The Knight of Uncertainty

No, not the Sir Lancelot sort of knight, but Frank Knight, a University of Chicago economist.

He’s most famous for drawing a distinction between risk and uncertainty. I know those sound like much the same thing, but in reality they’re not.

Risk involves having a large data set with a strong track record of known outcomes, such that you can use statistical modelling to make reasonably reliable decisions about future events.

Life insurance, for example, is about managing risk. If you’re a 45 year old, female non-smoker a life insurance company will write a policy in full knowledge of the likelihood of that policy ever having to pay out, and price it accordingly.

With the benefit of hindsight, might that be the wrong judgement for a specific individual? Almost certainly. And some will be wildly out – the unfortunate lady who steps in front of a bus tomorrow or the fortunate one who reaches 120 unscathed.

But on average, across a large enough group of people, statistics kicks in and the average lifespan of a 45 year old, female non-smoker will be reliable enough for you to price life insurance policies and make a profit.

Uncertainty is something entirely different.

That’s where we have no signposts to make statistically reliable decisions. No data. We might not even be able to imagine what the range of potential outcomes might be.

By way of example, imagine someone in 1998 asking you to guess which woman would have the largest Twitter following in 2020.

Back then, Twitter wasn’t even a thing. In fact the internet was barely a thing. And you’d have no way of knowing what the next 20 years might bring…smartphones were almost a decade away, back in 1998, as was Twitter itself and 4G mobile data.

Since I know you’re dying to find out, Taylor Swift is the woman with the most Twitter followers at the time of writing. She was 9 years old in 1998.

The reason this is important is that in business, you need to understand whether you’re managing risk…like a life insurance company using historic data and high-powered statistics to make a fairly safe bet about someone’s remaining lifespan…or uncertainty, like picking out the 9-year old Taylor Swift as the woman with the most Twitter followers 22 years later.

Of course, now you know the answer, it’s not surprising that one of the world’s foremost female music artists has more Twitter followers than any other woman. But it wasn’t obvious 22 years ago and no matter how much data you crunched back then, you’d never have got the right answer.

Why does this matter?

When you’re planning for uncertain future events bear in mind that more data almost certainly won’t get you a better answer.

The key to handling uncertain future events is to be as light on your toes as possible, and have as many options as possible, together with having the authority to make decisions as events unfold.

If there’s one thing we’ve learned from 2020, it’s that most companies thought they were managing risk, insurance company-style.

In reality, they were managing uncertainty. And by and large doing a poor job of it, because they’d developed rigid systems and processes based on their belief that the world was inherently predictable and plannable.

Coronavirus as such would have been just as hard to predict as 9-year old Taylor Swift’s future stardom.

But “bad things happening which sideswipe the economy” is a remarkably frequent event. And you don’t need to know exactly what’s going to happen to prepare for adversity. It’s just that very few businesses do.

Yes, but is it true?

I’m convinced a poor appetite for research causes many of the business world’s most intractable problems.

I don’t mean academic research, necessarily, but more chasing down the facts rather than relying on lazy assumptions or outdated perspectives.

To give just one example, the big Hollywood studios have only embraced diversity slowly. Despite the success of films like Black Panther, non-white actors are not seen as often on the silver screen as they might be, and when they are it’s often in unflattering roles.

The studios’ excuse? Moviegoers, especially overseas, prefer all-white casts.

Now, I know you’re probably ahead of me here, but it turns out that particular lazy assumption is completely untrue.

What’s more, based on a recent review of nearly 1000 feature films, those which featured multiple ethnic minority actors actually achieved significantly higher revenues than films with fewer or no ethnic minority cast members.

But this isn’t about Hollywood movies, though. It’s just an example of what happens when assumptions are accepted without question….or data.

Assumptions like: customers won’t pay more than £X for our products…only men buy engineering components…nobody outside the UK would be interested in what we sell, and so on.

Whenever I come across an assumption, my instinct is to ask for the proof behind it. This occasionally makes me unpopular, but usually only for as long as it takes people to realise they have no rational basis for the views they’d expressed so forcefully just a few moments earlier.

It’s worse than that, of course, because the most insidious assumptions are the ones which are never talked about…the ones where “everybody knows that’s the way things are”. Nobody ever vocalises them, so nobody ever questions them.

So, by all means question the assumptions which get talked about in your business.

But try to spot the assumptions nobody talks about. Odds are those are the ones which hide your biggest opportunities. Because they’re the ones “everybody knows”, there’s almost certainly a market opportunity in doing the exact opposite.

And you’ll get a significant head start, because most of your competitors won’t even see your move coming. They’ll remain convinced “it’s impossible” right up to the moment you prove them wrong.

Because you challenged an assumption, but they never did.

It’s the what, not the how

Of course, the recent Covid-19 crisis has made people re-think their business. But there’s one fundamental mistake I’m seeing a lot at the moment (and which government appears to have bought into too).

It’s what I call the “let’s get things back to the way they used to be” approach.

That rarely works because the world moves on remarkably quickly, leaving business owners who won’t adapt (or perhaps can’t adapt…my heart goes out to you if you run a pub, for example) high and dry.

Most often, it’s because businesses get so absorbed in their “how” they forget their customers’ “what”.

This isn’t just for 2020. It’s happened again and again throughout business history.

For example, in the early years of the 20th Century, all the US railroad companies…the predominant form of cross-country transportation at the time…were approached by a range of “upstart entrepreneurs” to invest in their new automobile manufacturing operation or their recently-formed transcontinental airline.

The railroad companies turned them all down “because we’re a railroad company”. What they forgot was that being a railroad company was a “how”…it’s how people moved across the country, not the “what”.

The “what” for their customers was getting to their destination, not the precise method by which they got there.

So when the airlines could fly across the US in eight hours instead of a four or five day train journey, people who valued their time flew instead of taking the train.

For people who wanted to travel on their own schedule, make stops along the way, or divert off-course to visit relatives, the car was an attractive alternative.

Things never went back to “the way they used to be” for the US railroad business.

Their premium customers flew. Their budget-conscious or more independent-minded customers drove. Ultimately, there weren’t enough travellers left to cover the huge fixed costs of operating a passenger railway and, outside commuter lines serving some big cities, railroads virtually disappeared as a way for people to travel around the US.

Why are events of 100 years ago relevant today?

That’s because, just like those railroad companies, people who are desperate, for understandable reasons from their perspective, for things to go back to the way they used to be, are likely to be very disappointed.

City centre commercial landlords, for example, are in the vanguard of the “everyone needs to get back to the office” movement at the moment.

Unfortunately for them, the sort of businesses which which rent city centre office space have spent six months discovering that Zoom and occasional office visits for client meetings works just as well as piling everybody into a central physical location. What’s more, they can save six-figure sums every year by dramatically downsizing the amount of swanky city centre office space they lease.

At the next break clause in their lease, or after whatever notice to exit they have to give, no sane business which pays six-figures in city centre office rents is going back to “they way things used to be” any time soon.

Commercial landlords have become so wrapped up in the particular “how” they profit from (ie getting people physically together in the middle of cities to conduct business), they’ve forgotten their customers’ “what” (ie businesses just want to get the work done, bill clients and make a profit – if they can do a lot of that remotely and save a fortune on rent at the same time, they’ll bank that saving at the first opportunity).

Whatever challenges your business faces at the moment, you’re more likely to survive and thrive by re-orientating your business round your clients’ “what” and attach a lot less importance to your “how”…the particular way you help them do that at the moment.

Don’t end up like the American passenger railroads and get edged out by someone else providing a better or at least “close enough” end-result for your customers, more attuned to their specific needs.

If 2020 has taught us anything it’s that there’s always another “how”…another way to get things done.

Focus on your customers’ “what” instead. If the US railroads had done that 100 years ago, today we’d be driving around in Union Pacific automobiles and flying coast-to-coast on Atchison, Topeka and Santa Fe Airlines.

Scooby-Doo, where are you?

The power of a few words…

For most of us, with those five words we’re instantly transported back to watching cartoons on TV when we were kids. That’s all it takes. Just five words.

So, if just five words can magically transport you back two, three, four or even five decades…why do businesses think an 80-page strategy document is a good way to communicate anything?

Nothing is made clearer by 80 pages of closely-typed script. As an old boss of mine used to say, if you can’t explain something on the back of a fag packet, you don’t understand it well enough.

Often, this lack of clarity holds businesses back.

Trying to “cover all the bases”, satisfy everybody, tick every box and pay homage to every special interest group and sub-sector in the economy is more likely to cause you trouble than take you where you want to go.

In communication, less is always more. A handful of words can shift your mood in an instant and kick in memories you’d forgotten you even had.

I had exactly that experience last weekend. My dad mentioned the name a singer my late grandmother used to like. That’s all it took to transport me back to memories of my granny dancing around the kitchen to one of his albums while she made the tea.

Just his name…the name of someone who’s not been in the public eye for probably 30 years…and I was transported back to the early 1980s.

If “Scooby-Doo, where are you?”, “Nice to see you, to see you nice!” or “Listen carefully…I will say this only once” mean anything to you, you’ll recognise that a handful of words, if they’re the right words, is vastly more powerful than an 80 page strategy document when you’re trying to engage hearts and minds.

Which is important because you can’t build a great business without engaging hearts and minds.

That’s how you motivate your people, engage your suppliers and enthuse your customers. You have to talk to their emotions, not their logical brain, for results like that.

How many words do you need to motivate your people, engage your suppliers and enthuse your customers?

I’m prepared to bet it’s a lot fewer words than you’re using at the moment.

athletes running on track and field oval in grayscale photography

Gold medals or last place?

The best athlete in my class at school was a guy called Ray. The best by far – he’d be halfway around the 400 metre track before most of us had got to the first corner.

He had natural talent in abundance, far more than the rest of the class put together. (Admittedly, I did my best to make sure that wasn’t any harder than it needed to be, as I have the sporting prowess of a beached octopus.)

After winning every trophy at school, sometimes competing against boys two or three years older than him, we all expected Ray to be lining up for the next Olympics. Yet within a year or two he’d dropped out of athletics completely and, as far as I know, he’s never competed since.

The reason’s simple.

Because he could beat all his classmates easily, he stopped training as hard as he used to. He could win without going on that five mile run before school on a cold and drizzly winter morning.

Because he could beat us all easily, he thought nothing of staying out late at a party on a Friday before a competition on the Saturday morning. He still won.

Because he could beat us all easily, he started smoking to try to look even cooler than he did already (I know…different times…), and would have a drag behind the changing rooms before sprinting round the track to collect his medals.

In the good times, life was easy for Ray. He could do what he liked and still win every race. He became convinced he was unbeatable.

Except he wasn’t.

He had more natural talent than most of the people who were selected for the Olympics a few years later. No question.

His problem wasn’t a lack of talent, but rather that gradually, probably without consciously realising it, he started doing things that drained away the advantages his raw talent gave him. In the end, it was relatively simple for someone who trained every morning, didn’t go out partying the night before a race and didn’t smoke to do to Ray what Ray used to do to us.

Businesses are like that too.

I’ve been inside plenty of businesses over the years, but very few of them achieve their maximum potential.

Slowly, over time, without anybody realising it, businesses make enough decisions which turn out to be the equivalent of a ciggie break behind the PE block before a race. Short-term pleasure for long-term pain.

In good times, it might not matter too much. But in tough times, it’s the difference between success and failure…between thriving and not even surviving…between collecting the gold medal and wheezing around the track to finish after the winners have had their showers, got changed, collected their medals and headed for home.

That’s why, when I’m working with a client, although my objective is to grow their business, my first port of call is to see what might be holding them back.

There’s no point telling someone to train harder until they’ve give up their 20-a-day habit because any improvements will be tiny until they do and people quickly become disheartened by the lack of progress.

Kick the fags first, then we’ll start training hard. That’s how you’ll see the rapid improvements that keep you motived when training’s hard. You’ll get better and better faster than you thought possible.

It’s not the lack of potential that holds businesses back. Every business has the potential to be a world-beater.

But their potential is always capped by the number of “short-term gain, long-term pain” decisions they’ve taken along the way. Sooner or later it’s payback time.

Sort those out first and you’re knocking on the door of success a lot faster. Ultimately nobody can train hard enough to win the race while dragging behind them the dead weight of the decisions and behaviours that hold them back.

To get better faster, the starting point is to stop doing the things that make getting better harder.

“Cash Flow Surge” – book interview with Samantha Kelly

If you’d like to know more about my book “Cash Flow Surge: 101 No-Cost and Low-Cost Strategies to Boost Your Business Cash Flow” here’s an interview I did with the excellent Samantha Kelly a little while back.

We look at some of the ways business owners can improve their cash flow and take some live questions.

You can find Sam at @TweetingGoddess on Twitter and via her website TweetingGoddess.com.

Sam is definitely worth a follow if you want to know how to build an online presence on Twitter and LinkedIn. As an extra bonus, she’s a really lovely person too…and nobody can have too many lovely people in their life, so give her a follow if you can.

berry close up cooking delicious

A spoonful of sugar

You’ve probably come across…maybe even been on the receiving end of…the “praise sandwich”. That’s where a manager buries any negative feedback between two layers of praise. The idea being not to leave the employee at a low point at the end of the conversation.

Management training programmes often teach that “sweetening the bitter pill” of negative feedback with praise before and after is a gentle way to get people to improve their performance .

There’s a couple of problems with this approach.

Firstly, for some employees…hopefully not many…finding two things to praise them for so you can slip the negative feedback in the middle might be a bit of a stretch.

Secondly, and more seriously, it turns out the praise sandwich isn’t all that effective.

Think about it.

You want people to learn where they’ve under-performed and do something about to put that right next time. You want to leave them primed for action, not basking in the warm glow of having done a good job on something else.

Of course, some managers don’t enjoy conflict so shy away from the negative feedback anyway. So their direct reports get the mildest hint of under-performance mentioned briefly surrounded by extensive and lavish praise. They probably come away from that discussion with the feeling that they’re doing a great job and needn’t change anything.

By the same token, being over-critical isn’t right either. There’s no quicker way to switch off any sense of staff motivation than continually criticising someone, especially if they can’t do anything about the issues which cause that under-performance.

The other problem with the praise sandwich is the delays it can lead to.

Pretty much everyone agrees the right time to give any sort of feedback, positive or negative, is as close to the incident as possible while everything is fresh in people’s minds.

If you wait hours, days, weeks or months until you’ve racked up a couple of positive things to say alongside the negative one, most of the benefits of having that conversation are lost. Unless it’s an enormous issue, the longer the elapse of time between the incident taking place and receiving feedback, the more likely it is the staff member concerned won’t even remember the incident you want to give feedback about.

To make progress faster, praise people generously when they’ve done something excellent. Don’t store it up in case they do something wrong next week and you don’t have anything else to use as one of the positive layers in your praise sandwich.

By the same token, raise any concerns as quickly as possible too. The last thing you want is for an area of under-performance to become the norm just because you haven’t pulled people up about it for days or weeks. Then it’s twice as hard to get them to correct course and do things they way they should have been doing them all along because they have to “unlearn” the wrong way and re-learn the right way.

In the final analysis, however noble its intentions, staff members quickly get to recognise the praise sandwich when they see it and know what’s coming as soon as you’ve reeled off the first compliment. That takes the edge off any positive feedback you might give which means the net effect of this conversation is to leave them demotivated, when the stated intention of the praise sandwich is to leave people in a positive frame of mine.

This renders the whole purpose of the praise sandwich null and void.

When it comes to giving performance feedback, a spoonful of sugar to help the medicine go down is not nearly as effective as you’ve been led to believe.

People respect being told what they need to do better, as long as you do it in the right way and with the intention of helping them improve, rather than for point-scoring or to undermine them.

There’s no need for a spoonful of sugar to help the medicine go down when people know you’re on their side and cheering them on for the win. They’ll be happy to take any learning points and try their hardest to do better next time.

Which is what you want, after all.

A waste of $2,420?

According to recent Gartner research, in 2019 companies spent an average of $2,420 per person to enhance the employee experience in their business.

But increasingly “enhancing the employee experience” is leaving people cold – that same research found that only 13% of employees were fully satisfied with their employee experience at those businesses.

I don’t know about you, but if I was leading an initiative that failed 87% of the time, I wouldn’t be ploughing that particular furrow for very long. I’d try a bit harder to find something at least a working majority of employees actually did like.

I’m not suggesting for a moment that employee experience isn’t important. I wouldn’t have bothered leading a business to the Top 100 Places to Work in the UK listing if I thought that.

But in too many places, employee engagement has become one of those terrible tick-box initiatives deployed by the sort of people who went into HR careers despite clearly not liking other people all that much.

The exercise becomes never-ending wish lists for free coffee or on-site childcare or flexible working hours. And for every employee who likes a particular perk, there will be others who hate the very idea of it.

I vividly remember the childless, middle-aged lady at the business I took to the Top 100 Places to Work list who was incandescent at the idea we might help out young parents with childcare because it wasn’t going to benefit her directly. Sometimes you can’t do right for doing wrong.

So if you want to provide free coffee or flexible working, just decide to do it. Don’t make a song and dance about it.

That’s a 30 second decision. Forget the painful HR strategy development papers and subsequent detailed process-writing…not to mention the excruciating monthly management reports about how much coffee you’ve bought or how many people worked what hours.

HR Departments love this stuff, of course. They get to hire an Employee Experience Manager and go to a fresh set of HR Managers’ conferences. Because you’ve given someone a job of managing this, you’ll end up spending rather too much time in management meetings having them report to you on data 87% of your workforce, statistically speaking, doesn’t actually care very much about, and so probably has very little to do with making your business more successful.

Want to know how to make your staff feel like they’re having a better employee experience? It’s really simple.

Firstly, just give them free coffee and flexible working. Don’t agonise over it or over-complicate it.

Tell each department to work out the details themselves to make sure all the work is covered and everyone puts in their contracted hours over the course of a month. But apart from that leave them to it. This will cost you somewhere close to nothing.

Secondly, take the $2,420 per person you were going to spend on employee experience initiatives and give everyone a $2,420 pay rise. Sadly, for most people, especially front-line staff, that makes a huge difference to their standard of living and their ability to support their families. Certainly a lot more difference than a staff newsletter ever will.

Thirdly, make sure your senior people show up and demonstrate real leadership. That’s what most of your people want really. Of course, they’re not going to turn down a pay rise or some free coffee, but the business I ran got to the Top 100 Places to Work list by very publicly only paying average salaries for our jobs and our geographical area.

We told people this was our approach to setting salaries when they applied to work for us.

We didn’t bribe people into working for us by paying exorbitant salaries. We just showed them what working in a business with proper leadership looked like, and demonstrated we were empathetic to their needs and supportive of their personal and professional development.

Then we delivered on that promise. That’s pretty much all it took to be one of the country’s most admired employers.

And all the research suggests, outside your HR Department, 87% of your staff will be more satisfied with those outcomes than anything an Employee Experience Manager could dream up.

police army commando special task force

Not hitting your targets on purpose, SAS-style

My kids love the TV programme “SAS: Who Dares Wins”. If you haven’t seen the show, a group of ex-Special Forces instructors put members of the public…and occasional celebrities…through their paces as if they were on the famously-tough SAS selection course.

I don’t imagine for a moment the TV show covers every challenge real applicants to the UK’s most elite special forces endure. But, frankly, I wouldn’t even do the version we see on TV, so I take my hat off to those who try it for real.

Recently they’ve introduced a new test where “recruits” are given a rifle then blindfolded, dragged through the undergrowth by an instructor, being pushed, shoved and shouted at constantly while explosions erupt all around them.

Once they’re thoroughly disorientated, recruits’ hoods are whipped off. Now they have a split-second to decide whether to “shoot” a figure dressed in all in black who’s sprinting out a building towards them, carrying a firearm.

There’s the tiniest clues, easily overlooked when you’re completely disorientated and confused – a shoulder-patch with the flag of a friendly country, perhaps.

That’s the split second decision. Friend or foe? End a life or save a life?

Get it right and you’re special forces material. Get it wrong and you’re the one going home in a body bag if you’re on your own behind enemy lines.

Thankfully that’s not a decision most of us will ever make…on TV or in real life.

But it’s not unlike the crazy, chaotic, fast-paced world of business. Several times a day, you’ve make split second decisions with long-term consequences.

Do you apologise to the customer, even if it wasn’t your fault, or tell them to get lost?

Do you fire a member of staff, or accept everyone, including you, makes mistakes from time to time?

Do you make promises with a straight face to customers, funders and lenders knowing your chances of delivering on them are slim, or have a difficult conversation now and try to work out a way forward everyone can live with?

The coward’s way out is always to take the “obvious” action.

If someone’s running towards you carrying a gun, you shoot.

If the customer is technically in the wrong, per your 40-page terms and conditions, you tell them to get lost.

If the staff member has done something silly, you prove who’s boss by firing them.

If customers, lenders or funders are putting you under pressure, you tell them what they want to hear for now and hope you can weasel out of delivering somewhere down the line.

It’s easy to “hit the target” and do the obvious thing. That’s much, much easier than pausing for a split second to think more broadly about the situation.

Heroes…the sort of people who work in special forces…are specifically trained not to take the coward’s way out and blast away at every target regardless.

Smart business leaders do the same. They apologise to the customer, they give that staff member another chance, they tell the truth to lenders and investors, even if that causes them problems in the short-term.

Cowards shoot first and ask questions later. Heroes know when not to pull the trigger.