The Business Owner's Guide to Better Decision Making

The Business Owner’s Guide to Better Decision Making


Written by Dallas McLaughlin

Published: November 26, 2021

Introduction to Decision Making

As a business owner, you are inherently a decision maker. It’s a function of your job as a leader. The quality of your decision making has a direct impact on the business you operate and the people you lead. You decide on a certain course of action you’d like your business to take and then you have to clearly communicate that decision to your internal team or the external marketplace in order to gain adoption. When it comes to your team, they must translate that decision into action, and your target market must decide if the course of action you decided upon aligns with a business they want to transact with. As a business owner, you are often required to make decisions in a variety of manners. Sometimes with a sea of information and a long runway to decide. Sometimes you will need to make on the fly decisions with little to no information. To succeed as a business owner, you must begin to understand the importance of how you make decisions, what type of decision you’re making, and the importance of making risk-based decisions in a competitive environment.


Decision Making Categories

While this a guide about decision making in terms of business ownership, entrepreneurship and leadership, the quality of your decision making and its impact on your success extends far beyond the walls of your office. You make thousands of decisions every day – consciously and subconsciously – and you have been making these decisions your whole life. I’d go as far as to say your success to this point is the accumulation of the quality of your decisions to date and the positive and negative outcomes of those decisions.

Because of this omnipresent process of decision making, it’s important to understand what type of triggers are occurring in your day-to-day life that force you to make a decision, and what decision making playbook you execute whether consciously and subconsciously. Being aware of 1) what forced a decision and 2) what type of decision making process is best suited for the decision at hand will allow you to have more influence over the quality of the decisions you are making.
In general, our decision making process will begin with three general categories:

Rationality

Humans don’t like to be wrong. Business owners definitely don’t like being wrong. Business owners and Type-A personalities will more often than not begin their decision making from a place of rationality. They will begin by trying to predict outcomes by comparing large amounts of research and data points. They will begin building lists and spreadsheets. Comparing pros and cons. Large organizations and teams of subject matter experts often begin with rational and analytical decision making processes. Rational and analytical decision making requires time and resources to accomplish. Because of the time required, rational decision making will occur during phases of practice and preparation.

Think of the last time you were planning a sales presentation, comparing discovery meeting notes, reviewing industry research and crafting your talk track. This is rational decision making.

Intuition/Gut

Intuition or gut feeling decision making is making a decision based on what feels right, or “just knowing.” While to the rational mind this sounds risky, intuitional decision makers are relying on their vast experience in a given area – by conscious or subconscious memory – for analysis and comparison. Even when an intuitive decision maker doesn’t have experience with the exact decision making variables at play, they will attempt to recall and compare patterns from similar experiences, matching the patterns in their mind in order to form a reasonable decision.

Think of a time when you were delivering a big pitch and you were caught off guard by a question from the sales prospect that you didn’t anticipate. You’re blindsided. Now you are using your intuition to recall a time when you’ve been asked this or a different question in the past, quickly analyzing potential outcomes of each decision, making a decision and charting a new course of action on the fly. This is intuitional decision making.

Emotion

Regardless of whether you are using intuitive of rational decision making skills, it’s important to recognize that emotions will always play a role in your decision making process. If someone says something that angers or challenges you, you may make a reckless decision on the fly, but it might also fire you up and drum up a new kind of courage. If you’re scared, you may spend extra time in preparation, identifying a weakness you may have otherwise overlooked. But your fear may also lead to hesitation or inaction in a moment when action is needed.

It’s important that as a business owner and leader, you do not allow your emotions to override your intuition and rationality. As a business owner you must strive for stillness of mind, using your emotions to your advantage, achieving a balance of intuition and rationality leading to consistently higher quality decision making.


Two Methods of Decision Making

Now that we’ve learned about the three types of decision making categories, understanding that emotional decision making is present in both rational and intuitive decision making, we’re left with only two methods of decision making. Looking at these two decision making methods in a table, it’s easy to see their advantages and disadvantages.

Type Advantage Disadvantage
Rational
  • Allows for use of a lot of available information.
  • Can solicit input from many subject matter experts.
  • Reduces risk and uncertainty due to increased time allotment.
  • Requires availability of time for information gathering.
  • Requires a high amount of data and research.
  • Decision can often be interrupted during time of presentation.
Intuitional
  • Quick decisions lead to higher volume of decisions.
  • Requires very little data and research.
  • Requires very few additional people, if any.
  • Requires a large experience foundation of decision maker.
  • Requires courage and confidence from the decision maker.
  • Due to pace, inherits higher risk and uncertainty.

Rational Decision Making

Rational Decision Making is the most accurate type of decision making, encompassing as much information as possible. Rational decision making lends itself to times when accuracy is necessary and there is sufficient time available to create a detailed analysis of the situation. This time investment and level of detail allows you to make a decision, effectively communicate that decision allowing colleagues to vet it, and then creating a plan to execute on that decision. While rational decision making skills are most visible in phases of preparation such as prior to a big meeting, the same skills can be applied following times of execution to create a post-mortem of activities that resulted from the decision. Rational decision making can also take place on the fly, although executed to a lesser degree due to the condition of the decision making environment.

Intuitional Decision Making

Intuitional decision making is a method to make quick, effective decisions when you find yourself in complex, fluid situations, often when you are facing risk and uncertainty. Intuitional – or gut-feeling – decisions often happen subconsciously and naturally as your mind recognizes and responds to past experiences. Intuition based decisions come with more risk as you’re actively exchanging time and information in order to make and act upon a rapid decision. To have sharp intuitional decision making skills, mitigating risk, requires training and experience. More experience allows for faster recognition of decision making variables and patterns, allowing you to make more rapid decisions with a higher degree of accuracy and confidence.


Decision Making Variables

When faced with a sea of uncertain, vague, and sometimes contradictory information, most humans are extremely hesitant to make a decision, often to the point of indecisiveness due to the fear of making the wrong decision. Even when sufficient time is available and proper analysis is conducted through the rational decision making process, there is still a level of variability. This is called an information shortfall. Understanding that an information shortfall is present in every decision you make is vital to making expedient decisions through the course of your business and your life.

As a business owner, you must be patient in your decision making, but also guard against waiting for a perfect sight picture, which may never come, leading to inaction. Inaction, or the lack of a decision, is a decision in and of itself. It’s the point at which the universe, the market, or your competitors make a decision on your behalf and your only course of action becomes simply to react to their decision making which occurred on a faster cycle than your own. This is how businesses lose opportunity, market influence and market share.

Understanding and recognizing the variables present in every decision you make will help improve the quality of each decision you make. The variables listed below are present to varying degrees in every decision and must be considered each time. Some decisions may involve higher risk, but more information is available and more time is available to make the decision. Some decisions may have low risk and low uncertainty, but a very high human factor.

Understanding each of these variables will help you plan and execute through uncertainty, accepting and understanding that the plan may be less than perfect. This is often referred to as “the 70% solution.”

Information

The accumulation of all available information from all sources of data. Understanding how much information we need to make any given decision is critical to the quality of the decision. Waiting for too much information will slow down the process allowing competitors or the market to decide for you. Too little information adds to the overall risk variable and uncertainty of the decision.

“What information do I have, how can I acquire the information I don’t have, and what information is unnecessary to reach a 70% solution?”

Time

The moment at which a decision must be made. This is often determined by when a competitor may decide for you, when your internal team will decide for you, when the market may turn against you, or when a product or service must reach its end consumer. The more time available, the more analytic decision making can be conducted allowing for more information gathering and less risk. Shorter decision cycles rely on intuitional decision making skills which require higher experience but inherit more uncertainty.

“With the time given, can I make an analytic decision or must I rely on my intuition? Which will enable me to make a decision before one is made for me that I might not like?”

Experience

The amount of times you have had to make a similar decision with similar variables and patterns. The higher the relatable experience level of the decision maker, the lower the risk, uncertainty and the amount of information needed for a concise decision. Lower experience means you will need more time for information gathering.

“Do I have a memory “on file” where I made a similar decision? What was the outcome and how can that knowledge apply to this decision?”

Risk

Risk is the amount to be gained or lost with every decision you are making. High risk decisions, where if you’re wrong you lose a lot, will need additional time and the accumulation of information to reduce risk. Low risk decisions, where if you make the wrong decision the impact is minimal, can often be made based on your experience level and pattern recognition. High risk decisions should be made slowly, low risk decisions can be made quickly and intuitively.

“If I get this decision wrong how much do I stand to lose? If I’m right, what is the potential upside? Which is greater?”

Uncertainty

All decisions come with a certain degree of uncertainty. No decisions will be made ‘without doubt’ or without possibility for error. The goal of our decision making process is to use the information available and the given time constraints to reach the highest level of certainty possible.

“Knowing that I can’t reach 100% certainty, how close am I to a 70% solution? What information is missing to reach 70%?”

Human Factor

As we make decisions we naturally impact those around us, often without the realization it is happening. We must learn to ask which external factors will be impacted by our decisions and what their reaction to our decisions may be, thus potentially creating more decisions that must be made in response.

“What employees, colleagues or markets will be impacted by this decision and how will they react? How will they respond positively or negatively to this decision and what will this reaction require from me?”

Chance

Every decision includes a chance variable which is something that can’t be predicted, understood or controlled. Very few human activities are subject to chance more than business and leadership. Chance is a multiplier of uncertainty and risk.

“No matter how much information I gather, experience I have, time that I take, there is a chance this becomes a bad decision.”


Characteristics of Effective Decision Making

Business owners and leaders with strong decision making abilities can have an enormous impact on an organization and the people within it.
By improving the decision making capabilities of an organization as a whole, that is, developing an ability to make timely decisions based on a high degree of experience while limiting risk and uncertainty, organizations are able to turn their decisions into action faster than their competition. By making high quality decisions at a rapid pace in a fluid environment, organizations can make a higher volume of decisions furthering their advantage over their competition by being more adaptive and responsive to their internal and external stakeholders.

Organizations must look for effective leaders with the following strong decision making skills and characteristics:

They are
  • Self-sufficient and willing to make decisions
  • Resilient to the effects of bad decisions
  • Open to change based on a new information
  • Motivated by achievements as a result of hard decisions
  • Tolerant of ambiguity when facing information shortfalls

These characteristics are vital for anyone who is tasked with making decisions requiring a high degree of precision that will impact the organization and the people around them. For example, a leader who can’t tolerate ambiguity in their decision making will wait for the “perfect sight picture” and miss an opportunity to adapt to a situation faster than their competition.

A leader who is not open to new information and does not have a willingness to learn from past experiences will routinely make decisions based on out-of-date experiences in markets that are fundamentally different than they once were.

A leader who does not have a willingness to make critical decisions will simply not make the critical decisions. Leaders are leaders because they make the decisions that otherwise would not happen without their presence.


Summary

As business owners or internal leaders, we’re faced with an unending amount of decisions that need to be made with varying degrees of risk and impact. Reducing the ratio of bad decisions to good decisions requires continual effort to adapt to complex and ever-changing sets of information in our day-to-day lives. It requires continual awareness to the two decision making frameworks and the seven primary variables present in every decision we make. To make these decisions during times of duress and uncertainty requires a large base of experience to which we can pattern match and draw correlations from. Good decision making requires courage and a specific set of characteristics that not everyone has. This development of these characteristics is what separates leaders from everyone else. These characteristics allow individuals and organizations to perform in a time-sensitive, highly competitive environment in order to gain an advantage over their competition.

Ultimately, the quality of our lives will depend on the foundation of experiences we gain which enable us to make decisive, timely decisions and turn those decisions into action quicker than our competitors.

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- Dallas McLaughlin