Knobs & Dials...

I was talking with a friend of mine the other day.  He's a former tech exec who now works in real estate development and his business has been a bit beaten up by the state of the economy.

We got to talking about the current state of things and a couple of notions dropped out that I thought I'd share.

I've never taken an economics class in my life, so of course I'm thoroughly qualified to be an expert on the topic.  In general it seems to me in general that the economy does best when the government leaves it alone.  Ideally, the government should ignore it all together -- the further they are from tweaking it, the better I feel about the health of the economy overall.

And I'm really not kidding about that.

Why?  Well whenever I hear someone talking about the economy at large, they make frequent reference to agriculture numbers, manufacturing output, volume of durable/white goods etc.  Is that really what drives the US economy at this point?  Doesn't seem so to me.  Not to mention that the unemployment figures are so massaged, filtered and tweaked at this point as to be meaningless.

Viewing the economy as a machine that can be adjusted to "work right" is all very well in theory, but as I put it to my friend during our chat, :

"I'm just not convinced that the dials they are reading are connected to the knobs they're twiddling"

After I said it, it occurred to me that I'd stated a rather common entrepreneurial problem too.  We have a lot of metrics that we informally pay attention to (do people like the product, is dev moving forward, do folk get what we do etc), and we make changes to what we do to get the outcome we want to see.  But it's easier than you'd think to connect an outcome to the wrong input...

So before you make changes in your business, especially big changes, you really need to dig in and see if the outcome you think you're going to be altering is _actually_ connected to the change you're making.

Case in point:  our pitch.  We thought the lack of success was driven by the fact that we couldn't demo much of what we were talking about in a pretty product.  It turns out that is only partly true.  Having a sexy demo definitely helps, but speaking exactly the right language about where we fit in the corporate eco-system has proven to be equally important.

Fiddling with the product would have only gotten us so far.  If we hadn't realized that the outcome was being driven by more than that, we wouldn't have made any progress...

Comments

[Dave]

Your insight (and the image of the knobs and dials) sounds like a fundamental assertion of the field of system dynamics - that these connections in complex systems are difficult to understand and are often counterintuitive. Modeling these systems can help. I just finished an introductory course on this material in a business context and thus had to respond. Probably more than you wanted to know.

http://www.systemdynamics.org/
http://www.fuqua.duke.edu/admin/stuserv/courseinfo/strategy338.html

Dave

[DisMonkey]

Hi Dave,
Thanks for the comment. With how this blog wanders around, there`s no such thing as "more than I wanted to know"...

Oddly enough I have a tiny amount of experience with fractal math & chaotic systems (although I wasn`t thinking about that when I wrote this) which can be similarly counterintuitive in the way inputs and outputs behave... One of these days I might have to go check out a shiny MBA and get myself learned up on all this stuff ;-)