How to make tough decisions about products, people, and business.

Gibson Biddle

Oct 5, 2019·8 min read

Three years ago, I gave my first talk at a Greylock Partners event. When I asked the product leaders what they wanted to talk about, one answered, “I just want to know how Netflix made the wicked hard decisions.”

Figuring out how to make tough decisions is a topic that’s always worth revisiting as you develop as a leader. To help you make these decisions more quickly and confidently, I’ve compiled ten decision-making habits I’ve learned over the years about people, products, and business.

1. Ask questions, form an opinion, and engage in debate

Early in my career, the head of product at Electronic Arts asked me, “What would you do?” as he contemplated a tough decision. In response, I blubbered incoherently. Later, a friend at work coached me: “Relax — he wants to know what you think. If you don’t know the answer, ask questions until you can form an opinion, then engage in debate.”

At Netflix, I frequently saw this behavior modeled by the executive team. Netflix’s CEO would ask the heads of marketing and finance to debate the merit of a price decrease. Halfway through the argument, he’d stop them and ask them to flip positions. This drill forced each leader to listen to the other’s case, knowing they might be asked to switch sides again.

If you’re involved in a decision, do your best to ask questions, form an opinion, then spark debate. Diverse employees engaged in passionate debate form an essential foundation for effective decision-making.

2. Make a provisional decision

Ask yourself, “What does my gut say?” Frame your opinion based on your initial instinct, then ask what additional information you need to make a final decision. Last, outline a timeline to get the missing data to make the decision.

In early 2007, Blockbuster launched its Total Access program, allowing its DVD-by-mail customers to exchange DVDs instantly in Blockbuster stores. This program created overwhelming value for customers, and many Netflix members defected to Blockbuster.

Netflix evaluated three potential responses to Blockbuster’s Total Access program:

1. Acquire Redbox, enabling instant DVD exchange via automated DVD machines in 5,000 grocery stores throughout the United States.
2. Lower prices to make the service more attractive.
3. Do nothing.

The initial judgment of the team was to do nothing. But how long would Netflix need to endure tepid growth as its customers switched to Blockbuster?

The critical piece of data Netflix needed: How many DVDs did Blockbuster customers watch each month, given they could quickly swap their DVDs in-store? Figuring out the answer to this question would help us understand how long Blockbuster could afford to maintain what we guessed was a costly promotional program.

We gave ourselves a month to get the answer. We surveyed customers in Blockbuster stores and learned they were watching eight to 10 DVDs/month — much more than our six DVDs per month average at Netflix. When we did the math, we estimated that Blockbuster could only maintain this money-losing program for nine months.

Based on this data, a month after the assault began, we finalized the decision to do nothing. Nine months later, Blockbuster stopped the program, and by that time, we had substantially improved our streaming service. The rest, as they say, is history.

3. Get the data

In the Blockbuster decision, finding additional information significantly improved our judgment. More data makes most decisions easier.

In making product decisions, there are four sources of data that shape consumer insight:

1. Existing data describes current customer behavior as well as financial metrics.
2. Qualitative research, including focus groups and usability, provides clues about customer behavior and brings the voice of the customer into the building.
3. Surveys provide more insight into what customers think with a little more predictive power than focus groups.
4. A/B test results measure changes in customer behavior — not what they say — and are therefore more helpful than the qualitative sources above.

At Netflix, we called the process of forming consumer insight through these four sources “consumer science,” and the data source we appreciated most was A/B testing.

Netflix’s decision to replace the five-star rating system with Facebook’s simpler “thumbs up” approach, for instance, feels like a bold decision. But A/B testing revealed that Netflix got twice as much taste data from thumbs versus stars. Armed with the A/B test result, it was an easy decision to switch.

4. If you have 70% of the data you need to make a decision, it’s time to “decide & go.”

There’s a high cost to procrastination in decision-making. A helpful construct: If you have 70% of the data, it’s time to make a decision. Deciding with less data means you’re likely ill-informed, but searching for more information requires far too much time. There’s a diminishing return on additional data, especially if it causes you to delay a decision.

Another tactic: time-box your decision. Setting a deadline creates urgency to get the data, and most procrastinators respond well to deadlines. Personally, this tactic was useful for me when evaluating job offers. My wife gave me one weekend to assess an offer. When I woke up on Monday morning, I had to make a choice. As she said to me, “Your decisions never get better with time.”

5. Evaluate whether the decision is high or low stakes

Most people overthink decisions. The reality is that many choices are low stakes and shouldn’t require excessive hand-wringing.

Two factors determine whether a decision is high or low stakes:

1. The magnitude of the decision. How significant is the potential impact of the decision — positive or negative? What’s the size of the potential financial impact?
2. Is the decision easily reversible? If yes, consider it a low stakes decision. If you act on your choice and get it wrong, you can always reverse it.

For Netflix, the decision about how to respond to Blockbuster’s attack was a high stakes decision — Blockbuster represented an existential threat. On the other hand, my decision to say yes or no to a new job offer was low stakes — the decision was easy to reverse if I got it wrong. The point: if it’s a low-stakes decision, decide more quickly than in a high-stakes situation.

6. Obsess over your customers

You make decisions safely within the walls of your company, isolated from your customers. Make sure you think about them as you make decisions. Amazon famously keeps an empty seat at the table to represent their customers when making decisions.

The most famous case of Netflix not thinking about what’s best for the customer was the announcement to separate its DVD and streaming services into two companies called Qwikster and Netflix in 2011. Having to visit two separate websites presented a miserable experience for customers. The result: 800,000 customers defected in one quarter, and Netflix’s stock price fell 35%. You won’t always do what customers want, but at the very least, consider their experience in making decisions that will affect them.

7. Be open to significant, long-term bets

As an adviser working with startups, I help organizations to move from getting decisions right 50% of the time to 70%. But why not get it right 100% of the time? If teams get it right all the time, they’re likely not taking on enough risk.

For a startup to maintain rapid growth and continue their quest to “do the impossible,” they need to keep the risk profile that enabled them to start the company in the first place. Playing it safe is a recipe for long-term mediocrity.

So when evaluating decisions, do your best to assess the potential long-term reward against the risk of failure. Dare to imagine how big the upside reward might be. If you don’t do this, you’ll consistently play it safe as the expected result of most big bets is a failure. But from time to time, you’ll need to make bold bets to make step-function leaps to build a great company in the long term.

A simple question to ask as you evaluate long-term bets: “What would I do if I weren’t afraid?” Give yourself license to occasionally make these big, bold bets.

8. Consider how your long-term strategy impacts your decision

Company and product strategy exist to inform decisions about the types of projects you seek to invest in and to nicely say no to the vast majority of ideas to maintain focus. Make sure you have a company strategy plus a product strategy that answers the question, “How will your product delight customers in hard-to-copy, margin-enhancing ways?”

In the 2007 Blockbuster scenario, Netflix chose not to acquire RedBox and its automated DVD vending machine, because, in the long-term, Netflix planned to transition from DVDs to streaming. Buying Redbox would have been a bridge to the past. The long-term strategy for Netflix was to lead streaming, then expand their digital service worldwide. Launching RedBox’s automated vending machines into 190 countries would have been a significant challenge.

9. Does your company’s culture inform the decision?

One of the advantages of a well-articulated culture is to help employees make great decisions without talking to one another. If done right, culture eliminates the need for suffocating rules and processes and lets individuals make fast, independent decisions.

Netflix’s focus on candor, along with its values of courage and passion, helped establish the decision-making environment that framed principles like “debate, decide, and do.” The value of curiosity, where product leaders dive deep to understand their customers, forms the basis of Netflix’s “customer obsession.”

Here’s a very specific example of how culture affected a product decision at Netflix. One of the tenets of Netflix’s culture is, “People over process.” An explicit part of the culture is to “avoid rules” as Netflix believes rules suffocate talent and creativity. But if you don’t believe in rules, how do you handle tricky product issues like whether to allow account sharing? Netflix’s approach: each price point has a specific number of simultaneous streams you can play at the same time. But there are no rules about who can use the account. My daughter can use my account if she’s living in my house, away at college, or if she’s living in her home with her own family.

Take a moment to reflect on your company’s culture as you make your next wicked hard decision. From time to time, your values will help indicate the path to success.

10. Fully commit to your choice

In decision-making, equivocation is just as bad as procrastination. Netflix has its “debate, decide, and do” mantra. Amazon encourages its employees to “disagree and commit.” The intent of both is the need to commit to a decision to allow it to succeed. Second-guessing yourself lowers the odds of success. Going behind others’ backs to question the wisdom of an agreed-to decision weakens alignment and makes it substantially harder for the company to succeed. Once you make a decision, commit to it.

Final thoughts

I’ve shared ten habits that I hope will improve your decision-making. Making hard decisions — about people, product, and business — is tough, especially when you’re inventing the future. You’ll often get it wrong. But when you do get it wrong, reflect on the decision and document your learnings. Over time, you’ll agonize less about each choice and gradually improve your odds of success.

One last thought you may find comforting: There’s no such thing as a right or wrong decision. Did Netflix make the “right” decision in choosing to do nothing in the face of Blockbuster’s attack? Yes, the long-term result looks good, but the outcome might have been the same if they had chosen to lower prices. In decision-making, you’ll never know the road not taken. Make the decision, then see where the road takes you. Don’t spend too much time looking over your shoulder.

I hope you found this essay helpful. If you can take a moment to give me feedback via SurveyMonkey, I’d appreciate it: Click here (It only takes one minute.)

Thanks,

Gib

Gibson Biddle

www.gibsonbiddle.com