Why we ignore early warning signs and what to do about it

Things were getting uncomfortably tight. I was enjoying it a little bit less every time I started. But I pushed on and now I’m feeling the consequences.

I want to share today why we push on and explain things away, ignoring early warning signs and paying the price.

In my case, the result was an acute calf muscle strain that stopped my running regime in its tracks. But the same behavioural factors are at play whether you are exercising or working in your business.

Here are two that are probably getting in the way of you making better business decisions:

Narrative fallacy

Throughout our lives we develop our own personal story – our narrative – of how the world works.  A large part of this is our (incorrect) assumption that just because something hasn’t happened in the past, it won’t and just because something has happened, so it will continue.  This leads to imperfect decisions about the future.  I’d never had a calf injury so I didn’t imagine I would.  Whoops.

The narrative fallacy impacts business decision making in a number of ways:

• we don’t develop contingency plans to handle ‘unlikely’ events;
• we don’t diversify our risk assuming that those same ‘loyal’ customers will continue to be; and
• we don’t make sure the business can survive our incapacity.

To overcome your narrative fallacy the key is to get others involved.  You are stuck in your story whereas they will have a different take on your circumstances. These ‘fresh eyes’ can help you craft what-if scenarios and adopt a portfolio approach to better manage areas of exposure.

Short term bias

We tend to act for today rather than tomorrow, largely because it’s much less ambiguous than the future. I knew the payoff from going for a run but couldn’t imagine the longer term ramifications of injury. Our short-term bias includes our desire for instant gratification and avoidance of immediate cost and you can see it play out in offers like ‘buy now, pay later’ and low introductory credit rates.

Short-term bias can impact business decision making in the following ways:

• we delay thinking about our business’ future by allowing ourselves to be consumed by everyday tactical demands;
• we put off that holiday because now is just not a good time; and
• we discount to get the sale today even though we are giving our profit away and creating a precedent.

Overcoming short-term bias is not easy – it’s tied up with our dislike of ambiguity and preference for things we can feel, see, touch, taste and hear. As a result the best strategy comes in two parts:

1. Create short-term payoffs for longer-term things you don’t want to do

Can’t be bothered doing your tax?  Tie it to a ritual where you reward yourself for doing it.  For example, if you commit to spending an hour on your books every week why not do it in a café?  The important thing is to create a short-term benefit so you are more likely to do it.

2. Create short-term costs for things you are likely to do that you shouldn’t

On the flip side, if you are reacting to things in the short-term that have negative longer term consequences you need to either penalise or distract yourself.  I find I can easily be distracted by the short-term positive hit from checking social media – small interruptions than can chew into a day’s productivity.  Now I either keep my devices in another room (the cost is one of effort to go and use it) or set a timer to allow a window of time where I am free to engage.

Ignoring early warning signs is something we are all prone to given our behavioural DNA, but that’s no excuse. By actively managing our behavioural biases we can not only avoid longer-term consequences, we can create healthier and more productive businesses.