[CEO Friday] Use Data to Confirm Decisions, Not Make Them

David Barrett —  December 6, 2013 — 2 Comments

It’s very fashionable to quantify every aspect of your business to the N-th degree.  It sounds great in cocktail conversations to rattle off CAC, LTV, retention rates, magic numbers, and a host of other variables — and to extol the virtues of A/B testing every single thing from day one (or even before).  But beware getting too reliant on data, because when it comes to your most important and difficult decisions, it won’t be there to save you.  This is because startups are trapped between a rock and a hard place: 

  • You’re new to the market and thus can benefit the most from real world data…
  • … but you’re new to the market, and thus have the least real world data to study.

You can approach this dilemma a few ways:

  1. Trust the competition.  This is based on the belief that success can be learned by emulating the success of others, and then beating them at their own game.
  2. Trust your data.  This is based on the belief that success comes by careful analysis of reality.
  3. Trust your instincts.  This is based on the belief that you are smarter than the next guy.

The challenge with the first is if it’s right, you’re screwed.  You might catch up to the competition by copying your rivals, but when you get there, you’ll completely lack the skills and organization for taking the lead.

The challenge with the second is, if it’s right, you’re screwed.  If all you can do is wait for the data to come in and let it make your decisions for you, then you can’t ever achieve the “escape velocity” necessary to get something out into the real world to begin gathering data.

Accordingly, I feel the third option isn’t just the best option, it’s the only option.  No matter what the topic is, if you’re faced with a difficult decision, it’s because you don’t have enough data to make it obvious.  But by the time you do have the data (assuming you ever get it), it’s too late.  Someone else who will have already seen the opportunity and taken it from you.

To be clear, your instincts will often be wrong.  But success isn’t about being right 100% of the time, it’s about making decisions that are just slightly faster and slightly better than everyone else around you.  At the end of the day, there’s no better data than data that’s telling you something you’ve tried is succeeding or failing.  But you’ve got to trust your instincts first to go out and get it.

 

David Barrett

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Founder of Expensify, destroyer of expense reports, and savior to frustrated employees worldwide.

2 responses to [CEO Friday] Use Data to Confirm Decisions, Not Make Them

  1. 

    David – excellent! There is a corollary to your third option which is that if, in addition to trusting your instincts, you stay focused on basics of building a great business (make sure customers are really happy, get profitable as soon as possible as opposed to relying on endless VC funding, and differentiate your offerings and customer service) then you can’t and won’t go wrong.

Trackbacks and Pingbacks:

  1. [CEO Friday] 3 Reasons Why ROI Analysis Doesn’t Work for Freemium « Expensify Blog - December 13, 2013

    […] up), meaning due to “accumulation of error” the statistical relevance of that number is so low as to be useless.  Furthermore, even if it wasn’t useless, oftentimes that method of estimating LTV is flat […]

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