Must… Have… an… opinion…

I was recently engaged in some corporate training. Corporate training can come in all shapes and styles, some mind-numbingly droll and some thoroughly engaging.

This one, as it turns out was pretty good stuff and by and large my I learned a lot from it.

Except for one thing…

It reminded me of an oft repeated idea that is taken for granted in the business world. The idea that “Its always better to have an opinion”. Like politicians, business people are expected to know a little bit about everything. Where’s the economy heading? Got to have a view. What do you think about this company’s operating model? Got to have a view.

The question that caught me out was during a role play when I was asked “So what do you think my company is worth?”.

“I have no idea” was what I was thinking. But instead of saying that I just ummed and ahhed a bit and mentioned something about the state of the economy and made up something about price/earnings ratios, despite the fact that at that moment in time I had absolutely no idea about the sort of multiples that businesses would trade for in the “client’s” particular industry. I’m not the man to ask. There are plenty of people out there who could come up with a much better value than me as its not my day job.

So when we did the debrief I said that rather than umming and ahhing, I should have said simply that I did not know – its a complicated issue and that there are lots of variables that would need to be considered.

Unfortunately I was told in no uncertain terms that I was WRONG. Apparently it is always better to have an opinion, no matter how uninformed, as it leads to greater “credibility”. So rather than admit defeat I should have tried a bit harder to piece something together from the available information.

Okay then lets give it a go then:

Well the economy is BAD and possibly getting worse, so I could start by saying something along the lines of:

“in the current market, values are being suppressed by a stagnating manufacturing sector – prospects for growth do not look good”.

That sounds credible. Next I could add:

“in times of uncertainty, the number of deals are greatly reduced so you might be hard pushed to find a buyer who will pay your true value”.

Sounds insightful, I like it. I’ve given them two “facts” so I should probably think about finishing with a conclusion. I know that the company is growing faster than the market so how about:

“But in your case, you are growing faster than the market so i reckon there is a good chance you could get at least 10 times earnings.”

Oh okay that was easy wasn’t it! I gave an opinion. See I remember from the somewhere in the recesses of my brain that manufacturing businesses would get about 12-14 times earnings so on that basis, I just gave it a “haircut” (business people loooove that phrase) and lets face it, 10 is such a nice round number.

Sounds pretty credible doesn’t it, doesn’t really matter that I made it up. “But Come on”, you might say, “its just an informal business conversation, its not like you’ve just signed off a bid document or anything, right?”

Well, yes in isolation it is pretty harmless but the danger is that the abilty to confuse make-believe and real knowledge seems to be one that is virtually universal across our species. By stressing the need to have ‘valid’ opinions on everything under the sun, we run the real risk of stoking this confusion even more. It can turn business conversations into big back-patting exercises where its not the best idea but the most intuitively convincing one that is likely to get the nod. From that point onwards the idea gets propelled forward by confirmation bias and the cherry picking of evidence to support theat view. It morphs into a juggernaut of an idea that eventually destroys all before it.

Take for example the idea of the Triple-AAA rated subprime mortgage securities. Before the credit crisis, evreyone rated them triple A. Funny coincidence eh? I would love to find out who was the first person to give them that clean bill of health, the mental gymnastics must have been incredible. The thing is that once that had happened, no-one else had to bother.

“Hey look, Dave has paid AAA prices for them, therefore that must be their value”.

And as a result the banks gorged themselves in an orgy of investment until they were on (possibly) every single bank’s balance sheet (or off it, if the bank was really lucky).

Imagine a world where Dave had said “god these securities are complicated, theres no way we’ll be able to accurately value them. Perhaps its not such a good idea to trade them.”

Bad luck Dave you’ve just lost your job. Phil over here has valued them using some fancy looking formulae and has valued them to the nearest 0.5p. Face it Dave, Phil is the future, and we’re going to pay him a huge bonus as he’s just made £1 billion selling them to Northern Rock.

And thats the point. The real reason why its a good idea to have an opinion in business is because if you don’t someone else will. And they will get the deal.

so when they say that “its always a good idea to have an opinion” they’re probably right.

But for all the wrong reasons.