Business Advice from Van Halen

by Dan Heath & Chip Heath


Walk into an urban high school and look around at the kids. Roughly half of them will drop out of school. If you knew which ones, you might be able to steer them toward a different path. But you can't solve a problem until you can spot it, and how do you spot a future dropout?

Some Johns Hopkins University researchers, frustrated by the high-school-dropout rate, went looking for early-warning signs among students in Philadelphia. What were the telltale markers of a student who wouldn't graduate? Their analysis came back with astonishing clarity. Poring over eighth-grade attendance records, they found hundreds of students who had missed more than one out of every five class days. Of those frequent absentees, 78% eventually quit high school. Similarly, of the eighth graders who had failed either English or math, three out of four dropped out. No other factor — gender, race, age, or standardized-test scores — had the predictive power of those two patterns.

The researchers concluded that the school district could identify more than half of the students who would be likely to drop out before they even set foot in high school.

The early-warning flags didn't solve the dropout problem, of course, any more than a smoke alarm can put out a fire. But policy analysts at the National High School Center, armed with this information, were then able to review almost a dozen dropout-prevention programs with documented success that could be targeted toward the most at-risk kids.

What if you could identify the early-warning signs of a business problem? What if, in fact, the red flags are there right now, waving at you unheeded from information you've already collected?

Credit-card companies, for instance, have learned that by charting the "normal" spending habits of their cardholders, they can quickly spot fraudulent use. (Though sometimes the warnings of fraud can feel uncomfortably like character judgments, as when Dan bought flowers for his wife and AmEx, incredulous, immediately blocked his account.)

Google executives realized in November 2008 that flu outbreaks could be detected early by monitoring the number of times people searched for terms such as "flu" and "influenza." Because the searches are logged instantly, epidemiologists can spot flu outbreaks a full one to two weeks faster than they could have before. Perhaps someday Google might reconfigure this technology to spot and quash boy bands before they can infect your daughters.

Sometimes, though, there's simply no data available. Think about infrastructure problems, such as when a bridge collapses. The bridge will go down with nary a word of forewarning. To predict the collapse, you'd need a useful data stream. That's why engineers are designing sensors that would allow bridges to notify authorities of problems such as cracks, corrosion, or the loosening of bolts. You read that right: Bridges will soon be tweeting their every activity. (One suspects the Golden Gate will be insufferable.)

Your source of data doesn't need to be high tech. In fact, it doesn't even need to be numerical. Consider Van Halen. (We have been waiting years for a chance to write that sentence.) In its 1980s heyday, the band became notorious for a clause in its touring contract that demanded a bowl of M&Ms backstage, but with all the brown ones removed. The story is true — confirmed by former lead singer David Lee Roth himself — and it became the perfect, appalling symbol of rock-star-diva behavior.

Get ready to reverse your perception. Van Halen did dozens of shows every year, and at each venue, the band would show up with nine 18-wheelers full of gear. Because of the technical complexity, the band's standard contract with venues was thick and convoluted — Roth, in his inimitable way, said in his autobiography that it read "like a version of the Chinese Yellow Pages." A typical "article" in the contract might say, "There will be 15 amperage voltage sockets at 20-foot spaces, evenly, providing 19 amperes."

Van Halen buried a special clause in the middle of the contract. It was called Article 126. It read, "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation." So when Roth would arrive at a new venue, he'd walk backstage and glance at the M&M bowl. If he saw a brown M&M, he'd demand a line check of the entire production. "Guaranteed you're going to arrive at a technical error," he wrote. "They didn't read the contract.... Sometimes it would threaten to just destroy the whole show."
In other words, Roth was no diva. He was an operations expert. He couldn't spend hours every night checking the amperage of each socket. He needed a way to assess quickly whether the stagehands at each venue were paying attention — whether they had read every word of the contract and taken it seriously. In Roth's world, a brown M&M was the canary in the coal mine.
Like Roth, none of us has the time and energy to dig into every aspect of our businesses. But, if we're smart, we won't need to. What if we could rig up a system where problems would announce themselves before they arrived? That may sound like wishful thinking, but notice that it's exactly what Roth achieved. Surely, you won't be outwitted by the guy who sang "Hot for Teacher."

Where's the brown M&M in your business?

Dan Heath and Chip Heath are the best-selling authors.
A version of this article appeared in the March 2010 issue of Fast Company magazine.