Annie Duke shows us that making high-quality decisions is one of the most important skills we can build for improving our odds of success in startups and in life. It's also a skill that can be sharpened and improved over time, regardless of how uncertain the circumstances. By adopting scientifically-proven frameworks from her books "Thinking in Bets" and "How to Decide," we can make better predictions and choices more often and with more confidence.
Annie Duke:
We can think about the universe of stuff we know versus the universe of stuff we don't know, right? So the universe of stuff we know is like a speck of dust on the head of a pin, it's like Whoville. And then the universe stuff that we don't know is like the size of the actual universe. So what we're trying to do is how do we get stuff out of the universe of stuff we don't know into the universe of stuff we know to repair our foundation. And that's where we're going to find new information.
Mike Maples:
This statement by Annie Duke is totally on point for a key lesson of greatness. Visions under a high uncertainty require a different mindset and leadership approach. Let's talk about why.
Mike Maples:
There are different types of games in business and in life. Some are based almost entirely on skill like chess. If I play Garry Kasparov a hundred times in a row, he will beat me a hundred times in a row. I can't count on my good luck or his bad luck to rescue me. Some games involve a high amount of chance and uncertainty. They're more like poker. If I play the world champion in poker for an entire night, I will likely lose my money. But if I play that person for a single hand, I might have a 40% chance of winning. Startups are more like poker than chess because they involve skill combined with uncertainty and chance across many thousands of decisions, some big and some small. What will customers value in our product and what will they not care much about? Is this the right price to charge?
Will there be a recession next year? You get the idea. This means that you have to think about leadership and decision-making differently. Too many leaders or decision-makers think of confidence is an all or nothing. They say, I assert this will happen. Annie Duke's books, How To Decide and Thinking In Bets, offer key lessons for any startup team seeking greatness. I highly recommend that you check both of them out. In the meantime, here are some key takeaways to consider. The first takeaway, think in bets. When someone asks your opinion about something where there's high uncertainty, the correct response is to say, I'm not certain, but here's how I'm thinking about it. When we express our level of confidence by saying I'm X percent sure rather than as an all or nothing, we opened the door for others to collaborate with us better and tell us what they know.
We also allow others to act like scientists with us in our shared quest for the truth. Acknowledging the decisions are bets based on our beliefs, getting with uncertainty and redefining right and wrong are key first principles to good decision-making in the highly uncertain startup world. Second takeaway. Don't assume a good outcome means you made a good decision and vice versa. If you ask most people, what were the best decisions you made in 2020, more times than not they will answer with things that went well. I'm glad I bought Zoom, Tesla or Bitcoin in 2020, for example. But it's important to avoid the mistake that Annie calls resulting, which is confusing the quality of an outcome with the quality of a decision. The reason this is so important is that there are way more possible futures in the one that actually happens. When you're dealing with high uncertainty, you need to consider a matrix of potential outcomes.
Think of it as a simple two by two. Where on one dimension, you have a good decision versus a bad decision. On the other dimension, you have a good outcome versus a bad outcome. A rubric like this will help you understand in hindsight, what contributed to your success, which is important for informing future decisions. For example, you need to know when you made a decision that very likely contributed to a good outcome because you'll want to double down on this approach in the future. It's also extremely important to know when a decision resulted in a good outcome that feels lucky in hindsight, because in the future you don't want to assume you'll have the same results. It could have just been dumb luck. Finally, you'll want to know when you had a high degree of confidence in a decision, but it resulted in a bad outcome.
If you assume this decision was wrong, you may stop an approach that should work in most circumstances, but you just had bad luck. Imagine if I play a single hand of poker with Annie Duke and I get lucky and win. If she assumed I was better than her just because she lost a single hand, she would miss the opportunity to separate me from my money before the night was over. Not paying attention to dumb luck and bad luck can cause you to learn a lot of wrong lessons that will negatively impact your future decisions. If you make a decision with a 90% chance of a good outcome and it goes against you because of bad luck, your experience might cause you to not take that chance in the future, even though you should. Or you might make a bad decision that turned out well. In those situations, your false confidence could cause you to lean into foolish risks in the future and to make matters worse we all have a tendency to let memory creep cause us to remember things differently from how they actually happened.
Memory creep is when we tend to think we knew it all along, especially when things go well. Our memory makes it seem like it was due more to our decisions in foresight than it really was, which brings us to our final takeaway. Document your thoughts and learnings constantly. So how can we leverage experience to improve future decisions. In How To Decide Annie suggest several tools, including a knowledge tracker, decision tree, and pre-mortems for every key decision you make. Let's take them one at a time. When you create a knowledge tracker, you document what you knew and when you knew it. The first thing you capture is stuff you knew or assumed before the decision. This is the sum of your beliefs and knowledge at the time. It should include all of the factors that influenced your decision.
The second is stuff you knew after the outcome. It should primarily focus on the new stuff you learned after making the decision and the precise time you learned. By tracking what you thought you knew and when you knew it and what you discovered as the outcomes unfolded, a knowledge tracker helps you resist the temptation to have hindsight bias based on the outcome. The knowledge tracker also lets you look back in time and see if there were other knowable or meaningful factors in your decision that you might've overlooked. For example, at Floodgate we once invested in a startup that failed because the team got caught in analysis paralysis and always seemed to have a new reason not to ship something or engage the market. In our initial assessment of the opportunity, we did not adequately factor the team's ability to execute at a high tempo, into our key assumptions.
As we saw the company fail, we realized that we missed this as a factor in our decision. Was there a way to know this before we wrote the check? If so, we needed to figure out how and also ask if that should be something we always check before making future investments. The second tool is a decision tree. For every decision you identify the reasonable set of outcomes, including the range of bad outcomes and horrible ones, as well as expected outcomes and better than expected outcomes, even quite lovely outcomes. Next, you identify your level of preference or dislike for each outcome. If one of the potential outcomes could ruin you, make sure you call that out. And then you estimate the likelihood of each outcome. And you look at the options and decide which probability-weighted option best matches your preferences. Just like with the knowledge tracker, a decision tree also helps you understand if you frame the decision well.
If an outcome occurs later, that is completely different than what you anticipated, maybe you didn't frame the potential outcomes as well as you could. Maybe you could frame them better next time. The last important tool is a pre-mortem. When you do a pre-mortem you identify the goal you're trying to achieve in the decision you're considering. Then you figure out a time in the reasonable future. You imagine it's the day after that things have not worked out. You list up to five reasons that you fail due to things within your control. And then you list five reasons you fail due to things you can't control. This is far better as a team exercise, where everyone lists the reasons separately and then compares notes. Alternatively, you can approach it from a glass half full perspective. You imagine a time in the future, but this time you achieve the goal, maybe you even exceeded it.
You list the five reasons you succeeded due to things in your control, as well as five reasons you succeeded that are outside of your control. Now you have a future two by two matrix like what we described at the very of this episode. You will have all of your predicted good outcomes as well as bad. You'll want to identify for each of these outcomes which are attributable to skill or luck. Then you isolate for the things you can control, which will contribute to the success and reduce your chance of failure. We are pretty good at setting positive goals for ourselves. Where we fall flat is in executing the things we need to do to achieve them. Pre-mortems have a way of using your own intuition to give yourself a nudge towards understanding the critical parts of an important decision you might miss. And it lets you take steps to address them without the cost of playing them out in the real world in the future.
It's like performing a pre-flight check on your airplane's instruments and functions but before you start to take off. The more important the decision, the more thorough you want to be in your use of these tools. But keep in mind that you're always balancing the importance of the decision with the time you devote to it. A great decision made too late is the same thing as a bad decision. An irreversible decision is different than one you can easily change. And remember when confronted with new evidence, it's very different to say I was 58% certain, but now I'm 46%. That doesn't feel nearly as bad as I thought I was right, but now I'm wrong. That shifts us away from treating information that disagrees with us as a threat. For those of you who are interested in these tools that Annie recommends you can get a copy of templates for all of them and several others by checking out Annie's book, How To Decide.
We also provide some basic tools in our Starting Greatness newsletter. Startup life, like poker is a long game and there are going to be a lot of losses even when you make the best possible bets. You will be happy and perform better when you realize we'll never be sure of the future. This mindset shift changes our task from trying to be right every time to navigating through the uncertainty by calibrating our beliefs little by little to see the world more accurately. And as a startup leader, I hope you'll internalize a final key thought. By framing decision-making and leadership is a quest for truth in the face of uncertainty, you can take personal conflicts and counterproductive beliefs and fears out of decisions and focus a team on assessing the best way to get at the truth of a decision. Because when all is said and done, when it comes to decisions under high uncertainty, ego is about who's right, truth is about what's right.
Thanks for listening to the Starting Greatness podcast. If you've enjoyed this episode or you're new to the show, I hope you listened to our past interviews with legendary founders like Ried Hoffman, Marc Andreessen, the Instagram founders, and Keith Rabois. I'd love to have you subscribe wherever you get your podcasts so you don't miss an episode. And if you like the show, I'd be grateful if you leave us a review on Apple podcasts. You can also follow me on Twitter @m2jr and subscribe to our newsletter for exclusive content and events at greatness.substack.com. Until we catch up again, I hope you'll never let go of your inner power to do great things in whatever matters to you. Thank you for listening.