On Developing a Good Business Instinct

Gut instincts. We know what it means but it is hard to explain, and even harder to articulate what helps you develop a good instinct.

For developing a good business instinct, I looked for answers at the cognitive level: an appropriate use or misuse of heuristic principals or our cognitive tendencies.

Rules of thumb, like Occam’s Razor which states that one should choose the simplest explanation to the phenomenon you observe, i.e., the explanation which has the fewest assumptions and conditions, can help streamline your thinking. We don’t have all the time to collect the data we (think) want, or in some cases, the data you want cannot be collected. Use of heuristics can free you from the deer in front of headlights indecisions.

We also misuse heuristics or fall into logical fallacies. Once useful in our evolutionary past, like go with what the group thinks, businesses and leaders can differentiate themselves by pointing out where our natural tendencies fail us in what should be a rational decision.

Common traps we fall into include:

• “post hoc ergo proper hoc” (after this therefore because of this) fallacy, where we incorrectly attribute the cause of something just because it happened right before hand. Did the marketing campaign fail because you hired a different advertising agent, or was it because the product was no longer relevant in the market?
• sunk cost fallacy, where we throw good money after bad. It is hard to pull the plug on an expensive project that’s almost complete.
• confirmation bias, where we tend to favor collecting and remembering data that proves your point

Being aware of the cognitive dissonances we tend to have as a team, in your colleagues, in yourself, and acting to compensate for it gives you a good business instinct because it counteracts our natural instinct. The best way to access useful heuristics and avoid cognitive dissonances? A good night’s sleep and mindfulness.

Photo: Chef Mavro Restaurant in Honolulu, Hawaii