Co-written by John Fitch
The holy grail of building unicorn startups is to look in the right places and to reject the first thousand bad business ideas. The looking part is easy since one needs only to search areas of high market and high technology risk. However, what is the best path to making good business decisions throughout the process?
A decision is the irrevocable allocation of resources, completely under the decision-maker's control. A good decision hinges on a good decision-process. Ron Howard at Stanford teaches one such process and it contains the following elements:
A problem is synthesized though elicitation providing a Decision-basis containing:
1) Choices (alternatives)
2) Information (Model: Complex & Dynamic, Probability assignment)
3) Preferences (Values, Time preferences and Risk preferences)
This Decision-basis is then the foundation of analysis and logical evaluation, including a sensitivity analysis to Choice, Information and Preferences, resulting in a decision recommendation.
However, leaders, managers, experts and, in particular, founders of new entrepreneurial ventures tend to dismiss a rigorous decision-process and just trust their guts. This wouldn't be so bad, if they were not so poor at learning from their experiences.
Their biggest hurdle may be a belief that "a good outcome is indicative of a good decision-process and a poor outcome suggests poor decision-making." An example is, if one buys a lottery ticket and wins, it was a good decision and if one loses, it was a bad decision. In actuality, it was a bad decision in both cases; the first just happened to have a fortuitous outcome. The actual solution may be to provide an overview and track decisions through the use of decision patterns.
In a decision pattern, the initial focus is on the problem half of each decision, i.e. the fundamental question/issue that demands an answer or solution. By framing the business startup problem as a hierarchical set of such questions, the pattern creates a knowledge pull that quickly identifies unknowns needing to be known.
Good decision patterns also include the typical criteria that express stakeholder preferences and therefore guide the collection of the appropriate information to enable objective evaluation of the alternatives.
By breaking down the startup problem into smaller "chunks", the decision pattern stimulates innovative thinking. Each decision/question can be the focal point for ideation about a wide range of possible solutions from "off-the-shelf" incumbents to incremental improvements and disruptive concepts.
In the early phases of startups, the overarching decision phases are; The Big Idea (Why), Business Model, Portfolio management and Concept Ideation. These decision patterns foster a scalable entrepreneurial process where each decision/question may be prioritized. Then, different but appropriate levels of evaluation rigor can be applied based on these priorities.
Prioritization is driven by the Decision Impact or by the potential effects of a bad choice on the startup and/or the Innovation Opportunity. This is the competitive advantage that could be created if a game-changing alternative was found.
Decision patterns may be used at any level of a business (strategic, portfolio, product/service innovation/design, project execution, operations). They represent the foundation for turning any organization into a lean, mean, thinking machine.
They represent a unique value for startups by filling in the missing elements in the mental model (knowledge capital) of the entrepreneurial team. These are the folks who often have deep technology expertise but lack business breadth.
In a future article, the decision pattern framework will also be applied to a California startup showing how initial business decisions can be improved.
Special thanks to John Fitch for co-writing and researching this article