Making Business And Financial Decisions In An Uncertain World
This article appeared in the February 2017 edition of Forbes magazine. Click here to view the original article.
Author: Josh Sherrard
“Strong opinions, loosely held” is how venture capitalist and serial entrepreneur Marc Andreessen describes his philosophy and approach to leadership and decision making at his venture capital firm Andreessen Horowitz.
Venture capitalists and successful entrepreneurs are masters of decision-making in complex and uncertain situations.
I’ve written previously about how the world has become much more unpredictable, complex and difficult to interpret because of the acceleration of technological, social, political and economic change. To make better financial and leadership decisions in this environment, especially when it comes to our families and our businesses, I’m suggesting the following process, which I’ve synthesized from various sources, adding my own unique perspective. I think you’ll find it a little different and, hopefully, very useful.
1. Formulate a clear vision of reality, especially of the future.
I often refer to a quote from General George Casey about his experiences as the commander of the multinational force in Iraq, in which he states that “the primary function of any leader is to point the way ahead.” General Casey emphasizes the need to communicate this vision clearly, because our leaders’ lack of vision in confusing environments “become invitations for inaction…. And to succeed, you must act!” All too often, I see people working with their heads down, avoiding thoughts of the future because things are okay right now. Reacting, being blindsided by reality, or being unprepared for future possibilities are no ways to lead a family, a business or an organization. It’s better to develop and keep refining a clear, realistic vision of the future.
2. Develop multiple ways to think, decide and take action in uncertain environments.
In his continuous quest for more information and more insights upon which to base decisions, Charlie Munger, who along with Warren Buffett has guided the decision making at Berkshire Hathaway for decades, is in the habit of arguing the opposite point of view in order to better understand his own. “You’re not entitled to take a view, unless and until you can argue better against that view than the smartest guy who holds that opposite view,” says Munger.
Munger’s way of thinking reflects a multiple mental model approach to thinking and decision making. The idea is to draw from a broad range of experiences and sources — not just finance or business management — in order to understand situations and develop strategies for action. Arguing the opposite point of view can force us to give up some of our strongly held opinions when there’s a better way of looking at things or a better strategy. That makes for better decisions.
3. Be undeterred by failure but don’t glorify it.
This can be a tricky one. It’s fashionable these days, especially in high-tech centers like Silicon Valley, to talk about failing fast and failing often in order to succeed. In other words, have an experimental attitude; be willing to be wrong; adapt, adjust and change when necessary.
However, most of us don’t have the advantages of a well-capitalized venture capital or private equity firm. Unlike these firms, most families and family businesses don’t have large pools of capital behind them and can’t afford to bet on the next “unicorn” company to offset substantial losses. I say, let’s stop glorifying failure and instead let’s focus on getting things right the first time. This takes careful and strategic thought, good counsel and sound decision-making methods.
4. Simultaneously build confidence and humility.
On the one hand, confidence is essential for success. “When you focus on constantly protecting and increasing your confidence, everything else becomes easier, because you’ve made the foundation for all your other successes more solid and predictable,” says Dan Sullivan, the founder of The Strategic Coach program.
Yet, there’s an inherent danger that confidence can breed arrogance. Ryan Holiday, author of Ego is the Enemy, calls this “an unhealthy belief in our own importance…. It’s when the notion of ourselves and the world grows so inflated that it begins to distort the reality that surrounds us.”
Finding the proper balance between confidence and humility is an important challenge for any leader and decision maker. In my experience — whether it’s deciding on what investments to make or not make, whether to sell or keep a business, or whether to hire a non-family member as a CEO of a family business — it takes both the confidence that a clear choice will reveal itself through the combination of tools I’ve suggested and the humility to admit that sometimes you just can’t know what will happen or what the right course of action should be. This leads me to my last suggestion.
5. Seek results through collaboration.
“Nobody is as smart as everybody,” as Kevin Kelly, co-founder of Wired Magazine, once said.
Engaging people with differing perspectives in a synergistic process that produces exponential results is the goal of any collaboration. However, whenever there is a diversity of opinions and perspectives, arguments and disagreements are inevitable; they are necessarily part of the collaboration process. Expect them and view them as holding the key to greater understanding and insight. Being confident in your convictions is critical, but be willing for your convictions to change.
In summary, what I’ve learned is that the most effective way to follow Marc Andreesen’s principle, “Strong opinions, loosely held,” is to approach decision making and collaboration with gratitude. That entails respect and understanding for the perspectives of others, an appreciation for what others bring to an argument or conversation, and a willingness to be open, to consider and debate ideas, and to do so while maintaining a generous spirit to the greatest extent possible.