Entrepreneurs: Learning the Elementary Art of Decision Making
What can we pick up from the master of deduction himself?
Most successful entrepreneurs have made radical decisions, from Bill Gates, Mark Zuckerberg and to the late Steve Jobs. Those decisions were considered crazy at the time and yet today they seem obvious.
And yes, it can’t get crazier than a car in orbit around Earth. When Elon Musk “doubled down” on Tesla by putting in $35 million in cash, his calculated move paid off because Tesla is now worth $2.5 billion and the company continues to track upwards.
Decision. Yes, it boils down to decisions.
Let’s turn to SCIENCE for a definition.
“Scientific decision making is a systematic approach to collecting facts and applying logical decision-making techniques, instead of generalising from experience, intuition (guessing), or trial and error.”
Starting a business is just the beginning of many decisions. Entrepreneurs must constantly decide, whether big or small. Overwhelmed by the burden of making countless decisions, sometimes it’s easy to fall into the trap of shorter and easier alternative routes. However, this can lead to what is known in psychology as heuristics or mental shortcuts to make decisions.
For the sake of convenience and speed, we use mental shortcuts in making simple decisions as they do not use as much cognitive resources.
Is there a model for making better decisions?
Well, we can’t escape the best exemplar of rational science as he strings along its logic and method in making ace decisions- none other than Holmes, Sherlock Holmes.
So, what can we possibly draw from a detective? Well, he runs a unique business as a consulting detective, doesn’t he?
PLEASE MIND THE DECISION GAP
One of the Holmesian line’s, “You see, but you do not observe. The distinction is clear”, remains a classic.
This is one of his famous quotes as he makes a supersonic series of brilliant deductions. His tactic is simple – observe, deduce and when the impossible has been eliminated, whatever remains, even if it seems improbable, must be the truth.
“The world is full of obvious things which nobody by any chance ever observes.”- Sherlock
This is especially true when dealing with swiftly evolving markets and technologies. The ability to observe rather than just see can help entrepreneurs spot a gap in the market and exploit opportunities offered by technological innovation, where others may be blind to the vision. Entrepreneurs who rely on their abilities to observe, seize, and innovate will stay ahead of the competition.
Illustration: The story of Airbnb. In 2007, when Brian Chesky and Joe Gebbia, both 27, had just moved to San Francisco. They were struggling to pay their rent and were looking for a way to earn extra money. When a design conference came to San Francisco, they noticed that all hotel rooms in the city were booked. They decided to rent out three airbeds on their living-room floor and the promise of a breakfast.
They created airbedandbreakfast.com which attracted their first guests. ‘As we were waving these people goodbye Joe and I looked at each other and thought, there’s got to be a bigger idea here,’Chesky said.
So, what do we learn here?
It wasn’t their primitive instinct, which is only useful for survival: food, shelter and defence, that propelled them in that direction. It was more. They observed a problem, got creative, followed through despite multiple rejections from VCs who didn’t see air mattresses on living rooms as the next hotel room.
This backs up the definition “pursuit of opportunity beyond resources controlled”
Broke but not broken, the duo even turned to selling cereal. With their special designed Obama O’s and Cap’n McCains boxes, their bootstrapped marketing idea fetched them $30,000 to support their company.
Their decision was born out of their ability to observe and that allowed them to disrupt the multi-billion-dollar hospitality industry.
THE HUNT FOR NEGATIVE EVIDENCE
What is negative evidence? Oxford Dictionaries defines it as:
“Evidence for a theory provided by the non-occurrence or absence of something”
What’s distinctive about Holmes is that he never succumbed to the snare of ‘easy facts’.
His infamous line, “To the curious incident of the dog in the night-time” taken from The Adventure of Silver Blaze” perfectly sums up negative evidence. Sherlock looked for the most unobvious clue in successfully solving the murder mystery.
Illustration: Think Blockbuster. It was founded in 1985 and was one of the biggest names in the video rental space.
In 2004, Blockbuster employed 84,300 people worldwide and had 9,094 stores. However, come 2010, Blockbuster filed for bankruptcy. They failed to embrace the digital model. Although its demise can’t be attributed to digital alone, but yes, it was one of the main reasons. When Netflix made an offer to sell their company to Blockbuster for US$50 million, the Blockbuster showed zilch interest. Fast forward to 2017, Netflix posted $11.7 billion in revenue and the CEO said that company will see $15 billion in revenue in 2018.
So, what do we learn here?
15 years of glory and success prevented them from seeing the need to change something that was working perfectly. The unobvious fact was the unseen change. They failed to anticipate the sea change. Even though they had an opportunity to be part of the wave, they blew it. When they realised that the tide had changed, it was too late- they were already drowning in its current.
To thrive in an ever-changing world, you must keep both eyes and ears open, free yourself from emotions and past successes and observe the world dispassionately and objectively.
I THINK, THEREFORE IT IS
“It is a capital mistake to theorise before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”- Sherlock
One of the biggest pitfalls in human nature is the natural tendency to think we are always right, ignore evidence that contradicts our beliefs and only accept evidence that supports them.
“If the facts don’t fit the frame, it’s the facts people reject, not the frame.”- FrameWorks
Peter Wason, an English psychologist, calls it the Confirmation bias. It is one of the deadly sins- a treacherous human inclination to confirm our own pre-existing beliefs and views.
It is not only deceptive but it cripples the critical decision-making process. It overlooks all insights from data but instead focuses only on ones that produce ‘facts’ to suit the prevailing conclusions- a fatal flaw.
Illustration: Kodak is the best example of confirmation bias. They ignored the advent of digital age because if they had made themselves invincible for a hundred years, so they thought why heed the warnings?
Disruption is an opportunity and not a threat. Even if they had seen it as a threat, they would have at least followed the signs and made decisions in a more prescient way.
Simple basic heuristics.
So, what do we learn here?
The digital disruption could have opened new paths for Kodak. In fact, it would’ve been easier for them since they had the finances, resources, competencies and were already ‘in the market’. It was just a matter of renewing their approach to the new market.
To survive you must free yourself from the clutches of confirmation bias that blinds you to the reality of change. First things first, acknowledge that The Only Thing That Is Constant Is Change. We cannot see the future with your eyes closed and our ears shut.
Conclude Like Sherlock
These are just a few takeaways from Holmes’ genius methods of arriving at a conclusion.
Sherlock will be as pleased as punch to know that our economy is moving closer and closer toward a complete data-driven decision rather than beliefs. Well, assuming that data is used intelligently for it to be of any use.
We need to replace heuristics with clever data.
Data is power and that power can be used to help make better decisions and distinguish between a working and a non-working plan.
Data is what it is. It provides objective answers that allow us to make informed decisions – we can finally stop guessing.
And because entrepreneurship is like skating on thin ice- every turn, every dime, every resource, every second and every decision matters.