Appraising Business Ideas

Rules to keep in mind when evaluating or developing
business ideas

1Make sure the cause came before the effect. Some
popular business books, such as “The War for Talent,”
collect information on the alleged cause – in this case,
practices for managing talent – after the alleged effect
already happened – in this case, performance.1 To claim that
one thing causes another, the cause needs to occur before
the effect.

2Remember that correlation does not mean causation.
Studies that use surveys or data from company
records to correlate practices with various performance
outcomes require careful interpretation. For example,
Bain & Company’s home page brags, “Our clients outperform
the market 4 to 1.”2 This correlation doesn’t prove
that their advice transformed clients into top performers.
For starters, top performers may simply have more money
for hiring consultants.

3Don’t rely on success (and failure) stories. Sorting
organizations or strategies into successes and failures,
and then digging into their pasts with interviews, questionnaires,
and press reports to explain why some “won” and
others “lost,” is bad research. People have terrible memories.
And after identifying winners and losers, people selectively
remember information that reflects these different outcomes.

4Be suspicious of gurus and breakthroughs. Almost all
great ideas and findings are small advances made by
groups of smart people working with old knowledge,
not giant leaps forward that lone geniuses hatched in their
gigantic brains.

5Take a dispassionate approach to ideologies and theories.
“A man hears what he wants to hear, and disregards
the rest,” sang Simon and Garfunkel. Learning is difficult
when people are driven by ideology rather than evidence.

6Treat old ideas as if they are old ideas. People who
spread management knowledge should say where they
got their ideas. They should also review others’ work to
avoid reinventing the past.

7Admit uncertainties and drawbacks. Purveyors of
business ideas should routinely admit any flaws in or
uncertainties they might have about their ideas. This
means revealing that while their wares are the best they
can build right now, they will require constant modification
as more is learned.

1 Michaels, E., Handfield-Jones, H., & Axelrod, B. “The War for Talent” (Boston:
Harvard Business School Press, 2001). The appendix makes clear that the dependent
variable, total shareholder return, was for the preceding 10 years prior to the particular
year the survey was done to gather the information on management practices
(1997 or 2000).
2 www.bain.com. Downloaded Jan. 20, 2006.