Instinct in business

What is good instinct? I would define it as being able to make the right decisions based on inadequate or incomplete information, continuously spot trends in the market and see opportunities ahead of everyone else. For me, this is the quality that separates the high achievers from everybody else.

I’ve met a guy who has a great instinct for business. He never does much analysis, he doesn’t have an MBA, and he doesn’t have MBAs working for him (he likes to keep his costs down). Yet he makes all the right business decisions and makes upward of 50K dollars a month. During his worst month this year he *only* made 25K. He starts and stops businesses with what we would normally classify as “insufficient information”, yet he makes a lot of money. He has a high risk tolerance but his net performance is above market average.

On the other hand, I have friends with MBAs that use a spreadsheet to make decisions, make all sorts of rational analysis and come up with good business decisions. In general, they make a good living, probably around 20K to 30K a month. They are medium to low risk takers with a net performance about market average. The lesson here is that analysis will only take you so far.

My advice?

If you have a good instincts and high risk tolerance, then rely on it. Use you instinct every chance that is useful. But keep track of your wins and your failures – this will hone your skill. Go all the way to the edge but make sure you do not fall.

If you don’t have a good instinct or are extremely risk averse. Then: do your homework, analyze everything, use mentors, use advisors, and get an MBA. Your reward will probably not be as high, but you will come out on top most every time.

If you have good instincts, high risk tolerance and an MBA you should be well on your way to be the next Bill Gates, Warren Buffet, or Carlos Slim. If you aren’t, ask yourself which one of your assumptions is wrong – maybe your instinct is not as good as you think, maybe you have passed on opportunities because of a lower than acknowledged risk tolerance. See what is stopping you and break it down.

In this economic climate where the old rules don’t apply as well anymore, it would be wise to follow your instinct. If yours is lacking, you will have to hone it (and fast), start taking chances, start making choices based on it, see when you can rely on it, and when you cannot. Your spread will increase. If you don’t, you may have a good return on your decisions, but there is no assurance that it will be enough to give you the life that you dream about.