For folks who are looking for an animation specialist for any of your company or other needs, here is something interesting. The below video is done by one of my friend’s sibling. If you are not on the lookout for an animation specialist, this would atleast serve as a good entertaining animated video!
For my RSS feed subscribers, here is a link to the video. Stay Tuned!
PS: Incidentally, Oct 28th is celebrated worldwide as the International Animation Day. More information here and here.
A technology startup based out of Chennai is looking for college freshers and interns with a Java/J2EE + SCALA + MySQL skillset. The startup is into semantic web based products and hence would welcome folks who are already exposed to the semantic-web in any way."Apologies for posting that job. I realized it just after I hit the send button..it was too late. I was just concerned about the way people addressed me. Any more thoughts, please mail me personally.Here are some lessons learnt through this incident -
Cheers!
Karthik Vijayakumar
"Don't let the bozos grind you down. The bozos will tell a company that what it's doing can't be done, shouldn't be done, and isn't necessary. Some bozos are clearly losers--they're the ones who are easy to ignore. The dangerous ones are rich, famous, and powerful--because they are so successful, innovators may think they are right. They're not right; they're just successful on the previous curve so they cannot comprehend, much less embrace, the next curve.
- Guy Kawasaki on the Art of Innovation
conference thats aimed at showcasing the state-of-the-art products and technologies developed in India. It also features a list of eminent speakers like Ram Shriram - Managing Partner at Sherpalo Ventures and Board Member at Google Inc., Venki Nishtala - CTO of Rediff, and more.
Here are some questions we'd like you to think over -
Yeah! There is indeed a unique artist in you. Why don't you share your creativity with others? Here, we offer you the stage to Sketchibit your artistic talent!
The art need not be just something that you did on the paper. It can be the one you painted on your face, on the wall, on the car, your little dog kennel, on your neighbor's car, just anywhere!
| No: | Procedure | Time to complete: | Cost to complete: |
|---|---|---|---|
| 1 | Obtain Director Identification Number (DIN) | 1 day | no charge |
| 2 | Obtain Digital Signature Certificate | 4 days | INR 400 to INR 2,650 |
| 3 | Present name of company for approval to the Registrar of Companies (ROC); Get the Memorandum and Articles of Association vetted by the ROC and printed | 2-3 days | INR 50 |
| 4 | Make an application to the Superintendent of Stamps or an authorized bank requesting for stamping of the Memorandum of Association and Articles of Association. | 1 day | INR 200 (for MOA) + INR 1000 (for AOA) for every INR 500,000 or part thereof + INR 100 (stamp paper for declaration Form 1) |
| 5 | Present the required documents along with the registration fee to the Registrar of Companies to get the certificate of incorporation | 5-10 days | see comments |
| 6 | Obtain a company seal | 3 days | INR 350 |
| 7 | Visit an authorized franchise or agent appointed by National Securities Depository Services Limited to obtain a Permanent Account Number | 7 days | INR 66 (INR 66 fee & INR 5 for application form if not downloaded) |
| 8* | Obtain a Tax Account Number for income taxes deducted at source from the Assessing Office in the Mumbai Income Tax Department | 7 days, simultaneously with Procedure 7 | INR 55 |
| 9* | Register with Mumbai Shops and Establishment Act, 1948 | 2 days, simultaneous with procedure 8 | INR 1,500 + 3 times registration fee for Trade Refuse Charges |
| 10* | Register for value added tax (VAT) before the Sales Tax Officer of the ward in which the company is located | 12 days, simultaneous with previous procedure | INR 5,000 (Registration Fee) + INR 100 (Stamp Duty) |
| 11* | Register for Profession Tax | 2 days, simultaneous with procedure 10 | no charge |
| 12* | Register with Employees' Provident Fund Organization | 2 days, simultaneous with procedure 10 | no charge |
| 13* | Register with ESIC (medical insurance) | 1 day, simultaneous with procedure 10 | no charge |
* Takes place simultaneously with another procedure. | |||
This is an interesting article -
John Osher has developed hundreds of consumer products, including an electric toothbrush that became America’s best-selling toothbrush in just 15 months. He also started several successful companies, including Cap Toys. He built sales to $125 million per year and then sold the company to Hasbro Inc. in 1997. But his most lasting contribution to the business world just may be a list of screw-ups he jotted on the back of a piece of paper.
“After I sold my business to Hasbro, I decided I’d make a list of everything I’d done wrong and [had] seen other entrepreneurs do wrong,” explains the 57-year-old Jupiter, Florida, serial entrepreneur. “I wanted to make a company that didn’t make any of these mistakes. I wanted to see if I could come up with the perfect company.”
He came up with an informal list of “16 Mistakes Start-Ups Make”-since expanded to 17-that has been used in a Harvard Business School case study, has been cited in many publications, and has become a part of what he teaches budding entrepreneurs in his frequent university lectures. He also used the list in 1999 when he started Dr. John’s SpinBrush to sell a $5 electric toothbrush that quickly became America’s best-selling toothbrush. In 2001, Procter & Gamble purchased the company from him for $475 million.
“I didn’t expect it to actually work like that, but it did,” Osher says. “It’ll probably never happen again. But we made a perfect business, from the beginning to selling it to another company.” Since then, however, Osher has created another product, an electric dish scrubber that he also sold to Procter & Gamble. And he has yet another health-and-beauty product-development effort underway-although he’s keeping the details close to the vest-in which he’ll try again to create the perfect business.
To home in on what lies behind the 17 mistakes, Osher told Entrepreneur what they are and how you can learn from them to achieve your own level of perfection.
Mistake 1: Failing to spend enough time researching the business idea to see if it’s viable. “This is really the most important mistake of all. They say 9 [out] of 10 entrepreneurs fail because they’re undercapitalized or have the wrong people. I say 9 [out] of 10 people fail because their original concept is not viable. They want to be in business so much that they often don’t do the work they need to do ahead of time, so everything they do is doomed. They can be very talented, do everything else right, and fail because they have ideas that are flawed.”
Mistake 2: Miscalculating market size, timing, ease of entry and potential market share. “Most new entrepreneurs get very excited over an idea and don’t look for the truth about how many people will want to buy it. They put together financial projections as part of a presentation to pump up their investors. They say, ‘The market size is 50 million people that could use this product, and if I could only sell to 2 percent of them, I’d be selling a million pieces.’ But 2 percent of a market is a lot. Most products sell way less than 1 percent.”
Mistake 3: Underestimating financial requirements and timing. “They set their financial requirements based on Mistake 1, and they go ahead and make a commitment to this much office space and this many computers, and hire a vice president of sales, and so on. Before they know it, based on sales projections that were wrong to start with, they have created costs that require those projections to be met. So they run out of money.”
Mistake 4: Overprojecting sales volume and timing. “They have already miscalculated the size of the market. Now they overproject their portion of it. They often say ‘There are 200 million homes, and I need to sell [to] x number of them.’ When you break it down, though, a much smaller number of those are really sales prospects. That makes it impossible to make their sales projections.”
Mistake 5: Making cost projections that are too low. “Their cost projections are always too low. Part of the reason is that they project much higher sales. There are also unknown reasons that always come out that usually make costs higher than planned. So on top of everything, their margins are now lower.”
Mistake 6: Hiring too many people and spending too much on offices and facilities. “Now you have lower sales, higher costs and too much overhead. These are the things that you see every day in companies that fail. And they all grow out of that first mistake: failing to research the size and viability of the opportunity.”
Mistake 7: Lacking a contingency plan for a shortfall in expectations. “Even if you’re realistic in your estimates to start, there are things that happen when you start a new business. Your sales ideas may be no good; bank rates may go up; there may be a shipping strike. These aren’t the result of poor planning, but they happen. More often than not, entrepreneurs just feel that something will come along when they need it. They don’t have contingency plans for it not working out at the size and time they want.”
Mistake 8: Bringing in unnecessary partners. “There are certain partners you need. For instance, you often need money, so you’re going to need money partners. But too many times, the guy with the idea takes on all his friends as partners. Many people don’t provide strategic advantages and don’t warrant ownership. But they’re all going to get 25 percent of the company. It’s totally unnecessary, and it’s a mistake. Before people are made partners, they have to earn it.”
Mistake 9: Hiring for convenience rather than skill requirements. “In my first business or two, I hired relatives. It was easy to do, but in many cases, they were the wrong people [for the job]. And it’s hard to fire people, especially if they’re relatives or friends. More time needs to be spent handpicking people based on skill requirements. You really need super-skilled people who can wear more than one hat. It just bogs you down when you hire people who can’t do the job.”
Mistake 10: Neglecting to manage the entire company as a whole. “You see this happen all the time. They’ll spend half their time doing something that represents 5 percent of their business. You have to have a view of your whole company. But too often, the person running it loses that view. They get involved in a part, and they don’t manage the whole. Whether I do this product or that product, whether I hire somebody, [I consider] how they [will] fit long term and short term in the big picture. Constantly try to see your big picture.”
Mistake 11: Accepting that it’s “not possible” too easily rather than finding a way. “I had an engineer who was a very good engineer, but with every toy we developed, he would say, ‘You can’t do it that way.’ I had to be careful not to accept this too easily. I had to look further. If you’re an entrepreneur, you’re going to break new ground. A lot of people are going to say it’s not possible. You can’t accept that too easily. A good entrepreneur is going to find a way.”
Mistake 12: Focusing too much on sales volume and company size rather than profit. “Too much of your management is often based on volume and size. So many entrepreneurs want to say ‘I have a company that’s this big, with this many people, this many square feet of space, and this much sales.’ It’s too much [emphasis] on how fast and big you can build a business rather than how much profit it can make. Bankers and investors don’t like this. Entrepreneurs are so into creating and building, but they also have to learn to become good [businesspeople].”
Mistake 13: Seeking confirmation of your actions rather than seeking the truth. “This often happens: You want to do something, so you talk about it with people who work for you. You talk to [your] family and friends. But you’re only looking for confirmation; you’re not looking for the truth. You’re looking for somebody to tell you you’re right. But the truth always comes out. So we [test] our products, and we listen to what [the testers] say. We give much more value to the truth than to people saying what we’re doing is great.”
Mistake 14: Lacking simplicity in your vision. “Many entrepreneurs go in too many directions at once and do not execute anything well. Rather than focusing on doing everything right to sell to their biggest markets, they divide the attention of their people and their time, trying to do too many things at [one time]. Then their main product isn’t done properly because they’re doing so many different things. They have an idea and say they’re going to sell it to Wal-Mart. Then they say they’re going to sell to [the] Home Shopping Network. And then the gift market looks good. And so on.”
Mistake 15: Lacking clarity of your long-term aim and business purpose. “You should have an idea of what your long-term aim is. It doesn’t mean that won’t change, but when you aim an arrow, you have to be aiming at a target. This [concept will] often come up when people ask ‘How do I pick a product?’ The answer depends on what you’re trying to do. If you’re trying to [create] a billion-dollar company with this product, it may not have a chance. But if you’re trying to make a $5 million company, it can work. Or if you’re trying to create a company [in which] family members can be employed, it can work. Clarity of your business purpose is very important [but] is often not really part of the thought process.”
Mistake 16: Lacking focus and identity. “This was written from the viewpoint of building the company as a valuable entity. The company itself is also a product. Too many companies try to go after too many targets at once and end up with a potpourri rather than a focused business entity with an identity. When you try to make a business, it’s very important to maintain a focus and an identity. Don’t let it become a potpourri, or it loses its power. For instance, you say, ‘We’re already selling to Kmart, so we might as well make a toy because Kmart buys toys.’ If you do that, the company becomes weaker. A company needs to be focused on what it is. Then its power builds from that.”
Mistake 17: Lacking an exit strategy. “Have an exit plan, and create your business to satisfy that plan. For instance, I am thinking I might run my new business for two years and then get out of it. I think it’s an opportunity to make a tremendous amount of money for two years, but I’m not sure [whether] it’s proprietary enough to stop the competition from getting in. So I’m in with an exit strategy of doing it for two years and then winding down. I won’t commit to long-term leases, and after the first year, we’ll start watching the marketplace very closely and start watching inventories.
Simultaneously, I will keep the option open to sell it in case I can’t get something more proprietary. That means I won’t sign international agreements that would kill any opportunity to sell it to a multinational. I will make sure that the patent work is done properly. And I’ll try to make sure manufacturing is up to the standards of any multinational company that I might try to sell it to.
Another exit strategy can be to hand the company to [your] kids someday. The most important thing to do is to build a company with value and profits so you have all the options: Keep the company, sell the company, go public, raise private money [and so on]. A business can be a product, too.”
Marty Cagan is Managing Partner at Silicon Valley Product Group (SVPG), and has earlier worked with great companies like HP, Netscape, AOL and eBay. Marty started SVPG to help companies build great products (and also to institutionalize the Product Management function).
He has been involved with several Silicon Valley companies like TiVo, Shopping.com, PROTRADE etc.
Here is a quick interview I conducted with Marty, in order to understand what’s the importance of PM function in startups, or to put it the other way - what should startups do to build the right product in the right manner?
Do startups need Product Management function?
Yes, they need a strong product manager, unless one of the founders has the skills necessary. I’ve been working with quite a few startups over the past few years, usually in an advisory capacity, but sometimes more directly involved.
Startups are essentially all about new product creation, so they’re a terrific place for product managers to do their thing, and it’s why I love working with startups so much. Yet I believe that the prevalent model for how startups go about coming up with their first product is terribly inefficient, and why so many otherwise good ideas never get funded or make it to market.
Here’s how it typically works - someone with an idea gets some seed funding, and the first thing he does is hire some engineers to start building something. The founder will have some definite ideas on what he wants, and he’ll typically act as product manager and often product designer, and the engineering team will then go from there.
The company is typically operating in “stealth mode” so there’s little customer interaction. It takes much longer for the engineering team to build something that originally thought because the requirements and the design are being figured out on the fly.
After 6 months or so, the engineers have things in sort of an alpha or beta state, and that’s when they first show the product around. Things rarely go well in this first viewing, and the team starts scrambling. The run-rate is high because there’s now an engineering team building this thing as fast as they can, so the money is running out, and the product isn’t there. Maybe the company gets more funding and a chance to get the product right, but often they don’t.
Many startups try to get more time by outsourcing the engineering to a low-cost off-shore firm, but it’s essentially the same process with the same problems.
Here’s a very different approach to new product creation, one that costs dramatically less and is much more likely to yield the results you want. The founder hires a product manager, a product designer, and a prototyper. Sometimes the designer can also serve as prototyper, and sometimes the founder can serve as the product manager, but one way or another, you have these three functions lined up - product management, product design, and prototyping - and the team starts a process of very rapid product design and iteration.
I describe this process in detail elsewhere but there are two keys:
Now when you bring on an engineering team, they’ll start off with a tremendous advantage - a clear understanding of the product they need to build and a stable spec - and you will find that the team can produce a quality implementation much faster than they would otherwise.
I continue to be amazed at how many startups just jump right into implementation, but I think we’re such an engineering-driven culture that we just naturally start there.
But any startup has to realize that everything starts with the right product - so the first order of business is to figure out what that is before burning through $500K or more in seed funding.
I believe this model applies beyond startups to much larger companies as well. The difference is that bigger companies are generally able to underwrite the several iterations it takes to get to a useful product, but startups often can’t. But there’s no good reason for the inefficiencies that larger companies regularly endure either
You have been deeply involved with Silicon Valley based startups- what do you think differentiates a successful startup from the others?
The successful startup is addressing a real need with a solution that works well or at least significantly better than how that need is met today.
What are the key skills startups should look in while hiring a great product manager?
Take a look at the writeup “Behind Every Great Product” (www.svpg.com/papers/productmanager.pdf) for a detailed description.
When General Motors launched Saturn, in 1985, the small-car division was GM's response to surging demand for Japanese brands. At first, consumers were very receptive to what was billed as "a new kind of car company," but sales peaked in 1994 and then drifted steadily downward. GM reorganized the division, taking away some of its autonomy in order to leverage the parent company's economies of scale, and in 2004 GM agreed to invest a further $3 billion to rejuvenate the brand. But 21 years and billions of dollars after its founding, it has yet to earn a profit.1 Similarly, Polaroid, the pioneer of instant photography and the employer of more than 10,000 people in the 1980s, failed to find a niche in the digital market. A series of layoffs and restructurings culminated in bankruptcy, in October 2001.
These stories illustrate a common business problem: staying too long with a losing venture. Faced with the prospect of exiting a project, a business, or an industry, executives tend to hang on despite clear signs that it's time to bail out. Indeed, when companies do finally exit, the spur is often the arrival of a new senior executive or a crisis, such as a seriously downgraded credit rating.
Research bears out the tendency of companies to linger. One study showed that as a business ages, the average total return to shareholders tends to decline.2 For most of the divestitures in the sample, the seller would have received a higher price had it sold earlier. According to our analysis of a broad cross-section of US companies from 1993 to 2004, the probability that a failing business will grow appreciably or become profitable within three years was less than 35 percent. Finally, researchers who studied the entry and exit patterns of businesses across industries found that companies are more likely to exit at the troughs of business cycles—usually the worst time to sell.3
Why is it so difficult to divest a business at the right time or to exit a failing project and redirect corporate resources? Many factors play a role, from the fact that managers who shepherd an exit often must eliminate their own jobs to the costs that companies incur for layoffs, worker buyouts, and accelerated depreciation. Yet a primary reason is the psychological biases that affect human decision making and lead executives astray when they confront an unsuccessful enterprise or initiative. Such biases routinely cause companies to ignore danger signs, to refrain from adjusting goals in the face of new information, and to throw good money after bad.
In contrast to other important corporate decisions, such as whether to make acquisitions or enter new markets, bad timing in exit decisions tends to go in one direction, since companies rarely exit or divest too early. An awareness of this fact should make it easier to avoid errors—and does, if companies identify the biases at play, determine where in the decision-making process they crop up, and then adopt mechanisms to minimize their impact. Techniques such as contingent road maps and tools borrowed from private equity firms can help companies to decide objectively whether they should halt a failing project or business and to navigate the complexities of the exit.
The psychological biases at playThe decision-making process for exiting a project, business, or industry has three steps. First, a well-run company routinely assesses whether its products, internal projects, and business units are meeting expectations. If they aren't, the second step is the difficult decision about whether to shut them down or divest if they can't be improved. Finally, executives tackle the nitty-gritty details of exiting.
Each step of this process is vulnerable to cognitive biases that can undermine objective decision making. Four biases have significant impact: the confirmation bias, the sunk-cost fallacy, escalation of commitment, and anchoring and adjustment. We explore the psychology behind each one, as well as its influence on decisions (Exhibit 1).
Let's start with a brief test of a person's ability to analyze hypotheses. Imagine that someone deals four cards from a deck, each with a number printed on one side and a letter on the other.4 Which pair would you choose given an opportunity to flip over just two cards to test the assertion, "If a card has a vowel on one side, then there must be an odd number on the other side"?
Most people correctly choose the U but then incorrectly select 7. This pattern illustrates the confirmation bias: people tend to seek information that supports their point of view and to discount information that doesn't. An odd number opposite U confirms the statement, while an even number refutes it. But the 7 doesn't provide any new information—a vowel on the other side confirms the assertion, but a consonant doesn't reveal anything, since consonants can have even or odd numbers on their flip sides. The correct choice is the 8 because it could reveal something: if there is a vowel on the other side, the statement is false.
Now imagine a group of executives evaluating a project to see if it meets performance hurdles and if its revenues and costs match the initial estimates. Just as most people choose cards that support a statement rather than those that could contradict it, business evaluators rarely seek data to disprove the contention that a troubled project or business will eventually come around. Instead, they seek market research trumpeting a successful launch, quality control estimates predicting that a product will be reliable, or forecasts of production costs and start-up times that would confirm the success of the turnaround effort. Indeed, reports of weak demand, tepid customer satisfaction, or cost overruns often give rise to additional reports that contradict the negative ones.
Consider the fate of a US beer maker, Joseph Schlitz Brewing. In the early 1970s, executives at the company decided to use a cheaper brewing process, citing market research suggesting that consumers couldn't tell beers apart. Although they received constant evidence, in the form of lower sales, that customers found the taste of the beer brewed with the new process noticeably worse, the executives stuck with their low-cost strategy too long. Schlitz, once the third-largest brewer in the United States, went into decline and was acquired by rival Stroh in 1982. Like-wise, when Unilever launched a new Persil laundry detergent in the United Kingdom, in 1994, the company tested the formula on new clothes successfully but didn't seek disconfirming evidence, such as whether it would damage older clothing or react negatively to common clothing dyes. Consumers discovered that it did, and Unilever eventually had to return to the old formula.
Deciding which projects to exit
At this stage, the sunk-cost fallacy is the key bias affecting the decision-making process. In deciding whether to exit, executives often focus on the unrecoverable money already spent or on the project-specific know-how and capabilities already developed. A related bias is the escalation of commitment: yet more resources are invested, even when all indicators point to failure. This misstep, typical of failing endeavors, often goes hand in hand with the sunk-cost fallacy, since large investments can induce the people who make them to spend more in an effort to justify the original costs, no matter how bleak the outlook. When anyone in a meeting justifies future costs by pointing to past ones, red flags should go up; what's required instead is a levelheaded assessment of the future prospects of a project or business.
The Vancouver Expo 86 is a classic example.5 The initial budget, CAN $78 million in 1978, ballooned to CAN $1.5 billion by 1985, with a deficit of more than CAN $300 million. During those seven years, the expo received several cash infusions because of the provincial government's commitment to the project. Outrageous attendance estimates were used to justify the added expense (the confirmation bias at play). Predictions of 12.5 million visitors, which would have stressed Vancouver's infrastructure, grew at one point to 28 million—roughly Canada's population at the time. Moreover, Canadians had seen budget deficits for big events before: the 1967 Montreal Exposition lost CAN $285 million—six times early estimates—and the 1976 Montreal Olympics lost more than CAN $1 billion, though no deficit had been expected.
Contrast that with the story of the Cincinnati subway. Construction began in 1920. When the $6 million budget ran out, in 1927, the leaders of the city decided that it no longer needed the subway, a point suggested by studies from independent experts. Further construction was stopped, though crews had finished building the tunnels.6 The idea for the subway had been conceived in 1884, and the project was supported by Republicans and Democrats alike, so this decision was not a whim; World War I and shifting demographic needs had altered the equation. Fortunately for Cincinnatians, during the past 80 years, referendums to raise funds for completion have all failed.
Proceeding with the cancellationThe final bias is anchoring and adjustment: decision makers don't sufficiently adjust future estimates away from an initial value. Early estimates can influence decisions in many business situations,7 and this bias is particularly relevant in divestment decisions. There are three possible anchors. One is tied to the sunk cost, which the owner may hope to recover. Another is a previous valuation, perhaps made in better times. The third—the price paid previously for other businesses in the same industry—often comes up during merger waves, as it did recently in the consolidation of dot-com companies. If the first company sold for, say, $1 billion, other owners may think that their companies are worth that much too, even though buyers often target the best, most valuable company first.
The sale of PointCast, which in the 1990s was one of the earliest providers of personalized news and information over the Internet, shows this bias at work. The company had 1.5 million users and $5 million in annual advertising revenue when Rupert Murdoch's News Corporation (NewsCorp) offered $450 million to acquire it. The deal was never finalized, however, and shortly thereafter problems arose. Customers complained of slow service and began defecting to Yahoo! and other rivals. In the next two years, a number of companies considered buying PointCast, but the offer prices kept dropping. In the end, it was sold to Infogate for $7 million. PointCast's executives may well have anchored their expectations on the first figure, making them reluctant to accept subsequent lower offers.8
Axing a project that flops is relatively straight-forward, but exiting a business or an industry is more complex: companies can more easily reallocate resources—especially human resources—from terminated projects than from failed businesses. Higher investments, which loom larger in decision making, are typically tied up in an ongoing business rather than in an internal project. The anguish executives often feel when they must fire colleagues also partially explains why many closures don't occur until after a change in the executive suite. Divestiture, however, is easier because of the possibility of selling the business to another owner. Selling a project to another company is much more difficult, if it is possible at all.
When a company decides to exit an entire business, the characteristics of the company and the industry can influence the decision-making process. If a flagging division is the only problematic unit in an otherwise healthy company, for instance, all else being equal, managers can sell or close it more easily than they could if it were the core business, where exit would likely mean the company's death. (Managers might still sell in this case, but we recognize that it will be hard to do so.) It sometimes (though rarely) does make sense to hang on in a declining industry—for instance, if rivals are likely to exit soon, leaving the remaining company with a monopoly.
Becoming unbiased"Overoptimism about the likelihood of success and other universal human biases often influence important strategic decisions. See "Distortions and deceptions in strategic decisions."
Well-run private equity firms adopt these practices too. One leading US firm assigns independent partners to conduct periodic reviews of businesses in its portfolio. If Mr. Jones buys and initially oversees a company, for example, Ms. Smith is later charged with the task of reviewing the purchase and its ensuing performance. She takes her role seriously because she is also accountable for the unit's final performance. Although the process can't eliminate the possibility that the partners' collective judgment will be biased, the reviews not only make biases less likely but also make it more likely that underperforming companies will be sold before they drain the firm's equity.
Another tool that can help executives overcome biases and make more objective decisions is a contingent road map that lays out signposts to guide decision makers through their options at predetermined checkpoints over the life of a project or business. Signposts mark the points when key uncertainties must be resolved, as well as the ensuing decisions and possible outcomes. For a contingent road map to be effective, specific choices must be assigned to each signpost before the project begins (or at least well before the project approaches the signpost). This system in effect supplies a precommitment that helps mitigate biases when the time to make the decision arrives.
One petrochemical company, for instance, created a road map for an unprofitable business unit that proposed a new catalyst technology in an attempt to turn itself around (Exhibit 2). The road map established specific targets—a tight range of outcomes—that the new technology had to achieve at a series of checkpoints over several years. It also set up exit rules if the business missed these targets.
Road maps can also help to isolate the specific biases that may affect the corporate decision-making process. If a signpost suggests, for example, that a project or business should be shut down but executives decide that the company has invested too much time and money to stop, the sunk-cost fallacy and escalation-of-commitment bias are quite likely at work. Of course, the initial road map might have to be adjusted as new information arrives, but the changes, if any, should always be made solely to future signposts, not to the current one.
Contingent road maps prevent executives from changing the decision criteria in midstream unless there is a valid, objective reason. They help decision makers to focus on future expectations (rather than past performance) and to recognize uncertainty in an explicit way through the use of multiple potential paths. They limit the impact of the emotional sunk costs of executives in projects and businesses. And they help decision makers by removing the blame for unfavorable outcomes that have been specified in advance: the explicit recognition of problems gives an organization a chance to adapt, while a failure to recognize problems beforehand requires a change in strategy that is often psychologically and politically difficult to justify. Before the invasion of Iraq in 2003, for example, it was uncertain how US troops would be received there. If the Bush administration had publicly announced a contingency plan providing for the possibility of increased troop levels should an insurgency erupt, the president would most likely have had the political cover to adopt that strategy.
When companies are finally ready to sell a business, the decision makers can overcome any lingering anchoring and adjustment biases by using independent evaluators who have never seen the initial projections of its value. Uninfluenced by these earlier estimates, the reviews of such people will take into account nothing but the project's actual experience, such as the evolution of market share, competition, and costs. One leading private equity firm overcomes anchoring and other biases in decision making by routinely hiring independent evaluators, who bring a new set of eyes to older businesses in its portfolio.
There are ways to ease the emotional pain of shutting down or selling projects or businesses. If a company has several flagging ones, for example, they can be bundled together and exited all at once or at least in quick succession—the business equivalent of ripping a bandage off quickly. Such moves ensure that the psychological sense of failure that often accompanies an exit isn't revisited several times. A onetime disappointment is also easier to sell to stakeholders and capital markets, especially for a new CEO with a restructuring agenda.
In addition, companies can focus on exiting businesses with products and capabilities that are far from their core activities, as P&G did in 2002, when it divested and spun off certain products in order to focus on others with stronger growth prospects and a more central position in its corporate portfolio.
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Although canceling a project or exiting a business may often be regarded as a sign of failure, such moves are really a perfectly normal part of the creative-destruction process. Companies need to realize that in this way they can free up their resources and improve their ability to embrace new market opportunities.
By neutralizing the cognitive biases that make it harder for executives to evaluate struggling ventures objectively, companies have a considerably better shot at making investments in ventures with strong growth prospects. The unacceptable alternative is to gamble away the company's resources on endeavors that are likely to fail in the long run no matter how much is invested in them.
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