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Michael Hyatt: What’s the worst business decision of all time? That’s tough, because there’s a lot of competition.

Megan Hyatt Miller: What about Napoleon selling the Louisiana Territory to the United States? Eleven and a quarter million dollars was a lot of money, especially back then. Even so, it was only 22 cents an acre.

Michael: How about 20th Century Fox selling George Lucas the merchandising rights to Star Wars for just $20,000? Three billion dollars later, that seems a little shortsighted.

Megan: In 1876, Western Union could have bought the rights to the telephone for only $100,000. They told Alexander Graham Bell he could keep his “electric toy.”

Michael: In 1962, Decca Records told Brian Epstein that four-piece bands with guitars were finished in the record business. So he took his clients to Parlophone, who were only too happy to sign the Beatles to a recording contract.

Megan: Political and military leaders aren’t exempt from blunders either. In 1812, Napoleon invaded Russia, predicting a short campaign. It was short all right. Bitter cold forced his beleaguered army to retreat after just six months. A century later, Hitler invaded Russia. He, too, predicted a short campaign. When the German advance was stopped that same year, Hitler blamed…you guessed it…the extreme cold for his failure.

Michael: Richard Nixon’s decision to cover up Watergate. Megan: Kennedy supporting the Bay of Pigs invasion.
Michael: The launch of New Coke.
Megan: Kodak’s choice to invent, then ignore the digital camera.

Michael: People make bad decisions all the time. Sure, trends are hard to read, and nobody knows the future, but most bad decisions, like most car accidents, are the result of human error. In reality, there are a limited number of poor decisions. They just keep getting made over and over again.

Megan: The Bay of Pigs was the result of confirmation bias. Michael: Passing up the telephone? Classic tunnel vision.

Megan: Invading Russia in the winter? Again, exceptionalism. Most poor decisions don’t result from a lack of courage or initiative. A great leader can have all that and still make a whopper of a mistake. Blunders are not a failure of vision; they’re a failure of critical thinking. People don’t make mistakes because they can’t predict the future. They make errors because they don’t think carefully about the present.

Michael: What do you want the future to look like for your business? To answer that question, you need vision. How are you going to get there? To answer that question, you don’t need to see clearly; you need to think clearly.

Hi, I’m Michael Hyatt.
Megan: And I’m Megan Hyatt Miller.

Michael: And this is Lead to Win, our weekly podcast to help you win at work, succeed at life, and lead with confidence. In this episode, we’ll show you how to make the important choices with confidence by learning to avoid three critical errors in decision-making.

Megan: As leaders, we make tough calls nearly every day. Too often, we feel rushed or pressured into choices we don’t like and later regret. Today, we’ll show you the bad thinking that underlies nearly every bad decision. When we’re done, you’ll be able to spot faulty thinking a mile away, and you’ll have the confidence to make high-stakes decisions without losing a wink of sleep.

Michael: Before we dive into today’s show, can I ask a small favor? If you’re listening to this program from our website or a link from a friend, go ahead and subscribe to Lead to Win. You can do that on iTunes or wherever you get your podcasts. It’s totally free. If you need a little help, go to leadto.win/subscribe. You’ll get a new episode every week packed with actionable leadership advice. Thanks so much.

Megan: We talk a lot about decision-making on this podcast. In fact, this is the first of a two-part series on making high-leverage decisions. Next week, we’re going to talk about positive strategies for focusing on only the most important choices, but today we’re starting with some of the mistakes leaders make that can create a real blunder.

Michael: Yeah, and these are important, because learning to spot errors is a critical skill for a couple of reasons. First, you lose more from a truly bad decision as you gain by a good one.

Megan: Oh my gosh. So true.

Michael: Just think of Kodak. We mentioned them before. They went bankrupt after ignoring digital technology. In fact, they invented it, and they still ignored it. In the Louisiana Purchase, France gave up the one thing you can’t make more of: land. Secondly, most blunders result from reaction, not reflection. For example, in Episode 29: Anatomy of a Great Decision, we talked about the value of intuition. You believe in that. I believe in that. That’s an attribute of great leaders.

Intuition is what Daniel Kahneman calls thinking fast. It’s valuable, but there are limits to what your gut can do. You also need to think slowly, as Kahneman also says, and this is learning to think clearly and take your time so you avoid the big mistakes. Critical thinking gets you beyond emotional choices.

Megan: We’re going to talk about three traps that leaders fall into that cause them to make bad decisions. Let’s start with the first one.

Michael: The first trap is what has been called the rosy scenario. It’s making all the evidence fit the decision you’ve already made. The joke in Washington D.C. is that any government forecast that sounds too optimistic was written by “Rosy Scenario.” Most leaders have a strong vision. We know what we want to see in the future, and we have this tendency to fit every piece of new information into that vision.

Megan: This is like the classic confirmation bias we were talking about earlier.

Michael: You get so wedded to the outcome that everything, even if it’s contrary, somehow supports the decision you’ve made. That’s the thing we want to stay away from. For example, here are some ways it shows up in business (it might even have showed up in our business a time or two): Refusing to believe low-revenue projections because you believe strongly in a product. You just dismiss what the marketing team is saying. You dismiss what the sales team is saying. It’s full steam ahead. Damn the torpedoes.

Megan: We’ve done that a couple of times. I remember one product we had several years ago. It was a leadership product, one of our first times trying it.

Michael: Oh, I remember this.
Megan: We literally sold one. I mean, one. Hundreds of thousands of people on our list. One person

bought it. We were like, “Something must be broken with the technology.”

Michael: We kept testing the sales page, like, “Somehow this must not be working, because clearly there have to be thousands of people…”

Megan: “Can you make a purchase? Can I make a purchase? What’s wrong?” No, it was just a really bad product.

Michael: We’ve all known the leader who spins every failure into a win. They have their head in the clouds. They refuse to acknowledge reality, and they lose credibility with the team. People don’t trust leaders like that. It’s great to be optimistic, but you have to temper that with realism.

Megan: Researchers at Stanford found that when you give people facts that contradict their opinions, it doesn’t change their minds; it actually reinforces what they believe. They work really hard to discount or minimize facts that don’t fit what they’ve already decided.

Michael: This is why in a political environment you can get the same data set, and each side can use it to prop up their candidate.

Megan: The truth is if we don’t want to change our mind, we’re not going to do it, which is why it’s kind of futile to try to force someone into this place of transformation around their thinking. It just doesn’t work.

Michael: I think it’s important to ask ourselves, as leaders, periodically, “Do I have this conclusion because of confirmation bias or is there really something behind this that justifies the direction I’m taking the company” or “this campaign” or “this launch” or whatever it is? The question we have to ask ourselves is…How can we escape confirmation basis? You have to understand the difference between what you think and what you can prove. This is where, a lot of times, leaders will resort to their gut or maybe their authority or their ability to persuade, and they get everybody all worked up and all excited about a conclusion, but there’s really no evidence behind it.

Megan: In my experience, I’ve seen this as a bigger issue not when people are trusting their gut but when their ego is on the line.

Michael: That’s a good point.

Megan: You have to know the difference between those two things. I think what happens for people is they get married to something they’ve said publicly that they’re going to do, and even after they know it’s not going to work they want to proceed just to save face, or we see it often in those people we’re coaching on goal setting, where they get married to a strategy. They’ve decided on a strategy they want to use to get to a goal, and it’s not working, and they just keep trying harder, doing the same thing.

Michael: We really have to be careful. We can make some really bad decisions. One of the worst decisions I ever made in my life had to do with investing in a tax shelter that turned out to be fraudulent. I didn’t know it at the time, obviously, but I remember the person who sold it to me said to me, “Don’t bother checking with your accountant, because this is one of those concepts that’s so new and so revolutionary that normal accountants won’t like it.”

Megan: “It’s so special.”

Michael: Really, what he was saying was… He was setting me up so that even if I checked with my accountant, whatever my accountant told me would fit into the premise of, “This is so new and revolutionary he won’t get it. Therefore it’s valid.” What’s wrong with this picture?

Megan: Well, the rule of thumb there is always listen to your banker, your accountant, and your lawyer. Those people are paid to keep you out of trouble.

Michael: It’s hard, but if you don’t get that second opinion, you’re liable to make a big mistake.

Megan: That’s why we all need people in our lives who we know have the ability to be objective, who are not emotionally invested in the decision we’re trying to make. They can speak the truth to us and aren’t “yes” people. That’s really helpful.

Michael: Another important point here is that we have to be critical of our own ideas and have the ability to detach and not be so enmeshed in the decision that we can’t be objective.

Megan: As leaders, we need to make sure we’re creating a culture of dissent in our organizations, where people can disagree with us publically. If we’re having a meeting with our executive team or our leadership team, people need to be able to say, “That’s not a great idea” or “I have real concerns about this.”

Michael: Yeah. I totally agree with that point, but I think the way we say it is we want to create a culture that’s safe for dissent. I don’t really want to create a culture of dissent.

Megan: Good point. That’s what I meant. I just forgot that. Michael: Slightly different.

Megan: The first decision-making trap is the rosy scenario, or seeing only what you want to see. What’s the second trap?

Michael: I’m calling the second trap the wrong ingredient. In what we teach and, frankly, in our practice, we always try to look for the underlying principles or the ingredients in the recipe that deliver a predictable result. In fact, we just had a recent episode. It was the one where we talked about engineering success, and we said, “Focus on the result you want, deconstruct it, come up with the recipe, if you will, and then follow the recipe to get the right result.”

Here’s the problem: when we misidentify the ingredient that’s actually causing the success. Back when I was in the publishing business (some people will remember this; some won’t) there was a huge publishing success around a book called The Prayer of Jabez.

Megan: I remember that. It was a little small gift book.

Michael: Exactly. Little small gift book. It was probably (I don’t know; I’m making this up) 70 pages, really short. Publishers misidentified the ingredient that caused that success, forgetting that it was a moment in history, that it was kind of a compelling argument whether you agreed with it or not.

Megan: It was kind of an anomaly.

Michael: It was kind of an anomaly, but publishers said, universally, the format was the key. Megan: A lot of gift book divisions were launched around that time.

Michael: I know. Like, “If you will just do these small-format books… People’s attention spans are short.” Talk about confirmation bias. They came up with all of these reasons why that was the ingredient that was causing the result. So you saw a plethora of small books, most of which (maybe one exception) tanked.

Megan: It’s kind of like the whole frozen yogurt or the cupcake craze that happened about 10 years ago. Everybody was starting these cupcake stores or frozen yogurt places, and a few of them were really successful, but then everybody started copying it. I mean, how many of those are still around? Almost none. It probably wasn’t about the product. It was something maybe about the experience or something else that was happening culturally that kind of came together as an X factor, but people thought, “It must be that people want to eat cupcakes all the time.” As it turns out, not really.

Michael: That’s why you have to do your research. It’s easy to mislabel or misidentify the right ingredients, like we were talking about offline a moment ago. It’s easy, for example, if you’re trying to hire salespeople, to think the ingredient that’s a determinative of success is whether they’re an extrovert or an introvert. In other words, only extroverts can succeed in sales because they have to have WOO. They have to be glad-handing, positive, upbeat people. But that’s not the case. Some of the best salespeople I’ve ever known have been introverts. You have to be careful about misidentifying the ingredients here.

Megan: Usually black-and-white thinking is problematic.

Michael: It is. So be careful about the ingredients. Whenever you catch yourself saying, “Okay, this ingredient is essential for success,” whether it’s in hiring or launching a new business, whatever it is… For example, here’s another one that happened in our own industry. “Just build an online course, and they will come.” Again, that’s a format kind of bias. Like, if you put a course online, even if it’s not any good, even if there’s no market for it, you’ll succeed. Well, that’s not the case. That had very little to do with it, as it turns out.

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Megan: The first decision-making trap is the rosy scenario, or seeing only what you want to see. The second trap is the wrong ingredient, which is misidentifying the reason for success. Let’s move on to the third trap.

Michael: The third trap is binary thinking. Megan: This is maybe the biggest one of all.

Michael: It is a huge one that leaders fall prey to so often. It’s forcing every choice into one extreme or another. It has a lot of names, like either/or thinking or the false dilemma. It’s believing that every decision is all or nothing. For example, it oversimplifies every choice. Like, “Either we invest in this new product or we go out of business.” There’s a lot of drama around it. Or “Either we meet this customer’s demands or lose all our future business.” By the way, I fall prey to this a lot. Somebody complains on social media about something that’s happening in our company, and I get totally amped up. It’s like, “Oh my gosh! What have we done? This is going to ruin our company.”

Megan: Catastrophize.

Michael: Yeah, I catastrophize.

Megan: I will say, though, about you, while you may do that about external feedback, I don’t think you do that about decision-making. You and I actually had a conversation about this recently. We were talking about how leadership evolves and matures over time and how when you’re newer to leadership this is really a trap you can fall into and how that changes over time. You kind of develop a tolerance for the third option or more nuanced thinking.

Michael: I think I said to you in that conversation, if it’s what I remember it was… I was saying that when you’re at the very beginning of your organizational life, everything is binary. Everything is black and white.

Megan: The decisions are easier.

Michael: People follow policies and procedures, and then as you move up through the organization things become more gray and you have less certainty about it, and oftentimes you do have to go with your gut in those situations. I think the key is to realize that it’s rarely either/or. There’s usually a third option that can reconcile whatever you’re looking at. In fact, I was just having a conversation with somebody as a matter of advice yesterday. He was struggling because his attorneys were telling him he couldn’t do a certain thing in his business, yet ethically he felt compelled to do the very thing they were forbidding.

Megan: Wow, that’s pretty binary.

Michael: I know; very binary. I said, “First of all, lawyers can tend to be a little binary in their thinking. The more mature ones…” Our general counsel at Thomas Nelson was Frank Wentworth. He was not this way at all. He was not binary, but he was also very mature in his business experience.

Megan: So he could assess the real risk, not the risk that was on paper.

Michael: That’s right. And he could balance the legal risk with the business risk, and that’s what my friend was facing. I said, “I would get the lawyers in a room, I would get the marketing people in a room,” because that was the other tension that was involved in this decision. I said, “We have to find a third way that doesn’t put inordinate risk on the legal side of it, but at the same time allows us to do the marketing we need to do.” He liked that idea. I haven’t heard the outcome, but that’s how I tend to think about this stuff.

Megan: I often find when I’m coaching the leaders who work for us that they get stuck in this, like we all do, where they think they have only two choices, and the work is figuring out what the third choice is. What’s great about that is usually in that scenario everybody wins. Usually in the third option it’s win-win. There’s not catastrophizing that’s involved in that, and the quality of your decision-making is so much better.

Michael: So much better. Okay, it’s obvious in retrospect that binary thinking is not the best kind of thinking, and yet so many leaders fall into it so often. Why do you think it’s so appealing?

Megan: I think the third option is hard work. You have to challenge your thinking. You have to think out of the box. You have to be willing to be wrong. You have to be willing to be in a place of tension, of the gray between the black and the white, and that’s hard, especially if you haven’t done it a lot yet. I think once you do it you develop a level of confidence and capability around it that gives you the freedom to move in that space, but it’s challenging. It takes a lot more work to find a creative solution than the obvious ones.

Michael: I think that’s where a lot of leaders value efficiency over effectiveness. In other words, they want to get to a decision, even if it’s the wrong decision. Of course, they don’t think it’s going to be the wrong decision. When you have to get in a room and hash this stuff out and you have to schedule the meeting and it’s going to take some time, a lot of leaders would rather just make a decision that’s more binary and black and white and get to the wrong answer, unfortunately.

Megan: As a leader, if someone is coming to you with a black-and-white decision and you don’t like either option, this is where part of the leadership development you’re responsible for with your team is to challenge them to go back to the drawing board and bring you another solution. Over time, you’re developing that in them so they have the ability to do it without you asking.

Michael: Maybe the way to look at that (this is another metaphor) is to shift the focus. In other words, to pull back from the situation where you’re only seeing two options and see if in your field of vision, if you widen it a little bit, maybe there’s a third or a fourth or a fifth or a sixth option that could be considered.

Megan: Right. Like, “If we couldn’t do either of those, then what would we do?” You have to ask good questions.

Michael: Love that.

Megan: Today we’ve learned that making high-leverage decisions requires critical thinking, and we’ve learned three common decision-making traps to avoid: the rosy scenario, or seeing only what you want to see; the wrong ingredient, which is misidentifying the reason for success; and binary thinking, or forcing every choice into one extreme or the other. As we close this episode, I just want to remind you that you can make high-leverage decisions with confidence if you’ll take the time, think it through, and learn to spot these logical fallacies. You can lead with your head as well as your heart. Dad, do you have any final thoughts?

Michael: Under the general umbrella of self-awareness, one of the things leaders have to learn to do is to think about their thinking. This can often spell the difference between success and failure: how we’re thinking about something. If we can get critical about our thinking and become self-aware about our thinking, it will improve our decision-making and, therefore, improve our results.

Megan: As we close, I want to thank our sponsor LeaderBox. It provides automated personal development in a box. Check it out at leaderbox.com. If you’ve enjoyed today’s episode, you can get the show notes and a full transcript online at leadto.win.

Michael: Thanks again for joining us on Lead to Win. Subscribe to this podcast on iTunes or wherever you listen to podcasts, and if you need help, go to leadto.win/subscribe.

Megan: This program is copyrighted by Michael Hyatt & Company. All rights reserved. Our producer is Nick Jaworski.

Michael: Our writers are Joel Miller and Lawrence Wilson. Our production manager is Mike Burns Megan: Our production assistant is Aleshia Curry.

Michael: We invite you to join us next week for part 2 of this discussion on decision-making, when we’ll show you four positive strategies for making high-leverage choices. Until then, lead to win.