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Breaking Bad Economics

The TV series ‘Breaking Bad’ had a phenomenal success, including in business economics when judging by the number of articles written about its lessons for management. In short: Obsess over product quality (to produce the king of meth); Avoid over-engineering and manufacture at the lowest possible costs (starting production in an RV); Make the enterprise scalable, including through partnerships in distribution (in this case with local gangs); When market momentum is achieved, industrialize the production process to gain economies of scale (the ‘Superlab’ in the basement of an industrial laundry business); And establish a dominant market position. Finally, a few management gurus use the story to remind everyone tongue-in-cheek that high growth business opportunities can come from unexpected places.

(Forget about the fact that the main character is selling illegal drugs. Spectators tend to have a sweet spot for villains and their disturbing acts, perhaps a Freudian impulse to tickle their own ‘death drives’.)

But there is something else about Walter White aka Heisenberg, the series’ protagonist, and his phenomenal ascension to the top of bad business as a criminal mastermind: he keeps on enjoying wins after wins, ending up amassing $80 million with a year’s work. The notion that success breeds success is long established. What is more interesting is that it has been biologically validated.

The ‘winner effect’ is investigated by John Coates in ‘The Hour Between Dog and Wolf: Risk Taking, Gut Feeling and the Biology of Boom and Bust’ (2012). John Coates notes that ‘an animal winning a fight or a competition for turf [is] more likely to win its next fight. […] The mere act of winning contributes to further wins’. The explanation resides in the fact that winners see their level of testosterone, an anabolic steroid, increase over time. Losers instead see their level of testosterone decrease whilst their level of cortisol, the anti-stress and anti-risk hormone, increases, which may eventually lead to pessimism, withdrawal and depression. This is simple biochemistry.

Note that the chemical surge which comes with repeated success can eventually lead to euphoric over-confidence and irrational risk-taking. Many traders have damaged or destroyed their career when literally on steroids, and, as a group, have contributed to market booms and busts according to Joan Coates. The ‘winner effect’ ought to be kept in check. Otherwise success kills success. The same patterns are recognizable at the level of an entire organization.

As a practical lesson from Mr. Coates’ studies, all successes, including the modest ones, need to be celebrated. They all contribute to the creation of a virtuous circle leading to long-lasting winning streaks. Just like crystal meth in the underworld, business momentum starts with good chemistry.

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