Every business owner wants to be able to see into the future. Whether it’s to find out if they will win that client or if they will hit those revenue targets. Despite this interest in forecasting and being able to make accurate assessments of the future, most actual forecasts aren’t very well-analyzed.
In a recent book, ‘Superforecasting’, Wharton professor Philip Tetlock explored why making predictions are so difficult – and how individuals, such as business owners, can become better at making them. Productized services thrive on strong decision making. Like any business, it’s a deciding factor for their success.
Whilst productized services can often be very easy to start, there are still plenty of challenges to be faced along the way. As you confront each of these difficulties, you will be required to use your best judgment to enable your business to continue growing.
In this article, we are going to explore what superforecasting is and how it can be applied to your productized startup. But first, let’s take a quick look at the history of forecasting to help us understand how this idea of future insight has evolved over time.
A Brief History Of Forecasting
Forecasts have played an important role in our journey, from living in caves and using rocks to make a fire to firing space rockets into the solar system. When it comes to physics, we have developed models that have a precise degree of accuracy. However, in areas like business, politics, and finance, we have made the same errors repeatedly.
Before the arrival of the 20th century, medicine was treated with an air of pseudo-science. This resulted in forecasts often being completely bogus and unsubstantiated.
In the early 1920s, statisticians looked at the field of medicine and conducted randomized controlled trials. Whilst the doctors took a dislike to be challenged, they ultimately lost. This is when evidence-based medicine became routine in healthcare and saved the lives of millions around the world.
How Can Forecasting Performance Be Enhanced?
When it comes to making predictions, how much better can you do than just ‘chance’? In Tetlock’s early work, the professor regularly used the metaphor of the ‘dart-throwing chimp’ to describe superforecasting. If you had a system that was generating forecasts by chance, how well would you perform?
This is a baseline that a lot of people can’t beat, and there are usually several reasons behind this. Sometimes the environment might just be hopelessly difficult. For instance, if you were trying to bet on a roulette wheel in Las Vegas, you’re not going to be able to do any better than a dart-throwing chimp.
There are limits to predictability. For some businesses, there is a lot of irreducible uncertainty.
Fortunately for productized services, due to the nature of your business model, the financial side of your business should become fairly predictable.
The Research Of Philip Tetlock
In his research, Tetlock gathered a group of more than a thousand forecasters to work with the US intelligence committee to answer questions of relevance to national security. These questions needed to be representative of the types of questions that would typically be posed to intelligence analysts.
In other words, the research was pitting industry experts against forecasters of all walks of life with no real expertise in the intelligence field. The questions required the participants to see several months into the future. The accuracy of their judgments was then scored over time.
Answers to these questions had to be given on a probability of scale of 1-10. The participants couldn’t simply answer ‘yes’ or ‘no’. From this study, Tetlock identified individuals who had astounding levels of accuracy in their predictions. These were people that he would later refer to as ‘superforecasters’.
What distinguishes superforecasters is their ability to temporarily put aside their opinions to focus on accuracy.
In business, when you desperately want to succeed, it can be easy to overlook data trends that you don’t want to see. Many business owners who can correctly predict the direction of their venture put their opinions to one side and focus on the facts before them.
The Fox & Hedgehog Metaphor For Superforecasting
Tetlock likes to use the ‘fox and hedgehog’ metaphor to characterize the defining differences between people who are good forecasters and those who aren’t.
The fox knows many things, but the hedgehog knows one big thing. You can think of hedgehogs as startup founders who have a strong vision for their business. Their forecasts for the startup are largely informed by that vision. Whereas, the foxes tend to be more eclectic in their thinking.
Foxes are able to pick and choose their ideas from a variety of schools of thought. They might believe in several different things. These are people that blend things in unusual ways and are often harder to classify when it comes to understanding their ambitions. From his early research, Tetlock found that those with fox-like mindsets were better forecasters than people with hedgehog-like mindsets.
In Tetlock’s later work, he found something similar; people who scored highly on psychological measures of active open-mindedness tended to do better as forecasters. The key to being good at predicting the future of your business is to have an open mind.
Who Is Actively Using Superforecasting?
A lot of organizations in both the private and public sectors are taking an increasing interest in forecasting tournaments. These are constructed in a similar way to Tetlock’s initial study with the US intelligence committee — pitting industry experts against amateurs. These large organizations are using them to keep score on how accurate their forecasting methods are.
There’s also a growing interest in using forecasting tournaments to identify people who are better at it so organizations can develop their own ‘core’ of superforecasters.
Meanwhile, there is also a rising interest in exploring methods of training people to become better forecasters. The vast majority of this work is happening behind closed doors, so it is tricky to pinpoint specific organizations that are currently adopting this approach.
How Can Forecasting Benefit Your Productized Service?
It is important for forecasters to generate good questions, not just good answers. Skepticism is a key characteristic of a great forecaster. You don’t want to be taking advice from everyone. You should look to those who have a proven track record of success and achievement in your area of interest, such as productized services.
The bolder the claim, the more the burden of proof should fall on the person to demonstrate that they have a good track record. We take our cues on whether somebody knows what they’re talking about from how confident the person seems to be. However, while confidence can be correlative with accuracy, it can also be used to manipulate others.
When you’re next outlining a long or short-term strategy for your productized service, keep an open mind on the possible outcomes of your strategy to make better predictions and increase the accuracy of your decision-making. It’s an incredible characteristic that can enable you to view your business objectively.