At the core of Entrepreneurs' Organization (EO)'s mission is an unrelenting commitment to helping entrepreneurs learn and grow in every stage of business. Dr. Gleb Tsipursky, CEO of Disaster Avoidance Experts, author of Never Go With Your Gut, and a recent EO 360° podcast guest, empowers leaders to avoid business disasters by addressing potential threats, maximizing unexpected opportunities, and resolving persistent personnel problems. We asked Dr. Tsipursky to explain the common pitfalls around strategic business analysis. Here's what he shared:
In our increasingly disrupted, globalizing and multicultural world, entrepreneurs appreciate the security and comfort of clear-cut strategic plans for the future. After all, following in-the-moment intuitions frequently leads to business disasters, and strategic plans help prevent such problems.
Tragically, popular strategic business analyses meant to address the weaknesses of human thinking are deeply flawed. They give a false sense of comfort to business leaders who use them, drawing these leaders into the exact business disasters that they seek to avoid.
Take the popular SWOT analysis, where you try to identify the Strengths, Weaknesses, Opportunities and Threats facing your business. SWOT doesn't account for the dangerous judgment errors revealed by recent research in behavioral economics and cognitive neuroscience--what scholars call cognitive biases.
Relying on SWOT to inform your strategic plans without accounting for cognitive biases results in appalling oversights that ruin profitable businesses and bring down high-flying careers. Fortunately, recent research shows how you can use pragmatic strategies to address hazardous judgment errors, whether in your professional life, your relationships, your shopping choices, or other life areas.
Mental blind spots in business leadership
One of the most dangerous mental blind spots for business leaders is overconfidence bias. Scholars have found that business leaders at all levels make bad decisions due to overconfidence, especially those who have been most successful in the past. They tend to believe themselves infallible, a perilous judgment error called the bias blind spot. To quote Proverbs 16:18, "Pride goeth before destruction, and an haughty spirit before a fall."
A related problem is the optimism bias, our tendency to look through rose-colored glasses. Research shows that top business leaders are especially likely to be excessively optimistic about their success--hindering their ability to make effective strategic plans.
How cognitive bias harms SWOT
When taking on new coaching and consulting clients, I always ask whether they've conducted a SWOT analysis. In literally every case when the answer is "yes", I've seen overconfidence and optimism biases lead clients to disregard risks and overestimate rewards.
For example, consider Saraj, a technology startup founder. His venture capital investors encouraged him to turn to me for coaching as his company passed $10 million in equity.
Saraj showed me the SWOT he conducted himself several months earlier for his own role as a leader. I was surprised that he didn't list effective delegation as an area of weakness, since some of his investors expressed that as a concern.
Asking him about it, I heard an immediate defensive tone. Clearly, I hit on a sore spot. He felt strong ownership of what he perceived as the core activities in the startup, flinching away from the possibility of delegating these tasks.
Indeed, SWOT allows business leaders to sweep under the rug those areas of weakness and threats about which they feel defensive. Their optimism and overconfidence serve to justify a failure to address these problems. Eventually, I persuaded Saraj that effective delegation makes him a stronger leader, one capable of best serving the startup in the long term.
It's particularly problematic when SWOT is performed in a group setting, since cognitive biases are often exponentially increased in such environments. One particularly big problem is known as groupthink, where groups tend to coalesce around the opinions of a powerful leader.
Martha, the CEO of a Midwestern healthcare company for whom I started consulting in early 2016, showed me her SWOT analysis from mid-2015. I was surprised to see no discussion of political threats to Obamacare, despite her company's growing reliance on patients covered under that program.
She told me that she didn't see much probability of a threat to Obamacare, and neither did other leaders in the healthcare company. To me, it was a clear example of groupthink, ignoring the elephant in the room (and on the ballot).
I eventually convinced her otherwise, and we developed plans in the event of problems arising in this area. She was very glad we had done so when political headwinds threatened Obamacare from 2017 onward.
3 Tips for countering cognitive bias
What's the takeaway for conscientious business leaders who want to eliminate bias in strategic business analysis?
- The next time you conduct strategic planning, take time to consider the dangers of the excessive confidence and optimism that you and your team very likely experience, at least if you're successful.
- Watch out for dangerous judgment errors by focusing much more than you intuitively feel is appropriate on risks, threats and dangers, rather than achievements, hopes and rewards.
- If you notice yourself or anyone on your team flinching away from an uncomfortable topic, double down on your commitment to explore it thoroughly. Only through vigilance and discipline will you ensure that you can avoid the pride that goeth before a fall.