Founder Decision Making At Scale - MinMax Regret
It is common for a startup to atrophy based on slow or improper decision making. To understand why they atrophy you need only look at why incumbent businesses fail to disrupt. Slower more conservative decisions.
Incumbents often have smart and proficient minds like startups, yet they're constrained to the self-inflicted pace of progress in the cube farm. A startup that doesn’t make timely decisions is essentially an incumbent business with far fewer resources.
From the product released too late in the search for perfection. To my own experience with a $1.7M forex loss due to a board weighing personal risk aversion over shareholder responsibility.
A decision no matter how small is the precursor to action and subsequent wisdom. Proficiency in decision making is hence linked to proficiency in execution.
There are a multitude of statements that hint at the importance of decision making;
She is a street smart founder.
Our family office does not back first-time founders.
And a multitude of artifacts for market participants that signal better decision making or the addition of people we think influence decisions;
The pitch deck laden with advisors and non-executive directors.
The movement of clients between firms as a partner or senior leader transitions.
Yes - The role of culture, governance, and reporting is to ensure your startup can execute a higher volume of expedient decisions.
We all want to be surrounded by people that make better decisions! The vital part of that statement is the act itself (make). An organisation will live and die by the decisions it can MAKE! Delegate, prioritize, defer yet make a decision!
In the words of Ben Horowitz -
"Often any decision, even the wrong decision, is better than no decision."
There are a few reasons I've encountered that cause decision bottlenecks within a startup;
Poor Product Founder Fit
All of which results in fear, which then leads to fewer decisions, less learning, less growth, and fewer multiples if any for the societies within which we operate.
There is a multitude of good reasons why founders struggle to release the reins of decision making. The issue is that if you're unable to trust you'll be unable to scale decision making within the organisation. From childhood trauma to previous transactions or a lack of self-worth etc.
In a previous company, one of the founders transferred all the shares of the entity into their name. Controlled all the bank accounts and most purchase decisions while being in a different timezone to the core team. This makes the startup move slower than a corporate and disproportionately limits optionality compared to the relative risk.
If the level of trust constrains decision making. It's essential to address the trust with the parties involved and create systems for faster decision making. Why systems? Well that's because you can only make so many decision in a day!
In an average day, a human makes about 35,000 decisions, while 90% of these are unconscious, 10% of the decisions are conscious. Yet in any given day you only have the bandwidth for so many quality decisions.
Steve Jobs and Mark Zuckerberg are well known for limiting the choices they made in a day, by limiting their clothing to one or two outfit choices. The more decisions you make in a day the lower the quality of the decision get over time. It's understood to be one of the causes of irrational decision making.
I've seen founders fairly rapidly lose their resilience on rd show or in operations because of one poor decision, after a long period of being the stage-gate for all decisions within an org's all-required consensus culture. The statement "I'm a director" doesn't mean you need to be involved in every decision.
Know the functional purpose of the amazing people you hire and surround yourself with. Empower them to make decisions, if necessary, actually, list the decisions you want them to make.
Poor Product Founder Fit:
This is a tough one. Every great founder has a T-shaped set of skills like an MMA fighter (wrestling, kickboxing, jiu-jitsu). They have a deep level of experience in one element of what is required and are OK to good at an array of other skills. Poor Product Founder Fit can surface when your product takes a turn, or you need to do something you've never done before.
You can have a founder that is excellent at making software and commercial risk decisions in a large corporation. Though the pace of decisions and terms they present to partners for a startup can damage relationships and slow progress.
Product Founder Fit is relative to the self-awareness and proficiency of the founder in being vulnerable and learning. You don't need to be right you need to find the people that are mostly right and have aligned motivations.
*Note: This is only a shortlist of the ways decisions tend to slow the growth of an early-stage startup.
So how do we make faster decisions while identifying and clearing some of the bottlenecks?
Firstly the caveat is that most of the time you will make decisions without complete information. Secondly, you can make the right decision and still get an unfavorable outcome, that's OK and it's about moving forward.
MinMax Regret - Decision Strategy:
As the name suggests, MinMax Regret is used to minimise the maximum regret of a decision. This is not about minimising your maximum loss as a founder. Regret instead is about your subjectivity and connectedness to your vision and the impact you seek to make on people's lives. Within regret is part of the drive you have to change the world while others will sit idle, it is where the multiples are for our societies.
MinMax Regret isn't about the odds. It's about how if you pay the cost of Decision X and Outcome A occurs what will you regret. List all the possible costs and outcomes and find the one that has the least regret as it relates to your desired impact.
This is vastly different to MinMax cost calculations, as the subjectivity is more conducive to the pace of disruption.
An example from crypto-summer:
Do we liquidate the funds that we have received even though the organisation is currently unbanked (fiat out)?
A) Cost: Take on directors risk and liquidate via personal accounts to pay operations expenses | Outcome: Secure runway to achieve objectives comfortably.
B) Cost: Refuse to take on the directors liability | Outcome: Zero directors risk and 100% compliance.
If the Northstar metric of the organisation is to achieve product-market fit and scale, the board chooses decision path A. MinMax regret is about prioritizing the achievement of the outcome you set out to achieve and promised investors.
MinMax regret is about staying away from costly (slow) decision processes that potentially make you a startup behaving like a big corporate and losing your edge for disruption. It is a subjective form of rapid decision making that allows you to comprehend the utility that you will lose.
We all know that success is based on how well and how rapidly you can deliver that Ah-Ha moment (Utility), which is a function of the decisions made by the organisation.
And keep in mind a Quote by the polymath Oliver Wendell Holmes;
“A young man knows the rules. But a wise man knows the exceptions”
About The Author:
Nesh is an Entrepreneur in Residence for Accelerating Asia and DFAT’s ASEAN Smart Cities Accelerator.
Why Smart Cities?
Two-thirds of the world’s population will be living in cities by 2050, according to the United Nations. This will put immense pressure on cities to provide everyday essentials like clean air, affordable and safe public transport, and reliable infrastructure. In fact, many cities are already struggling to provide their residents with these necessities. There is still a lot of work to be done, and we believe startups are uniquely positioned to tackle the challenges cities face today and in the future.
That is why we created the ASEAN Smart Cities Accelerator. By helping promising startups realise their potential, we are helping to fulfill an important mission: the creation of sustainable cities that work for everyone.
So where do I apply?
Applications are now open with a program start date set for early 2020. Interested parties may contact Accelerating Asia for more details at firstname.lastname@example.org or check out ASCA official website.