Beware of the Ostrich Factor
AT first glance, the disastrous loss of the space shuttle Challenger 16 years ago this month, does not appear to hold any lessons for entrepreneurs or innovators.
After all, it was a faulty rubber seal on one of the solid rocket boosters that was to blame for the explosion that killed the Challenger's crew of seven astronauts, including Christa McAuliffe, the teacher who was the first civilian to take part in a space mission.
The disintegration of the seal 73 seconds into the flight let burning gases blowtorch their way into the shuttle's huge external fuel tank, with catastrophic results.
The tragic fact is Nasa engineers were warned that in the unusually cold temperatures of that January morning in 1986, the rubber seal could fail. They were also warned that the consequences could be disastrous.
But Nasa's engineers put pressure on the dissenting rocket scientists at Morton Thiokol - the company that built the solid fuel boosters - to rethink their advice to abandon the mission. After going into a huddle to reconsider, the team at Morton Thiokol eventually came back with the "correct" decision, to "go for launch".
The disaster and the decisions that led up to it have become a classic case in the study of "groupthink", a phenomenon described by social psychologist Irving Janis in the early 1970s.
Janis was curious to know how groups of experts could arrive at bad decisions in defiance of compelling evidence that they were about to get it horribly wrong. He was particularly interested in political fiascos such as the Bay of Pigs invasion and the refusal to recognise signs of the impending Japanese attack on Pearl Harbor.
But groupthink exists everywhere that people make decisions under pressure to achieve results. In the financial world examples include the "buy" notes on Enron just weeks before it went bust and the more general reluctance of investment analysts to write "sell" notes, even when shares are obviously and preposterously overvalued.
In simple terms, Janis defined groupthink as the collective mindset of a closely knit group whose desire to conform leads them to switch off their critical faculties and no longer accept that there might be alternative ways of thinking.
He identified eight danger signs (see box) and it is not hard to see that many of them applied to dotcom entrepreneurs and their backers. The illusion of vulnerability and self-belief was particularly common, with young dot.commers believing that nobody could stop them changing the world. Outsiders and dissenters were derided and cast as unenterprising or old economy "dinosaurs" that just didn't "get it".
The symptom of collective rationalisation manifested itself in the belief that profits and cashflow were less important than user numbers and brand building; and in the widespread delusion that there was a "new economy" in which shares could only rise.
Self-censorship in the extended group - the financial world - ensured that internet stocks were always promoted by analysts as "strong buys", even if they had a price/earnings ratio as high as 1000 and an overwhelming probability of losing 90% of their value over the next year. After all, honest and critical analysis of stocks was bad for the booming capital markets business. Investment banks were making a fortune peddling shoddy goods at inflated prices to a gullible public.
For entrepreneurs and innovators working in small, highly cohesive start-ups, groupthink is often the result of trying to maintain internal harmony. It is the darker side of the entrepreneur's intrinsically overconfident nature.
"The worst form of groupthink is where you have a group that is closed to outsiders," says Professor Nick Chater, who is director of Warwick University's Institute for Applied Cognitive Science. "That is often the case with innovators, partly because of secrecy and partly because group members are technically specialised. …