This Company Will Self Destruct in Five, Four, Three……

Why We Blow Shit Up

One of my BFFs and I were talking recently about decision making. Specifically he and I were discussing the concept of whether 3 or 4 good decisions (in addition to luck, privilege etc.) was all that separated us from those in say prison or found themselves homeless. I have a number of people I grew up with, who went to the same school, had similar family life, same socioeconomic background but made a few different decisions that took their lives down a very different path. The older I get the more I realise that skill of making good decisions, is in my view a superior trait, even to talent.

In an effort to improve my own decision making capacity, one of my recent interests has been cognitive bias — specifically how to be more aware of it and how to counter it and it’s actually really, really, hard. It’s just so pervasive, and stealth like, its hard to recognise you are acting directly on its behalf. I like to consider myself a generally rational person, yet have made plenty irrational decisions in my life because I was swayed by emotion or a predisposition to a certain train of thought or pre-existing biases I was unaware of. Ive written before how I underestimate men because of my cognitive biases, I’ve also made character judgements of people based on my own biases only to later find, once I set aside my biases or got to know them well enough to see past my biases, that they are actually good people. Or actually really bad people. I have eleventy billion examples, I could, quite literally go on and on.

Yet, as a former scientist and now an investor, I’m always trying to hone my ability to make decisions on objective data, rather than on biases, which are not just cognitive by the way, but emotional too. Nobel laureate Herbert Simon wrote, “In order to have anything like a complete theory of human rationality, we have to understand what role emotion plays in it,” in his 1983 book Reason In Human Affairs.

And in investing, I see plenty of emotional and cognitive bias that leads to irrational decision making. In the last month, I’ve seen a founder and material equity holder make a decision to plunge a company into administration rather than complete a financing at signature stage. I’ve seen investors continue to fund a venture that is not viable, due to anecdotal market analysis. I’ve seen co-founders blow up a near life-long working relationship and friendship out of hurt. I’ve seen investors blow up a relationship with a good founder and co-investors out of ego. None of these were rational decisions — blowing up a Company (and their equity holding) which otherwise would be viable is not rational. Financing a Company on anecdotal, n=1 data, rather than market data is not rational. Ending a decades long professional and personal relationship due to a disagreement is understandable, but it’s not rational. It’s all rather self-destructive actually, but yet it happens.

But is in fact, perhaps just incredibly human. There is a theory that irrational decision making, that is decision swayed by cognitive or emotional biases has evolved to first, make decisions on limited data which for 99.9% of history has been the case, and second, to lead to multiple permutations and combinations of outcomes that will eventually lead to higher evolution. To put it blunt, it’s Darwinian. But what if this leads to self –destruction, where the hell does that fit into this neat little evolutionary theory?

Well, I have a view and it comes from my biochemistry days and my tendency to think in systems. Apoptosis. Apoptosis is the process whereby cells in our body, which get old or become compromised through too many genetic mutations (a natural process) to make them viable, activate a self-destruct mechanism to clear them out. When everything is hunky dory, this ‘self cleaning’ mechanism keeps our bodies running more or less to plan. When certain mutations are acquired in this self destruct mechanism or override it in the cell, that’s when we get cancer.

And I think irrational decision making which leads to destruction rather than construction, is rather like professional (or personal) apoptosis. Perhaps, these irrational, emotionally or cognitively biased decisions, are a professional Darwinian mechanism for weeding out the unhealthy actors, or unhealthy dynamics, before they turn into cancer. The founder above will blow up the Company, but then he won’t be in a position to do any more harm in this sector because he will be considered radioactive. The co-founders ending their professional and personal relationship will stop lingering resentment leading to more value destruction from within.

So, with this in mind and applying this lense to myself, how do I make sure I don’t turn activate a self destruct mechanism and commit professional apoptosis, or worse yet turn into a cancer? I am responsible for too many people’s money and too many peoples jobs which rely on me making good, rational decisions limited as much as humanely possible by my emotional and cognitive bias. I would love some cognitive bias training (suggestions appreciated!), but I also think this is like a mere baby step towards the real goal. If I really want to prevent myself blowing shit up, I also need to work on keeping emotional bias in check too. Easier said than done. Stay tuned.