The speed-reversibility framework is a simple matrix for decision-making to understand when to analyze scenarios before making decisions. And when moving extremely fast instead.
As you dive into the entrepreneurial world, you might struggle to make things work. And as that happens, you start looking for resources online to help you out throughout that process.
Chances are you’ll stumble on an article about making a sound decision by using data, and you turn to a data-science degree, instead of focusing on growing your business.
For that sake of that, a simple matrix like the speed-reversibility matrix can help you out.
And we’ll start with three simple principles.
When do you need data?
In a world where data is available anywhere, it’s easy to draw in that. Thinking you always need data to back up any decision. In reality, in many cases, your guts, your vision, and your deep understanding of the kind of business you want to build might be your sharpest tools.
In general, for a short-term decision quantitative analyses, data might help you tune processes. When it comes to long-term vision, you might want to rely on your guts.
Understanding optionality and reversibility
As an entrepreneur, you’re not trying to be right most of the time. You instead should make sure to be right once and profit a lot from it. While avoiding the risk of massive failure.
For the sake of it, you need:
- Optionality: the leverage to have multiple options when a scenario is unraveling.
- And reversibility: the ability to survive if the worst-case scenario might materialize.
When you’re missing both these elements, you already know that data can help better understand what you’re doing even if it slows down the decision-making process.
Assessing the worst-case scenario
Another key element is about evaluating the worst-case scenario. What would happen if things would turn out extremely bad?
Would this scenario be reversible? Would this imply a complete failure? Would I sacrifice all the progress made so far?
Based on these elements, you might have four decision-making options.
Slow-decision making mode
When the worst-case scenario looks pretty grim, and that can’t be reversed. You better gather as much data as possible about what you’re about to do.
Indeed, it doesn’t matter how large will be your payoff. If things will turn bad, you might have too much to lose.
Gradual rollout mode
When the worst-case scenario doesn’t look bad, yet it’s not reversible, you might still want to analyze. And gradually roll out the decision, rather than fully commit to it.
Multiple experiments mode
When the worst-case scenario is highly risky, but it can be reversed. You want to perform as many small experiments as possible.
When the worst-case scenario doesn’t seem to be risky at all. And it is reversible. You can move at full speed. In that case, you won’t need data. Rather the data will come to you as a result of execution.
In this mode, you can have as much fun as possible.
Thus, the question might be, “how do I find a low-risk worst-case scenario, which is reversible?”
- Decision-making in the real world, according to the Speed-Reversibility matrix is based on two core questions: 1. how big is the impact of the worst-case scenario? Is it going to be low (not life-threatening) or high (life-threatening?) 2. Is the decision we’re making reversible or not? In short, can we go back to the previous state?
- Based on the above we can have for states or decision-making modes: slow-mode (high impact of the worst-case scenario which is not reversible), gradual roll-out (low impact of the worst-case scenario yet not reversible), multiple testing (high impact of the worst-case scenario and reversible), and fast mode (low impact of the worst-case scenario and reversible decision).
- In a high impact worst-case scenario, which is not reversible, it’s the kind of decision we don’t want to make. Or at least, we want to make it only if the potential of the outcome is exponential, or we’re in a situation that is life-threatening for our business, and there is no choice but to act.
- In a low worst-case scenario impact and yet not reversible, before committing or going all in with a decision we want to test our assumptions in multiple steps. So we first break down the decision and we take it, step by step. Once validated we can move from there.
- In a high impact worst-case scenario where the decision is reversible, we want to craft well the sort of experiments that can tell us whether the positive impact can be much greater of the worst-case scenario.
- In the last hypothesis, where the worst-case scenario impact is low and the decision is reversible, we want to move fast! This is the fast mode, and we can use it to those decisions which are both low risk, with a potentially high impact, and yet reversible.
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