The best business decisions are made once you’ve squeezed the emotion out of them. [more]
Most bad decisions I’ve made are emotion based. Worse, I also usually only consider the specifics of a situation rather than considering the broader context surrounding them.
This comes to mind because I’m currently dealing with about half dozen enterprise-altering decisions with partner businesses and non-profits. These range from a small micro-business we helped start two years ago to a major non-profit we serve.
In one case, the decision seems simple – it’s about purchasing real estate. In another, it’s about choosing products to market. In the rest, the decisions are about people.
And in all six cases, the broader context we must consider is time and money over the organization’s entire scheme, not just the situation we’re deciding on.
My brother, Miller, calls it, “Taking your helicopter to 10,000 feet so you can see the whole picture.”
Let’s start with the simplest one – a small business that wants to know if they should purchase the building they occupy.
I responded, “It depends.”
They said, “How could it? You own several buildings your businesses occupy so you know that owning your own real estate provides control and other business and tax advantages. We’d be stupid not to buy this building.”
I said, “No, you’d be stupid if you didn’t put the building purchase into the context of your one year and three year business and cash flow plans. If you’re not careful you may gain control and tax savings yet restrict your access to capital for other business needs.”
These are great people so we’ll actually have some fun doing the research and letting them decide what to do but my point is this: They’ll only know if they should purchase the real estate after they look at how the purchase will affect their short and long term goals. Here are some questions of context I’ll work my entrepreneur friends through:
- How much of your capital will be required for the purchase?
- What percent of your total leverage will that be?
- What could you use that capital for if you didn’t use it to buy the building?
- Exactly how much will the building return on your investment?
- How does that return compare to your alternatives for using the same money?
- How long will you need the building considering growth and personal plans?
- What will you do at that time if the building cannot be easily sold?
Business context is comprised, in my view, of time and money.
And yet we make many of our business decisions looking only at the issue we’re deciding on and then sprinkle in some emotion. (I called this “passion” when I blundered because it sounded nobler).
The first commercial building I owned (which was a very bad mistake) was viewed as security – something I could own. Once I decided that security was what I wanted, I built a rationale for purchasing it.
Within 18 months, we’d outgrown the space and I was stuck with a building I could neither sell nor rent. How smart was that?
I am actually even worse with people decisions. Hiring, firing, guiding and deploying people assets are the hardest decisions for an organization to make dispassionately. Still people are the primary asset of any organization. Good people decisions drive success.
In 1995, my seven year old company made the Inc. 500, a list of the USA’s fastest growing privately held companies. That same year, our bank almost put us out of business by freezing our assets.
After the crisis had passed, I asked our brand new CFO, Jack Zaback, how it was possible that such a popular success as our company could be such a financial disaster.
He said, and I’ve since never forgotten, “Because you’ve been unable to squeeze emotion out of your decisions. If you’ll let me, I’ll teach you how.” Jack spent the next 11 years helping me squeeze every bit of emotion (possible) out of every major decision we made.
People decisions are more difficult than real estate because people are not as easy to measure on the time and money continuum. And it is difficult to separate self-interest from the interest of the enterprise as a whole.
During the inevitable human resource battles we’d have, usually over a person I really cared about who had been unable to do the job, Jack would ask me, “Is that person more important than the other 80 people we employ?”
So the broader context we will apply to the partners’ people decisions must and will be:
- How clear have we been about expectations and measurements for the person or structure that is causing our problem?
- Have our expectations been reasonable and measureable?
- How much time has been given for them to solve the problem we face?
- In the best case, how will the business do if that person/structure begins to turn around and achieve their goals?
- How does the person/structure affect other key players in the organization?
- What succession plan is in place and does that plan appear viable?
Jack was never particularly easy to get along with. But he had a wonderful talent for squeezing emotion out of decisions that I would have otherwise made based on ego (real estate) or emotion (people).
This took years for such an emotional entrepreneur as I am but I learned it – most of the time the hard way.
What decision are you facing today that you should squeeze the emotion out of? Based on my own experience, the harder you squeeze the better your decision will be.