Key Takeaways
- Alec Litowitz helped build Citadel’s equity businesses as assets grew from roughly $100 million to $10 billion.
- His central lesson from decades spent building investment firms is about how people respond when their assumptions stop matching reality.
- Litowitz asserts that the defining skill for founders and workers is adaptability quotient, or AQ: recognizing when your assumptions no longer match reality and changing course quickly.
Alec Litowitz arrived at investment firm Citadel in 1994 with minimal prior experience. He lacked a traditional investing background, and his Bachelor’s degree from MIT was in Mathematics and Anthropology, not Finance.
However, his business partner Ken Griffin saw something else, something that made him confident that Litowitz would thrive as one of Citadel’s four founding partners: how Litowitz thought.
“It was how my brain worked that he was interested in,” Litowitz tells Entrepreneur in a new interview.
Over the next decade, Griffin’s bet paid off. Litowitz helped build Citadel’s equity businesses as the firm expanded from roughly $100 million in assets under management to $10 billion in 2003. Citadel grew from about seven employees to 750. Then, Litowitz spent 18 years leading another firm called Magnetar Capital, which he says grew to manage about $20 billion by the time he left in 2022.
His central lesson from decades spent building investment firms is about how people respond when their assumptions stop matching reality.
He calls the mindset adaptability quotient, or AQ: the capacity to recognize that your mental model is outdated, reshape it and act before circumstances force your hand.
“It is the ability to notice when your map is off of reality and go through a process to redraw it,” Litowitz says. “So that when you act, you’re moving the ball forward.”
In a world where AI and other technologies are changing jobs, industries and institutions quickly, Litowitz believes everyone must have a strong AQ. “Everybody’s an entrepreneur when the world changes this fast,” he says.
A practical test for founders
Litowitz recently wrote a book about AQ called The Adaptability Quotient: Rewiring Your Mind for Success in the Next Human Era. In it, he identifies three behaviors that signal high AQ: metacognition, simulation and experimentation.
Metacognition means thinking about your own thinking. Founders must recognize that their beliefs are shaped by personal experiences, biases and blind spots. Before assuming an apparent market gap is an opportunity, they should ask why that gap exists.
Litowitz illustrates the point with a hypothetical entrepreneur who notices a town without an ice cream shop and decides to open one. The absence of a competitor may be an opportunity, or it may reveal that residents do not want ice cream, the seasonal demand is too weak, or a related concept would work better.
“The metacognition would sit and say, Well, why isn’t there an ice cream store?” he says.
Simulation is the second step: Generate multiple explanations and possible solutions rather than falling in love with your first idea. Perhaps customers want gelato instead of ice cream. Maybe a bakery or coffee business would be a stronger concept. Maybe the better test is a pop-up rather than a permanent store.
Finally, experimentation means seeking feedback from reality cheaply and quickly. Offer desserts through a local restaurant. Run a stand at a farmers market. Test demand before signing a lease, hiring staff and spending heavily on buildout.
“How can I go test my theory without going all-in and building the building and renting the space before I know anything?” Litowitz asks.
The key is discovering what is true
Entrepreneurs cannot become attached to an initial answer. Their job is not to prove themselves correct; it is to discover what is true.
“You don’t get to choose reality,” Litowitz says. “Reality tells you what’s right.”
When hiring employees, he suggests asking candidates one revealing question: “Would you rather be right for the wrong reason or wrong for the right reason?”
His preferred answer is clear. Being right for the wrong reason may create a short-term win, but it is difficult to repeat. A sound process that produces an unexpected outcome is more valuable because it can be studied, improved and used again.
“Lucky is not a business,” Litowitz says. “I want to have a process that continually creates something successful.”
Formulating the concept of AQ
Litowitz is now the founder and managing partner of investment firm Qstar, which he founded in 2017.
He noticed that the world was changing quickly around him. “The center of this dislocation is not in energy or finance,” he says. “It’s in the middle of society. This one’s affecting everybody.”
His answer is AQ. In his formulation, IQ helps people solve problems, and EQ helps them work with others. But AQ determines whether a person is asking the right question before attempting to solve it.
“AQ is the ability to sit and go, My model is no longer reality,” Litowitz says. “I can update my model and implement the new model before reality forces it on me.”
Key Takeaways
- Alec Litowitz helped build Citadel’s equity businesses as assets grew from roughly $100 million to $10 billion.
- His central lesson from decades spent building investment firms is about how people respond when their assumptions stop matching reality.
- Litowitz asserts that the defining skill for founders and workers is adaptability quotient, or AQ: recognizing when your assumptions no longer match reality and changing course quickly.
Alec Litowitz arrived at investment firm Citadel in 1994 with minimal prior experience. He lacked a traditional investing background, and his Bachelor’s degree from MIT was in Mathematics and Anthropology, not Finance.
However, his business partner Ken Griffin saw something else, something that made him confident that Litowitz would thrive as one of Citadel’s four founding partners: how Litowitz thought.
“It was how my brain worked that he was interested in,” Litowitz tells Entrepreneur in a new interview.