The Herd at Work

What if your market perceives “best” to be the largest in terms of people and gross revenue? What if the market perceives “the right choice” to be a company backed by millions in private equity or venture dollars? What if your market perceives “the right choice” to be the company with name/brand recognition? What if the markets buy into that all these beliefs, and specify your competition is the absolute right choice because these things indicate the competition is bigger, stronger and more reliable over the long term? What if the herd mentality and the social influence reinforces the “everyone else is doing it, so they must be smart” decision path? What if the herd mentality helps eliminate the self-doubt?  What if you’re up against not just a few of these things, but all of them? Give up!

So first, in case we want some academics…herd mentality and social influence…what are they? They are real. They are a phenomena whereby people are influenced by their peers to adopt certain behaviors, follow trends, and/or make purchases. This isn’t always a bad thing, but as you read this, I know you are thinking of times when it has resulted in erroneous decisions and other negative outcomes. I mean heck, who hasn’t opted for a fast food restaurant over the local spot?

A series of experiments concluded that when people didn’t have a strong opinion about the choices presented to them, they simply mimicked the people around them. Rather than asking questions, or spending time learning about the options, people deferred to the “social default” and even made excuses for the inferior aspects of the herd mentality’s choice.

So when is it worth your time and risk to push back against the herd mentality? Maybe when you stop to consider the fact that study after study show that when one is unsure or doesn’t really care, they tend to join the herd even when the product or service is clearly inferior. Studies reveal that people do this because they are concerned about being ridiculed or mocked, or for not being in the know. Many times they are part of a business culture that rewards the herd mentality or is exceptionally risk averse and stagnant.

The fact is when we were little, most of us didn’t want to be called a copycat. Now that we’re older we seem to not mind it as much. The facts show that there’s a much higher chance of being successful if you take ques from the market leaders, but evaluate each large decision or purchase based on a set of measurable standards and try hard not to be influenced by the “crowd”. I suggest we try the Warren Buffet method of “value” decision-making and simply study the fundamentals. Or we can just remember our parent’s admonishment of “if everyone else was jumping of the cliff would you”?!