We found John Cassidy’s essay in the Oct. 5 New Yorker, “The Real Reason that Capitalism is so Crash-Prone,” to be illuminating about the challenges of managing in an irrational context, like the recent credit craze or the more distant dot-com and telecom bubbles. Cassidy argues that, even if managers know that they are in the middle of a bubble, they have little choice but to go along. Boards and investors tell them: “Do it, or move aside so that someone else can.” Few can resist such pressure.

We promise not to write something every time there’s a surge in mergers and acquisitions, but we wanted to note that there has, in fact, been the sort of increase that we expected. Deals are out there, and financing is available, as was noted in The New York Times. Good deals will position companies well as we make the slow climb out of the Great Recession.

Bad deals, of course, will not. So those considering M&A still need to stress test their ideas to weed out the bad ones or at least to be fully aware of potential problems and negotiate more carefully.

Bad deals, of course, will not. So those considering M&A still need to stress test their ideas to weed out the bad ones or at least to be fully aware of potential problems and negotiate more carefully.

When we remodeled our homes some years back, we decided that the most expensive words known to man were, “While we’re at it. . . .” In doing the research for our book, though, we realized that the words, “Well, we have to do something,” have caused far more damage.

Executives convince themselves that, no matter what, they have to achieve some stock-price goal, some market-share goal, some profit goal. So, they lay out a strategy that might work and roll the dice, even when the odds are stacked against them. In other words, they take what they think is their best bet even though an objective review would show they aren’t making a good bet. Often, they lose.

Sometimes, they lose billions—making us feel a bit better about those bad thousand-dollar decisions we made while remodeling.

We’ve updated “Perfecting the Art of the Deal,” a working paper that applies our research to potential mergers and acquisitions. Read the introduction below and click to download the entire article in PDF form.

While our whole premise for this blog and the book that spawned it is that too few people try to learn lessons from failure, there are a few books that have looked at specific kinds of failure and teased out the lessons. Some of these books are well worth reading. We’ll highlight some in this [...]