A recent study published in Risk Analysis, an official publication of the Society for Risk Analysis, analyzes the impact of “near misses” on an individual’s protective responses to hurricanes. Authored by Robin L. Dillon, Catherine H. Tinsley (a former professor of mine) and Matthew Cronin, the study shows how past circumstances where disaster was avoided due to “good fortune” distort an individual’s perception of risk. Individuals who experienced a near miss with something as deadly as a hurricane are less likely to purchase flood insurance or evacuate during a subsequent hurricane. Their good fortune in the past case gives them a false sense of security or even a sense of invincibility in the face of new threats.
At first, this seems counterintuitive. One would think that having experienced something as terrifying as a near miss on a hurricane would lead people to be more cautious than those that have not had a similar experience. But it isn’t the case—our egos get the best of us.
These results could also be applied quite successfully to the business world. Yes, being lucky in business can hurt you.
Near misses in business are learning opportunities
In business, near misses occur on a regular basis. Most people who have been in business long enough can recall at least several near miss events. Perhaps it was a law suit that didn’t proceed due to lack of evidence, or a sale that comes in on the last day of the month and saves you from insolvency, or even an employee who happens to notice that a pressure valve is malfunctioning on their way to lunch and averts an industrial disaster. Many times as business owners we aren’t even aware that we were seconds away from losing everything. The challenge is to learn from these near misses and improve our business performance as a result.
But unfortunately, many entrepreneurs behave like the hurricane survivor who thinks he is too cool to evacuate. The inability to learn from the near miss puts one in a position that is even worse than before the near miss because now you have a false sense of security.
What steps can you take to learn from these near misses?
1. Stay humble. Humility serves as a noise-canceling device. It quiets the self-praise that comes from your ego and allows you to analyze situations objective and take advice from others.
2. Assume you got lucky. When you survive a near miss in business, it could very well be because you are talented or it could be because of luck. Just assume it was luck. If so, ask yourself what you should have done differently to avoid the near miss in the first place.
3. Have a written action plan. After experiencing a near miss, prepare a written step by step plan for addressing a similar situation in the future. Make sure that at least 2 employees have access to this plan and are part of its implementation. It’s entirely possible that the “invincibility mindset” discussed in the Risk Analysis article will kick in and you’ll forget to take your own advice. If there is a written plan in place with multiple people aware of its existence there is a greater likelihood that it will be implemented.
Techpreneurs take heed.
The technology sector is ripe with individuals that need to learn this lesson. Many entrepreneurs who achieved frothy valuations and secured investment for their companies “just in time” may be lulled into a false sense of security. Especially now when many experts think we are in another tech bubble, founders with weak business models and an unclear path to profitability may think that their ability to raise funding is a validation of their entrepreneurial abilities.
While raising funding is commendable, you may have just gotten lucky. When the market changes—as it always does—those that learn from their near misses will triumph in the end. The other will be standing in the proverbial flooded basement with no insurance wondering what went wrong.