The Big Idea: Invest in data and data science teams. Better data + better data scientists = better models = better business decisions = sustainable competitive advantage. 

Chapter 1: Introduction, Data Analytic Thinking

• Data mining is the extraction of knowledge from data.
• Data science is a set of principles to guide data mining.
• Big data means datasets that are too large for traditional data processing systems and require new technologies such as Hadoop, HBase, MongoDB.
• We are in Big Data 1.0 still. Big Data 2.0 will be the golden era of data science.
• Building a top-notch data science team is nontrivial but can be a tremendous strategic advantage.
• Ex: fraud detection, Amazon, Harrah’s casinos.
• It’s important for managers and executives to understand basic data science principles to get the most from data science projects and teams.
• Just like chemistry is not about test tubes, data science is not about data engineering or data mining.

Chapter 2: Business Problems and Data Science Solutions

• There are a few fundamental types of data mining tasks: classification, regression, similarity matching, clustering, association grouping, profiling, link prediction, data reduction, causal modeling.
• This book will focus on: classification, regression, similar matching, and clustering
• Ex: churn prediction is a classification problem.
• Supervised vs unsupervised. Supervised data mining has a specific target. Unsupervised data mining is used to learn and observe patterns in the data but doesn’t have a specific target.
• It’s important to appropriately evaluate prediction models.
• Your model is not what the data scientists design, it’s what the engineers build.
• Data science engineers are software engineers who have expertise in production systems and in data science.
• Data mining is closer to R&D than to software engineering.
• Invest in pilot studies and throwaway prototypes.
• Analytics skills (ability to formulate problems well, to prototype solutions, to make reasonable assumptions) are more important than software engineering skills in a data science team.
• Useful skills for a business analyst: statistics, SQL, data warehousing, regression analysis, machine learning.
• There is much overlap, but there is a different because understanding the reason for churn, vs predicting which customers to target to reduce future churn.
• Ex. Who are the most profitable customers? SQL
• Ex. Is there really a difference between the profitable customers and the average customers? Statistics and hypothesis testing.
• Ex. But who really are these profitable customers? Can I characterize them? SQL, statistics, automated pattern finding. Classification.
• Ex. Will some particular new customer be profitable? How much revenue should I expect this customer to generate? Predictive model. Regression.

Chapter 3: Introduction to Predictive Modeling, From Correlation to Supervised Segmentation

• Predictive modeling is supervised segmentation. We have some target quantity we would like to predict.
• A classification tree, or decision tree, is a method to classify data instances.
• Tree structured models are a very popular data modeling technique and work remarkably well.
• Tree structured models are also easy for business users to understand.

Chapter 4: Fitting a Model to Data

• Tuning the parameters so that the model fits the data is parameter learning or parametric modeling.
• The most common procedure is one you’re already familiar with, linear regression.
• Logistic regression applies linear models to class probability estimation, and is one of the most useful data mining techniques.
• Nonlinear support vector machines and neural networks fit parameters based on complex, nonlinear functions.
• If we increase the complexity, we can fit the data too well, then we are just memorizing the data.

Chapter 5: Overfitting and Its Avoidance

• Just because a model fits the data very well, doesn’t mean it is better at predicting. It could just be memorizing the data.
• If you torture the data long enough, it will confess.
• Fundamental tradeoff between model complexity and overfitting.
• Always hold out data to test the model.
• A fitting graph shows the difference between accuracy during training and accuracy during testing.
• Overfitting is bad because the model picks up spurious correlations that produce incorrect generalizations.
• A learning curve is a plot of the generalization performance against the amount of training data.

Chapter 6: Similarity, Neighbors, and Clusters

• Similarity between data instances is described as distance between their feature vectors.
• Nearest-neighbor methods predict by calculating distance between a new data and neighbors in the training set.
• Similarity is used as the basis for the most common methods of unsupervised data mining, clustering.
• Hierarchical clustering can provide insights that instruct further data mining.
• A cluster centroid can be used as the basis for understanding clusters.

Chapter 7: Decision Analytic Thinking I, What is a Good Model?

• Accuracy is too simplistic a metric.
• A confusion matrix differentiates between different types of errors (eg. sensitivity vs specificity)
• Expected value frameworks are extremely useful in organizing data science thinking and evaluating models.

Chapter 8: Visualizing Model Performance

• A profit curve is useful for business user to evaluate classifiers.
• A Receiver Operating Characteristics (ROC) graph is useful for evaluating models when class priors or costs/benefits are not known.
• Since ROC curves are not intuitive, a cumulative response curve (or lift curve) is most appropriate for some business users.

Chapter 9: Evidence and Probabilities

• Bayes rule is used for conditional probabilities which occurs frequently in business problems.
• Naive Bayes rule is valuable because it is very efficient, practical to use, and can learn on the fly.
• Naive Bayes rule should be avoided when costs/benefits are uses. Best to use when rankings are more important.
• Bayes rule are the basis of evidence lifts. Evidence lifts are useful for understanding data like “Facebook Likes as a predictor of High IQ”

Chapter 10: Representting and Mining Text

• Term frequency (TFIDF) is a simple and useful data mining technique for text.
• Topic layers can also be used to assist with understanding text.

Chapter 11: Decision Analytic Thinking II, Towards Analytical Engineering

• Expected value framework is a core approach useful in many data science scenarios.

Chapter 12: Other Data Science Tasks and Techniques

• Not discussed in depth in this book: co-occurrence grouping, lift and leverage, market basket analysis, profiling, link predictions, social recommendation, data reduction, latent information, bias vs variance, ensemble models, causal explanations

Chapter 13: Data Science and Business Strategy

• Understanding data science concepts leads to awareness of new opportunities.
• Understanding the ROI of data science results in increased investment in data and data science teams.
• Data science is a sustainable competitive advantage.
• A culture of data science is valuable in building a data science team.
• A top data scientist is worth many times an average data scientist.
• Data science is learned by working with top data scientists, either in industry or academia.
• A top data science manager understands the technical principles, understands the business needs, and manages people and projects well.
• There is only one reliable predictor of success of a data science research project: prior success.
• Top data scientists want to work with other top data scientists. Most want more responsibility. Most want to be part of a fast-growing, successful company.
• Consider funding a PhD student for $50k/year.
• Consider taking on a data science professor or a top data science consultant as a scientific advisor to guide projects and attract data scientists.
• An immature data science team has processes that are ad-hoc.
• A medium-maturity data science team employs well-trained data scientists and managers.
• A high-maturity data science team focuses on processes as well as projects.

The Big Idea: Clarify your core values and make sure everyone knows them.

Core Values
1. Excellent customer service
2. Taking care of our people
3. Developing entrepreneurial spirit
4. Respect for all people
5. Building strong relationships
6. Doing the right thing
7. Giving back to our communities
8. Shareholder return

Ch 1: Two Regular Guys

• Two Guys discount retail was destroyed by overexpansion.
• Bernie started off as a controller for Handy Dan hardware stores.

Ch 2: Origins

• There is transactional banking and there is relationship banking.
• The vision for Home Depot was created in 1976. There were too many small chains, no national companies, and prices are too high.
• Home Depot would buy directly from manufacturers for increased margins and build immense warehouse stores for higher sales volumes.

Ch 3: The Financier

• Ross Perot nearly invested $2mm for 70% of Home Depot, which would now be worth $50bn+.
• Home Depot found seed capital elsewhere.

Ch 4: The Merchant, Act I

• Merchandising is a core competency for Home Depot.
• For Home Depot, merchandising is knowing what to buy and how to sell it in the stores.

Ch 5: The First Stores

• Atlanta was chosen over Boston, Dallas, and LA, because of demographics and economics.
• Home Depot got the cash it needed for inventory because of its relationships with bankers.
• The stores were meant to look more like warehouses than showrooms.
• Some deep discount sales brought customers into the first stores, which led to word of mouth.
• Home Depot lost money in 1979 but quickly turned it around and made a profit in 1980.
• Home Depot went public in 1981, which financed expansion into Florida.

Ch 6: The Associates

• Take good care of the customer.
• Empower associates to make decisions.
• Pay people what they are worth.
• Hire the best people and pay them more than the competitor.
• Offer stock options or a stock purchase program to let all employees be owners.
• Do what you can to keep associate turnover low.
• Take care of associates and they’ll take care of customers.
• Work hard and also work smart. People need a balanced life.
• Don’t ask your managers or associates to do anything you wouldn’t do.
• Sometimes you need to untrain bad habits that associates pick up at other companies.
• Don’t be afraid to hire senior citizens.
• Invest time in training and developing people.
• Home Depot offers apron badges for key accomplishments.

Ch 7: The Customers

• New executives always spend time in the stores.
• Associates are expected to walk customers to the product, not just point.
• How-To Clinics were developed because Home Depot cared about customers and their projects.
• The Home Depot return policy is flexible because they trust the customer.
• Associates are expected to be responsible for customer service.

Ch 8: Building the Brand

• Low prices are just the beginning.
• Home Depot’s size made national advertising finally cost-effective.
• Home Depot wanted to become synonymous with home improvement.
• Home Depot copied the Wal-mart employee stock ownership plan (ESOP).
• Everyday low prices was a better strategy for more consistent sales than occasional sales discounting.
• Home Depot spent millions on the 1996 Summer Olympics in Atlanta and became part of the fabric of America.

Ch 9: The Competition

• Home Depot is far ahead of Lowe’s.
• When you copy somebody and don’t really understand what they’re doing, you’re never going to be as good as the original. That’s Lowe’s problem.
• Home Depot can never beat specialty stores and so they will continue to exist.
• Core values remain the same but everything else is subject to innovation and disruption.
• Retailers can’t ever stay the same. Times change and retailers either adapt or die.
• The focus is always on the customer. Home Depot doesn’t need to beat the competition, they need to win the customer.

Ch 10: Growth

• Walmart founders always have retained humility, despite their incredible success.
• Walmart reached $10bn in sales by concentrating on stores, particularly control of merchandise, distribution, finances, and infrastructure.
• Home Depot gets lower prices by paying invoices immediately instead of net 30.
• Home Depot makes buying decisions on the local level, instead of centrally.
• Vendors generally ship inventory directly to stores, instead of to a distribution center. This saves time and money.
• Secure twice the capital you think you need. It gives you the confidence and financial strength to do what’s best for the long-run.
• Hire people who are overqualified at first and let them grow with you. Payroll is an investment, not an expense.
• In the early days, Home Depot managers worked 12 hours a day, 7 days a week, to open new stores.
• It’s not easy being a public company, but without the IPO, Home Depot would still be a chain of four stores in Atlanta.
• The board of directors agreed to cap annual growth at 25%, to protect the Home Depot culture from expanding too rapidly.
• During expansion, Home Depot learned the importance of planning and then learning when to adjust and improvise.
• The 24-hour Home Depot concept was driven by customers.
• Home Depot stocks contractor brands for the pros, but they have become popular with the DIY.

Ch 11: The Merchant, Act II

Ch 12: Strategic Partners

• Bankers and vendor relationships were key, especially since Home Depot did not use distributors.
• Home Depot works with vendors to improve their products.
• Eventually, Home Depot developed or bought in-house brands of tools, such as Ridgid.

Ch 13: How We Manage

• Humility is key. Accept that they are people smarter than you and hire them.
• What works in Atlanta might necessarily work in Maine.
• Give your managers firm boundaries at first and then loosen them as they earn your trust.
• Some things are the same from store to store. Some things are flexible. Some things are completely dependent on the store.
• Hire people who are overqualified and let them grow with the company.
• As you scale, keep a close eye on fiscal discipline.
• Success depends on teamwork.
• Communication is key. Avoid bureaucracy by keeping lines of communication open.
• Store walks are great for keeping executives close to the stores.
• Employee stock ownership program comes with a 7-year vesting period so it had a chance to build value over time.
• Best Practices program is how good ideas spread from one store to the entire chain.
• Teach employees core values and you won’t have to micro-manage.
• Use 360 feedback to develop people.
• Establish team-building programs to establish trust and improve communication.
• Never let the cancer of bureaucracy into your organization.
• Executives serve managers. Managers serve associates. Associates serve customers.
• The main office in Atlanta is not called “Headquarters.” It’s called “Store Support Center.”

Ch 14: The Communities We Serve

• Do the right thing and give back to the community.
• Don’t just encourage stores to do community service, give them a budget for it.

Ch 15: The Future

• Growth will come from the core business, professional customers, international expansion, specialty stores, convenience stores.
• Future leaders will be better than the founders.
• It’s the leader’s job to train people to be better than him.

Ch 16: Legacy

• It’s important to stay close to the stores and to the associates.
• The founders still walk around stores and talk to associates.
• Opportunities are still out there for anybody with the courage to reach out.
• Starting Home Depot looks easy now, but there was often a lot of pain, a lot of struggle, and many lucky breaks.

The Big Idea: focus on fundamentals and execution (The Standard of Performance), instead of focusing on the score and on the competition.

Part I: My Standard of Performance

• Failure is a part of success. Everyone gets knocked down.
• The Standard of Performance is the set of core values, principles, and ideals that define the organization. Implementing the Standard of Performance is more important than any strategies and tactics you might implement.
• Bill Walsh wanted the 49ers to be the pinnacle of professionalism in the NFL.
• Practices were precise and demanding, never sloppy.
• Continuous improvement was more important than victory.
• Character, intelligence, work ethic, and fit was more important than raw talent.
• The leader’s job is to teach and to encourage everyone else to teach.
• Champions behave like champions before they are champions.
• If you place a premium on fundamentals and consistent execution, you can perform reliably in big games and in big moments.

Part II: Innovation, Planning, and Common Sense

• Innovation is often born out of necessity and resourcefulness.
• Always be quick to share credit (and accept blame.)
• Contingency planning was one of the 49ers’ secret weapons. Be prepared for anything. Hail Mary’s are not a strategy.
• Analyze your vulnerabilities and take action to counter or protect them.
• The truth is hidden in the numbers. Follow key metrics more closely then big milestones or wins/losses.

Part III: Fundamentals of Leadership

• There are many equally valid leadership styles.
• The common trait, however, is an indomitable will to succeed.
• Know when to persevere and know when to quit. It’s a delicate balance that requires distinguishing a good plan from a bad plan.
• Sweat the small stuff, but only the small stuff that actually matters.
• Leaders must be both subject matter experts and delegation experts.
• Leaders teach others and show the entire organization how to teach each other.
• You don’t need to shout, stomp, and strut to be a good leader. Joe Montana was a quiet but incredibly effective leader.
• Treat people like people.
• Maintain a positive atmosphere.
• Know that humor has its place.
• Give no VIP treatment.
• Show interest in your people and their families.
• Don’t let animosity linger.
• Praise is more powerful than blame.
• Discipline is based on pride in the profession and attention to details.
• Officers must be seen on the front lines during action.
• Bill Walsh’s praise was sparse but meaningful.
• Employees thrive in an environment where they know exactly what is expected of them.
• Don’t mistake activity for achievement. — John Wooden
• Being a good listener is the key to good communication.
• Don’t let rank, titles, or status impede open communication.
• Leadership is about teaching skills, attitudes, and goals to the organization.
• Persistence is essential because knowledge is rarely imparted on the first attempt. You must drill over and over.

Part IV: Essentials of a Winning Team

• High expectations of your team are the key to winning.
• Let your people know they are part of something special.
• You are only as good as your people, so hire only the best.
• Traits to look for in hires: skills, energy and enthusiasm, ability to spot talent, ability to communicate, loyalty to others.
• How to keep people working well together: clear expectations, open communication, flexibility in method (but not core values), alignment with core values.
• Be aware that success can breed over-confidence and complacency.
• Place a premium on people who exhibit great desire to push themselves. (Ronnie Lott and Roger Craig)
• Ego can kill an organization.
• Never ignore the front-line (guys in the trenches) because they will generally pave the way to success or failure.
• The most powerful way to maximize someone’s potential is to say, “I believe in you.”
• There are times to sprint, but success is more like a marathon than a sprint.
• You can’t teach work ethic or willpower.
• Don’t waste energy on enemies.
• Focus on the process, not the prize.
• Make your own mentors by seeking out experts and asking questions.

Part V: Looking For Lessons in My Mirror

• Jerry Rice and Joe Montana are in the Hall of Fame because of their focus on fundamentals.
• The starting point for everything is work ethic.
• Teach your team how to teach their team. Build an organization of teachers.
• What goes around comes around. Treat people well.
• Know how to delegate well.
• Eliminate bad hires or toxic people quickly and compassionately.
• The best marketing strategy is to build a good product.
• Don’t expect quick results. Building a winning organization takes time.

The Big Idea: In today’s world, where geography doesn’t matter, tribes are thriving. Tribes are about connection and caring. Leaders of tribes build connection and caring into the tribe.

• Human beings need to belong.
• You can’t have a tribe without a leader, so learn about leadership.
• Everyone is expected to lead.
• Geography used to restrict the boundaries of tribes but the internet changed that.
• Leadership is pulling, not pushing.
• It’s better to make the rules than to follow them.
• Leadership is not management. Management is getting things done. Leadership is about creating change and inspiring people.
• Leaders are not afraid of change.
• Authority does not equal leadership.
• Two things to turn a group into a tribe: shared interest, a way to communicate.
• A leader of a tribe encourages members to communicate with each other.
• Tribes aren’t about stuff. They are about connections, in the context of a shared interest.
• A crowd is a tribe without a leader and without communication.
• An artist needs 1,000 true fans. A corporation needs more than 1,000 but fewer than it thinks. True fans are much more important than average customers.
• Real leaders give back generously to their tribe and help the tribe grow closer.
• Change is made by acting first and asking for forgiveness later.
• The best followers are not blind sheep but vibrant fanatics.
• One person with a persistent vision can make changes happen.
• Industries don’t die by surprise. The signals are always there.
• Life is too short to be unhappy and mediocre.
• Publish a manifesto, connect with followers, encourage followers to connect with each other.
• It’s powerful to exclude outsiders.
• Be willing to be wrong. Being wrong isn’t fatal.
• The big win for nonprofits is turning donors into patrons and activists. Encourage donors to network and volunteer. And vice versa.
• Caring is the emotion at the center of the tribe. Members of a tribe care about the tribe and each other.
• The secret of effective leadership is to first listen deeply.
• Success and change happen a little at a time. Drip, drip, drip. It takes time.
• You can’t bring permanent change in from the outside.
• Real leaders don’t care about who gets the credit. There’s no record about Martin Luther King, Jr., or Gandhi whining about credit.

The Big Idea: The presence of cognitive biases means we don’t always act rationally. Cialdini outlines six weapons of influence which can be used to influence behavior. Even if you aren’t a salesperson, you are a consumer so it’s good to be aware.

1. Reciprocation

• We tend to reciprocate a favor, even if it is unsolicited.
• Start by asking for a large favor and then expect a concession to the real favor you want.
• Selling down works better than selling up.

2. Commitment and Consistency

• After making an initial choice, we tend to stand by that choice over time. People usually don’t switch sides after they have committed.
• In a debate, start with a small area of agreement or concession and build from there. People want to stay consistent.
• We are more consistent in our commitment if we did it for our own purpose rather than from external reward or pressure.
• Bribing children doesn’t work.

3. Social Proof

• People like to follow the crowd (of people like them or people they want to be.)
• Examples: canned laughter, tip jars, Jonestown, peer learning, bystander effect.

4. Liking

• People want to please others whom they like.
• Attractive people are more persuasive.
• People like others who are similar to them.
• Compliments and flattery work.
• Familiarity increases persuasiveness.
• Establish a connection between your product and an attractive or winning person.

5. Authority

• We obey authority mindlessly in many cases.
• Titles, uniforms, and appearances convey authority.

6. Scarcity

• Losing something is more painful than gaining something.
• Something that is hard to obtain is more valuable than something that is easier to obtain.
• People fight fiercely to retain something they worked for.
• Sometimes it’s better to be censored than publicized. (Eg. Some “secret information” the industry doesn’t want you to know.)
• Indifference towards a lover becomes passion when a rival appears.
• Scarcity+rivalry drives up prices in bidding wars. Always mention a rival buyer when selling something.

The Big Idea: High potential people stumble in their careers most often because of a lack self-awareness of their own strengths and weaknesses. Fantastic advice in this book.

• The five archetypes of high potential people who stumble:
  • Captain Fantastic: high performer but terrible interpersonal skills
  • Solo Flier: high performer when working by himself but doesn’t know how to lead
  • Version 1.0: high performer but resistant to change
  • One-Trick Pony: high performance limited to one skill
  • Whirling Dervish: lots of potential but can’t manage time or projects
• Many high performers are completely unaware of their weaknesses.
• The book has specific advice and tools to help address weaknesses that could derail a career.
• High performers: love learning, have high emotional intelligence, and have lots of perseverance.
• High performers have a growth mindset (Carol Dweck.)
• Understand what motivates you and find the right job and organization for you.
• Five key motivations: achievement, affiliation, power, autonomy, and purpose.
• No one is going to care as much as you about your own development. Seek knowledge, feedback, and mentoring.