Relatively right vs. wholly wrong

Once, over two consecutive days, I had the opportunity to work with the manage­ment team of a global multibillion-dollar company, and then a six-person start-up that had yet to see its first dollar of revenue. These two conversations so close together reminded me of a valuable lesson: Often the most important things are the simplest to understand, the hardest to do, and, as a result, the easiest to lose sight of.

The big multinational was wrestling with its carbon footprint. It had myriad initiatives under way around the world, each of which made perfect sense on its own. Headquarters set long-term objectives (such as greenhouse-gas reductions) and reinforced or specified the unavoidable constraints (such as legislative and regulatory compliance). Regional management helped translate those into more specific requirements for each country or location. And local management made the necessary operating decisions in light of the facts on the ground.

Collectively, however, these initiatives weren’t having the desired impact. Reasonably enough, there was a quest for the best trade-offs while reducing energy use and carbon emissions. When we attempt to make “all the right trade-offs” instead of keeping the achievement of our goal front and center, the resulting complexity can cause us to lose sight entirely of what we are attempting to achieve.

For example, it matters a lot whether diesel is burned as fuel in a truck or in an electricity generator. Diesel for vehicles has no viable substitutes yet, but electricity has alternatives with a smaller carbon footprint, such as solar. Since most of the company’s diesel was burned as fuel, the incremental cost and carbon associated with diesel-generated electricity was easy to overlook. The capital expenditure of diesel generators was significant, though, so there was strong pressure to buy less expensive and, hence, less efficient devices. This meant that not only was the company burning far more diesel for electricity than it had to—there was also a systematic lack of learning around reducing the organization’s carbon footprint through using less carbon-intensive electricity.

All the information required was available—which is why it was possible to diagnose the problem. What was needed was not more data at the top but a big-picture perspective throughout the organization. Absent a set of shared priorities that keep in the foreground the most important objectives and constraints, the inevitable blizzard of complicating factors that seem relevant will obscure the ultimate goal.

With this in mind, consider now the small start-up. The business model for this Web-based venture was premised on connecting small manufacturers directly with customers. Historically, small manufacturers had been forced to deal with distributors, who were most interested in keeping happy their biggest customers—predict­ably, the biggest manufacturers. Consequently, small manufacturers faced a catch-22: They couldn’t get large-scale distribution because they had few customers, and because they had few customers they couldn’t get large-scale distribution. Our start-up would solve this problem.

When it came to signing up manufac­turers, however, the start-up found its own catch-22: Small manufacturers were hesitant to sign on because the start-up was new and had few customers; yet customers would likely be scarce until there were plenty of manufacturers on board.

The way out, the start-up felt, was to sign on distributors, since the distributors would see the new service as low-risk and increase incremental sales—which, in turn, would allow the start-up to get off the ground and attract new manufacturers. In addition, working with distributors would make it much easier for the start-up to develop its IT infrastructure, since distributors would have well-developed systems that the start-up could plug into. Finally, the broader product selection would draw in customers quickly.

But as we explored the implications of this tactical workaround, it became less attractive: Would this early dependence on distributors compromise the company’s key differentiator and perhaps risk alienating early customers? Yes, the company felt, but it was a compromise worth making in the interests of more revenue, sooner. Would profitability be undermined? Yes, but only for as long as it would take to sign on enough manufacturers that the distributors could be jettisoned. And how long would that take? No one was sure.

In short, signing on distributors, which seemed to solve so many individual problems, just might make it impossible for the venture to realize its initial vision. Reflecting on this discussion over the following several days, a new consensus emerged: The start-up should maintain its strategic integrity and get started without signing on distributors, after all.

Just as with the big multinational, deciding what to do was not a question of access to information or an integrated view of all the moving parts. Everyone knew a great deal about everything going on. Yet the trade-offs remain painful; it’s tough to keep priorities straight; and it is always difficult to know what the right answer is.

Analysis can lead to paralysis for just that reason: There is always another level of detail. As a result, the pursuit of an optimal solution can often lead you further astray than imprecise guesses informed by a steadfast conviction of your objective. In short, it is better to be approximately right than precisely wrong.