Thursday, October 4, 2007

Hometown Bias


THE STORY
At the height of the popularity of the Dave Matthews Band, I saw a documentary about the history of the band. The documentary makers went back to where the band started in Charlottesville, Virginia. They interviewed some of the people who remembered the early beginnings of the Dave Matthews Band.

One of the people they interviewed was a guy who used to hang out at the first little local clubs where the band played. This guy blurted out, “I knew from the very beginning that eventually the Dave Matthews Band would become hugely famous” (or something like that).

My first reaction upon hearing him was, “My, this guy has a good sense about what music will sell in this country.” Then, I started to think, “I’ll bet that every little garage band that ever started playing in some local bars had some adoring fans who said, “I just know that some day this band will become hugely famous.”

Although every one of these local bands probably had fans who “knew” they would become famous, in reality over 90% go nowhere. That Dave Matthews fan in the documentary wasn’t an astute judge of success. He just happened to be lucky enough to be living in a place that had a local band that was one of the rare groups to actually become famous.

Some of us aren’t as fortunate. Back in the 1970s when I was in college, I enjoyed the music of a local Michigan band called the Whiz Kids. Pat McCaffrey, the leader of the duo, was a highly talented musician. He would simultaneously play the bass using the bass pedals on an organ, while playing keyboards with his left hand and playing a saxophone with his right hand. It was a sight to behold. I “just knew” that the Whiz Kids would eventually become famous.

Well, it didn’t turn out that way. The Whiz Kids never broke into the big-time like Dave Matthews. I went on the internet recently to see if I could find out whatever happened to the Whiz Kids. I found out that on October 9th of 2007, Pat McCaffrey and the Whiz Kids will be performing the after dinner music at the 38th Annual Conference of the “Excess/Surplus Lines Claims Association.” It will be at the Hyatt Grand Champions Resort near Palm Springs. It was nice to see that Pat was still earning a living in music some 30 years later, but I don’t think the “Excess/Surplus Lines Claims Association” conference is the same as the types of gigs the Dave Matthew Band gets.

THE ANALOGY
Strategies are used in businesses in order to help them determine where to place their “bets” on the future. Businesses have limited money, people & time, and they want to invest these limited resources where they believe they will get the best return.

As a result, the strategic process is often used to help find where the next big success will be. They are looking for strategies that will be “winners” for the company. Trying to pick the next winning strategy is similar to trying to predict who the next great band will be.

Just as over 90% of all those local bands never make it to the big time, around 90% of new business ventures never live up to expectations and destroy shareholder value. Every company believes they are betting on the next “Dave Matthews” type of business venture, when in reality, it is more like a “Whiz Kids” outcome (or worse).

In spite of the terrible odds, companies continue to try to pick winners. Take Kraft, for example. In recent years, they have spent a fortune on a huge number of new products and innovations, most of which were duds. The real money comes from things invented long ago, like Oreo cookies (which have been around since 1912) and Miracle Whip (a recipe they bought during the depression of the 1930s for about $300).

THE PRINCIPLE
The principle here is “the hometown bias.” We tend to have a sense of pride around our home-grown ideas and strategies, just as the locals have a sense of pride for their home-grown bands. Just as it is easy to imagine how our local band could become famous, we can imagine how our home-grown ideas can hit the big-time.

This bias can blind us to reality. I spent some time as a radio DJ. It gave me the opportunity to listen to a great deal of music. I tried to analyze the situation to try to see if there were any common factors which caused some of those bands to become a big hit and why some went nowhere. I discovered that sometimes highly talented musicians made it big, and sometimes they didn’t. Similarly, sometimes marginally talented bands made it and sometimes they didn’t. I couldn’t find much of any correlation for factors which created success.

I think the Australian band Skyhooks (one of the bands I heard as a DJ and didn’t make it) put it well in one of their songs. They said that the successful bands find a “million dollar riff” (a lucky twist of music that tickles the ear).

Now I’m not implying that business success is all luck. But it is true that sometimes just as there are only small nuances between a dud riff and a million dollar riff, there are small nuances between a huge strategic success and a dud.

Here are some tips to help avoid some of the duds of strategy:

1) Be aware of the hometown bias.
Realize that there are more Whiz Kids than Dave Matthew Bands and that local pride can blind us to giving too much credit to our homegrown ideas. Stand back and look at it with a more critical eye. If your bias does not let you look at it critically, then use unbiased research to help you see how the concept will be seen in the real world.

2) Realize that pride and egos can distort our judgment.
Examine your options with a dispassionate eye. Although it may hurt our egos for a time, it is okay to stop a pet project if it is starting to look like a dud. Pulling the plug early can often be a very smart thing. It’s not an admission of failure, but rather an avoidance of a bigger failure later.

3) Sweat the Details.
Because the difference between huge success and huge failure in music can hinge on the nuance of a riff, it is really important to sweat the details. Great ideas are important, but great execution can often be even more important. Designing and selling digital music players was a great idea. A lot of companies dove into the business. Yet most of these companies have failed to catch on, in spite of it being a great idea. Ipods did catch on, however. One of the reasons they succeeded with that same idea when others didn’t was because Apple did a better job of sweating the details. They spent more time mastering the nuances of the business.

4) Spread your Bets.
In the music industry, even though the music labels had experts with the “golden ear” who had a good sense about what music would sell well, they were still often wrong. As a result, the music label would hedge their bets by investing in a large number of bands. The logic was that even if nine out of the ten guesses were wrong, the tenth would be so profitable that it would more than make up for the losses on the other nine. Similarly, businesses need to use tactics to reduce the risk, like:

a) Don’t put all your hopes into a single idea. Have multiple experiments going on all the time. That way, you stand a better chance of hitting the idea that makes you a winner.

b) Stage your investments. Don’t bet the whole thing at once. Invest in the idea in stages. If a stage fails, then you can back out before you’ve invested everything. If a stage succeeds, you can ramp up.

5) Understand that your idea will not be executed in a vacuum.
Eventually, your idea will need to be executed out in the marketplace, where competition will try to minimize your success (for more on this, see the blog, “Bombs Start Wars”). To avoid future disasters out in the marketplace, ask yourself these questions:

a) Does my idea provide a superior enough solution in the marketplace for a consumer problem to cause people to switch from their current solution alternative to mine?

b) If the big, powerful competitors also decide to enter this space, do I have what it takes to beat them in head-to-head competition?

SUMMARY
Most new ideas fail. Don’t let egos or homegrown pride cause to you to back a bad idea. Be willing to do what is necessary up-front to reduce the bias and what is necessary later to pull the plug early if the idea does not pan out.

FINAL THOUGHTS
Good decision making requires looking at an issue both rationally and emotionally. Although we need to eliminate emotional biases that blind us to reality, we do not want to eliminate emotions entirely from our thinking. After all, our customers use emotions to make their purchases.

3 comments:

  1. Two friends and I saw the Whiz Kids several times in southern Michigan about 1970. I was also sure that Pat McCafferty would attain fame as a rock musician internationally, like Keith Emerson. Glad to hear another fan remembers the magic.

    nagromcr@comcast.net

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  2. Yes, it was magical. I still have one of their LPs.

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  3. www.SkinnerRat.comNovember 3, 2008 at 2:48 PM

    I know Pat McCaffrey very well. I had the privilege of playing in the Whiz Kids many years after he "hay day."
    He is everything you say and more. I grieve over the fact that he has not been recognized in the "big time" success that he deserves. Dr. Gary Telgenhoff
    www.SkinnerRat.com.

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