If you're an entrepreneur, you're used to living by your wits. You make tough decisions every day. There's no room for error. But here's the thing: we all have biases that cloud our business judgment.
When I say "biases" I'm not talking about being pro this or anti that. I'm talking about cognitive biases--brain glitches. Things that short circuit our decision-making process and cause us to make poor investments, waste resources, and hire the wrong people.
Here are three biases that can derail your decisions and what you can do to beat them.
Brain Glitch 1: Confirmation Bias
The sales team pushes a report across your desk. You scan the positive numbers, nod your head, and think, That new sales software is paying off.
Psychologists call this "confirmation bias." When a new piece of information confirms what we already think, we get giddy. In this case, you assume your improving sales are the result of an investment you made. But not so fast.
Those sales could have shot up for a number of reasons. Confirmation bias may have led you to overlook the hard work of your sales staff who stayed late, worked the phones, and busted their humps to boost your numbers.
How to beat confirmation bias: When you get new information, don't leap to conclusions. Take a minute to gather your thoughts. Don't always trust your first impression. Ask yourself, "What else could have caused this?"
Brain Glitch 2: the Ostrich Effect
It's a common myth that ostriches bury their heads in sand when they see danger. As it turns out, ostriches don't actually do this. But humans do.
If there are disappointing sales numbers coming down the pipeline, it's easy to assume they're going to pick up. It's easy to ignore this month's report and look forward to next month's.
But ignoring bad news by sticking your head in the sand is no way to run a business. You've got to be ready to cut and run. Otherwise, you'll end up as dinner for a lion.
How to beat the ostrich effect: For every business venture, ask yourself "if this fails, how will it fail?" When bad news comes your way, you'll be able to recognize it sooner. You'll be ready to react.
Brain Glitch 3: the Planning Fallacy
The planning fallacy might as well be called the over budget fallacy. It works like this: you spend a so long planning a project you assume it's going to go off without a hitch.
This fallacy is the reason large architectural projects often break their budget. The Sydney Opera House took 10 years longer to complete than initially expected. And it cost nearly $100 million more than planned.
Big projects are vetted, researched, and scoped. So why do we make this mistake? Decision makers are overly optimistic. They assume that because they did their homework, they're not going to have any problems this time.
That's not how the unpredictable works.
How to beat the planning fallacy: The Harvard Business Review says you shouldn't ask your team for an estimate. You should ask them for three estimates--high, medium, and low. Tell them to assume that the project is going to go over budget and have them point out where they think it would.
As business owners, we run into problems when we rush to judgment. Remember to take a step back. Force yourself to slow down, consider alternatives, and seek out outside opinions. By stopping brain glitches in their tracks, we can make our businesses stronger.