Entrepreneurial decision-making is impacted by external and internal factors, including information (or the lack of it), fear of failure and emotional responses. Often, business decision-makers don’t realize everything feeding into decisions, and research increasingly points to a gap between how entrepreneurs think they make decisions and the reality of those processes.
Russ Ruffino, founder of Clients on Demand, has spent years developing practical frameworks for entrepreneurial decision-making. His approach often aligns with research on high-stakes business decision-making.
Access to Information Plays a Role in Decision-Making
Obviously, information impacts decision-making. The more accurate and complete your information is, the more confident you might be when choosing a path. Unfortunately, research shows that information isn’t distributed evenly, particularly in areas where individuals might specialize or have network advantages.
According to researchers, this uneven dissemination of information impacts an individual’s ability to recognize and act on opportunities.
Ruffino adds on to this relationship between information and strong decision-making by pointing out that data alone isn’t enough. “Most of the time, when you sign up for something, what you’re getting is information,” he told Chris Badgett in an LMSCast. “You’re getting a how-to guide.”
But Ruffino notes that strong entrepreneurial decision-making requires proven strategies. And once those decisions are made, many people need support in executing them.
Fear of Failure Can Reduce Someone’s Ability to Make and Carry Forward Decisions
Most people won’t be surprised to learn that fear of failure is linked to a reduced likelihood of success. Specifically, when someone has a high fear of failure, they’re likely to have lower entrepreneurial self-efficacy, which means they may be less motivated and able to push themselves forward effectively.
Ruffino said in a Fire Nation podcast episode, “When you’re making decisions from fear and anxiety, you’re not really thinking, you’re just reacting.”
In a Home Business article, Ruffino talks about his history of making entrepreneurial decisions despite situations that might cause others to lose momentum or avoid the risks altogether. “I quit my job and went all-in with my side business, even though it was making just $500 a month…What causes me to be successful and continue being successful isn’t my intelligence, experience, pedigree, or network. It’s because I’ve made bold decisions with 100% confidence when most others balk.”
Emotions Drive Decisions Differently Depending on Experience
One study examined the intensity of emotional responses among novice and experienced entrepreneurs based on different types of questions. It found that novice entrepreneurs were most likely to have stronger emotional responses to topics they hadn’t had time to think about or had no experience with. However, they approached questions about business viability or entrepreneurship fears with greater confidence.
Researchers opined that this disparity was partly due to a common trait among novice entrepreneurs: business boldness.
Among the more experienced entrepreneurs, the opposite was true. These participants had lower emotional responses to questions about business processes, such as hiring, demonstrating their knowledge and comfort. However, they had stronger emotional responses to questions about fears or business viability. Researchers suggested that such responses reflected memories of past struggles.
Ruffino has advice for entrepreneurs at both levels. For novices, he recommends spending time truly understanding goals. “Willpower and determination only get you so far,” he told Value Walk. “But if you truly understand your why, you’ll have a much better chance at actualizing your dreams.”
He went on to offer a framework for doing that:
- Take time every day to visualize the type of person who can achieve the goals you set for yourself.
- Walk around daily as if you’re already that type of person.
- When you come up against challenges, ask yourself what that person would do and then do it.
For entrepreneurs at all levels, Ruffino says, “Remember that every life or business challenge is there to help you grow. If you’ve set aggressive goals for yourself (and you should), you’re going to encounter obstacles. Be grateful for those obstacles – they show you what you need to change.”
Logical and Scientific Approaches to Entrepreneurial Decision-Making Might Improve Outcomes
A review of literature on the topic found that time spent in short trainings on applying scientific approaches to decision-making tended to benefit entrepreneurs and other business decision-makers.
One group of researchers ran a controlled study to test this premise with Italian startups. Some startups went through training to learn how to apply scientific methods to market research and feedback analysis. According to the researchers, entrepreneurs who were “able to behave like scientists” were more likely to perform better.
Ruffino applies a similar philosophy to his own business and encourages his clients to do the same. He shared on an episode of the Business Method podcast that Clients on Demand dedicates a certain percentage of its annual ad spend to testing variations of a model it knows works. Ruffino called them permutations, and notes they’re often things he and his team don’t think will work.
Most of the time, the permutations don’t drive results equal to or better than the standard Clients on Demand ad model. Occasionally, though, something drives higher conversions, and Ruffino and his team can fold that insight into the day-to-day model.
By not assuming the current approach is the best one simply because it’s what’s always worked, Ruffino leaves room for a scientific approach.
Clarity Is a Great Place to Start
The gap between how entrepreneurs think they decide things and how they actually make decisions is a moving target. Your emotions and experience can change how you approach opportunities, whether you see them and how you handle risk assessments.
Research shows that taking some of the emotion out of the process works well for many, and Ruffino agrees. Reducing the role fear and other emotions have in entrepreneurial decisions helps you understand the more concrete factors at play and leaves room for more deliberate action.
