This short and sweet visual guide lays out the four factors I always weigh when making business decisions. Learn how to balance the potential upside, likelihood of success, effort and value that go into each choice you make, and avoid making devastating mistakes that can cost your company valuable time and resources.
How to Make the Right Business Decisions Introduction 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 worth 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 accomplish 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 [(AxB)/C]xD 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 Upside 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 mpany 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. likeliho 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 upside? 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 team. All Efforts Should Have Strategic Value ial upside • Efforts with a high potent tiny for should have the most scru strategic value high • Completing tasks with a much 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 Process 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 ategic 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 cces 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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