Originally published OCT. 12, 2020, San Diego Union Tribune
Why is it so hard for people to change their minds when presented with evidence of their inaccuracy? Don’t try to confuse me with the facts, or to put it in the language of the mean streets, “I ain’t backing down.”
Unfortunately, this mindset tends to hold sway with entrepreneurs. I know what I know and if you don’t get it, then that is your problem. To solve this puzzle, I turned to a gaggle of professors from Harvard Business School, Leslie John, Martha Jeong, Francesca Gino and Laura Huang.
The group studied 84 entrepreneurs during a pitch contest. The judges were venture capitalists who listened and as usual, probed and offered counterarguments during the presentation. They challenged the entrepreneurs on concepts, numbers, market etc. Before I share the outcome, let’s explore their thesis.
The HBS gang predicted that the entrepreneurs would avoid backing down in front of the venture capitalists. Their research shows that “refusing to back down makes a person seem confident, which is beneficial because being perceived as confident confers status and influence.” But, not so fast. The study also showed that refusing to back down when confronted with compelling facts or arguments, “makes a person come across as having bad intelligence-based judgment.”
The key here is that the venture capitalists viewed inflexibility as “counterproductive.” In the study, the founder/entrepreneurs who valued consistency and upholding their stances, were perceived more negatively by the investors who in turn were more impressed by entrepreneurs who did the opposite. Trying to “save face” and convince the investor that you were correct in your assumptions did not enhance their perception of your “competence.” By holding firm, it would seem that you diminished your chance of funding.
So here is the outcome. Only 20 out of 84 entrepreneurs were willing to modify their position during the pitch? Huh. Why does the entrepreneur act in his own worst self-interest? Or does he?
Here is the fishhook. Statistically, the VCs actually funded the unbending founder more frequently. They say one thing, but the data shows that they do the other.
In retrospect, standing amid the ashes of a failed company, you would think the entrepreneur might muse that perhaps, maybe, he should have considered an alternative approach. Could he have pivoted? Was there a fatal flaw in the business plan or the team? To even consider this possibility is to “prompt feelings of discomfort.” So, probably better to blame the market or the investor or their brother-in-law. And unfortunately, it is exactly this incredible, unwavering confidence that usually leaves the investors with banjo picks.
This stuff fascinates me. In my little world, I am often asked for “advice.” I tend toward the Socratic method, questions and answers designed to stimulate critical thinking, but often in the end, the entrepreneur says thank you, leaves and does not modify any part of his business plan. As above, this behavior affirms a high level of confidence and a modest level of what the HBS gang call “intelligence.”
What is it that keeps all of us blind to acting in our own best self- interests? The HBS gang prove that “when one is trying to appear confident, changing one’s mind is unwise.” And then they prove that when “trying to appear intelligent, doing so is wise.” Welcome to the infamous horns of a dilemma. But appearances be damned, take the fall, it is irrational certainty that sends you over the cliff. After all, look in the mirror, who are you trying to impress?
I got a blind call from someone who had read my book, and I agreed to meet. He is young, smart and the company is making money hand over fist, but along the way, he neglected to “get his deal” in writing. I felt badly for him. I pointed out some harsh realities, hopefully in a polite way, and laid out a series of steps needed to clean up the mess. He acknowledged the thorny issues (throw some family relationships in there as well). Then he thanked me for my time, and left feeling confident that he could work it out on his own.
Rule No. 680: “No, no, no, it ain’t me, babe.” — Bob Dylan