Cart and horse fallacy
Don't think bold, don't think big, think right
This is the first article in my new series on cognitive strategic biases. In this series I’ll research some common biases, myths, and clichés that prevent us from thinking clearly when strategizing. Subscribe and you won’t miss anything interesting.
If somebody gave me a dollar for every time I saw the slogan “Think big,” or “Think bold” on LinkedIn, Elon Musk would envy my fortune.
Dreaming big has become a mantra of strategic thinking. If the fact that you worth less than Jeff Bezos or Warren Buffet doesn’t keep you up at night, you’re not ambitious enough.
Many pop-strategists share this platitude on social media. And it is reasonable. That’s how they get a lot of what Eric Berne called ‘strokes’ – likes and reposts.
When a song is familiar, it’s easier to sing along.
But there are two problems with ‘bold thinking’ – minor one and major one.
The minor problem
‘The slopes of Everest are covered with the bodies of ambitious, highly-motivated people'
Unknown author
Up to 90% startups fail.
Different sources give various reasons for this. But I've never seen them claim it happened because of founders’ lack of ambitions.
Moreover, you may find many stories about too ambition-driven founders. They dreamed big, but the product development didn’t keep up.
The founders of Jawbone, a company that sold fitness bands, were determined. They wanted to take on the world.
And the top-tier venture capital firms Sequoia, Andreessen Horowitz, Khosla Ventures and Kleiner Perkins Caufield & Byers liked it. They invested hundreds of millions of dollars in Jawbone, lifting its valuation to US$3.2 billion in 2014.
You know the end of the story. Two years later, the company filed for bankruptcy.
Elon Musk is an icon for many aspiring entrepreneurs. He’s very ambitious. He urged Tesla's engineers to work faster saying they were ‘revolutionising the industry.’
And they did. Tesla’s sales and profits skyrocketed some years ago. But today the company's future is dark. It's suffering from intense competitive pressure and the market slowdown at the same time. The situation forces Tesla to cut prices to maintain the demand.
Will Tesla’s impressive flight continue, or will it fall down like one of SpaceX’s rockets?
Nobody knows. But Elon Musk’s ambitions may not save him this time.
Thinking big has its advantages. It helps us look at the task from a new angle. It forces us contemplate some aspects of our work that we wouldn’t think of otherwise.
But we need to remember about the survivorship bias. When a handful of successful businesspeople tell us about big dreams they had in their childhood, they don’t lie. But for every success story there are hundreds of failures.
And the founders of failed startups were, most likely, very ambitious.
Moreover, a conventional way to 'think bold’ leads us right into a mental trap. And this is the major problem.
The major problem
When I was studying corporate governance in Institute of Directors, one of the professors told us that there are two basic approach to strategic goal setting:
The ‘American' one. A team thinks big, sets a mind-bogglingly ambitious goal, a BHAG, and then tries to come up with the way to reach it. Richard Rumelt criticised it in his famous book Good Strategy, Bad Strategy.
The ‘British' one. A team thoroughly analyse market opportunities and company’s resources and looks for a perfect match. It’s a more cautious approached. But the odds that the team will implement such a strategy are higher.
I think both approaches are wrong.
We put the cart before the horse.
One day in 1970, James Dyson bought a Hoover Junior vacuum cleaner. It lost suction after a short period of use. Frustrated, Dyson decided to create another type of vacuum cleaner.
He didn’t dream big at the time (though, he was ambitious). He was trying to develop a product that would work better than the existing ones.
In 2022, Dyson Limited’s revenue amounted to 6.5 billions GBP.
We shouldn’t start strategizing with the selfish questions like ‘What we will be in five years?’ or ‘How much money will we earn?'
We should start with customers and their needs.
Up to 70% strategies fail. And I am convinced that most of them do because this cognitive strategic bias – the cart and horse fallacy.
Our brains aren’t perfect computing machines.
When we set a goal, we make a promise. We program our mind. And it backfires.
Numerous strategic gurus never tire to remind us that a team’s buy-in is crucial.
But if the team members believe in strategic goals, it leads to wishful thinking.
They begin to see confirmations of their fantasies everywhere.
But Google didn’t start with audacious goals, but with a product people needed.
Stephen Wozniak build up a personal computer, and only then Steve Jobs began to ‘dream big.’
A company earns profits (a ‘cart’) by creating customer values (a ‘horse’). And we shouldn’t put the cart before the horse.
When I conduct strategy retreats, I always begin discussions with the following questions:
What customers do we think we should serve, and why?
What needs do they have?
What values will we offer them?
How many customers of the kind exist?
How much money can we make by serving them this way?
Does the number satisfy us? Does it match our ambitions?
If the number satisfies us, we can go into more detail. If it doesn’t, we start from the beginning.
Conclusion
The cart and horse strategic fallacy originates from the wrong assumption that we make business to make us reach and famous.
We make business to make our customers happy. And if we manage it, that will thank us with revenue and profits. And the opportunity to realize our audacious dreams.
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Great thoughts. Look forward to the rest in your series.