Risk-taking in the NFL

The WSJ recently analyzed NFL play calling this season and concluded that the coaching profession could use more risk-takers.  Despite “a legion of mathematicians, economists and win probability models urging them to take more chances“ most NFL coaches “reach for the conventional choice by habit.”

From Why NFL Coaches Take No Chances:

The Journal analysis examines how coaches played their hand this season across three broad categories of game management: fourth downs; play calling (blitzing on defense; passing on early downs or with the lead on offense) and special teams (going for a 2-point conversion and onside kicks when ahead)…

University of Pennsylvania professor Cade Massey, who researches behavior and judgment, said many NFL coaches habitually choose to postpone the certainty of losing in football for as long as possible—even if doing so actually lowers the likelihood of winning in the end, such as opting to punt on fourth-and-short in overtime…

There is some evidence that coaches are seeing the benefits of riskier decisions. They are just becoming more aggressive at a very conservative pace.

In a 2002 paper, University of California Berkeley economist David Romer expressed hope that coaches would begin acting rationally in maximizing odds of victory when the related data became more widely available. And this year, coaches have gone for it on fourth down needing two yards or less 29.7% of the time—converting nearly two-thirds of attempt).

That’s up from 23% just before Romer published a paper entitled, “It’s Fourth Down and What Does the Bellman Equation Say?” Alas, at the present rate, going for it nearly all the time as the models advise would take over 100 years.

We think this is an excellent illustration of two ideas relevant to starting and running a high-growth company, over and above the obvious exhortation to take intelligent risks:  (1) the opportunity for a contrarian advantage and (2) the combination of data and gut instincts required to make the right call.

First, an excerpt from our  12/8/14 post, We challenged the dogma, and it was incorrect:

[The story about EOG Resources, a discarded division of Enron ] is an absorbing look at the “shale revolution” and touches on several of our favorite themes:  iterative collaboration, how to fail the right way, the incremental, adaptive ways by which success is achieved, and even the role of luck – although we’d describe it a bit more favorably as “serendipity.”

EOG is a great example of a contrarian definition of entrepreneurship:   see economic value where others see heaps of nothing, combine the self-confidence to defy conventional wisdom with the determination to overcome obstacles, and distinguish yourself more by the ability to achieve the impossible than the originality of your thinking.

Next, an excerpt from our 4/13/16 post, The Hidden Power of Trusting Your Gut Instincts:

(S)tudies show that those who rely on intuition alone tend to overestimate its effectiveness.  They recall the times it served them well and forget the times it didn’t.  Keeping a list of every time intuition is your only guide might be eye-opening.

“Common sense” justifications can be found for almost any conclusion, and as a result it can be shockingly unreliable and something that we over-rely on to the exclusion of other methods of reasoning.  Here’s how we put it in Everything is obvious once you know the answer:

It is “rarely practical to run the perfect experiment” before making a decision but we can be “more deliberative and reflective as we gather and analyze facts to inform our decisions.”  When we over-rely on common sense alone, we risk “rejecting a more thorough effort to solve a problem and settling for an easy one.”

… In our experience the best results often come from a combination of deliberation and intuition.

Finally, in the spirit of the (NFL playoff) season, we’d like to recommend two other pieces about NFL coaches that speak more to leadership challenges than data-driven decision making.

From 1/29/13, The imperfect perfectionist.  On the extent and limits of Bill Walsh’s innovative genius:

Coach Walsh’s West Coast Offense won the 49ers four (or five) Super Bowls, spawned copycats around the league and forced defenses to innovate in response.  Not a bad day’s work.  But obsession with perfection left him badly burnt out and his organization unable to implement his vision without him.

From 2/8/15, The NFL’s Best Coach*.  On the extent and limits of Bill Belichick’s…  innovative genius:

We suspect his efforts to gain those “edges off the field” will also be a permanent part of his legacy.  His team hasn’t been in 6 Super Bowls over 15 years because of deflated balls, or illicitly videotaped signals, or (pre-Belichick) a snowplow driven by a convict on work release.  But you earn the reputation and invite the asterisks when you proudly display that same snowplow in an exhibit at your stadium.

To paraphrase the old adage: reputations are built over the long-term, and can be forfeited in just a moment.  In our business failure can be counted on to make (at least) a cameo, so it’s critical to learn how to fail the right way and make a distinction between business failure and personal failure.  An entrepreneur (or coach?) can try too hard to avoid an enterprise failure and pressure himself into a career-damning ethical lapse.