It can be lonely running a business. Customers, team member, shareholders, regulators – all looking to you to deliver to their expectations. Business decision making for entrepreneurs is a big part of the job.
Expectations mean decisions. And decisions aren’t always easy or the right answer obvious. But decisions have to be made.
So how can a business mentor help? One of the reasons I became a business mentor was simply that I wanted to provide a service that I was never able to find myself.
As such, part of what I do is help my clients break down decisions, and have a process that ensures that these decisions are made in a manner congruent with my client’s values.
Business decision making for entrepreneurs
Decisions involve two important criteria which can be hard to measure and even harder to assess.
Whatever the decision, you need as much objective data as you can.
A famous example of this is back in the 1970s when then US Secretary of Defense Robert MacNamara demanded everything about the war be measured. He was obsessed with statistics and data to make the right strategic decisions. And, it is true ‘what gets measured, gets done.’
In business, it can sometimes be a challenge to measure or obtain all the data you need. In my experience though, too many entrepreneurs rely on ‘gut’ instinct (more on that later) rather than objectifying the issue facing them through good data.
Data is only half the equation
Except some decisions have input that can’t be quantified. McNamara was reminded of this when a colleague told him some data was missing. ‘The feelings of the Vietnamese people. You can’t reduce that to a statistic.’
Data is only half the equation.
You need to estimate the probability of a given outcome, and the impact this has. And the probability is hard to estimate, let alone intuit. We are simply not hard-wired to be good at estimating probability.
We evolved in the savannahs to determine life or death decisions. There is a lion. If I run, I live. If I stay, I die. Binary choices with 100% probability.
It’s not easy putting effort into something you are only 70% sure about (let alone being able to even say you are 70% sure!) It is easier to work on something that you think has a 100% chance of success. Unfortunately, this cavalier attitude towards risk leads to overconfidence, stubbornness and ignoring warning signs until it is too late. This can be a real trap when making business decisions.
I was determined to find another way to achieve my dreams and I knew there had to be a third way, which would allow me to be happy and to earn a very good living to provide for all my dreams and desires.
Decisions don’t always involve change
In business decisions making for entrepreneurs, sometimes we are our own worse enemy. It’s especially true for business owners – we have a bias for action.
It is a sign of maturity to be able to make conscious decisions to do nothing. Not out of laziness, or lack of care, but because after you have gathered the data and assessed the probabilities – you decide to take no action.
I saw this most vividly as a financial adviser when much of our advice to our clients – especially in times of high turmoil -was to do nothing. Don’t try and trade, or time the market. In fact, in investing, there is a very strong negative correlation between the frequency of trading and the returns investors get. Yep, the more the traded, the worse their return was.
The data tells the story. In the US, over the past ten years, the average equity investor earned 4.88%.
Well, the S&P 500 averaged nearly double this rate at 8.5% pa over the same time! In other words, all that effort only resulted in losing money compared to doing nothing but staying the course.
There are several reasons for this, but mostly they boil down to investors trying to outsmart, or ‘time’ the market. And people are pretty crap at this because they make decisions based on gut feel, emotions and lack of data.
That doesn’t mean emotions are not important. In fact, in decision making, they are critical, as long as you can link your emotions back to your values.
Personal values provide an essential framework on which to align the decisions you will need to make. Is the likely outcome of a decision fall within this framework?
Using your Values as a Decision Framework
Using your values as a decision framework allows you to reject ‘either/or’ or ‘both/ and’ as a paradigm for assessing decisions. Is there a high probability that the outcome of a decision will one congruent with your values, or give you more of what you seek?
For example, my financial planning business had a motto ‘Because life is for living.’ This guided all of us in everything we did.
This seemingly innocuous statement contained a lot of power. It stopped us from seeing money only as a measure of financial wealth. Instead, it reminded us that it existed as an enabler for our clients to live the life they dreamed of.
When I was in my teens, I pledged myself that I was never going to spend a huge proportion of my life doing something I hated just to get money. I would rather be poor and happy than rich and miserable.
A couple of years later I was unemployed and arguing with my future father-in-law about this very thing. Naturally enough, he was concerned that his daughter was set to marry an unemployed bum. He thought I was naïve, and he was right, but so was I.
I was determined to find another way to achieve my dreams and I knew there had to be a third way, which would allow me to be happy and to earn a very good living to provide for all my dreams and desires. Punching the clock to grind out a living was not for me.
What I know now is there is always a third way, no matter what the situation. It’s a matter of imagination and hard work to discover this.
Much of the business success I have enjoyed is because, instead of accepting a paradigm of ‘either/or’, I’ve sought to embrace a ‘both/and’ and used this to try and find a third way.
Are your margins are being squeezed? The ‘either/or approach would say you need to cut costs or raise prices. ‘Both/and’ of course says to do the two things at once! But the ‘third way’ uses this problem as an opportunity.
The third way discovers how the business experiencing margin squeeze can re-align its services for what the clients want, still cut prices and improve our margin – all at the same time.
How can a mentor help with these business decisions?
As we have seen, most of the challenges with business decisions come from
- Having the right data
- Assessing the probabilities for an outcome
- Protecting against your own unconscious biases
- Finding a ‘third way’ that aligns with your values.
The role of your business mentor is to both guide and critique you through these steps. Just the mere presence of someone you are accountable to improves your success.
Working with a business mentor helps avoid over-confidence and under-estimating risk. It’s critical support for the lonely entrepreneur!