Over on the Forward Partners blog, I dive into the mechanics of decision-making, acknowledging the influence of Leonardo Di Vinci’s Vitruvian Man, and exploring insights from psychologist Daniel Kahneman. Below, I jump straight into why we make bad decisions, and present a framework for how to make better ones. After all, startup success in it’s simplest form is just a series of good decisions.
Why we make bad decisions
As humans, we're not very skilled at assessing the probability of different outcomes and it's a result of our inability to fully understand the risk involved with our decisions. For instance, part of the reason why people play the lottery or gamble is because we overestimate the frequency of very rare occurrences that have large upsides.
Making bad decisions is part and parcel of being human - arguably it's unavoidable. What is avoidable is blindly falling victim to cognitive bias - systematic errors in our thinking that more often than not are behind the majority of our sub-standard choices. Here are some that are most important for you to be aware of as a founder.
Confirmation bias is the tendency to look for and favour information that confirms or strengthens your personal beliefs or hypotheses.
An example of this: The Iraq war and the perceived presence of Weapons of Mass Destruction is a prime example of confirmation bias gone wrong. Senior politicians 'saw' evidence of factories and delivery mechanisms when there were none.
Why is it important for founders? For founders, when you are very emotionally attached to your idea it's easy to fall into the trap of confirmation bias. It's important to balance the belief in your product and idea with the needs of the users. Of course, you should seek validation but you should also be actively looking for information that falsifies your hypothesis - it will enable you to spot holes before they become a real problem.
TOP TIP: Reading the Mom Test will provide great insight into how you should be interviewing your customers. You're doing it wrong if you start a conversation with "I've got this great idea what do you think?
Groupthink is a psychological phenomenon in which the desire for uniformity or consensus results in often well-intentioned groups settling on a bad decision just to avoid conflict.
What is an example of this? The Challenger Disaster was an example of Groupthink gone wrong. The engineering team knew about faulty parts months before the launch but due to them not wanting the negative press at the time, didn't flag the problems.
Why is it important for founders? This is not carte blanche to get dictatorial on your team members. You want to reach decisions that are optimal for your business, and the best way to do this is by ensuring that all decisions are subject to a healthy dose of critical evaluation.
TOP TIP: If you see people getting complacent you can almost guarantee that people aren't being as critical of their decisions as they should be and are therefore at risk of Groupthink. If people like this are making decisions, put yourselves in the shoes of a child and ask them the question "Why?
Stress and anxiety
The explanation of what stress is should need no introduction but the effect on decision making is rather unusual. In stressful situations, humans are actually more likely to focus on the upside of a decision rather than the down.
What is an example of this?
The 2008 financial crisis and the RBS catastrophe was no doubt influenced by the stress of racking up debts of £24bn and ultimately needing a government bailout. This didn’t happen overnight and was the result of years of bad decision making. The compounding levels of stress will almost certainly have required RBS to take riskier and riskier decisions in order to extricate themselves from the situation.
Why is it important for founders?
Experiencing stress as a founder is almost a given. In manageable quantities, it has been proven to actually improve performance. There is however a tipping point where stress starts to adversely affect people’s decisions. As a founder understanding where this point is, not only in yourself but also in the teams around you, is critical if you want to stay on the right track.
TOP TIP: There are many ways of handling stress. Some people meditate, some exercise. I have found that puppy gifs are what do it for me.
There are many, many other reasons that can lead to poor decision making. I’ve listed a few more below should you care to explore this topic further.
Inexperience, overconfidence, anchoring, and more...
Some personal biases I fell victim to:
Making decisions without understanding the time frame you have will lead to bad decisions. It's why I have spent many long evenings writing this article!
Being my first long-form content piece it’s not surprising that I didn't appreciate the time required as I lack the necessary experience needed to make robust decisions.
Having two small children mean that I am sleep deprived and as a result, took the riskier option in agreeing to write this article.
Being in denial about my situation will probably be the final nail in the coffin.
A few others:
Overconfidence is another example of our inability to assess the probability of a problem occurring.
Anchoring a decision based on an initial value or thought can lead you down the wrong path.
The Halo Effect describes how first impressions are so important and how we make decisions based on very small amounts of data.
To make better decisions and be more creative cut out the coffee.
A framework for making decisions
With so many cognitive biases to navigate, you are probably thinking "How on earth am I ever going to be able to make a decision let alone make better decisions without it all going belly up?" Fortunately, aviation and systems theory provides a great framework called DODAR to help you make these decisions.
What makes the DODAR framework so powerful is that it’s a closed-loop system, meaning that there is an in-built feedback loop. (As opposed to an open-loop system where the output has no influence on the input). You have the ability to change the decisions you make based on their outcomes, thus constantly re-evaluating and checking you’re on the right path.
"If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and 5 minutes thinking about solutions.
The output of this stage: A clearly defined problem with expected outcomes.
Practically speaking: It’s very easy to start with solutions. Don’t do that. You should always try to define the problem as clearly as possible. Spend time here and don’t rush it. User stories are great examples of 'problem statements' that help you clearly articulate who the user is, what their needs are and what their expectations are.
The structure of a user story might be: 'As (some type of user) I want to (goal for users), so that I can (some reason)'.
The output of this stage: A list of options that can be completed in the time available.
Practically speaking: It might be very clear what the best course of action is, however going through an ideation process will always be a useful exercise to explore the edges of the problem. In my mind, this is the most fun part of the process. It’s time to explore ideas and possibilities. When brainstorming, it’s important not to shut down any ideas.
The output of this stage: A decision on a course of action for the team.
Practically speaking: There are a number of frameworks that help with prioritising which decision to make - ICE (Impact, Confidence, Ease) being the most obvious. However, don't feel obliged to strictly follow these frameworks as quite often there’s an important consideration that should be included given the nature of your business, i.e. how much the decision will delight the user.
It's also important to note that who makes the decision is as important as the decision itself. Whilst a flat hierarchy is nice in principle, someone needs to make the final call. The RACI framework helps with setting this up properly.
The output of this stage: The steps required to action the decision and monitoring that work.
Practically speaking: It’s very rare that your plan will go according to plan. Change is the only constant, so you should expect this. Its how you handle that change that's important. Daily stand-ups with your team members will ensure you all have visibility over progress. This immediate feedback cycle is critical if you want to keep things on track.
The output of this stage: A critical assessment of the whole process.
Practically speaking: This is the step that will close the loop. Reviewing the progress of any project is critical for successfully revising the inputs of the process going forward. This is where 'retrospectives' come into play - an agile tactic that occurs at the end of a tech sprint or when a known failure has occurred. Not only are retro's a great way to get to the root cause of a problem, but it gives everyone in the team a platform to voice any blockers or frustrations.
The only truly bad decision?
The only truly bad decision that you could make is not having a proper decision-making process. Startups are dynamic, quickly-changing beasts, and it’s an indisputable fact that you will make multiple wrong decisions as you grow your company. What’s important is that you:
A) Have an awareness of how different personalities in your team approach decision making, and ensure your processes are inclusive (explored here),
B) Understand how cognitive biases such as Groupthink can kill good decision making, and
C) Adopt a closed-loop system that allows for and promotes regular and candid feedback.
Without these three things, you will always be on the back foot.
There is a concept called the Swiss cheese model where each slice of cheese is a barrier to stopping an error from occurring. Nothing is foolproof and like Swiss cheese, there are holes in these barriers. It's only when these holes align that an error will occur. Thus, the DODAR framework is just one slice of cheese and should be one of many tools that you implement to help you stop errors from occurring.
To re-iterate, if you only take away one thing from this article it’s that the only objectively bad decision you can make is not having a way to detect and mitigate errors in your decision-making process when things go wrong.
How to make faster decisions by Patrick McGinnis - https://www.ted.com/talks/patrick_mcginnis_how_to_make_faster_decisions
Cognitive biases and decision-making - https://prezi.com/sghlnxzwtu_c/chapter-6-common-biases-errors-in-decision-making/
Decision-Making: A cognitive science perspective - https://pdfs.semanticscholar.org/f23e/259ac06a3267f1ece2c38791fba732ebb5b0.pdf
OODA Loop - https://en.wikipedia.org/wiki/OODA_loop
6 decision-making frameworks that help startup leaders make tough calls -
Top 10 ways to make better decisions - https://www.newscientist.com/article/mg19426021-100-top-10-ways-to-make-better-decisions/