Like a Drunk, Maybe We’re Looking at the Wrong Data

 The proverbial joke: a drunk is looking for car keys under the lamp post; not because the keys were lost there but because the light is better. Similarly, there’s a story out of WWII about a statistician analyzing data on flak damage to bombers with the purpose of determining where to reinforce the armor plating on the plane. The Allies couldn’t add armor everywhere; the bombers would be heavier and consume more fuel and have a smaller bomb payload. After collecting the data from returning bombers and comparing this information to surface area and corresponding ratios, Abraham Wald reported that some areas are disproportionally damaged. However, in a key insight, Wald advised that these were the wrong areas to reinforce. These planes survived damage to those areas. He didn’t have data on the planes that did not return. Where were the lethal hits on those aircraft? He coined this bias towards available information: survivorship bias. We look at the successful companies, for example, and determine they were resilient to certain problems. But perhaps all companies are resilient to certain problems. We don’t know what damage—decisions, policies, behaviors, circumstances—occurred that finally did the unsuccessful companies in.

Dan Simons and Chris Chabris, the co-authors of Invisible Gorilla—which pointed out problems with our attention/focus and our memories—have given us a new book, Nobody’s Fool: Why We Get Taken In and What We Can Do About It. This survivorship bias shows up everywhere and too often consultants sell us the methods that worked for Google, Meta, Apple, IBM, GE, 3M, Walgreen’s… Even Jim Collins and his comparative studies still can’t report on the thousands of companies that go out of business and the reasons why.

I’ve been in companies that really couldn’t answer the question because the information was missing. I’ve seen leaders tempted to use the available data to answer a different question assuming “it’s close enough” or “it’s the metric everyone else uses.” Like overall profitability instead of product line/service line specific. Or applying the same overhead rate for all activities even though resource consumption is lower on legacy products/services.This can be a problem. And proverbially has you looking for car keys under the lamp post, when they’re in the middle of the block. Close enough?

Entrepreneurial Brain?

 Occasionally I guest-lecture for an entrepreneur class at a local university, so I was intrigued by Jeff Hays’ forthcoming book, The Entrepreneurial Brain: How to Ride the Waves of Entrepreneurship and Live to Tell About It. 

Jeff Hays compiles a lot of helpful advice and strategies for entrepreneurs, especially serial entrepreneurs and entrepreneurs from business schools (why I say this latter part, I’ll explain later). Two helpful keys are found in this book: business is full of paradoxes—contradictory advice where both sides are true at times; the key business functions and different strategic tools to grow (or survive). An example of the first is the advice to “never quit” while it’s also true that you should “quit early and learn” so you can make improvements for the next round. An example of the latter key is to be reminded that sales and marketing are two different and necessary business functions. His compendium of strategic tools may be worth the price of the book.

Hays himself is a paradox. He describes his values and how they rank in his decision-making and then conforms to his principles and violates them at the same time. For example, he describes the time value of money and explains how he’s refused to have lunch with people who want to learn from him. It’s not worth a $1ooo of his time to have lunch with someone. But then later explains that he’s willing to give because others have given to him. That it’s all about serving others especially customers. You give, and as a result you get. Through all his stories/adventures I’m wondering if he gives only to those that he can get something from. (I’m not impugning his character; I just couldn’t find a preponderance of evidence that he has lunch so others can pick his brain.)

While he’s trying to encourage entrepreneurs and notes that “all” entrepreneurs score high on the Quick Start dimension of the Koble assessment—versus Follow Through, Fact Finder, Implementor—it may do a disservice to those overlooked entrepreneurs who start most of the businesses in the US. We often call them “mom and pop” shops because they’re the key to providing for the owners’ families. They’re started sometimes by recent immigrants and refugees who see a need in the community. They’re started by non-Stanford, Silicon Valley-bound graduates. I challenge the author’s premise; I doubt all of these entrepreneurs score high on Quick Start. Millions of businesses are sole proprietorships. (Millions of businesses are also asset owner/holders like LLC’s to own/operate a solar farm in order to sell energy to a single customer, like a hospital, college or factory.) While the author’s book might help the millions of independent contractors in construction, computer programming and related, event planning, videography and home healthcare, and many other service industries, this audience will have trouble relating to the multi-million dollar deals Hays highlights. Maybe rather than knowing the Brain of the Entrepreneur, it might be worth paying attention to the Soul of an Entrepreneur (a book by bestselling author David Sax with the subtitle “The Work and Life Behind the Startup Myth.”)

Quick Start brains, according to Kolbe, can assess risks and are risk tolerant. Perhaps being risk tolerant, opposed to risk averse, is the key here. Others have shown that we’re horrible at assessing risk and predicting the future. Review Daniel Kahnemann’s and his co-authors’ works. Ask Nassim Taleb about black swans and how to invest broadly because we can’t predict who will win—for example, he describes the difference between NYT bestsellers and other writers as a lottery of catching the readers’ attention. There are many gifted authors but only a few sell more than a hundred or a thousand copies. Same with businesses (and economic trends and stock market stars, since most economists are wrong and most mutual fund managers can’t beat the stock market indices repeatedly). Hays’ mantra here is to make sure you avoid complexity and keep a simple business model. Whether that reduces risk or not, I don’t know. The guy who developed the copy machine thought there was a need for three in the whole world—maybe it was more complex than pen/paper and a good mimeograph machine. Risk tolerance might be the key to the entrepreneurial brain, or a bit of desperation if you’re trying to feed your family.