Decision-Making Speed in Startups

Decision-Making Speed in Startups

Startups are constrained by many factors. These include financial capital, team size, and speed. The ability to hire great people is constrained by both competition and by financial capital. The ability to raise financial capital can be constrained by market conditions and experience with fundraising. Speed, specifically, decision-making speed, is not constrained by external forces.

Side note: I will concede that overall startup speed is a factor financial capital, team, and many other forces, in this case I want to delve only into decision-making speed.

While startups may be technically to make decisions at high speeds, in fact, for the most part they cannot. I advise a few different startups and I see this issue repeatedly.

There are generally two schools of thought around decision-making: speed and perfection. While I guess that few founders or CEOs would recognize this problem in themselves, many startups pursue perfect decisions, which comes at the expense of speed.

Fundamentally, CEOs must ask themselves whether they want to make a perfect decision, which will take time (and also probably doesn't exist). The alternative is to make what may be an imperfect decision with very high speed. It's a big challenge in that CEOs know that a) all of their resources are highly constrained and b) that the outcomes of their decisions are very consequential (up to and including bankruptcy).

As a result of the severity of the consequences, it creates a decision-making paralysis. However, failure to make a decision is in fact its own decision.

When we raised seed funding for Wallaby Financial, we had a term sheet level agreement with a bank to issue the Wallaby Card. We had a plan to execute on and were prepared to move forward. However, when we moved to the full contracting phase the bank presented us with terms which we found unacceptable.

This left us with a major decision to make. We had several options:

  1. Change our standards and agree to the terms
  2. Halt all development, let go of recently hired team members, and hunker-down until we have a new bank
  3. Move forward with what we've got, build out app, and hope for the best

I had no idea what would be the right answer. In a funny way, I still do't. We chose to do #3. It seemed like the best option. It seemed like the one that provided us with the best future of having more options. That said, we decided quickly, which helped us not to waste time or money.

This issue isn't one that applies only to small and early stage startups. As startups achieve success, many of them get afraid of losing that success. As they need to hire a new executive or consider replacing the CEO, they worry about the right decision and don't hire someone instead. (I would say, hire the best option at the time and if it doesn't work, go ahead and let said person go.)

The truth of the matter is that you can never know if you made the best decision. I suppose even if you achieve your dreams, you would think that you made the best decision, but maybe there was something even beyond your dreams!

Since you cannot know the best decision, the best option simply is to decide. Decide that your option is the best option. Then move along. It's simply a matter of what you decide and what you think, I suppose. Yes, this is easier said than done, but its like a basic law of physics: an object in motion tends to stay in motion. When you fail to make decisions, you stop. When you stop, the company stops. When you decide you move. When you move the company moves. That is the key to success.