Founder Superpower #11: Good Decisions
Below is an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here.
“Decision-making is everything. In fact, someone who makes decisions right 80% of the time instead of 70% of the time will be valued and compensated in the market hundreds of times more.” – Naval Ravikant
It took me many years to understand the power of somebody who makes good decisions. Get good at making decisions and you almost cannot lose in business or in life. I’m dead serious about this, so please pay attention. Think about it; life is just a series of decisions from what to eat, who to associate with, where to go to school, who to marry, who to go into business with, what marketing strategy to use, etc.
If you can make good decisions and consistently get better at that, then you will mostly avoid the landmines and bad choices that have doomed other people and businesses. Good decisions are basically a “cheat code” for life. Venture capitalists also throw piles of cash at people known for good decisions. Even a 5% better record of good decisions has massive exponential returns in business and in life.
So, how do you make good decisions? The obvious and funniest answer is “by making bad decisions,” but that’s not entirely correct. You make good decisions by learning from your bad decisions. A lot of people never learn from their mistakes. You know these types, and they usually live tragic lives. You also need to take the time to learn about and use good decision-making tools. Again I will mention how powerful even an hour or two of simple planning and thinking through decisions can dramatically improve your life.
A lot of people go through life from one bad decision to another, not really thinking they have any control, then blaming anything or anyone but themselves for their outcomes. Most people get their decision skills from their parents, for better or worse.
More and more, we’re learning that just avoiding the bad decisions in life (drinking/drugs, bad diet, anger/violence, bad relationships/divorce, excessive debt, not planning, etc.) will easily put you in the top 20% of a number of important metrics like wealth, happiness, longevity, and so on. A lot of decision-making is simply not making some big mistakes as I mentioned in the introduction.
Here are some top landmines and bad decisions that have destroyed countless companies, especially in the fragile startup phase:
- Disagreements and arguments amongst founders
- Bad financial planning or running out of cash
- Lack of financial controls in the business
- Ignoring your market or your customers feedback
- Not learning and applying new skills
- Not getting things in writing
- Anger: treating employees, vendors, or customers poorly (leading to lawsuits)
- Ego: not letting something go or going legal for all the wrong reasons (like hurt feelings)
- Not taking care of your health
- Skirting or working on the edges of the law
- Not planning anything (especially exit or succession) and not documenting your business
- Excessive socializing or getting romantically involved with people at the workplace
Making Good Decisions
Let’s go over some basics of good decision-making that I’ve learned and shamelessly stolen from great decision-makers over the years. The best decision-makers use some of these tools as well as intuition built from years of making good decisions. One tends to get better and better as you internalize these principles.
- Decisiveness. You don’t have much time in business to wait, so you need to place a sense of urgency on making decisions. You’ll likely never have 100% of the information you need to make the decision. Jeff Bezos, founder of Amazon.com, says, “Most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.”
- Be conscious and aware of decisions. A lot of people go through life on autopilot. These decisions include what to eat and how to take care of your body (over the long term), what to learn, what to focus on, who to marry, who to work with, where to move, and similarly important decisions that can potentially have a big impact on your life. Pay attention.
- Be deliberate. Set aside some dedicated time to actually think through a big decision, collect the information (opinions of others you trust especially) you need, and put things in writing. Writing equals clarity. Sometimes, even thirty minutes of dedicated time can bring about massive clarity. Also, make sure you’re relaxed and not under too much stress. Finally, act like you’re deciding for a loved one instead of yourself to help take out any biases (e.g.: you may be too easy or too hard on yourself).
- Reversible or not? Jeff Bezos has what he calls Type 1 decisions that are not reversible and you need to take great care in making them. Type 2 decisions can be reversed, so you don’t need to overthink them; you can take the plunge and correct course later. It’s important not to confuse the two types because it’s silly to waste too much time on a Type 2 decision. A Type 1 decision would be completely changing your company’s name, products, and services whereas a Type 2 decision would be adding a new product or service. At the least, Type 1 decisions should be tested before jumping in feet first.
- Pros and cons. Everyone is familiar with this tool but most don’t really use it. This is a helpful first swipe attempt at making a decision that has many factors. One way is to make a lists of pros and cons, but it seems that even writing out a story or narrative will make you think through the issue in a more complete manner. Sometimes, this alone can make a decision very clear. The author Seymour Schulich likes to take this one step further and assign each pro and con a score from 1–10. Tally the scores and if there are at least twice as many pros as cons, then it’s likely something that should be chosen.
- Second-Order thinking. It’s amazing to see, but most people don’t really think through what will happen after they make their decision. Often, your team won’t understand why you’re rejecting an otherwise “obvious” action. Good decision makers are always thinking “then what happens?” over and over when contemplating a choice so they can anticipate the effects of their decision. First-order thinking is only thinking about the immediate effects and can miss out on potentially devastating after effects. Try to think out several months or even years ahead. For example, it sounds great that we’re going to focus on a new market, but if we do that, what will happen to our existing market, revenue, focus, what will our existing clients think, what will our vendors do, etc.
- “Hell yeah! or no.” Serial entrepreneur Derek Sivers recommends this principle, especially if you are already busy or over-committed. Unless it’s something that you would say “hell yeah” to, then pass and maintain focus on your existing priorities. The successful entrepreneur Naval Ravikant further clarifies his tough decisions with the rule: “If you can’t decide, the answer is no.”
- Jeff Bezos’ regret minimization framework. Again, Jeff Bezos shows how much effort he puts into decisions with this one: We can never predict the outcome of a decision, but we can severely regret never having tried. Bezos likes to project himself forward in time to 80 years old and see if he may regret missing out on the potential upside of a decision. For example, he thought he would massively regret not trying to open an ecommerce business in the early stages of the Internet.
- Choose the more painful choice in the short term. Naval Ravikant has realized over time that almost all long-term gain comes from short-term pain (exercising, eating better, planning, saving, etc.). So if you have two choices to make and they are relatively equal, then choose the one with the most short-term pain, and that’s likely to have the best long-term gains. Absolutely brilliant.
- Think from first principles. This is an advanced tool, but great entrepreneurs like Elon Musk take decisions a step further and even question the assumptions behind the possible choices. For example, when he knew he needed a cheaper battery to make his electric cars affordable, he didn’t simply limit his choice as where to acquire a cheaper battery. Instead, he and his team broke down all of the construction and materials in a battery and found they could actually construct one far better, cheaper, and longer lasting than was currently available. This is taking a problem and thinking in first principles, try to take the assumptions down to the basics and work from there.
- Adopt Core Values and Principles. Written values and principles for yourself (as well as your company) can make many decisions easier. For example, if you’ve adopted a core value of “Simplicity” and the decision is whether to add a layer of complexity to a service or process, the core value tends to help you decide if that’s the correct way to go. I’ll go more into this topic in Step 6.
- Use a decision journal. As previously mentioned, learning from your bad decisions is an easy way to prevent a lot of problems. However, a lot of various human biases sneak in and over time they tend to dismiss the failures and exaggerate the successes and the reasoning behind them. Simply keeping track of your big decisions in writing (keep one file for “decisions”) and noting how they went later will give you huge insight into how to keep getting better at decisions and prevents your biased brain from deceiving you.
- Listen to your gut. Don’t discount the thousands of data points that your subconscious is constantly monitoring and giving you signals about. If someone seems distrustful, then be aware of that. If you get a bad feeling about a deal or person, then take that into consideration. Our gut has powerful instincts, so don’t ignore them. Differentiate between a “bad gut feeling” (something doesn’t feel right) and fear (totally normal).
Hopefully, I’ve conveyed the importance of decisions and how you can keep getting better at them. The simple fact that Jeff Bezos appears so much throughout the list above should demonstrate that the world’s richest man (as of this writing) places an enormous value on making good decisions and so should you.
This was an excerpt from our book Startups Made Simple: How to Start, Grow and Systemize Your Dream Business. Learn more about the book here or see our previous excerpts here.