To Make Better Decisions, Think Like a Venture Capitalist
Apr 2, 2025
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Ilya Strebulaev, a professor at Stanford Graduate School of Business and co-author of "The Venture Mindset," discusses how businesses can benefit from thinking like venture capitalists. He explains the importance of accepting failure while pursuing impactful investments. Strebulaev highlights the advantage of fostering a culture of disagreement to enhance decision-making, suggesting strategies like appointing a devil's advocate. He also emphasizes how agility and innovation in large organizations can be improved by embracing diverse opinions and refining decision-making practices.
Embracing failure as a learning opportunity is crucial for growth, allowing organizations to foster innovation and experimentation.
Transitioning from a culture of consensus to valuing constructive disagreement enhances creativity and decision-making effectiveness in uncertain environments.
Deep dives
Embracing Failure as a Core Principle
A fundamental aspect of a venture capitalist mindset is the willingness to embrace failure as part of the growth process. This mindset encourages business leaders to view failures as learning opportunities rather than mere setbacks. An illustrative example is that venture capitalists expect most of their investments to fail, with successes being the anomaly that defines their portfolios. By focusing on the potential home runs and letting go of less successful projects, organizations can cultivate an environment that supports experimentation and innovation.
Shifting from Consensus to Constructive Disagreement
In order to foster innovative decision-making, companies are encouraged to transition from a culture of consensus to one that values constructive disagreement. A consensus-driven approach often stifles creativity, especially in uncertain environments where the end goals are unclear. Strategies to promote this shift include appointing a devil's advocate and implementing 'consensus minus X' rules, allowing decisions to be made even if not everyone is in agreement. By inviting dissenting views, organizations can enhance their ability to innovate and explore new ventures effectively.
Efficient Decision-Making Through Portfolio Management
Effective decision-making in business can be achieved by adopting a portfolio approach that prioritizes quick evaluations of numerous opportunities. Venture capitalists typically operate on a two-tier funnel for decision-making, focusing on swiftly identifying which investments to reject before delving into detailed analysis for approved projects. This contrasts with many corporate structures that get bogged down in lengthy deliberations on individual projects. By asking different questions at varying stages of this portfolio evaluation, leaders can streamline the decision-making process and allocate resources more efficiently.
Venture capital firms notoriously embrace risk and take big swings, hoping that one startup will become a monster hit that pays for many other failed investments. This VC approach scares established companies, but it shouldn’t. Stanford Graduate School of Business professor Ilya Strebulaev says that VC firms have proven best practices that all leaders should apply in their own companies. He explains exactly how VC’s operationalize risk, embrace disagreement over consensus, and stay agile in their decision-making—all valuable lessons that apply outside of Silicon Valley. With author Alex Dang, Strebulaev cowrote the new book The Venture Mindset: How to Make Smarter Bets and Achieve Extraordinary Growth and the HBR article “Make Decisions with a VC Mindset.”
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