Learn how to make important business decisions using these strategies.
Starting a business is a major feat that comes with endless decisions. Many small business owners find themselves paralyzed in decision-making phases of their businesses, so it is important to employ various strategies to help you successfully make the right choice.
Business decisions must be made starting at the ground level, like knowing if your business idea is good enough and choosing the right business name, all the way through the lifespan of your business. Having board members or a decision committee on your team can help with the process, but if you're a solopreneur, you'll make tough choices on your own.
Whichever route you go, Logan Allec, CPA and owner of personal finance site Money Done Right, recommends always, at the very least, having a reliable person to act as your sounding board.
"The biggest thing business owners need is a reliable sounding board, someone who they can talk through difficult decisions with that they know will listen and give them advice," said Allec. "It is important that a business owner's sounding board is honest, because honesty will ensure that the business owners are making the right choices in difficult situations."
In addition, Allec recommends that business owners always trust their instincts when it comes to making tough decisions. You might be wondering whether you should just make the decision and stick to it. Should you test different options? Should you use statistics to make a business decision or implement a multistep process? The answer to these questions depends on what type of decision you are making.
How do you make business decisions?
Jon M. Quigley, founder of the training and consulting agency Value Transformation LLC and author of several management books, recommends using a testing approach that allows you to figure out important parameters and evaluate them accordingly.
Quigley suggested using this multistep process for effective decision-making:
- Identify the business decision that needs to be made.
- Gather data and study what you find.
- Identify the important parameters for the decision.
- Identify alternative approaches.
- Assess the alternative approaches.
- Use one of the many decision-making tools and techniques available.
- Devise trials and experiments to learn which option is better.
- Identify metrics that inform the viability and veracity of the decision made.
- Invoke the actions and make the decision.
- Monitor progress or state of the decision.
- Review the results.
This is a general guideline to follow for making informed decisions; there are other strategies and variations that you can incorporate as well. For example, you can use different forms of testing. You can either repeatedly test on a small scale to see its effect before implementing on a larger scale, or you can A/B test, which consists of testing two different methods at the same time. Quigley said to explore these methods with small, inexpensive, trial-run experiments.
"[Creating] a small prototype run of a product that has the key features to allow the company, and perhaps key customers, to examine and use the product and give feedback on will aide in the decision-making," said Quigley. "Low-cost exploration can help us understand the true things that matter in the decision."
When you are in the research phase of making a business decision, learn from your past achievements and failures, see what competitors are doing and possibly even survey your consumers.
It is also a good idea to seek the advice of relevant experts, trusted colleagues and other business owners. They can help you obtain an objective opinion that is clear of your own biases and judgements, and they can play devil's advocate to help you see the pros and cons of each scenario. If you are unsure whom to turn to, Allec suggests finding a mentor from a chamber of commerce group.
"There are many experienced and well-connected business owners who are members of their local chamber of commerce who would love to help business owners with decisions they are unsure of," said Allec.
For certain business decisions, you might be able to play out a reverse outcome scenario. Start with your desired outcome and work backward to see what steps need to be taken to get there. Some decisions that don't have a monumental impact on the company can be made with the "just do it" mentality.
Regardless of what decision you make, it is important to stick with it. Feel confident in your choice, and don't look back. If you have taken the proper steps to make the decision, don’t second-guess yourself. Give your decision time to make an impact, and then re-evaluate the results.
What are good decision-making skills?
Every entrepreneur will face a challenging decision at least one time in their career. There are several skills and traits you can develop, though, to become adept at accurately judging the situation and making wise decisions. If you already possess these decision-making skills, even better.
Quigley and Allec believe the skills and qualities below are the most beneficial for making decisions:
- Capable of making crucial decisions
- Consultative and receptive to feedback
- Critical thinker
- Mathematical (e.g., Excel modeling skills)
- Planning and time management
- Research and data collection
It is also important to know and accept that your decision might not please everyone, and that's OK.
Common business questions and decision techniques
We posed five common questions entrepreneurs and business owners face to Allec to see which strategies he would use to make a proper and thoughtful decision.
Q: What business should I start?
A: Research – find out about the demographics of your community, and survey the different groups to figure out their interests. Find out what businesses already have an established market or which markets are very competitive so you know in advance.
Q: How do I know if my business idea is good enough?
A: Communication – ask friends, family and business leaders in the community about the idea. Coherently describe and detail the idea, read it out loud (and to another person), and make sure everything sounds correct and complete.
Q: Should I quit my full-time job?
A: A cost-benefit analysis would be best, because it involves calculating how much money would be lost versus the social capital gained from starting a business. A plus/delta chart would also be helpful, as business owners could analyze the areas that are positively affected by quitting and what changes would occur. Putting your thoughts on paper helps process the reality of a decision.
Q: Is this the right [X] to buy?
A: Information and data gathering – investigate the market and find out what other companies are using [X], or find out what companies are using in place of [X]. Acquire [X], and gather the data of whether it works for you or not.
Q: Should I franchise my business?
A: Consult with other business owners, employees and, most importantly, an attorney. Big decisions with cross-state legal implications and changes require expert advice.
Some business decisions may seem more obvious than others, but it is important to consider your options and weigh the benefits versus the consequences. Trust your instinct, consult with others, and do what is best for your business.
"The most important thing business owners and entrepreneurs should remember is to always trust their instinct but never to take any constructive criticism about their ideas personally," said Allec. "If a business owner or entrepreneur wants to be successful, they will learn that they may not always have the best idea."