Decision making is critical to entrepreneurs. Every day, you have to set out on a course of action, choose tactics, evaluate results, and otherwise choose from arrays of options.
And yet, making decisions can be much trickier than it would seem. Here are four common mistakes that can trip you up.
1. Monumentalizing the Trivial
A recent analysis from University of Florida and Wharton School researchers offers a reason why people get mired in what should be easy and unimportant decisions. They associate important decisions with difficulty. If, for whatever internal or external reason, a decision on an unimportant matter becomes taxing, the importance of the result is magnified. That is particularly true when you think the decision will be easy to make in the first place.
When that type of association starts, it sets off a feedback loop that amps up the impact. As you think the decision is increasingly important, chances are you spend more time and effort on it, increasing the complexity of decision making. One way to deal with it is to place a limit on how long you're willing to spend addressing the issue. When the time ends, make your choice and move on.
2. Dredging Sunk Costs
One of the classic problems in effective decision making is not recognizing sunk costs for what they are. A sunk cost is one that you've made and cannot recover. For example, you invest in new order-taking software and learn that it doesn't work well for your business and is actually creating more work for employees.
But no one likes having thrown money away, so you think if you just spend a little more, you can salvage the previous expense. All too often, that leads to the situation called throwing good money after bad.
When faced with having invested heavily in sunk costs--whether money, time, or emotion--take a step back and forget them for a moment. Look at how much the decision can be worth to you and your business, and estimate how much it would take in total to follow through. If the tally is higher than the benefit, then it's time to change your decision.
3. Drowning in Data
Businesses have gone data crazy, and for good reason. Data and information can help you make smarter decisions. But too much of a good thing can overwhelm you--and lead to analysis paralysis. Similarly, you might have bad data or pay too much attention to factors that confirm what you'd like to think and not necessarily reality.
The first step to cure this is to make sure that the data you have is relevant. If you're charting a course into new markets or product types, realize that historic data probably won't help, because it tells you only where you've been, not where you're going. Look for data that can illuminate the future, not the past.
Next, look for the two-by-four that should be hitting you over the head, not arcane subtleties. There are only so many factors you can keep in your head at any one time. Identify no more than 10 pieces of data that will have a strong impact on your decision's outcome. Then forget everything else. If things go badly, reexamine whether you've chosen the truly important factors.
4. Do-or-Die Mentality
We live in a world of hype, and it's all too easy to overemphasize the importance of anything: a date, an investment, or a business decision. Very rarely must you make a single make-or-break decision, and if you do find yourself there, chances are that you have made many mistakes on the way.
Realize that every decision is temporary. Conditions will change, and you can almost always change your mind and course at a later date. You might lose some time or money in doing so, but better that than racking up the sunk costs and driving into a brick wall from stubbornness. You want your business to last for the long haul, so use an overall decision-making strategy that stretches over time, not that imagines each moment to be the most critical one for the business.
Avoiding these four problems won't guarantee that you make smart decisions, but it will free up time and energy and improve your odds.