We recently started reading Steven Johnson’s book Farsighted: How We Make The Decisions That Matter The Most. The essence of the book is that complex decisions require a thoughtful and intentional process to increase the odds of having a favorable outcome.
The logic is very similar to our framework in The Titanic Effect. Making important decisions under conditions of uncertainty can have unanticipated consequences—what we call “debtbergs” in our framework—in a variety of areas, including people, markets, technology/product, and strategy. Understanding the tradeoffs and implications of these decisions is important for complex strategic choices that startups make on a regular basis. In this vein, startup success comes not from picking the right product or the right market segment, but by systematically making better decisions across all of these areas. We map out many of the common mistakes founding teams make that can subsequently sink their startups.
Johnson is a gifted storyteller. He leads with a very interesting history of what we now think of as Chinatown/Lower Manhattan in New York City. Centuries ago this was the Collect Pond, where spring-fed fresh water sustained animals and Native Americans. The pond was partly bordered by a large, beautiful bluff which enabled a nice view of the entire landscape. In the late 1700s, it was a picnic area and fishing site with an ice skating pond in the winter.
As New York blossomed as a city, the pond became a center of gravity for tanneries, a slaughterhouse, and other industry. Sadly, this “manufacturing” contaminated the water over time with chemicals and decaying bodies, making it a bit less idyllic and more a malodorous eyesore. In the early 1800s, local decision makers decided to convert the land into a real estate opportunity and filled the pond with the material generated by leveling the bluff. Middle class housing was instead built on the area. In the short run, this decision generated economic benefit for some and housing for others.
As it turned out, though, decaying remains and chemical-laden materials combined with the low-lying terrain were not the most stable building platform. Houses sunk, noxious gasses spilled from holes in the ground, and wealthier residents fled. The area, known as Five Points, became home to poor immigrants and escaped slaves. You might recognize it from the movie Gangs of New York (another link to the Titanic, also with Leonardo DiCaprio as a lead actor).
Photo credits: Gangs of New York, Miramax. Titanic, Paramount Pictures.
The decision to fill in the pond, rather than restore the pre-existing beautiful oasis, was a complex one with far-reaching implications. Weighing short-term (i.e. spurring economic growth) vs. long-term (i.e. protecting green pockets of beauty in urban contexts) benefits showcases the challenges with complex decisions. There is a rich body of research on strategic decision making, over two decades, which Johnson leverages and brings to light in his book. Here are three key elements to good decision making in the startup context:
#1 - Understand the difference between “narrowband” or tactical vs. complex or “farsighted” strategic decisions. In our blogpost, Now, Next, and Navigation, we talk about the time horizons and focal activities startups must balance. Some founders have a tendency to engage in frenetic activity in the Now, making a variety of tactical and complex decisions without attention to those that have far-reaching implications. Other founders agonize over every decision, treating all decisions as Navigation tasks, fraught with peril.
Filing paperwork with the state to incorporate your business, securing a website, and setting up social media accounts for your venture are important tactical steps to move forward. These can be part of the Now as narrowband decisions. But picking a brand name and choosing a market segment to focus on are strategic decisions with far-reaching implications. They should be part of Navigation. They deserve more thought and intention. They can be corrected, however, with experimentation. So don’t let complex decisions paralyze you.
#2 - Recognize the decision-making stages that complex strategic decisions should go through. As part of Navigation your decision-making process, called the divergent phase, should allow for early brainstorming, scenario mapping, and creative engagement. This is to generate as wide an array of solutions as possible without judging their viability or sustainability. This will help you avoid blind spots early in the decision-making process. Once you have explored divergent solutions, the team must converge on what choice to pursue as part of the consensus phase. Form experiments to help confirm that you have made a good choice (but do not worry if it is the BEST choice—just make sure it is not a BAD choice).
#3 - Incorporate diversity of perspective when making complex decisions, particularly in the divergent phase. This is not simple demographic diversity, though that is a good place to start. Research has systematically demonstrated that diverse teams are better at generating solutions to complex problems. Ideally, you can incorporate customer, supplier, investor/advisor, and industry experience in this effort. Map out all of the possible choices and inflection points to generate a full-spectrum chart of the choices you will make—and the icebergs that might result. Then move forward with a consensus. Once engaging in experiments as part of implementing a choice, diversity of perspective should focus on ways to experiment and validate—not nay-saying and second-guessing the team’s direction.
Let’s make this a bit more concrete for startups with an example. Startups often struggle with product/market fit and customizing in the early stages. Specifically, what changes do you make early on for unique customer requests? This may seem like an easy yes/no tactical decision. But an extreme response in either direction can create significant debtbergs and be unsustainable. If you are always customizing and accommodating every customer request, you will waste time and money. And, you can end up with a unique solution for every customer. This is not sustainable and will make scaling difficult. On the other hand, if you never accommodate customer requests, you might never get proof of concept and build traction in the market.
What you need is a PROCESS for making a choice. When customers request changes, who is part of the team who makes the decision? It should not be just the salesperson (inclined to always say “yes”) or the technology developer (inclined to always say “no”). In addition to the team, what criteria should be considered? Some suggestions include customer potential size, whether their request helps address the problem you care about, your value proposition, and if you have fielded similar requests from multiple customers. The important thing is that you have established a decision-making process to deal with such far-reaching requests.
This brief synopsis does not do Farsighted justice—you should read Johnson’s book. We highly recommend Johnson’s other works as well, including How We Got To Now, Where Good Ideas Come From, and Future Perfect. But hopefully, this gives you a starting point for making complex decisions, whether about your startup or other life choices with long-term consequences. Don’t let navigation errors sink your long-term success—be Farsighted!