Certainty in Our Lives

 

watFor some reason, over the last few weeks, we seem to have heard the words “I want” quite a bit. 

And one of the interesting things that we notice is that they seem to be related to potential transactions or company changes where the “I want” has nothing to do with reality that makes economic sense.

One of the companies is a small manufacturing company with financial difficulties that is looking for an equity partner despite the fact that they currently have an investor group whose onerous terms are unfavorable to new investment. This company also has a weak balance sheet, is highly leveraged and has an unrealistic valuation expectation. Yet, with realistic restructuring, this company could both improve its balance sheet and have a viable future.

Another company is a longstanding family company that has suffered considerable losses due to changes in its major market.   It is managed by family members, who completely disagree on the company’s future.   Some believe the company should be sold while others believe that there should be additional investment in new markets.   With no formal process for resolution and without assistance to formulate and execute a plan that meets both goals, the company is both ripe for a financial crisis and continues to lose value.

Yet a third is business that we have discussed previously. The business has multiple family members as well as other employees. It has the opportunity to transition from managing the owner’s investments, many of which have been sold, to providing third party management services. A family member who formerly worked in the business and was disruptive due to health issues would like to return. The productive family members are opposed and one would resign on the spot. This highly emotional issue has created an internal dynamic preventing the company from moving forward with a revised business plan.

 

The One Theme That Ties These Companies Together …

The one theme that ties these companies together is the owner’s certainty that they are right in their positions.   And yet, in all of the three cases, not taking the proper business action is potential corporate suicide.

A recent article by Eric Barker regarding the handling of highly emotional issues, including those of life and death, shows us that the more “certain” we are, the more likely we are to make a bad decision. This applies to both our business and personal lives.

Some examples are:

  • CareersMore than half of teachers quit their jobs within four years. In fact, one study in Philadelphia schools found that a teacher was almost two times more likely to drop out than a student.  
  •  Our JobsA study showed that when doctors reckoned themselves “completely certain” about a diagnosis, they were wrong 40% of the time.
  •  Personal Lives…an estimated 61,535 tattoos were reversed in the United States in 2009.

 

Primary Causes Of Bad Decisions ...

In their book, Decisive, Chip and Dan Heath identify short term emotion as one of the primary causes of bad decisions while Duke Professor and author of Predictably Irrational, Dan Ariely points out:

“If I had to give advice across many aspects of life, I would ask people to take what’s called “the outside perspective.” And the outside perspective is easily thought about: “What would you do if you made the recommendation for another person?”  And I find that often when we’re recommending something to another person, we don’t think about our current state and we don’t think about our current emotions.”

As a business owner, especially when a business is under pressure, Ariely’s advice is something to keep in mind. Think about your employees, other stakeholders and especially, in a potential transaction, what you would advise the opposite side if you were an outside unbiased third party.

It will help you make the right decisions with a minimum of destructive certainty.