David Anderson spends his days making one decision after another as co-founder of Off Madison Ave, a 9-year-old marketing communications firm with annual sales of $10 million. One looming decision concerns office space. The 12,000-square-foot space that Off Madison Ave leases in Tempe, Arizona, is cramped now that the company has 60 employees. "I have one empty seat before we're up on this challenge again, and I have three-and-a-half years left on our lease," says Anderson, 41. Who founded the business with Roger Hurni, 42.
It's a seemingly simple decision riddled with uncertainty. Should you rent or buy? How much extra space do you need? How do you make sure you don't pay too much? Anderson studies demographic data and the company's historical data for trends and growth spurts. He keeps tabs on regional economic trends and the local real estate market. Throw in the internet, and it's easy to keep researching . . . and researching. "It's extremely easy to get bogged down in the data," says Anderson.
"Bogged down" is putting it lightly. Entrepreneurs have a wide variety of data at their fingertips today, from industry data and customer data to computer files and Google. There's even "metadata," or data about data.
In theory, all this information should help companies make decisions, but increasingly, the opposite is true. "Our ability to acquire data has greatly outstripped our ability to analyze it in a productive way," says Bob Clemen, professor of decision sciences at Duke University in Durham, North Carolina.
Data sets can contradict each other, imploring managers to inject even more data into the process. Eventually, there's a point of diminishing returns. "The research shows that when you add information, it improves the quality up to a point that's reached very quickly," says Gary Klein, author of The Power of Intuition: How to Use Your Gut Feelings to Make Better Decisions at Work and chief scientist at Klein Associates, a Fairborn, Ohio, firm that coaches companies on decision-making processes. "And then the additional information seems to improve quality hardly at all."
Still, data--and lots of it--can be a warm security blanket for management teams. Jonathan Kramer, principal of Business Psychology Consulting in San Diego, sees entrepreneurs obsessing most over financial decisions. "They're trying to get as much information as they possibly can to make sure they make the right decision," he says. "They kind of get lost in it." Sometimes, he adds, leaders use data collection to avoid making hard decisions.
Entrepreneurs can also find themselves on the receiving end of someone else's data obsession. Anderson sees Off Madison Ave's customers taking longer to make up their minds. "They never pull the trigger because they're waiting [and saying], 'Well, I know there's one more bid out there; I want to check one more site; I'm waiting for one more report,'" he says. "The internet is one of the best things that ever happened to us and one of the worst things that ever happened."
Anderson relies heavily on the company's internal dashboard that tracks revenue and provides other key indicators monthly. Still, he's missed out on opportunities because of analysis paralysis, like the time he deliberated for two weeks over hiring a stellar job candidate. "It was one of those, 'Do we really want to start this group? Is this an area where we want to grow?' [situations]," he says. "Now I hear stories about how [the former candidate is] working at a competitor and doing a great job."
Companies lose out when they overanalyze a small set of well-researched, comparable options. Aim for what Clemen calls The Flat Maximum: the point where you've shed the dead weight and can choose any of the remaining options because they're pretty much equal. "That's a wonderful position to be in," Clemen says. "You don't have to worry so much about which one to [pick]."
You'll also have to do some deciding about your decision-making process. What constitutes a sufficient amount of information to make a decision, even though you'll never have all the information, and what you collect might be contradictory? Says Kramer, "That's part of the art of running a business--knowing when to say, 'I believe I have enough information to make a good decision.'" Klein suggests lighting a fire underneath your team by setting firm deadlines for difficult decisions.
In the end, you'll have to trust your intuition, data be damned. "In business, it comes down to collecting what you can," Anderson says. "But then you have to trust your gut."