Business Decision Making: The 2-Part System

by Jun 1, 2020Bonuses

Some people base their decisions on gut instinct alone; others only use data. There’s a better way.

There’s a battle that occurs every day in boardrooms across the country over a single question: Which is mightier, the gut or the spreadsheet? What I mean is that there is a disagreement between entrepreneurs, who generally rely more on their gut in business decision-making, and bankers and investors, who base their decisions on the cold, hard facts you’d find on a spreadsheet.

So, who is right? Perhaps not surprisingly, the answer is that both are right. The best strategic business decisions often come down to a mix of the gut and the spreadsheet.

Let me explain.

I’ve written before about how some of the most successful entrepreneurs either never finished college or struggled in school. Many of them also learned to overcome learning disabilities like ADD or dyslexia. Rather than take a more formal approach to run their businesses, these entrepreneurs thrived by learning how to read people and situations based on their “gut.”

Some people just don’t do spreadsheets. In fact, the more data and facts you throw at a “gut” decision-maker, the more they will be convinced that their opinion is the correct one. These gut decisions sometimes go against the wisdom of the crowd and yield incredible fortunes–or epic, flaming crashes.

The flip side of this coin is the folks who rely almost exclusively on their spreadsheets to make decisions. These are the folks who, like me, got their MBAs and were trained in quantitative analysis. Many people who get their MBAs follow career paths in the banking and investment industries where the name of the game is to analyze numbers and trends. There is zero gut instinct involved in making decisions.

That’s why this conflict arises between entrepreneurs and investors. Each side believes it has superior tools for making the best decisions. Entrepreneurs get frustrated when bankers, who have never even run a lemonade stand, tell them what to do. At the same time, bankers are frustrated when the numbers just don’t add up.

As someone who has learned from people on both sides of this divide, I’ve come to appreciate that the best decisions are actually those that combine gut with data.

I’ve written before that you don’t need all the data to make a great decision. In fact, if you have 100 percent of the information available, that means that everyone has access to it, and you’ve lost your advantage. There is no win when everyone knows the answer. Sometimes using your gut, especially when it’s been honed with years of experience, can give you a leg up on those chained to the numbers.

That said, if you only rely on your gut to make decisions, you’ll make some mistakes, potentially many of them, and possibly a few very expensive ones. That’s not going to go well with a banker who worries that one of those mistakes will be expensive and will cost them their invested money.

That’s why finding the balance between your gut and the data is so vital. This is where the real magic happens. These are just two different vantage points of looking at a problem or an opportunity, and the more you can utilize the strengths of each approach, the better you’ll be at making decisions. Bankers need entrepreneurs for their creativity and business acumen, and entrepreneurs need bankers for their money.

That’s especially true these days as we enter uncharted territory in the economy. The numbers on the spreadsheet aren’t always going to look good, and they can’t always predict where new opportunities might emerge when the economy begins to turn around. This might be the perfect time to marry the strengths of thinking with your gut and thinking with the data, to better position your business for the road ahead.