Good Process, Bad Outcome is Better Than Bad Process, Good Outcome

by | Dec 18, 2019

Systems eat luck for breakfast…

Why do some companies get all the luck? Andreesen Horowitz is one of Silicon Valley’s most successful VC firms. The startups they have backed have returned hundreds of Millions of dollars to their investors when those companies were acquired or went public. As is the case for all VC’s, Andreesen Horowitz makes early bets in companies and has a long term horizon for expecting a return on their investments. If it is accurate that one in 10 Startups fails, how is it though that Andreesen Horowitz seems to be making the right decisions on which startups to back?

When asked this, they refer to a book called “Thinking in Bets” by Annie Duke. The core idea here is that in a probabilistic situation the only way to optimize for the outcome is to optimize the process.
“Thinking in bets starts with recognizing that there are exactly two things that determine how our lives turn out: the quality of our decisions and luck. Learning to recognize the difference between the two is what thinking in bets is all about.” Annie Duke.

This mental model lead Andreesen Horowitz to inventing a new VC model of providing not just capital to entrepreneurs but building internal capabilities and processes to support founders in key areas required to grow a modern technology company.

In an interview with Shane Parish, business writer Jim Collins, an expert on the study of why companies succeed, supports the same idea.

“Do not confuse the decision process and the outcome. Good decision process, adverse outcome is a better approach than bad decision process, good outcome. Because bad decision-making with good outcome reinforces bad process” Jim Collins.

Think of it this way. You go out with friends and have too many drinks. You decide to drive home anyway. You return safely. The outcome was good, nothing happened to you. Was it a good decision? No. The probability of something really bad happening to you was high. It was a stupid decision. The good decision every time you are in this situation is to either not drink or not drive. This does not guarantee 100% that nothing bad will happen to you. Accidents do happen to sober drivers. However, you are making the right decision.

In the business of innovation, it is impossible to predict the outcome of innovation efforts accurately. Some will fail and some will succeed. The best way to increase the odds of success is to craft and optimize good decision-making processes:

  • How will the process define which innovation projects will make it in the innovation pipeline?
  • How will the process define when a project should be killed vs doubled down on?
  • Which process will measure the outcome impact of innovation initiatives to support decision-making?
  • How will the process optimize the transition from successful pilot to adoption and scale through the core business?

Whether the outcome of your decision-making processes is positive or negative, learn from the relationship between inputs, process and outputs and assess whether a different process would have positively changed the outcome. 

Or just leave it up to luck and see what happens…