How to Avoid the Conceit of Outside Knowledge

by Michael Masterson

One of the most common mistakes we make in business is thinking we know things that we don't. I'm thinking specifically of believing we are capable of running a certain type of business simply because we have been a long-time customer of it.

George, an architectural designer I work with, buttressed a critique he made of a restaurant I am involved with by telling me, "Although I've never owned a restaurant, I've spent the last 40 years eating in the finest places seven days a week ... ."

One of George's suggestions was to double the size of the kitchen. He wasn't alone in thinking it too small. I shared that view, as did most of our other colleagues, none of whom had ever owned or run a restaurant. But when I asked my friends AS and DS - who have been running restaurants for 30 years - they said the kitchen was large enough to handle three times the traffic we were anticipating.

"You don't need a bigger kitchen," they explained in a report on the business. "You need to organize it better." And then they provided a diagram that showed exactly where everything - stoves, fryers, sinks, storage, etc. - should go. The arrangement was counterintuitive. It didn't match my own inexperienced idea of how a kitchen should work. But my intuition was based on the kitchens I knew - household kitchens. A restaurant kitchen capable of putting out 200 meals in three hours is a very different thing.

George is absolutely sure he could make a restaurant work if he had the time to do so. And maybe he could. But I'm quite sure that if he made it work, he'd have to abandon many of the ideas he currently has - all the seemingly sensible ideas based on his inexperience.

The point is, George's confidence is based on his personal experience - on "erfahrung" (air-FAR-ung) - and that is a good thing. But it's based on outside experience (his experience as a customer) as opposed to inside experience (the experience of a restaurant manager). Because it is based on experience, outside knowledge feels deep and certain. But it is nonetheless specious.

I am not immune to this mistake. The reason I am involved in this restaurant in the first place is because I had the hubris (see "Word to the Wise," below) to think that my long and wonderful dining experiences qualified me to run one. This is a conceit not dissimilar to the common idea that one can write a book simply because one has read so many of them. Or that you can create a successful woman's fragrance business because you are a woman and really like perfume.

You are completely sure, given your vast experience buying or using a certain product, that you could successfully produce and sell it at a profit. Let's call this common mistake the Conceit of Outside Knowledge. And let's say that it is not an entirely bad thing. Even though it accounts for a great deal of confident but stupid criticism (I shudder to think about how many times I've suggested to others how to run their own businesses), it is also the cause - perhaps the most common cause - of entrepreneurship.

How many successful careers have been launched because of the Conceit of Outside Knowledge? How many people have jumped into new businesses because they incorrectly believed that they understood something they did not?

A small list of businesses that fail most often is a list of businesses that begin with the Conceit of Outside Knowledge:

• restaurants
• travel agencies
• vacation tour operations
• bed & breakfasts
• art galleries
• antique stores
• gift shops
• coffee shops
• bookstores
• sports-related businesses

Here's what I have learned from my most recent run-in with the Conceit of Outside Knowledge - a few rules I should live by:

1. When I have the urge to tell someone how to run his business, I will express my suggestion in the form of a question. Instead of saying, "You know what you need to get the coffee out faster - you need to double the size of the kitchen." I'll ask, "Do you think it's important to get the coffee out of the kitchen faster?" And then, "If so, do you think that increasing the size of the kitchen would help?" By expressing my ideas, however certain I feel about them, as questions rather than statements, I both increase the likelihood that my suggestion will be heeded and avoid the likelihood that I will look like another ignorant know-it-all.

2. When I get the urge to start a new business based on the Conceit of Outside Knowledge (in other words, get the urge to start a business that is more than one step removed from what I know - see "It's Good to Know," below), I'll remind myself that much of what I'm likely to do in the beginning will be wrong. And then I'll ask myself if I have the resources - human, capital, and emotional - to push the business forward after I've discovered how wrong I was.

3. If I get the urge to start one of the 10 businesses listed above (and I certainly will from time to time), I'll go back and read this ETR message.

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TODAY'S ACTION PLAN

Do you sometimes feel that, if only you had the time and power, you could take over and fix some business that you patronize? Have you ever started a business based on the Conceit of Outside Knowledge, only to find out later that many of the changes you were sure would improve things didn't make sense after all?

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IT'S GOOD TO KNOW

The Principle of One Step Removed

One of ETR's "11 Laws of Wealth" is that your chances of success in starting a new business decrease with each step you take away from the business you already know. For example, say you have a successful neighborhood restaurant called The Steak House. Your basic business is selling a certain kind of eating experience to a local community.

Over a few drinks with friends, you come up with two new business ideas:

1. The first is to open a local restaurant called The Fish House.

2. The second is to go into the wholesale steak-selling business.

Both of these businesses have several elements that relate to what you are already doing. The Fish House is almost identical except for one difference - you will be selling fish, not steak. All other key aspects - how you attract new customers, how you create a profit margin, and how you control your costs to deliver a bottom line - remain the same.

Starting a wholesale steak-selling business is about selling steaks. And that's what you do. But in this case, there are many differences. For one thing, the market is different. You are not selling to local diners but to regional businesses. This means the selling strategy is different. That means the profit margin is different. And so on.

Opening up The Fish House is an example of starting a new business that is only one step removed from what you know. Opening up a wholesale steak business is three or four steps removed.

The first business has a good chance of succeeding. The only unknown: Will there be a big enough local market for fish? The second business has a poor chance of succeeding. There are simply too many things you don't know about it... too many inside secrets that are blocked from your view.

It is possible, every once in a while, to succeed by taking two or three steps away from your core experience. But as a rule, you want to take one step at a time.

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WORD TO THE WISE

"Hubris" (HYOO-bris) is overbearing arrogance or presumption. It comes from "hybris," the Greek word for "excessive pride."

Example (as I used it in Today's Message): "The reason I am involved in this restaurant in the first place is because I had the hubris to think that my long and wonderful dining experiences qualified me to run one."

Michael Masterson
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These articles appear courtesy of Early to Rise [Issue #1377, 04-01-05], the Internet's most popular health, wealth, and success e-zine. For a complimentary subscription, visit http://www.earlytorise.com/.