When the Unpopular Position Is Correct

Most organizations and people like to think that everything is under control, proceeding as planned, and the sought outcomes will be realized.  If anyone suggests otherwise, they will be chastised for not being team players, perhaps for having bad attitudes, or quite simply for being outright wrong.  Unpopular positions are seldom socially acceptable in organizations.

It is worthwhile to understand how these organizational values and norms can result in enormous wastes of resources and time to address problems that desperately need attention if the organization can only accept that they are happening.  It is quite common for this recognition to be delayed until no one can deny the organization is in trouble, and resources and time are inadequate for strong, successful responses.

There are few better examples of when we were not paying attention to looming dangers than the Great Recession in 2007-2008 stemming from the bursting of the real estate bubble and the coronavirus pandemic emerging in 2020, chronicled by Michael Lewis in The Big Short (2010) and The Premonition (2021), respectively.  In both cases, political leaders downplayed the risks and magnitudes of the likely consequences.

What most struck me about both events is the extent to which some of the smartest people in the US were betting against the country by shorting investments where severe losses would provide them enormous gains.  These people could see what was coming and adjusted their investment strategies accordingly.  Most of the population, however, was being misled by their leaders.

Over the past three decades, the US auto industry has grappled with the reality of no longer being market leaders.  Chevrolet Impalas and Ford Galaxies have been replaced by Honda Accords and Toyota Camrys as the best-selling cars.  Cadillac and Lincoln have been displaced by BMW, Mercedes and Lexus as aspirational luxury cars.  My experiences working with several companies in this industry was that everybody recognized this but nobody felt empowered to articulate it.

Another challenge emerges when current market positions are not sustainable.  In other words, things are not going as well as everybody thinks.  In one of my university leadership positions, I discovered that my unit was receiving over 50% of the funds from one division of a government agency.  I learned that this was due to a champion in this agency, who was soon to depart.  I argued that we needed to diversify.  Everyone ignored my arguments until research revenues plummeted.

A value proposition that was once competitive can become no longer competitive.  At another university, I met with leaders of an online educational program that I learned was being challenged by a top-ranked competitor that was offering a first-rate program for tuition less than 10% of our offering.  I suggested that our moderately-ranked offering would eventually see greatly reduced market share.  Astoundingly, university leaders decided to raise prices.  They remain alive but struggling with enrollments.

Technology can undermine market positions.  I gave a dinner talk to a large group of insurance executives.  I asked each table to discuss what they felt was the greatest threat to their business.  A bit later, every table reported the same conclusion – driverless cars.  In all US states, premiums are legally limited to matching claims.  Many fewer accidents will lead to greatly reduced premiums and, hence, sharply declining revenues.

We worked with these companies to explore alternative scenarios.  All scenarios resulted in dramatically decreased revenues over the next 10-15 years as driverless cars gain market share.  This led to detailed consideration of the types of insurance needed in this morphed ecosystem.  They saw opportunities to compensate in part for the losses.  These possibilities made it socially acceptable to discuss the scenarios.

I have consulted with two of the three largest providers of dining services in the US, e.g., via industry, government, and academic cafeterias.  It is a fiercely competitive business with very low profit margins.  During a strategy offsite, the CEO made a radical proposal to raise prices.  The other members of the executive team asserted that this would be the kiss of death.

He outlined the following logic.  If prices were raised by $2 per meal, almost all of the increase could go into the quality of the food.  He projected that customers would willing to pay for decidedly better meals.  They pilot tested the idea it was hugely successful and widely deployed.  What his team perceived to be a terrible idea was in fact a great idea that resulted in increased revenues and profits.

A competitor, perhaps 2-3 times larger than us, approached me about possibly acquiring us.  I had recently been through another acquisition “dance,” which we declined, and would have dismissed this opportunity, but considered their CEO a long-term friend.  Our company was very carefully managed.  My meetings with him and his team suggested that they were not as careful.

This company had developed a computer-based training system, with associated hardware, for training crews of Army tanks.  They were in the process of bidding on an Army contract to build a large number of these training simulators.  The CEO was quite confident that they would win.  His executive team tried to caution his optimism and not “bet the farm” on winning.

He was not deterred.  He was so confident that he made a major investment in constructing the factory to produce the training simulators, before the winner of the competition was decided.  They lost to a company that provided a much lower bid.  They were left with an empty factory and significantly depleted assets.  As far as I know, they never completely recovered from mismanaging these risks.

My experiences across the companies I have founded, and the many who have been clients, is that unpopular positions should be acknowledged and attention invested in due diligence concerning them.  I have found that opportunities are very seldom sure things, and you and your team are never as good as you pretend.  You can compensate for these shortcomings, in part, by making risk management a core competency.  There are rarely, if ever, good opportunities to bet the farm.  A portfolio of investments, some larger and many smaller, will lead to at least a few wins and no large losses.  Finally, as illustrated by the dining services vignette, an unpopular position may actually be a great opportunity.

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