Everyone knows the meeting after a bad quarter. The spreadsheets come out, every line is questioned one by one, someone explains the lost client, someone the pricing, someone the team. It takes hours. The meeting after a good quarter lasts fifteen minutes and usually comes down to a single sentence: we’re doing the right things.
The asymmetry looks innocent. It isn’t. A founder’s most expensive year is not the bad one, but the good one whose cause they never understood.
Daniel Kahneman described meeting the cleanest example of this error early in his career, while teaching flight instructors in the Israeli Air Force. He was telling them that praising good performance works better than punishing bad performance. An experienced instructor objected: when a cadet flew a flawless manoeuvre he praised them, and the next attempt was almost always worse; when he shouted at a cadet after a terrible one, the next attempt usually improved. So, in his view, praise didn’t work and scolding did. Kahneman realised the observation was right and the conclusion wrong. An exceptionally good attempt was partly luck; luck doesn’t repeat, so the next attempt drifted back towards the average. So did the exceptionally bad one. The instructor’s voice had almost nothing to do with the swing. But for years he had drawn a link between his own behaviour and the outcome, and acted on it.
Companies are that instructor. After a good year we count whatever we did as right; after a bad year, whatever we did as wrong. Yet a year’s result is the sum of your decisions and of conditions you never touched, and in good years nobody has time to ask which part of that sum was yours. The question only gets asked when the wind turns. By then the answer is late, because in the meantime a permanent cost has been attached to everything the wind brought in: new hires, a new office, a lease, a price that was never tested.
On 10 September IAB raised its forecast for US ad spend growth from the 9.5% it expected at the start of the year to 12.3%. It states the reason plainly: a strong first half carried by the Winter Olympics and the World Cup. An honest explanation on the industry’s behalf. I’m less sure every agency, production company and ad-tech startup that grew this year will show the same honesty in its own board meeting. The Olympics come once every four years. A company that grew its budget in an Olympic year, without separating whether the growth came from itself or from the Games, will find that the people it hired still expect a salary the year after.
On the agency side I see this very clearly. A client who arrives in a good year often arrives not because we are good, but because the client had money to spend that year. The two are not the same, and the difference only shows when the client’s money runs short: did they stay for our work, or had they simply not yet found the time to leave? In a bad year you are forced to ask that question. In a good year you have to force yourself to ask it, which is much harder, because everyone in the room thinks they already know the answer.
Founders have a shared defence: “Getting the wind at your back is a skill too.” True. Being in the right market at the right time is a real decision and nothing to sneer at. But that decision’s reward lasts as long as the wind does. The price of mistaking a condition for a capability is discovering, when the condition ends, that the capability has left with it.
Examining a good year as if it were a bad one is a thankless job. Asking for an account in the middle of a celebration makes no one popular. But whether a company survives its next bad year is decided less by the choices made in that bad year than by the questions nobody asked in the good year before it.
If your business did well this year, can you say exactly how much of it was yours?