Avoid this common & costly “decision mistake”
As a business owner, you need to make a lot of hard decisions.
Some of the decisions you make take up brain space but aren’t complex.
Example: Should I host my meetup and restaurant x or restaurant y? Should I buy THIS podcast mic or THAT podcast mic?
But making decisions about things that involve RISK is not only a frequent occurrence for business owners…but a tremendously draining process. That’s because the consequences of these types of decisions can have bigger, long term impacts for your company.
Example: Should I invest a significant sum of money in this coaching program?
Should I abandon a plan that isn’t working well or double down and work it harder?
Should I let go of an employee and invest in a piece of technology that could do their job better and more cheaply?
In a moment, I will introduce a simple tool invented by one of the world’s foremost experts in decision-making, that you can use to make risky decisions clearer and, dare I say, more straightforward.
But before you can use the tool, you need to understand this critical point.
The Difference Between Risk and Uncertainty
Risk and uncertainty are NOT the same thing. And conflating them is one of the most common mental mistakes people make that leads to poor decision making.
A situation that involves risk is where you have complete data or information. For example, let’s say you go to Vegas and decide to play the roulette wheel. Deciding where to place your bet involves RISK. That’s because you could – with sufficient skill in math and numeracy – calculate your probabilities or odds of winning.
Thus, RISK is about math and probability.
A situation that involves uncertainty is where you have incomplete data or information. These unknowns mean you can’t possibly know the probability of success or failure. With uncertain situations, your decision could have dozens of different outcomes.
Example: should I raise my prices? In this situation, you could increase your revenue or profit. OR you could alienate buyers and divert them to your competitors. OR your higher prices could attract premium buyers who were willing to invest in other services you offer as well.
RISK is rare in business. UNCERTAINTY is very common. Now that you know the difference, it’s time to walk through the process.
Step 1: Evaluate if the decision you are making involves risk or uncertainty.
Dr. Gerd Gigenrenzer, a German psychologist and recipient of the AAAS Prize for Behavioural Science Research (basically the Olympic Gold Medal for behavioural scientists), has stated that discerning whether a situation is risky (you have all the facts and can know all the possible outcomes) versus uncertain (you do not have all the facts and can’t predict all the possible outcomes) is absolutely critical.
Step 2: If your situation involves RISK, then simply…do the math.
Let’s say you are trying to make the tough decision of letting go of your part-time VA who schedules appointments in your calendar in favour of using a scheduling tool.
This situation does not involve uncertainty. It involves risk. Your VA costs you $25 per hour. In 4 hours per week, he does all the back and forth with various clients, colleagues and acquaintances to schedule appointments in your calendar. He handles 10 bookings per week.
VA Math: $25/hour x 4 hours/week x 52 weeks per year = $4992 per year to handle 520 bookings.
Meanwhile, you could invest in an online scheduling tool for $30/month, that can handle unlimited bookings.
Online Scheduler Math: $30/month for 12 months = $360 per year to handle 520 bookings.
After sitting down and running the math, you come to a clear conclusion. While your clients won’t experience the personal touch your VA provides, you will save a TON of money – $4632 to be exact. The risk is worth it!
You let go of the VA and set up the scheduling tool instead. Is it easy? Of course not! But in this decision, as in all decisions that involve risk, the numbers don’t lie.
Step 3: If your situation involves UNCERTAINTY, then calculations won’t help you because you have incomplete information – you can’t possibly “run the math” like you can in situations that involve risk. Instead, you need to rely upon your VALUES and NARRATIVES to, as Dr. Gigenrenzer says “sustain you.”
I hope you didn’t miss this core insight that basically won Gigenrenzer the world cup of behavioural sciences.
In uncertain situations, you use your values and personal narratives to guide you.
Here’s an example.
Cami is trying to decide whether or not she should launch a new product line in her business. Doing so will cost her about $25K, and take about 3 months to just get off the ground. While her buyer research suggests it’s something her customers want…she has no way of knowing whether, when push comes to shove, the volume of customers she wants to buy this product actually will buy it.
Cami is in a situation that involves uncertainty.
But Cami’s core values are innovation and courage.
And her core narrative is about pioneering. She is descended from early pioneers in the American West. As a child growing up, she heard tons of stories of the hardships and risks her great great grandparents endured as they left Scotland, sailed to North America and made the treacherous journey west in a caravan.
These tenets of innovation, courage and pioneering spirit fuel Cami’s decision to go ahead and proceed with the new product line.
Now let’s look at another example. Jessi is also trying to decide whether or not she should launch a new product line that will cost her $25K and take 3 months to get off the ground. She faces the same uncertainties as Cami.
But Jessi’s core values are practicality and prudence. She comes from a family of super practical farmers who made it through challenging times by carefully conserving the resources they had, and putting money and supplies away for a rainy day.
Jessi sees that this new product line will help her increase her sales to her existing customer base, AND serve them even better. She also sees that the new product line will prevent them from seeking that product from a different supplier.
Thus, her core tenets of practicality, prudence and conservation fuel Jessi’s decision to launch the new product line.
Both entrepreneurs had different values and narratives, but they used those narratives and values to make the same decision.
What Gigenrenzer’s research shows is that making “right” decisions in uncertainty is about making decisions that align with your values and narratives.
If you are trying to make a decision in the midst of uncertainty, stop trying to predict all the outcomes. Rather, think through your core values, and the core narratives that drive you. And then make the decision that best aligns with who you truly you are.
In the meantime, here are some tools, resources and support to help you sell more of your scalable offers so you can create a lucrative Jewel Business you love.
- Are you ready to learn how to cultivate a powerful, revenue-generating, non-time intensive daily practice that will grow your business using the power of relationships and true connection? Register for the FREE Daily 5 POC Challenge here
- There is NO “one size fits all” approach to selling. The key to being a great salesperson – and EVERY BUSINESS OWNER needs to be a good sales person – is to understand your unique Sales DNA. We offer a free course on that which you can access here.
- This week’s episode of the Anchored Intelligence podcast is an eye-opener for any ambitious, successful, high-earning Queen. Eleanor is in conversation with one of the worlds foremost experts on the gender pay gap Dr Claudia Goldin. Check it out here.