The Power Of Informed Thinking: Enhancing Decision-Making In Business
Beware of endeavouring to be a great man in a hurry. One such attempt in ten thousand may succeed: these are fearful odds. —BENJAMIN DISRAELI
The two most popular words among experienced businesspeople are “due diligence.” This requires taking the time, however long, to get the critical information you need to make the right decision.
The biggest mistakes we make are those where we commit time, money, and resources without having done sufficient homework.
The best decisions we make are almost invariably based on having acquired complete knowledge of the issue before we act. We “look before we leap.”
Reasons For Business Success
In business the number one reason for failure is that there is no demand for the product or service. Whatever it is, the customers don’t want it or don’t want it at the price that the company has to charge to stay in business.
The major reason for business success is high sales. The major reason for business failure is low sales. All else is commentary.
The primary reason for the poor decisions that lead to market failure is that the key people failed to ask the right questions or to get the necessary information before the product was produced and sold.
Get the Facts
The most important elements in business are facts. Get the real facts, not the obvious facts or assumed facts or hoped-for facts. Get the real facts. Facts don’t lie.
One of the most important words in business today is “validation.” Never assume. When you get a good idea, immediately take action to validate it, to gather proof that it is really as good as you think it is.
Think on paper. Make a list of all the information you have about the product or service and all the information you will need to make the right decision.
Talk to other people. Seek advice and input from others who have been in the same situation.
Hire an expert. One person who specializes in a particular area can save you a fortune in lost time and money.
Do an online search. Put in the key words associated with your question, problem, or idea, and see what pops up. Very often, this ground has already been thoroughly plowed by someone else.
Solicit opinions. Ask everyone in your business who might have some knowledge about this subject to share his or her candid opinions and ideas. One thought or observation can change your perspective completely.
Use the Scientific Method
Create a hypothesis—a yet-to-be-proven theory. Then seek ways to invalidate this hypothesis, to prove that your idea is wrong. This is what scientists do.
This is exactly the opposite of what most people do. They come up with an idea, and then they seek corroboration and proof that their idea is a good one. They practice “confirmation bias.” They only look for confirmation of the validity of the idea, and they simultaneously reject all input or information that is inconsistent with what they have already decided to believe.
Create a negative or reverse hypothesis. This is the opposite of your initial theory. For example, you are Isaac Newton, and the idea of gravity has just occurred to you. Your initial hypothesis would be that “things fall down.” You then attempt to prove the opposite—“things fall up.”
If you cannot prove the reverse or negative hypothesis of your idea, you can then conclude that your hypothesis is correct.
For example, you come up with an idea for a product or service. You then attempt to prove that there is no demand for this product or service at this particular price. You approach a prospective customer and describe the product or service and then say, “Of course, this is not something that
you want, need, or are willing to pay for, is it?”
If your customer agrees that he does not want what you are proposing, you have a valuable piece of information to guide your decision making. If, on the other hand, the customer counters your negative hypothesis by saying, “No, no, no. This is actually something that I would be very interested in buying and using if you were to bring it to market,” then you have validated your
initial theory about the potential demand for this new product or service.
Be Willing to Fail
Be prepared to try and fail, to propose and be rejected, over and over. Failure, trial, and error are absolutely essential to your ultimate success.
Be your own management consultant with any of your ideas and conclusions. Ask yourself the brutal questions that a consultant would ask you to help guide you in decision making.
“Is there a market demand for this new product or service?”
“How big is the demand, and at what price?”
“What changes would you have to make in your initial idea to make this a product or service attractive enough that people would want to buy it in sufficient quantities?”
“Is the demand for this new product idea large enough to justify developing this product rather than something else?”
“Is the market for this product idea concentrated enough so that you can reach potential customers with current marketing and sales channels?”
“Will customers pay enough for this product or service to enable you to earn a greater profit than you would with some other product or service?”
Be tough on yourself in becoming informed. Don’t let yourself off the hook or ask yourself softball questions. As Zig Ziglar said, “If you are hard on yourself, life will be very easy on you. But if you insist on being easy on yourself, life will be very hard on you.”
Better to Be Right
As the psychologist Jerry Jampolsky once wrote, “Do you want to be right or do you want to be happy?”
It is amazing how many people come up with a new product or service idea and then fall in love with the idea long before they validate whether or not this is something that a sufficient number of customers are willing to buy and pay for.
Keep gathering information until the proper course of action becomes clear, as it eventually will. Check and double-check your facts. Assume nothing on faith. Ask, “How do we know that this is true?”
Finally, search for the hidden flaw, the one weak area in the decision that could prove fatal to the product or business if it occurred. J. Paul Getty, once the richest man in the world, was famous for his approach to making business decisions. He said, “We first determine that it is a good business opportunity. Then we ask, ‘What is the worst possible thing that could happen to us in this business opportunity?’ We then go to work to make sure that the worst possible outcome does not occur.”
If you can gather all the information you need, and you can neutralize or remove the hidden flaw, you will make vastly better decisions than others.
Nothing Replaces Experience
Nothing replaces experience in a fast-moving, rapidly changing business or industry. Certain invaluable lessons can only be learned by trial and error, by having countless experiences and making innumerable mistakes in a particular area.
Experienced people develop what is called pattern recognition. When they are exposed to a new or existing business situation, they can identify patterns that they have seen before that led to either success or failure. They can immediately anticipate things that might happen that would render the
business investment or decision invalid. They can quickly identify holes in the reasoning supporting the new idea. Because of the many patterns that they have seen in the past, they can quickly focus on the critical elements that can lead to success or failure.
Become A Master Of The Game
In a study of chess players, from local chess champions up to international grand masters, the researchers assumed that the difference in their levels of success was the players’ ability to predict far more potential moves than their opponents could make in any given game. Then they found that chess players, at all levels, seldom think more than three or four moves ahead. Thinking any further ahead than that is not helpful to winning.
Instead, they found that at each level of expertise, the players recognized more patterns on the board than a player at a previous level, which could only come from experience.
The grand master could glance at a board and almost instantly see as many as fifty thousand possible combinations of the pieces. He could accurately guess what move the opponent was likely to make given the existing pattern of the pieces on the board. As a result, a chess champion could play and win against ten, twenty, and even thirty opponents simultaneously. He could walk from board to board, glance quickly, recognize the pattern, make a decision, and move his piece. Then go on to the next board.
Experience Counts
It is the same in business and the professions. Because of extensive experience, which cannot be gained quickly or easily, the expert can rapidly assess a complex situation and immediately suggest a solution that was simply not obvious to a person with less experience.
Rule Number One
Perhaps the most common advice given by wealthy people is “Don’t lose money.” In business and in life, your goal, too, must be to not lose money. In warfare, it is often the general who makes the fewest mistakes who wins the battle. In life, it is often the individual who makes the fewest
financial mistakes who leads his or her company or division to high levels of profitability. The more information you gather before you make a decision, the more likely it is that you will make the right decision that leads to the success you desire.
You achieve this goal by taking the time to become fully informed before you make an irrevocable decision in the first place.
The Strategy Of The Rich
Bernard Baruch, one of the richest self-made men in United States of America, in his book My Own Story, wrote that the biggest financial mistakes he ever made were because he had failed to do sufficient due diligence before investing his money.
Warren Buffett, today one of the world’s richest self-made multibillionaire, spends as much as 80 percent of each day reading and informing himself on details that can influence the investment decisions he makes. He never stops learning and gathering information.
Carlos Slim, who was the world’s richest man some years ago, has his home in Mexico City full of newspapers from all over Mexico and around the world. He reads continually in every source available to him to give him the information he needs to make the right business decisions.
Never Stop Gathering Information
Your goal should be to become better informed than anyone else in those areas of business and life that are most important to you. You do this by continually gathering information and comparing different ideas. You remain sceptical and proceed slowly toward your decisions.
The more information you gather and the more experience you accumulate, the better the decisions you will make and the better the results you will achieve.
Action Exercises
1. Select one area in your business or personal life where you need to make a decision involving time, money, and long-term consequences. Resolve to find out every detail of the decision before you take action. Accept nothing on faith.
2. Ask others. Seek out one or more people who might have had your same situation or problem, and request their advice.
3. Seek the fatal flaw in one area where you need to make a decision to go forward or not. Always assume that one exists.