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In Business, Your Gut is Only 1 Data Point

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4160817135_a925e3f61f_zYou’ve probably heard at least one successful entrepreneur talk about how they went with their “gut.” By opting to rely on their intuition instead of data they came up with a decision that led to a wildly successful outcome. While these stories may be true, and thus incredibly tempting if you’re struggling with a decision, they ignore something else: survivorship bias.

How many stories have you heard lately about someone trusting their gut and failing miserably? That’s at the heart of survivorship bias. We hear about the successes, the ones who made it, but we rarely hear the flip side, the ones who didn’t have the best intuition. This bias towards success then leads us to believe that we’re on to something, that we’ve discovered the secret to making tough business decisions. It leads to a question I think all entrepreneurs needs to ask themselves: why are we so obsessed with finding a short cut?

Obviously efficiency is a huge plus in business, and as an entrepreneur, you want to make the best use of your time, but this pursuit of silver-bullet strategies seems like a fool’s errand.

Let’s go back to survivorship bias for a minute. One of the things that makes this bias so attractive is the idea that it’s identified something predictive, something that will always work. That’s the entrepreneur’s version of catnip. There are so many unknowns in both starting and running a business that it’s understandable why we’re looking for ways to remove the uncertainty.

But we get into trouble when we start thinking that these ideas should take precedence over our strategy and assume we’ve found a short cut around uncertainty.

There’s a reason that entrepreneurs collect data about how their business is functioning and how their customers are reacting, then taking the time to analyze it. You need the specific information about your organization to determine what’s working and what’s not. So if you’re opting to put aside all those other data points and trust just one—your gut—it looks much more like a Hail Mary pass instead of a so-called executive decision.

There will definitely be decisions when circumstances will force you to make a call that isn’t supported 100% one way or the other by the data. That’s part of being a leader and using your knowledge to make the best possible decision at that moment in time. What’s not particularly good leadership is waking up one morning and deciding since your gut was right last time, it makes sense to let your gut trump everything else going forward.

The only predictable thing this approach offers in the business version of indigestion. So please remember that your gut may be an important data point, but it’s rarely the only one that matters.

Photo credit: Ed Schipul

The Costco Lesson: You Don’t Want an Off-the-Shelf Business

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246003528_516c53cd04Back in the ’90s, Gatorade ran a commercial with this tagline: I wanna be like Mike.

The Mike in question (for anyone younger than 30) was Michael Jordan. The ad worked incredibly well because at the time, circa 1992, Michael Jordan was THE sports figure. And the setup was perfect. Every kid (and many adults) who played basketball loved the idea of being “like” Michael Jordan. It was an easy leap to say, “If Michael Jordan is drinking Gatorade, I should, too.”

But the me-too strategy that works so well for a marketer trying to sell a product comes with issues for a business trying to be like another business.

I’m a firm believer that there is much to be learned by watching how others do business. Whether you’re an entrepreneur assessing how the industry leader does things or the enterprise solution checking out a startup’s innovative idea, there’s value in watching and learning. Where the trouble starts, at least from a strategic standpoint, is when the desire to emulate becomes a me-too strategy.

For instance, I read a profile of Costco and its current CEO, Craig Jelinek. It would be incredibly easy to say that based on Costco’s success, every other company would be crazy to not follow Costco’s lead.

While competitors lost customers to the Internet and weathered a wave of investor pessimism, Costco’s sales have grown 39 percent and its stock price has doubled since 2009. The hot streak continued through last year’s retirement of widely admired co-founder and Chief Executive Officer Jim Sinegal. The share price is up 30 percent under the leadership of its new, plain-spoken CEO, Craig Jelinek.

Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour)…Eighty-eight percent of Costco employees have company-sponsored health insurance…Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”

There is little in there to disagree with, especially add it all together and get Costco’s success. But, and this is the piece that gets overlooked, Costco is Costco. It’s built a set of systems and an environment that lets it excel at what it does really well. So if you assume that you could transplant in whole what Costco is doing internally that tells me that you don’t really understand how your business works.

The actual Costco (Apple, Nordstroms, Whole Foods, etc.) lesson that does matter is that you must learn and define what systems and environment your business does need to excel.

You don’t need to be the next Steve Jobs or Jack Welch to run your business really well. You just need to be the version of you that pays attention to your business and what’s actually working.

Yes, strive to meet the standards set by industry leaders, but please don’t fall into the trap of thinking you need to look like them in every way. If you do, you run the risk of becoming generic, the business world equivalent of a “parrot.” So look for ideas and opportunities to improve. Look for the bigger why in a company’s success instead of seeking to copy the specific moves. Because once you understand the underlying reasons, it becomes much easier to see what’s applicable to you and your business.

As a result you’ll become the kind of business that attracts customers who love you for very specific reasons instead of an off-the-shelf version that’s only tolerated.

Photo credit: jimcchou

You Can’t Afford to Stand in the Middle

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909757564_5ad73bc801_zThe center of the road is an awkward place to be, but all too often, it’s the strategy that gets picked by entrepreneurs who want to hedge their bets.

Christopher Penn highlighted one particular sticky wicket for middle of the roaders: creative destruction:

Right now, the email marketing industry is going through a destruction phase. The “mid market” is vanishing, and has been since 2010-2011 in the email marketing industry. In the email marketing space, you are either serving the small business niche…or you are serving the enterprise. The middle of the road customer is vanishing as they either move up or down market, and the vendors are consolidating, too. That’s the destruction phase. The big players buy up the healthy companies, and the sickly ones eventually wither and perish. Very few companies ever successfully walk the middle of the road for their entire existence – they have to go big or small to survive.

Let’s focus on that last line: They have to go big or small to survive.

I appreciate that there’s a certain comfort in feeling like you can go one way or the other. I even understand the arguments for offering that level of flexibility. What I don’t accept, however, is the middle of the road as a long-term strategy. As Penn notes, it’s about survival, and hanging out in the middle doesn’t come with very good odds.

First, the middle is too narrow. Over time, the winners gravitate to one side or the other and the losers disappear. What remains is such a tiny portion, that unless you own the middle in your niche, survival becomes incredibly difficult.

Second, when you pick the middle, you’re setting up a scenario where someone else (i.e., not you) can determine your future success or failure. That can’t have been on your to-do list when you started your business. The desire to be an entrepreneur comes, in part, with the desire to have control. Sticking to the middle means giving up control.

Finally, you’re way too exposed when you hang out in the middle. You can only stand in the middle for so long before your hedging makes you a target. Instead of appealing to customers, you’re making it easier for competitors to do two things: 1) beat you (think small business) or 2) crush you (think enterprise).

Playing the middle game looks incredibly tempting. I’ve done it a time or two myself. But the cost is incredibly high.

Pick a side. You can’t afford not to.

Photo credit: Mike

It’s Time to Clean Your Business Pipes

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If you use hard water, mineral build up over time will narrow and weaken your water flow. Because it happens gradually, it’s one of those things you don’t notice until you’re standing in the shower under a trickle. It’s a fairly simple process to clean out the build up and restore the flow, but for some reason, people usually wait until it reaches a critical point before doing anything.

What processes in your business show similar signs of build up? Have you ignored the issues, assuming that it wasn’t an emergency—yet?

I pose these questions as an equal offender. There are business channels and marketing efforts I’ve left to their own devices the last few months, and I’m seeing the signs of a weaker flow. So the advice I’m giving myself and you is this:

Instead of focusing on new opportunities, look at the channels you already have in place and give them a good cleaning.

It’s not sexy advice, and I’m not advocating that you pass up making a time-specific decision. However, we’re obsessed with the idea of new to the point that we’re leaving viable strategies and tools by the wayside. Fight the temptation of new and shiny and spend the time polishing up what you already have. The results will probably surprise you—in a good way.

 

 

Confidence, Accuracy, & Uncertainty: The Holy Trinity of Business

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ConfidenceMost Sunday mornings, you can find me on the couch channel hopping back and forth between the Sunday political shows. My favorite part of each show is when they move from featured guests to their panels or roundtables. Even though I’m just as likely to disagree as agree, I find it interesting to listen to these pundits debate the week’s news back and forth. What does it all really mean? (Very little, usually.)

One of my favorites is George Will. If you paid attention to predictions during the last presidential election, Mr. Will (and others) predicted that Mitt Romney would win big. Even though I’d been watching Nate Silver, and knew the math backed up his prediction of an Obama win, for the length of that particular Sunday show, part of me thought, “Maybe, George is right after all…” Mr. Will was so confident, that I wanted to think he was right.

It turns out that the reason I like George may have more to do with his confidence than his accuracy. Two economic students at Washington State University took a look at the numbers, specifically sports predictions by both professional and amateur pundits, and the results confirm something you maybe already suspect. The most popular pundits aren’t necessarily the most accurate, but they are by far the most confident.

Their hypothesis: Pundits have a false sense of confidence because that’s what the public, seeking to avoid the stress of uncertainty, craves.

“The stress of uncertainty…” That line caught my eye and made me wonder if we’ve gotten trapped by a similar train of thought in business. For months now we’ve heard that business is holding back because of uncertainty. From elections to tax reform and immigration to healthcare, we’ve seen the headlines that business is afraid to act until the uncertainty is resolved. Seriously?

Here’s the two-step strategy I recommend if you’ve allowed yourself to get sucked into this nonsense.

1. Recognize the business world is never completely certain

If you’re holding back from making a business decision or executing a marketing plan because you’re waiting for the uncertainty to “clear up,” you’ll be waiting forever. I’m not exaggerating. It will never happen. If you’re an entrepreneur, you got a taste of this reality when you started your business. Did you know with certainty what would happen after you flipped the switch and went from just thinking about it to actually doing it? I doubt it, but you still flipped the switch.

The reality is that certainty is one of those things we like to talk about even though we know it doesn’t really exist in any meaningful way. Your job is to assess the variables you do control. After that, make the decision based on what you do know as opposed to holding out for what you’ll never know.

2. Confidence and accuracy are often at war with each other

The most obvious difference between being a pundit and running a business is expectations. Confidence may make a pundit more popular, and your confidence as an entrepreneur made is possible to take that initial leap, but at some point, it will matter if you’re accurate. Clients won’t keep coming back no matter how confident you are if you keep messing up their orders. However, there may come a day when your desire for accuracy will get in the way.

Steve Woodruff calls it the Impostor Syndrome. It happens when we get outside our comfort zone, and we become competent people who feel perpetually incompetent. Steve shared a story about co-hosting LeadershipChat with Lisa Petrilli that demonstrates this disconnect perfectly:

By all accounts, it was a big success. But many people will be surprised to hear my confession that I felt somewhat like an impostor the entire time. Not because of the community management and social media aspects of it – Lisa and I were both strong there. Nor because of the vision and effort we put into it. But the fact is, leadership “stuff” is not in my core. I’m quite interested in it, I can write about it and discuss it – but the topic was much more in Lisa’s wheelhouse than mine. Plus, I’d never worked/led in a larger corporate environment. Therefore, I often felt somewhat out of my primary competency zone.

Steve is a smart and talented guy, and yet, he still felt like an impostor because he didn’t see the leadership stuff as his “core” competency. This will happen to you in your business. There will come a time when a customer asks you to do something, and your initial and accurate answer may be, “No, we don’t offer that.” However, in the back of your mind, you add a caveat, “…but that’s something I’d really like to try.” So while you should represent what you do and how you do it as honestly as possible, be prepared for those moments when confidence should trump accuracy.

There’s no question that it can be a balancing act to manage confidence, accuracy, and uncertainty without letting any one of the three overwhelm you. So let your confidence give you a head start to get past the uncertainty, but have a plan in place that makes accuracy your long-term goal.

Photo Credit:confidence by Glenda Sims