Wednesday, April 13, 2022

Success: Is It Only Defined by Growth?

 Lately I’ve been facilitating strategic planning sessions. I’ve also done some speaking engagement on this topic. My primary rock-the-boat question is: Is growth the only measure for success? Why?

Too often we US business leaders have a feeling of entitlement. We follow the plan. We should be rewarded. If we fail, it’s somebody else’s fault: fuel prices, government, lazy people, etc. We need to stop whining. I have the privilege of working with several businesses in Haiti. They have been in business for over a decade despite earthquakes, hurricanes and several collapses of their government and a inconsistent logistics because gangs control the roads and ports. Bribery is rampant. They’re still in business. Would you be?

Generally, I have a problem with case studies. They don’t capture the whole universe of data on company strategies. Despite Tom Peters’ efforts quite a few decades ago with In Search of Excellence and later Jim Collins’ and his co-authors’ efforts with Built to Last and Good to Great and a counterpart volume by McFarland, The Breakthrough Company (the small business Good to Great)…even when they did comparison analyses between companies that grew and those that didn’t in order to define the distinctions…they still didn’t uncover any companies that operated similar to their success stories but failed. Therefore, we really can’t test the hypothesis that their recipe for success is foolproof. In fact, it may not even provide a probability of success greater than 10%. (Okay, that statistic was made up.)

I’m intrigued by John List’s The Voltage Effect. His premise: all successful businesses follow the same recipe whereas all failed companies failed in a myriad of ways. This would imply that the Peters, Collins, McFarland formulae never fail; that there are no companies that have done the same things as the highlighted companies but collapsed. I doubt that's true. But I do see a lot of his initial diagnoses into the lack of scalability of successful products/services:

  • Confirmation bias: believing is seeing; we ignore the data that doesn’t fit our preconceived ideas of what will work (based on others’ success or early analysis of our own data). We don’t try to make our success formula robust by deliberating finding the factor that would cause it to fail. We take the set of conditions that worked once and duplicate it. Once in my career, I helped a paper cup manufacturer try to solve a leaking problem. 10% of their cups leaked. I asked operators to keep track of operational settings. For 24 hours there were no leaks. There were also no settings changes. We didn’t learn what wouldn’t work. We only learned we had a good chance of not having leaks—if nothing else changed like cup materials (paper, glue) and the environment. Unlikely.
  • Selection bias: even when we try to “experiment” and collect “random” data, we go about it the wrong way and have self-selecting survey respondents, focus group participants, promotion accepters, early adopters, homogeneous regional values (think East Coast vs West Coast vs Middle America), and so on. We extrapolate the data to market segments that we really haven’t tested.

So we define our recipe for success with the goal of growth. Because that’s our only target. This may be the fallacy in List's argument. He's looking for scalability, growth as his definition of success. But one of the things we learned from the aftermath of Peters' book when the companies he touted flopped: not all great companies survive.

But what if the target was just excellence in your core competency? What would your strategy be then? What if you target was robustness to tolerate all kinds of extrinsic volatility (economic boons/busts, changes in government policies, import/export tariff and supply chain disruptions, physical destruction, endemics that reduce workforce availability, etc.)?

How do you avoid confirmation bias on your strategic plan for excellence and robustness? Avoid selection bias? 

I believe there’s a lot we can learn from our Haitian brother/sister entrepreneurs regarding these things. And many others around the world.

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