as published on October 7, 2011 by the Dallas Business Journal
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, intuition and mental shortcuts to make decisions.
But 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. However, what feels like “gut-feeling” or intuition sometimes may be only the expression of one of many innate flaws our brain has.
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 outcome is often one of these two:
- Renounce to the idea of doing any market research, arguing they trust their intuition (even if there is not much to support it).
- Take market research on their own hands (even without experience in market research) and use family members and friends for feedback or create online surveys. But this approach can be biased and ineffective and rarely reflects what the target market will think or do. Others try to be more objective and, to save money, run online surveys using one of the many affordable survey tools available today. However, often surveys are not well designed, samples tend to skew towards certain segments in the target market, and analysis is reduced to counts and percentages.
Entrepreneurs’ focus on immediate cash loss can lead them to future bigger losses without realizing it. 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.