On Risk, Leadership, Decisions & Mistakes

The smartest thing ever said in government was when Donald Rumsfeld said:

• there are things we know,
• there are things we know we don’t know,
• there are things we don’t know we don’t know.

We make decisions every day with imperfect information. We do the best we can and we seem to get by as individuals and as a country. Everyone faces the same dilemmas about making mistakes based on things we don’t know. No decision is perfect, all of them require tradeoffs. Sometimes either (any) decision is bad, and you are choosing between least bad decisions. Sometimes you make decisions that cause short term pain in the hopes for long term gain, only to have it go sideways or the world changes around you on the way to the strategic goal.

Let’s talk about strategies for making the best decisions we can in an imperfect world and being happy with the decisions once we’ve made them.

Table Of Contents

Active Risk -vs- Passive Risk

Decisions aren’t hard to make, it’s ramifications which are hard to live with.

Ramifications are the downstream benefits or detriments of decision making. Not being able to see the future is what makes the uncertainty of outcomes from decisions made today, difficult.

Too many people procrastinate with making decisions because of the unknowns downstream. Some of this might be good, as time has a habit of making the future clearer. However, in order to be in position* in the future, you often have to make decisions and ultimately make tracks for your new destination sooner than later.

• Every decision you make carries with it risk that the decision will go bad.
• Every decision you DON’T make carries with it the risk that not making a decision will be the thing that causes everything to go bad.

There is no escape from the dichotomy above. You might as well let your active decision be your downfall, instead of getting run over from behind by the decision you neglected to make out of fear or procrastination.

Army Risk Evaluation

The military has a matrix for risk which is helpful in making decisions. It’s ostensibly a “risk matrix” but as we already discussed, decisions are about risk of future outcomes. This risk matrix is a decision matrix.

This matrix is self-explanatory but we can go through it briefly. Imagine the worst-case scenario if the decision you need to make goes badly. Now assign a probability that the decision will go badly. If the decision will be catastrophic if it goes bad, and the likelihood that it will go bad is high, engineer your world* and decisions to put as much distance between you and the likely catastrophic scenario as possible. If the severity is negligible and the probability that it goes bad is unlikely then make the decision with impunity and roll on. Decisions you’ll need to make which are catastrophic are rare, and negligible risk decisions can be course corrected away from. If you want to download more about Army Risk Evaluation, click here.

Celebrate Failure

All our lives we are told to NOT FAIL. This, for lack of a more amusing term is “a buncha fucking bullshit.”

Yes, it’s true that you should definitely not find yourself on test day without reading your history book chapters in 5^th grade. Failure, because of doing a shitty job, being unprepared, or being cavalier about risk is not an option.

But being prepared, at the top of your game, working hard to minimize risk and minimize the downsides of risk while taking a calculated risk then having the whole thing go sideways is exactly the kind of thing you should celebrate. We’ll call this “Good Failure”.

• If you’re not failing, you’re not trying hard enough.

So let’s dig into failure then. The hard part of failure isn’t the actual fail itself. Generally speaking, Good Failure’s are infinitely recoverable in life. The hard part about any failure is the humiliation and shame, we perceive, comes with it.

It is super dangerous to let personal feelings of humiliation and shame take the power out of the decisions you need to make. As we discussed earlier, making decisions is fraught with risk, but…

NOT MAKING DECISIONS CARRIES THE SAME RISK!

In addition, and this can’t be overstated, everyone feels the same humiliation and shame so your entire executive team is working NOT to advance your collective business for the benefit of the employees, their careers and the health and wellbeing of the organization, but to minimize their own personal risk of failure in the eyes of their family, friends, co-workers and industry. Essentially, fear of public failure is killing the dream of reaching your highest and best potential as an organization.

Strategy for Eliminating Humiliation in Failure

Don’t make decisions alone. You have a team, use it.

That’s it.

No magic.

Just don’t make decisions alone. You have an executive team (Key Staff). Have a meeting. Lay out the problem but not the solution. Explain the stakes, the risks and the rewards if you get it right or wrong and dump it in their lap. Make them give you their best argument for or against without fear or recrimination. Have them outline the risks they see, ones you may not have seen. Make each of them make a decision and own the decision. NO “whatever you want to do is fine”. That cop-out is unworthy of the position of key staff and shows unthinking, uncaring, risk avoidance or obsequiousness. If they can’t handle making decisions in key staff meetings how can you trust them to make decisions as managers of their departments?

At the end of the meeting, or possibly after you’ve had a chance to cogitate, make the decision, by yourself. A business isn’t a democracy and at the end of the day you own the results of the decision but you had the benefit of hearing from the best minds you have available to you.

Then when the decision is made, stop everything and remind the losers in whatever new direction you chose to go that their wisdom and best arguments against the action are SUPER FUCKING IMPORTANT to helping you see things you didn’t see before and making good decisions as a team. Thanking the losers is the single most important thing you can do after making a hard decision with division and possibly rancor.

It’s the pinnacle of leadership.

Also, don’t ever call them losers.

Strategy for being Alright with your Decisions: Align Your Chakras

This may sound like silliness and maybe some of it is, but you know when you’re not right with some kind of situation in your life. Not only do you know, but you can also feel it in a place in your body.

These concepts are not new, and there has to be *something* to them because people have for thousands of years talked about;

• Making a decision with their heart, not their head
• Going with their gut on a decision.
• Not being able to “wrap their heads around a problem”
• Fearing a decision which is giving them the “pucker factor”

So regardless of the reality of new age religion, suffice it to say everyone knows when their Chakras are out of alignment if they listen to their bodies. Your job is to get them into alignment so you can make a decision, have a relation with a coworker or manager or family member, be true to yourself. When you make a decision, make it with all your Chakras, not just one. At the very least, listen to all of them before making a decision.

Be honest with everyone about the risks you are taking. The risks you are taking, they are taking.

One main reason decisions are difficult is the risks you are taking have the possibility of wreaking havoc in the personal lives of your staff. You feel a responsibility to mitigate the risk they are taking so they can sleep at night knowing they’ll have jobs and money to pay their mortgage, buy their kid braces, and go on the occasional vacation.

By sharing your decisions with your key staff, you are inviting them to come along with you on the adventure. Yes, the adventure has risks, they are free to bail out, but the level of risk you choose can be metabolizable in their lives by planning and saving. If they stick with you, “They knew the risks.” If everything goes south. This can’t be an assumption, you need to make it an explicit statement.

• We are going to take risks.
• The risks have the potential for rewards or destruction.
• Choosing to stay for the ride is Mr. & Ms. Employee’s endorsement of both the risk level they know you are taking AND is an endorsement of their belief in your decision making skills and the skills and brain power of your executive team. If it all implodes, they own their own decisions to stay with you.

You are clearly concerned about not crashing the company through decisions you make. You are concerned that you’re taking risks on behalf of your employees they may not be fully on board with.

Now, be concerned that you aren’t taking enough risks.

Your employees are counting on you to grow their careers, find them new opportunities, and ultimately to pay them more. If you don’t grow, you have failed just as surely as you would fail them if you imploded.

Add that reality to the list of concerns that keep you up at night.

Why Old Men Don’t Start Companies, Invent, Create.

Comfort – Old men don’t start companies, invent, create for two reasons. The first is comfort. They have a house, a mortgage, kids. They are comfortable and jeopardizing comfort of themselves and their families, especially when there is the tyranny of bills to pay stops them from taking risk.

Across history, warriors and generals that changed history were the ones expecting to die soon anyway. What difference does it matter to a Prince if he dies in battle? He may never be king anyway if the black death gets him first. Better to risk death now in exchange for glory than die young from disease or old and in obscurity. It was the shortness of life that made risks like that possible.

In return, people who are comfortable never take the risks necessary to reach their full potential. In a sense, they are responsible for the limitations on how far they got in life, and they know it.

Comfortable is a featherbed in prison.

Knowledge – Ignorance is a superpower. Young people don’t know what they don’t know. With age comes wisdom but that wisdom opens our eyes to how many different ways shit can go sideways. You hear all the time about people saying “I didn’t know it wasn’t possible, so I did it” Happens with musicians all the time. They create garage bands that become huge on accident because if they set out to be huge, the fear of the enormity of it all would get in their way.

Knowledge tells you;

• It’ll never work
• Here’s how it will fail
• Most businesses fail in the first 5 years

Ignorance gets you to start and find out what’s possible. An abundance of ignorance can also be stated as “Believe in yourself and anything is possible.”

Keep your life uncomfortable and believe in yourself are good strategies to being comfortable with risk.

Strategies for Mitigating Risk – Shock Absorbers

I talked briefly about “engineering your world” to mitigate risk.

Let’s dig into that.

Your world is divided into two parts. Your personal life and your business life. They both affect each other but your job is to make the best possible decisions for your organization. You can’t allow your personal life to “wag the dog” of your business life.

You can’t let the size of your mortgage, or the fact that you want to build a summer home, or the bills you have to pay or the car you want to own or the kids you need to put through college, drive your decisions at work. You’re making decisions that affect your entire staff, letting your personal life drive those decisions is nothing short of corruption and a dereliction of your leadership responsibilities.

To that end, your bills and the private risks you make, need to be small enough and lead enough headroom to not create any stress to how you manage your company. The “headroom” you leave in your personal life are the “shock absorbers” to external shocks that might come from decisions going sideways at work, or shocks from life (fire, flood, famine, pestilence) which are, as we know, the four horsemen of the apocalypse.

Minimizing personal risk allows you to maximize your business risk which is exactly what you should be doing. But even in maximizing business risk, you should engineer your business to minimize the downsides of the risks you are taking.

• Cashflow & Liquidity
  • When you run out of liquidity, you’re out of business.
  • Stay light on your lines of credit, they are your cashflow shock absorbers
  • Never use a line of credit for a capital expense (CapEx), capital expenses use term loans, if you’re too lazy to get a term loan, the CapEx isn’t important enough to buy.
  • Maximize your cash position by working accounts receivable collection calls hard. Don’t let your receivables get too old.
• Human Resources
  • As a business owner, you are the LAST to get paid, if there’s enough money. Come to grips with that. Order your life appropriately or don’t be a business owner.
  • Minimize full time staff to the best of your ability.
    • If you can use a subcontractor, do it.
    • If you can use a part-timer in place of a full timer, do it.
    • If you have to hire a full-timer, hire the best damn one you can find and pay them (within bounds of reason) what they need to retain the talent.
    • Retain quality employees as best you can. Employees leaving you affect quality, continuity of service and often take clients with them which affects sales.
  • Capital Expenses
    • Think long and hard about buying used equipment before buying something new. There is plenty of good, used equipment out there. New stuff is nice, liquidity is nicer.
  • Banking
    • When “shit gets real” and you need money, you don’t want that to be the first time you’ve ever spoken to your banker. You need to build a rock solid relationship with your banker so they know you, and what kind of person you are, when you need them most. They have lending parameters but relationships still count for a lot.
  • WORK ON THIS LIST!
    • You should be building and adding and categorizing this list all the time about how you are structuring your business to absorb shocks from decisions-gone-wrong and the four horsemen. Over time, you’ll be surprised at the wisdom you’ve acquired.

Strategies for Mitigating Risk – Lessons from Dirt Biking.

There’s a lot of risk in dirt biking. There are trees whizzing by you, rocks, logs and jumps. If you crash, it can hurt both you and the bike. The outcome of bad decisions made on the back of a dirt bike can be costs to equipment and body in pain, trips to the hospital and mechanic. The downsides are huge and more importantly, they hurt badly in real-time.

How do we risk mitigate in the world of dirt biking?

• Fully functioning equipment – Shitty equipment that fails on the trail or track takes you out before you even start. It’s exactly like not studying for your 5^th grade history test.
• Safety for the inevitable crash – Helmet, gloves, knee & elbow pads, boots, armor for soft tissue areas, long sleeves and pants.
• Steering for crash avoidance.
• Brakes are designed to buy you time to make better decisions.
• Skill & Talent – Skill is learnable, talent is limited but hone-able and you will never know how talented you are if you don’t learn the skill and push it until you fail. Then, keep pushing it until you can’t advance your skill or talent any further. Talent eventually becomes a wall you cannot climb.

Everything above is designed to mitigate risk in dirt biking. But the mission in dirt biking is not exclusively to be safe, it’s to go FAST.

Throttle Management – Once you’ve learned to ride a dirt bike, the next thing you need to learn is how to go fast. We manage speed (risk) by managing the throttle. We pick a spot on the throttle based on the situation we are in, be it a straight, corner, uphill, downhill and we hold it.

However, you could putter around the track at 5MPH if you really wanted to.

So we align our chakras, check in with our sphincter, see how it’s doing and crack the throttle open until your bunghole puckers. Then we back off a little until it stops screaming “WHAT THE FUCK ARE YOU DOING!!”

That point between fear and comfort with the throttle is your bunghole telling your brain the point where your skill and your talent end.

Word to the wise, don’t “overdrive your talent and skills”.

If you pin the throttle wide-open, you will crash and it will hurt, possibly badly.

You’ll definitely break stuff.

If you pick a spot on the throttle in just the right place and ride the track for awhile, all your chakras get comfortable again. That’s when you add a little more throttle and you get a little faster. The faster you go and the longer you do it, the more your skills grow and talent gets honed. But if you aren’t crashing occasionally, you aren’t trying hard enough or going fast enough.

Your job as the boss lady is to MAXMIZE RISK (open the throttle), while minimizing downsides through risk mitigation (safety gear, steering), buying time if necessary (brake) to make good decisions, without overdriving your skill and talent and the collective skill and talent of your executive team. All the while, keeping in mind, you MUST crash eventually. Crashing is the only way you will know if you are trying hard enough.

Being In Position

When racing dirt bikes, it’s not enough to manage speed with the throttle. Racing is more than just how wide you open the throttle. You have to know where to be on the track to be fast, to be set up for the next corner and to pass your competitor.

Where to be, to be in position, on a track is a combination of skill, talent, luck and planning.

It’s also open to opinion.

Which is why, as we will talk about later, whether a decision, fraught with risk or not, is arguably a success or failure based on how your executive team feels about it.

Looking back on the growth of A3E, you (we) managed your growth with throttle management only. Our goal was to stay on the track without crashing. We didn’t worry about going fast, just getting comfortable. We went faster and faster without making decisions on where to be on the track. If someone was paying us and the project was in our wheelhouse, we were doing it.

At a certain point, your organization hit a bulk size to start making some decisions about where to be on the track. That’s when we called Exelon. The Exelon decision (sales call) put us in position, 2 years later, to bid on the ECOC contract.

For all the talk about children, this ain’t no baby.

Our personification of A3 Environmental Consultants is Rufus, your 6 year old child. And certainly there are metaphors galore, but that’s an entirely different letter I’ll write to you someday. This letter is about risk and imploding businesses through bad decisions.

Having a company implode is harder than you think. Your clients, hard as it may seem, continue to buy stuff from you because they like you, not because of the amazing work you do. Don’t get me wrong, doing amazing work is one of the reasons you landed them but personality and momentum counts for a lot.

Think about how hard it was to leave our insurance agent?

The only decisions you can make that will kill your business quickly are bad decisions about cashflow and liquidity. Everything else will kill your business very slowly with plenty of time for course correct.

Just look at Sears.

Which is to bring up a different point for a different time. It’s important to know when you are sucking it.

Guarding Against Bias

Decisions start with problems or opportunities, often there are deadlines. We show up to problems with all our life experiences, skill and talent to address the problem or opportunity. With us comes all our biases too. Biases are occasionally helpful flaws built into our human psyche for fast decision making.

If I haven’t hit this hard enough, I’ll hit it again; Fast decisions, slow decisions and no decisions don’t in any way relate back to Good Decisions. Good decisions are good regardless of how you come to them.

Bias was built into humanity so you could make a quick decision regarding if that plant was safe to eat or that bear or stranger was about to kill you.

Getting too deep into bias is out of scope for this letter, but here are the headlines.

1. Confirmation Bias
2. Hindsight Bias
3. Anchoring Bias
4. Misinformation Effect
5. Actor Observer Bias
6. False Consensus Effect
7. Halo Effect
8. Self-Serving Bias
9. Availability Heuristic
10. Optimism Bias

Read more here.

The bigger deal your decision is to make, the less you should rely on heuristics to make a decision. You should read through the list of biases and gut-check that you are not allowing your biases to make a decision for you.

Learning from your mistakes.

Every failure is only truly a failure if you fail to learn from it. Calling out failure in public is an act of bravery not an act of criticism. We established earlier, business isn’t a democracy. You asked for the best counsel and advice your executive team could give. YOU made the decision, if it fails, you alone bear the failure publicly. Privately and UNSPOKEN, your executive team knows they share in the failure.

You should invite your executive team to weigh in on the success or failure of any particular decision, the results of which may not be clearly a win or loss. Asking them their feelings and opinions, inviting their criticism (demanding their criticism) is critical because you may not be able to recognize that you have failed.

In order for your executive team to retain the respect and faith in your decision making abilities checking in with them about how they feel about decisions you’ve made without ego or defensiveness is an important aspect of leadership.

In addition, there can be a LOT of ego involved in decisions gone wrong AND right. You should run interference on defensiveness and gloating of all your executive team, should it be necessary.

The easiest way to do this is to give the team all the credit for things gone right; and take all the blame when shit goes sideways.

Learning from somebody else’s mistakes.

Edward T Allen used to say, “A wise man learns from his mistakes, a BRILLIANT man learns from somebody else’s mistakes.” Watch your industry, identify the good, the bad and the ugly. Talk through with your executive team what your competitors are doing right, what they are doing wrong and why. Remember, you don’t have all the information about why competitors made the decision they made so…

Don’t “Get high on your own supply”. It’s fun to believe your team is amazing. There’s a time and a place for that. But we don’t grow in our skills by being told we’re doing everything right. Borrowed from a sports t-shirt slogan; “Somewhere, out there, your competition is practicing, training, learning. They will meet you on the field. Will you be ready?” Getting high on your own supply makes you fat and slow.

“every decision you or your competitors make should either be a good example or a cautionary tale” – Me.

Forgive yourself your mistakes.

If you have failed, but you:

• Prepared appropriately
• Shared in the decision with your executive team
• Engineered your organization to shock absorb
• Didn’t overdrive your skill or talent

Forgive yourself and let it go.

You succeed as a team and you fail as a team. The honor and accolades of success should be shared by the team. The humiliation and shame of failure is minimized individually when shared collectively. Nobody should fear calling a failure a failure in public. Admitting failure is strength not a weakness. If you can’t call a fail a fail, you can’t learn why it failed.

Your team signed up for the ride. They should, in their personal lives, be practicing risk mitigation. They should know what kind of risks you are taking on the company’s behalf and how those risks cause risk in their personal life. If they don’t like your level of risk, they should stop the ride and get off. You should work hard to communicate what kind of risks you’re taking with their future so they are not surprised by shocks when they happen. Their continued allegiance is an endorsement of your decision making skill and talent and that of your executive team. Remember, your staff is not just counting on you to not crash the company, they are counting on you to grow their careers and create new opportunities for them to make more money. You can only do that if you’re into the throttle hard enough to make life a little frightening.

Remind everyone you need to fail to grow in skill and talent. Watch your executive team to make sure they aren’t sandbagging to minimize risk or shift blame, it’s unworthy of them as leaders. If they want to be an executive, they need to show leadership skills and own their mistakes.

I love you. You’re doing a great job. Rufus will only be 6 once. Enjoy the ride.

A3 Environmental Consultants is a small but mighty environmental due diligence and remediation company located in Northern Illinois. We have an amazing staff of Professional Geologists, project managers and field staff. Call us anytime.