As humans we are naturally highly emotionly driven. Each of us have a fine balance of emotions and logic in our decision making process, with some decisions being largely emotional like buying a fancy piece of technology, and others logical like a careful chess move.

Emotion certainly plays a role in running a business as it well should. Imagine running a company without receiving any of the thrill of closing a big sale, releasing a new product, or snagging a major feature in an important publication. Imagine putting in 12 hours a day along with all your savings if there was no passion to keep your energy burning high through it all.

Unfortunately emotion at the wrong time or insufficiently checked by logical reasoning can be incredibly destructive. It can lead to buying the wrong car at a high price in the heat of the moment. It can result in offering a customer an unprofitable price in desperation to seal the deal. It is the enemy of cool calculating poker players, who are capable of amassing strong winnings over a period of strong play only to lose it all in a few angry moves when luck goes sour. It must be kept in check.

This applies to all points on the business spectrum. You’re goal isn’t to get rid of emotion and become a machine, it’s to recognize it and prevent yourself from making a poor decision because your head is clouded with negative influences such as fear, impatience, desperation and anger. There are a lot of parallels between business and poker, as both are games of risk with the short-term outcome being a complicated mix of luck and skill. Rationally a poker player will live by the long term positive outcome expected from his/her superior play, but emotionally it’s all about the immediate situation where the worst hand catches a lucky draw. An undisciplined player will make future betting decisions on this emotionally devastating but mathematically acceptable outcome, causing more losses that quickly outweigh the original. So much for humans being rational beings.

Enough poker advice. This is just as serious in making business decisions, including the decision to start, continue, or end a venture. At the initial point you may decide to test a new idea for a product or marketing campaign. You do some calculations and conclude that you will need to spend so much money and have so much data before you can conclude whether it works or not. So far so good, you have rationally worked out the conditions of your test and know what to look for. You launch the experiment and it all goes to hell. You may find that your data is telling you that the idea isn’t working, but you are emotionally attached to it and decide to give it a longer chance. You do this instead of the logical response of killing the project or improving it so that it does work. Inevitably you lose more money, money that could have been allocated towards profitable activities. The opposite is equally true - when the first few numbers are discouraging it may be tempting to pull the plug even though you know the results are not large enough to be statistically relevant.

Notice how these emotionally charged reactions have had the opposite effect of their desired results? This happens all the time with business owners. I’ve done it myself and have seen plenty of others do it. Controlling it takes practice in elevating your consciousness to recognize when your decisions are about to be made based on irrational emotions and then being able to stop and re-evaluate whether this is a positive idea or self-destruction.

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This entry was posted on Sunday, July 30th, 2006 at 12:11 pm and is filed under Business, Business Strategy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.