How to Make Decisions When You Have Limited Information

“In founding a startup, you throw yourself off a cliff and build an airplane on the way down.”

— Reid Hoffman

If you are a startup founder, you have to take business decisions every day. If you are like me, a lot of time you would be stuck with a conundrum, and there won’t be a good way to pick an option and just go ahead with it. “What if you fail?”

The boon of being a creative person is that you are full of ideas. The curse is that you have too many ideas but often don’t have good frameworks to pick a good option. Not just any option—an option that is not a punt; an option that would give you a fighting chance.

Reid Hoffman has built PayPal, LinkedIn, is a partner at Greylock, and has famously said, “If you aren’t embarrassed by the first version of your product, you shipped too late.” This man surely knows a thing on two about speed. He has mentioned about it time and again in his talks, podcasts, books, and interviews.

Here we’ll try to understand what can be learnt from his methods to help us take decisions under uncertainty. As you know startups are always in a volatile state. Things are usually not figured, and there’s no way for you to look it up somewhere.

Most of the time you will have incomplete data while taking crucial decisions. Hoffman says that if you keep on waiting for the right knowledge, or the right moment, or the right information to take an educated guess, most likely it’ll be too late. You’ll be left behind and somebody else will take your place.

After jumping off a cliff, you’ve most likely already got several ideas and hypotheses in your head. But your window is extremely small, so you gotta pick one and act fast—there’s not much scope for A/B testing.

The first thing that you would have to understand is that a bad decision is better than no decision on any given day. Chances are that a wrong punt could get you killed, but indecision would surely get you killed now that you’ve already jumped off the cliff.

According to Hoffman, you have to use speed as a factor in choosing the best course of action. When you are optimising only for speed, you can quickly reject ideas that don’t fit this framework. This significantly speeds up the process of decision making.

Take a decision (which is optimised for speed) based on the current information. It’s jut a provisional decision; not the final one. It most likely would be based on your gut feeling and instinct. For example, after you get a business idea, you might not have a fair notion of how big or competitive the market is. But you already do know a couple of things about the market from articles, news and other media—that’s your prior and it helps you pick a course of action.

The next part is the tricky one. Instead of going out and getting data to prove your hypothesis, you should instead go out to get information that would disprove this initial hunch. This way you won’t fall prey to Confirmation Bias. In other words, this practice prevents you from falling for your own bullshit. This is not instinctive and doesn’t come naturally; it’ll take discipline to master this habit.

People generally tend to do the opposite. It’s a grave mistake to go out and gather confirming evidence. But it is far graver mistake to wait for the right information. This is time taking. The world changes in the meantime.

What you have to understand is that this isn’t a research paper, and you don’t get any goodie points for gathering information. This is very close to war. Only actions will speak.

“A good plan violently executed now is better than a perfect plan executed next week.”

— General Patton

What you should try to do is disconfirm your initial idea as soon as possible, and pick the next best idea. It’s however highly unlikely that you will ever get a full-proof idea that has no negative sides. So you’ll have to consider decisions where the odds are mostly in your favour. Choose the option where the disconfirming evidence is lowest, and you won’t end up blowing up if things don’t go in your way. Things most likely won’t go in your way. As Karl Marx has said, “Life is struggle.”

This method is certainly not full proof, but it’s the best strategy you’ve got once you jump off a cliff. Speed certainly matters to an extreme degree in startup decisions, and in other fields that deal with uncertainty.

Most founders are aptly able to crack speed of execution. Where most people suck is in taking decisions with speed. They generally take a punt, or simply go with their gut. Gut feelings are good as long as there is no disconfirming evidence against them.

Big companies however, are different. Unlike startups, big companies like LinkedIn, Microsoft, etc., don’t have to pursue strategies where being fastest is critical—big companies adopting strategies that depend on pure speed battles will most likely lose. Instead, they need to devise strategies where their slowness can become a strength. Being big, they are inherently slow by nature. They just need to be slow by design.