When risk and uncertainty increase, little service businesses get a virus
READERS may recall a company in west Belfast in the 1970s and 80s called DC Exhausts with its big signage and garages, in the days long before the likes of Kwik Fit came along.
That company came back into my head at the weekend as I read about one of our greatest entrepreneurs, Paddy McKillen, getting planning permission in London for a £200 million expansion of Claridge's Hotel. McKillen's story is a worth a column on its own, but it starts in West Belfast at his family's DC Exhausts which grew very fast and quickly.
Now, McKillen not only has a large and diverse business empire, but he also is one of the most respected art collectors in the world with his Chateau La Coste estate in Provence in the south of France home to a series of installations from some of the world's most revered artists and architects.
He's been in the news in recent years because of his court battles with the Barclay brothers for control of the Maybourne hotel group, London's crown jewel hotels: Claridge's, the Connaught and the Berkeley. According to McKillen, these hotels are now worth an estimated £2.5 billion once this new Claridge's refurbishment is open.
News reports suggested McKillen's legal bill for the prolonged scrap with the Barclays was north of £40m, but there he is, still at the top with the Abu Dhabi Investment Authority owners and ready to commit £200m into Claridges.
Though when I think about 2016, it's very hard to get past the two world events which have made the most news, the Brexit vote and the election of Donald Trump. On the day of the referendum result, I was thoroughly depressed. I was also worried about our work and how it would start to dry up because of doubts around investment. When risk and uncertainty increase, available finance often reduces and/or gets much more expensive. This infects economies and little service businesses like ours get the virus.
When Trump got elected, I didn't feel quite as bad. It was like I'd been inoculated from the worst of it by the Brexit vote. I was depressed but not morbidly so. And so, we're at end of the year, one of the quickest I can remember and I'm looking forward to a break when I'll hopefully get the chance to read the latest book from my favourite business author, Michael Lewis.
Regular readers of this column will remember me raving about Lewis before. I'm pretty sure I've spoken about his books The Big Short, Liars Poker and Moneyball on more than one occasion and probably will again. It was actually in reading a review of Moneyball that Lewis came to know about a field of psychology that he hadn't previously been aware of.
And so started his investigations into the work of two Israeli academics Amos Tversky and Daniel Kahneman. Their work revealed previously undiscovered patterns of human irrationality, the ways that our minds consistently fool us and the steps we can take, at least some of the time, to avoid being fooled. Kahneman and Tversky used the word “heuristics” to describe the rules of thumb that often lead people astray.
One such rule is the “halo effect,” in which thinking about one positive attribute of a person or thing causes people to perceive other strengths that aren't really there. This also applies to weaknesses. This sort of stuff happens in business, life and sport all the time. In one review of the book I read, it led to the statement ‘Donald Trump would never have won the election if he had been a woman'.
The work is also full of practical little ideas. “No one ever made a decision because of a number,” Kahneman has said, “they need a story.” Or Tversky's theory of socializing: ‘because stinginess and generosity are both contagious, and because behaving generously makes you happier, surround yourself with generous people'.
Kahneman and Tversky argued and proved that in the main, humans decide things emotionally, not rationally, the trick is to recognise those habits, and not confuse one for the other. They did practice what they preached and Lewis describes how their scientific papers were rigorous with fact and research but they never made the mistake of thinking that the behaviour they described, of subconscious biases and illogical choices that skewed markets and misunderstood risk, did not also apply to themselves.
So, there you go, some lessons for 2016 to carry into 2017. Understand what you're doing and don't be fooled by false assumptions, biased opinion or inaccurate information and do read the book, it's certainly on my list for the break. And let's be inspired by Paddy McKillen too. After a long fight, it looks like 2017 is going to be a much better year for him.
:: Paul McErlean (firstname.lastname@example.org) is managing director of MCE Public Relations Ltd
:: Next week: Claire Aiken.