From the course: Running a Profitable Business: Understanding Financial Ratios
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"Smoking gun" and historical data biases
From the course: Running a Profitable Business: Understanding Financial Ratios
"Smoking gun" and historical data biases
- There's got to be one reason this firm is doing well or one reason this firm is doing poorly. Often we'll find there are multiple reasons. It's all the little things that add up to a big thing. It's seldom one big thing. We have this human tendency to want to solve a mystery by being able to point to one thing. Turns out in a business context, usually there's not one single reason for poor or great performance. Often it's a series of small issues that lead to a very big issue. For example, let's take an example non-business, Apollo 13. The question: why did the Apollo 13 spacecraft explode? Turns out there were several little things that led up to a huge tragedy. For example, the oxygen tank thermostat was not upgraded to proper power supply. Then the shelf carrying the oxygen tanks was dropped, damaging the drain line. When it comes to business, it's often a collection of events that determines whether a company does…
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