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Emotions, Risk and Business:
Lets talk about emotions, risk, and decision making in business.
The bad news is that our emotions and our ability to make productive decisions mix like oil and water.
Emotions like greed, fear, anger and sadness cloud our decision making and form a trap when it comes to life and business.
But as entrepreneurs, we're making decisions all day, every day.
Things like:
- If one of my favorite employees gets a job offer somewhere else, do I raise their salary by 50% to match and retain them?
- Do I really need this new software or tool? Is it worth the extra $15K/yr?
- How risky is this deal and how likely is it to go wrong?
- What should I say back to that angry customer who had a subpar experience?
- How should I respond back to an employee or a vendor that is pushing back on an idea I had?
- Should I spend more money on X vs Y vs Z initiative? I only have limited cash and time. What's the best option here?
- If this employee messed up, should I let them go?
- My competitor just released a new service or feature. How should I respond?
Emotions can lead us to make the wrong decisions in these scenarios.
Greed will lead is to take on more risk than we realize and potentially lose it all.
Fear will lead to us to selling out at the bottom of the market or cutting a project before it's had time to mature.
Anger will lead us to say something we can't take back and damage a relationship with a key vendor, customer, or employee.
Sadness will make us slow to respond and generally disengaged, causing delays in our process and bad performance.
If we aren't careful, acting with these emotions can lead to incredibly expensive mistakes.
If you sense that you are angry, fearful or acting out of passion, my advice is to sleep on it.
Take a break. Go for a walk. Go for a workout. Do something else.
There is never a situation where firing off an angry email or slack message to a customer or coworker or your boss does you any good.
It's fine to give negative feedback or specific criticism in a private meeting, but making rash decisions or acting with emotions when you know it will cause problems for you later on is never a good idea.
Business is a mental game. It's about your mindset and how much stress and pressure you can endure while staying cool, calm, and collected.
I think another thing that hurts us when it comes to how emotions effect our decision making is it makes us less good at properly assessing risk.
Risk involves identifying and assessing FOUR key things:
- The event that might set us back
- The likelihood of that event happening
- The potential damage that it would cause if it happens
- How much control I have over that event happening
This is incredibly difficult to do because we don't know what we don't know.
This stuff is incredibly difficult. Everyone gets it wrong. Nobody can predict the future. Nobody can control all external factors. Business is nuanced.
So what can you do to help?
The best solution:
Surround yourself with smart people who aren't YES MEN.
It is tempting (especially as you gain more success) to surround yourself with people who agree with you on everything.
Don't do this.
I encourage the leaders of all of my companies to stand up and call me out if they see a potential issue. If they see a blindspot. Or if they flat out disagree with the direction we are heading.
The CFO at my self storage company pulled this card on me in 2022.
He went on vacation and left me to underwrite a few deals we had in the pipeline.
I really liked one deal and made an aggressive offer ($5 million).
He got back and stood up to me and made us back out of the contract.
And it was the best decision we could have made at the time (it was overvalued for a few reasons I didn't properly identify).
It saved us a lot of headache and money in the future because he had a different (and correct) view of the 4 things that impact risk discussed above.
It was a learning experience for me.
Surround yourself with smart people who aren't afraid to challenge you and watch your world open up.
The reality is business is mostly about fighting fires. Every day you wake up, something is burning and it's your job as the CEO to solve problems or enable your people to solve these problems for you so that the company can move forward.
It's never easy. There are 100+ micro decisions per day that you might need to make. Learning to keep your emotions out of it is easier said than done, but it's also what will keep you out of trouble when the pressure and stress levels up.
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"Few things are worse than running in the wrong direction enthusiastically." - Keith Cunningham
How do you know if you are truly working on the right things?
I answer in this short podcast episode.
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A few posts to check out:
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Onward and upward,
Nick Huber
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