Decision making is a tough part of all jobs. How does a VC know which startup to invest in? How does a big company CEO know which acquisition deal is good or bad? How does a startup CEO know where to direct limited, but critical, resources?
A newbie to the world of startups will quickly learn that it’s a world of controlled chaos. Ambiguity exists in companies of all sizes. At a large company, ambiguity is fairly low in middle management but progressively worsens as one climbs the ladder higher and higher. At a startup, ambiguity is found everywhere but, again, makes its presence most felt at the executive level.
There’s plenty of anecdotal evidence of how gut instinct served as the driving force behind some big business decisions. For example, an essay in a Harvard Business Review book entitled “On Decision Making” (by Alden Hayashi) cites how Bob Lutz of Chrysler came up with the idea of building the Dodge Viper while he was cruising in his Ford Mustang.
Lutz had no market data to guide his thinking. A former pilot, Lutz used a familiar analogy to explain how he went about trusting his instincts to do what he felt was needed for Chrysler. Basically, he said that if the airplane you’re piloting is going too slow it is because the aerodynamic drag is building up since the nose of the plane is placed too high. Even at full power, you can’t climb to greater heights anymore. You have to sacrifice some altitude in order to gain speed and avoid stalling. Everyone around him said that Chrysler needed to cut costs and gain altitude. Lutz felt differently. He felt that what Chrysler needed was to invest in the Viper project to regain its speed.
Hayashi brings up a terrific point about what experienced managers and top leaders do to make tough decisions. He points to findings by Nobel Laureate Herbert A. Simon of Carnegie Mellon University who studied human decision making for many years. Simon’s big conclusion is that experience “enables people to chunk information so that they can store and retrieve it easily.” By doing so, top leaders who possess great business instincts are able to see patterns and index those patterns. Indexing and cross indexing those patterns are critical. Cross indexing is the ability to see similar patterns in disparate fields (as Lutz did in the example given above).
Simon studied grand masters in chess and found that they can recognize and recall on average over 50,000 patterns in which various pieces can be arranged on a board. Tightly related to those patterns, these chess masters also have a memory bank of offensive and defensive maneuvers they can use to exploit a particular arrangement. Professional poker players say the exact same thing. After countless hands, poker pros are able to recognize patterns and adjust their actions. Math is certainly a big component of a poker game as probabilities and odds serve as the ever present “market data” supporting a decision. But, winning poker pros use data in conjunction with pattern recognition and maneuver recall. Experienced people see patterns and have an uncanny ability to cross index those patterns.
Recently, every 20-something Web 2.0 startup CEO in Silicon Valley loudly shouts that his/her company values raw intelligence and talent over experience. It’s the trendy thing to say. Fair enough. If I’m recruiting a bunch of 20-somethings with no experience, I could be saying the same thing. But, I really believe that many of these CEOs will learn the hard way what the rest of us have figured out. Experience matters and it traverses disparate fields. Raw talent AND experience are not mutually exclusive. Find people who have both. There are too many amazingly gifted people with a wealth of experience in Silicon Valley to settle for anything less – especially in leadership positions.
- John
Hi John,
Great points. I think the **truly** talented young leaders in the valley recognize the necessity of experience. Take google. Early on, they recognized that they don't know about the patterns that they have never seen before. The two very young guys FOCUSED on what they do best, which is understand the user problem space (people have a tough time finding stuff on the Internet) and design the best tools to pull up all the incredible data out there. So, they hired experienced leadership to head up the company (NOT just in the CEO, but the Sales VP, Engineering, etc.)
It is the arrogant/ignorant founders (young and old) who don't learn from past mistakes or learn from others' mistakes. They need to acknowledge their weaknesses, then hire (and actually listen) to these experienced, pattern-recognizing folks to 'make them look good.'
Easier said than done cause most of us can't see our blind spots.
Frank
Posted by: Frank | April 04, 2008 at 01:30 PM