Tuning up the decision machine


Do you have a “golden gut”? Do you “go with your gut” when it’s time to make decisions? Do you make snap decisions? Well either way I highly recommend you read Steven Johnson’s new book, Farsighted, How We Make the Decisions that Matter the Most. The major takeaway is that we all have cognitive biases that make our intuition fail us but their are techniques that can help us make complex decisions more effectively.

We are talking about whether to have a cup of coffee or a hot chocolate on a cold day. The decisions Steven Johnson writes about are those that require deliberation, such as deciding it’s time to raise a new round of fund or finally hire a VP of Sales. He’s not into those behavioral economics lab experiments about kids and marshmallows – these are the complex choices that face founders if not every day, very frequently as they grow their companies. This is an area of particular interest to me and I’ve posted several articles on decision making. I believe it’s a mission-critical skill for founders.

David A. Shaywitz has a very helpful review of Farsighted in The Wall Street Journal: ‘Farsighted’ Review: How to Make Up Your Mind It’s difficult to rein in our cognitive biases and faulty intuitions, but there are tools that can improve our ability to make decisions. 

There are all types of cognitive biases, the list on Wikipedia is enough to make you give up on rational decision making in despair, everything from confirmation bias, which is the tendency to search for, interpret, focus on and remember information in a way that confirms one’s preconceptions to the Dunning-Kruger effect, the tendency for unskilled individuals to overestimate their own ability and the tendency for experts to underestimate their own ability.

In addition to being beset by cognitive biases, Mr. Johnson points out a major flaw in our decision process when we are faced with complex choices, such as deciding to acquire another company or sell off a product line. We tend to frame these problems too narrowly and he recommends that to counter this we bring in a wide diversity of viewpoints. Incidentally, this may be why research has shown that public companies with more women on their boards and in executive positions tend to perform better than male-dominated companies. Diversity is not just a do-gooder exercise, it will do you and your venture good as well.

I often recommend that founders set up strategic advisory boards once they have nailed their value proposition and target customers. Bringing in a group of six to nine experts in fields relevant to your venture can help you greatly broaden your decision making scope on strategic – not operational – decisions. Operational decisions are for your team. However, Mr. Johnson points out that while “groups often possess a rich mix of information distributed among their members,” when they assemble “they tend to focus on shared information.” So here’s a great operational tip for founders: communicate with your advisors and other stakeholders one-on-one when you face a major strategic decision instead of convening them all in a group, where the “herd mentality” can drown out outlier recommendations.

He cites research revealing that two-thirds of organizational decisions never contemplate more than a single option. The best way to counter this tendency is through scenario planning, “what if” exercises that examine a number of options, not just the one that seems most attractive.

Mr. Johnson goes from the abstract – linear value modeling, which weighs the relative relative importance of different goals to concrete tips like going for long walks – a favorite technique of Steve Jobs, by the way, and taking longer in the shower, a technique I find both pleasurable and productive.

He is one of our best science writers, the author of seven books on the intersection of science, technology and personal experience. It’s an easy decision to follow him via his email newsletter and/or Twitter, given that virtually all founders I mentor are at the intersection of science and technology.

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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