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When business owners decide with their hearts, not their brains

An academic study analyzes the most common failures of managers who rely on their instincts too much

Decisiones empresariales
83% of business decisions are based on a very optimistic assessment of entrepreneurs' own attitudes.Nitat Termmee (Getty Images) (Getty Images)
Rafa Burgos

An error in interpreting information led the pharmaceutical company Q Pharma to set up a subsidiary in Argentina. “We analyzed the data from the Spanish perspective,” confesses general manager, César Quintanilla, “we assumed that the Social Security was like the one in Spain, but no, in Argentina there are some 50 or 60 social security funds.” As a result, the consumer market for its specialized urology and allergology products fell by 80%. In the end, it worked out. Argentina contributes 1.6 million to the firm’s overall profits, which was about 11 million in 2023. But the example shows an error that plagues the business world. “Faith in our own possibilities, hunches, misinterpretation of information and exaggerated confidence in previous successes” can lead to the wrong decisions, says Han Bleichrodt, a Fundamentals of Economic Analysis professor at the University of Alicante in Spain. For that reason, he recommends that there not be “a single individual who makes decisions, as is usually the case in family businesses”; instead, companies should “give shareholders more control, and major decisions should always be made as a group.”

Bleichrodt conducted an experiment with Mohammed Abdellaoui, of the HEC Paris business school, and Cédric Gutierrez, of Bocconi University in Milan, which confirms that 83% of business decisions are based on a “very optimistic assessment of entrepreneurs’ own attitudes, the result of their own beliefs and an overestimation of probabilities, beyond rational reflection.” The study consisted of 400 interviews with volunteers who were asked to take an intelligence test; the findings were included in his article “Dismantling Overconfident Behavior when Betting on Oneself,” which was published in the journal Management Science.

Once the results were in, participants were invited to bet on two levels. First, they were asked whether they had scored higher than 60% on the test. In general, they tended to do fairly well or even somewhat underestimate scores. Then, they were asked whether they were in the top 20 in test results. There, participants did overestimate themselves. 83% “thought they were better than everyone else. You always have to keep in mind that success is part of chance,” Bleichrodt explains, “but we have no control over uncertainty. Minimal control of a situation leads you to think that you control everything, and you have to trust the professionals, who will be more objective when it comes to making decisions.” No matter how small or family-run the company, a shareholders’ meeting, a governing body or a board of directors will always be more reliable, he says.

At Q Pharma, Quintanilla is responsible for “day-to-day decision-making without consulting anyone.” For the “big and strategic” decisions, this family firm has created “a board of directors made up of family members and an external financial advisor.” They analyze the sector, conduct surveys among opinion leaders and consumers, “but there are always loose ends that lead you to make decisions by instinct,” he says. “Ultimately, the manager’s opinion outweighs the data” and, although he or she is subject to “feelings and perceptions,” experience also leads them “to improve over time, to reflect more and to know better which databases to use.” In fact, one of the successes of this 20-year-old company, which exports to over 15 countries and has over 80 employees, “was achieved by intuition.” His father suggested “creating a company for developing medical cannabis, based on a news item in the press.” The result was “a total success, we got there at the right time.”

Javier Fur, CEO of Marjal Group, a family business specializing in real estate development, tourist resorts and accommodation for professionals in co-living, agrees with the academic analysis. “You have to have a bit of courage and, at the same time, limit the risks, which is not easy. Hunches and previous experiences are dangerous,” he admits, “business plans must be conservative and [there must be] an alternative plan.” His group, which earned a profit of some 50 million last year, bases its “daily decisions on a road map” and leaves the ones about “openings or growth to the consensus of the boards of directors of each of the company’s units.”

That safeguard did not prevent “some mistakes that served as learning experiences,” especially ones related to “geographical relocation.” With facilities spread between the Costa Brava and the Costa del Sol in Spain, “we thought it would be easy to set up a resort 400 kilometers [about 250 miles] from our headquarters,” but that was not the case. “We learned that we had to run a longer integration process at each site for the teams to absorb our culture. All innovation involves a degree of failure,” he says, “because you’re not going to get it right every time.” Fur adds that “it’s important to get it right more than you fail, but you don’t have to be afraid if you want to move forward and innovate.” That risk helps with “foresight, which is crucial in a world as competitive as today’s, where you need unique and authentic value propositions.” To this end, he recommends “making sure you have a lot of information, making collegial decisions and not losing focus.”

The family founded Hiperber, established by brothers José and Ernesto Bernabeu with a salted fish store in Elche, which currently has 79 supermarkets, a profit of €200 million ($217,484,600)and employs 1,200 people. “We have a family protocol [that was] signed over 25 years ago,” says its CEO, José Bernabeu, the son and nephew of the founders. “[The protocol] shapes the company’s operation for all matter.” “The management committee has a financial director, a sales director and a commercial director” who carry out the day-to-day actions, but purchases and negotiations “are voted on and chosen by a large majority or by consensus” in quarterly meetings in which even the cousins—”future shareholders”—participate. Ultimately, “everyone has to be convinced and everyone share the consequences of the decision.” The company’s founders instilled that sentiment. “More than the characters in Succession, we are like the ones in Peaky Blinders, but because of the family unity, not because of the business model,” he jokes.

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