How to Optimize Decision-Making
A practical breakdown of decision types inspired by Jeff Bezos
In 2018, Amazon became the second trillion-dollar company in the US.
Jeff Bezos, now Founder and Executive Chairman, didn’t take Amazon to the top of the marketplace without mastering the art of decision-making.
In a 2015 letter to the shareholders, he highlights the two common decision types leaders and entrepreneurs face regularly.
Bezos’ message was that decision-making is not one-size-fits-all:
“Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before.
We can call these Type 1 decisions. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups.”
-Jeff Bezos
He outlines that growth and lessons learned are driven by the ability to quickly decide, experiment, and fail when Type 2 decisions occur.
In other cases, Type 1 decisions require a slower, more deliberate, and systematic approach to weighing the consequences and deciding whether to make the bet.
So, how could Amazon continue to be intentional with growth at scale?
The answer was in this framework that was instilled throughout leadership.
They avoided getting over their skis with misjudged investments while also avoiding getting bogged down in decisions that should be made quickly.
This freed up capacity for more time-intensive, high-risk decisions, such as launching Amazon Web Services, which at the time was a seemingly off-the-wall market for them and is now their most profitable business.
Let’s break this down further and distill it into a simple framework for discernment we can all use when approaching a leadership decision.
This is not a comprehensive decision-making framework, but it’s a solid concept that will help determine the process to follow.
Build Awareness to Discern the Difference
First, we must build awareness to identify the type of decision we’re making when recognizing multiple courses of action.
Don’t overthink this—is the decision high-consequence and (nearly) irreversible (Type 1) or low-consequence and easily reversible (Type 2)?
Type 1: Acquiring another company or entering a new market.
Type 2: Testing new pricing strategies or a new product feature.
There will inevitably be circumstances or situations left in a gray area where we must use our best judgment.
Create a process to ask this question; it can be self-reflective and with the team to ensure everyone is aligned on the required decision type and approach.
Regardless of decision type, always clearly explain the “why” and be transparent about information gaps so others can understand and align.
The trap is to mislabel Type 2 decisions as Type 1. Risk-averse team members will push for this. Hear them out, and don’t allow this to happen.
Approach for Type 1 Decisions
Type 1 decisions are characterized by their high stakes and irreversibility.
These significant strategic choices make it hard to go back once made.
Technically speaking, anything can be reversed, but the impact would be high consequences or disastrous outcomes for the business and team.
In the example of acquiring a company or entering a new market, extreme diligence is a standard due to the consequences of making the wrong decision.
For Type 1 decisions, there should be higher rigidity:
Prioritize a thorough understanding of the courses of action, intended outcomes, potential consequences, and risk mitigation factors
Timeline is often weeks, sometimes months, depending on the context
Take a slower and deliberate approach to allow time for research, consulting with external advisors or stakeholders, and risk analysis
Go wide on feedback; consult with a minimum of 3-5 individuals who are detached from the decision to receive objective, unbiased feedback
Have a detailed contingency plan to highlight alternative execution paths for when unexpected scenarios occur
Minor details are critically important here - consider a SWOT analysis and vet that against key industry or subject matter experts
Manage the dichotomies - Be thorough AND mindful of making progress; decide within an appropriate timeline, or the opportunity will pass.
Other examples include leaving a steady job to launch a new business, establishing a new product line, making a significant policy change that impacts customers, changing culture or core values, hiring or firing decisions, or changing the business model or strategy.
“These decisions must be made methodically, carefully, slowly, with great deliberation and consultation.”
-Jeff Bezos
Approach for Type 2 Decisions
Type 2 decisions, on the other hand, are lower stakes and easily reversible.
These decisions are more operational and can be adjusted if they don’t produce the expected results.
In the example of a new pricing strategy or product feature, these can be tested iteratively; it may impact engagement but doesn’t create a permanent effect.
For Type 2 decisions, there should be lower rigidity:
Prioritize speed, flexibility, and iterative development while setting the expectation that blockers and barriers will surface
Timeline is typically days to a week
Take an experimental and iterative approach; discuss with others, clearly articulate the “why,” and form a plan quickly
Keep feedback focused on discussions with those closest to the action and relevant details; typically, 2-3 people will suffice
Have a lightweight contingency plan so execution can be easily adapted when the unexpected inevitably occurs
Avoid lengthy deliberations and getting caught up in the minor details; adjustments can take place iteratively after the decision is made
Manage the dichotomies - prioritize agility AND be diligent; these decisions can be rapid, informed, and inclusive of communication for team alignment
Other examples include prototyping, minor process improvements, resource allocation and project delegation, project planning, flexible work arrangements, minor budget adjustments, experimenting with communications channels, trying out new responsibilities with a current role, etc.
“If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high-judgment individuals or small groups.”
-Jeff Bezos
Most decisions we face daily as leaders are Type 2.
This is an essential reminder because we often mistake Type 2 decisions for Type 1 and fail to adjust our process, inhibiting speed and flexibility.
With an awareness and understanding of the distinctions and approaches, we can move faster than many other individuals or organizations.
The key is to discern and sense upfront to identify the decision type and adjust our systems and processes accordingly.
A thorough and clear rendering of this decision-making dichotomy!