Let’s say you’ve chosen the LOVE IT path for your business and you’re ready to look at options to create step-change growth in your business.
How do you decide which option to choose?
Left unchecked, you’re likely to make the wrong one.
That’s because psychologists tell us that we are more likely to base our decisions on the magnitude of an event than the probability of an event. In other words, if we think there's great upside, we'll spend more energy pursuing an option than the probability of its outcome may warrant.
This blind spot may explain, in part, why so many businesses fail in their first year.
Expectations of success blind the entrepreneur to the need to evaluate their chance of success.
The flipside is also true: if we are certain that an action has a big downside — even if it’s only a slim chance — we won’t take the risk. We rather miss out on a more certain opportunity than take the risk of loss, even as improbable as it may be.
This has huge implications for your strategic actions. Are you assessing the probability of success or failure of an option independently of its degree of gain or loss? This isn't to say magnitude isn't an important consideration. It most certainly is. The larger the magnitude of success or failure, the more critical your analysis must be.
But size isn’t all that matters.
Good strategy starts with an assessment of the most probable outcomes. While we can never be 100% sure about any outcome consideration of its probability should have more weight than its magnitude.
But there’s more to this than just assigning probabilities to outcomes. You can’t do it in isolation. To get a meaningful assessment, you’ve got to involve your team. And you’ll likely have some team members that will have a harder time with this exercise than others. So, you need to know how to keep them engaged in the evaluation process.
I once had a very intelligent, detailed-oriented woman on my team who could quickly see any problem that might arise. When you’re leading a fast-paced software company, it can be very helpful to have someone on your team that can warn you of possible disaster.
The problem was that she was very prolific in her prognostications of potential doom, rarely gain. She could predict every risk factor. It was like reading the seemingly endless provisions of a long legal contract or the warning labels on medications alerting you to every side effect conceivable, “even death.”
Jokingly, I referred to my colleague as Ms. Fineprint. Having the fine print about a matter is good for reference. You just shouldn’t base all your decisions on it.
Better than knowing all the things that could go wrong, is knowing the one or two things that have a high-probability of going wrong. That, you can deal with.
Our natural inclination is fixate on size — either the size of gain or the size of loss.
We’d all like to have big gains and avoid big losses, but if the gains we’re pursuing by our strategy, or losses we’re hoping to avoid, are not the most probable of the options, we’re either swinging at the fences in the hope of an improbable gain or not taking an at-bat for fear of striking out.
How do you get the holdouts on your team to come along for the risk?
Lead with Probability in Mind
In my post, How to be more confident betting on your business I outlined an approach that I use with my clients to help them gain confidence in taking a risk, so I won’t repeat it here. Go there to get the playbook on how to conduct that assessment.
Now, I want you to consider the leadership dimension of that exercise, for you may likely have others on your team like my colleague above: someone who is very good at seeing the ways things can fall off the rails.
If you’re like most CEOs, people like that can drive you crazy, because it may feel like they are constantly throwing monkey wrenches in your gears — every possible objection taking precious time to resolve. You just want to get on with it — you don’t need to worry about all the fine print. You’ll risk it.
But you also don’t want to entirely dismiss out of hand those who could save your bacon if they happen to be right.
Heide Grant Halvorsen has some excellent advice on how to handle the Fineprint people on your team. In her book, No One Understands You – And What To Do About It, she observes that people generally view the world from one of two different lenses: a promotion lens or a prevention lens.
Promotion-minded people are possibility thinkers. They are good at coming up with ideas, connecting themes, synthesizing information, and identifying opportunities. They are comfortable with taking risks.
Prevention-minded people are more concrete, detailed thinkers, like my colleague. They are really good at analysis, very thorough, and more likely to think slowly. They are generally risk averse.
How do you get a prevention minded person to overcome their risk aversion and get comfortable with an approach?
Grant Halvorson points out, “A prevention-minded person will gladly take a risk, once you help him or her understand why it would be a greater risk not to.”
In other words, the probability of a bad outcome from inaction is higher than the danger they perceive from taking the course of action being considered.
Once again, it comes down to an analysis of probabilities. That’s why magnitude, while important, is secondary to the probability of the outcome.
A side benefit of doing this kind of analysis is that the prevention-minded people on your team, with their analytical aptitude, will be more likely to rally behind the strategy that is buttressed by that kind of assessment.
Any leader will tell you that having your entire team rowing in the same direction is better than trying to make headway with boat anchors in the water. Taking the time to get the skeptics on board will pay dividends in the long run.
And you can remind those same skeptics that while we can never be 100% sure about any outcome, consideration of its probability carries more weight than its magnitude.
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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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