When you’re the President of the United States, the easy decisions never reach your desk. Barack Obama observed that if a problem had a perfect solution, “someone else would have solved it.” Likewise, George W. Bush understood that as President, his job was to be the chief decision maker; his memoir Decision Points focused on some of his toughest choices. Making decisions means assessing risks and rewards, and as Obama said, “Any decision you make you’ll wind up with a 30 to 40 percent chance that it isn’t going to work.” In other words, you have to make bets.
For some bets, you can compute risks and rewards precisely. If the lottery jackpot is $50 million, and the odds of winning are 100,000,000 to 1, it’s easy to decide how much you should pay for a ticket.
Even when you can’t compute the probabilities exactly, there are techniques for estimating risk to help you make informed decisions. My Netflix colleagues are doing some great work on applying these ideas to our Information Security risks.
Sometimes, though, your bets are more qualitative; you are choosing a direction that aligns with your company’s values or positions you for future success. At Netflix, we call these “strategy bets.” Here’s an example from the company’s 2018 annual report:
…self-produce and create more of [our] own content rather than license or procure it from third parties.
This formulation explicitly acknowledges two alternatives: Produce content (movies and TV shows) in-house versus buying them from outside studios. Both are reasonable, defensible choices, and it’s easy to imagine a healthy debate on this strategy.
When you’re stating a strategy, spelling out the alternatives has a couple of benefits. First, if you realize one of them is nonsense, then you know you haven’t made a decision. Suppose your strategy is “make a profit.” No one will oppose that as a business goal if the alternative is “lose money.” But if you want to dig deeper, you might say “aim to show a profit every quarter versus invest consistently in new product development.” That’s a bet worth debating. What’s more, it calls for a decision, because it fundamentally influences how a company will allocate its resources.
Second, identifying an alternative demonstrates a bit of wisdom. By exposing both choices and the thinking behind them, leadership shows that it considered (at least some) reasonable alternatives. If the bet is to show a profit every quarter but product development is identified as an alternative, employees will have less reason to ask, “Don’t those idiots know that we need to invest in new products?”
Even “keeping all our options open” is a bet. The alternative is “committing to a smaller set of options,” or, in other words, the bet is “decide later versus decide now.” As with other bets, there can be good reasons to choose either path.
But how will you get people to commit to your bet that has a 40% chance of failing? Leaders deal with this question in many ways. Some simply project certainty and push all doubt aside. Others use the long odds against a plan as a kind of contrarian motivation. This probably works better in fiction than real life; see the “crazy enough to work” trope, the halftime pep talk trope, or Shakespeare’s most famous motivational speech.
Being transparent about the alternatives and identifying (at least briefly) how the decision was reached is a middle ground between these extremes.
Scott McNealy of Sun Microsystems, Intel’s Andrew Grove, and Amazon’s Jeff Bezos have all embraced “disagree and commit,” a philosophy that allows internal debate up to the point a decision is made. After that, unity of purpose takes priority over exploring more options. Strategy bets are compatible with this philosophy. By noting alternatives, they acknowledge that a sincere debate took place, but they also point out what dissenters are committing to.
Even when there is no debate, some choices are worth stating as guiding principles. Netflix’s guiding principles are listed in our culture document. On the other hand, there are times when a seemingly obvious bet deserves closer examination. For example, the preface to Netflix’s internal list of strategy bets gives this example of a bet that does not need to be justified: “We work in buildings rather than tents.” I haven’t seen any desks under tents at Netflix, but over at Tesla they did indeed set up an assembly line under a tent!
That shows another important feature of bets: they can change. Of course, you can’t put your money on the winning horse after the race is over, but in business the race is never over as long as your company is still operating. There’s no ultimate winner, only ever-changing circumstances. I don’t know if Tesla ever made a bet that they’d assemble cars in buildings rather than tents, but when conditions required it, they evaluated an unusual option and changed what amounted to an implicit bet. Likewise, your bets deserve to be reviewed periodically. Not every week; if you change your mind on a strategic question that often, then you haven’t made a bet. But reviewing your bets annually helps you find the ones that are paying off and the ones that need to be adjusted.
Not all bets need to come from the top. Netflix has an internal list of big bets that senior leadership has made, but individual organizations also make bets. These can include bets on specific technologies or priorities. For example, in the Information Security organization, we are betting on developing easy-to-use, secure-by-default design patterns for our engineers to use versus putting resources into extensive security reviews.
How is this kind of bet different from simply making a decision? A strategy bet frames the choices that follow. Now that Information Security is strategically betting on secure-by-default, we can focus on tactical decisions about which design patterns to develop, without wondering again and again if we should be investing more in security reviews. The strategy bets narrow the scope, which lets us focus on fewer tactical alternatives.
The “X versus Y” formulation of a bet can bring much-needed clarity and discipline to a strategy discussion. Deciding on what you’re not doing can be harder than deciding what you are doing. However, whether you realize it or not, you and your organization are constantly making bets. Some are well-considered, and some are bound to be implicit and unexamined. Writing out the decision as a bet won’t guarantee that you’ll choose the right path, but at least you’ll know which path you’re on.