Catastrophic failures rarely happen instantly. Not in business failures, or anywhere else.
I work a side hustle as a SCUBA instructor. I recently completed professional education to renew my insurance. The course covered liability and why instructors get sued.
The training revealed something important. Dive accidents don’t “just happen.” They evolve from a series of minor, often ignored contributing factors and events. These factors compound into what we call a “catastrophic event.” The contributing factors typically arise several steps before the incident. Sometimes days, months, or even years ahead but nobody paid attention!
After a catastrophic event, when it’s easy to armchair quaterback, one question always surfaces: “Why didn’t someone do something about it sooner?”
The Normalcy Bias
The simple answer? We’re human. We have an innate bias to ignore signs pointing to something that has never happened before. The normalcy bias creates a form of cognitive dissonance. It makes us refuse to plan for or react to a disaster we’ve never experienced.
You can overcome the normalcy bias by studying data. This gives you awareness to recognize patterns that lead to bigger problems. Without it, you look at warning signs as isolated, unconnected events.
As a SCUBA instructor, I access a database of reported diving accidents. It includes investigations and conclusions. I study these to recognize signs of smaller events. If I ignore them, they may lead to catastrophic failure. It’s a shame we don’t do debriefs like this on business failures!
As a consultant, I see the same normalcy bias problem in companies that experience business failure. My company gets called in to help correct some catastrophic event. Loss of profitability. A toxic team. Loss of productivity.
Here’s the reality. When we look at the data and investigate, we see a trail of red flags that led to the crisis. People saw those flags as unrelated isolated events, if they saw them at all. No one recognized them for what they were: a path leading to disaster.
Data Can Make the Difference
You can use one simple tool to avoid business failure: a budget. Develop a solid budget and sales plan each month. Run your budget-to-actual report to see how things went. Compare this to how you expected them to go. This report reveals seemingly insignificant events that might go unnoticed. These events can lead to much bigger problems if you ignore them.
This tool gives you insights to make small corrections and keep your business on course. Someone once told me, “Use a little rudder far from the rocks rather than a lot of rudder close to the rocks!”
What tools and metrics do you use to give yourself early warning of approaching rocks?
If you need help establishing this early warning system, reach out to us.