CONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com
I clearly remember first hearing about Groupthink when I was in school. It was after the Challenger disaster in 1986. I must have been about 10 years old at the time. The disaster was memorable for me – I still recall watching the Challenger disaster live on TV, knowing that it carried (for the first time) a teacher up with the rest of the astronauts. I was just old enough to know that going into space was something that I wanted to do but too young to know how many calculus classes I would have needed to take in order to get there. Back then, it seemed like everyone watched the Challenger take-offs, they were a big deal. Then the unthinkable happened, and we were all left in shock.
In the years that followed, I saw a movie that summarized the findings of the Rogers Commission, a special commission appointed by United States President Ronald Reagan to investigate the accident. As you can see in the clip, they found that NASA‘s organizational culture and decision-making processes had been key contributing factors to the accident. As a kid, it reminded me that even though these people were geniuses capable of orbiting the planet, they were still just people – who can make mistakes.
The production quality is a bit cheesy but it does have some well-known actors (including Peter Boyle, who, as everyone knows, played Frankenstein in Young Frankenstein as well as Raymond’s dad in Everybody Loves Raymond). But I digress…
The movie was my first introduction to Groupthink, which is: “a psychological phenomenon that occurs within groups of people…. Group members try to minimize conflict and reach a consensus decision without critical evaluation of alternative ideas and viewpoints.” (Wikipedia)
The relevance of all of this came back to me this week reading a great article by Larry Cheng about Groupthink in the VC industry.
If you haven’t read it, I highly recommend it.
Cheng points out that VC firms, due to their likelihood to have one or more of the following characteristics, can be particularly prone to groupthink:
- High Group Cohesiveness
- Group Insulation
- Lack of Impartial Leadership
- Lack of Norms Requiring Methodological Procedures
- Homogeneity of Members’ Social Background and Ideology
Ok, so you may be saying “duh”, this all seems pretty obvious, right? Perhaps, but the next piece of this is where it gets interesting. It turns out that unanimity tends to be a very bad thing when picking investments. I had heard this before but Cheng does a great job of laying it out simply using examples from his prior VC firm where the VCs could opt-in or out of personally investing alongside the fund in each investment. Guess what? The best deals tended to be those where there was internal disagreement:
A great predictor of failure for an investment was when [everyone personally invested]. If everyone loved a deal and backed up the truck on their personal investment, it was more than likely to not succeed. In fact, those deals often failed in quick fashion. The inverse was surprisingly true as well. More often than not, for those investments where the [no one personally invested], they often became successes – sometimes the biggest successes. At the other firms I have worked at, various forms of this experiment have taken place and this observation holds true through different economic times, different investments, and different firms.
In short, investments that everyone liked often turned out to be the worst investments. Investments that few liked often turned out to be the best investments.
I find this really remarkable and it’s counterintuitive to the default rule in organizations, which is often to simply use a democratic process to make decisions – such as majority rule. Cheng notes some ways VC firms have tried to reduce the likelihood of groupthink, such as by allowing one person to carry the day on a deal if they feel strongly about it, but many options are available. Most importantly, we all should be mindful of the chance for groupthink and embrace differing opinions.
Groupthink can become a problem in any company, be it a venture capital firm, startup, law firm, or otherwise. No matter the type of organization, the majority may not have the time or energy to entertain the views of a perceived minority, particularly if those views are seemingly off-the-wall or incorrect, and few people want to be “that” guy/woman who is perceived as going “against the flow” and “causing trouble” by refusing to see the logic of what everyone else already knows.
So, on this Thanksgiving weekend, I say thank you to all of the people who speak up and share their opinions, even if they might not be the most popular in the room. Your voice is critical.