Helping the Chronically Overworked Find Life Balance

What You Can Learn From Black Swans, Forecasting, and Idolatry

Chapter 9 Paint Your Environment Part 8

In this chapter I’ve told several stories about forecasting, because so many dysfunctional companies live and die by the forecast because they can’t seem to agree on anything else they stand for.  I am drawn to the topic because it reminds me of an extensive commentary by the medival Jewish philosopher known at the Rambam which is shorthand for Rabbi Moshe ben Maimon, (AKA) Maimonides.

The Rambam argued that soothsaying, fortune telling, divining and related “black arts” are forms of idolatry perpetuated by unscrupulous leaders as a means to control other people by fear. The Rambam said that “It is not fitting for the Jews who are wise sages to be drawn into such emptiness. ”[i]  To put it in a more kindly and general context, he was saying that educated people should know better.

In a similar way, I think that people in the business world should know better than to blindly follow forecasts or other business means of predicting the future, which is exactly what Professor and former hedge fund manager Nassim Nicholas Taleb argues in his book The Black Swan.  Taleb, like the Rambam, marvels that people seem to ignore the terrible track record of those who routinely predict the future and get it wrong.

Taleb uses the example of the black swan as a metaphor.  For hundreds of years, bird experts said that Black Swans do not exist, because one had never been seen. Which was true until Europeans reached Australia, and found them in plenty.  Taleb shows that financial analysts have a terrible track record at predicting the future – they are no better than someone who looks just at the last quarter’s data and extrapolates.  In fact, the analysts tend to follow the herd, and are unlikely to make predictions that are outliers.[ii]  But the biggest events that change history, like September 11 or the Arab Spring are almost never predicted.

If the wall street experts can’t get it right, what chance has the average forecast in an average company?

You might be wondering what this has to do with your quest for a more balanced life. There is a right and wrong way to use forecasts.  Taleb suggests that forecasts are a good way of charting possible outcomes, what is a potential large seller, but the actual outcome can’t be predicted, which is why every company should have a diversified portfolio of high risk and safer projects.  (And why a one-trick pony startup is inherently risky.)  But many companies, (like Sabina’s),  even if they have the proper portfolio mix, act as if the forecast is a real prediction of the future.

Companies with too much emphasis on forecasting and making the numbers have a higher risk of an idolatry prone culture, that devalues people as individuals. And Sabina allowed forecasting to have too large an impact on her self-esteem.

Someone looking for balance in a numbers first environment has a few options.  1. Play the politics to gain the power to set your own boundaries.  2. Take a lower profile product or project that will bring lower stress.  3. Become an expert at sandbagging the forecast.

Another option, which I will explore in the next post, is to find another company with a different, longer term and more flexible approach to doing business.

What is your experience with forecasts and numbers-first cultures?

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[i] Mishneh Torah Volume 3: Hilchot Avodat Kochavim. By MaimonidesEdited by Rabbi Eliyahu Touger.  Moznaim, (1990) P.212-213

[ii] The Black Swan by Nassim Nicholas Taleb. Random House (2007) p 148-150.


When Not To Wait For Your Job To Improve

Over the last month, a spate of companies have announced special or early dividends this year.  For me, dividend stories are usually a yawner, but in this case there is a lesson about values and priorities

As background, on January 1st the tax rate for dividend income will go from 15% to as high as 43%.  For some companies, like Walmart, it is a no brainer to pay its dividend December 27th instead of January 2.  The move saves investors significant money, and it doesn’t impact the overall business. (And if the Walton family, who owns 43% of the company saves $180 million on their tax bill, so much the better for them.)  Check out these articles in the WSJ and Daily Beast for more.

But what about Costco, that is borrowing 3.5 billion dollars to finance a $3 billion dollar dividend payout that wasn’t scheduled to take place? Or Oracle, spending $867.4 million on a dividend that will bring Larry Ellison, the CEO a payment of close to $200 million dollars?  This is about bringing shareholders a short term return, which is ok with me.  Corporations are founded to make money for investors.

From a business standpoint however, I think anything that prioritizes the short term over the long term is poor strategy.  It sends a signal that percolates throughout the organization.  Here is an example of that from my experience a number of years ago at a rapidly growing biotech company.

Late in Q1, the VP of marketing rather sheepishly told everyone to drop what we were doing, and find out what we could do to help make the quarter. And then, development resources were diverted from the new product to slam in a feature to help close a sale. We put together some last minute promotions.  So the company sold the product in Q1 at a discount, instead of later in the year at full price when the customer swould have been ready to use it.   The result: Less total revenue for the year, and long term customer relationships were reduced to transactional interactions.

My product manager buddies and I ragged on management, hoping someday they would get it. But we were the ones who didn’t get it.  The company was telling us what was most important to them, and it wasn’t long term value creation.

Which brings us back to the dividend issue.  Any way you slice it, a company that is pulling dividends forward by multiple quarters to save its investors money is focused on short-term returns and not long term-value creation.  Next quarter, those investors will be looking for something instead of the dividends.  What will management do?

Something to think about if you work for one of those companies.  If the company doesn’t make the long-term value creation a priority, or sacrifices long term customer relationships for short term sales, it is hard to believe that long term employee retention is a priority.

If you have a job you like, with a good manager and a supportive environment, enjoy.

But if you are working like crazy and sacrificing your personal life in the hope that things will be better in the future, you may be waiting a long time.  To quote Guy Kawasaki quoting an ancient chinese proverb “Man who waits for roast duck to fly into mouth must wait very very long time.”*

* APE: How To Publish a Book by Guy Kawasaki PDF edition p. 56

Tomorrow: Back to Busting Your Corporate Idol.  If you like this post, you may want to read Chapter 3: The Corporation, The Real American Idol Here