The Peter Principle & Dunning-Kruger Effect: A man’s gotta know his limitations.

This article is a last of a series about a turn-around engagement I had in 2021.?

So, come along for a real life business story of The Peter Principle and/or The Dunning-Kruger Effect in action.

The story goes like this…

From the outside, even on the surface, the company looked successful.? But by the time I arrived, a serious cancer had metastasized and had left no organ, no business function, without considerable rot.? It was going to take invasive surgery and a lot of rehabilitation to save this company.

But it wasn’t always that way.

The company was started by an energetic entrepreneur who saw an opportunity 30 years ago and chased after it quite successfully.? And over the subsequent twenty-ish years, he had grown it to become about a $15 million dollar a year company; with a $15 million dollar a year footprint (~60k sf), a $15 million dollar a year workforce, and with $15 million dollar a year owner.

But a few years ago, the owner decided he wanted to be a $75 million dollar a year company.? In pursuit of this goal, the owner invested in a footprint (~250k sf), production apparatus, and workforce of a $75 million dollar a year company.

The company now had a workforce of approximately 150 employees yet was struggling to ship $2m of product a month.? Indeed, while the company looked like a $75 million dollar a year company from the outside, it still had a $15 million dollar a year owner.

Simply put, the company had grown beyond the owner’s ability to run it.? This is not to say he couldn’t run it.? But to be successful, he had to upskill himself and change his ways.

Boiling the frog

The story goes, if you put a frog into a boiling pot of water, it will immediately try to escape.? It recognizes the sudden change in its environment as a threat.? But if you put that same frog in a pot of water that is room temperature and slowly bring it to a boil, it will not sense the peril and will be slowly cooked to death.

This is the situation the business owner faced; being slowly boiled to death, not understanding it until he was nearly dead, and now is wildly flailing about as death has drawn nearer.

The owner knew his business was in trouble back late 2020 when I was first introduced to him by one of his mentors.? But COVID is not what was doing-in him and his business.? In fact, his business had benefited greatly because of COVID.

At the time of first contact, the owner had just brought on-board the first person to “fix” his company and he was confident they were on the right track.? At the time of my second contact in the beginning of 2021, the owner had fired the first person he hired and had just brought on-board the second team to help fix his company and he was confident they were on the right track.?

By the time of my third contact in mid-March of 2021, the second team had just been fired and he (seeming reluctantly) decided to give me a shot at helping him save his company.? And it was not a moment too soon.

With a quick one-week assessment, I was able to see the company was in real trouble.? And I was able to see that the owner had fallen into a common trap of entrepreneurs as their business grows; they believe they can still manage (I should say “micro-manage”) all of the activity in the business like they did when they were much smaller.

The owner was hiring leaders, but not letting them lead.? He would expect them to solve problems, but then be critical of how they solved them because they did not solve the problem the way he would have.? Of course, this approach meant that the people didn’t do much of anything without the owner’s blessing.? They acted as puppets on a string with the owner being the puppeteer.

But while I fault? the owner for the situation, I don’t blame him.? Rather, I understand him.? He was a frog that was slowly being boiled and he didn’t know it.? There are two principles that explain this.

The Peter Principle and The Dunning-Kruger Effect

The Peter Principle is an idea presented by Laurence Peter whose basic premise is that a person gets promoted in an organization until reaching a level of incompetence.

For example; take an employee who is the rockstar salesperson at a company.? The company promotes the rockstar salesperson to manage all the other salespeople in hopes that the salesperson’s “magic sales dust” will sprinkle on the other salespeople, and they will also become rockstar salespeople.

But the rockstar salesperson does not have the skills to be a manager.? He can’t seem to teach the other salespeople his skills, and he is no longer selling.? Both he and his company become frustrated and disappointed, and one of them makes the decision that they should separate.?

You might wonder why the company just doesn’t return him to the role of salesperson.? But by the time the situation reaches the crescendo, there is almost always bad blood and bruised egos involved that make it impossible for any outcome other than a separation.

The owner of this company self-promoted himself to a company whose size was beyond his capabilities to successfully run with the skillset he had.

The Dunning-Kruger Effect, put forth by David Dunning and Justin Kruger, is a bit different.? Whereas the Peter Principle is a perception initiated by others, the Dunning-Kruger Effect is about self-perception; a person believing they know more than they do and refusing to recognize their shortcomings until the peril becomes calamity.

ln most every major disaster in the history of the world could be an example of the Dunning-Kruger Effect; the Titanic (believed to be unsinkable), Hitler declaring war on Russia (‘nuff said), Hindenburg (hydrogen burns, helium doesn’t), and so on.

In the case of the owner of this company, he suffered from both the Peter Principle (he had promoted himself to a role for which he lacked the skills necessary) and the Dunning-Kruger Effect (more confidence than brains).

Never be the smartest person in the room

When I was growing up, my father laid some wisdom on me.? He said, “If you ever find yourself the smartest person in the room, you are in the wrong room.”? More true words were never spoken.

I gave the pushback because it’s my nature to red-team everything (and enjoy having my ideas and myself red-teamed). Besides, it was my job.? Yet I never saw the people give pushback on the essence of an idea, problem, or challenge; but only ever to let the owner know they were being over-tasked themselves.

I suppose the owner of this company did not believe this adage.? It appeared that his default setting was to hire people who were weaker and less capable than him in all the leadership roles.? In the leadership meetings I attended, there was never an instance where an idea put forth by the owner was ever challenged; nobody ever gave him pushback except for me.?

Nobody would even push back on the monthly shipment goals of $2m. ?In week three, they had only shipped $700k.? Yet the owner was telling the leadership team they needed $2m.? And instead of telling the owner what he needed to hear, they told him porkies – until the end of the month came and they had shipped less than $2m (again).

I believe that much of this behavior and the decisions made by the owner was to protect the owner’s ego.? He hired the leadership team he had to be extensions of himself and do his bidding instead of being force-multipliers.

So, although the owner knew he had to delegate and release responsibilities, he was reluctant (even resistant).? He was convinced of two things; that his way was the best (only) way, and the nobody else could do it the way he did it.? Therefore, the only time he would release to them was when he became so overwhelmed with tasks (both in volume and complexity) that he could no longer cope.?

And when this happened, instead of being joyful or relieved that someone else was taking on the task, he would let out a sigh of resignation at his failure – as if this was a sign of weakness instead of a sign of strength.

Grow or Go

Several years ago, I went to a business summit where the theme was “go or grow”.? The basic premise was; if you are not growing your business, you need to set it up so you can go.? The owner of this business had undeniably made the decision to grow his business as witnessed by the considerable investment he had made to that end.? But he had not yet found the way to grow into the type of leader the grown-up company needed.

I remember him telling me several times about his employees; “If they have the will, he could teach the skill”.? Unfortunately, although this owner had the skill to run a $15m per year company, he lacked the skill to run a $75m per year company.? What’s worse, he did not have the will to learn how and was in denial about his own inadequacies.

Instead, he spent a considerable amount of time sharing with me the significant successes of other company owners in the mastermind group to which he belonged; and his frustrations (perhaps envy) of his not achieving the same level of success.? It was as if he coveted and wanted to be them rather than to work to improve himself and make his own company best in class.? This is not a good place to be, mentally.

There were many occasions where he would share with me that he needed to hire a “General Manager”, but he could never explain to me what the roles and responsibilities of the General Manager would be and what his roles and responsibilities would be.? Nor was he able to articulate how the two would work together as a team; always gravitating towards the General Manager being an extension of the owner – another minion.

Indeed, a man’s got to know his limitations.

There are a couple of real take-aways in this experience that every businessperson should take to heart. Not only is it in your company’s best interest, but yours also.

• Don’t surround yourself with “yes-men”.? If you can’t take criticism you don’t deserve to own a business and you will never own a successful business.
• You don’t know everything, nor will you ever.? Therefore, you need to find people that know what you do not know and listen to them.
• You are not the best at everything, nor will you ever be.? ?Therefore, you need to find the people who are better at the things in which you do not excel and learn from them.
• You will never scale unless you surround yourself with people who can lead.? Therefore, you need to learn to support, but not micro-manage.
• You need to learn to get comfortable with people doing it a different way then you would.
• Everyone makes mistakes, even you.? Therefore you need to own it, learn from it, move on.
• Not all news is good news.? Therefore, you need to hear it anyway and deal with it.
• And, if something is a pain in your ass, take it out of your ass.

Just remember, many hands make the load light.? Chances are great that everything you need to be successful exists and is available.? You don’t have to invent it. ?All you need to do is find it.

Other articles in this series…

• Task Overload
• They Are Dumb
• Being Setup for Failure
• Mind Your Costs
• Production Hell
• Respect the Neural Network of Your Business

About the author

Joseph Paris is an international expert in the field of Operational Excellence, organizational design, strategy development and deployment, and helping companies become high-performance organizations.? His?vehicles for change?include being the Founder of; the?XONITEK?Group of Companies; the?Operational Excellence Society; and the?Readiness Institute.

He is a?sought-after speaker and lecturer?and his book, “State of Readiness” has been endorsed by senior leaders at some of the most respected companies in the world.

Click here to learn more about Joseph Paris?or connect with him on?LinkedIn.