Gut feeling or market research? Entrepreneurs often find themselves making decisions in uncertain situations when starting a business. Because of tight budgets, overconfidence, or misconceptions about market research’s benefits and cost, they often resort to using emotions and mental shortcuts to make decisions.
Intuition Comes From Knowledge
Many entrepreneurs brag about their intuition which they often called “gut feeling.” However, intuition doesn’t come out of the blue. It is the result of experience and practice to the point where knowledge is internalized and guides us without having to think all over again when faced with certain decisions.
There is no denying the importance of emotions — in fact, without them, we can’t decide at all. At the same time, what feels like “gut-feeling” or intuition sometimes is only the expression of one of many innate flaws our brain has.
But Our Brains Have Flaws
One such flaw is loss aversion. Research has shown that the pain of loss is twice as strong as the pleasure we get from a gain, so we will do anything to avoid loss, even if it leads us to do things that don’t benefit us in the long run.
I have observed it in many entrepreneurs I meet. They may be aware of the need to do research that will help grow their business in the long run but struggle with the decision to do it because they think of research as a sunk cost and not an investment.
The Wrong Approach
One common approach to this dilemma is to renounce entirely to the idea of doing any market research. Those who follow it tend to argue they trust their intuition (even if there is not much to support it). Wondering whether they should go with a gut feeling or market research, is often rare in these cases.
Another approach is to take market research on their own hands (even without experience in market research). Some use family members and friends for feedback. However, this approach is biased and ineffective. It rarely reflects what the target market will think or do.
Finally, there are others, also trying to do their own market research, who strive to be more objective, but to save money, run online surveys on their own. However, few manage to design good surveys, and samples tend to skew towards certain segments in the target market. They often reduce the analysis to counts and percentages.
Entrepreneurs’ focus on immediate cash loss can lead them to future bigger losses without realizing it. Reliance on “gut feeling,” lack of research, or use of ill-designed research can result in misguided decisions and derailed intuition by feeding bad information to the source that nurtures it.
An earlier version of this article was published on October 7, 2011, by the Dallas Business Journal. The article was last updated and revised on September 13, 2019.)