Analysis Paralysis

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Ken Lombard, of Capri Capital Partners, loves putting together deals. But he recognizes that risk is always involved.

In an interview published in Sunday’s New York Times, he talked about how he negotiates this balance. “Before I make a tough decision, I want to be on the ground, I want to roll up my sleeves and understand the opportunity,” Lombard explained.

Once the opportunity is understood, then Lombard considers how to make use of it responsibly. “You should try to figure out a structure that mitigates your downside,” he advised—but not to the point of running scared. “While I understand that analysis tells you what you need to hear in how you need to structure a deal, there’s a difference between deal makers and analysts,” he said. “Analysts can tell you everything wrong with the deal; the deal maker is going to try to figure out a way to come up with a structure that makes sense.”

Peter Drucker would have considered this focus on opportunity first and risk second the right approach. Protecting your flank is essential, but analysis must not cripple you. “The innovators I know are successful to the extent to which they define risks and confine them,” Drucker wrote in Innovation and Entrepreneurship, but they “are not ‘risk-focused’; they are ‘opportunity-focused.’”

Drucker made the same point in Managing For Results.  “A business has to try to minimize risks,” he asserted. “But if its behavior is governed by the attempt to escape risk, it will end up by taking the greatest and least rational risk of all: the risk of doing nothing.”

And Drucker would have nodded vigorously at Lombard’s comment about analysts providing lots of reasons not to cut a deal. “There are always good reasons for not doing anything if one starts out searching for the negative,” Drucker noted. “Risks, however important, are not grounds of action, but restraints on action. The actions themselves should be selected so as to maximize opportunities.”

How do you break out of “analysis paralysis”?