a comprehensive understanding of the insetting landscape. Armed with this orienting work, we were able to Decide on recommendations and an overall stance on whether and how the VC fund could strategically pursue insetting. But we know this initial decision is just the start, as new information will likely require adjustments through future iterations of the OODA loop as we Act on executing the strategy. 

The ABC Goal System 

Rather than pursuing a single, lofty target, we set three tiers of goals: A) An ambitious best-case scenario deep-dive analysis, B) A solid, comprehensive base recommendation, and C) A minimum viable executive briefing. 

Having these ranging options prevented overwhelming pressure while still enabling us to push our limits. Some periods we operated at peak productivity towards the A goal, modeling out specific insetting scenarios and quantifying emissions from specific consumer sectors. Other weeks we ratcheted back efforts towards the B goal of a detailed landscape report, or the C goal of a high-level memo, based on time constraints and evolving workstreams. This system ensured continuous progress and prevented the project from stalling. 

Inversion Thinking 

We used inversion to reframe questions that felt stuck or overly complex. For example, when evaluating insetting's climate impact measurements, we hit a snag around the complexities of quantifying emissions reductions across diverse technologies and value chains. Rather than staying stuck, we inverted the question: "What factors could undermine or invalidate our impact analysis?" 

This reframing sparked us to reconsider our data sources, assumptions, and calculation methodologies through a more critical lens. We identified potential blindspots around Scope 3 emissions, evolving regulatory environments, verification challenges, and more. Similar inversions helped us pressure test our financial modeling assumptions and examine operational risks to implementation. Inversion proved a powerful lens to circumvent mental blind spots. 

The Pre-Mortem 

Early in our engagement, we conducted a prospective pre-mortem exercise imagining it was 6 months into the future and our insetting strategy had failed catastrophically for the VC fund's portfolio companies. We asked ourselves: "What shortcomings, mistakes or oversights in our recommendations, analysis, or de-risking efforts potentially led to this disastrous outcome? 

What critical factors did we completely miss?" Viewing the future-failure through this brutally honest lens surfaced crucial risks around greenwashing, verification challenges, policy uncertainties, supply chain migration, and more. 

Grappling with these "pre-mortemed" failures forced us to integrate preventative measures and contingency planning that dramatically improved our final recommendations. The pre-mortem injected an vital dose of reality into our approach. By combining analytical techniques and frameworks with these psychological models, our team was able to enhance our strategic thinking, communication, and final deliverables for the client. The models provided new perspectives, forced difficult introspection, and bred alignment across our diverse team. 

Each mental model unlocked cognitive pliability that stretched our consulting abilities in meaningful ways. As Alan Kay said, "Perspective is worth 80 IQ points." These tools expanded our perspectives and enabled us to deliver maximized value on this nuanced insetting study. They'll be invaluable assets as we take on future challenges at the intersection of sustainability, technology, and finance. In today's chaotic business landscape, a pliable mind strengthened by mental models is the ultimate competitive advantage for driving impact.