How to Make Business Decisions: 4 Factors

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									How to Make the Right

When you’re starting a business, there is an extremely small amount       your business? Did
of things you will accomplish that will make the biggest difference.      they bring in
                                                                          significant and
I’m the co-founder and CEO of a company called Docstoc,                   sustainable revenue,
and we are currently profitable. We’ve experienced a growth of             or really help
100% for the last few years, and have scaled to almost fifty               achieve your
employees. In all our years of success, there have only been a            overall mission?
handful of decisions I made that resulted in the majority of our          The answer is
growth. The trick for us, and any other startup, is to correctly          probably “no.”
identify what those specific goals are, then have the discipline to stay
focused on them.                                                          The biggest thing
                                                                          you waste when
There are only two results that really make a difference when you         you work on
start a business:                                                         trivial things
                                                                          outside of the two
                                                                          listed on the left,
    1. Are you getting customers for your                                 is your opportunity
    product or service?                                                   cost. Your opportunity cost is important because we all only have a
                                                                          limited amount of time to get our business off the ground.
    2. Do you have enough capital to scale
                                                                          Your biggest blunder won’t be the series of mistakes that you will
    and continue getting more customers?                                  inevitably make. And trust me, you will make many of them. The
                                                                          single biggest mistake you can ever make is wasting your time, which
                                                                          is your most precious resource, by not working on the things that are
Everything that you do, from the moment you wake up to the                the most important for your business.
moment that you go to bed that isn’t directly related to one of those
two items, is a waste of your time.                                       Once you know this, the hardest thing is actually making the right
                                                                          choices, and pursuing efforts that will really make a difference. The
Too many entrepreneurs love making a “stuff to do” list; I’ll             first thing you ask yourself, is how can you not only bring in
abbreviate it as your STD list, because that name has a negative          customers, but pull enough money to continue growing? When I’m
connotation (and these lists should). People tend to write a long STD     trying to decide what goals to focus on next, I run my idea through
list, because they feel really good checking tasks off as they go: I      four important tests to evaluate their worthiness of my company’s
called this person, I responded to this email, I posted on Facebook…      time. I would like to share them with you, as a jumping off point for
but at the end of the day, did these things really make a difference to   making decisions to improve your own business.

                                                                                                          Edited/Designed by Rochelle Bailis
          The Decision Matrix

   1. Potential Up
                   s             ide
    If the project yo
                                                      2. Likelihood of Success
                        u’re working on
   have a big pote                        doesn’t
                      ntial upside, is it
   working on at all                                                           lances the potential
                      ? Let’s say you’re
                                         already      This factor counterba
   getting customers                                                           ld it be? This is the
                      for your business an
                                           d you      upside. How hard cou
  have the time and                                                               w en tre pr en eu rs
                      budget to focus on
                                          one or      big ge st thi ng tha t ne
  two new initiative                                                               hardest variable to
                     s. If they only                  overestimate. It’s also the
 have the potential                                                               better at gauging it
                       to bring                       plan for, but you will get
 in 10% more profi                                                               weigh the challenges,
                       t in the                        over time. Until then,
long term, is it wo                                                               l initiatives of other
                      rth your                         compare similar successfu
time? Probably no                                                                ful of the next factor.
                   t.                                  companies, and be mind

   3. Effort
   Involved                                                        4. Strategic
                             ,                                                             Value
   How much time, effort                                 Finally, ever
   resources and  energy is it                                          y decision m
                                                        the lens of                     ust be put
                           te this item, to the                                                      under
   going to take to comple                                             your ultimat
                                                                                      e vision. W
                              to customers or           you trying to                              hat are
   point where it will lead                             To sell you
                                                                                       at your com
                                                                       r company                    pany?
    revenue?                                           dollars? To                      for 100 m
                                                                     change the                      illion
                              tor that must be                                      lives of milli
    This is the practical fac                          people for th
                                                                      e better? O                  ons of
                             to the first two.         term, such                    r is it more
    considered in relation                                            as getting                   short-
                               tial billion dollar    customers b                   your first 5
    Maybe you have a poten                                         y a certain d                   0,000
                             lihood of success       that every                    eadline? Mak
    idea, with a decent like                                       step you m                    e sure
                             it will take 5 years                                ake is mov
    (maybe 30 or 40%), but                           directly towar
                                                                     ds this goal.             ing you
                               n value from the
     before you can even gai
                                  you should be
     work. Is this something
     working on?
          The Equation


                            This equation can be a
        KEY                 helpful way of evaluating
                            a potential decision. Each
                            of the four factors affects
A = Upside Potential
                            one another, and this
1-5 Points                  equation allows you to
B = Likelihood of Success   coalesce these factors and
                            assign a tangible number
1-10 Points                 to your opportunities.
C = Effort Involved         This is a tool to help you
1- 10 Points                compare and contrast the
                            overall value of different
D = Strategic Value         choices, but remember:
1-3 Points                  this equation is an
                            exercise in making
                            decisions, and should be
                            taken with a grain of salt.
          Focus on Efforts with
          the Highest Potential

                                                  That’s what your goal as a
                              ll have the         founder or leader of your
 • In the long run, these wi                      company should be: to delegate
   highest payout for your co
                 ld th primary efforts            smaller tasks to your team, and
 • These shoumajbe ityeof resources in
                     or                           then spend at least 80% of your
    taking the                                    day working on the one or two
    your company
                             at have a low        efforts with the highest possible
 • Bewareod of ospectss th extreme
              of pr
                    succes or                     gain.
     efforts involved                              You must also be sure that the
                                                   majority of your resources are
                                                   being channeled towards the big
                                                   efforts. Whether your “resources”
The first thing to evaluate is the            are money, employee time or favors
prospective gains of a goal; you always      you’re calling in, make sure these are
want to eliminate any opportunities that     going to your most powerful tasks.
don’t have a big potential upside. If an
effort won’t push your business
somewhere great, it’s not worth
assigning it as your main focus.
If you are honest with yourself and look
back at what you spent your time doing
in the last day, week, month, 6 months,
what percent of your time have
you actually spent working on the
items with the biggest potential
             Complete Tasks with a
           High Likelihood of Success
             & Low Effort Involved

Measuring the likelihood of success and
amount of effort involved helps to                               •  These efforts are vi
                                                                                         tal to both
balance a high potential upside.                                   maintain what’s al
                                                                                       ready working an
                                                                   to make consistent                    d
Maybe you’ve just launched a business                                                   incremental gain
and you’re thinking to yourself                                   in new areas
“Wouldn’t it be great if we made a deal                        • Avoid working on items with no
with Google?”                                                     strategic value
Sure, everyone would love to do that,
                                                               • Don’t put off working on items w
                                                                 the largest potenti                 ith
but you need to be honest about your                                                 al upside
chances. A low likelihood of success or
high amount of required energy can

                                                                                         render a great
                                                                                         prospect obsolete.
       While you’re focusing the majority of your energy on these big changes, be
       sure that some energy in your company is being diverted to smaller,               At my company, we
       incremental gains to sustain yourself.                                            set two or three big
                                                                                         priorities for the next
       At Docstoc, we never produce anything that takes more than a month to
       develop without getting some kind of data or feedback from customers.             six months, each with
       We don’t spend too long talking about ideas, or keep them incubated until         big potential upsides.
       they’re perfect. We develop a product quickly, let our users tell us if it’s      And I as the CEO
       working or not, and then we keep building into it.
                                                                                         spend 80% of my
       So while we’re working on the bigger, meatier goals, we organize our time         personal time working
       into weekly sprints, and accomplish the easier, smaller gains. Some will          on the areas that I
       help us sustain ourselves, and others will be used to build on our larger
                                                                                         think I can affect our
       efforts. The key is to be sure that, while you’re waiting for the things that
       can double your company’s revenue or get you ten times more users, you            company the most. In
       want to knock out smaller items so that you’re incrementally growing in           fact, oftentimes I’m
       between larger bursts.                                                            only working on one
                                                                                         of them with all of my
                                                                                         energy, and delegate
                                                                                         other tasks to my
            All Efforts Should
           Have Strategic Value

                               ial upside
•   Efforts with a high potent
                                tiny for
    should have the most scru
    strategic value
•   Completing tasks with a
     likelihood of success has
                               nding on
     greater importance depe
     their strategic value

                                            If all three factors fit, particularly when
                                            there is a large potential gain, the final
                                            step is being sure that your effort has
                                            strategic value. If an idea has a high
                                            likelihood of success, prioritize it above
                                            the others to increase your chances of
                                            accomplishment. Most importantly,
                                            make sure that your big choices are
                                            directly tied to your company’s main
                                            goals; if it’s only tangentially related,
                                            spending the majority of your resources
                                            on it is a big mistake. See the next page
                                            for other mistakes to avoid...
               Common Mistakes in
               the Decision-Making

A mistake that occurs surprisingly often is
people spend time on projects that don’t         • Complicated efforts with
                                                                               no big
look promising within any of the first              upside, a low likelihood
                                                                             of success
three factors. Too many people jump on             and/or a questionable str
their first opportunity, even if it takes too    • Continuously working on small valuesitem
much work, isn’t very likely and lacks a           with low likelihood of su
significant potential gain. Doing this will      • Completing items with high s
run your company right into the ground.           likelihood of success with
                                                                              out regard
The other most common trap is getting             to effort involved or pote
                                                                             ntial upside
stuck completing your STD list,
completing items which have very little
potential upside in the grand scheme of
things. If you feel like you’re working
                                               hard but not advancing, you are probably
                                               caught in this cycle.
                                               Whether you’re working on things with a
                                               low likelihood of success or not enough
                                               potential upside, these caveats will always
                                               catch up to you. Don’t allow yourself to feel
                                               accomplished unless you are working on
                                               something that has a good and reasonable
                                               chance of elevating your company to the
                                               next level in customer acquisition and
                                               revenue. If you want to thrive, this is the
                                               only approach that will make the most of
                                               your most precious asset: your time.
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