How to be more confident betting on your business.

We all love a sure thing. A proposition we can’t lose. A win-win situation.

After all, winning is fun.

But you can’t win every hand. You’ll never be 100% sure of anything, right? The only certainty is uncertainty. 

So, how do you know if a decision you take about it will generate a win?

How do you know, for example, if it’s better to step away and sell your business today or invest more energy to get an even more attractive exit later?

There’s no certain answer.

Every consequential decision you take about your business involves an element of risk, because you can’t possibly know all the factors that may affect the outcome.

And you can’t rely on your experiences from similar decisions in the past. Those decisions were also steeped in uncertainty, and while the outcome may have been favorable at the time, the factors facing you today are likely much different.

The only thing your decision today shares in common with the decisions you made in the past is that there were then and are today a lot of hidden unknowns – likely all very different.

As much as you might like to take comfort in your decision-making prowess, you must accept that past behavior, no matter how good, is not indicative of future results.

No decision can be made from certainty. The best you can do is to make a decision based on your incomplete assessment of the probabilities of an outcome. 

There are only probabilities.

Years ago, I read Annie Duke’s excellent book, Thinking in Bets. Duke is a former World Series of Poker Champion — so she knows a thing or two about probabilities and when to bet it all — or not. Using what I learned from that book, I began to rework how I help my clients with the strategic decisions they make about growing their businesses.

Duke’s powerful observation that stuck with me is this: most of the decisions we make are more like poker than chess. In chess, all the possible future moves are known (or knowable) if you take the time to think them through. But life (and business) is nothing like that. Instead, like poker, there is constant uncertainty. We don’t know what’s hidden in another player’s hand, or still in the dealer’s deck waiting to land on the table. We don’t know what will happen in our market or in technology or the world six months down the road. 

So we’re better off doing what Duke suggests and thinking in bets. If we assess the probability of an outcome the way a poker player might, we have a better chance of making a good bet with our business. 

In Duke’s own words:

“We would be better served as communicators and decision makers if we thought less about whether we are confident in our beliefs and more about how confident we are. Instead of thinking of confidence as all-or-nothing (‘I’m confident’ or ‘I’m not confident’), our expression of our confidence would then capture all the shades of grey in between.” 

Make a more confident bet.

The process I use with my clients to help capture the shades of gray involved in any strategic decision they might make goes something like this: 

First, identify the underlying critical success factors. A critical success factor is the thing that must be true for a desired outcome to be obtained. If a positive outcome could still be achieved if it weren’t true, it’s not a critical success factor. List as many critical success factors as you can, keeping in mind that you can never know all the unknowns.

For instance, let’s suppose that your desired outcome is to obtain $5M in sales in a specified period of time. Some critical success factors might be:

• The ability to generate a specific volume of leads.
• Sufficient sales resources to work and close those leads.
• Sufficient inventory or service resources to satisfy the sales.
• (and so on)

Then, assign a confidence level to each critical success factor. Rate each of your critical success factors on a probability scale (0-100%). Check your rose-colored glasses at the door. This is no time to be overly optimistic — remember, the purpose is to arrive at a good decision, not to waste you and your team’s time with happy numbers. 

Lastly, identify the underlying assumptions for those chosen confidence levels. Once you’ve identified the confidence level for a critical success factor, ask yourself, or your team, “What’s the rationale for assigning that score?” The reasons (assumptions) themselves might need to be scored, too. How certain are you of each one? The farther you drill down, the more certainty you will have access to.

Perhaps you scored the chance of generating sufficient lead volume at 80%. And the reason you gave that number is because that’s the level of lead gen you produced in the prior comparable period. Of course, the underlying assumption is that level of performance should be easily repeated. But are there mitigating circumstances that should be considered that might alter that assumption? Was the prior performance an outlier event? Are there any differences in market demand, competitive response, etc, that may affect future lead gen performance? 

The point of working through each of these steps is to establish a confidence level that is not a shoot-from-the-hip response, but assesses the uncertainty level in obtaining each of the necessary components of a decision.

The dimensions of confidence. 

Think about assigning your level of confidence to decision based two dimensions:

1. Degree of control. How much control do you have over the critical success factor? Factors where you have a high degree of autonomy warrant a higher confidence score. Those factors outside your control, like market demand or the price of fuel, should be assigned a lower confidence score.‍
2. Veracity of information. The second dimension is the reliability or veracity of the information you have on hand. The more reliable information you have about a critical success factor, the more confidence you can have of the outcome. Has your data been trustworthy in the past, or do you find errors in your reporting on a regular basis? Do you know-know how many customers are in the market for your product, or are you guessing based on sales figures from 10 years ago? The better your information, the more certain you can be. 

If you’re high in both the control and veracity dimensions, you should have a high confidence score for that critical success factor. Alternatively, being low in both would warrant a lower confidence score. 

Critical success factors that are in your control but for which you don’t have sufficiently reliable data about, should be flagged for additional work to identify possible remedies. The more you know, the more accurate your bet can be. 

On the other end, contingencies should be developed where you have a high degree of trust in the data but don’t have control over the outcome.

Assigning confidence levels to your critical assumptions is a time-consuming discipline, but one that can unlock more insight to where you need to work to improve the confidence you have in bets you need to make on your business.

And that is as close to a sure bet as you can make.

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‍This article is adapted from a post by the author that appeared on the Strategic CEO Substack.
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