How good are you at removing emotion from the decision-making process? Do you make choices based on cold-hard facts, or are you swayed by nostalgia and self-doubt?
This is something that we touched on in a previous PreneurCast episode – the truth is that we are all affected to a greater or lesser degree by our emotions.
You’d have to be a robot to be capable of making decisions that are completely devoid of feeling. You can, however, learn to identify when your emotions are negatively impacting your ability to make rational decisions, and remove them from the equation.
Professional poker players – at least the successful ones – are a good example of this. To win consistently at poker you have to be able to calculate the odds and use that information to decide when to play and when to fold, but even the best poker players are vulnerable immediately after winning or losing a big hand. A big win can make you feel invincible, whereas a large defeat can entice you into chasing your losses.
It’s called being “on tilt” and its effect is so hard to resist that some players will deliberately fold the hands following a significant game rather than run the risk of making an unwise, emotion-fueled decision.
Similar, albeit more subtle, situations exist in the running of a business. We chase losses, we pour money into pet projects that we should cancel and we hang on to assets that we should sell (or fire). Poor decisions in these areas can negatively affect our cash flow and the growth of our business, which is why it’s essential that we learn a new way of thinking.
Introducing . . . Zero Based Thinking
Zero Based Thinking (ZBT) is about stripping away everything except hindsight and using the clarity that it brings to make the hard choices.
It sounds complex, but it’s actually amusingly simple.
I learnt this technique from one of my very first stockbrokers with regard to deciding which stocks to keep and which stocks to sell – and it’s the analogy I continue to use when explaining ZBT.
So, imagine that at midnight tonight you HAVE TO sell all of your stocks and then rebuy them all without any brokerage fee. If you’d be happy to do that, and buy back all these stocks, then you’re all set.
BUT… if there are one or more stocks in there that you know you’d be reluctant to rebuy, after you were forced to sell them (and realize and losses or gains), then you should sell them without delay.
The reason this thought exercise works so well is because, in situations like the one above, there is a temptation to hang on to stocks that are performing poorly in the hope that they’ll bounce back.
You’re chasing a loss, and that loss is killing your gains.
But if you were forced to sell all of those stocks (regardless of whether they’re trending up or down), take the cash and start reinvesting from this “zero base” – this enlightens your decision without being hindered by emotional ties.
You’re now free to let go of those “dogs with fleas” that you’re only holding because you don’t want to admit that your initial purchase was a mistake.
What Zero Based Thinking enables you to do is zero out everything that has happened over the last few months and years, and allow you to ask yourself the pure, unadulterated question: with hindsight, if I could go back, would I still start down this path?
If the answer is “no” then it’s probably time to let it go.
If the answer is “Hell No!” then it’s definitely time to kick it into touch.
Here are a few examples of how Zero Based Thinking can help you make the tough choices:
Question: Should I hold or sell this stock?
Zero Based Thinking: If I was considering buying this stock tonight for its current value, given the market, the stocks trend and underlying business, would I add it to my portfolio, or pass and invest somewhere else?
Question: Should I fire this member of staff?
Zero Based Thinking: Knowing everything that I know now, if I had the opportunity to hire this person today and make them a team member from this day forward, would I take them on, or would I look for someone better?
Question: Should I cancel or sell this project?
Zero Based Thinking: If I could go back, would I still begin this project?
Question: Should I renew this domain name?
Zero Based Thinking: If I had to sell the online affiliate site on this domain, right now, on Flippa, would I use the cash I’d get to rebuy another (crappy) online affiliate site, or would I use the money to invest or start something more meaningful? (Always remember that every one of your assets has a monetary value, and you can sell it and cash in any time you see fit!)
Another area of business in which Zero Based Thinking can help, that you may not even think to consider, is whether to keep a client. When we start a business we can’t always afford to turn down work, but once our business is well-established that thinking can and should change.
Stay in business long enough and you’ll almost inevitably end up with some clients that don’t appreciate your work, complain about everything, and are reluctant to pay the going rate for your services.
This kind of client can drain your energy and time to a point that goes beyond any financial benefit.
“Firing” a client can be a difficult thing to do, but in the long run it will leave you in a stronger position to look after your other clients, and free up more time to network and bring in additional, less troublesome customers.
How does Zero Based Thinking help in this area? Simple. Think back to the day when you took on that difficult client and ask yourself the question: with hindsight, would I still take on that client’s business?
If the answer is a definite “no”, you know what to do.
Have you heard the expression, “hindsight is 20/20”? We say this when we want to express regret over a bad decision. Well, it’s exactly because hindsight is so valuable that we should take note of it.
We can’t use it to change the past, but we can use it to make smart decisions, right now, for our future.
It’s natural to place value on our work. Getting rid of something into which we’ve put time and effort can be difficult to do, even if rationally we know that investing more time and money is only going to mean more waste. Zero Based Thinking helps us to eliminate our emotional attachments and make the right choices for our business and for our bottom line.