As an entrepreneur, you're almost certainly going to have to make some bets that involve putting your company up as the wager. If you take a chance and you're right on the gamble, you'll be considered lucky--even smart. Even so, sound business decisions cannot--and should not--be left to chance.
Michael C. Mankins, a partner at Bain & Company, has conducted years of research on how top executives make decisions. What he found is that "lucky" decisions aren't tied to luck at all. He says that when Southwest Airlines decided to hedge against the price of jet fuel in 2007, its success was due to a long process of intense consideration, investigation, and calculation.
"Good decisions, like Southwest's, nearly always result from robust decision processes," he writes in the Harvard Business Review. On the other side, he says bad decisions "nearly always stem from procedural or organizational failures."
Below, find three pitfalls to avoid during the decision-making process.
Don't bet on "silver-bullet" solutions.
There's no such thing as a silver bullet in business. "Most business problems are complex. But many executives badly want a silver bullet--a simple action that will leapfrog the competition or supercharge an organization's performance in one fell swoop," Mankins writes. He says corporate reorganization is commonly thought to be a magic elixir, but it rarely works. "Nearly half of CEOs reorganize their company in the first two years of their tenure. Many preside over multiple restructurings. Yet fewer than one-third of these moves produce any meaningful improvement in performance," he says. So, be ready to consider more complex and nuanced solutions.
Don't underestimate the challenge of change.
Big decisions bring big changes to a company. And while many leaders are comfortable introducing these changes, they don't execute and then manage the change well enough. "The complexities associated with a big-stakes decision rarely end with the decision itself. Indeed, recent Bain research indicates that only 12 percent of large-scale changes are executed as intended," he writes. "That's because change is hard--and the bigger the change, the bigger the risks." Know this going into a big decision, and develop a plan to handle every stage of the process.
Don't ignore opportunity costs.
Big-impact decisions do not only include mergers, creating new departments, or pivoting a company in a new direction. "Another[high-stakes decision]--often with equally big consequences--is to keep doing something you're already doing. The decision not to shut down an uncompetitive product line or exit an unprofitable market can consume as much scarce management time and other resources as any merger," he writes.