On judgment-based decisions

On April 1, 2016, I was excited and full of optimism. After months of negotiation, we were about to sign a purchase agreement to sell our company. Although I had mentally braced myself for the buyer saying the deal was off in an attempt at an April fool’s joke, we closed the deal that day. Three years later, the real trick was revealed.

Dr. Bob Knight, the founder of our company, had recruited me to become CEO in January 2009. Bob, an engineer in his mid-sixties, was ready to retire. Our company focused on commercializing new technology in the utility and energy industry, and we worked on a broad range of projects including ways to commercialize fuel-cell vehicles, emission control technology at power plants, and new approaches to make buildings more energy efficient. 

Our company’s growth had been fueled by the 2008 economic downturn. In response to the devastating impacts of the recession, the Obama administration earmarked billions of dollars in federal stimulus funding to support “shovel-ready” jobs related to energy projects, including the retrofit and weatherization of buildings. When I realized most of the money would flow to state and local governments, we developed a strategy to help governments quickly implement energy retrofit programs that would make homes and buildings more energy efficient and create jobs. Our strategy worked. We won multiyear contracts valued over $60M, and our company grew overnight from fifteen to fifty employees. 

I learned a lot from this experience. But years of battling onerous regulatory requirements and red tape prevented us from implementing our best ideas and made me feel like a fighter going up against a much larger opponent with one arm tied behind my back. I was ready to move on to my next chapter.

I had an idea for a startup. In fact, we had already begun work on the new idea, and as a condition of selling the company, I negotiated a small team to go with me to pursue it. My new company was called UtilityScore. We built software that estimated electricity, natural gas, and water bills based on property information, local utility rates, and climate data. We contracted with Zillow and other real estate websites to give buyers a good picture of the total cost of ownership of a particular property before they made a purchase. Every home was assigned a score related to the cost of utilities so homebuyers could compare homes in their area.

Because utility costs are 20%-40% of housing expenses in most of the U.S., we expected that homebuyers would be eager to have such information. Contractors could also use our data to show potential customers how much they could save by installing solar or upgrading their air conditioner or heater. 

Life was good and about to get better. I had money in the bank from the sale of the business and a great team I looked forward to working with every day. And in early June, we were accepted into the summer 2016 batch of Y Combinator (YC.) Getting the stamp of approval from the most famous startup accelerator in the world gave us a boost of confidence.

YC has helped some of the most successful high-growth startups including Stripe, Airbnb, Cruise Automation, DoorDash, Coinbase, Instacart, Dropbox, Twitch, and Reddit. And as soon as we got into YC, several angel investors decided to invest. YC Demo Day is the main event of the program, providing an opportunity to pitch several hundred investors. The amount of money raised by companies varies, but many of the companies raise a $1M to $2M seed round in the weeks following Demo Day. 

Clouds roll in

We raised a total of $0 dollars after Demo Day. Not a typo! I think we were the only company not to raise any money in that batch. I felt demoralized and embarrassed. I had entertained no illusions that we were going to be a top company in the batch, but I had certainly expected to raise at least a few hundred thousand dollars to buy us time to continue our mission. Telling my team and existing angel investors that we didn’t raise any money was difficult and sent a terrible signal.

Shortly after Demo Day, things went from bad to worse. Around 5 a.m. on October 6, 2016, I was pulling out of my garage to go to the gym when the front left tire of the car broke off the axle, making it impossible to drive or even return it to the garage. Determined to get in my morning workout, I went back upstairs, asked my girlfriend to call AAA, and changed into my running shoes. 

Early morning light was just beginning to bathe the streets of San Francisco’s SOMA district when I started running down 7th street. My lungs were full of the cool air as my body put up its normal fight against running so early in the morning. 

As I approached the intersection at 7th St and Brannon, I saw a car slowing down for the stop light. The pedestrian walk light was illuminated, so I proceeded to run into the intersection as I watched the car approach. By the time I realized the driver did not see me and had no intention of stopping for the red light, it was too late. The car struck my right side. I flew into the air, smashed down on the hood of her car, and violently bounced off onto the hard pavement — shattering my left knee on impact. Doctors had to drill nine screws and support hardware into my bone to hold my knee together. 

And that’s when things really started to get dark. Intense pain shot through my knee for weeks. I lay on my couch, relying on my girlfriend and other people for everything. I could not even bathe myself. My head was so foggy from painkillers that I could barely focus on work.

But the clock was ticking, and I felt like a dark cloud was constantly looming above me. I got sick to my stomach watching my bank account shrink month after month. So I started going to the gym on crutches to strengthen my body and build back the muscle and range of motion in my left leg. Motivated to get back to work with my team as quickly as possible, I hobbled into the office, putting my leg up on a pillow on my desk.  

But Zillow, our biggest customer, continued to drag their feet and kept finding new reasons to delay implementation. We made multiple attempts to test new approaches and pivot, leveraging the assets we built. But we were not getting traction. 

Persistent or Irresponsible?

One of the hardest parts of entrepreneurship is knowing when to quit. Every successful entrepreneur tells stories of persevering against all odds when everything looked hopeless — making their eventual success seem even sweeter. “Don’t quit” had been seared into my brain. But it’s hard to know whether you are wisely pushing through adversity or just flushing money down the toilet and banging your head against the wall for no good reason. 

After three years of hard work and experimentation, we were out of ideas and money. We were speeding toward a cliff, and I needed to make a decision. I tried to sell the company’s assets, but multiple deals fell through. I had to shut down the company. 

The mental whiplash of making and losing millions of dollars in a short period of time shook me to my core. Questions swirled through my head. Why did we fail? What could we have done differently? What important signal did we miss? I became obsessed with uncovering and understanding my mistakes. My search for answers sent me deep down a rabbit hole to learn what I did wrong. I was determined to prevent it from happening again.

What I learned completely transformed how I think about building companies, making decisions, and solving problems. Much of what I learned is not intuitive and pushes against the way most of us naturally think.

Learning hard lessons

One of my most important lessons was learning to question my beliefs. You can end up making poor choices if you don’t frequently strip bare your beliefs, which requires rigorous questioning and inspection of assumptions. This process is even harder than it sounds, which is why most of us don’t do it. When was the last time you actively tried to disprove your beliefs like a scientist trying to poke holes in a hypothesis through testing? 

Your beliefs shape your perspective and influence your judgment, which affects your decisions. Your decisions shape who you are and the reality you live in. The stakes are high because your decisions will play a large part in determining if you succeed or fail. 

I played a very expensive trick on myself by pursuing solutions to a made-up problem. I should have tested my assumptions — my beliefs — without committing three years and millions of dollars to them. UtilityScore did not create enough value to justify the cost. My desire to help reduce energy use in homes contributed to my blindness and clouded my judgment. Be extra careful when you feel virtuous about your mission. It’s easier to fool yourself when your identity is tangled up in the mission and you are gaining a sense of purpose from your efforts.

Judgment is knowing the long-term consequences of your choices and making the right decisions to capitalize on them. Good judgment is a superpower, which is normally gained through trial and error. But it’s also a skill you can cultivate by learning to apply principles, processes, and tools. Good judgment leads to better decisions.

What you decide to work on is far more important than how hard you work. Tactics don’t matter if you have the wrong strategy, and your direction matters more than your speed. You can be an amazing engineer, marketer, or salesperson, but if you decide to build, promote, or sell the wrong product for the wrong market, you’re going to fail.

Decisions are not one-size-fits-all. Math-based decisions are straightforward and usually involve running cost-benefit analyses. These decisions are typically not controversial and easy to make. Judgement-based decisions call for taking action under uncertain conditions, often due to missing information. 

Some decisions are difficult or even impossible to reverse. Jeff Bezos, founder/CEO of Amazon, calls these decisions one-way doors. Make these decisions carefully and methodically, ideally after performing a detailed scenario analysis in consultation with key stakeholders. Decisions that can be easily reversed are called two-way doors, and these lighter-weight decisions should be made quickly by high-judgement individuals or small groups.

Just DO IT

Following a process helps you improve the quality of your decisions as it can help you structure your thinking. To help me remember the steps of my decision-making process, I created the acronym DO IT: Define Observe Imagine Test. With a little practice, applying this process becomes automatic.

  • Step 1. Define. Recognize the type of decision you are facing. Write down the problem or opportunity, describing it with clear and precise language. We frequently do not recognize the complexity of the problem we are trying to solve until we invest the time to define it. Clarify the importance. What’s the magnitude? Is it reversible? How much time do you have to make the decision? Do other people need to be involved? Who are they? 
  • Step 2. Observe. Look at the motivations and incentives of everyone involved, including yourself. Write down all the assumptions. Inspect each assumption by asking “why?” Continue to drill down into the assumption until you hit bedrock.
  • Step 3. Imagine. Engage in mental time travel and create multiple scenarios of the future. For each scenario, ask yourself what would have to be true for this to be a good choice? Scenario analysis requires writing down and applying evaluation criteria to help you grapple with tradeoffs and evaluate your choices.
  • Step 4. Test. Try to disprove each scenario. Get feedback from customers, partners, or other appropriate stakeholders.

Don’t make the mistake of needing to learn everything the hard way. We have unprecedented opportunities to access knowledge and training that can teach you how to question your beliefs, improve your judgment, and make better decisions. Learn as much as you can from other people’s experiences to minimize wasting time, losing money, or regretting your choices.

If you want to build your judgment faster and learn to apply principles, processes, and tools to make better decisions, get my free e-book on judgment and decision making. The e-book pulls together hard-earned wisdom and shares the best of what I’ve learned, including the how-to’s, frameworks, and mental models to save yourself the pain of learning the hard way.

Beyond the practical content, you can use these ideas as a sharpening stone to become a more independent thinker. Learn how to test your beliefs and insulate yourself from outside forces that want to control or manipulate you. Overcome the fears and desires that cloud your judgment. Tackle stressful decisions with confidence. Most importantly, learn how to think more clearly and make better decisions in order to build the life you want.


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