By Paula Jensen

Intuitive decision making is based on gut feelings, past experiences, and personal judgment. It involves using our instincts and emotions to decide, without relying heavily on data and analysis.

Data-driven decision making is based on objective data and analysis. It involves collecting and analyzing relevant data to identify patterns, trends, and insights, which are then used to make informed decisions.

Let me share a small-town leadership story.

About three years ago, I was in a board meeting with an economic development organization discussing their need to attract workforce for about 90 local job openings. The economic development director shared a couple recent stories about how limited housing stock was a big barrier for attracting more workforce. After a short discussion, one of the board members stated firmly, “I’m a realtor. We do NOT have a housing problem! There are currently twelve homes for sale and multiple apartment vacancies.” At that point, the conversation stopped.

Both people were accurate in their reports, yet in hindsight what was missing from the conversation was some quality secondary data available from their local housing study. The Housing Study, completed by a third-party, stated:

“The community has a stock of older, lower valued homes, of which 59% need minor or major repairs and another 3% are dilapidated. Our analysis of sales activity indicates that approximately 50% of the homes are valued less than $75,750. As some lower valued homes come up for sale, they may not be attractive options for potential home buyers because of the amount of repair work that is required.” In addition, the housing study recommended, “approximately 10 to 15 additional rental units will be needed over the next five years to replace lost units. This replacement is appropriate due to the deteriorating condition of older, substandard rental housing that should be removed from the occupied stock.”

Data can open conversation to new possibilities

In the story above, the economic development director’s intuition was indicating that housing was a strong barrier to workforce attraction. But imagine if that intuition had been backed up with the data from the housing study? That data could have opened the conversation about quality housing being the issue, not the number available units.

I am happy to report, three years after this initial conversation the economic development organization is using intuition (knowing their community) and data (their updated housing study) to move toward solutions that will ultimately address the housing quality issue and attract workforce.

Combining the two approaches of intuitive and data-driven decision making can be very powerful. Intuition can provide a valuable starting point, helping decision makers to identify potential options and narrow down choices. Data analysis can then be used to validate and support these options, providing objective evidence to back up intuitive decisions.

By uncovering the story told by the data, it can also help us see patterns, understand the meaning behind the data, and become more proactive rather than being reactionary to issues as they pop up.

Ultimately, the best approach will depend on the specific situation and the decision being made. In some cases, intuition may be more important, while in others, data may be the key factor. The most effective decision makers can balance both approaches, using intuition to guide them, and data to validate and support their decisions.

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Photo (CC) by John Eisenschenk, on Flickr

How often aren’t we told to “trust our gut?” You see this comment made often for people starting a small business or when small-business owners need to make an important decision.

Yet a recent article from Entrepreneur challenged this and indicated that this idea may be a myth.

So who do you believe? Which view point is correct?

Well from my perspective, both are correct. Let’s look first at a young business owner right out of college. Many of the questions this person will face are new. He or she has no history on which to draw. Decisions based on “your judgment” will probably average out close to 50/50 between ideas that worked and ideas that failed.

So how does our decision making ability get better? It happens because of two factors. First, our past history provides information useful in making future decisions. Second, we get better at evaluating a situation and weighing the likelihood of alternatives ideas succeeding. Decision-making process is therefore somewhat a learned skill.

So as we increase our knowledge base, however, our ability to “trust our own judgment” typically increases. Our past history base grows as to when we have made similar decisions. It may not be the exact same question but science has shown that we can pull bits and pieces from other decisions into a new situation. By using that knowledge, we find our decision-making improves.

So how does this long answer help you make decisions? It’s by understanding where you are at when making a crucial decision.

Yet, there are two caveats to this answer.

First, remember that we don’t have perfect memories. This affects us in two ways. We tend to remember the wins and not the losses. This allows us to view our decision making skills as better than what they actually are. Second, we may forget or discount some of the factors surrounding past decisions, information crucial to the final outcome.

The second caveat is how crucial is the decision. If I am trying to decide what appetizers to have for an open house, failure on my part will probably not have a large or long-lasting impact. But deciding on the products to carry for the Christmas season in a retail store, could make or break your business.

So should you trust your judgment? It depends.

I would leave you with one final thought. The old adage, two heads are better than one, is a good one to remember when making crucial decisions. Especially if that second head is a carefully selected mentor.

Photo (CC) Justin Grimes, on Flickr

Yet small-business owners often are not sure if and how big data fits into their business. Nor do they know where to get it and how to analyze it, even if they would have it.

Small-business owners need not be scared of the term “big data.” It simply means information of a size that you cannot analyze it by hand. You need to use some type of computerized tool to help out.

But business owners need to remember that data is one key when making decisions.

This is the point at which business owners get nervous. They don’t want to spend a lot of money or hire someone to help them get this done. But they need to stop and think about the realities of the situation.

The first reality is they probably already have the data in the form of sales receipts, inventory, purchasing information and the overall financial records of the business. All of this probably already is stored electronically. Second, they already are “mining” the data when they do their profit and loss statement, cash flow reports, balance sheets, and year-end taxes and reports.

However, business owners have much more they can do with their existing data, just as other data is available for them to tap into or that they could gather relatively easily. The Census Bureau offers huge amounts of data on the demographics of an area. And the Census Bureau even put a tool, American Fact Finder, online to help with the analysis.

Other tools also are available to use in analyzing data, starting with one many people are familiar with already: the spreadsheet program.

In addition to the census data, many specialized databases are available, and they often have their own analysis tools or reports that already have been created and you just need to decide what you want. In North Dakota, one such tool is North Dakota Compass, at ndcompass.org.

Want more data? Then check out the U.S. Small Business Administration. Search for data resources. Or visit your local library or your banker. They can help you obtain information such as key ratios for others in your industry.

And, finally, you can, and should, gather your own data. That includes information you should know, such as where customers come from, what they buy, what they want, how they rate your company, what they mean in terms of dollars spent and how they found your business.

Yet data and data mining also require a cautionary note. Businesses owners may wish to avoid that data-driven approach at certain times. One example is if costs of data mining are too high. A second is when time is too short for you to use the data to reach a decision. Another time might be when you already have made the decision and you aren’t changing your mind, no matter what the data say.

Finally, you must understand that one data point or one metric (measure of a business or organization’s activities and performance) does not portray the entire picture. Your company has a mission based on a vision. Those elements offer you a guide, and you must remain true to that goal.

Data can be a great thing. You probably already have it, along with some analysis tools. And more of both are available at no or low cost.

Remember, though, that data does not, nor should it, answer all the questions. Listen to your internal compass and let data simply be a part of the guide.

We all want our business to be a success. Photo (CC) by Bruce Berrien on Flickr.

People going into business want to be successful.

Lots of tips about success can be found online and in writing. Yet one tip is consistently seen and offers a great track record – Make good decisions, and do it consistently.

It may seem obvious that successful business owners are good decision makers. In reality, though, being a consistent good decision maker is not always the case.

So how can a small-business owner be a better decision maker again and again?

The literature on developing a small business provides tips on how to make good decisions on a regular basis.

Probably the first key is to do your research.

If you don’t know the options or even fully understand the problem, you are taking a chance in making a decision. It isn’t efficient or even possible to know all of the options, but you certainly need to have determined what many of them might be.

This key is tricky because some owners get stuck right here, thinking that without finding all of the information, they can’t move. This just means deadlock, which maybe the worst decision of all.

Balance between too much and too little information is tricky to find. It’s a skill that comes with time.

Another key is being open to the full range of options. Don’t prescreen or be selective in those options you like or think will work. This is a great time to have someone take an opposite view on every option. Have a good, honest discussion so you do not leave out one you personally might not like but that might be the best route to take.

We always tell small-business owners that they need a mentor. But remember, a good mentor is willing to not always agree with you. Mentors need to be willing to take and defend an opposite view.

You also must think long term. Ever decision made puts you on a certain path. Do some future thinking about where that path might lead and future decisions that may result.

A final tip is to remember that a past good decision may not be a good decision now. The situation is never the same. Time, along with internal and external factors, changes the scope. So do not necessarily go back and repeat past decisions.

Past decisions are a great resource. But repeating them may cause substantial damage to your firm if you haven’t considered the situation and the information available today, and haven’t projected future consequences.

Long-term strong businesses are built on solid decisions. As the owner, you know you will not always make the right decision. What is crucial, though, is that you avoid decisions that may slow or even hurt your business.

Glenn Muske is the Rural and Agribusiness Enterprise Development Specialist at the North Dakota State University Extension Service – Center for Community Vitality. Follow Glenn on Twitter: @gmuske