Growth and Performance Only Make Sense in Context
A couple of years ago there used to be this program on cable TV about renovating homes called Property Ladder. It was a great little show that followed various aspiring property developers as they attempted to buy, renovate and then sell property in the UK. The host of the show, one Sarah Beeny, would advise the would-be property magnates on keeping costs down, being sensible about what sorts of choices they made and generally helping them to make a profit.
Unfortunately for Ms Beeny the subjects of the show would invariably disregard most of her advice and just do whatever they felt like doing. Because I was rather fond of Ms Beeny – partly for her awesome name and partly because she always gave good advice – I would find myself secretly hoping the developers would get their come-uppance and see that they should have paid attention to the vastly more experienced host.
At the end of each episode, Beeny would come back to tally up the total amounts that had been spent and to compare this with some valuations that would be given by local real estate agents. What was strange though was that no matter how dumb the aspiring developers were, they seemed to almost always make a profit.
Aside from being a bit frustrating, it made me wonder how this could be. Surely a bad performance should lead to bad results?
It’s All Relative
One day I was watching a particularly silly pair of developers who made bad decision after bad decision, when Sarah Beeny touched on the wider property market and suddenly everything made sense. It turned out I’d been watching a season of the show that had been recorded during a property boom. Because everyone else watching the show was presumably also in the UK, that probably would have been common knowledge to them. I on the other hand was over in Australia and didn’t have the faintest clue what the benchmark growth in property value in Surrey or Nottingham was.
In that market, even if the participants on the show had simply gone on vacation and then returned a few months later, they would have made a killing. In fact so potent was the property market at the time that even if they had diminished the property it still would have netted a positive return.
Your Results are Only Half the Story
This anecdote illustrates an important point for any business. To understand your own performance you need to look at the industry you’re in. You may look at your own growth and think “wow, we doubled in size this year” but if everyone else in the same position quadrupled, then really you went backwards.
And the opposite is also true. Recently ad revenue to our company Envato has been quite flat. On its own that didn’t look too good because previously we’d been growing steadily. However put that into the context of the global online ad market which is not just flattening but in many cases falling, and all of a sudden our relative performance is great.
In Context and Out
On the flip side of this coin, if you judge solely on context you can fail to achieve your potential but still think you’ve succeeded. This is a lesson that was drilled into me by my father growing up.
I remember one day I was reporting back to him how I had fared on a Chemistry exam. I had just scraped through, a few points north of 50% which on its own didn’t sound so good. However it had transpired that the entire rest of the class had failed the exam (which, looking back makes me wonder about the education skills of our teacher, now that I think about it!)
I went home feeling rather pleased with myself and foolishly said so to my father at the dinner table that night. My dad gave me a long, thoughtful look and then remarked, “in the land of the blind, the one eyed man is king”. While I was puzzling over this phrase he proceeded to tell me that a C was still a C even if everyone else got a D, and that at the end of school nobody looking at my results would give me a chance to explain my relative position as context to my results.
So the lesson here really is that it’s important to look both in context and out. Measure by other people’s standards but also by your own. That and it’s always best to keep your mouth shut at the dinner table!
You make some good examples of why context matters, but actually it’s still mostly up to you! You can’t bother to much about how your competitors are doing. You have to watch what they do, but after all you have to do your own thing, which no matter what, matters only to you and your employees.
Most people don’t care if you succeed or fail, it’s only you that matters!
For example if you made just half the profit others had during a time-span, but are able to maintain it, while others dip below this and can’t come back up, it’s still worthwhile and you are not necessarily doing anything wrong.
great points here, Collis, but I also agree with smashill.
I think that the main context are your own goals and your own definition of success. your goal might not be achieving the market leader position, but for example 10% increase from the previous year, or preserving the profit level, for that matter.
but after all, it only proves that context matters
Another great and common sense post Collis
Congratulations
Good tips, Collis! Measuring relative results is always a good thing to do especially if you think you fail – it raises a confidence in yourself and helps to keep going. Great article!
Great points Collis! This is pretty motivational, as any small victories become a bigger deal when compared to competitors who are failing in those areas. However, at the same time, a hypothetical 41% growth is dampened by an industry growth of 40%. I guess it’s better to be realistic then simply having a results-only view though.
This is a great article just for its great use of analogies. I love the references to your father and the TV show…really keeps things interesting. Good advice as well, always good to consider that even if everyone else is doing worse than you…you can always still do better
Your father is a very wise man. I remember when, after I had gotten a grade that was just above the required average and made a similar mistake in commenting on it to my father.
He looked at me and calmly explained, “The average is what is expected from everyone. What that means is that if you are on the average you end up being a mediocre professional. In order to be a good professional, you need to always strive to be above the average.”
Looking back it seems quite obvious to me, but as a teenager it was down and out puzzling.
Very true, Collis.
We need to look at both the absolute and relative performance.
Here’s a case in point: once a small kid of my friend return home and proudly declared that he had score 90% in a foreign language class. With the track record of the kid in mind, the father calmly ask: “how about all the others.”
The boy, reluctantly, said, “all above the 95% line.”
In business, people are blindly chasing after some common performance measures – like profit growth and market capitalization – without really asking why they need so.
In the past months, when companies announced their profit with negative growth (but still profitable) under the current economic and market situation, people still responded by treating those as negative news.
What we need is not just sensible managers who can take the context into perspective, but also educate the whole community on that.
Thank you for the amazing article, Collis.
“So the lesson here really is that it’s important to look both in context and out.”
Exactly !
sarah beany is the foxiest of all foxies, me thinks.