Many new ventures, deals, investments and strategies fail because they haven’t been properly tested before launch. Applying rigorous contrarian thinking with a Devil’s Advocate or military style Red Team can save time, money and reputation by avoiding mistakes and making decisions that maximise chances of success.
In the following piece, Dr. Nicholas Beecroft explains a tried and trusted method of decision making and how it can be applied to new ventures to avoid making unnecessary mistakes – and to make better decisions.
Between 70% and 90% of mergers and acquisitions fail[1]. 70% of change programs don’t achieve their goals[2]. 67% of well-formulated strategies fail due to poor execution[3]. 75% of venture capital-backed start ups fail to return on the investment.[4] In the context of start-ups, the need for founders to learn through mistakes and failure is commonly cited, yet many common mishaps are detrimental and avoidable. So, why do most start-ups continue to fail and why do highly intelligent leaders continue to make the same errors time and time again?
Insight and effort is not enough to ensure mistakes aren’t made.
Biases and blind-spots are widespread in both individual and group decision-making – and even when people are aware of them, they’re not effective at making necessary adjustments to overcome them. 46% of business failures could be avoided if leaders attended more to well-known potential pitfalls and a significant number of the unavoidable failures could be mitigated if they were alert to the warning signs.[5]
Founders of new ventures are very susceptible to overconfidence in themselves and their ideas.
They easily get attached to an initial concept and then look for evidence to confirm it. They tend to choose people they like to help them and because their ego is heavily invested in the venture, people can be uncomfortable asking challenging questions, pointing out flaws or suggesting changes that would require writing off sunk costs of time, money and effort.
Leadership problems, unforeseen risks, missed opportunities, weak business models and lack of product-market fit exist at the conceptual stage of a new venture or strategy, and get locked in by groupthink, ego, bureaucracy and sunk costs.
Unfortunately, it’s harder and more costly to correct things later.
Here are three decision-making techniques that start-up founders and business leaders can use to maximise their chance of success.
Widely applicable to business, military, government and life in general, these processes are proven to save significant time, money, reputation and even heartache by helping leaders avoid mistakes.
1. Devil’s Advocate.
The single best thing anyone can do is subject ideas, business propositions, potential deals and big decisions to an impartial Devil’s Advocate. The medieval Church implemented this method to improve due diligence in canonising saints. A Devil’s Advocate is an independent, objective person who asks incisive, constructive and challenging questions to thoroughly test the assumptions, look for alternative explanations, independently and critically evaluate the reasoning, evidence and judgements so as to improve the quality of the decisions and offer alternative perspectives and strategies. Most leaders think they have a Devil’s Advocate already, but usually they don’t because the peer pressure to be ‘nice’ is high and few people are willing to risk the consequences of being perceived as arrogant or difficult, causing discomfort and holding things up.
2. Red Teaming.
The value of putting yourself in the enemy’s shoes and testing a strategy with rigorous attack from all angles has been tried and tested in military campaigns throughout history. When the military thoroughly tests their strategies beforehand, they are successful such as in the Battle of the Atlantic and D-Day. When they forget to do this, things don’t go so well, such as in Vietnam and Iraq. A Red Team is like a whole team of Devil’s Advocates drawing on both relevant expertise as well as those with the right mindset, character and values to constructively test a strategy, proposal, policy or new venture. For example, in 1940, the British War Cabinet had contrarian thinking at its heart and made a very difficult but ultimately successful decision to fight Hitler rather than negotiate. The Japanese War Cabinet, by contrast, had a strong taboo against challenging positions and interpersonal conflict and so they ended up making the decision to attack Britain and the US, even though most of them knew they would lose. It’s a lesson that keeps being forgotten then relearned the hard way. Ray Dalio, the founder of Bridgewater, the world’s most successful Hedge Fund faced ruin when his original business came crashing down. With humility, he began to say ‘rather than thinking I’m right, I started to ask myself how do I know I’m right?’ He came back from failure to be the world’s best by integrating rigorous feedback and challenge from diverse teams built into Bridgewater’s analysis and decision making.
3. Decision Facilitation.
An external decision facilitator can help leaders make decisions using their entire inner compass – purpose, mission, values, interests, gut instinct, heart intelligence, emotions, inner dialogue, mindfulness, etc. It is so easy for founders to be blinded by tunnel vision – and this process is a sure-fire way to avoid that. In a recent example, a business saved about $27 million in one afternoon after completing a decision facilitation process that unveiled unforeseen marketing, supply chain and geopolitical risks.
The earlier these due diligence frameworks are applied, the more leaders are likely to identify risks and avoid common mistakes. Once a leader is operating under the limitations of being overworked and the pressure of stakeholder expectations, it is often too late. It’s so much less expensive, less embarrassing and more successful to scrutinize decisions at the start rather than correcting mistakes later.
[1] The Big Idea: The New M&A Playbook by Clayton M. Christensen , Richard Alton , Curtis Rising and Andrew Waldeck. HBR March 2011
[2] Changing change management, McKinsey Quarterly. July 1, 2015 Boris Ewenstein, Wesley Smith, and Ashvin Sologar.
[3] Executives Fail to Execute Strategy Because They’re Too Internally Focused, Ron Carucci, HBR, November 13, 2017
[4] Shikhar Ghosh https://www.wsj.com/articles/SB10000872396390443720204578004980476429190
[5] Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years; Paul B. Carroll and Chunka Mui; 2008; Penguin Group, New York, NY; 310 pp.
About the author: Dr. Nicholas Beecroft is a Military Psychiatrist, Medical Doctor and Commercial Mediator with 23 years’ experience coaching CEOs, Fund Managers, Senior Partners and Top Teams on deals, decisions, new ventures, strategy, pitches, leadership, relationships and performance enhancement. He helps investors to make better decisions. He facilitates deals and helps resolve conflicts.
Nicholas’ unique Devil’s Advocate service which rigorously tests business propositions, deals, investments, M&A, and strategies recently saved the Principal of a Family Office $27million in an afternoon. He helps fund managers enhance their performance with Authentic Performance Measures. His Kings Speech Service prepares entrepreneurs to pitch successfully. His Decision Facilitation Service applies proven psychological techniques to optimise high stakes deals.
Nicholas has an MBA from London Business School and is a Member of the Royal College of Psychiatrists and the Royal College of Defence Studies, the world’s premier college of international strategic leadership. He is accredited as a commercial mediator by the Centre for Effective Dispute Resolution(CEDR). He is author of Analyze West and the New Magna Carta. Nicholas is a Partner at Adan Corporate and a Partner Coach at Wisdom8 and Essentia Analytics. He is based in London and coaches globally.