Archive Page 2
October 16th, 2013 by BPV
Scott Adams, creator of Dilbert, discusses his new book – How to Fail at Everything and Still Win Big – in both print and video at the WSJ.
Mr. Adams provokes a bit with his trademark jaded humor (of which we are fans), but he also provokes fresh thinking on passion, failure, goals, and the role of luck.
We can’t quite endorse every piece of advice he offers – not everyone enjoys the sinecure of an established syndicated cartoonist - but we can recommend the article and the interview. And perhaps after we’ve finished it, the book.
Don’t follow your passion because your passion might not be very rational. Success creates passion, not the other way around:
My boss, who had been a commercial lender for over 30 years, said that the best loan customer is someone who has no passion whatsoever, just a desire to work hard at something that looks good on a spreadsheet. Maybe the loan customer wants to start a dry-cleaning store or invest in a fast-food franchise—boring stuff. That’s the person you bet on. You want the grinder, not the guy who loves his job.
For most people, it’s easy to be passionate about things that are working out, and that distorts our impression of the importance of passion. I’ve been involved in several dozen business ventures over the course of my life, and each one made me excited at the start. You might even call it passion.
The ones that didn’t work out—and that would be most of them—slowly drained my passion as they failed. The few that worked became more exciting as they succeeded.
Goals are less important than having a system or process for success:
To put it bluntly, goals are for losers. That’s literally true most of the time. For example, if your goal is to lose 10 pounds, you will spend every moment until you reach the goal—if you reach it at all—feeling as if you were short of your goal. In other words, goal-oriented people exist in a state of nearly continuous failure that they hope will be temporary. If you achieve your goal, you celebrate and feel terrific, but only until you realize that you just lost the thing that gave you purpose and direction. Your options are to feel empty and useless, perhaps enjoying the spoils of your success until they bore you, or to set new goals and re-enter the cycle of permanent presuccess failure.
If you have a choice, success is better than failure, but failure is a great teacher. In the real world, luck is a huge part of any success story:
You can’t control luck, but you can move from a game with bad odds to one with better odds. You can make it easier for luck to find you. The most useful thing you can do is stay in the game. If your current get-rich project fails, take what you learned and try something else. Keep repeating until something lucky happens. The universe has plenty of luck to go around; you just need to keep your hand raised until it’s your turn. It helps to see failure as a road and not a wall.
October 11th, 2013 by BPV
We came across this item today, which makes for a nice addendum to yesterday’s post about the indispensability of human judgment even (or especially) with today’s complex and detailed decision-making models.
Kevin D. Williamson writes about a research fellow in applied mathematics and complex systems who is bumping up against the limits of mathematical modeling:
Having made the switch from physics to social systems, Mr. DeDeo discovered that the complexity of the data describing human action is so vast that modern mathematics does not have the tools to deal with it. Like many scholars of complex systems, he believes that a new discipline within mathematics — probably entailing an intellectual revolution on the order of the invention of calculus — is needed before scientists can even begin to get a handle on the relationships between variables in the systems they are studying.
We’re limited by Bonini’s Paradox: As our models become more complete and more accurate, they become as difficult to understand as the underlying reality they are meant to represent; as they become easier to understand, they become less accurate and less complete.
Or in Paul Valéry’s words: “Everything simple is false. Everything complex is unusable.”
This sounds very similar to BoE Director of Financial Stability Andrew Haldane, quoted in yesterday’s post, who warned that “fundamental limitations of the human mind” thwart increasingly complex (and sometimes frivolous) attempts at regulation.
This belief is new, and not helpful. As the authors note, “Many of the dominant figures in 20th century economics—from Keynes to Hayek, from Simon to Friedman—placed imperfections in information and knowledge centre-stage. Uncertainty was for them the normal state of decision-making affairs.”
October 10th, 2013 by BPV
Is There Still a Role for Judgment in Decision Making? Harvard Business School Professor James Heskett wonders if recent advice to eliminate decision-making biases might have gone too far in an effort to supplant independent judgment with data and probabilities and decision trees:
The replacement of customs and biases with data, “big” or “small,” has been intended, at least in part, to drive out such things as tradition, habit, and even superstition in endeavors ranging from child rearing to professional sports. After all, wasn’t the book and film, Moneyball, at least in part a glorification of the triumph of statistics and probabilities over intuition and managerial judgment in professional baseball? …
In fact, if there is a sense that one gets from all of this work, it is that we are our own worst enemies when it comes to making and implementing good decisions. We need tools to correct the errors and biases of our own judgment. This is puzzling, because we are frequently reminded that the ability to exercise judgment is what sets humans apart from other forms of life. (Perhaps judgment is what leads us to adopt recommendations such as those of these authors.)
Every leader has internal biases, some of them subconscious or hidden, which can create especially tricky traps that complicate sound decision making. So it is important to think systematically and design the decision-making process to account for the zoo of biases managers face. Astute management of the social, political, and emotional aspects of decision making can help account for the underlying biases of the participants.
On the other hand qualities such as judgment, engagement and strong communication skills are critical attributes because interpersonal chemistry plays a role in any decision involving more than one person. What we’ve oft said about boards is true of any team: processes and best practices may be important, but great teams rely on ‘robust social systems’ and mutual accountability among its members to ensure that they function properly.
As we argued in Thinking consciously, unconsciously, and semi-consciously: the best results often come from a combination of deliberation and intuition. Too much deliberation can become analysis paralysis; and studies show that those who rely on intuition alone tend to overestimate its effectiveness. (They recall the times it served them well and forget the times it didn’t.
Furthermore, the more complex and detailed the process the greater the likelihood managers will mistake process for purpose and manage to the rules without exercising any judgment. In the wake of the last financial crisis, BoE Director of Financial Stability Andrew Haldane argued that this had been precisely the case with regulators, who tiptoed right up to the hot red line at which a crisis can be triggered.
Mr. Haldane deployed an analogy about a Frisbee-catching dog to explain how increasingly complex (and sometimes frivolous) attempts at regulation push the limits of data or modeling or even the nature of knowledge itself. The dog can catch the Frisbee despite the complex physics involved because the dog keeps it simple: run at a speed so that the angle of gaze to the Frisbee remains roughly constant.
So while we still do value “good old-fashioned intuition,” it’s also unwise to rely only on one’s instincts to decide when to rely on one’s instincts. The dog’s doing just fine, but if it involves more than a Frisbee he might want to crunch some numbers too.
September 30th, 2013 by BPV
Two recent publications do a very nice job of describing “growth equity” and distinguishing it from early-stage venture capital and buyouts.
This piece at Inc.com explains that due to Sarbanes-Oxley young high-growth companies are delaying IPOs, staying private longer, and seeking other sources of capital to fuel their growth:
What makes a growth-stage company? Generally, it has its first product or service in the market and is getting traction. At this stage, investors like to say that the dogs are eating the dog food. Product development continues to be very important, but sales, marketing and customer service are now center stage. The founding management team is still in place, but new faces and skill sets are needed. The amount of money needed to maximize the company’s opportunity outstrips the company’s ability to generate free cash.
Growth investors cover a wide spectrum. Some growth-stage investors prefer the early stage of expansion. This investor generally has been rooted in the venture capital industry, or he or she may be a successful entrepreneur-turned-investor. These investors tend to be active and more hands-on. They will make available their extensive networks and years of experience. You may want seasoned growth-capital investors as board members or advisors, as they will be able to open doors and help you solve problems that may be new to you but that they’ve seen repeatedly.
At the other end of the field are the financial engineers. They tend to be passive investors who engage much later in the growth cycle, when a big exit is not too far over the horizon. Most will write jumbo checks — $50 million and up — to be well-positioned for an IPO. They generally will have no interest in being on your board or offering operational assistance…
Similar to your hunt for early-stage investors, compatibility with your aspirations and personal chemistry are essential ingredients. If your company is doing well, you should have the luxury to pick and choose whom you work with.
This report from Cambridge Associates argues that growth equity has developed into its own unique asset class:
If you were seeking to locate growth equity on a spectrum of private investment strategies, you would most likely place it somewhere between late-stage venture and leveraged buyouts—established companies that can benefit from additional capital to accelerate growth…
It is instructive to contrast growth equity deals with buyout and venture capital transactions. Leveraged buyouts, for example, also typically involve companies with a stable earnings stream, perhaps growing less aggressively, and in this case used to facilitate the assumption of debt, which is expected to be a material contributor to the investment return. Venture capital investors, meanwhile, generally receive preferred equity positions similar to those given to growth equity funds, but because of the nascent stage of most venture-funded companies, the downside protections outlined above are typically lacking.
Further, venture investors usually share control with a syndicate of other institutional investors that can have conflicting interests and priorities—a situation that growth equity investors often avoid…
In summary, while growth equity shares some characteristics with both venture capital and leveraged buyouts, it should be viewed as a separate strategy with its own risk-reward profile, distinguishable by its minimal use of leverage and portfolio companies with strong organic growth. Simply put, growth equity offers a similar return profile to leveraged buyouts but without the leverage, and could also be viewed as a low-octane venture proxy,with far less dispersion among company returns given the lower risk of loss, but also little chance for the fabled ten-baggers integral to venture’s long-term success.
Both these pieces describe fairly accurately the strategy that BPV has pursued since our founding: our investment is a “growth accelerator” for companies at or nearing profitability and in the early stages of rapid expansion. Our entrepreneur partners benefit from our network and experience with high growth companies, and our limited partners benefit from the fact that our strategy entails a lower risk of loss of capital and is not reliant on a frothy IPO market for an attractive exit. We have pursued this investment approach since the founding of our predecessor firm, South Atlantic Ventures, over thirty years ago. and we are pleased that Cambridge Associates has recognized the unique aspects of this asset class.
copyright 2002-2013 Ballast Point Ventures
September 24th, 2013 by BPV
Congratulating David Day and his team at UF’s Office of Technology Licensing is becoming a habit: they’ve been ranked 4th nationally for the number of start-ups formed, and 11th for the number of licenses and options granted for university research. (In a yearly audit conducted by the Association of University Technology Managers.)
This represents the 3rd time in under six months we’ve had the pleasure to give David & team a shout-out. Last April they were named the 2013 Incubator of the Year by the National Business Incubation Association, besting much larger competition from all around the globe, and just this past July they were named World’s Best University Biotechnology Incubator by the Sweden-based research group UBI.
The university’s OTL, Innovation Hub and incubator are vital parts of the hodge-podge of scientists, institutions and funding that make up Florida’s entrepreneurial ecosystem, all of whose members share great regional pride in their accomplishments. We’ll cut & paste this post into another draft and save it for re-use a couple months from now…
September 10th, 2013 by BPV
Patron Saint of Great Ideas?
As reported in The 10 rules of entrepreneurship, the best products don’t always win. Compelling ideas can and do fail after launch: before the iPod and Facebook there were MPMan and Mirror Worlds, and Pets.com enjoyed no shortage of funding or publicity. (Although selling below cost and making it up on volume might not qualify as a great idea…)
Wil Schroter, writing in Forbes, advises entrepreneurs to fret a little less about confidentiality in “Why Investors Don’t Sign NDAs.”
Investors want entrepreneurs, not ideas. Anyone can come up with a great idea, but very few can actually pull them off…
If your idea is so easily stolen that just hearing the concept is enough to allow anyone to replicate it and launch it better than you, then you’ve already lost.
There is little protection in just a concept, so unless you’ve got a secret recipe behind it, signing a NDA doesn’t do you much good anyway… since as soon as you launch everyone will have a taste of it anyhow. [Therefore] you’re more likely to be explaining why you can defend this concept once it’s launched.
We made a similar point last year on Columbus Day: he was not the first to think the earth was round, but he was the one willing to act on it. An earlier Forbes piece had made clear that the King & Queen were more interested in the entrepreneur than the idea:
The second time Christopher Columbus pitched Ferdinand and Isabella (two years after his initial presentation – raising money has always taken patience and persistence), he did not need to convince them that locating a shortcut to the spice routes of India was a good idea. Rather, he had to belie their primary concerns: was he honest, tenacious and competent enough to execute the journey? [N.B. - Furthermore, he failed and had to go to market with a different idea altogether.]
While we do retain some interest in hearing about the idea - the details in the pitch reveal important things about the entrepreneur – we agree about the primacy of some of the intangibles: integrity, transparency, trustworthiness, enthusiasm and tenacity, self-awareness, and flexible persistence.
The issue of NDAs ripples throughout the entire entrepreneurial ecosystem: angels will tell you they waste limited resources and never get used in anger, and code jockeys won’t sign “the poor man’s patent.” As one software developer puts it:
If someone’s out to screw you, they’ll screw you with or without an NDA… In short, don’t waste your time building straw houses, just stay away from wolves.
Given the ubiquity and overlap of ideas, asking for an NDA is a rookie mistake that only slows the process and undermines your pitch – unless you have patented IP and not just a legally un-protectable thought.
Growing the acorn into a mighty oak is a long-term project that will eventually include adding partners who share the vision and can bring additional resources – financial, expert, and network – to bear. Choosing partners who best fit requires as much rigor and thoughtfulness as any decision an entrepreneur makes.
So forget the NDA, and instead just conduct a little due diligence before trusting us with your idea.
(For additional illustrations of how today’s trendy idea can become tomorrow’s punchline, you can check out our Vintage Future series.)
September 3rd, 2013 by BPV
The WSJ’s Weekend Interview tells of the federal government’s effort to retroactively penalize an entrepreneur after his business failed, quite probably because of a cheeky and defiant publicity campaign he pursued in an (unsuccessful) attempt to save his company. The story echoes one from California, where the state is so desperate for tax revenue that it’s resorted to a retroactive tax on entrepreneurs that applies even after they’ve left the state.
Whether it’s taxes or lawsuits, it’s probably not wise to tell your best job creators that the risks they assume may extend beyond the expiration of their companies and threaten to pierce the corporate veil.
These stories illustrate that broken institutions are as great an impediment to job creation as either fiscal or monetary policies.
In 2012 the Consumer Product Safety Commission shut down the small company behind Buckyballs, an office toy that became an Internet sensation in 2009, because of safety concerns that were strenuously contested by the company and its CEO, Craig Zucker. In an effort to save the company, Zucker and his team filed the required “corrective action plan” and launched a publicity campaign to rally customers and spotlight what they viewed as the commission’s “nanny-state excesses.”
The campaign was successful at generating publicity but not at saving the business:
Online ads pointed out how, under the commission’s reasoning, everything from coconuts (“tasty fruit or deadly sky ballistic?”) to stairways (“are they really worth the risk?”) to hot dogs (“delicious but deadly”) could be banned. Commission staff were challenged to debate Mr. Zucker, and consumers were invited to call Commissioner Inez Tenenbaum’s “psychic hotline” to find out how it was that “the vote to sue our company was presented to the Commissioners on July 23rd, a day before our Corrective Action Plan was to be submitted.”
“It was a very successful campaign,” says Mr. Zucker, “just not successful enough to keep us in business.” On Dec. 27, 2012, the company filed a certificate of cancellation with the State of Delaware, where Maxfield & Oberton was incorporated, and the company was dissolved.
“The inventory was sold and the business ended,” says Mr. Zucker. He thought it was an “honest and graceful exit” to a broken entrepreneurial dream.
Whatever the merits of the safety argument, after the business was dissolved, the commission continued to pursue Mr. Zucker:
But in February the Buckyballs saga took a chilling turn: The commission filed a motion requesting that Mr. Zucker be held personally liable for the costs of the recall, which it estimated at $57 million, if the product was ultimately determined to be defective.
This was an astounding departure from the principle of limited liability at the heart of U.S. corporate law. Normally corporate officers aren’t liable for the obligations of a company, and courts are loath to pierce the shield of limited liability unless it can be shown that the corporate entity was a mere facade—that corporate formalities weren’t adhered to, the officers commingled personal and corporate funds, and so on.
No such allegations were made against Mr. Zucker. Instead, the commission seeks to extend the holding of United States v. Park, a 1975 Supreme Court case in which the CEO of a food retailer was held criminally liable under the Food and Drug Act for rodent infestation at company warehouses. The CEO, the court ruled, was the “responsible corporate officer” by virtue of being in a position of authority when the health violations occurred.
But in a subsequent case, Meyer v. Holley (2003), the justices clarified that ordinary rules of liability apply unless there is clear congressional intent in the pertinent statute to hold individual officers liable. The statute in Park did include an individual-liability provision. But the relevant law in the Buckyballs case, Section 15 of the Consumer Product Safety Act, regulates the conduct of manufacturers, distributors, retailers and importers as corporate persons, suggesting Congress didn’t intend to hold officers liable for recalls when there is a proper corporate entity in place. There is also no question of a criminal violation in Mr. Zucker’s case.
Says Mr. Zucker: “The commission’s saying that because as CEO I did my duty—didn’t violate any law, was completely lawful—I am now the manufacturer individually responsible.” Shockingly, the administrative-law judge hearing the case bought the commission’s argument, meaning Mr. Zucker will have to defend himself in the Maxfield & Oberton recall case to its conclusion at the administrative level before he can challenge the individual-liability holding on appeal.
Given the fact that Buckyballs have now long been off the market, the attempt to go after Mr. Zucker personally raises the question of retaliation for his public campaign against the commission. Mr. Zucker won’t speculate about the commission’s motives. “It’s very selective and very aggressive,” he says. “If you want to ask if this is some sort of reprisal, well, they don’t need Craig Zucker anymore.”
Mr. Zucker says his treatment at the hands of the commission should alarm fellow entrepreneurs: “This is the beginning. It starts with this case. If you play out what happens to me, then the next thing you’ll have is personal-injury lawyers saying ‘you conducted the actions of the company, you were the company.’ “
Since the Consumer Product Safety Commission is a federal agency, start-ups in the Southeast and Texas may be as susceptible to that risk as Mr. Zucker’s was in NYC. However the tax policies found in our region are demonstrably more favorable - both before you start your business and after you’ve sold it.
August 13th, 2013 by Matt
Today’s Wall Street Journal includes a story about the dramatic genetic breakthroughs that are revolutionizing cancer treatment.
(The promise of personalized cancer treatment, part I, can be found here.)
One of our portfolio companies, MolecularMD, provides highly validated, standardized pharmacogenomic tests that support regulatory approval and clinical adoption of targeted, personalized oncology. Several of their assays help to identify a subset of the EGFR mutations mentioned in the story.
MolecularMD was founded by CEO Sheridan Snyder and Chief Scientific Officer Dr. Brian Druker. Mr. Snyder is a renowned leader in the biotechnology industry and behind several previous successful start-ups in the field, including Genzyme (NASDAQ: GENZ) where he served as Chairman, CEO, and President. Dr. Druker is a recipient of the Lasker-DeBakey Clinical Medical Research Award for his critical role in the development of Gleevec, a drug featured on the cover of Time magazine and described as a “magic bullet” that “convert(ed) a fatal cancer into a manageable chronic condition.”
(For those who would like to enjoy the inspiring story behind the development of Gleevec, please see “A Doctor in Full” from The Wall Street Journal and this interview in The New York Times.)
Here’s an excerpt from today’s story, DNA Sequencing of Tumors Brings Hope of New Cancer Drugs:
Kellie Carey’s doctor finally stopped dodging questions about how long she had to live six weeks after he diagnosed her lung cancer.
“Maybe three months,” he told her in his office one sunny May morning in 2010, she recalls.
Yet she is still alive, a testament to the most extraordinary decade of progress ever in the long scientific struggle against lung cancer.
Tests found Ms. Carey’s lung cancer to be of a rare type that researchers had found just three years earlier by deciphering its genetic code. The 45-year-old businesswoman in 2010 went on a drug Pfizer Inc. was testing for that type. By pinpointing her cancer, the drug probably helped give her years more to live than chemotherapy would have, her doctors say…
Ms. Carey has one of at least 15 lung-cancer variations, almost all of which scientists didn’t know existed 10 years ago. Researchers have identified those variations, most of them in just the past four years, by decoding DNA in tumors—akin to how crime labs analyze DNA to genetically fingerprint suspects…
Among signs that revolution really is afoot: A June 2013 study found that lung-cancer patients who were treated with drugs targeted at their genetically identified varieties lived 1.4 years longer than patients on chemotherapy whose cancers weren’t genetically identified.
In effect, lung cancer is no longer a few common diagnoses. Instead, it is a growing list of rare cancers, each a target for its own drug regimen… The same goes for other malignancies: Scientists have decoded tumor DNA from breast, colon, kidney, skin and other cancers in recent years to discover scores of variations they didn’t know existed before… (R)apid diagnostic advances are making it easier for any doctor to test for the newfound cancers. Tests now can hunt for more than 200 mutations—of lung and other cancers—in one biopsy.
In June 2011 the WSJ wrote about what this would mean for the approval process for new cancer-fighting drugs:
By targeting mutations, researchers say fewer patients will be needed to prove the efficacy of new drugs, hastening their path to the market. In addition, fewer people will be enrolled in trials of drugs that provide them little hope of benefit.
But the use in drug development of specific genetic traits in tumors, called biomarkers, poses a maze of challenges. Many tumors are complex organisms fueled by multiple pathways. When one is disrupted even by a potent single agent, others compensate to help tumors develop resistance to treatment. Target therapies will likely be more effective when given along with similar agents or as some are used now, with existing conventional drugs… Researchers and drug companies are already working to test combinations of targeted agents. In some cases, they are collaborating with rivals. Combining agents risks increasing side effects and the cost of therapy, researchers and regulators say, and will likely require changes to current procedures for approving drugs.
August 8th, 2013 by BPV
This review of Daniel Isenberg’s Worthless, Impossible, and Stupid sounds promising enough to consider the book for addition to The Library in St.Pete, but in the meantime the review covers some favorite subjects.
Mr. Isenberg defines entrepreneurs as contrarian value creators who see economic value where others see heaps of nothing and who combine the self-confidence to defy conventional wisdom with the determination to overcome obstacles.
As the book’s title suggests, Isenberg believes some of “the best entrepreneurs are distinguished more by their ability to achieve the impossible than by the originality of their thinking.”
He also argues that entrepreneurship may be ”a type of modern-day philosopher’s stone: a mysterious something that supposedly holds the secret to boosting growth and creating jobs” but governments are confused as to how to encourage it.
They assume that it must mean new technology; so they try to create new Silicon Valleys. Or that it is about small businesses; so they focus on fostering start-ups. Both assumptions are misleading.
Silicon Valley has certainly been the capital of technology-based entrepreneurship in recent decades. But you do not need to be a geek to be an entrepreneur. George Mitchell, the Texas oilman who pioneered fracking, did as much to change the world as anybody in the Valley. Nor do you need to be a conventional innovator. Miguel Dávila and his colleagues built a huge business by importing the American multiplex cinema into Mexico. Their only innovation, says Mr. Dávila, “was putting lime juice and chili sauce on the popcorn instead of butter.”
The review also makes the distinction, frequently cited here when we’ve written on the topic of job creation, between lifestyle companies and high-growth start-ups. The bulk of job creation comes from VC-backed versions of the latter:
Equally, there is a world of difference between the typical small-business owner (who dreams of opening another shop) and the true entrepreneur (who dreams of changing an entire industry). Jim McCann, the creator of 1-800-flowers.com, is an entrepreneur rather than just a florist because, when he opened his first shop in 1976, he looked at the business “with McDonald’s eyes”, as he put it, and laboured for years to build the world’s biggest flower-delivery business.
These misconceptions matter because they produce lousy policies. The world is littered with high-tech enclaves that fail to flourish. Malaysia’s biotech valley has been nicknamed “Valley of the BioGhosts”. The world is also full of small-business departments that fail to produce many jobs. The Kauffman Foundation, which researches such matters, has shown that the bulk of new jobs come from a tiny sliver of high-growth companies.
The review is found in The Economist, in the magazine’s Schumpeter column, and it closes by invoking its namesake:
Politicians and bureaucrats do not just confuse entrepreneurship with things they like—technology, small business—they also fail to recognise that it entails things that set their teeth on edge. Entrepreneurs thrive on inequality: the fabulous wealth they generate in America makes the country more unequal. They also thrive on disruption, which creates losers as well as winners. Joseph Schumpeter once argued that economic progress takes place in “cracks” and “leaps” rather than “infinitesimal small steps” because it is driven by rule-breaking entrepreneurs. It might be nice to think that we could have growth and job-creation without a good deal of Schumpeterian cracking. But, alas, some thoughts really are worthless, impossible and stupid.
August 1st, 2013 by BPV
In an April 2013 McKinsey Quarterly discussion about new research, fresh frameworks, and practical tools for decision makers, Stanford’s Chip Heath and McKinsey’s Olivier Sibony float a a tool similar to the ”personality profiles” widely used in team-building exercises (e.g. Myers-Briggs, DiSC, Keirsey Temperament Sorter).
Example profile: “Visionary”
In this case, managers would be categorized into 1 of 5 decision-making styles: Visionary, Guardian, Motivator, Flexible, and Catalyst (see “Early-stage research on decision-making styles”).
Rather than telling someone he’s hopelessly biased, you say, for example, “Look, you’re a certain kind of decision maker—a real visionary—so you make fast decisions breaking with convention. The downside is that you could be wrong, so when you make an unusual decision you might want to stop and listen a bit.” Whereas someone else will tend to fall into the opposite trap…
If you and I are around the same table, rather than telling you that you’re out of your mind, I can tell you, “We know that you’re a visionary, right? So you would see things in this way. Well, I’ve got a different style, so here’s how I think about it.” A bit like the Myers–Briggs Type Indicator… People love personality approaches. Psychologists have always had this approach–avoidance relationship with them because we can’t get them to be as predictive as we want, but they provide this tremendous social language.
Is this just HR nonsense or could it be a brilliant feat of social engineering?
…Danny Kahneman and Amos Tversky listened to a group of consultants telling them about the Myers–Briggs. The consultants didn’t know they were talking to two Nobel-caliber psychologists, so they were a little condescending as they explained MyersBriggs to their dinner companions, who should have known about it already. Kahneman and Tversky listened. And they weren’t telling the consultants, “Decades of social-psychology research says that it’s really hard to design a personality test that predicts anything useful about behavior.” Danny Kahneman walked out of the room and turned to Amos Tversky and said, “You know, that was a brilliant feat of social engineering. Instead of saying, ‘So-and-so is a jerk,’ they say, ‘Oh, he’s an INTP.’”
Most executives won’t be interested in using behavioral research to change their processes to overcome biases – no one wants to be told they’re biased because of the negative connotations, even while they’re quick to believe others (e.g. direct reports) are subject to a ”zoo of biases.” But they could be more open to helping their teams make better decisions:
So we will say, for example, “Let’s talk about what works and what doesn’t work in your strategic-planning process.” We don’t talk about biases, because no one wants to be told they’re biased… Instead, we observe that people typically make predictable mistakes in their planning process—for instance, getting anchored on last year’s numbers. That’s OK because we are identifying best practices… It’s a lot easier to say, “Let’s build a good process so your direct reports have better recommendations for you” than “Let’s come up with a process for you to be challenged by other people.”
The authors emphasize that it’s important to “see yourself as the architect of the decision-making process, not as a great decision maker enhanced by the knowledge of your biases.”
The analogy (we) like is how we handle problems with memory. The solution isn’t to focus harder on remembering; it’s to use a system like a grocery-store list. We’re now in a position to think about the decision-making equivalent of the grocery-store list.
N.B. - “Fake-O-Backend“
Unrelated to the topic but elsewhere in the piece, when discussing broader issues related to decision-making, Heath & Sibony had an amusing anecdote about how Intuit built more experiments into their DMPs:
Before they add a feature, say, to TurboTax, they will test out variations and see how people respond. They call it “Fake-O-Backend.” Imagine that they put up a Web page for a new “deduction analysis” service, and when people plug in their information on the Web site, the company goes to a tax attorney for the answers instead of programming all the computations. The back end is fake. The front end tests whether people would purchase a new service.