Complexity Can't be Ignored, but Can be Made Easier

A former colleague used to say, “One size may fit all, but it will do so badly.”

Startups tend to focus on universal answers and simple solutions. We know that issues are more complicated and each business needs its own customization. One-size fits all solutions are easier to understand and technologically easier to execute. However, if you realize some of the complexities of these solutions, then it can be easy to adapt them to individual situations.

Consider the following:

Multiple Goals

Businesses have multiple goals and realities. Many entrepreneurs are so excited with the idea of becoming the next Zuckerberg that they completely ignore the need to make a profit and execute. There are many factors that businesses have to contend with besides their overall profit margin. Things like the skills, success, and the financial planning of the business. Also, factors like the environment, safety, and social trends are areas where business owners have no control.

Ceteris Paribus (this is Latin for a really important fact)

Translated, it means “every business plan or analysis assumes certain assumptions that must be valid for the analysis to be useful.” For example, if the price of beef goes up because there is less beef available, we would say that the price of beef increased because of a decreased supply. We would not consider anything else like new FDA rules, or the price of other meat increasing or decreasing.

We frequently make prolonged and analytical arguments to describe the potential of our businesses and ignore the ceteris paribus part.

As I introduce this topic in my workshops, I also add the caveat that while it is the first concept taught in economics class, it’s oftentimes the first concept forgotten when the student go into business.

Take these categories: Weather, war, inflation, the economy, and politics. These can, and do, affect business decisions. Changes in our lives like iPhones, gay marriage, healthcare, social media, the baby boomer generation, and population diversity are all significantly affecting business decisions. Just consider the notion of “online shopping,” and what that has meant to each and every business. Who would have thought of it just ten to fifteen years ago.

Bias

Important issues like bias, prejudice, and yes, even ignorance, are also complexities that must be address. Business decisions are made by the accumulation of data, by measurements, and analysis, and how it is used, or ignored, can be devastating to a business. Here are some reasons how:

Seeking information that supports our favored hypothesis, and avoids information that contradicts it.

Giving preference to positive information and ignoring details. For example, we frequently develop huge general market estimates that ignore the specifics of our target. For example, grandparents get a pass in bragging about their grandkids, but that should not extend to business decisions.

Looking for winners, especially in describing startup success stories and ignoring the failures.

Ignoring negative evidence. In particular, the more invested we are in a project or product, the less we are willing to abandon it.

Cognitive Dissonance

We all talk about losing weight, and then explain how a little bit of cheesecake won’t hurt, or that a brownie made with cocoa is not really high in fat. This is “cognitive dissonance,” when we justify behavior based on prior beliefs.

Much of the discussion on business decisions is based on cultural and economic perspectives of the participants. We also tend to avoid actions that can be contrary to the message a business aims to convey.

Many of these issues can be simplified by including social and environmental factors in creating and executing business programs:

Including behavioral science considerations can be a refreshing approach to small business analysis. In addition, we should be less constrained by our dependence on single disciplines. I’ve done a lot of work on using pricing to advocate strategies like bundling, freemium, psychological pricing, value, increasing volume and profit. Google and Amazon are key examples of companies that use untraditional efforts to improve profits and stock value.

Sports team loyalty may be the best example, “My team can do no wrong while your team is just evil.”

Every business owner needs to keep a lot of plates spinning in order to properly plan, i.e., expectations, uncertainty, psychology, culture, risk, quality control, consumer confidence and values. The world of sports is a great example: they are now incorporating analytics more than ever before to predict outcomes as opposed to “gut and experience.”

It has been told that 90% of startups fail. However, keeping the energy and commitment level high, and being conscious of the expected AND the unexpected, your business will not be one of them.