How to make better decisions more often

Tom Wolfe writes in Bonfire of the Vanities that “decisive men made great decisions not because they were smarter than other people, necessarily, but because they made more decisions, and by the law of averages, some of them would be great.”

Lots of people take this approach. Make a lot of decisions, and statistically some will always be great.

What this approach doesn’t account for is the ability to improve at the decision-making process over time.

If someone in their twenties and someone in their fifties is making a decision, then, all else being equal, the person in their fifties is more likely to make the correct decision because they have an additional thirty years of decision-making experience.

The best way to get better at making decisions is to make more of them.

When you do this, five things will happen:

  1. At first, your percentage of wrong decisions will be just as high as if you had made fewer decisions.
  2. But—and this is why this is hard—your real number of wrong decisions will be higher than had you made fewer decisions. You’ll be tempted to stop. But don’t.
  3. Fortunately, over time, it will be balanced out by your number of right decisions.
  4. Over even more time, your percentage of wrong decisions will begin to shrink.
  5. Over even more time, the cumulative effect of your right decisions will begin to make up for the high initial cost of wrong decisions from #1.

It’s a high cost up front, but the payout over the long term makes it a good investment.

Peter Drucker takes this one step further. He says that “effective people do not make a great many decisions. They concentrate on the important ones.”

Or: you’ll eventually reach a point where you’ll not only be great at making decisions, but you’ll be able to perceive what decisions are even worth considering in the first place.

Here’s how great decision-makers operate:

They try to think through what is strategic and generic, rather than “solve problems.” They try to make the few important decisions on the highest level of conceptual understanding. They try to find the constants in a situation. They are, therefore, not overly impressed by speed in decision-making. Rather, they consider virtuosity in manipulating a great many variables a symptom of sloppy thinking. They want to know what the decision is all about and what the underlying realities are that it has to satisfy. They want impact rather than technique; they want to be sound rather than clever.

The practice of decision-making starts before you need to decide.

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Jeff Bezos on the 4 differences between “Day 1” companies and “Day 2” companies

In his recent letter to shareholders, Jeff Bezos explains how he plans to keep Amazon a “Day 1” company.

A “Day 1” company is defined by vitality. But a “Day 2” company is defined by “statis… irrelevance… excruciating, painful decline… death.”

1. Focus on customers first.

Bezos writes, “You can be competitor focused, you can be product focused, you can be technology focused, you can be business model focused.”

Amazon has chosen to be customer-focused, because “customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.”

(This also why you should focus on customers before you focus on profits.)

2. Resist proxies for your customers.

It’s a common tendency to replace your customers with other things—things that, themselves, are worthy things for a business to care about.

One danger is to make process a proxy for your customers:

Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing…. You stop looking at outcomes and just make sure you’re doing the process right…. It’s always worth asking, ‘do we own the process or does the process own us?’

Market research can also become another proxy for your customers:

‘Fifty-five percent of beta testers report being satisfied with this feature. That is up from 47% in the first survey.’ That’s hard to interpret and could unintentionally mislead.

Instead:

Good inventors and designers deeply understand their customer…. They study and understand many anecdotes rather than only the averages you’ll find on surveys…. A remarkable customer experience starts with heart, intuition, curiosity, play, guts, taste. You won’t find any of it in a survey.

3. Be quick to embrace external trends.

Bezos writes that “if you fight them, you’re probably fighting the future. Embrace them and you have a tailwind.”

Don’t resist change.

4. Make high quality decisions at a high velocity.

Most companies make high quality decisions, they just make them too slowly.

There are four ways Bezos tries to do this at Amazon:

First, never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong?

Second, most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.”

Third, use the phrase ‘disagree and commit.’… If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.”

Fourth, recognize true misalignment issues early and escalate them immediately. Sometimes teams have different objectives and fundamentally different views. They are not aligned. No amount of discussion, no number of meetings will resolve that deep misalignment. Without escalation, the default dispute resolution mechanism for this scenario is exhaustion. Whoever has more stamina carries the decision…. ‘You’ve worn me down’ is an awful decision-making process.

Read Jeff Bezos’ entire letter to Amazon shareholders.

Also recommended: The Everything Store: Jeff Bezos and the Age of Amazon.

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A well-managed organization is boring

Sometimes, excitement means something exciting is going on. But other times, excitement only masks confusion, disorder, and decline.

If your organization places value on a strong work ethic and your people put in long hours, that’s exciting. If there are couches and soda and stock options, but all that effort is wasted only on fixing mistakes you could have avoided with more foresight or better processes or a little planning, then—even though it’s exciting—your organization is poorly managed.

Peter Drucker writes:

Years ago when I first started out as a consultant, I had to learn how to tell a well-managed industrial plant from a poorly managed one—without any pretense to production knowledge. A well-managed plant, I soon learned, is a quiet place. A factory that is “dramatic,” a factory in which the “epic of industry” is unfolded before the visitor’s eyes, is poorly managed. A well-managed factory is boring. Nothing exciting happens in it because the crises have been anticipated and have been converted into routine.

Similarly a well-managed organization is a “dull” organization. The “dramatic” things in such an organization are basic decisions that make the future, rather than heroics in mopping up yesterday’s mistakes.

It may be exciting, but that doesn’t mean it isn’t declining.

Aim for boring.

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You are 34 times more likely to get a response if you ask in person instead of via email

If you want a response, ask in person.

It’s tempting to send an email. It’s easier. The cost for you to send an email is virtually zero.

But the cost of receiving one is higher than sending one. That’s why many of your emails are ignored. (And it’s why you get spam: a conversion rate of 0.00001% still makes it worth it.)

A better way to interact is over the phone. Nobody calls. It’s costlier–in your time, your preparation, and in the risk that the other person says no. But the cost of making a call and the cost of receiving one are about the same.

The best way to make an ask is in person. The cost for you is high–higher than it is for them. You are paying with your time, your effort, your preparation, and your dollars. You are getting out of your chair, walking to their desk, driving to their office, meeting at a restaurant, or flying to their worksite.

When the cost imbalance is in your recipients’ favor, you’re more likely to get a meeting, a response, a “yes,” a win in the long term.

The bigger reason you should meet in person to make your request instead of emailing is because email does not communicate the attributes that build implicit trust between two people.

Do you trust them? Do they trust you? The non-verbal cues that undergird any relationship are completely absent in an email.

In a recent study in the Journal of Experimental Social Psychology, people were asked to make requests of others–10 requests each. Some were asked to do this in person; others were asked to send the request via email. Both scripts were similar to ensure the only difference between the two requests was the communication medium.

The researchers found that people were 34 times more likely to respond when asked in person instead of over email.

Interacting in person creates implicit trust between two people that cannot be created over email.

If you want a response, don’t send an email. Instead, pick up the phone. Or better yet, get out of your desk and go talk in person.

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The aim of marketing is to make sales superfluous

There are myriad reasons why someone would buy your product. Is it the product itself? Is it the story you’ve told about your product? The story you’ve told about your customer? Is it the person who asked for the sale?

It’s possible that if your marketing is terrible, you’ll need to rely on your sales team. If your sales team is terrible, you’ll need to rely on your marketing. And if your product is terrible, you’ll need to rely on both. (And your customers will feel lied to.)

Peter Drucker writes that “the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.”

If your marketing is terrible, your sales team needs to do more heavy lifting. That’s true.

But the larger truth is that pitting marketing and sales against each other creates a false dichotomy.

This product will sell well only if we have good marketing. This product will sell well only if we have a good sales team.

The aim of marketing may be to make sales superfluous, but it will never achieve that goal.

Marketing and sales is not a zero sum game.

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Nobody buys copy machines, but everyone buys copies.

Peter Drucker, on Xerox:

One reason why the patents on a copying machine ended up at a small, obscure company in Rochester, New York, then known as the Haloid Company, rather than at one of the big printing-machine manufacturers, was that none of the large established manufacturers saw any possibility of selling a copying machine. Their calculations showed that such a machine would have to sell for at least $4,000. Nobody was going to pay such a sum for a copying machine when carbon paper cost practically nothing. Also, of course, to spend $4,000 on a machine meant a capital-appropriations request, which had to go all the way up to the board of directors accompanied by a calculation showing the return on investment, both of which seemed unimaginable for a gadget to help the secretary.

The Haloid Company—the present Xerox—did a good deal of technical work to design the final machine. But its major contribution was in pricing. It did not sell the machine; it sold what the machine produced, copies. At five or ten cents a copy, there is no need for a capital-appropriations request. This is “petty cash,” which the secretary can disburse without going upstairs. Pricing the Xerox machine at five cents a copy was the true innovation.

People don’t buy copy machines. They buy copies.

Bottom line: people don’t pay for products. They’re always buying something else.

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photo credit: if winter ends on Flickr

You are in business because of your customers

There are lots of reasons business exist. Sometimes they exist for profit. Other times, they exist for their employees. Many businesses exist for stockholders.

But you are not in business to create jobs for your employees or dividends for your stockholders. You are not even in business to earn a profit.

The reason you are in business is “to supply goods and services to customers.” That’s it.

What about the other things? What about employees? What about stockholders? What about profit?

Peter Drucker writes in The Essential Drucker that “profit is not the explanation, cause, or rationale of business behavior and business decisions, but rather the test of their validity.

In other words, if you work for profit, you may marginalize your customers. But if you work for your customers, you will always be profitable.

Care about your customers first, and everything else will take care of itself.

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How to make the right choice when you’re overwhelmed by all the options

Do more options lead to better outcomes?

In a perfect world, you could evaluate all your options and choose the best one.

But in the real world, when you have a lot of options, it takes too much effort to evaluate all of them. In fact, with enough choices, the cost of evaluating all possible options exceeds the perceived benefit of the outcome of any choice—and we give up on choosing at all.

You may have found yourself experiencing this while shopping. You’re looking for a basic item at the grocery store and faced with dozens of options. You need to decide based on price, brand, flavor, or any number of other categories. Often, the job of choosing becomes overwhelming. You walk away.

You may have heard of the now-famous “jam study,” which shows more choice can lead to undesirable outcomes:

On one day, shoppers at an upscale food market saw a display table with 24 varieties of gourmet jam. Those who sampled the spreads received a coupon for $1 off any jam. On another day, shoppers saw a similar table, except that only six varieties of the jam were on display. The large display attracted more interest than the small one. But when the time came to purchase, people who saw the large display were one-tenth as likely to buy as people who saw the small display.

The study was conducted by Sheena Iyengar. In her excellent book, The Art of Choosing, you can find numerous examples of the same outcome from several companies:

“When Proctor & Gamble winnowed its 26 varieties of Head & Shoulders anti-dandruff shampoo down to 15, eliminating the least popular”, sales jumped by 10 percent.

And here’s another one:

“In a similar move, the Golden Cat Corporation got rid of its ten worst-selling small-bag cat litters, which led to a 12 percent bump in sales and also cut distribution costs in half. The end result was an 87 percent profit increase in the small-bag litter category.”

In other words, as Barry Schwarz writes in The Paradox of Choice: Why More Is Less:

“As the number of choices grows further, the negatives escalate until we become overloaded. At this point, choice no longer liberates, but debilitates. It might even be said to tyrannize.”

What’s the optimal number of choices?

Too many options is a bad thing.

But having no options is worse than having too many options. Even though making choices can be difficult, we’d still rather have the option to make a choice. We want the freedom to choose, or at least we want the perception of being able to choose.

Iyengar tells the story of a study where choice is removed:

“In a 1976 study at Arden House, a nursing home in Connecticut . . . scientists Ellen Langer and Judy Rodin manipulated the perception of control among residents aged 65 to 90. To begin, the nursing home’s social coordinator called separate meetings for the residents of two different floors.

“At the first floor’s meeting he handed out a plant to each resident and informed them that the nurses would take care of their plants for them. He also told them that movies were screened on Thursdays and Fridays, and that they would be scheduled to see the movie on one of those days. He assured residents that they were permitted to visit with people on other floors and engage in different types of activities, such as reading, listening to the radio, and watching TV. The focus of his message was that the residents were allowed to do some things, but the responsibility for their well-being lay in the competent hands of the staff, an approach that was the norm for nursing homes at that time (and still is). As the coordinator said, “We feel it is our responsibility to make this a home you can be proud of and happy in, and we want to do all we can to help you.”

Then the coordinator called a meeting for the other floor. This time he let each resident choose which plant he or she wanted, and told them that taking care of the plants would be their responsibility. He likewise allowed them to choose whether to watch the weekly movie screening on Thursday or Friday, and reminded them of the many ways in which they could choose to spend their time, such as visiting with other residents, reading, listening to the radio, and watching TV. Overall he emphasized that it was the residents’ responsibility to make their new home a happy place. “It’s your life,” he said. “You can make of it whatever you want.”

Despite the differences in these messages, the staff treated the residents of the two floors identically, giving them the same amount of attention. Moreover, the additional choices given to the second group of residents were seemingly trivial, since everyone got a plant and saw the same movie each week, whether on Thursday or Friday.

Here’s the result:

Nevertheless, when examined three weeks later, the residents who had been given more choices were happier and more alert, and they interacted more with other residents and staff than those who hadn’t been given the same choices. Even within the short, three-week time frame of the study, the physical health of over 70 percent of the residents from the “choiceless” group deteriorated. By contrast, over 90 percent of the people with choice saw their health improve. Six months later, researchers even found that the residents who’d been given greater choice—or, indeed, the perception of it—were less likely to have died.

The nursing home residents benefited from having choices that were largely symbolic. Being able to exercise their innate need to control some of their environment prevented the residents from suffering the stress and anxiety that caged zoo animals and lower-pay-grade employees often experience. The study suggests that minor but frequent choice making can have a disproportionately large and positive impact on our perception of overall control, just as the accumulation of minor stresses is often more harmful over time than the stress caused by a few major events. More profoundly, this suggests that we can give choice to ourselves and to others, along with the benefits that accompany choice. A small change in our actions, such as speaking or thinking in a way that highlights our agency, can have a big effect on our mental and physical state.

So if a single option—i.e., a lack of choice—is too restrictive, and too many options is “debilitating,” as we saw above, then what’s the optimal number of choices?

Here’s what we know:

  • 6 choices is better than 24 choices. In the jam study mentioned above, 30% of customers who chose from 6 jams bought one, while only 3% of customers who saw 24 jams bought one.
  • 4 choices is better than 30 choices. In another study, people who chose a piece of chocolate from 4 options were more confident in their decision that those who chose from 30 options.
  • 5 choices is better than 32 choices. In a study of employees selecting retirement plans, 72% of employees chose a plan when 5 options were presented, while only 67.5% of employees chose a plan when 32 options were presented.
  • 8 to 14 choices is better than 2 to 6 choices and better than 16 to 20 choices. In a study by Anvi M. Shah and George Wolford, and summarized in The Effect of Having Too Much Choice: “In their experiment, they offered participants the opportunity to purchase a black pen for a reduced price. The number of different pens to choose among was varied from 2 to 20 in increments of 2 pens. What they found was that for the lowest three assortment sizes of 2 to 6 pens, 46% of the participants purchased a pen. For the largest three sets between 16 and 20 pens, 33% purchased, while for the middle-sized assortments of 8–14 pens, the percentage of participants who purchased peaked at 70%.”

According to The Art of Choosing, “when people are given a moderate number of options (4 to 6) rather than a large number (20 to 30), they are more likely to make a choice, are more confident in their decisions, and are happier with what they choose.”

from Motivation: Biological, Psychological, and Environmental, 4th ed.

How to make the correct choice when you’re confronted with too many options

Unfortunately, we’re often in situations where we’re forced to choose from more than “a moderate number of choices.” What do we do then?

Iyengar compared two groups of Audi A4 buyers faced with a total of 144 choices in selecting their cars.

“One group of people first made their choices for the dimensions with the most options: interior and exterior color, which had 56 and 26 different options, respectively. From there they chose in descending order by number of options, ending with interior decor style and gear-shift style, which had only four options apiece.

“The second group encountered the same choices in the opposite order, starting with the ones with the fewest options and ending with the most.

“Although both groups ended up eventually seeing 144 total options across eight categories, the people who started high and ended low had a significantly harder time choosing.

“They started off carefully considering each option, but quickly became tired and went with the default option. In the end, they wound up paying 1,500 euros more for their cars (some of the defaults were more expensive than other options), yet were less happy with them compared to the people who went from low to high.”

To make better choices, you need fewer options.

And if you don’t have fewer options, you’ll need to take the options you do have and break them into manageable sub-categories and start with the least complex sub-category first.

There’s much more to learn about choice. I highly recommend Sheena Iyengar’s The Art of Choosing as a great introduction. If you’d like to hear about other great books, sign up for the book recommendations email.

Tina Fey’s 4 rules of improv

In Bossypants, Tina Fey outlines her four rules of improv:

The first rule is to say yes.

Always agree and say yes. When you’re improvising, this means you are required to agree with whatever your partner has created. So if we’re improvising and I say, “Freeze, I have a gun,” and you say, “That’s not a gun. It’s your finger. You’re pointing your finger at me,” our improvised scene has ground to a halt. But if I say, “Freeze, I have a gun!” and you say, “The gun I gave you for Christmas! You bastard!” then we have started a scene because we have AGREED that my finger is in fact a Christmas gun.

Now, obviously in real life you’re not always going to agree with everything everyone says. But the Rule of Agreement reminds you to “respect what your partner has created” and to at least start from an open-minded place. Start with a YES and see where that takes you.

The second rule is to say “yes, and…”

You are supposed to agree and then add something of your own. If I start a scene with “I can’t believe it’s so hot in here,” and you just say, “Yeah…” we’re kind of at a standstill. But if I say, “I can’t believe it’s so hot in here,” and you say, “What did you expect? We’re in hell.” Or if I say, “I can’t believe it’s so hot in here,” and you say, “Yes, this can’t be good for the wax figures.” Or if I say, “I can’t believe it’s so hot in here,” and you say, “I told you we shouldn’t have crawled into this dog’s mouth,” now we’re getting somewhere.

To me YES, AND means don’t be afraid to contribute. It’s your responsibility to contribute. Always make sure you’re adding something to the discussion. Your initiations are worthwhile.

The third rule is to make statements.

This is a positive way of saying “Don’t ask questions all the time.” If we’re in a scene and I say, “Who are you? Where are we? What are we doing here? What’s in that box?” I’m putting pressure on you to come up with all the answers. In other words: Whatever the problem, be part of the solution. Don’t just sit around raising questions and pointing out obstacles.

The fourth rule is that there are no mistakes.

…only opportunities. If I start a scene as what I think is very clearly a cop riding a bicycle, but you think I am a hamster in a hamster wheel, guess what? Now I’m a hamster in a hamster wheel. I’m not going to stop everything to explain that it was really supposed to be a bike. Who knows? Maybe I’ll end up being a police hamster who’s been put on “hamster wheel” duty because I’m “too much of a loose cannon” in the field. In improv there are no mistakes, only beautiful happy accidents.

Bossypants is an entertaining read, and I learned a great deal, too. I highly recommend the audio version.

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Build on your strengths, not your weaknesses

“You cannot build performance on weaknesses. You can build only on strengths.”
—Peter Drucker

If you think about what you want to improve about yourself, you’re more likely to identify things you’re not good at instead of things you are good at. (Recall your most recent New Year’s resolutions, the goals you regularly set for yourself, or your last performance review… they were probably all aimed at improving a weakness.) The underlying assumption is that the key to get better is to fix what’s bad.

But starting by improving what’s bad is the wrong way to improve overall.

If you want to get better, worry less about your strengths and focus on improving your weaknesses. For the same amount of effort, you’ll see much greater improvement.

Peter Drucker writes in The Essential Drucker:

“Waste as little effort as possible on improving areas of low competence. Concentration should be on areas of high competence and high skill. It takes far more energy and far more work to improve from incompetence to low mediocrity than it takes to improve from first-rate performance to excellence. And yet most people—and equally most teachers and most organizations—try to concentrate on making an incompetent person into low mediocrity. The energy and resources—and time—should instead go into making a competent person into a star performer.”

Here’s what 50% improvement looks like across a range of skills with varying levels of competency:

For the same effort, you can improve a great deal more by starting with what you’re best at and getting better.

(The exception to this rule might be instances where the law of diminishing returns applies: as you improve, it becomes harder to improve at the same rate. This is why nobody will ever run the mile faster than 3 minutes, 39.6 seconds.)

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