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Fat Decisions Part Two: You’re Screwed

If there is a science to business, it is the science of making the right decisions. Not good or bad decisions, in the sense of well-made or poorly-made decisions. But the right decisions. Make the right decision poorly (Mars was retrograde and Linus was in the house of Leo, so I shorted Toyota to the tune of ten million dollars) that turns out well (and the stock dropped fifteen percent in the next month), when the smoke clears, you still have made the right decision. You may be a crank, but your bank account is the happier for it. The problem, though, is that badly made decisions usually land with a thud in the “wrong decision” category. Sure, a broken clock gives the right time twice a day, but it gives the wrong time two million times a day.

Decisions are always made in the face of uncertainty and ignorance. There are a whole lot of things you wish you could know before making a decision, and the best business managers get to know as many of those things as possible before making that decision. If they don’t know something or can’t make a good decision, there’s always someone else in the company who does know what needs to be known and what the right decision might be.

But what about the start-up entrepreneur or small businessperson? What if your organization is five people and a part-time bookkeeper? Or just you?

In that case, your entire right decision department is made up of . . . you.

Financial strategy decisions? You’re in charge. Make a decision.

Tax strategy decisions? Yup, you again. Get busy, there are decisions to make.

Product development? You and you. Time for a decision.

Pricing? I nominate you. Decide.

Advertising? Let’s see. You! And we’re still waiting on that decision for financial strategy.

If making the right decision is about knowing x before doing y, then it seems entrepreneurship and small business is the right formula for making all the wrong decisions. Rather than subtracting x’s from the unknown column, it’s like putting a big fat exponent after them.

When one person is the decision-maker for all aspects of a business, there’s no way that one person can even make a dent in the unknowns, even with a lifetime premium subscription to Wikipedia. Every decision, from inventory management to social networking, becomes a leap into the void. EOQ or period-based? Capitalize or expense? AQL or zero defects? “Mars is retrograde and Linus is in Leo” is starting to look pretty good as a decision-making tool.

Is it any wonder that we have built this mythology of entrepreneurs as these daring risk takers? It seems every entrepreneur’s decision is a jump off a cliff into the unknown.

It turns out that the daring entrepreneur myth is, well, a myth, one that has been cooked up by the media in order to sell us on the idea that the rest of us don’t have what it takes. “Thank you, no,” we all say, “I’m happy slumming around in spreadsheets for the GloomyDoom company rather than jump off those cliffs.”

Believe it or not, risk-taking, decisiveness, or nerves of steel do not separate successful entrepreneurs from the rest of the madding crowd. Despite what you may see on CNBC, entrepreneurship is not about jumping off decision cliffs while the meek rest-of-us gaze in wonder. Successful entrepreneurship is, simply speaking, reducing the risk of all those risk-taking decisions. It is jumping off a decision cliff with a parachute or hang glider.

In all my travels, what amazes me about successful entrepreneurs is not their risk-taking decisiveness and nerves of steel, it’s their natural caution. Some, indeed, with a great deal of practice may arrive at decisions quickly and irreversibly, but most of those decisions are decidedly of the “no” rather than the “yes” flavor.

Remember the Rodgers and Hammerstein song, “I Cain’t Say No”? “I always say “come on, let’s go” / Jist when I orta say nix.” Yup, in case you missed the show, it’s a classic recipe for making the wrong decision. And successful entrepreneurs “say nix” many more times than they say, “come on, let’s go.”

And these entrepreneurs make the right decisions without mastering all the unknown x’s. Unlike the Wall Street banks who hire armies of 20-hour a day super geniuses to get all the tiniest ducks in a row, successful entrepreneurs make decisions on a finite, somewhat small set of knowns, just like every other poor schmoe in the world.

Successful entrepreneurs, in other words, make decisions just like the rest of us . . . with a whole lot of uncertainty, doubt, misinformation, deceit, lies, and false beliefs.

But why do they succeed? Often wildly succeed? Why do they make the right decisions in business and we don’t?

Luck? Pluck? Or just jumping off enough decision cliffs?

Actually, it’s none of the above. It’s called fluid intelligence. And the people who are best at fluid intelligence think in “chunks.” That’s how they hold more stuff in their working memory than the rest of us.

It turns out, then, that there are two ways to make a decision based on limited information.

There are thin decisions.

And chunky decisions. But since “chunk” is cognitive science jargon, I prefer plain-old “fat” decisions.

If you had to pick one, thin or fat, what kind of decision-making characterizes successful decision-makers? And if you’re a thin decision maker with little fluid intelligence, are you still in the screwed category? Or can you do something about it?

You’ll find out in part three.

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