There are stories, going back to ancient Greece, of dolphins helping stranded swimmers to find their way back to shore. Because of this, dolphins have a reputation for being friends of humans. But is this really the case? Suppose that it was the exact opposite. Suppose that dolphins are actually evil and drive swimmers away from shore and drown them. They realise that if humans became aware of this there would be dire consequences. However, being clever dolphins, they help, say, 1 in 10 swimmers to reach shore. How can we tell the difference between these two scenarios? All we have is the testimony of the survivors. The swimmers that drown cannot tell us how evil the dolphins really are.
This is called “survivor bias” and is particularly important when we look at anecdotal evidence. Are we looking at the whole picture, or are we only looking at the survivors?
If incidents where dolphins save several people at once are widely reported, we might well get the impression that the overall numbers saved are larger than they really are. This is called “availability bias” – easily available information is given more weight than information that needs some effort to find.
In a recent post by Stefan Lindegaard questioned the wisdom of consultants telling large companies that they need a more entrepreneurial culture. The thinking seems to be that entrepreneurial companies have high growth rates, so if a company develops an entrepreneurial culture it will also have a high growth rate. However, in saying this, consultants are showing both survivor bias and availability bias.
Survivor bias: the UK Office of National Statistics (ONS) figures show that 50% of new companies close within 5 years. In recommending an entrepreneurial culture, consultants are only looking at the 50% of start-ups that survive. They are ignoring the 50% that fail.
Availability bias: the ONS figures also show that of around a quarter of a million new starts in 1998, by 2010, 85% of these had gone out of business, only 2% had a turnover of over GBP1m and about 0.3% a turnover of over GBP10m. The claim of high growth rate is based on the performance of companies such as Brewdog and Skyscanner, which represent less than 2% of start-ups.
So, what consultants should say is, change to an entrepreneurial culture and get a 2% chance of high growth rate and a 50% chance of going out of business in 5 years.
Is there a better way? Key to business growth is a vision and a strategy to reach that vision. The strategy should focus on how we can progress towards that vision, not what some mythical entrepreneurial company would do. By all means, we can look at how entrepreneurial companies do things but not with the intent to transfer what they do to our business. We should look at why they are doing it. What outcome does that activity deliver for them? What is the benefit? Would this outcome help us to move forward? It is this outcome, or benefit, that we should attempt to transfer. How can we use our current culture, knowledge and skills to deliver that outcome.
In summary, it is the outcome that matters, not how it is delivered. And beware of those evil dolphins.
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