Council Post: How To Avoid Making Bad Predictions For Your Business

By Andrew McConnell, Co-Founder and CEO of Rented.

We are awash in predictions. In fact, it would be difficult to run your business without relying on any number of predictions. How can you develop new products without predicting what customers will want? How can you determine how much to make, where to make it, at what cost, where to ship what you produce and when to do so without predictions? In many ways, predictions, and the forecasting we do in order to make them, are necessary for steering our businesses properly.

The fact that this is true and necessary, however, doesn’t take away from just how difficult this actually is. A quote that is often erroneously attributed to Yogi Berra sums it up nicely: “It’s tough to make predictions, especially about the future.” So, what are you left to do?

The answer comes in avoiding the most dangerous pitfalls. Not in necessarily making perfect predictions every time, but rather in avoiding latching on to dangerously incorrect predictions in the first place.

There are three main ways to get better at this.

Beware the pundits’ Kool-Aid.

As awash as we are in predictions, we are even more inundated with expert opinions showering down upon us in a world of limitless data creation. From 24/7 news channels to blogs and social media, we’re never at a loss to find out what an “expert” thinks about an issue.

However, as Philip Tetlock and Dan Gardner point out in their book Superforecasting: The Art and Science of Prediction, these experts are rarely if ever held to account. Often their expert predictions are phrased in such a way as to make them impossible to deem correct or incorrect. For example, experts will often predict something will or will not occur “in the near future.” Does this mean in the next week? Month? Year? Decade? This lack of precision makes the prediction itself almost meaningless.

Perhaps just as frustratingly, even when the predictions are ones that are specific enough to be proven or disproven, rarely are they tracked. These so-called experts could be on TV daily making predictions, batting less than 10% accuracy, and yet because no one is keeping score, they keep being invited back to share their “expert” opinions with the public.

The point is that you must exercise your own judgment and a healthy dose of skepticism when relying on the predictions of others. Do your homework. What else has this expert predicted, specifically? What was she correct about? Incorrect about? Does this prediction fit more in line with what she has been correct about in the past or not? Weigh the evidence before giving weight to this latest prediction.

But also be wary of your own Kool-Aid.

Just because third-party experts may often be wrong, which they are, doesn’t necessarily mean that you are going to be right. One particular danger is predicting things you want to be true. As Demosthenes said 2,500 years ago: “What a man wishes, that also will he believe.” Let me illustrate this with a personal example.

When I founded my first company, VacationFutures, I strongly believed that the vacation and short-term rental industries were soon to follow the consolidation path that hotels had paved before them. Was it a coincidence that the company I founded was a marketplace that would benefit from the exact sort of consolidation I predicted? Did I found the company because I predicted this would happen, or did I predict this would happen because it would be to my company’s benefit?

Fast forward to today, and my view on the vacation and short-term rental industry is very different. Seeing the difficulties of scaling such a manual and labor-intensive business, I believe the industry has been and will stay “mom-and-pop” out of necessity. Is it a coincidence that my latest venture, Rented, Inc., supports just these sorts of small and medium local businesses I predict will thrive in such an environment? Is my new venture built around this prediction, or is my prediction built around what would most benefit my new venture?

The truth is that it’s nearly impossible to know for certain the directionality between prediction and desire. That does not make it any less important, or necessary, to make sure I ask the question. Why do I predict the things I do? What evidence is out there? Not just evidence that supports my prediction, but even more important, evidence that contradicts it. I have enough in my head already trying to prove myself right. The more important work is seeing what out there would prove me wrong instead.

Be like water.

The third step in making better predictions, or at least fewer bad ones, is to make them fluid. One of the biggest insights from Superforecasting was that there were people who consistently beat the experts in making more accurate predictions. It was how these so-called “super forecasters” did so that was so interesting. Being far less tied to what they wanted to be true, they were at the same time far more likely to change their predictions over time.

Not only this — but rather than waiting for new evidence to come to them, they proactively sought out new evidence that would disprove their prior prediction. In today’s society, we often judge inconsistency as a character flaw. The success of these super forecasters, by contrast, was often predicated on their embrace of inconsistency where warranted. They thought as Supreme Court Justice Harlan did when he said: “Let it be said that I am right rather than consistent.”

All of this to say that we live in a world in which we depend on predictions, and at the same time in a world in which such predictions are almost impossible to consistently make with real accuracy. The answer is not to avoid such predictions or to even necessarily make better initial predictions. Rather, the goal should be to avoid bad predictions and to be willing and desirous to change those you have previously made when warranted. You don’t have to start right, as long as you end there.

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