This is the famous $5 challenge issued to the students in a Stanford University class on entrepreneurship.
The professor walks into the room, breaks the class into different teams, and gives each team $5 in funding. Their goal is to make as much money as possible within two hours and then give a three-minute presentation to the class on their achievement.
If you’re a student in the class, what would you do?
Typical answers range from using the $5 to buy start-up materials for a makeshift car wash or lemonade stand, to buying a lottery ticket or putting the $5 on red at the roulette table. However the teams that follow these conventional approach typically finish in the bottom half of the class.
The teams that make the most money don’t use the $5 at all. They realize the $5 is only a distraction and essentially worthless as a resource. So they ignore it. Instead, they go back to basic principles and start from scratch. They reframe the problem more broadly as “What can we do to make money if we start with absolutely nothing?” One particularly successful team ended up making reservations at a popular local restaurants and then selling the reservation x-times to those who wanted to skip the queue. These students generated an impressive few hundred dollars in just two hours.
But the winning team that made the most money approached the problem differently. They realized that both the $5 funding and the 2-hours period weren’t the most valuable assets at their disposal. Instead, the most valuable resource was the 3-minute presentation time they had in front of a captivated Stanford class. They sold their 3-minute slot to a company interested in recruiting Stanford students for $650 !!!
The $5 challenge illustrates the key difference between tactics and strategy. Although these two terms are often used interchangeably, they refer to different concepts. A strategy is a plan for achieving an objective. Tactics, in contrast, are the actions you undertake to implement the strategy.
The Stanford students who didn’t do well at the $5 challenge was fixated on a tactic—how to use the $5 —and lost sight of the strategy. If we focus too closely on tactics alone, we become too dependent on it. As Sun Tzu wrote in the Art of War, “Tactics without strategy, are the noise before defeat.”
Just because a $5 bill is sitting in front of us doesn’t mean it’s the right tool for the job. Tools can be the subtlest of traps. When we’re blinded by tools, we stop seeing other possibilities in the peripheries. It’s only when we zoom out and determine the broader strategy that we can walk away from a flawed tactic.
So what is the $5 tactic in your own life?
How can you ignore it and find the 2-hour window?
Better still, how do you find the most valuable 3-minutes in your arsenal?