Making decisions on issues are parts and parcels of an entrepreneur’s life. Daniel Kahneman’s “Thinking Fast and Slow” describe the two systems where there is a part where we make quick and slow decisions based on the complexity of the issues at hand. It’s not difficult to decide simple issues, for example, buying of equipment and software for the team, but not easy when you are faced with making strategic decisions. No one is perfect and even I have made mistakes in making decisions. In the past year, I have been reading and thinking deeper about decision making process for strategic issues. The issue is that when we reflect the mistakes we made in our decision making, hindsight is 20-20.
“Making a decision reduces opportunities in the short run, but increases opportunities in the long run. To move forward your career, you have to commit to specific opportunities as part of an iterative plan, despite doubt & despite inconvenience.”
—Reid Hoffman & his dad, “The Startup of You”
To start, let me start with a few situations which you will probably encounter in the course of an entrepreneur’s life:
a. You started a fruitful first meeting with an investor, and have subsequently a few meetings. The investor continued to linger you around and appeared to be interested in what you do. The only issue is that nothing has been closed, not even a term sheet. You have invested in your keynote presentation, your effort and time above building your own business to woo this investor. You are not sure about pulling the plug. What should you do?
b. You are talking to a potential strategic partner that has the capability to increase your distribution channels, and you have invested time and energy to work with the corporate employee who has championed your start-up as a potential partner. The discussions have dragged on and your business are starting to crumble. You are not sure about pulling the plug. What should you do?
c. You want to hire this person as a potential executive to your company, but he or she is not committal to come to a decision. You put an arm and leg in the hope to get this person hired, hope to entice him or her with higher salary, more stock options and equity. You have run out of options and you are not sure about pulling the plug. What should you do?
In all three situations where anyone including myself, the common answer is to bear a “let’s wait and see” and “perhaps thing may change in the next few days”. Unfortunately, nothing happens even you give a few more days to let things take the natural course. We justify to ourselves why we should not give up, because we have invested in a significant amount of effort to cultivate the relationships. The irony is that in all three situations, the correct decision is to pull the plug on all three situations instead of being dragged on. It sounds counter-intuitive but if I am faced with the same situation again, I would have pulled the plug.
Are there ways to mitigate the risks that come with such decision making processes? Yes, there are. The way to do this is to lower the stakes of the issue.
The first thing is not to attribute every example on the list that I have laid out to be “do or die” or crisis situation. In every avenue you pursue to grow your startup, you should not bet everything on one event, i.e. a product launch and expect people to come or a partnership that brings you public relations value.
Reading books on how founder-CEOs have made great decisions, you see three ingredients: (a) the decision is counter-intuitive, data-based driven and not confirm to the herd mentality, (b) laying out options and really mapping the reality to the decision making process and (c) making a series of small bets to show how the counter-intuitive decision leads to a competitive advantage. You do not need to be fast in showing the world how your company is presented to the world, but you should be slow to build up every aspect even basic administration details (like your incorporation details because it impacts your shareholding and director liabilities) and accounting. The key trick is to build everything slowly and then get the building ready for prime time.
Once you have lower the stakes i.e. you make small bets, you can place small bets to each and every situation and focus on what you need: customers. Customers bring revenue and grow your company, hence the decisions you should make about complex strategic issues are strictly calculating how you can gather more customers rather than partnerships which you really do not know whether you can gain traction.
Of course, the best way to be better in decision making is to examine every decisions you make everyday. I have checked every decision I make in work and thought about their ramifications to the objective which we try to achieve. Only with more experience, we can be ready to make really difficult strategic decisions in the future.
Here’s a set of books which I have read and examined on the process of decision making:
- “Thinking Fast and Slow” by Daniel Kahneman
- “Little Bets” by Peter Sims
- “The Greatest Business Decisions of All Time“, by Verne Harnish
- “急着成功的人的不急的技术” by 吉田典生, a book recommended by my father in law, and an amazing companion to “Thinking Fast and Slow” in explaining how you build up a company without being fast, but building everything slowly. The result is that you build a great company with strong foundations. Unfortunately, the book is written in Japanese and translated to Chinese.