Main Idea:
Do you consistently make great decisions? Are there things that impact your decisions that you had no clue that they existed? How many decisions do you make that turn out to be disastrous and it was obvious why? Do you have a system for making important decisions? Why are we so good at seeing other people’s bad decisions but don’t recognize our own?
Expansion of the Idea:
Early on when I was building my business, it was obvious to me how certain clients made less than optimal or even bad decisions. My solution to that was to build better financial systems, help educate them and then provide a sounding board. The net result of all of this was that their decision making improved but it still was far from perfect.
Then I started looking inward and realized that my own decision making was less than ideal. I didn’t pay attention to some warning signs with clients or employees. I didn’t read the tea leaves on changes in the industry. I realized that I was making the same mistakes my clients were making. I started looking for common errors and I identified a few things. I put systems in place for hiring employees. I set up a more rigid criteria for new clients. There are a number of items that improved but I still wasn’t satisfied.
About a month ago, I learned of a new book coming out. This book explained why my decision making was still not where it should be and some of the factors that are impacting it. The book’s name is “Noise” by Kahneman, Sibony & Sunstein. The book is a little hard to get through because it has a lot of psychology and statistics, but it has some fascinating ideas about our judgments. A lot of the examples are in the legal system but the application is true for how we run small businesses. The book really gets into the variations in judgment that are over and above bias. Bias is the easy part to understand. This could be racial, or it could be things like optimism which could bias how we evaluate people. Or it could be something like confirmation bias which confirms something we already suspected. Noise goes beyond that. It could be any of the following:
You hear on the news about how saving taxes is critical in this economy. As a result, you implement tax saving strategies when what you really need a cash flow plan.
You hire an employee based on your gut which is tied to the fact that the potential employee was referred in by a big customer.
You hire an employee who is a great talker.
You give a customer an additional 30 days to pay because they have been a long-time customer, ignoring the fact that their industry is having major issues.
Your identity was just stolen and then you had to make a major decision about a new product line.
You had to put your dog down and then you had a career counseling session with a potentially problematic employee.
You are in a good mood because you just became a grandparent and then you discuss raises for your team.
Your decisions are different in the morning when you are refreshed versus the afternoon when you feel like a slug.
The point with all of this is that some of our decisions are influenced by factors that may or may not be related. We live in an interconnected world which is good but it can be a problem when you are making major decisions. It is important to realize that we do have a problem with noise in our decision making. Only then will we implement steps to improve our decision making. Most of the improvement centers around improving how we make decisions and creating systems to make better decisions.
I might have been on the right track early on but I didn’t go far enough to really help clients. However, if you think about your decisions and judgments and ways to improve them, you will improve your business. And this doesn’t require more sales or employees. It is amazing that you can improve the business just by improving how you think.
Questions to Consider:
What would be the financial impact if you decided the opposite on 5 key decisions you have made?
How do you make decisions? Is it solo or with a team?
Does your team go along with everything you say or do they push back?
Do you encourage your team to think for themselves?
Do you have a method for making key decisions?