Recently finished reading Checklist Manifesto, and thought this excerpt was great:
Some years ago Geoff Smart, a PhD psychologist who was then at Claremont Graduate University, conducted a revealing research project. He studied fifty-one venture capitalists, people who make gutsy, high-risk, multimillion-dollar investments in unproven start-up companies. Their work is quite unlike that of money managers, who invest in established companies with track records and public financial statements one can analyze.
Smart specifically studied how such people made their most difficult decision in judging whether to give an entrepreneur money. You would think that this would be whether the entrepreneur’s idea is actually a good one. But finding a good idea is apparently not all that hard. Finding a good entrepreneur who can execute a good idea is a different matter entirely. One needs to find a person who can work long hours, build a team, handle the pressures and setbacks, among technical people and problems alike, and stick with the effort for years on end without getting distracted or going insane. Such people are rare and extremely hard to spot.
Smart identified a half dozen different ways the venture capitalists decided they’d found such an entrepreneur. Art Critics assessed entrepreneurs almost at a glance, the way an art critic can assess the quality of a painting — intuitively and based on long experience. Sponges took more time gathering information about their targets, soaking up whatever they could from interviews, on-site visits, references, and the like. Then they went with whatever their guts told them. One such investor told Smart, he did “due diligence by mucking around.”
The Prosecutors interrogated entrepreneurs aggressively, testing them with challenging questions about their knowledge and how they would handle random hypothetical situations. Suitors focused more on wooing people than on evaluating them. Terminators saw the whole effort as doomed to failure and skipped the evaluation part. They simply bought what they thought were the best ideas, fired entrepreneurs they found to be incompetent, and hired replacements.
Then there were investors Smart called Airline Captains. They took a methodical, checklist-driven approach to their task. Studying past mistakes and lessons from others in the field, they built formal checks into their process. They forced themselves to be disciplined and not to skip steps, even when they found someone they “knew” intuitively was a real prospect.
Smart tracked their success over time. There was no question which style was the most effective — and by now you should be able to guess which one: the Airline Captain. Those taking the checklist-driven approach had a 10% likelihood of later having to fire senior management for incompetence or concluding that their original evaluation was inaccurate. The others had at least a 50% likelihood.
The Airline Captains had a median 80% return on investments studied, the others had 35% or less… The most interesting discovery was that, despite the disadvantages, most investors were either Art Critics or Sponges — intuitive decision makers instead of systematic analysts. Only one in eight took the Airline Captain approach. Smart published his findings more than a decade ago. He has since gone on to explain them in a best-selling business book on hiring called Who. When I asked him, now that the knowledge is out, whether the proportion of major investors taking the more orderly, checklist-driven approach has increased substantially, he could only report: “No. It’s the same.”
We don’t like checklists. They can be painstaking. They’re not much fun. But I don’t think the issue here is mere laziness. There’s something deeper, more visceral going on when people ask away not only from saving lives but from making money. It somehow feels beneath us to use a checklist, an embarrassment. It runs counter to deeply held beliefs about how the truly great among us — those we aspire to be — handle situations of high stakes and complexity. The truly great are daring. They improvise. They do not have protocols and checklists… Maybe our idea of heroism needs updating.