Leaders like to think they are wired differently to everyone else. Better able to spot opportunities. Unlikely to make mistakes. Calm under pressure and coolly dispassionate when the big decisions need to be made.
Riiiight. Like everyone else, the decisions business leaders make are often informed by their own experiences, opinions and memories.
FastCompany’s Kevin Purdy points to three key self-delusions that effect decision-making:
The sunk-cost fallacy. Simply put, we don’t like giving up on things (projects, ideas, businesses) that we have a big emotional investment in, so we tend to see these things as superior to new ideas – even when they aren’t. As Purdy says: “The pain of losing something is twice as strong as the joy of gaining the same exact thing.”
The anchoring effect. While leaders like to think they are good at making dispassionate decisions when choosing between different options, we are all overly influenced by the first thing we like and keep coming back to this option.
Procrastination. What you’re not doing now, of course!
McRaney’s blog is fascinating and it’s well worth thinking further about some of these ideas – particularly the sunk-cost mentality.
Should you be patient for profit or growth?
The rise and rise of group buying pioneer Groupon has hit some turbulence in recent weeks when the company was forced to stop using a controversial accounting metric called Adjusted Consolidated Segment Operating Income, which some critics believed the company used to inflate its profit.
Under the measure, Groupon took its earnings and added back subscriber acquisition and compensation costs. While the company believed this provided a clearer picture of underlying profit, commentators said it wasn’t telling the full story of a business still struggling to find a business model.
Over at Harvard Business Review, Rob Wheeler says Groupon is the perfect example of a company that is patient for profit but impatient for growth – in other words, earnings matter much less than building scale.
He argues for most start-ups – with a few very notable exceptions – the reverse needs to be true.
“Groupon’s fundamental problem is that it has not yet discovered a viable business model. The company asserts that it will be profitable once it reaches scale but there is little reason to believe this. The financial results of Groupon’s traditional business continue to deteriorate, especially in mature markets, and new ventures such as Groupon Now also have failed to drive profits.”
“And unlike the very few successful companies that scaled before they were profitable (think Facebook or Amazon), Groupon’s business model does not benefit from significant network effects. The company’s product is not more valuable to users as more people adopt the platform.”
“If anything, the fact that Groupon is witnessing decreasing revenue per merchant and fewer Groupon purchases per subscriber in its maturing markets suggests that growth may actually decrease Groupon’s value to its customers. Yet, Groupon maintains a blind faith that growth will be its salvation.”
Stinging stuff for Groupon, but thought provoking for entrepreneurs who may be struggling to get the balance between top-line and bottom-line revenue growth right.
Richard Branson on embracing older workers
The issue of embracing older workers is one that Australian entrepreneurs will increasingly confront in the coming years.
So perhaps we should take some advice from one of the world’s most famous older workers in Richard Branson, who is very conscious of issues of age.
“When people ask how old I am, my favourite response is: ‘Younger than Mick Jagger!’ No disrespect intended to Mick, who is a friend of mine, but seeing him onstage certainly shows how big a disconnect there can be between doing what you do best and acting your age,” Branson writes in Entrepreneur.com.
He’s got a very interesting perspective and says both organisations and older workers need to take responsibility for creating a culture that embraces experience.
Branson says he is “horrified” with the way some older workers try and talk down to younger colleagues and urges them to find ways to experiment with social media and new technologies.
For companies, Branson says branding is key.
“Perhaps instead of thinking of and describing some of your employees as ‘older’ or ‘aging,’ use such words only in connection with wine, whiskey and fine cheeses. A much better way to describe a person who has been working hard for decades is ‘more experienced.”’
A simple, but very clever idea.