Anomalies and the unknown
In a decision-making context it’s best to think about anomalies as windows to the truth: windows always offer us a view to something much larger; and the anomaly itself always has a symbolic value to us: it wants to turn our attention to something we’d miss otherwise.
An example: a manager from an investment fund walked into a store that belonged to a chain they were planning to buy. He noticed that something didn’t feel right. It was a large store yet he felt that store clerks were following him as if he was a thief. This was an anomaly, since this was not typical to stores at the time. On paper everything looked good, but they decided to walk away from the deal, simply feeling that something was off. Somewhat later this retail chain declared one of the largest bankruptcies in the history of corporate America at the time. Managers from the same fund noticed (supposedly by simply watching the news) in the late 1960’s that in the Egyptian war Israeli rockets (supplied by the States) consistently missed targets, while Russian rockets (used by Egypt) didn’t. This led them to invest in a small government contractor in electronics manufacturing: Lockheed Martin. There are many other examples about why it’s good to stop and reflect on anomalies in the book Tao Jones Averages.
Recently, the CEO of a very successful logistics business was informed that some of his vendors are unhappy: they’re abused and don’t dare to complain fearing that outstanding invoices won’t be paid. The information didn’t come directly from a vendor but by somebody who knows about the issue. The reaction: give me details, so I can investigate this specific issue; this is how 999 out of a 1000 managers with 50 years or 1 month of experience would react. Now: you don’t need an MBA or a PhD to understand why this reaction makes sense to fix that one issue. Yet: this is an unreasonable reaction when it comes to anomalies; and of course they don’t teach it in MBA schools that you can’t react to anomalies with a standard response. The right reaction is to recognize you have a problem: either with your culture in general or in purchasing in particular: at the very minimum you have to look at purchasing as a whole (especially considering the circumstances) and consider the fact that your assumptions are likely incorrect about people issues. How to look at issues as a whole is – surprisingly – also something that they don’t teach in MBA schools. (Of course, you may dismiss the issue – as the average manager does – as a weird…anomaly.) For competitors and investors such anomalies may point to much bigger problems that may surface in the months ahead.
Let’s note that the fact that an average manager runs a unicorn is not an anomaly. Many unicorns are run by average managers with standard CVs – and this should keep investors up at night; but of course, it doesn’t, since it’s also not an anomaly that average investors successfully bet on average managers that build well functioning companies achieving unicorn status through 5-6 rounds. Quantitative leadership in a field that rises with the tide is not exceptional. Being exceptional, on the other hand, doesn’t automatically lead to the quantitatively more. It may, but this is not a rule. Brilliance, which is an anomaly in most industries, is not measured by quantity.
The average is rather predictable: it has a life cycle. Unicorns – like all companies – fail or they’re kept alive by tricks. And the number one trick to keep them alive is to make stakeholders believe that being bigger is a qualitative category.
An investor told me in the early 2000s that a monkey can run a mobile (phone) business: absolutely all numbers are known to everybody (you didn’t need to improvise), you just need bureaucrats to deliver them by using “best practices” invented by others. And then they (the investors) launched a 4th mobile operator in a small CEE country with proven managers pulled from all over the place only to face an embarrassing failure: the business never even took off. They blamed the proven managers who were not entrepreneurial enough (just bureaucrats) and the bureaucrats blamed the investors since everybody knew that there was no room for a fourth player on the market. It looks like everybody knew everything, with confidence levels about individual opinions backed by research going through the roof.
Brilliance may also be average, meaning that the majority in an organization is brilliant. While there is no evidence of this in modern business organizations, the possibility does exist and, in fact, there used to exist organizations where this was the case. When this is the case, refined stupidity, courteous disrespect and arrogance is an anomaly. When stupidity, disrespect and arrogance (hidden or open) is average, alas, it’s very hard to notice anomalies – everybody knows everything and and nobody notices the looming dark clouds of the unknown: people become unaware of what they don’t know.