Note: While reading a book whenever I come across something interesting, I highlight it on my Kindle. Later I turn those highlights into a blogpost. It is not a complete summary of the book. These are my notes which I intend to go back to later. Let’s start!
The core difficulty of decision making: What’s in the spotlight will rarely be everything we need to make a good decision, but we won’t always remember to shift the light. Sometimes, in fact, we’ll forget there’s a spotlight at all, dwelling so long in the tiny circle of light that we forget there’s a broader landscape beyond it.
- If you think about a normal decision process, it usually proceeds in four steps:
- You encounter a choice.
- You analyze your options.
- You make a choice.
- Then you live with it.
- There is a villain that afflicts each of these stages:
- You encounter a choice. But narrow framing makes you miss options.
- You analyze your options. But the confirmation bias leads you to gather self-serving information.
- You make a choice. But short-term emotion will often tempt you to make the wrong one.
- Then you live with it. But you’ll often be overconfident about how the future will unfold.
The classic pros-and-cons approach is not well suited to fighting these villains; in fact, it doesn’t meaningfully counteract any of them.
- What’s a process that will help us overcome these villains and make better choices?
- Steve Cole at HopeLab beat narrow framing by thinking “AND not OR.” Andy Grove overcame short-term emotions by asking, “What would my successor do?”
- We can’t deactivate our biases, but these people show us that we can counteract them with the right discipline. The nature of each villain suggests a strategy for defeating it:
- Steps to defeat the villains
- You encounter a choice. But narrow framing makes you miss options. So → Widen Your Options. How can you expand your set of choices?
- You analyze your options. But the confirmation bias leads you to gather self-serving info. So → Reality-Test Your Assumptions. How can you get outside your head and collect information that you can trust? → Reality-Test Your Assumptions. How can you get outside your head and collect information that you can trust?
- You make a choice. But short-term emotion will often tempt you to make the wrong one. So → Attain Distance Before Deciding. How can you overcome short-term emotion and conflicted feelings to make the best choice?
- Then you live with it. But you’ll often be overconfident about how the future will unfold. So → Prepare to Be Wrong. How can we plan for an uncertain future so that we give our decisions the best chance to succeed?
- This is the WRAP model. At its core, the WRAP model urges you to switch from “auto spotlight” to manual spotlight. Rather than make choices based on what naturally comes to your attention—visceral emotions, self-serving information, overconfident predictions, and so on—you deliberately illuminate more strategic spots. You sweep your light over a broader landscape and point it into hidden corners
Identifying the 4 villains of decision making
- Danny Kahneman: “A remarkable aspect of your mental life is that you are rarely stumped.”
- Should Shannon fire Clive? We form opinions effortlessly.
- What’s in our spotlight = the most accessible information + our interpretation of that information. But that will rarely be all that we need to make a good decision.
- Our decision “track record” isn’t great. Trusting our guts or conducting rigorous analysis won’t fix it. But a good process will.
- Study: “Process mattered more than analysis—by a factor of six.”
- We can defeat the four villains of decision making by learning to shift our spotlights.
- Villain 1: Narrow framing (unduly limiting the options we consider)
- HopeLab had five firms work simultaneously on stage 1; “Can I do this AND that?”
- Villain 2: The confirmation bias (seeking out information that bolsters our beliefs)
- The tone-deaf American Idol contestant
- Lovallo: “Confirmation bias is probably the single biggest problem in business.”
- Villain 3: Short-term emotion (being swayed by emotions that will fade)
- Intel’s Andy Grove got distance by asking, “What would our successors do?”
- Villain 4: Overconfidence (having too much faith in our predictions)
- “Four-piece groups with guitars, particularly, are finished.”
- The pros-and-cons process won’t correct these problems. But the WRAP process will.
- Joseph Priestley conquered all four villains.
- To make better decisions, use the WRAP process
Avoid a narrow frame
- Teenagers get trapped in a narrow frame. They are blind to their choices.“Should I go to the party or not?”
- Unfortunately, most organizations tend to make decisions like teenagers.
- Quaker lost $1.5 billion in three years on the Snapple acquisition.
- Nutt research: Only 29% of organizations considered more than one alternative (versus 30% of teens).
- Often our options are far more plentiful than we think.
- College-selection counselor Price helps students explore their full range of options.
- Why do we get stuck in a narrow frame? Focusing on our current options means that other things are out of our spotlight.
- Frederick got stuck choosing between two stereos—he failed to consider his other options.
- How do we escape a narrow frame? Think about opportunity cost.
- Keep the $14.99 for other purchases.
- Eisenhower: One bomber = a modern brick school in more than 30 cities.
- Or try the Vanishing Options Test: What if your current options disappeared? -
- Margaret Sanders realized she had a better option than firing Anna, the introverted receptionist.
- When our options “disappear,” we’re forced to move our spotlights.
- It’s easier to spot a narrow frame from the outside—watch for it as a decision adviser. “Whether or not” decisions should set off warning bells.
In Sausalito, California, there is a small firm called Lexicon that has coined the names for 15 billion-dollar brands, including BlackBerry, Dasani, Febreze, OnStar, Pentium, Scion, and Swiffer. These names don’t emerge from brainstorming sessions that yield sudden lightning-bolt insights—nobody gets struck by lightning 15 times. Rather, Lexicon’s magic is its creative process, which helps the team avoid getting stuck in a narrow frame. Consider the firm’s 2006 work for Colgate, which was preparing to launch a disposable mini-toothbrush. The center of the brush held a dab of special toothpaste, which was designed to make rinsing unnecessary. So you could carry the toothbrush with you, use it in a cab or an airplane lavatory, and then toss it out. When Lexicon founder and CEO David Placek first saw the toothbrush, he said, what stood out was its small size. So, if you were on the Lexicon team, with your mental spotlight pointed at the tiny toothbrush, you’d be tempted to start tossing out names that highlight its small size: Petite Brush, Mini-Brush, Brushlet, etc. Notice that, in brainstorming that way, you would have already locked yourself into a tight frame with two assumptions: (1) The name should connote smallness; and (2) “Brush” should be part of the name. That early lock-in is something that the Lexicon team has learned to fight. Clients will often come to them with a narrow conception of what a good name is. Some at Intel, for instance, had wanted to call the Pentium “ProChip.” Some at P&G had wanted to call the Swiffer “EZMop.” Lexicon has learned that the best names emerge from what we’ll call “multitracking”—considering several options simultaneously. To get familiar with the new toothbrush, Placek’s team at Lexicon began to use it in their daily lives, and what struck them was how odd it was, at first, not to spit out the toothpaste that it produced. (We always spit out the toothpaste.) Fortunately, unlike normal brushes, the new brush didn’t create a big mass of minty lather. The mouthfeel was lighter and more pleasant, more like a breath strip. It was this lack of foaminess that was the brush’s most distinctive trait. So it dawned on the team that the name of the brush should not signal smallness; it should signal lightness, cleanliness, softness. Armed with that insight, Placek began to multitrack. He asked his network of linguists—70 of them in 50 countries—to brainstorm about metaphors, sounds, and word parts that connoted lightness. By working independently, they vastly increased the pool of considered names. Meanwhile, he asked another two colleagues within Lexicon to help. But he kept these two in the dark about the client and the product. Instead, he gave this team—referred to as the “excursion team”—a fictional mission. He told them that the cosmetics brand Olay was interested in introducing a new line of oral-care products, and their job would be to help Olay brainstorm about product ideas. Placek chose Olay because he believed that beauty was an implicit selling point for the new brush. “Good oral care means white teeth, and white teeth are better looking,” Placek said. After a period of exploration, the excursion team pitched some intriguing product ideas, including the “Olay Sparkling Rinse,” a mouthwash that would make your teeth gleam. In the end, it was the insight about lightness, rather than beauty, that prevailed. The team of linguists produced a long list of possible words and phrases, and one word on the list jumped out at Placek’s team: “wisp.” It was the perfect association for the new brushing experience. It’s not something heavy and foamy; it’s barely there. It’s a wisp. Thus was born the Colgate Wisp. Notice what’s missing from the Lexicon process: the part when everyone sits around a conference table, staring at the toothbrush and brainstorming names together. (“Hey, how about ToofBrutch—the URL is available!”) Lexicon refuses to single-track the process. In fact, in most of its naming projects, Lexicon forms three teams of two, with each group pursuing a different angle. Usually there is an excursion team, blind to the client and the product, that spends its time chasing analogies from related domains. In naming Levi’s Curve ID jeans, which were engineered differently for different body types, the excursion team dug into references on surveying and architecture. Lexicon’s multitracking often leads to “wasted” work. In the Wisp case, the excursion team found themselves at a dead end with the Olay assignment. But it’s precisely this willingness to work in parallel, and to endure inefficiency, that often leads to a break in the case.
- Given the clear benefits of multitracking, what explains the failure of most organizations to embrace it? Many executives are worried that exploring multiple options will take too long. It’s a reasonable fear, but the researcher Kathleen Eisenhardt has found that the opposite is true. In a study of top leadership teams in Silicon Valley, an environment that tends to place a premium on speed, she found that executives who weigh more options actually make faster decisions. It’s a counterintuitive finding, but Eisenhardt offers three explanations.
- First, comparing alternatives helps executives to understand the “landscape”: what’s possible and what’s not, what variables are involved. That understanding provides the confidence needed to make a quick decision.
- Second, considering multiple alternatives seems to undercut politics. With more options, people get less invested in any one of them, freeing them up to change positions as they learn. As with the banner-ad study, multitracking seems to help keep egos under control.
- Third, when leaders weigh multiple options, they’ve given themselves a built-in fallback plan. As an example, one company studied by Eisenhardt was pursuing negotiations with several partners simultaneously. When the negotiations with the first-choice partner failed, the president simply cut a deal with the second-choice partner. If, instead, the firm had pursued only one option initially, those negotiations might well have dragged on as the president fought to salvage the deal. (And he would have been tempted to concede too much to make it work.)
How you react to the position, in short, depends a great deal on your mindset at the time it’s offered. Psychologists have identified two contrasting mindsets that affect our motivation and our receptiveness to new opportunities: a “prevention focus,” which orients us toward avoiding negative outcomes, and a “promotion focus,” which orients us toward pursuing positive outcomes. In the first scenario above, you arrive at work with a prevention focus, which means that you are in a vigilant mood. You want to ensure that your son lives up to his duties. You’re worried about your home losing its value. You really hope policy makers will stave off the dangers of the new technology. So when you think about the new position, your spotlight tends to highlight what could go wrong, what you could lose. Whereas in the second scenario you have a promotion focus, meaning that you are eager rather than vigilant—you’re open to new ideas and new experiences. Both are useful, and we shift between them as we consider different decisions in our lives. They don’t coexist easily, though. It’s hard to embrace both at once. Yet the wisest decisions may combine the caution of the prevention mindset with the enthusiasm of the promotion mindset.
- WHEN LIFE OFFERS US a “this or that” choice, we should have the gall to ask whether the right answer might be “both.”
- Multitracking = considering more than one option simultaneously.
- The naming firm Lexicon widens its options by assigning a task to multiple small teams, including an “excursion team” that considers a related task from a very different domain.
- When you consider multiple options simultaneously, you learn the “shape” of the problem.
- When designers created ads simultaneously, they scored higher on creativity and effectiveness.
- Multitracking also keeps egos in check—and can actually be faster!
- When you develop only one option, your ego is tied up in it.
- Eisenhardt’s research on Silicon Valley firms: Multitracking minimized politics and provided a built-in fallback plan.
- While decision paralysis may be a concern for people who consider many options, we’re pushing for only one or two extra. And the payoff can be huge.
- We’re not advocating 24 kinds of jam. When the German firm considered two or more alternatives, it made six times as many “very good” decisions.
- Beware “sham options.”
- Kissinger: “Nuclear war, present policy, or surrender.”
- One diagnostic: If people on your team disagree about the options, you have real options.
- Toggle between the prevention and promotion mindsets.
- Prevention focus = avoiding negative outcomes. Promotion focus = pursuing positive outcomes.
- Companies who used both mindsets performed much better after a recession.
- Doreen’s husband, Frank, prompted her to think about boosting happiness, not just limiting stress.
- Push for “this AND that” rather than “this OR that.”
- TO BREAK OUT OF a narrow frame, we need options, and one of the most basic ways to generate new options is to find someone else who’s solved your problem
Find Someone Who’s Solved Your Problem
- When you need more options but feel stuck, look for someone who’s solved your problem.
- Look outside: competitive analysis, benchmarking, best practices.
- Sam Walton discovered an ingenious checkout solution by scoping out another store.
- Look inside. Find your bright spots.
- Kaiser’s leaders found and scaled a solution for sepsis pioneered by one of Kaiser’s own hospitals.
- What can you learn from your own bright spots (e.g., the four days you went to the gym last month)?
- Note: To be proactive, encode your greatest hits in a decision “playlist.”
- A checklist stops people from making an error; a playlist stimulates new ideas.
- Advertisers Hughes and Johnson use a playlist to spark lots of creative ideas quickly.
- A playlist for budget cuts might include a prompt to switch between the prevention and promotion mindsets: Can you cut more here to invest more there?
- A third place to look for ideas: in the distance. Ladder up via analogies.
- Kevin Dunbar: Analogies are a pillar of scientific problem solving. Scientists make progress through analogies to similar experiments and similar organisms.
- Ladder up: Lower rungs show close analogies (low risk and low novelty), while higher rungs reveal more distant solutions (higher risk and higher novelty).
- Fiona Fairhurst designed a speedier swimsuit by laddering up and analyzing “anything that moves fast,” including sharks and torpedoes.
- Why generate your own ideas when you can sample the world’s buffet of options?
“I could tell it was going nowhere,” said Martin. At the point of impasse, he said, “an idea popped into my head.” He issued the group a challenge: Let’s stop arguing about who is right, he said. Instead, let’s take each option, one at a time, and ask ourselves: What would have to be true for this option to be the right answer? Surely it’s possible, he said, to imagine a set of evidence that would persuade us to change our minds. Let’s talk about what that evidence would look like. Ross said that after Roger Martin posed his challenge, “the lights went on for everyone.” Participants switched from arguing to analyzing, discussing the logical underpinnings of each option. The executives, asked to specify the conditions under which it would make sense to keep the mine open, started talking about production targets that would make it viable. The mine managers, asked to contemplate a scenario where closing the mine might be the best option, agreed that if copper prices didn’t recover, it would be hard to recommend continued operations. The tenor of the discussion changed. There was still tension in the room, but it was productive tension. Martin’s reframing of the meeting had changed adversaries into collaborators. “It was magic,” said Martin. “By the end of the day, we had the group’s agreement on what had to be true for each of the five options for it to be the very best choice.” After the meeting wrapped up, the parties began to gather the information they’d agreed would be needed. They experimented with the idea of shipping the ore to Canada, but that turned out to be more costly than anyone had predicted, so they crossed that option off the list. They also explored the option of expanding the mine but ended up running into a wall, literally. There was an unexpected structural constraint in punching through the rock to get to the new vein. John Sanders, the general manager of the mine at the time, said that you can imagine the old mine and the potential new mine as two shopping centers side by side underground. “Then you discover that, in fact, you can only get one small door, the size of a washroom door, open between the two shopping centers and all the traffic would have to walk through this little door. You just can’t do this.” By the time of the next board meeting, they’d arrived at an answer: There were no compelling options for keeping the mine open. Even John Sanders, in his role as general manager of the mine, was convinced. He stood up in front of the board and reluctantly endorsed the closure. ROGER MARTIN SAYS THE “What would have to be true?” question has become the most important ingredient of his strategy work, and it’s not hard to see why. The search for disconfirming information might seem, on the surface, like a thoroughly negative process: We try to poke holes in our own arguments or the arguments of others. But Martin’s question adds something constructive: What if our least favorite option were actually the best one? What data might convince us of that? Martin said, “If you think an idea is the wrong way to approach a problem and someone asks you if you think it’s the right way, you’ll reply ‘no’ and defend that answer against all comers. But if someone asks you to figure out what would have to be true for that approach to work, your frame of thinking changes.… This subtle shift gives people a way to back away from their beliefs and allow exploration by which they give themselves the opportunity to learn something new.” This technique is particularly useful in organizations where dissent is unwelcome, where people who challenge the prevailing ideas are accused of failing to be “team players.” Martin’s question makes dissenters seem less like antagonists and more like problem solvers. What makes Roger Martin’s technique so effective, in short, is that it allows people to disagree without becoming disagreeable. It goes beyond merely exposing ourselves to disconfirming evidence; it forces us to imagine a set of conditions where we’d willingly change our minds, without feeling that we “lost” the debate.
Some organizational leaders urge their employees to “assume positive intent,” that is, to imagine that the behavior or words of your colleagues are motivated by good intentions, even when their actions seem objectionable at first glance. This “filter” can be extremely powerful. Indra Nooyi, the chairman and CEO of PepsiCo, cited it to Fortune as the best advice she ever received. (She learned it from her father.) She said, “When you assume negative intent, you’re angry. If you take away that anger and assume positive intent, you will be amazed.… You don’t get defensive. You don’t scream. You are trying to understand and listen because at your basic core you are saying, ‘Maybe they are saying something to me that I’m not hearing.’ ” A blogger named Rochelle Arnold-Simmons uses the “assume positive intent” principle with her husband: “When your husband does something and you immediately go to a negative place, ask yourself, ‘What are other possibilities that may be more positive than what you are thinking?’ Assume he is trying to help, assume he does not need to be reminded, assume it is not his fault. I try to always ask the question, ‘What’s another possibility?
Consider the Opposite
- Confirmation bias = hunting for information that confirms our initial assumptions (which are often self-serving).
- The hubris of CEOs can be counteracted by disagreement. We need the same disagreement to counteract our confirmation bias.
- We need to spark constructive disagreement within our organizations.
- The devil’s advocate, murder boards, and The Gong Show all license skepticism. How can we?
- Roger Martin’s brilliant question: “What would have to be true for this option to be the very best choice?”
- To gather more trustworthy information, we can ask disconfirming questions.
- Law students: “Who were the last three associates to leave the firm? What are they doing now? How can I contact them?”
- iPod buyers: “What problems does the iPod have?”
- Caution: Probing questions can backfire in situations with a power dynamic.
- Doctors are wiser to use open-ended questions. “What do you mean by ‘dizzy’?”
- Extreme disconfirmation: Can we force ourselves to consider the opposite of our instincts?
- A marriage diary helps a frustrated spouse see that his/her partner isn’t always selfish.
- “Assuming positive intent” spurs us to interpret someone’s actions/words in a more positive light.
- We can even test our assumptions with a deliberate mistake.
- Schoemaker’s firm won $1 million in business by experimenting with the RFP process.
- One woman actually married her “mistake.”
- Because we naturally seek self-confirming information, we need discipline to consider the opposite.
Be careful what you ask experts. Experts are pretty bad at predictions. But they are great at assessing base rates. As an example, imagine that you are indeed consulting an IP lawyer about a potential patent-infringement suit. The right kinds of questions to ask him are “What are the important variables in a case like this?,” “What kind of evidence can tip the verdict one way or the other?,” “In percentage terms, how many cases get settled before trial?,” and “Of those that go to trial, what are the odds that the plaintiff prevails?” If you ask questions like that—questions about past cases and legal norms—you will get a wealth of trustworthy information.
On the other hand, if you ask a predictive question—“Do you think I can win this case?”—it will trigger the lawyer to slip into the inside view. Like the curriculum-writing dean, your lawyer will tend to be too optimistic about the chances of success. We don’t want to overstate the case here—a good IP lawyer will surely know the difference between a slam-dunk case and a long shot. The point is that the predictions of even a world-class expert need to be discounted in a way that their knowledge of base rates does not. In short, when you need trustworthy information, go find an expert—someone more experienced than you. Just keep them talking about the past and the present, not the future.
Zoom Out, Zoom In
- Often we trust “the averages” over our instincts—but not as much as we should.
- We trust the horrible reviews of the Polynesian Resort. But we don’t always seek reviews for our most important decisions (new job, college major).
- The inside view = our evaluation of our specific situation. The outside view = how things generally unfold in situations like ours. The outside view is more accurate, but most people gravitate toward the inside view.
- Jack knows his Thai restaurant will be a hit. Lumping himself with other restaurants feels wrong.
- Kahneman’s curriculum story: Even the dean, who knew the base rates, got stuck in the inside view.
- If you can’t find the “base rates” for your decision, ask an expert.
- You might ask an IP lawyer: “What percentage of cases get settled before trial?” etc.
- Warning: Experts are good at estimating base rates but lousy at making predictions.
- A “close-up” can add texture that’s missing from the outside view.
- Brian Zikmund-Fisher studied the base-rate outcomes of patients with MDS, but he also sought a close-up (discovering the need for exercise and a “third adult”).
- FDR had his staff compile a statistical “mail brief,” and he also read a sample of the letters.
- More close-ups: Xerox’s customer officer of the day. “Going to the genba.” Using competitors’ paper towels.
- To gather the best information, we should zoom out and zoom in. (Outside view + close-up.)
One of the many challenges Mulcahy faced was that her executive team had lost touch with the company’s most important customers. In response, she created a program called Focus 500, which was designed to provide a close-up view of Xerox’s customers and their challenges. In the program, Xerox’s top 500 clients were each matched with a top executive. Every senior executive—including the chief accountant and the general counsel—was responsible for working with at least one customer. In addition, Mulcahy announced that executives, on a rotating basis, would have to serve as the customer officer of the day. The customer officer would have to deal with every customer complaint that came into corporate headquarters that day. Mulcahy said, “It keeps us in touch with the real world. It grounds us. It permeates all of our decision making.” This program created perhaps the world’s most expensive customer-support department. But it also helped a group of top executives reconnect with the customers who were the lifeblood of the company. Another variety of close-up involves going to the genba, a Japanese term meaning “the real place” or, more loosely, the place where the action happens. Japanese detectives, for instance, call the crime scene the genba. In a manufacturing firm, the genba would be the factory floor, and for a retailing company it would be the store. Practitioners of Total Quality Management encourage leaders to “go to the genba” to understand problems. If a problem occurs on a factory floor, for example, engineers should go see it firsthand, assessing the situation and talking directly to the people involved. The best ideas, it’s believed, come from this kind of close-up sensory investigation of the situation; how can you improve something you don’t fully understand? So engineers diagnosing problems in a factory find it useful to have a close-up view of the relevant process, and Mulcahy found it useful to give her leadership teams a close-up view of how Xerox was treating its customers.
TO OOCH IS TO ask, Why predict something we can test? Why guess when we can know? Those questions bring us to the end of this section, in which we’ve been studying strategies for fighting the confirmation bias. The basic problem we face, in analyzing our options, is this: We will usually have an inkling of the one that we want to be the winner, and even the faintest inkling will propel us to gather supportive information—and sometimes nothing but supportive information. We cook the books to support our gut instincts. To avoid that trap, we’ve got to Reality-Test Our Assumptions. We’ve seen three strategies for doing that. First, we’ve got to be diligent about the way we collect information, asking disconfirming questions and considering the opposite. Second, we’ve got to go looking for the right kinds of information: zooming out to find base rates, which summarize the experiences of others, and zooming in to get a more nuanced impression of reality. And finally, the ultimate reality-testing is to ooch: to take our options for a spin before we commit. Where does this leave us? Armed with better information to make a good choice. In making that choice, which is where we’re headed next, we face an unlikely obstacle. If you’ve ever carefully plotted out a budget, using your best information and analysis, and then promptly ditched it when you came across the perfect pair of shoes—or if you’ve impulsively bought stocks or fearfully dodged a critical relationship conversation—then you’ve already encountered the person who is often the foremost enemy of a wise decision: you
- Ooching = running small experiments to test our theories. Rather than jumping in headfirst, we dip a toe in.
- John Hanks at NI ooched with wireless sensors in the Costa Rican jungle.
- Physical therapy students volunteer for at least a hundred hours before they enroll.
- Legal secretary Peggy made a conscious decision to ooch away from her obsessive editing habits.
- Ooching is particularly useful because we’re terrible at predicting the future.
- Tetlock’s research showed that experts’ predictions are worse than simple extrapolations from base rates.
- Entrepreneurs ooch naturally. Rather than create business forecasts, they go out and try things.
- CarsDirect.com asked: Can we sell one car over the Internet?
- Researcher Sarasvathy on attitudes of successful entrepreneurs: “To the extent that we can control the future, we do not need to predict it.”
- Intuit’s Scott Cook believes in “leadership by experiment,” not by “politics, persuasion, and PowerPoint.” The successful India mobile-phone service would have failed a debate.
- Caveat: Ooching is counterproductive for situations that require commitment.
- The mid-twenties guy who wonders about marine biology should ooch. The guy who knows he needs a degree—but dreads going back—should not.
- Common hiring error: We try to predict success via interviews. We should ooch instead.
- Dan Heath wrongly agonized about whether to hire an obviously qualified artist.
- Studies show that interviews are less diagnostic than work samples, peer ratings, etc. Can you nix the interview and offer a short-term consulting contract?
- Why would we ever predict when we can know?
- THE BIAS TO OVERWEIGHT short-term emotions can have paradoxical effects. Sometimes it makes us erratic and too quick to act, as when we react aggressively to a driver who cuts us off on the road. More commonly, though, short-term emotion has the opposite effect, making us slow and timid, reluctant to take action. We see too much complexity and it stymies us. We worry about what we must sacrifice to try something new. We distrust the unfamiliar. Together, these feelings make individuals and organizations biased toward the status quo. A bias isn’t destiny. We can distance ourselves from these emotions by using some quick mental shifts—the time shifting of 10/10/10 or the perspective shifting of “What would I tell my best friend to do?” Those shifts let us see the outlines of the situation more clearly, and they help ensure that, in times when decisions are difficult, we’ll be able to make choices that are wiser and bolder.
Overcome Short-Term Emotion
- Fleeting emotions tempt us to make decisions that are bad in the long term.
- Car salesmen are trained to prey on customers’ emotions to close a deal quickly.
- To overcome distracting short-term emotions, we need to attain some distance.
- Millionaire teacher Andrew Hallam avoided car lots so he could stick to his criteria.
- 10/10/10 provides distance by forcing us to consider future emotions as much as present ones.
- A 10/10/10 analysis tipped Annie toward saying “I love you” first to Karl.
- Our decisions are often altered by two subtle short-term emotions: (1) mere exposure: we like what’s familiar to us; and (2) loss aversion: losses are more painful than gains are pleasant.
- How many of our organizational truths are ideas that we like merely because they’ve been repeated a lot?
- Students given a mug won’t sell it for less than $7.12, even though five minutes earlier they wouldn’t have paid more than $2.87!
- Loss aversion + mere exposure = status-quo bias.
- PayPal: Ditching the PalmPilot product was a no-brainer—but it didn’t feel that way.
- We can attain distance by looking at our situation from an observer’s perspective.
- Andy Grove asked, “What would our successors do?”
- Adding distance highlights what is most important; it allows us to see the forest, not the trees.
- Perhaps the most powerful question for resolving personal decisions is “What would I tell my best friend to do in this situation?”
Honor Your Core Priorities
- Quieting short-term emotion won’t always make a decision easy.
- Even when Kim Ramirez’s initial excitement faded, she still agonized for weeks.
- Agonizing decisions are often a sign of a conflict among your core priorities.
- Core priorities: long-term emotional values, goals, aspirations. What kind of person do you want to be? What kind of organization do you want to build?
- The goal is not to eliminate emotion. It’s to honor the emotions that count.
- By identifying and enshrining your core priorities, you make it easier to resolve present and future dilemmas.
- At Interplast, recurring, nagging debates were settled when executives determined that the patient was the ultimate “customer.”
- “Wayne’s Rules” allowed Dell’s field consultants to make decisions correctly and consistently.
- Establishing your core priorities is, unfortunately, not the same as binding yourself to them.
- MIT study: Managers had done no work on their core priorities in the previous week!
- To carve out space to pursue our core priorities, we must go on the offense against lesser priorities.
- On the USS Benfold, the crew actively fought the List B items like repainting (e.g., by using stainless-steel bolts that wouldn’t leave rust stains).
- Jim Collins’s “stop-doing list”: What will you give up so that you have more time to spend on your priorities?
- Bregman’s hourly beep: Am I doing what I most need to be doing right now?
OVERCONFIDENCE ABOUT THE FUTURE disrupts our decisions. It makes us lackadaisical about preparing for problems. It tempts us to ignore early signs of failure. It leaves us unprepared for pleasant surprises. Fighting overconfidence means we’ve got to treat the future as a spectrum, not a point. Byron Penstock didn’t try to predict a target price for the Redbox business; instead, he created a bookend of possibilities. His “low-IQ” investment strategy helped him make a bold investment choice.
To bookend the future means that we must sweep our spotlights from side to side, charting out the full territory of possibilities. Then we can stack the deck in our favor by preparing for both bad situations (via a premortem) and good (via a preparade). The 100,000 Homes team staved off a critical legal problem by running a premortem; Minnetonka set itself up for success with Softsoap by locking down the world’s supply of plastic pumps. Even when we can’t minimize bad outcomes, we still do ourselves a favor by considering them. Realistic job previews inoculate people against disappointment and increase their satisfaction, even in the midst of a difficult job. It’s easier to cope with setbacks when we’re mentally prepared for them. Stacking the deck makes us more likely to succeed, but even with the best forethought and planning, sometimes things don’t go well. We’ve all seen people make a bad initial decision and then double down on their choice, throwing good money after bad. How do we know when it’s time to reassess a choice we’ve made? What could we learn that would make us retreat from a choice we’ve made? Conversely, what would make us redouble our efforts? What we need is a tool for snapping us awake at just the right moment, ensuring that we don’t miss a chance to cut our losses—or to maximize our opportunities. What we need, in short, is a tripwire.
Bookend the Future
- The future is not a “point”—a single scenario that we must predict. It is a range. We should bookend the future, considering a range of outcomes from very bad to very good.
- Investor Penstock bet on Coinstar when his bookend analysis showed much more upside than downside.
- Our predictions grow more accurate when we stretch our bookends outward.
- To prepare for the lower bookend, we need a premortem. “It’s a year from now. Our decision has failed utterly. Why?”
- The 100,000 Homes Campaign avoided a legal threat by using a premortem-style analysis.
- To be ready for the upper bookend, we need a preparade. “It’s a year from now. We’re heroes. Will we be ready for success?”
- The producer of Softsoap, hoping for a huge national launch, locked down the supply of plastic pumps for 18 to 24 months.
- To prepare for what can’t be foreseen, we can use a “safety factor.”
- Elevator cables are made 11 times stronger than needed; software schedules include a “buffer factor.”
- Anticipating problems helps us cope with them.
- The “realistic job preview”: Revealing a job’s warts up front “vaccinates” people against dissatisfaction.
- Sandra rehearsed how she would ask her boss for a raise and what she’d say and do at various problem moments.
- By bookending—anticipating and preparing for both adversity and success—we stack the deck in favor of our decisions.
Chances are you know someone who has been stuck on autopilot too long. Sometimes autopilot causes people to neglect opportunities; maybe you have a friend who has talked about writing a novel for years but never seems to make any progress. Other times, autopilot leads people to persist at efforts that seem doomed, like a couple whose relationship makes them both miserable, or a relative with a naive dream of making a living as a landscape painter, or an executive who refuses to recognize that her pet project has failed. At some point, the virtue of being persistent turns into the vice of denying reality. When that transformation happens, how can you snap someone out of it? One option is to set a deadline, the most familiar form of a tripwire. Some deadlines are natural, such as the deadline for filing stories at a daily newspaper—the printing press has to roll at a certain time, whether the story is ready or not. But it’s easy to forget that most of the deadlines we encounter in life are simply made up. They are artificially created tripwires to force an action or a decision. Some deadlines are backed by the force of law, such as the IRS’s April 15 deadline for submitting taxes, and it’s no shock that these deadlines are effective. What’s stranger is the effectiveness of made-up deadlines in getting us to do what would have been good for us anyway. The psychologists Amos Tversky and Eldar Shafir offered college students a five-dollar reward for filling out a survey. When given a five-day deadline, 66% of the students completed the survey and claimed their rewards. When given no deadline, only 25% ever collected their money.
Some tripwires are well defined: A $1,000 offer at Zappos. A deadline for completing a survey. A budget limit for your spouse’s topiary-sculpture business. The children’s-hospital situation is a little different. The most important tripwire requires nurses to call for help when they are worried about a patient. It’s a little fuzzy, a little subjective. As a result, the rapid-response team members can’t predict when they’ll hit that tripwire or how many times they’ll trip it. These tripwires aren’t tripped by clear-cut measures like budgets or dates or partitions; they’re tripped by pattern recognition. This is an important distinction, because in many organizations, pattern matching is the skill that leaders desperately want their employees to have. They want their employees to be alert for threats and opportunities in the environment. They would like employees to recognize the pattern when they see it pop up and to feel that they have permission to act when it does. That was a powerful feature of the rapid-response-team protocol—any time nurses spotted a kid who didn’t quite look right, the protocol made it socially acceptable for them to raise their voices and say, I think we’ve got a problem. Of course, the same idea is applicable to opportunities as well as threats. Organizational leaders need people to be sensitive to changes in the environment and to be brave enough to speak up. Here’s something new. Here’s a great opportunity for us.
Peter Drucker challenged executives to capitalize on “unexpected success.” He wrote: When a new venture does succeed, more often than not it is in a market other than the one it was originally intended to serve, with products or services not quite those with which it had set out, bought in large part by customers it did not even think of when it started, and used for a host of purposes besides the ones for which the products were first designed. If a new venture does not anticipate this, organizing itself to take advantage of the unexpected and unseen markets … then it will succeed only in creating an opportunity for a competitor.
- One great story of “unexpected success” is Rogaine, the drug that helps bald men regrow some of their hair, which was discovered by accident. Rogaine’s active ingredient, minoxidil, is also the chief ingredient in a drug called Loniten, which was taken by many patients to lower their blood pressure. Loniten had a surprising side effect, though: Patients started sprouting new hair on their arms, back, and legs. (As you can imagine, this was not a popular side effect.) The scientists at Upjohn were clever enough to recognize the opportunity buried in the problem, and they reformulated the drug into the antibalding elixir that we know as Rogaine today. The discovery of Viagra was a similar story. Initially, the drug had been tested as a treatment for chest pain (angina), and for that purpose it was a failure. Then patients started reporting a curious side effect. (Imagine those awkward conversations: “Doc, my chest still hurts … but, um, I’ve been noticing an effect somewhere else …”)
One journalist concluded from these stories and others like them that “the pharmaceutical industry is driven as much by luck as by design.” But that’s not quite right, because luck didn’t make Rogaine. It took discipline to spot and monetize the opportunities represented by these flukes. (Let’s be honest, it was not self-evident that unwanted back hair heralded a billion-dollar opportunity.) - This is the same kind of pattern-matching tripwire that allowed the rapid-response teams to succeed. While the nurses were sensitized to signs of trouble, the pharma scientists were sensitized to signs of opportunity.
Could you define a similar tripwire for your team members? Could you sensitize them to the kinds of opportunities that Drucker called “unexpected success”? A small-business owner might coach her employees, “If you see people using our product in a way we haven’t anticipated, let’s talk about it.” A high-school department chair might say, “If you try out a new assignment that really seems to get students motivated, let’s discuss it in our next meeting.”
By coaching people to recognize patterns of threat or opportunity, you can take advantage of a phenomenon we’ve all experienced, the “seeing it everywhere” effect: You learn a new concept or word and suddenly you start to notice it everywhere. The Web site 1000 Awesome Things identifies this phenomenon as Awesome Thing # 523. Dozens of commenters have shared their experiences with the phenomenon:
- This is such a very, very true awesome thing.… “Haberdashery” was one of the most recent words I learned. Who knew it was even a real word? My prof mentioned that Harry Truman used to be a haberdasher and next thing you know, my grandma uses it, I spot it on little shop signs, it’s on the wall at East Side Mario’s.… Small world!
- I remember as a little kid coming across the world “feasible.” Next day at chess club, one of the books we used to give us tips on the game used that word again … and again … and again. My game didn’t really improve that much but my vocabulary did. Awesome, indeed.
- “Justin Bieber” is what I learned and now can’t avoid. I’m pretty sure it’s made me dumber, though. And, I’ve started to contemplate suicide.
- By labeling a tripwire, you can make it easier to recognize, just as it’s easier to spot the word “haberdashery” when you’ve just learned it. Pilots, for example, are taught to pay careful attention to what are called “leemers”: the vague feeling that something isn’t right, even if it’s not clear why. Having a label for those feelings legitimizes them and makes pilots less likely to dismiss them. The flash of recognition—Oh, this is a leemer—causes a quick shift from autopilot to manual control, from unconscious to conscious behavior. That quick switch is what we need so often in life—a reminder that our current trajectory need not be permanent. Tripwires provide a sudden recognition that precedes our actions: I have a choice.
Set a Tripwire
- In life, we naturally slip into autopilot, leaving past decisions unquestioned.
- E.g., we’ve all been peeling bananas from the top. Nothing ever compelled us to reconsider it.
- A tripwire can snap us awake and make us realize we have a choice.
- Zappos’s $1,000 offer created a conscious fork in the road for new hires.
- David Lee Roth’s brown M&Ms signaled that he needed to inspect the production.
- Tripwires can be especially useful when change is gradual.
- Digital images killed Kodak; its executives could have used tripwires to spark a bolder response.
- For people stuck on autopilot, consider deadlines or partitions.
- “Six months ago, you thought you’d have a recording contract by now.”
- Partitions: Day laborers saved more when their pay was put in 10 envelopes versus 1.
- We tend to escalate our investment in poor decisions; partitions can help rein that in.
- E.g., “We won’t allocate more than $50,000 to jump-start this failing project.”
- Tripwires can actually create a safe space for risk taking. They: (1) cap risk; and (2) quiet your mind until the trigger is hit.
- Many powerful tripwires are triggered by patterns rather than dates/metrics/budgets.
- Unexpected problems: A children’s hospital told nurses to call the rapid-response team if they were worried about a patient.
- Peter Drucker: Be ready for “unexpected success.”
- Rogaine scientists were savvy enough to spot the opportunity in back-hair growth.
- Tripwires can provide a precious realization: We have a choice to make.
Trusting the Process
- Decisions made by groups have an additional burden: They must be seen as fair.
- “Bargaining”—horse-trading until all sides can live with the choice—makes for good decisions that will be seen as fair.
- Nutt: Bargaining always improved decision success; the effect was “dramatic.”
- Bargaining will take more time up front—but it accelerates implementation.
- Procedural justice is critical in determining how people feel about a decision.
- Court cases: Losers who perceive procedural justice are almost as happy as winners who don’t.
- We should make sure people are able to perceive that the process is just.
- High-stakes mediator Mnookin: “I state back the other side’s position better than they could state it.”
- Entrepreneur Hitz: “Sometimes the best way to defend a decision is to point out its flaws.”
- A trustworthy process can help us navigate even the thorniest decisions.
- Matt D’Arrigo, the founder of ARTS, found a way to combine the need to serve local kids with his aspirations to make a national impact.
- “Process” isn’t glamorous. But the confidence it can provide is precious. Trusting a process can permit us to take bigger risks, to make bolder choices. Studies of the elderly show that people regret not what they did but what they didn’t do.
Clinics with real life examples
- Should a Small Company Sue a Bigger Competitor?
- SITUATION: Kim Etheredge and her friend Wendi Levy cofounded Mixed Chicks, a brand of hair products for mixed-race women. After eight years of work, they’d built up the annual revenues to $5 million. Then, in February 2011, Kim got a disturbing e-mail. One of the retailers who stocked Mixed Chicks reported that Sally Beauty Supply—a retail giant with $3 billion in revenue—had just started marketing its own line of products for mixed-race women. The name? Mixed Silk. Etheredge couldn’t believe it. An hour later, another retailer called with a similar report. Etheredge and Levy sent out a colleague to buy a sample, and when they saw the Mixed Silk product, they were furious. It was a rip-off of their own product, they felt, with a similar bottle and package—even the same fonts. And it sold for about half the price of their own product. They were unimpressed by the quality of Mixed Silk, but they worried that customers wouldn’t know the difference when they saw the two products side by side. Soon, they heard from more retailers, who reported that customers were buying the cheaper option.
- What are their options? Etheredge and Levy researched what other entrepreneurs had done in similar situations, and they talked with lawyers about their legal options. They could send a cease-and-desist letter, demanding that Sally Beauty Supply stop making Mixed Silk immediately. But that was risky: If the court ruled against them, they’d have to reimburse the giant retailer for lost revenue, which could be substantial. On the other hand, if they filed a lawsuit and won, they could drive Mixed Silk off the shelves permanently and collect damages on top of that. The legal option was very expensive: experts estimated $250,000 to $500,000 per year in legal costs. The case could drag on for years. Was it worth the time and the distraction? Then again, what if Mixed Silk and its lower price point ended up crushing Mixed Chicks? How would they feel having not stood up for themselves? The two founders agonized over the question: Should we sue or not?
- How can they make a good decision?
- Widen Your Options. The “whether or not to sue” framing is a warning that they may be trapped in a narrow frame. Remember, one question you can ask, to break out of a narrow frame, is the “opportunity cost” question: What else could we do with the same time and resources? Imagine the impact if, instead of spending a half million dollars per year on legal fees, Mixed Chicks spent that money on advertising, or used it to hire 10 new salespeople. A retail expert cited by Inc., James T. Noble, took this analysis a step further, suggesting a great alternative: “Rather than sue, Etheredge and Levy could have repositioned their product as the premium offering and ridden the wave of publicity and market growth created by Sally Beauty.… In a way, Sally Beauty’s entering the market could be the best thing that ever happens to the business.” As another alternative, Mixed Chicks could have used the money and time to wage war on the PR front. They have a classic David vs. Goliath story to tell.
- Reality-Test Your Assumptions. Etheredge and Levy were wise to seek out other business owners who had faced similar situations. That’s a great way for them to reality-check themselves. They should exercise caution when investigating their legal options, being careful to seek out disconfirming evidence. Certainly the lawyers who might represent them—and earn $500,000 per year in legal fees—will not be neutral parties! (And we hope those cost estimates came from the “base rates” of other business owners, not from the predictions of lawyers. It would be a disaster if the lawyers were lowballing and the real costs came to $1 million per year.) To get more accurate legal information, could the founding duo “consider the opposite”? Suppose they sought out the counsel of a corporate lawyer—the kind of person who might represent Sally Beauty Supply—and pay for a few hours of their advice. That counselor could help them zoom out, understanding the base rates of success for lawsuits of this kind. But the lawyer might also help them zoom in, offering them a close-up of what it’s like to be part of a lawsuit like this. (How does it feel, day-to-day? Does it take over your life? Does it affect your health?)
- Attain Distance Before Deciding. As it happens, a month later—in March 2011—Mixed Chicks filed suit. “Kim and I felt the same way,” said Levy. “There was no way we could just sit there.” This worries us, because it sounds like a decision that may not have been evaluated with a distanced, long-term view of future consequences. The desire to “stick it” to Sally Beauty Supply is completely understandable—we’d feel it too in their shoes—but is it possible they let their anger dictate their choice? We wonder what would have happened if they’d asked, “What would our successors do?” Looking at the situation from another perspective might have helped them get distance. Another way to look at the situation is to ask: What are their core priorities? If they founded the company to serve the hair needs of mixed-race women, does the lawsuit really serve that goal better than any other option? And what are they going to stop doing to make room in their lives for the lawsuit? We suspect they didn’t have a lot of idle time, as growth entrepreneurs, before the suit began. What “List A” items will suffer as a result of this choice?
- Prepare to Be Wrong. Levy and Etheredge should run a “premortem” to identify the biggest risks of filing the lawsuit. The biggest risk in our minds is that the lawsuit bleeds their cash reserves, dragging on for years, and it saps their entrepreneurial motivation, leaving them stressed-out and distracted from the rigors of managing a growing business. This situation, in which there’s no clear-cut ending, cries out for a tripwire. Perhaps they could have promised themselves not to spend a dollar over $750,000. Or that they wouldn’t let it drag on longer than 18 months. They can’t afford to let the lawsuit take over their work, especially when they can anticipate that the day-to-day emotions will be strong and bitter.
- Reflections on the process: To us, the biggest risks to avoid in this decision were (1) getting trapped in the narrow frame of “to sue or not to sue” and missing other good options; and (2) making a costly decision because of visceral emotion. At press time, the lawsuit is still ongoing.
- Should a Young Professional Move to the City?
- SITUATION: Sophia, a single woman in her late 20s, was born in China but immigrated to the United States, earning her MBA at a top-ranked business school. In 2012, she lived in Fort Wayne, Indiana, where she worked in corporate strategy for a large fashion company. She liked her job and her coworkers, but she also wanted a family. “I can’t picture myself being 35 and not being married,” she said. After living in Fort Wayne for five years, and enduring a pretty bleak dating experience, she had begun to worry whether she’d ever find the right guy in the area. “There are no single men here.… This is a place where people come to buy a house in the suburbs and raise a family,” she said. One of Sophia’s colleagues actually lived in Chicago and commuted, when necessary, to the Fort Wayne office. She urged Sophia to do the same. With 1.3 million men in the city, Sophia couldn’t complain about a lack of options. (Note: Sophia’s name and location are disguised—so Fort Wayne single men should not take offense—but all other details are accurate.)
- What are her options? Sophia had been flirting with the idea of moving to Chicago for a year or two—she believed her boss would sign off on the move—but she hadn’t gotten serious about it. It seemed like such a hassle: She’d need to sell her home in Fort Wayne, find a place to live in Chicago, and get to know a totally different city. But as the months flew by, with no progress on the dating front, she wondered whether she needed to take the plunge. Should she move or not?
- How can she make a good decision?
- Widen Your Options. Note the binary choice: Should she move or not? Most of the time that’s a sign of narrow framing. But actually, to her credit, Sophia had considered several other options. She considered finding a new job, which might entail a move to a better place for singles, but decided that she valued her current job and colleagues too much. And she was still considering ways to make a more intense effort to meet people in Fort Wayne, perhaps by finding some kind of social group to join.
- Reality-Test Your Assumptions. How could Sophia gather trustworthy information to guide her decision? First she should consult the world’s foremost expert on this subject—i.e., her colleague who lives in Chicago and commutes to Fort Wayne! She should be careful to ask her colleague disconfirming questions: What’s the worst part of living remotely? What regrets do you have about living there? How long did it take you to meet new friends to hang out with there? On a different front, note that this is a situation where it might be hard to ooch: She could certainly spend a week here and there in Chicago, but that might be the worst of both worlds, with all the hassles of commuting but none of the joys of making new friends and starting a new way of life. This feels like a situation where ooching would be “emotional tiptoeing.” She either needs to leap—or, for her own peace of mind, stop thinking about leaping.
- Attain Distance Before Deciding. Sophia had been thinking about the move for some time, and the decision ultimately boiled down to whether she was ready to take a risk. Fort Wayne may have been lacking in single men, but it was familiar. It was comfortable. Chicago was exciting to think about, but there were so many unknowns. What if she hated it? What if it was worse? (Notice the echoes here of both mere exposure and loss aversion.) One night, at dinner, a colleague asked her: “What would you tell your best friend to do if she were in this situation?” And Sophia said, without hesitation, “Oh, move to Chicago!” She seemed a bit shocked at how easily the answer had popped out. And that same night, she texted her boss, wondering if he was still amenable to the idea of her moving.
- Prepare to Be Wrong. Having resolved to move, Sophia should think through her options if Chicago does not work out. One of her best moves would be to keep her house in Fort Wayne for a trial period of, say, 9 or 12 months, renting it out to pay the mortgage. That way, she could easily come right back to her previous life if need be. Sophia should also get a “realistic job preview” from her friend in Chicago: What’s the “warts and all” reality that she should prepare herself for? (Note that by asking disconfirming questions of her friend earlier, she already got some of this texture.) Finally, she could also set a personal tripwire: If she didn’t manage to have a few interesting dates within her first year in Chicago, she might conclude that the problem is with her lifestyle rather than her location. In that scenario, she might resolve to travel less or make a bigger effort to get involved in social activities through a volunteer organization, church, or professional group. (Or, better yet, why not think “AND not OR” and do both? That is, move to Chicago AND start new social activities?)
- Reflections on the process: We have warned repeatedly about a binary decision like “move to Chicago or not,” but this one seems legitimate. (She has explored and rejected other options.) So, to us, the critical part of Sophia’s decision was the need to attain distance, to let what was important shine through. In her case, the question “What would you tell your best friend to do?” gave her the distance she needed. At press time, she is still planning to move but had not yet moved. (Maybe she needs a tripwire.)
- Should We Discount Our Software?
- SITUATION: You are a sales executive at a software company. Your primary product is a tool that helps clients manage their online customer-service interactions more effectively. To date, you have developed a stronghold among high-tech clients, but the senior leaders at your firm are eager to expand sales to government agencies that deal with a high volume of citizens. Unfortunately, the early efforts to sell to government clients have not been impressive. Despite six months of effort by two full-time salespeople, only a few small accounts have been landed. One of your sales reps, Tom, has repeatedly told you that you need to cut prices for the government customers. But you’ve been a sales manager for a long time, and you know that salespeople always want to lower prices. So you have some healthy skepticism about whether lowering prices is the right move.
- What are your options? It’s your job to do something to improve sales in the government market. But it’s not clear what your options are. You could do nothing—sometimes it takes time to cultivate relationships; maybe it will simply take more time for the sales efforts to pay off. Or you could cut prices right away and see if that makes a difference. It’s not clear what else you could try. That ambiguity is part of your problem.
- How can you make a good decision?
- Widen Your Options. It’s important not to be framed by Tom’s complaints into a narrow decision about “whether or not” to reduce price. Price isn’t the only variable that explains why customers buy. What other options do you have? If none comes immediately to mind, do your “laddering.” First look internally at your bright spots. You’ve already closed a few accounts; what can you learn from those successes? Then you can ladder up and see what other software firms are doing in the government market. What seems to work for them? Laddering further up, you might study any product that is sold both to corporations and to government agencies. What are the differences in how the products are configured and sold? Maybe you’d learn, for instance, that government customers expect more hands-on service than do your savvy tech clients. In short, you shouldn’t fixate on pricing before you have more data. You need more options and more information.
- Reality-Test Your Assumptions. First, ooch. Give Tom the leeway to offer substantial discounts to one or two customers. See what happens. Why guess when you can know? Simultaneously, try considering the opposite: If the theory is that price is the problem, go looking for evidence that price is not the problem. For example, you could ask your other sales rep to charge a higher price—but one that includes an extensive service package. A few experiments with higher and lower pricing should tell you a lot. As you run these experiments, gather more information by zooming out and zooming in. To zoom out, you might look for third parties—market research companies, for instance—who could tell you whether software companies typically discount for government clients, and if so, how much. (That would be a flavor of “base rate.”) Also, you could zoom in by joining your sales reps for a few customer visits. Meeting your clients personally and hearing their feedback would give you some much-needed texture on the situation.
- Attain Distance Before Deciding. You aren’t ready to make a decision here. You need better information and more options first. That said, if Tom turns out to be right, you may have competing core priorities on your hands: Should you slash prices (cutting profits) for the sake of building a base of government clients? Is the core priority market share or profit margin? It’s worth sounding out your leaders for their perspective.
- Prepare to Be Wrong. Without knowing your decision, it’s hard to prepare for the aftermath. But you can almost always set a tripwire. For instance, you could set a limit on the experiments you’re trying with your salespeople. You might work with Tom on an appropriate tripwire—i.e., if he hasn’t closed a deal in two months, given the freedom to discount the price as he requested, then you’ll both agree to try a different approach.
- Reflections on the process: To deliver procedural justice, it’s important to make Tom feel heard in this situation (though that’s not the same thing as automatically accepting his perspective). Give him a chance to prove his point of view. As the leader of this effort, though, you can’t afford to shut down other options while you pursue Tom’s theory. You’ve got to multitrack. Seeking out multiple streams of information, and conducting some smart experiments, will help you clarify what your best options are.