Thinking traps

I was reading an interesting blog post by Litemind about thinking traps. A lot of them have to do with our natural bias:

• Thinking we are better than we are (overconfidence in our abilities, memory, intuition or gut)
  
• Trying to confirm decisions we already made (shopping for confirmation, protecting our status quo or sunk costs)
  
• Unquestioning our thoughts and assumptions

We can avoid some of the traps by talking to people who hold different points of view. This article reminded me why it is important to have diversity in our teams. Our teams can protect us from some of the traps. There is one trap that is not in the article and that is intrinsic to groups: the "group think" trap. This trap makes the team assume one position or opinion and none others are considered (from wikipedia: groupthink).

To avoid falling into "group think" we have to make sure that dissenting opinions are heard, that timid or softspoken team members get a change to talk, and that critical thinking is always on the table. As a team lead or member, we all share that responsibility. Remember that this trap can make a team behave like lemmings and jump off the cliff.

Going to the moon

Today we are celebrating the 40th anniversary of the US moon walk. This gives us a great opportunity to think about setting challenging goals for our companies, departments and endeavors. If we do not challenge ourselves, the status quo and everyone around us, we will find ourselves in the same spot year after year.

“We can challenge ourselves to do great things again by joining forces, cooperatively, with patience and perseverance, by setting our objectives high and helping other people to join us in the quest for expansion of our thinking, of our capabilities.” – Buzz Aldrin

Note: For those of you who don't know, Buzz Aldrin is the astronaut that piloted the lunar module of NASA’s Apollo 11 who took him and Neil Armstrong to the moon.

Money Management in Times of Crisis

This is the shorthand from a lecture I gave last week for dealing with a personal financial crisis:

When we are facing an economic crisis, there are four issues that we must understand:
1) What the crisis is and entails
2) What are the assets we can use during the crisis
3) What changes we can make to reduce the impact or evade the crisis
4) How to avoid making the crisis worse by taking more debt

There are 8 steps required when dealing with a financial crisis. Three steps we need to take before the crisis, and five we will take during the crisis.

The three steps we take in preparation are:
1) Understand what is our net worth - we need to understand what our assets are and where our obligations stand
2) Understand our operating financial needs - Yes I am talking about a budget
3) Establish an emergency fund - 100% liquid asset

Once the crisis strikes, then we do the following 5 steps. Not really one at a time, but all together as much as possible. The steps are:
1) Keep calm - understand the emergency and develop a plan
2) Find alternative funds - either sell assets or develop an additional income stream
3) Renegotiate our debt - I am talking mortgage, car payments, personal loans and/or any other financial obligation
4) Reduce or eliminate operational and discretionary expending - reducing or eliminating cable, cell phone, internet, Starbucks addiction, etc.
5) Ask for help of friends and relatives - just not more debt. Ask grandparents for help with child care, friends for employee store discounts, etc. Avoid increasing the number of creditors.

The talk was a success.

Too many priorities

When setting priorities people are usually overoptimistic about what they can realistically accomplish. We see individuals trying to do everything at once: lose weight, exercise, eat healthier, be a better spouse, dedicate more time to the children, fix the house, reinvigorate their careers, build a better network. The reality is that you can’t do everything at once. If everything is a priority; then, nothing is a priority.

Companies don’t fare better than individuals. The illusion is that 100 employees should be able to handle 100 priorities. But companies have to understand that the average employee probably can’t handle more than 3 priorities at a time.

The impact on a business is that employees can’t find optimal solutions to problems that satisfy all priorities: should they be focusing on client experience or on cost management? Product innovation or bug eradication? This in turn can create paralysis in an organization while the decisions makers figure out which one is the most important priority.

Another side effect is that the company makes it impossible to do something that would please everybody. If they execute something thinking of customer experience, then somebody complains about cost management. Thus the actions of employees are based not on the priority but on who they do not want to anger.

The way around this problem is simple: first figure out what the top priorities are, then execute on them. Everything else doesn’t get a pass.

Instinct in business

What is good instinct? I would define it as being able to make the right decisions based on inadequate or incomplete information, continuously spot trends in the market and see opportunities ahead of everyone else. For me, this is the quality that separates the high achievers from everybody else.

I’ve met a guy who has a great instinct for business. He never does much analysis, he doesn’t have an MBA, and he doesn’t have MBAs working for him (he likes to keep his costs down). Yet he makes all the right business decisions and makes upward of 50K dollars a month. During his worst month this year he *only* made 25K. He starts and stops businesses with what we would normally classify as “insufficient information”, yet he makes a lot of money. He has a high risk tolerance but his net performance is above market average.

On the other hand, I have friends with MBAs that use a spreadsheet to make decisions, make all sorts of rational analysis and come up with good business decisions. In general, they make a good living, probably around 20K to 30K a month. They are medium to low risk takers with a net performance about market average. The lesson here is that analysis will only take you so far.

My advice?

If you have a good instincts and high risk tolerance, then rely on it. Use you instinct every chance that is useful. But keep track of your wins and your failures – this will hone your skill. Go all the way to the edge but make sure you do not fall.

If you don’t have a good instinct or are extremely risk averse. Then: do your homework, analyze everything, use mentors, use advisors, and get an MBA. Your reward will probably not be as high, but you will come out on top most every time.

If you have good instincts, high risk tolerance and an MBA you should be well on your way to be the next Bill Gates, Warren Buffet, or Carlos Slim. If you aren’t, ask yourself which one of your assumptions is wrong – maybe your instinct is not as good as you think, maybe you have passed on opportunities because of a lower than acknowledged risk tolerance. See what is stopping you and break it down.

In this economic climate where the old rules don’t apply as well anymore, it would be wise to follow your instinct. If yours is lacking, you will have to hone it (and fast), start taking chances, start making choices based on it, see when you can rely on it, and when you cannot. Your spread will increase. If you don’t, you may have a good return on your decisions, but there is no assurance that it will be enough to give you the life that you dream about.

Dream teams

We all desire to have dream teams in our organizations. A dream team is one that is high achievement, high performance and where everybody gives their personal best. Dream teams are those that achieve excellent results consistently. Sometimes dream teams form as a result of a deadline, a company event or a special project. The camaraderie, support and understanding amongst the members create the environment necessary for high performance. The manager roles in this case are to get out of the way and keep the team focused. If you are lucky to have a dream team keep it going as long as possible.

There are some special circumstances that may prove fatal to your team:

• 11th hour stress – The team may be great but unnecessarily taxing them will only frustrate the members. If the project has some unrealistic expectations, such as impossible requirements or too short datelines, the stress may get to the team. While some stress is unavoidable, try to set reasonable deadlines, or move the emergency period up front so as to flatten the final spike as much as possible. If the project becomes a death march, the first casualty may be your dream team. Think about project management and executive expectation management.

• Company instability, like reorganizations – Even when the reorganization (use appropriate euphemism here) will not affect the team directly, it is sure to distract them. Try to contain office gossip as much as you can, and keep reaffirming them that their positions are safe (as much as it is true). If their positions are not safe, then give them as much information as possible and help them prepare. They will remember if you work them to the bone before firing them.

• Uneven recognition or compensation – If you are giving out bonuses or awards, make sure the whole team is included – not just the leader or your protégé. Identify their individual contributions to let them know that you were watching. If resentment builds in your dream team, their days are numbered.

All teams have a life cycle and eventually all teams must dissolve. Know when to let go. If the team has grown beyond their assigned task, or the members are getting bored by the assignments, or they want to grow their careers in a different direction, you let them. Help them reach their objectives. A dream team may be short lived, but the repercussions to your career and theirs may be long lived. Who doesn’t remember that team where everything just clicked?

Price war

Recently I was helping a small business that is in the middle of a price war with a close competitor. The owner was afraid that they were losing money but didn’t know how much and in which jobs as they didn’t have a cost model for the business. The partners hadn’t talked about what to do if the business viability was seriously compromised.

The cost model was a relatively simple exercise as their business was not a complex one. The first thing they wanted to understand is what clients and which jobs were profitable. Once they were identified, it was a matter of focusing on expanding on the type of transactions and clients that were keeping the company going and making money. If you are a small company, your accountant and operations persons should be able to put together a cost model in a spreadsheet program. If you are a medium to large company you will probably need consultants and some costing software.

Of course, during a price war there may not be an option to focus on the profitable jobs or clients. Your competitor may be trying to increase their business at your expense precisely by targeting those jobs or clients. If you have a strong relationship with your clients you may be somewhat shielded from this scenario, but as other factors put pressure on your clients to reduce their own costs, you may be forced into a price war. Unfortunately, everything else being equal, a price war will be won by the company with the deepest pockets.

One way to try to avoid a price competition is to offer value added services. If before you only delivered your goods, maybe is time to make free installs. Or form some sort of customer rewards program – you don’t even have to do it yourself, there are companies that will run them for you. The caveat here is that the value added must be perceived by the client as sufficiently large as to offset your higher price. And even then, the short term gain (lower price) may be the only factor your client is focusing on.

Another thing to do is focus on new revenue streams. Can your product or service be applicable to other industries/clients? What about new uses for your product? Can your equipment be made to produce different products? If your focus is local, maybe you can expand regionally. The internet can help you reach customers from all over the world. Have you tried to reposition your product as a luxury item? Think Apple vs. everyone else. Luxury or premium brands can and do command a premium in price. What about niche markets? A new revenue stream may give you enough of an edge to survive until the worst is over.

Obviously you have to find ways to cut costs – it is imperative that you reexamine your operations and find ways to be more cost effective. Eliminate product lines that are not profitable today and may never be in the future. Much has been written about this so I won’t go into more detail here.

As important as figuring out ways to improve your cost structure and your business strategy, you also have to determine your exit strategy. Decide how much you are willing to lose before pulling the plug. If you can, set aside the money you are not willing to lose today. Have this talk with your business partners. Be realistic, not every business survives. So it is better to figure out your exit strategy now than when your money is depleted and there is no other choice but to fold.