“Two things control men’s nature, instinct and experience.” – Blaise Pascal

Head vs. Gut, Part II:

How to Educate Your Gut Instinct to Help You Make Profitable Decisions 

In Part I of this essay, we talked about gut instinct – what it is and why it is such an important ability to develop as you work yourself up to the top ranks of business and wealth building. Today, I want to suggest a system for developing an A-level gut instinct. 

JSN, my second important mentor in business, was also the person that taught me my first important lessons about building wealth.

Of his many impressive qualities (a great memory, a mind for details, a skilled negotiator, etc.), the one that most impressed me was his uncanny knack for knowing almost instantaneously whether or not a business idea would work.

He had, in other words, a world-class gut instinct for money-making ideas. It was much better than mine, and much, much better than that of most of the businesspeople I’ve worked with since. I thought of him as a kind of profit shark. In a vast sea of money-making opportunities, he could detect, sometimes from a great distance, the one that had blood in it.

Back then, I thought of this talent as inborn. Now, I believe it’s actually a skill that can be developed.

According to the Harvard Business Review article we looked at in Part I, gut instinct is an aspect of emotional intelligence that resides in the part of the brain that recognizes and stores patterns. When it sees such patterns again, it sends an urgent emotional message to the conscious mind.

In one situation, it may say, “Watch out! This is going to end badly.” In another situation, it may say, “Wow! This sounds great. Jump on it!”

This process, as I said, is based on pattern recognition. And though the stored patterns are not the result of rational analysis, it’s quite possible that they can match up with rational, experience-based conclusions that have been made by the conscious, rational mind.

When that happens – when your gut instinct matches some theory you’ve developed over time – you feel very certain that you know what to do, what decision to make. And more often than not, you’re right.

Although we celebrate the rational process for being fact-based and scientific, the rational mind alone cannot possibly handle the dozens of small and large decisions we have to make almost every day. That’s why gut instincts are so important. And why we should never disregard them, no matter what is running through our rational brain.

But that doesn’t mean our gut instincts are always right. On the contrary, they can be very wrong. And if you act solely on them, you can get yourself into a world of trouble.

I’ve thought about why it is that gut instincts can be so wrong. Here’s what I think:

1. An insufficiency of experience

There appears to be nothing in the emotional brain that classifies, tabulates, and measures our experiences in a scientific way. Instead, the process seems to be a combination of quantity (the number of similar experiences) and impact (the severity of the experiences). A single, traumatizing experience is sometimes enough to create and store a pattern template.

This has happened to me many times. The gut feeling is strong. I interpret that to mean it is trustworthy, and I make a confident and hasty decision accordingly. Then later, after discovering that the decision had been a mistake, I think about it and recognize that it had been based on just one or two strong experiences that were similar in some way but different in others. And I realize that had I put more thought into it, I might have made a different, or at least a more cautious, decision.

2. The wrong inputs 

The emotional brain cannot distinguish between real experiences and imagined ones. Numerous studies have proven that if we imagine a false experience repeatedly, the “memory” is recorded as real.

You read in the newspaper that violent crime keeps rising. You read story after story about terrible things happening on the street, and you develop a gut feeling that it’s safer to stay inside. But then you find out that all those stories were exaggerations or outright fabrications. Your rational mind can allow for that, but your fear of going outside will remain until it is replaced with a sufficient number of safe outside experiences to lay a new pattern over the old one. (This is how exposure therapy works.)

3. The unreliability of second-hand inputs 

I’m talking, here, about, for example, “knowing” that the ozone layer is disappearing and the oceans are rising… even though you are not a scientist and have never actually seen an ozone layer or measured the ocean tide.

As suggested above, second-hand experiences are just as emotionally powerful as experiences we’ve had personally. And, again, after they’ve settled in, the brain cannot distinguish between them.

4. The perspective problem 

Take any experience – a ball game, a traffic accident, a business meeting – and ask four people what took place. Chances are, you’ll get four different answers. Based on each person’s perspective, different elements of the same experience may or may not stand out. This means that the pattern that is subconsciously recorded will be different for different people. And some of those patterns will be partially or even completely wrong.

Training Your Gut Instinct 

When gut instincts are wrong, they can prompt you to make decisions you will later regret. And yet, you don’t want to ignore them because they are a very efficient way to recognize and store patterns of important information.

So, what to do?

The good news is that we can teach ourselves to reduce these subconscious mistakes by examining our gut instincts rationally and then paying better attention to new experiences that arrive.

I’ve noticed that when I make a bad decision, I have a tendency to delete it from my memory. It’s embarrassing and uncomfortable to acknowledge it. And so, I stop thinking about it. After a while, I actually forget it. Even if someone reminds me of the mistake, I won’t remember it. I believe they’re mistaken, not me.

Another thing I may do (I think I don’t, but I probably do) is reinvent the facts that led to my decision. Like false memories generally, this works. You absolve yourself of the pain of remembering the truth and preserve the wrong pattern in your emotional brain.

That sort of post-facto rationalization will, if you keep telling yourself those lies, sink into your subconscious. And, as I said above, since the brain cannot discriminate between real experiences and imagined ones, you will carry around not only the false memories but also the faulty gut instincts.

The solution is to be careful about the patterns you internalize.

* When you make a mistake, resist the urge to rationalize it. Don’t allow yourself to make excuses to those affected by your decision – not only because it will be transparent to them and you’ll look the fool, but more importantly because you will be inserting bad data into your internal memory, where your gut instincts are formed.

* Make a commitment to  pay close and objective attention to your primary experiences and be skeptical of everything you read or hear about – especially those things that are told in story form.

As a marketing guy, I know this: If I want to sell you an insurance product, I have to stir up your uncertainties – even your fears. I can do that by creating little stories that make the point I want to make. So if I want to sell you accident insurance, for example, I’ll write 10 terrible tales about accident victims. By the time you’ve read three of them, you will have established an internal, subconscious pattern in favor of accident insurance.

* Favor primary experiences over secondary ones. Learn from what has actually happened to you, not from what has supposedly happened to others. When you make a mistake based on gut instinct, examine the thoughts and feelings that went into it. Remember that history is written by people who have stories to sell.

* Pay attention to the experiences that have a strong emotional impact on you. Be critical of your responses to them.  Ask others, when possible, for their opinions. What happened?  And why? Where did I go wrong?

The conclusions you draw from your actual, primary experiences are the most valuable resources you have. Make sure they are valid. If you do that, and treat secondary information very skeptically, your instinct for what to do in any situation will inevitably get better.

My post today is about developing your gut instinct to help you become a more effective business leader. I’m sending it from our home in Nicaragua. As you may have heard, the country was battered by Iota. The east coast was destroyed by 150-mile-per-hour winds. The west coast, where we are, was devastated by flooding. Our family is usually here for the Thanksgiving week. Not this year because of you-know-what-19. So, it’s just me and K. And we’re busy working with FunLimon, our family “caridad” here, assisting in the many relief efforts going on right now to bring clean water, food, and other supplies to the local communities. It was a long day. Now we’re back home, having a sunset cocktail.

“Ideas pull the trigger, but instinct loads the gun.”  – Don Marquis

Head vs. Gut, Part I:

Why Intuition Beats Rationality in Making Good Wealth-Building Decisions 

I once read an article in the Harvard Business Review titled “When to Trust Your Gut.”

This is a subject I’ve spent some time thinking about. And my feeling has always been that experience-based gut instincts are at least as valuable as MBA-based analyses from the likes of Harvard, Wharton, or Yale.

I was surprised to see that this article supported my view.

The author, Alden M. Hayashi (senior editor of HBR when the article was published), says quite correctly that, in making good business and career decisions, it makes sense to rely on both reasoning and gut feelings.

“The higher up the corporate ladder people climb,” Hayashi says, “the more they’ll need well-honed business instincts.”

In lowlier positions, he argues, one should rely more on facts, figures, and established protocols. Instinct is still important, but when you’re new to a company you need to be careful. Those that hired you are alert for mistakes. To avoid costly mistakes, he advises, make sure your impulses align with the facts.

Middle managers that are new to an industry should be careful about shooting from the hip. By sharpening your pencils and following the rules,” he says, you’ll keep the bottom line black.

After you move up the ladder of corporate power, however, attention to detail becomes less important and gut instinct can help you make the game-changing decisions that will accelerate your career.

Hayashi looks to the late Ralph S. Larsen, former chairman and CEO of Johnson & Johnson, to explain why.

“Very often, people will do a brilliant job up through the middle-management levels, where it’s very heavily quantitative in terms of the decision-making,” Larsen says. “But then they reach senior management, where the problems get more complex and ambiguous, and we discover that their judgment or intuition is not what it should be. And when that happens, it’s a problem. It’s a big problem.”

Richard Abdoo, former chairman and CEO of Wisconsin Energy Corporation, agrees. He says that as business speeds up and decisions must happen faster, instinct is even more important.

Henry Mintzberg, professor of management at McGill University and longtime proponent of the utility of intuition, believes the subconscious mind is always processing things the conscious mind may not be aware of. A sense of revelation (the “Aha!” moment) occurs when the conscious mind finally learns something that the subconscious mind has already known.

I agree.

Decision-making at the higher levels of business cannot rely solely on rational thinking and logic. To make the best decisions, we must also call into play our emotional intelligence.

To explain how gut feelings work, Hayashi refers to Herbert A. Simon, a professor of psychology and computer science at Carnegie Mellon University.

Simon, who studied decision-making for decades, claims that gut feelings result from observing repeated patterns and rules. Emotional intelligence involves noticing, storing, and “chunking” such patterns so we can retrieve them instantly and automatically.

It’s been my experience running and consulting with dozens of growing companies over the years, that this is true.

It makes sense: The human mind has an amazing capacity to recognize and “remember” patterns. Much greater than our ability to remember and recall facts.

In chess, for example, Simon found that grandmasters are able to recognize and recall about 50,000 major patterns in the huge number of ways in which the various pieces can be arranged on a board.

How do they do it? How is it that some executives seem to have the superhuman ability to make good and profitable decisions?

It’s all about this mysterious process of recognizing and storing patterns. According to Hayashi, the experts say they do this while also “cross-indexing” them. That’s when our brains find patterns in one experience that correspond to patterns in other experiences and “tag” them for instant and automatic recall when we need them.

I – and just about every advertising writer I know – do this routinely. While watching commercials about a Rolex, we may notice a pattern in the pitch that is similar to a newspaper ad on vitamins and/or a radio spot on some financial scheme.

We sometimes recognize the patterns consciously. Very often, we don’t. But they are recorded somewhere in our gut.

And that’s why, if you want to become a better business leader and wealth builder, you should make your decisions carefully when you are beginning, but, as the years pass, begin to rely more on your gut.

Caveat: Sometimes gut instincts are wrong. How can you fix that? We’ll cover that tomorrow.

This essay and others are available for syndication.
Contact Us  for more information. 

 “Management is about arranging and telling. Leadership is about nurturing and enhancing.” – Tom Peters

Cultivating the “Super” in “Superstars”: the Handful of Employees That Will Make Your Business Soar 

Yes, every one of your employees is important. In some way, every one of the people that work for you – from the rank-and-file on up – contributes to your bottom line.

But there is one group – a very small group – that can do what the others can’t do: generate 80% of your sales, wring out 80% of your profits, and then grow those profits over time.

I have gotten into the habit of calling these people superstars, but I should probably call them something else. Maybe something like “phenoms,” because besides being so remarkable in themselves, they are very rare.

Not Pareto Principle rare. Not just one out of five of your employees. It’s more like one out of 10, if you are lucky. Even one out of 20.

You already know who these people are. (They know it, too.)

* They arrive early and stay late. And they work at home.

* They almost never take a day off.

* They don’t consider their work to be a job. They consider it to be a career.

* They are not afraid of new ideas. They welcome them.

* They take responsibility for any problems that crop up under their watch, even if they are not to blame.

But what makes superstars not just valuable but invaluable is that they are not only great at what they do, they are eager to take on as much additional work as you can give them. Whether it is developing successful new products, creating additional sales, or managing profits, superstars will eventually do it better than you can… and take some of your leadership burden on their shoulders.

And that’s why losing a superstar is like losing a limb. It is a disaster you want to avoid at all costs.

So how do you attract and nurture – and keep – superstars? What are the things they want and need?

1. Space 

First and foremost, they need the freedom to do their job as they see fit. You can and should give them the tools they need to do their work. And you should give them your best advice. But give them room to fail, too – quickly and in small ways – so they can learn (and teach their employees) from their mistakes.

2. Autonomy 

In a similar vein, superstars need the authority to get their job done without being micromanaged. They should not have to ask for your okay on every minor decision. Agree on the sort of reporting and feedback that you both feel comfortable with, with the understanding that you will be asking for less and less as they become more and more accomplished.

3. Challenge 

The main thing that superstars need is big and constant challenges – and it is in their nature to come up with most of them on their own. Give them free rein to learn about any areas of the business that interest them – and welcome any suggestions they may have.

4. Fair Compensation 

Superstars are not primarily motivated by money – but you won’t hold onto them if you pay them a nickel less than what they are worth.

How much is that?

I have a few rules that I follow: Their base pay must be equal to or higher than what others in their position get. In addition, they should have some sort of incentive pay based on some mutually agreeable objectives. And if they end up running an entire offshoot of the business for you, they should get some sort of shadow equity.

Just never lose sight of what’s really important to them: the satisfaction of growing and improving the business.

This essay and others are available for syndication.
Contact Us for more information.