In the depths of the last recession, I met a business person who had just had the most productive six weeks in his career. It was hard to believe, so I asked how he had done it. “I stopped watching the news,” he told me. Skipped Fox and CNN, skipped online news feeds, ignored the physical newspaper, except for sports. “I acted like customers could benefit from our services. I sold them on the value of our services. I didn’t get caught up in the gloom and doom of the news.”
But - there’s a headline telling me this story could be crucial! My market could be collapsing, consumers could be in for a disaster, business bankruptcies could be about to soar.
Here’s the key to financial headlines (as well as all other news): The headline does not appear because there’s an important story. The story appears to justify the sale of advertising. And the headline appears to lead readers to the story. Sometimes the story is truly newsworthy, but what happens if there is nothing that’s newsworthy? A story is written anyway, along with a lurid headline demanding your attention.
Back when our ancestors were not quite homo sapiens, two hominids were walking across the savannah and heard a rustle in the bush. One hominid ran away, fearing a lion, a tiger or a snake. The other hominid thought it was probably just the wind, and kept on walking past the bush. Which of these two fellows is our ancestor? I’m pretty sure it was the fraidy-cat; the other one got eaten up, if not that day, then some other day. We are all descended from fraidy-cats. And the news media know it. The headlines trigger that old fear lurking in all of us.
But it’s worse than being tempted to look at bad news. Looking at news also offers an opportunity for confirmation bias. That’s when we notice information that confirms our prior belief, but ignore information contradicting our belief. We humans do that all the time. And subordinates frequently do this for their bosses, presenting news that the boss will find comforting.
If you avoid confirmation bias, you’re still prone to being whipsawed, as one report implies going west, then another suggests opportunity in the east, while the next one extols the virtues of the south. (Does anybody ever see good things in the north? I don’t think so.)
New reports can be misleading, but business leaders need to understand the environment in which they operate. Sometimes customer groups are spending more, sometimes less. At certain times costs will rise, while at other times they will fall. Credit may be more available or less available. The uninformed executive will zig when the economy calls for a zag.
The solution is an economics dashboard. Select the economic indicators most relevant to your business. Include measure that reflect your customers, your suppliers, interest rates and inflation specific to your business. Update the data monthly. (The FRED database is a great tool.) Discuss the dashboard regularly with your managers, asking the following questions:
Does the dashboard reflect what we are seeing in our own sales and costs?
Does the dashboard reflect the planning assumptions we set out at the beginning of the year?
Should we stick with our plan or revise it now?
Setting up an economic dashboard is explained in Chapter 6 of Businomics, or you could use an economic consultant for help. A good start is my monthly economics newsletter.
Whatever approach you take consistency is the key to success. Pick the most relevant indicators, watch them regularly, and ignore the news.
