Running a startup is one of the best tests around for one’s decision making ability. Every decision might be your last as a business.  So, I have this theory, or maybe its a framework, for decision making that I’m putting to the test right now. (Caveat – I have no empirical proof this works, its just a pattern I’ve recognised)

While I don’t think its possible to make the right decisions all the time, I think the probability of making the right decision goes up when you know what type of decision you are making. My theory is that there are three decision types; Data, Gut and Guess. Knowing which type of decision is being made, I think, increases the chances of making the right decision and catching the wrong one as early as possible.

A Guess decision is the one you don’t want to have to make. Most entrepreneurs make a Guess decision to do a startup that is totally new, like Tivo, Skype, etc.  The entreprenuer says, “I think this will work and people will love it”. There’s no data to support the vision (that gets fabricated later when they put their pitch slides together!), there’s no history or precedence. The entrepreneur just believes, irrationally. This type of decision is highly risky. Despite that, we make Guess decisions all the time; “I think I’ll like this movie, I’ll watch it”.  We make these decisions because even though the risk of being wrong is high, the stakes are low.

A Gut Decision, is based on what often feels right (Malcolm Gladwell goes into great detail about this phenomenon in his book Blink).  For example, I don’t have any data to support my decision framework, but I recognize a pattern. While I can’t put my finger on the data or rationale to support it, my gut tells me this is true. If you’ve got kids, you experience Gut decision making when you leave the picnic right before your kids have a melt-down. If you’re a good soccer player, you experience it when you stick a foot out to block a shot before the opposing player has even hit the ball. Both are decisions based on experience we’ve gained which plays out as pattern recognition. This type of decision making is powerful because its quick and often right.

A Data Decision is self-explanatory. Given the necessary time, having the data is nearly always the best (unless you’re going to buy stock or start a business!) because they are not as subjective. In society we recognise this decision type as superior and often call it an informed decision. Of course, if we’re not careful we can manipulate the data to support a Gut or Data decision.

The trick of this framework, is recognising where on the spectrum a decision is being made… “This is really a Guess decision, I don’t have enough experience for this to be pattern recognition”. Knowing the type of decision then helps you decide what to do – “there’s too much at stake, I need more data” or “I’ve seen this before it isnt going to end well, my Gut’s telling me”.

In practice, I can already look back at one big decision I made that was wrong for us (I’m not going to dish-the-dirt on it right now though!). Looking back, a bit more rigor in applying my own rules would have yielded better results.

I suppose the ultimate test of this theory is whether we’re around this time next year…stick around and find out!

Your thoughts?

billflo Ian