’Cause right now you’re just a liar
a straight mentirosa
today u tell me something
y manana es otra cosa
—Mellow Man Ace, Mentirosa

When a company starts to lose its major battles, the truth often becomes the first casualty. CEOs and employees work tirelessly to develop creative narratives that help them avoid dealing with the obvious facts. Despite their intense creativity, many companies often end up with the exact same false explanations.

Some familiar lies

“She left, but we were going to fire her, or give her a bad performance review” – High tech companies tend to track employee attrition in three categories:

1. People who quit

2. People who got fired

3. People who quit, but it’s OK because the company didn’t want them anyway

Fascinatingly, as companies begin to struggle, the third category always seems to grow much faster than the first. In addition, the sudden wave of “semi-performance-related attrition” usually happens in companies that claim to have a “super high talent bar”. How do all these superstar employees suddenly go from great to crap? How is it possible that when you lose a top-rated employee before you can say “unwanted attrition”, the manager carefully explains how her performance fell off? 

“We would have won, but the other guys gave the deal away” – “The customer selected us technically and thinks we are the better company, but our competitor just gave the product away. We would never sell so cheaply as it would hurt our reputation.” Anybody who has ever run an enterprise sales force has heard this lie before. You go into an account, you fight hard, and you lose. The Sales Rep, not wanting to shine the light on himself blames the “used car dealer” Rep from the other company. The CEO, not wanting to believe that she’s losing product competitiveness, believes the Rep. If you hear this lie, try to validate this claim with the actual customer. I’ll bet you can’t.

“Just because we missed the intermediate milestones doesn’t mean we won’t hit our product schedule” – In engineering meetings where there is great pressure to ship on time—a customer commitment, a quarter that depends on it, or a competitive imperative—everybody hopes for good news. When the facts don’t align with the good news, a clever manager will find the narrative to make everybody feel better—until the next meeting.

“We have a very high churn rate, but as soon as we turn on email marketing to our user base, people will come back” – Yes, of course. The reason that people leave our service and don’t come back is that we have not been sending them enough spam. That makes total sense to me, too.

Where do lies come from?

To answer that question, I thought back to a conversation that I had years ago with the incomparable Andy Grove.

Back at the tail end of the Great Internet Bubble in 2001, as all the big technology companies began missing their quarters by giant amounts, I found myself wondering how none of them saw it coming. One would think after the great dot-com crash of April 2000, companies like Cisco, Siebel, and HP would realize that they would soon face a slowdown as many of their customers hit the wall, but despite perhaps the most massive and public early warning system of all time, each CEO reiterated strong guidance right up until the point where they dramatically whiffed their quarters.

I asked Andy why these great CEOs would lie about their impending fate.

He said they were not lying to investors, but rather, they were lying to themselves.

Andy explained that humans, particularly those who build things, only listen to leading indicators of good news. For example, if a CEO hears that engagement for her application increased an incremental 25% beyond the normal growth rate one month, she will be off to the races hiring more engineers to keep up with the impending tidal wave of demand. On the other hand, if engagement decreases 25%, she will be equally intense and urgent in explaining it away: “The site was slow that month, there were 4 holidays, we made a UI change that caused all the problems. For gosh sakes, let’s not panic!”

Both leading indicators may have been wrong, or both may have been right, but our hypothetical CEO—like almost every other CEO—only took action on the positive indicator and only looked for alternative explanations on the negative leading indicator.

So if you read this and it all sounds too familiar and you find yourself wondering why your honest employees are lying to you, the answer is they are not. They are lying to themselves.

And if you believe them, you are lying to yourself.