You’d think that CEOs and football coaches, both who get paid millions of dollars would consistently make decisions based on maximizing profits or, in the case of coaches, increasing points.
Right?
But you’d be wrong in both cases…
Economist David Romer analyzed the 4th down decisions of every NFL game between 1998 and 2000 to see what coaches did. And what he found was astounding.
Most top paid coaches, go with their gut and make the wrong decision. They play it safe and punt even if they have a 75% chance of having a running or passing play succeed. And instead of maximizing points, they minimize their chances of winning the game – at least in terms of their 4th down decisions.
Irrational? Yes!
The same is true in business. When there are tough decisions to be made, you and other business owners go with your gut, throwing the facts out the window. Which is costing you big.
Take one owner of a $10 million a year business I talked with. His biggest concern about his marketing wasn’t how much money he was losing to his competitors (which was millions a year) but the $40,000 he was spending on marketing. He was more worried about losing a less than fifty thousand dollars than making a couple of million in additional sales.
Why? Why are business owners so irrational in their decision making?
Just like football coaches, we are all wired to avoid potential loss. We’re more concerned about losing a few thousand dollars than not making a few hundred thousand or even a few million. And we consistently make the wrong decisions even if the odds are in our favor, as they are for football coaches who actually run or pass on their 4th down instead of punting and giving the ball to the other team.
Risk is a two-edged sword.
If you take action – you risk failure. But if you don’t take action – you’re in essence giving up, giving the ball to the other team and potentially handicapping your business for years to come.
What’s the solution?
Don’t just look at the downside of taking a risk, whether it’s starting a new business or running a marketing campaign. Take a look at the downside of not taking action too.
Then write down the numbers and compare the cost of taking action – worst-case scenario and the costs of not taking action.
You’ll be surprised at how much money you’re losing by doing nothing, sticking with the status quo.
To your success,
CharlieP.S. In investing, most people rely on emotion to buy and sell and most people lose money in the stock market. A few, the ones that strike it rich – use a system based on proven logic to make their investment decisions.
The same is true in marketing. It’s a science and if you use a proven system, you’re going to be successful. If you rely on your instincts, you’re more than likely going to be frustrated.
February 29th, 2012 at 12:43 pm
You hit the nail right on the head!
As a matter of fact, your story about the $10 million dollar company worrying about the “cost” of marketing, sounded like a true life experience I had. I was working in the role of Marketing Manager for a $12 million dollar company who sold high tech testing instruments.
Sold a lot to aviation and auto industry and when those industries were hit by the recession, they stopped buying. Went as long as they could in dropping employees, but when push came to shove, I along with 15 others were let go.
Reason to eliminate the Marketing Manager, because, ‘we won’t be doing any marketing anymore”. This despite the fact that when we had our last meeting with other VPs, one VP asked who was going to be responsible for all of the marketing, to which the President again noted that “we aren’t doing marketing anymore” , to which the VP of International Sales said, “than what is all that Bob has written on his notes and the 5 pages (both sides) of activities and projects” ?As you noted, you might as well tell the world you are going out of business if you stop marketing.
Unfortunately, marketing is looked upon as an asset and something to pick up when times are good, and a cost when times are not.
Thanks again,
Bob