Most people know how to do their job, rather than knowing why a certain method works.
This can cause a serious and unknown risk, because if the conditions change, the previous “correct” solution may no longer work, or opportunities may be missed.
A few examples:
An example of an accident
In the mid-to-late 1990s, as Sacramento recovered from California’s aerospace collapse, new developers began to pick up land on the edge of the growth corridors. They will process them and forward them to an engineer or builder, depending on the size. They did very well and they went ahead – they went ahead, they bought more because they had more money.
After some years they established themselves as ideologues, and quite frankly, they began to believe their own … you know.
In the end – like anyone who keeps on doubling in Las Vegas – it can only end one way. And it happened in the financial crisis.
Maybe it’s not an unusual story, so what’s the point?
They started choosing a place far away because they didn’t have the money to choose a good place nearby. There was no dramatic insight or mathematical thinking about the differences in values driving the process. It was just what they couldn’t do.
There is nothing wrong with that by myselfbut because they didn’t realize why they were doing what they were doing and just started making up a story in their head with foresight, they didn’t have any “turn lane” signs to help them know when it was time to stop.
It may seem silly to say, but most people don’t know why they do well. Which leads to more risk.
Opportunity Example
My firm is invested in a real estate developer in Atlanta and I was driving around with a local guy looking for potential deals. As he pointed out the parcels he looked at, tried on, etc., I noticed in all of them that he was explaining how to select them and then process them for approval.
I asked him, “how many times – if your ‘asking’ was reasonable – have you not received anything approved in this area?”
He said, “it’s not possible, but you might get less than you shot for.”
“How small?”
“I doubt it’ll ever be more than 15% of the units you’re trying, if you’re reasonable”
“Have you tried to buy land for less before, before it was approved?”
“No. That would be too dangerous”
“You just told me that if you know what you’re doing, you shouldn’t be charged more than 15% of what you were asking for.
He just looked at me.
I explained, “do you know why no one is doing this? [They choose not to for] Many good reasons, not the least of which take time, and try to be efficient. Not to mention that not all of their teams know how to do this, and assess risks. It’s easy to tell them all, ‘we don’t do that.’
Private builders don’t do that, because you can’t borrow from a bank in an unprofitable area and they don’t have enough money to put into an unprofitable area. You have an equal partner who can, why don’t you think about it?”
He knew what the general trend was, but he didn’t know all the reasons why.
So he missed the opportunity.
These are examples of deals, but the principle applies to everything we do – from choosing an operating system to organizing our companies, and countless other decisions. If you can’t say the “why” behind your path, you don’t see changed situations and new opportunities.
Understanding why something works is not just an intellectual curiosity; the difference between repeating success and stumbling into failure, between spotting a hole and missing it completely.
