5 Tips on Startup Decision-Making from Annie Duke
We teamed up with Annie Duke, world champion poker player and author of “Thinking in Bets” and her newest book “How to Decide”, for this guest Dreamit Dose to help founders make better decisions. Decision-making is crucial for any early-stage startup. By making the wrong choices in key areas, or placing the wrong bets, founders lose time and resources. Use Annie’s top 5 tips on how to decide to help make big decisions under uncertain, high-pressure circumstances.
Tip #1: Goldilocks Forecasting
“When you’re communicating your forecasts to other people, give a lower and upper bound in your answer.”
The future is inherently uncertain. Any decision you make is a forecast. To express your uncertainty without sounding like you don’t know what you’re doing, provide lower and upper bounds in your answer. Annie says if you’re thinking about how many widgets you’ll produce in the next year, put a lower bound and upper bound of how many you’ll produce. These bounds will communicate your uncertainty to the listener, whether he or she is a member of your board or of your team. The listener will then be provoked to tell you if anything about the range doesn’t seem right.
However, Annie advises, “If you set the lower and upper bounds too far apart you’ll be underselling your certainty.” In the case that they’re too close together, you’ll be overselling your certainty, which can be just as harmful.
For example, if you’re estimating the weight of a cow, bounds that are too far apart will undersell how much you already know about cows. To avoid overselling or underselling your certainty, ask yourself, “If my value is out of range, would I be shocked?” This will help you understand how certain you are about your lower and upper bounds.
Tip #2: Make Assumptions Explicit
“Make explicit what is implicit in any decision you make.”
Make explicit what your assumptions are and what needs to be true of the world in order for your decision to be a good one. Let’s take a decision most of us make - deciding when to leave for work. There are a lot of assumptions that are implicit in that decision. Annie recommends making them explicit so you’re aware of all the assumptions you’re making. What is the lower and upper bound of the time you will give yourself to get to work? What are you predicting traffic will look like? What’s the probability of there being an accident along the way? The same process applies to the case where you’re an angel investor deciding whether to fund a company. If you decide to fund a company, you’re implicitly assessing that the company will get more funding in the future and produce sufficient returns. Make your assessment explicit. This will give other people the opportunity to examine your assumptions and provide their feedback. Otherwise, we lose our calibration opportunity when we leave those assumptions implicit.
Tip #3: Do Group Work independently
“When making decisions as a team, make sure that a lot of the work you’re going to be doing as a team is actually done independently prior to team discussion.”
We all know that groupthink finds its way into many team dynamics. How can you avoid this? Well, the purpose of working with a team is to bring different opinions together. However, sometimes team discussions center around agreement instead of dispersion. So for instance, if you’re having a brainstorming session, don’t do it in a group setting. Have individuals come up with ideas independently and state their rationales for those ideas prior to the group meeting. This will give you a better opinion map and provide the diversity of opinion great teams rely on.
Tip #4: Convey Don’t Convince
“The goal of group decision-making is not for the members of the group to convince each other of their points of view, but for each person to convey their belief.”
Say you’re on a hiring committee. Each person should convey their rationale for why they believe a candidate should be hired. However, one of the key signals that you’re in convince mode, not convey mode, is interruption. When you’re in convey mode, there should not be any interruptions since each person should know they will get the chance to convey their opinion next. This stands in contrast to confirmatory discussion styles that suppress viewpoint and add bias. Operating in a convey-first environment will give you the information map you’re looking for when working on a team.
Tip #5: Know When and How to Pivot
“Before you go on a certain course, consider what circumstances may make it necessary for you to pivot.”
There are two issues we all face when making decisions:
We don’t know what the future holds.
We don’t have perfect information at the time that we make a decision.
On top of both these unsettling circumstances, Annie says that people tend to escalate their commitment as they get bad signals. When in reality, a change in information should make us want to change our minds. So, how do we overcome this and avoid sunk costs? Annie recommends writing down what would have to be true of the world for you to change your mind. Identify early on what signals you may encounter that will indicate that now is the time for you to pivot.
Those are your five tips from Annie Duke on how to decide. Check out Annie’s book “How to Decide” here for more from her.
By Alana Hill, Securetech Associate at Dreamit Ventures
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