In this episode, Brian Ardinger, Inside Outside Innovation Founder, talks with Gleb Tsipursky, Author of Never Go With Your Gut: How Pioneering Leaders Make the Best Decisions and Avoid Business Disasters (Avoid Terrible Advice, Cognitive Biases, and Poor Decisions). They discuss bad business decisions, why they go wrong, emotions impacting decision making, making best case plans, iterative planning, great leaders, and high-impact shortcuts.
Brian Ardinger: Inside Outside Innovation is the podcast that brings you the best and the brightest in the world of startups and innovation. I’m your host, Brian Ardinger, founder of Inside Outside.IO, a provider of research, events, and consulting services that help innovators and entrepreneurs build better products, launch new ideas, and compete in a world of change and disruption.
Each week we’ll give you a front row seat to the latest thinking tools, tactics, and trends, and collaborative innovation. Let’s get started. Welcome to another episode of Inside Outside Innovation. I’m your host Brian Ardinger, and as always, we have another amazing guest.
Today with me is Gleb Tsipursky, he is a cognitive neuroscientist, an expert on behavioral economics and decision making. He runs a company called Disaster Avoidance Experts. He’s worked with companies like Aflac and IBM and Honda, Wells Fargo, and many, many others. Welcome to the show Gleb.
My Parents Made Bad Decisions
Brian Ardinger: I’m excited to have you on because you’ve got a brand-new book out called Never go with your gut: How pioneering leaders make the best decisions and avoid business disasters, and it’s also very pertinent to our audience. This whole world of innovation and how do you make decisions in a world that’s constantly changing. Let’s start off with a little bit of background about yourself.
Gleb Tsipursky: I was fascinated by how my parents made some bad decisions with each other, and it got me fascinated in decision making. You know, my dad, he was a real estate agent, so he had the variable income and he hid some money from my mom and bought a house on the side. And when she found out she was really pissed. And that led to a big blowout fight, which led to them separating for a while and then they got back together. But you can never really rebuild the trust again.
And then when I was growing older, I came of age. In 1999 is when I was 18 and all the dotcoms were booming. WebVan, Pets.com and so on. All of these businesses, which. By the time I was 21 they all went bust. And that was really frustrating for me as someone who was observing it and seeing all these people who are supposedly smart, wealthy people, investing ordinary citizens, you know, people whose retirement went down the drains when things went bust. And I’m someone who really cares about people. I have utilitarian values. I want the most good for the most number. And so that’s really motivated me to study decision making. What causes people to make bad decisions. What caused them to make good decisions and how we as individuals, leaders, investors, innovators, can make better decisions going forward.
Why Decisions Go Wrong
Brian Ardinger: Why do decisions go wrong?
Gleb Tsipursky: The most important reason why decisions go wrong is that we don’t notice how our emotions influence our decisions. The research on this topic and cognitive neuroscience shows that our emotions drive about 80 to 90% of our decision making, and we don’t realize how much we’re driven by our emotions. People make their decisions often based on their best reactions. They feel something is right and therefore they do it. They feel this information is true and therefore they believe it. Whatever they feel is right is often actually very wrong, and whatever information they feel is true is often actually very false. They want to believe certain things, and they believe those things regardless of whether they’re true and they want to take certain decisions and they take those decisions regardless of whether those are good decisions, not noticing how we’re driven by our current intuition and our emotions is the biggest reason why decisions fail.
How Emotions Drive Our Decisions
Brian Ardinger: Let’s talk a little bit about the book. Walk the audience through what’s in the book and what they can expect to get out of it.
Gleb Tsipursky: The book describes how we make decisions and how our emotions drive our decisions. Our emotions are actually not adapted for the modern business environment. They’re adapted for the Savannah environment. When we were hunters and foragers lived in small tribes of 15 to a couple of dozens, maximum 150 people when we had to respond to saber tooth tigers, the fight or flight response, that’s what our emotions are adapted. to So the book talks about how our brain is miss wired for the current business environment for startups, entreprenuers and large companies alike, and how we need to adjust our brains. to not being the primitive, Savage, natural state of going with our gut, but instead to take civilized, effective steps that most align us with our goals in contemporary, complex, multinational, multicultural business environment.
The book goes through cognitive biases, which are the dangerous judgment errors that we as human beings make because of the wiring of our brains. There are over a hundred of them. And the book talks about the 30 most dangerous ones for business leaders, startup innovators, and so on. How to address these cognitive biases one by one, as well as giving some specific decision making strategies that you can use automatically integrate into your systems and processes as an individual or the company to address the kind of cognitive biases that tend to come up then prevent them going forward.
Making the Best Case Plans
Brian Ardinger: I’m excited to hear a little bit more about your experiences working with companies. I’m curious to hear a little bit about case studies of going with your gut went wrong or where different decision-making methodologies actually helped your clients move forward faster.
Gleb Tsipursky: The first thing to understand is for people to get an awareness of where their gut reactions are causing them to make a mistake. I was working with this tech startup company, which was growing pretty quickly, but they had a problem that they tend to really waste a lot of money when they bid on projects. Where the projects turned out to be much more expensive than they thought they were. They had a $3 million bid for a project. The project turned out to be $5 million. They under business, but a lot more resources, as much less of a profit, sometimes sexually lost money, and when I came to work with them, I’ve been doing training, consulting, coaching, and speaking for over 20 years as well as I’m a cognitive neuroscientist. As I was an an academia for over 15 years researching this, they asked me to work with them and see what’s going on. And the problem that I discovered there is called the planning fallacy. This was one of the biggest issues that causes innovators to make bad decisions. We tend to make plans, all of us, but especially people who are innovative and optimistic, we tend to make plans as those plans will come true and the problem is.
That we tend to make the best-case plans. We think that everything will go well. That’s what the gut feels. Our gut trust, our success. Hey, you’re a wonderful person. Everything you plan out, you’ll have the Midas touch. Everything will go, golden and then fortunately we run into many more problems than we tend to think we will. In other technological projects, other projects take much more efforts. There was a study showing that when you look at IT projects, actually only about 16% of them come in on plan and under budget, 84% go over plan, over budget in terms of time. So this was a typical case in this company. That’s what I found. Every time they underbid. How you address that is that. There’s the typical saying, failing to plan is planning to fail. It’s a bad thing. Very misleading, especially because of the planning fallacy. A much more effective saying is failing to plan for problems is planning to fail. So what we started doing with this company, which proved pretty effective, is that every time they were starting to bid, there is two things.
One, they looked at their past history, what’s happened in the past, what led them in the wrong directions and past projects and integrated this into the plan to address it going forward. And they looked at the specific components of this new project and what kind of new threats might arise with this situation. New risks, new opportunities that they might not have thought about before and how they can integrate that into the plan. They integrated the threats, the problems they talked about them. They didn’t just say, Oh, hand waving. Nothing will happen. And the opportunities, you know, how can they be more effective in doing their work? And that proved very effective for them going forward. They were much more effective, at bidding for projects, investing their time and the resources effectively.
Iterative Planning for Startups
Brian Ardinger: That much more iterative approach to planning seems to be effective for environments where you’ve been in this space for a long time. You have these known knowns, but what about in a startup environment? How does the iterative planning process work there, and what kind of differences do you see between startup planning versus large organization planning?
Gleb Tsipursky: It’s actually not that different. If you look at the statistics on startups, you’ll see that about half of them fail within five years. The major reason why they failed is bad strategy, they were way too optimistic. So let’s say, how something to do with clients is look at their SWOT analysis and what happens every time is that they list many more strengths and opportunities than they actually have, and many less weaknesses and threats then they actually have, and that’s what happens with startups all the time. They have haven’t too optimistic. This is called the optimism bias, where they’re too optimistic about their products, where they’re too optimistic about their teams. They need to have an external perspective. Think about what would an angel investor who looks at the startup, what would a first stage investor look at and say, what are their actual problems?
What is the actual promise before you go and try to fundraise? But even before you try to launch, think about from an external perspective, what is the actual likelihood that you will succeed. Have other people in this space succeeded regularly or failed regularly? If they failed regularly, which is very likely to be the case what were the causes of their failure? How can you prevent them? So look at us with a skeptical eye and prevent these problems and not actually the very different, do you want to look at these threats? You want to look at opportunities, what opportunities the startup people, folks in your space, typically not see and how can you make sure that you see those opportunities.
The other thing that is more problematic in startup environments is that there’s more unknown unknowns, right? Things that you don’t know will happen. What you need to do to address that and remember the unknown unknowns might be both opportunities, things that you can get resources from and threats, the risks to you. You want to reserve some resources of time, money, social capital, and other resources to address unknown unknowns. The research on this topic says that you should reserve about 40% of your resources in startup environments to address unknown unknowns.
Data Changing Decision Making
Brian Ardinger: We’re living in a world with a lot more data, a lot more access to information. How is that changing that decision-making process? Are there environments where you have that additional data? How does that affect going with your gut or not?
Gleb Tsipursky: Fascinating question. I was actually talking to a security and risk management analyst yesterday and what we both observed, he from his perspective and I, from my perspective, we both observed that overwhelmingly people use data to support their preexisting emotional decisions. They don’t use the data to question themselves. They use data essentially as arguments in a fight, in a conflict, or when I want to prove I am bright, you know, my department is more important. This will happen. I’m confident this product will work. Let me cherry pick data to show you how it will work.
Data is actually not nearly as useful as it seems to be because of our internal human bias and decision making. The data is only useful if you effectively filter it through the lens of biases and say, Hey, I tend to be too optimistic. I actually tend to be too optimistic. I’m someone who is an optimist. I think the grass was greener on the other side of the Hill, and I’ve learned that about myself. I tend to underestimate risks by about 50 to 60% now, knowing that I can address it to advance and they can say, Hey, I’m very likely underestimating these risks. Here’s what I need to do. Here’s the buffer I need to build in for risks that I’m underestimating. This is the same approach you need to take with all sorts of data.
You want to first look at what kind of comes to biases, what kind of dangerous judgment errors you’re prone to. Then the kind of dangerous judgment that your team is prone to, and the book actually has a section in the very end, which was a whole chapter devoted to an assessment that you can use, to assess your own dangerous judgment errors, cognitive biases, which you’re prone to, and what your team is prone to, and then integrate that into the broader data that you’re gathering to filter it and compensate for dangerous judgment errors, which are very human.
Great Leaders Going With Their Guts – Really?
Brian Ardinger: In history, we talk about all these great leaders, whether its Jack Welsh or Elon Musk or Bezos or whoever, and a lot of the stories that are written about those folks are write about how they made these get decisions. Is that partially a bias of rewriting history, or what are your thoughts around why going with your gut became such a popular phrase.
Gleb Tsipursky: A lot of leaders would like you to believe that they have the Midas touch, that they are somehow mythically endowed with the ability to make the best decisions possible and therefore make all the money and so you’re going to invest in them. But honestly, a lot of leaders who you would think would make good decisions actually make bad decisions going forward. I mean, look at Jack Welch when he retired and his successor led GE into what we know now is a horribly, horribly bad situation. That’s probably the most important decision a leader can make. What is your succession going to be? And Jack Welch made a terrible decision there fundamentally undermines all of his good work previously. That’s one example.
I mean, look at Elon Musk. How about his infamous tweets in 2018 about taking Tesla private, which caused a massive shakeup to the company. Large stock plunge. The SEC was investigating him, fined him 20 million, fined Tesla $20 million, and because Elon Musk was stupid enough to not keep the terms of his agreement. He’s still being investigated by the SEC. So we see his decision making from whose Gut is going into the really bad direction. I mean, look at Adam Neumann.
Adam Neumann had a company that was valued at $75 billion about six months ago. WeWork. When we look at the company right now, WeWork. It’s valued at about $7 billion. That’s an order of magnitude and all of that was because of how him trying to take the company public. Have the IPO resulted in the revelation of the really screwed up governance structure that he had, and some of the corruption that was going on behind the scenes, the self-dealing, which drastically undermined the confidence in his leadership. A lot of the value of the company came from people being confident about Adam Neumann’s leadership. So now all the money went out of the company. The valuation is so low. We see how people who are previous the heroes, you know, turn into zero, partially because they make bad instinctive decisions. And Jack Welch talked about this later when he acknowledges he made some really poor decisions with his choice of his successor.
Leaders who present themselves as making really good decisions, they often actually make bad decisions and we don’t find out this out until later. Probably one of the most important decisions you can make as a company is mergers and acquisitions, and this is not an area that leaders often do. Look at their rates of failure. 80% of mergers, acquisitions fail to create value. They destroy value instead. And why is that? Here’s the pattern. You can make good decisions quickly when you’ve learned. That’s in this certain specific area. These are the right set of decisions to make. You know, doctors can make good decisions on the operating table. Business leaders can make good decisions when they look at profit and loss statements and very quickly evaluate them.
And you can make good decisions when you look at your email. It’s going quickly, separate the spam from the good email, but that’s also took a lot of learning and mental habits that had to develop. When you are going into a domain which you don’t know about and you think, how I make good decisions in my regular business activities, let me make these decisions in mergers and acquisitions, well, that’s when you run into trouble.
You tend to be way too overconfident. That’s the overconfidence bias when you ask people. When they were 100% confident about something, how often are they actually right? You check their rightness, they are only right about 80% of the time, 80% of the time when they think they’re 100% confident. Bet the company or the career, you know, bet your startup and that’s what happens. You know, you lose it 20% of the time and when you make enough bets like that, you lose the whole thing.
Brian Ardinger: If I’m a listener trying to understand some really high impact shortcuts or things to not fall into these traps. What are some of the things that you’d recommend?
Gleb Tsipursky: Five questions that I developed based in cognitive neuroscience on this topic that can automatically enable you to avoid a large number of these cognitive biases.
First, what important information is not yet fully considered. You want to look at, especially if information that goes against your intuition. If you feel you’re comfortable with a decision, that’s the time to look at it. What might be uncomfortable assets or facts around it, look at the alternatives and the questioning. Be doubtful. Be skeptical of your comfort zone.
Second, what dangerous judgment errors, cognitive biases, are not yet addressed. And you can take a look at Wikipedia that are over a hundred of them. My book looks at the 30 most dangerous ones for business and how to avoid them.
Third what would a trusted an objective advisor suggest they do this. I think about Brian. What does Brian suggest you do? Think about somebody else who you trust, who is an objective advisor. Those are the first three questions they’re about making the decisions. The last two are more about implementation. How can I address all the ways this could fail? And you can fail both by having too many problems and you can fail by not taking opportunities.
Finally, fifth question. What information caused me to revisit this decision? You want to address this in advance when you’re actually making the decision as opposed to when you’re in the heat of implementing the decision, because you will not have time and you will be too emotionally attached to the decision most likely when you’re implementing it. Those five questions take less than five minutes. All of those questions you ask them, and this will help you so much. When you make your decisions, it will prevent so many problems.
For More Information
Brian Ardinger: Well, I really do appreciate you sharing that with our audience. If people want to find out more about yourself or the book, what’s the best way to do that?
Gleb Tsipursky: They can go online or in their local bookstores. Check out my book Never, Go With Your Gut: How pioneering leaders make the best decisions and avoid business disasters. They can check out my website disasteravoidanceexperts.com. Lots of free resources. They can check me out on LinkedIn. And finally, if you have any questions about anything you’ve heard of this show happy to answer them by email Gleb@disasteravoidanceexperts.com.
Brian Ardinger: Gleb, Thank you very much for being on Inside Outside Innovation. Looking forward to staying connected and never going with my gut in the future.
Gleb Tsipursky: Thank you so much Brian. It’s been a pleasure talking with you.
Brian Ardinger: That’s it for another episode of Inside Outside Innovation. If you want to learn more about our team, our content, our services, check out insideoutside.io or follow us on Twitter @theIOpodcast or @Ardinger. Until next time, go out and innovate.
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