I took a course called Data and Decisions in Business School. The course covered many areas like probability, statistics, and regression analysis. I’ve always enjoyed math and I did well in the course.
As the name of the course suggests, its goal is to get you to make decisions based on data. The opposite of this is making decisions based on intuition, or gut feeling.
After leaving business school, I soon discovered the limits of data-based decision making. Specifically, I discovered that the more important the question you’re trying to answer, the less likely you’ll be able to arrive at that answer using just data. Startups serve many great examples.
When a startup is building its product, it’s pretty straightforward to A/B test different versions of the product to see which one creates a better experience for users. By showing different versions of the product to randomly selected groups of users, you can see which version produces the best results for the metric(s) that you’re looking to optimize.
However, when a startup is deciding how to position itself in a market, the answer is a lot less clear. For example, our startup Mobilotoservis (“mobile auto service” in Turkish) is currently a car repair and maintenance service that sends a mechanic to your home or office to perform the service. Customers don’t need to go to the service location and this saves them a lot of time. However, in its former life, Mobilotoservis was called Ottopot and it was a marketplace that connected car owners with existing mechanics.
What makes more sense, an asset light marketplace that connects existing supply and demand, or an asset heavy mechanic that offers a premium service? Data won’t get you very far in making that decision. The company chose to pursue the former because it was more capital efficient, but discovered that most customers are unhappy with the service offered by their existing mechanic and instead want a premium service.
How to position yourself in a market is a more important question than which product version you should select for your next iteration. As this example shows, the more important the question, the more you need to rely on your gut feeling to make the decision.
This doesn’t mean that you shouldn’t look at the data. In fact, data helps inform your gut feeling. The more relevant data you look at, the more likely your gut feeling is to be correct.
However, in the end, most important decisions boil down to your gut feeling. So it’s important that you be comfortable identifying it, deciding based on it, and trusting it.