The business of decision making

On any given day, we’re all faced with a slew of decisions to make. Some of them are relatively easy, like choosing where we’re going to order lunch from. Others are much more difficult, their consequences much more serious for our businesses. These are the ones that can make or break us. This month I want to share with you the wisdom two of my mentors have shared with me about decision-making.

Clay Mathile took the Iams pet food company from $500,000 a year in sales to $1 billion before selling it to Procter & Gamble for $2.3 billion in 1999. Today Clay is chair of Aileron, a non-profit organization he founded to help small business owners succeed. Painted on the walls of Aileron, you’ll find Clay’s philosophy for decision-making summed up in this quote: “Never make a decision before you have to.” For Clay, it’s practically a mantra.

What does it mean? It means never rush into a significant decision. Plan. Weigh all your options. Leave time and room for changing your mind while you still can. With more time and more room come more information, better information, better data. Let’s take the purchasing of equipment. Deciding what to buy and when is crucial – and costly – for a landscaping business.

Now the smart landscaping company assesses its needs and has a plan in place for what it will purchase in the year ahead and when. That way when the U.S. government suddenly announces in the last week of December that it will allow small businesses to take the Section 179 tax deduction, you’re not left to make split-second decisions like many were last year. Some companies I know had no real plan in place, or ignored the one they did have, and rushed out to buy big-ticket items they didn’t need.

At Grunder Landscaping Co., we had no plan to purchase any more equipment in 2015. When the announcement was made in December, we took another look at our plan and decided to stick with it. That was the right decision for us, right when we needed to make it, and today I’m not the indebted owner of a $100,000 piece of equipment I don’t need.

Another great piece of advice on the business of decision-making comes from Nido Quebein, an accomplished entrepreneur and president of High Point University in North Carolina where he oversees some 300 faculty members and 4,500 students. Nido says every significant decision has three outcome scenarios: the best case, the worst case and the most likely to happen.

Spend the least time thinking about the best case. Why? Because we can pretty much all handle the best outcome, right? If I buy a $100,000 piece of equipment and it doubles my profits, I can handle that. It’s also very unlikely to happen.

Instead, I spend my time carefully considering the worst-case and most-likely-to-happen scenarios. The worst case can very well put you right out of business. The Wall Street Journal is filled every day with companies closing or struggling mightily to stay afloat after a bad decision.

Don’t let this be you. Before you make a major decision, consider the worst that could happen. Weigh the potential risks against the potential benefits; which way do the scales tip? Consider the most likely outcome and see if you come out ahead. Think about the opportunity costs. What might you be losing out on? Scenario-planning like this has helped me over and over again to minimize risk and limit my financial exposure, and it can do the same for you.

So, the next time you’re faced with a big decision to make, remember Clay’s and Nido’s advice.