The Art of Decision-Making: Navigating Type 1 and Type 2 Decisions
Not all decisions are created equal. Some require swift action, while others demand careful consideration. Understanding the distinction between type 1 and type 2 decisions is crucial to balancing the need for speed with the importance of analysis. In this guide, we’ll delve into the philosophy championed by Jeff Bezos, exploring the differences between these two types of decisions and how to approach each one effectively.
Type 1 Decisions: The One-Way Door
Type 1 decisions are characterized by their irreversibility. Once you’ve walked through the door, it’s difficult or costly to turn back. Examples of type 1 decisions include:
- Changing the price of a product
- Entering a new market
- Creating a new use case for a product
- Running a monetary promotion
These decisions often have significant and lasting consequences, making it essential to approach them with caution and thorough analysis.
Type 2 Decisions: The Two-Way Door
Type 2 decisions, on the other hand, are easily reversible. They allow you to walk through the door, assess the outcome, and if needed, return to the original state without incurring significant costs. Examples of type 2 decisions include:
- Changing how you communicate the value proposition
- Changing the free trial length
- Experimenting with metering rules
These decisions are often less critical and can be approached with a more flexible mindset.
Approaching Type 1 Decisions
When faced with a type 1 decision, it’s essential to optimize for objectivity. This involves:
- Establishing clear criteria for evaluation
- Gathering data to score these criteria
- Assessing the potential impact of the decision
- Considering the risk appetite
For larger, more strategic decisions, it’s crucial to commit adequate time to research, market analysis, and stakeholder input. This may involve running smaller dip tests to validate assumptions and gather more input.
Approaching Type 2 Decisions
When dealing with type 2 decisions, the priority is to save time. It’s often better to launch and evaluate on the go rather than overthinking the decision. Two common approaches to speed up decision-making include:
- Using prioritization principles and product values
- Following signals and gut feeling
By leveraging these approaches, you can quickly assess the potential of a decision and allocate resources accordingly.
The Key to Effective Decision-Making
Distinguishing between type 1 and type 2 decisions is critical to making informed choices. By asking yourself:
- What’s the cost of delaying vs reversing the decision?
- What’s the worst that could happen if the decision was wrong?
- Is it cheaper to spend time analyzing or just testing the decision?
You can ensure that you’re allocating the right amount of time and resources to each decision. Remember, sometimes done is better than perfect.