Entrepreneurs are responsible for everything from the supply chain to Instagram account management. With so many spinning plates, how can anyone make the right decision in every situation?
The truth is, you can’t. Part of entrepreneurship is learning from experience when things go wrong and using that knowledge to be better next time. You can’t predict the future, but you can set yourself up with a problem-solving process to reduce the number of mistakes you make in the first place.
Following this checklist has allowed me to make faster, better decisions for my business. With a structure in place, I don’t have to approach every problem from scratch. Instead, I acknowledge the situation, run down the list and choose a course of action based on my findings. I can’t say I have never made the wrong call with this process, but I can say that I now make more informed decisions more quickly — and my company has benefitted as a result.
The next time you face a crossroads for your business, think about these factors to determine your next move:
1. Economic Impact
Start by understanding what this decision will cost in terms of time, money and personnel. This is the easy part. In most cases, the numbers will be black and white. How much money will you need to spend to make this a reality? How much time will you and your team need to dedicate? What revenue changes can you expect if you succeed or fail?
You may not have exact numbers in every situation, but don’t let that stop you from making educated guesses. Use what you know, and fill in the gaps with reasonable expectations. Then look at the sums to see whether the risk is worth the reward.
2. Brand And Experience
Ask yourself, is this decision “on-brand”? Is it consistent with what you stand for? Will it improve the customer experience or sentiment?
It’s important to take business risks, but in so doing, you might alienate some people. You can’t please everyone, and in most cases, it’s better to be meaningful to someone than vanilla to everyone. Knowing what you stand for as a brand will let you double down on your audience and take chances that support your core brand and improve the audience’s experience with your brand.
3. Worst-Case Scenario
What’s the worst that could happen? I always think about the worst-case scenario before I think about what I stand to gain. If the impact of that worst case scenario is nominal, you can feel freer to explore a boundary-pushing idea . Don’t avoid risks you need to take — no great company ever made it big without a few daring moves — but don’t put yourself in harm’s way without a plan, either.
4. Best-Case Scenario
With the potential consequences firmly in mind, allow yourself to think about the best outcome. Could your company take over your industry if you got this one thing right? Would your customers sing your praises and multiply your revenues overnight? Which new partners could this move attract for your business?
Dream realistically, but dream big, too. You won’t pursue your idea with passion if you don’t have a clear understanding of what you hope to achieve.
5. Opportunity Cost
Dedicating resources to one path means taking energy away from other potential pursuits. Consider not only the opportunity cost of saying yes, but also the cost of saying no. Many times, waiting carries its own negative consequences. Look at your budget and time, and be sure to consider holistic impact.
6. Gut Instinct
People tend to undervalue gut instinct in the era of data, but instinct is not random. Your intuition is based on years of accumulated experiences that have formed heuristics in your brain to point you in a certain direction. Look at your data and acknowledge your biases, but listen to your gut, too. Your unconscious brain might know something the rest of you can’t articulate.
7. Team Ability
No matter how much experience you have, there is no substitute for a room full of capable and driven people. As the CEO, you need to know when to make the decision and when to hand the reins to someone else. You hired your team for a reason, so give them the opportunities to exercise their expertise.
We recently migrated to a new inventory management system. I had plenty of options, and while the economic factors made sense, the opportunity cost for a mistake would be high. Our current solution was holding us back, though, so the opportunity cost of inaction was even greater. Recognizing both the need and my own technical limitations, I asked the team to take over driving the choice. We ultimately made a great decision based on cost, potential and risk mitigation, and I have my team — and this process — to thank.
Next time you face a major obstacle or opportunity, I hope this step-by-step plan will be useful in maintaining a high-level perspective of risk and reward.