I can’t emphasise enough the fact that in business there is often no single right or wrong answer.
Even if you decide that the idea is a good one, the fact that you’ll have analysed and considered it in detail will allow you to act with greater confidence. Conversely, if you decide that the reality of your proposed idea isn’t quite as promising as your initial thoughts suggested, the time that you’ve put into exploring it more fully before launching will payback many times over. The earlier you find out that a new avenue isn’t viable the better, because you will minimise the cost, effort and attention that you invest in it overall.
There is no fail-proof recipe for business success, but using whole-brain thinking – that is, getting the best from data and evidence (sometimes called ‘left-brain thinking’), intuition and gut instinct (‘right-brain thinking’) will help you to read a new business opportunity with maximum insight and give you the best chance.
Emotions drive decision-making
Humans make decisions subconsciously, based on emotions – how we feel, and how we want to feel. We then justify those decisions to ourselves and other people using logic and rationale.
The metaphor of the elephant and the rider, which you can read about here, illustrates the role of emotions in decision-making brilliantly.
There is no fail-proof recipe for business success, but using whole-brain thinking will help you to read a new business opportunity with maximum insight and give you the best chance. Click To Tweet
To sense-check your decision-making, there are some straightforward steps that you can take to bring as much objectivity into your thinking process as possible, by using data and seeking evidence.
Use data for strategic decisions
The use of statistics in business can be dated back as early as the 8th century (1). Data can be used to drive your decision-making to provide insight into the current situation as well as to help create sensitivity and scenario models and forecast the future performance of the business.
The challenge is often having too much or too little of the right sort of data. I’ve worked on decisions for corporate clients ranging from literally multi-millions of pounds through to tens of thousands for smaller businesses. To be honest, the only difference between the two is the scale and value of the money involved. The importance is the same – a few thousand pounds to an entrepreneur is often a big, big spend for them. The process I use is the same too, because it really works in terms of thinking things through, whatever the level of investment and whoever is making it.
Here’s a step-by-step guide to making better business decisions.
Step 1. Define the questions
The first step is to define the questions that you need, or would like to have answers to, to inform your decision. Without taking this step, any subsequent data analysis is likely to have limited impact on the decision-making processes.
Write down all the things you want to know about your decision, using these questions as prompts:
- What do I need to know in order to make a sound, well-informed decision? Why do I need to know these things?
- What information would I like to have, but don’t know how to get? Who could I ask to help me with that? (If you’re stuck, get in touch with me via our Contact Us page, and I will do my best to help).
- What information would I love to have, but know that I am not going to get? What can I do to get round this?
Step 2. Define your measures of success
Define what success looks like and how you will measure that success in practise. What do you intend to realistically achieve, and by when?
You can ask yourself how achievable these goals seem to be and look at any past performance you may have experienced as an informative comparison.
This may seem early, but please do consider profit margins as soon as you can in your decision-making process. A business idea is only a good one if it enhances your company’s performance.
At this stage I recommend that you use a quick, high-level break-even analysis to take the costs of production, marketing, tax, and sales revenue into account. I love this free, easy-to-use break-even analysis tool here.
Completing your break-even calculations will provide far clearer insights https://thetravisfund.org/. Simply stating that you need to sell 10,000 units to make a profit is far different to knowing the magic numbers. You will need to do much deeper, more detailed analysis later, but this should give you an early view.
Step 3. Go and get the data together
Collect the right types of data and information from the right audiences. Don’t rely on just one data set or one perspective. You need to see your opportunity from different angles in order to select the optimal route.
Make sure that the any briefs, surveys or other methods are designed to:
- Answer as many questions as possible to the questions you defined in step 1; and
- Help you, wherever possible, to assess how realistic the goals are that you have set in step 2.
Studies show that companies using consumer behaviour insights outperform those that don’t use them by 85% on sales growth (2) and 25% on gross margins. Collecting this data can help you forecast how a new product is likely to perform with your existing clients, or how new demographics may respond to the business, for example.
Look out for growing trends in your industry or for specific products. This can go a long way to pinpointing the right solutions when looking at different product development options. Netflix (3) does this when evaluating content development choices.
Tip: look inside as well as outside your organisation
Please don’t forget, as some entrepreneurs do, any data that exists within your business already. There is usually a lot of untapped, potentially illuminating insight to be found by looking at recent historic sales and profit trends for products and services and doing a deeper dive into segmenting and really understanding your existing customer base. We can be so keen to move ahead to the next thing that sometimes we don’t use the goldmine of information that’s right under our noses.
My final point about this step is to explore timings. Even when a good idea is a good idea forever, insights gained from the right data (5) can offer clarity in many areas, such as the right month or quarter to launch scale the business or the right time to launch a new product. This includes internally – consider resourcing, cashflow, other events – as well as market responsiveness.
Step 4: Turn data into usable insight
Analyse the data by manipulating it in a way that can shed light on the issues that you set out to answer in step 1 of the process. This is turning data into insight. If you’re not great at this, it really is worth asking for some expert help. Remember that a small investment in making the right call now can save you a lot more money in the long run.
Step 5: Interpret the data
Use the answers to those original questions as a form of guidance as to which decision should be made, as well as proactively looking out for any new issues that may have surfaced. At this stage, do your best to put any personal bias, feeling that you know best, and individual beliefs to one side. Listen to what the data is telling you as objectively as you can. You will have the opportunity to overlay your own views later on.
In addition to providing insight that aids you and your team, your groundwork will go a long way to satisfying shareholders and other financial backers if you need to get their support.
Use data in hindsight for descriptive analysis of what happened as well as diagnostic analysis of why it happened. Also use it to gain insight and foresight through predictive analytics of what might happen and prescriptive analytics of how things might be made to happen. Usually, persisting with ‘blind’ decisions that are not supported by any data is truly relying on as much luck as it is judgement.