As I’ve written before, I consider startups to be decision machines, ones that founders must learn to live with, and if they are too thrive, to conquer. And while I have several posts about decisions, I haven’t tackled the argument of relying on data versa gut instinct. Google considers itself a decision machine, as illustrated by how they decided that the variation of blue would grace their home page. As I recall the color choice of their chief designer was overridden by the one presented by data, as Google AB tested dozens of variation and went with the one dictated by data. The designer left Google soon after.
But as the founder of a startup you don’t have the luxury of a money machine like Google to indulge in AB testing of every decision. Startups need to be fast, flexible, and focused – the three characteristics not generally possessed by legacy companies and making up the wholly trinity of startup’s competitive advantage.
The article in The Wall Street Journal ‘Feel the Force’: Gut Instinct, Not Data, Is the Thing by John Stoll is worthwhile reading, as it reveals how the mega-movers in the tech world, including Jeff Bezos and Masayoshi Son make their decisions. According to the article ” Research shows that most business leaders trust intuition over analytics.”
KPMG LLP’s recent global CEO survey shows just 35% of executives highly trust their organization’s data. Two-thirds of CEOs ignored insights provided by data analysis or computer models in the past three years because it contradicted their intuition.
Brad Fisher, KPMG’s U.S. leader of data and analytics, said companies beefing up their analytics units must also find ways to sharpen executives’ instincts.
“You should collect as many data points as you can,” he said. “But don’t throw out your intuition.”
But there is a downside to data, as an over-reliance can “numb the intellect and dull decision-making skills. The reality for both founders and venture capitalists is that both must make decisions with just a sliver of the data generally mandated for a decision in established corporations. That accounts for the definition of “venture” in venture capital: a risky or daring journey or undertaking: pioneering ventures into little-known waters. a business enterprise involving considerable risk.
What I encourage founders to look for are signals, data points that point you to a sound decision. If your job candidate is brusque and rude with your administrative assistant that sharp data point should alert you to an egotistical performer who you don’t want on your team regardless of their alma mater, GPA, or shiny resume. Of course, finding signals that actually lead to effective decision making is not easy and can tend to be impossible by those brought up in the data-driven culture of large tech companies.
Mr. Bezos acknowledges the need for a reliable gut. “If you can make a decision with analysis, you should do so,” he said during a speech I attended last year. “But it turns out in life that your most important decisions are always made with instinct and intuition, taste, heart.”
As venerable professor of entrepreneurship at Harvard Business School, William Sahlman once told me, “Startups are a succession of small experiments.” Despite the fact that many successful people from Mr. Son to Bill Belichick, Coach of The New England Patriots rely on their instincts at the end of the day, the rest of their day may be devoted to gathering and evaluating data.
Startups by their nature have little or no data to help make many of their decisions, from the name of their venture to what market they should target. But there are two types of data, that derived from secondary sources, like Glassdoor, and data derived from primary sources, like interviewing a job candidate.
When there is good secondary data available to help you make a decision, such as salary data on a site like Glassdoor you should go ahead and use it. But data and instinct isn’t either/or, it’s both. Data can either reinforce your gut instinct or cause you to revisit it. The web enables reams of secondary data and founders should make good use of it when appropriate. Just be wary of “paralysis by analysis.” Any decision can be better than none in many cases.
Founders must hone their instincts through practice. And when data and instinct aren’t sufficient it is time to call on your mentors or advisors, who should have their own instincts honed by many years of practice. When you are trying to convince others – be they investors or customers – you are going to have to lead with your data. As legendary management consultant W. Edwards Deming said, “In God we trust. All others bring data.”