Millions from both sides of the political aisle – including the pollsters and pundits who predicted a Clinton victory – are understandably flummoxed by the outcome of the recent presidential election. How did so many get it so wrong? And for our purposes, can any of these lessons extend to those of us in the business of private equity investing?
As it turns out, the answer to both of these questions lies less in the polling data political experts used to (incorrectly) predict the election’s results, and more in the habits of conventional thinking and biases through which they collected and viewed that data.
For starters, remember that not everyone was surprised. A small minority of voices were arguing that Clinton and the Democrats were trusting in long-held beliefs which led to a kind of blind optimism. In other words, the biases baked into their beliefs were sufficient to dispel any doubt – even from those critical voices who warned of problems.
Consider, for a moment, the words of a Philadelphia bartender, who warned that even in his heavily Democratic city, the Clinton camp was not paying attention to the ‘leaners’ – voters who would only confess their intention of voting for Trump by leaning forward and whispering his name.
In other words, they weren’t necessarily excited or proud to vote Trump, but for a variety of reasons that aren’t germane to our story, that was precisely what they were going to do. And none of the experts were listening, because the ‘leaner’ phenomenon was unfamiliar to them and therefore lay outside conventional pre-election thinking.
Leaners Are Everywhere – Are You Listening?
So let’s picture a scenario where you, the CEO of a privately owned business, are reviewing a plan that will deliver value to investors as well as life-changing outcomes for you and your team. Everything looks good, the data (and your management team) shouts ‘yes,’ and the sun is shining outside your window.
Who doesn’t want to get caught up in the excitement? More important, who is inclined to listen to any cautionary voices? Who is seeking out, and listening to, those under-the-radar types, the leaners?
Amidst the numbers and handshakes and hyperbole, as there any room for the ‘leaners’? Has anyone sought their counsel, solicited feedback pertinent to specific plan facets?
The truth is, each of us is prone to certain built-in biases, especially confirmation bias. When we hear that everything is going well and that the outcomes are a given, it’s awfully tempting – especially when we’re going to benefit from those outcomes – to throw caution to the wind and believe.
This is not to say those biases are always wrong – sometimes they’re right. But the risk, when they’re not, can be devastating. More important, the ‘cost’ of being cautious, of taking the extra step to seek out and listen to your ‘leaners’, is negligible relative to the typical deal size.
In the 1980s during one of the first major transformation efforts of my career, we were implementing increasingly popular Japanese manufacturing techniques into a large, traditional factory.
I’d been spending time with the men and women at the sharp end of the business, shift workers on the factory floor. We were chatting about the plans for cellular production over a cup of tea and I was explaining what was going to be happening in their area.
It was then, as the union steward leaned toward me for a private word, that I got my first real taste of the leaner phenomenon. “Listen, Simon. We get it and we are committed to this. But there is no way I am singing a [expletive] company song.”
The lesson: Despite our passion and exuberance for the transformation we were about to make, it was clear we needed to be cautious just how far and fast we pushed the whole Japanese manufacturing ethos. After all, this was South Wales, not Tokyo. Our plan bias had left us a bit blind to the realities of the business we were eager to transform.
Inside a company engaged in a transformation plan there are always hidden traps, many of them avoidable and often related to people. In-the-trenches experience has taught me that the greater the volume and quality of plan feedback you can collect, the more likely you will have the information needed for real success.
For senior management, the key is to personally locate and solicit that feedback, not delegate to others who, quite naturally, will filter it through their own inborn biases. Find your leaners, listen and learn and in this way you’re far more likely to avoid those nasty surprises that so often plague the over-confident.