Decide Before It’s Too Late
Back when I worked at The Motley Fool cofounder David Gardner taught a strategy class to employees that centered around playing strategy board games (and if you ever have the chance to take a class on strategy board games taught by David Gardner, I highly recommend it). A central tenet of the class was the OODA loop, a framework developed by a military strategist to help fighter pilots win dog fights.
OODA is an acronym that stands for Observe/Orient/Decide/Act. The idea is that if you find yourself in an intense competition you need to see things for how they are, put that in context, figure out what to do to improve your position, and then do it. David’s point in teaching it was whether in dog fights or strategy games or business, when challenging circumstances present themselves, it’s not the side that makes the best decisions that necessarily wins, because there is arguably no one best decision, but the one that cycles through the most OODA loops.
This is because that side will cycle through the most iterations and therefore adapt to changing reality the fastest.
The idea is applicable to small businesses because they are inherently fragile due to their size. They need to be nimble and adaptable, constantly cycling through OODA loops, because the margin for error is slim. It’s with this as background that we strongly prefer to invest in small businesses with fast feedback loops rather than slow ones, even if the slow ones have meaningfully better economics. The reason is that if you’re trying to protect against downside, you need to know when risk starts turning against you so you can OODA.
If, on the other hand, you operate in a world when you might not know if you’re off the rails until you’re really off the rails (i.e., you have to order seasonal inventory 9 months ahead of time before demand is known), you can find yourself in a situation where the die is cast and your business has no agency. And even if you would have made a great decision back when you had time to course correct or know then what you know now, there’s often nothing you can do.
Yet the OODA loop can still apply, provided you are able to identify more frequent observable inputs to inform many small actions. This can be difficult, but worth it, to ensure it’s never too late.
– By Tim Hanson