Entrepreneurs have an interesting perspective on decision-making. For one, they do a lot of it. But moreover, I believe they tend to think about opportunities differently than most people.
This applies to the big decisions that make or break a company, as well as the day-to-day decisions that we all face.
In this post I’d like to use one small decision my fiancee and I recently faced to highlight some of these differences. I hope you find the lessons useful, and even start thinking differently about some of the decisions you face in your life.
We woke up late one Saturday, the sun was shining, and we had a random thought: Let’s go camping.
The thought started out as the type of day-dreaming we all do (“Wouldn’t it be great if…”) but we quickly started taking it seriously. We had been wanting to hike Wallace Falls and so we did a few web searches and this is what we learned:
- Wallace Falls is one of the most popular, busiest parks in the state
- The park has two tent sites, which are available first-come, first-served
The combination of the two left us worried over whether we’d have a real shot at getting a spot. On top of that, it was already 10 a.m. We obviously hadn’t gotten our camping gear together, and it was easily the sunniest day of the year.
We faced a decision. And here’s where I abstract a bit, because this is a decision much like the types an entrepreneur faces all the time. Essentially, we were late to the game, just getting started, and going after something in a hot space.
Doubt & Decision Trees
When faced with a seemingly low-probability proposition, its natural to feel doubt. We talked about how there are probably hundreds of people going to Wallace Falls that day, and that the odds have to be slim that by the time we got there one of the two spots would still be available.
One way to represent our thought process is with a decision tree, like the one below.
While there’s a lot of notation behind decision trees (here’s a free primer), the basic concept is quite simple. Basically there are decisions and there are outcomes. Each outcome has a value or utility.
For example, if we decide to not go camping the value is 0, we really didn’t lose anything nor did we gain. If instead we decide to go camping there are two possible outcomes, each with its own probability of occurring: either we get a spot (value +10 for the resulting good times) or we don’t (-2 because of the let down, lost time, expenses, etc.).
Now the expected value (EV) of deciding to go camping is actually negative here. 95 percent of the time we’d get -2, 5 percent of the time we’d get +10, so on average we’d get -1.4. Given that the EV of deciding not to go camping is 0, and 0 &; -1.4, the rational thing here would be to not go at all.
That’s how most people would think through this problem, and that’s why most people wouldn’t go. Just like most people don’t roll the dice on a new venture.
So what about the people that do? Are they just irrational? I’m going to claim no. They just operate under a different set of core assumptions. Here are the tweaks that an entrepreneur would make to the decision tree:
Don’t Overestimate the Competition
We only gave ourselves a 5 percent chance of actually getting a spot, reasoning that hundreds of other people are also coveting the campsite. An entrepreneur thinks the odds are actually significantly better.
He recognizes the difference between an idea and execution. While hundreds of people probably had a similar idea, he believes that most end up not taking any action.
One simple way of thinking through this is that if everyone used the assumptions in the decision tree above, then the campsite would remain empty. An entrepreneur factors in this paradox into his assumptions. With regards to the decision tree, I’m going to up our chances from 5 percent to 10 percent that we get a spot.
Factor in the Cost of Regret
The next assumption he would disagree with is that the cost of not doing something is zero (i.e., not attempting to go camping). There’s a real cost to constantly telling yourself no, and not chasing your dreams.
Jeff Bezos formalized this into something he calls the “Regret Minimization Framework” and used it to rationalize his decision to leave his well-paying job to start Amazon.
When you’re 80 and looking back on your life, what are the moments you’ll look back on with regret?
You will probably find that the moments you tried and failed hurt far less than the moments when you did not have the courage to try at all. An entrepreneur minimizes the number of regrets in his life by recognizing that there is a real cost to not doing something. With our specific example, a day of camping is admittedly not something with a high regret cost, so I’ll just lower the value of doing nothing from 0 to -0.1.
Minimize the Cost of Failure
A good entrepreneur practices a healthy dose of pragmatism. Even with the assumptions above, there remains a high probability of failure. An entrepreneur recognizes this and finds ways to minimize the cost of failure.
In the tech world, there are methodologies, like the Lean Startup, that help entrepreneurs setup a process to achieve just this. With our camping example, there were some simple things we could do. For example, instead of buying the perishable camp food right away, we could decide to wait and buy the food only if we got the campsite. I figured that would lower the cost of failure from -2 to just -1 on our decision tree.
Putting It All Together
While each of the changes above appear minor, taken together the resulting rational decision actually flips.
Now the EV of going camping is +0.1, while the EV of not going is -0.1. This was the decision tree that we ended up using that morning, and so at 12 p.m. on the sunniest day in Seattle, we brashly made our way to Wallace Falls in a car packed with camping gear.
When we pulled up the parking lot was packed. We were forced to park a few blocks away and had to carry our gear towards the campsites. Honestly, there was a moment of feeling foolish, but in the end who cares? At worst we would put the tent back into the trunk and just take a day hike.
We turned down the final path, and to our giddy surprise we found both campsites open. We quickly pitched our tent, got some food to grill later that night, and went on a beautiful hike.
Later that night, while enjoying the campfire, I couldn’t help but look over at the other campsite. It was still empty.
You may say that we were just lucky in the story above, and in a way you’re right. But that’s what entrepreneurs do — they take calculated risks. They look at opportunities slightly differently than most, and are compelled to act when most wouldn’t.
The next time you’re faced with a tough decision, you might try adopting an entrepreneur’s perspective. You might be surprised just how much it changes things.
Pejman Pour-Moezzi is the co-founder of a to-be-announced startup in the Seattle area. He was previously a Product Manager at Bing, and a co-founder at Magoosh. You can connect with Pejman via email, Twitter, LinkedIn