Everyone nods

Everybody nods.

In the years leading up to the collapse of the South Sea Company in 1720 there was an increased potential for foreign trade. Consumerism was on the rise. Wealth and luxury were no longer reserved exclusively for the aristocracy.

The company was promised a monopoly of all trade to the South American Spanish colonies.

Everyone agreed that the future was set fair. Everyone nodded.

But through a web of deceit, corruption, and bribery that included both company and government officials it was grossly oversold. The trading concessions barely materialized; the company had a very shaky commercial basis.

The company’s share price fell from a peak of £1050 at the end of June to £175 by September 1720, devastating institutions and individuals alike.

The bursting of the bubble, which coincided with the similar collapse of the Mississippi Scheme in France, ended – temporarily – the prevalent belief that prosperity could be achieved through unlimited expansion of credit.

In the later 1990s the new internet sector and related fields were the place to make your fortune. Everyone nodded.

A combination of rapidly increasing share prices, individual stock market speculation and widely available venture capital created an environment in which many of the internet based companies dismissed standard business models. They focused on increasing market share without regard to the bottom line. That would take care of itself.

These companies expected that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected this strategy.

But the bottom line didn’t and the companies couldn’t. The dot-com model was inherently flawed.

Even if the plan was sound, there could only be, at most, one network-effects winner in each sector. Yet there were a vast number of companies all with the same business plan for the same respective sector. Therefore most companies with this business plan faced inevitable failure. In fact, many sectors could not support even one company powered entirely by network effects.

The dot-com bubble crash wiped out $5 trillion in market value of technology companies from March 2000 to October 2002. Add to this the write-downs by the venture capital community which, to name but three, include at least $280 million for kozmo.com, $160 million for boo.com and $65 million for MVP.com.

And so we come to recent times. The bankers announce they have found a way of lending the same money many times over and, even if it is lent where there is a high risk of default, it’s still safe. And everyone nodded.

However, these events and those like them down the years are merely the tip of the iceberg. These are just instances of high–profile, bizarre and reckless conduct. There is just as much perverse, incomprehensible and destructive business behaviour to be found in everyday dealings.

For example, a recent, cash-strapped client who offered 90-day credit to his customers because, “that’s what this industry does.” Everyone nods.

For example, a business acquaintance who cut back on his sales and marketing expenditure in anticipation of a fall in customer volumes (everyone nods) happily reporting that’s what actually happened.

For example, a company, anxious to have its employees engaged with the business (everyone nods), commissions a consultant to conduct a survey in order to discover what its people think.

For example, the business that is doing things in the same way as its competitors (everyone nods), yet expects a result that will show them as being exceptional.

The human animal is tribal. That is not the same as having a herd instinct. We can think independently if we chose; we are more likely to succeed if we do.

In 1841 Charles Mackay published his book "Extraordinary Popular Delusions and the Madness of Crowds", often cited as the best book ever written about market psychology.

In May 2004 James Surowiecki published The Wisdom of Crowds.

In the light of subsequent events, perhaps Mackay had it right after all.

Coach or Consultant?

I was asked recently about the difference between an adviser/consultant and a coach.

It’s a valid question and, while I answered it after a fashion, I have been mildly annoyed ever since that my response was not better.

This is my second try.

Someone who is looking for a consultant or an adviser is a person who expects to be told the answer. It is a childlike, submissive approach; one where the power has been passed to another by someone who believes they lack sufficient resource themselves.

Someone who seeks a coach is a person who wants to find the answer and do the work themselves. They accept the responsibility, assume control and are determined to shape their own destiny. However, they are adult enough to recognise that sometimes they need the independence and questioning skills of an outsider to help them make the best of themselves.

To adapt from The Prophet by Kahlill Gibran:

Advisers/consultants bid you enter the house of their wisdom;

Coaches lead you to the threshold of your own mind.

Believing Is Seeing

We are so lucky. As consumers we are blessed with so many offers of help and assistance – so many that it’s difficult to choose between them.

· You can’t get better than a Kwik Fit fitter – they’re the ones to trust.

· Halifax will pay you 60 times more than the others could.

· L'Oreal – because you’re worth it.

…and, if all else fails, there’s always the DFS sale.

Aren’t these companies good to us?

In business we are equally fortunate. Wherever you turn there is someone offering to do it cheaper…or faster…or bigger…or easier. Just about anything you might – just possibly – regard as a problem can be instantly fixed by picking up the phone and inviting the Merlins of the market into your business.

Whether it’s finding more clients, getting your invoices paid, dealing with your staff, or optimising the internet there are a plethora of individuals, partnerships and companies ready and waiting with sure-fire panaceas.

How could you go wrong?

Likewise, if it’s your business itself that’s the problem, then never fear. There are any number of know-it-alls prepared to tell you how you should run it. Hell, for the right amount of money paid in advance, they’ll even do it for you.

In the quiet of the wee, small hours I sometimes wonder how we mortals so often get it wrong when gold-plated success is so easy to come by. Were we out of the room when they handed out all of the answers?

I doubt it.

Before those outside our business can even hope to make a contribution two things have to happen:

We have to believe that the suggestion they have to offer will actually work for us, and

We have to believe that particular firm or individual is the right one to work with us.

Whatever the ‘fix’ is, we have to buy into it ourselves, mentally and financially, before opening the door. Unless we first experience that mind-shift the ‘fix’ is likely to be doomed before the project even begins. Hesitancy in accepting the proposed solution is probably behind most of the failed consultancy projects. And most consultancy projects fail.

There is a threat to any business from someone who thinks they know better than you how to run it. Maybe they do know better, but it is still your business. However good their ‘fix’ is on paper, you will modify, undermine, sabotage and destroy it – perhaps subconsciously – if your pattern of beliefs do not shift accordingly.

So crucial are your beliefs and associated values that it would make most sense to start with those first, before you call the Merlins. At the end of the day you will probably find you can do without the outsiders, because you will have much better ideas yourself.