How To Make Better Decisions: Avoid The Hidden Traps! by Urs Koenig, Redpoint Succession and Leadership Coaching

Making decisions is the most important job of business owners and executives. It is also the toughest and the riskiest. Bad decisions can ruin your business or career.

So where do bad decisions come from?

In many cases they can be traced back to a flawed decision-making process – the alternatives were not clearly defined or the right information was not collected. However, more often than not, the fault lies not in the decision-making process but rather in our mind. The way the human brain works can sabotage decision-making.

Over the course of this and the next edition of ChangeAbility, I will examine four, well-documented psychological traps and tell you what you can do about them in order to make better decisions. These four traps are:

  • The Anchoring Trap
  • The Status Quo Trap
  • The Sunk Cost Trap
  • The Confirming Evidence Trap

The Anchoring Trap

How would you answer these two questions?

  • Is the population of Turkey greater than 35 million?
  • What is your best estimate of Turkey’s population?

If you are like most people, the figure of 35 million cited in the first question influenced your answer to the second question. Studies show that if you use, for example, “100 million” in the first question, the answer to the second question increases by many millions.

This simple test illustrates the common mental phenomena of anchoring: When considering a decision, the mind gives disproportional weight to the first information it receives. Initial impressions, estimates, or data anchor subsequent thoughts and judgments.

Because anchors can establish the terms on which a decision will be made, they are often used by savvy negotiators. The first offer in any negotiation will serve as an anchor. Therefore, it is important to really understand your position before any negotiation in order to avoid being anchored by the other party’s initial offer.

 What Can You Do About the Anchoring Trap?

No one can avoid the influence of anchors. They are too wide spread. However, by being aware of the dangers of anchors and using the following techniques, you can reduce their impact:

Think about the problem on your own before consulting others to avoid becoming anchored by their ideas. When consulting others, seek information and opinions from a wide variety of people.

Be careful to avoid anchoring advisors, consultants and others from whom you solicit counsel. Tell them as little as possible about your own ideas or tentative decisions. If you reveal too much, you might simply anchor their thinking.

Think through your position before any negotiation begins in order to avoid being anchored by the other party’s initial proposal. At the same time, use anchors to your own advantage. If you are a seller, for example, suggest a high but defendable price as a first offer.

The Status Quo Trap

When faced with a decision, we all display a strong bias towards the status quo. The source of the status-quo trap lies deep within our psyches, in our desire to protect our egos from damage. Breaking from the status quo means taking action. When we take action, we take responsibility; thus we open ourselves to criticism and regret.

Many experiments have shown the magnetic attraction of the status quo. In one, a group of people were randomly given one of two gifts of the same value: half received a mug, the other a Swiss chocolate bar. They were told they could easily exchange the gift they had received for the other. While you might expect that about half would have wanted to make the exchange, only one in ten actually did. The status quo exerted its power even though it had been arbitrarily established only minutes before.

In business, where the sins of doing something tend to be punished much more severely than the sins of doing nothing, the status quo holds a particularly strong attraction. In merger situations, for example, the acquiring company often fails to take swift action to impose a new, more appropriate management structure early on. “Let’s not rock the boat; let’s wait until things stabilize,” goes the reasoning. However, as time goes on, the existing structure becomes more entrenched and changing the structure becomes harder, not easier. The acquiring company has fallen into the Status-Quo Trap.

What Can You Do About the Status Quo Trap?

Remember that in any given decision, maintaining the status quo may indeed be the best choice, but you do not want to choose it just because it is comfortable. Once you are aware of the status quo trap, you can use the following techniques to mitigate its influence:

  • Ask yourself whether you would choose the status-quo alternative if, in fact, it weren’t the status quo.
  • Always remind yourself of your objectives and examine how they are served by the status quo. You might find that elements of the status quo are detrimental and prevent you from achieving your goals.
  • If you have several alternatives that are superior to the status-quo, don’t default to the status-quo simply because you’re having a hard time picking the best alternative. Force yourself to choose.

Your Take-Away:

When facing major decisions in your business or life, be sure to use the above techniques to avoid falling into the Anchoring Trap and the Status-Quo Trap. In the next ChangeAbility, I will discuss the Sunk Cost Trap and the Confirming Evidence Trap.

This article is based on: “Hammond, Ralph & Raiffa: The Hidden Traps in Decision Making,” Harvard Business Review, January 2006.

How To Lead Generation Y: Delivering The Leadership That Will Make Them Thrive Is Easier Than You Think

by Urs Koenig, PhD, MBA

Personal note: In my previous position as marketing director at Merriman, a financial advising firm, I had both the two oldest (60+) and the youngest member (23) of the entire firm on my team. My team spanned almost all four of the previous generations (Traditionalists, born between 1926-1938), Baby Boomers (1945-1960), Generation X (1961-1981), and Generation Y (1985-1995). Including an intern, I had four Generation Y members working for me. One of the things I enjoyed most about my job was to facilitate and lead intergenerational team-work. If you are leading young adults (or are in charge of people who lead them) I believe you will find the lessons I have learned about leading members of Generation Y helpful.

Shannon is 25 years old. She is in her second job out of college. She was hired as a ‘high potential’ candidate by her current company. She survived several rounds of layoffs and is very unhappy in her current position. Her old-school, corporate, generation-X boss micromanages her time while not providing much feedback or guidance on her actual job. Shannon is disillusioned with management and cynical about her job. She puts in the absolute minimum in time and effort and spends a lot of her working time surfing the web. The poor job market is the only thing stopping her from leaving the company.

Bruce is 19 years old and in his second year of college. He is the third generation in a family business. His grandfather (70) only recently handed over day-to-day operations to his father (45). This summer Bruce is interning as the ‘social media guru,’ his first paying job in the family business. After a few weeks, he is highly frustrated. In his view, people at the company simply ‘don’t get it.’ He truly desires to make an impact and help make a difference but feels that no one is listening to his ideas or values his input. In the interest of family peace, he decides to continue with the internship but secretly vows to never again work in this family business.

The above real-life examples demonstrates what happens when Generation Y leadership goes bad.

Today’s young adults entering the workforce are a different breed than those of any of the generations before them. They must be lead slightly differently as they enter the workforce:

Provide constant feedback (and manage their sense of entitlement)
These young adults are used to and crave instant and constant feedback. Most of them grew up with lots of praise. Many Trophy Kids received ribbons and trophies simply for showing up at Saturday games. Their parents have told them over and over again they can achieve anything they want. They are highly optimistic and sometimes out of touch with reality. They are definitely not used to being told that the quality of their work needs improvement.

As their leader, it is virtually impossible for you to over communicate. Provide them with ongoing, just-in-time feedback. Give them the praise and appreciation they crave. At the same time, hold them accountable. You might be the first one to ever tell them the truth about the quality of their work. If they are falling short, you need to tell them. As their leader and mentor, you need to help them discover their weaknesses and strengths and then play to those strengths

A word of caution though: Don’t ever micro manage their time. Instead, lead by objective. They value a flexible schedule and might do their best work from the local Starbucks or at 2 a.m. in their pajamas. Assess their performance, not their attendance!

Be a strong mentor and coach
This is probably the most important lesson of them all. Members of Generation Y are extremely responsive to mentoring and coaching. Develop strong and meaningful relationships with them by really getting to know them: Take them for coffee, go for a lunchtime walk/run, play some golf and most important, ask questions and really listen to what they have to say.

Learn their passions, their desires, their aspiration in life. In return, share your experiences and lessons you have learned. They are hungry for your insights, they love to be ‘in the know’ and they will soak up your knowledge, feedback and advice. Become their strong mentor and coach and your Gen Y’s will thrive, blossom and follow you loyally.

You might also explore a ‘reversed mentoring’ approach, something Jack Welch at GE pioneered over 20 year ago. The idea is to pair Baby boomers with members of Generation Y. The Boomers share their work experience while the Generation Y team members enlighten Boomers about new technologies and social networking.

Share why their work is important
These young people have little time for doing things because they are told to do so or because ‘that’s how we have always done it.’ They are hungry for data and information. Remember that, for better or worse, many of them are constantly multi-tasking, and are taking in thousands of technology messages every day. Faced with this overload, they quickly sort incoming information between what they deem is ‘need to know’ versus ‘nice to know’.

Provide them with lots of context and information. Communicate the importance of their work and tell them how it fits into the company’s overall big picture. Help them see that what they do really matters. Show them how their work is making your organization better, making a difference in the world and is part of something bigger – not just adding to the bottom line. Several studies, for example, have shown the importance of environmental causes for Generation Y.

In short: get them fired up for your vision, show them how their work will directly help you to make the vision a reality and your Gen Y-ers will be the best people who ever worked for you!

Give them opportunity for input and ownership
Members of Generation Y have been on their laptops since they were four. They grew up with posting and voting on Facebook and blogs. They have a strong desire to express themselves, to comment and to provide input on topics.

Be bold and have them provide you input and feedback on high-level strategic topics which you would normally not share with them. They will forever value you for giving them the opportunity to ‘upload their thoughts’ and much like any generation before them, they will throw their support behind what they helped to create.

After they have given you their input, it’s time to challenge them: Carve out a project with a clearly defined deliverable, a budget and a timeline, then give them full ownership of it. Make yourself available as a coach and mentor. But don’t micromanage them or their projects.

Be tough when assessing the results of their work by providing the honest, credible feedback they so crave.

Are You Ready for Succession? Tackling the personal challenges of handing over leadership

By Urs Koenig, PhD, MBA www.redpointcoaching.com


The technical aspects of succession planning are covered at length in both the academic literature and in the work of ‘real life’ consultants. Less explored are the very real and equally influential personal struggles and strong emotions that often unfold during the succession process.

Anyone who has ever been in charge of an organization knows the kind of personal investment this work requires. After a while, being the CEO is not what you do but who you are. This is even more true for founders. So transitioning out of the top spot and handing over the role that has essentially become ‘You’ is a very personal process indeed.

Even as you continue to lead your organization, you need to prepare for your departure. You might think that this will be easy. You will likely be wrong! Handing over leadership to the next generation will be tougher than you think.

Letting go is hard to do
Any successful transition starts with coming to terms with the fact that it is probably going to be hard for you to let go. Leaders who realistically face the personal challenges of transitions are much better prepared to leave than those who deny the difficulties.

In addition to leaving significant monetary benefits and perks behind, what makes it so hard to leave what is after all a highly stressful job. What can you do to ease the transition?

The mind-set that served you well going into the job (or founding the company) will make it challenging for you to transition out–in all likelihood, you have become the job. Going into the job you had to be convinced that you were the one who could do the best job at leading the organization. You also must have either convinced a board and/or numerous lenders and investors that you were the absolute perfect person for the job. For most leaders, pulling this off requires a very healthy ego when it comes to work performance. Even if you are modest and not a show-off, transitioning from being in the midst of it all, making it all happen, to taking a background mentoring role and getting your kicks out of your successors’ successes (versus your own) can be very challenging.

Along with the proverbial corner office, here’s what you’re likely to miss most:

Status: When we hear status, we often think of corporate CEOs with all their perks, name recognition and corporate jets. But status can come in a lot of different forms. Successful business owners in small town America, for example, enjoy a fair share of status as well. They are admired by their community and receive a lot of recognition for their position. Even if you were never seeking status, losing it and becoming a ‘used to be’ can be very difficult. Many studies have shown that losing something (e.g., status) creates significantly more pain than the amount of pleasure we enjoyed when we originally obtained it.

Power: When you’re in charge, you know your job matters! Every single day you are making a difference in people’s lives. Not many people have as much influence as you. Power might simply be defined as being able to influence. No one in any managerial position gets anything done without power. Top leaders have a high need for power. Throughout your career you have gradually gained more and more power. When you leave your job you will suddenly feel a loss of power. Marshall Goldsmith recounts one executive’s perspective: “It was like falling off a cliff. My loss of power: ‘They are not bothering to return my phone calls.’ When I was the CEO, my phone calls always were immediately returned!”

Meaning: Most CEOs find true meaning in their work. They truly care about what their organization is doing for their clients. They value their workforce and are passionate about the mission of the business. You might fear that nothing you will do in the future do will ever make as much of a difference and create as much meaning for you as being CEO. You might be right. Often one of the most challenging parts of the succession process is to find new and uncharted ways to create meaning in your life.

Relationships: Unless you are working in a family business, you will have spent significantly more time with your co-workers, clients and suppliers than with your friends and family. As the leader, you like most of your co-workers – otherwise they would not be working for you anymore. You have been through highs and lows and have seen the best and worst in each other. The more you have been through together the closer you will be. Some of your co-workers will have become close friends and some feel like family. It can be very hard to leave your workplace friends and family. 

Picking the Right Time
It will almost certainly be hard for you to choose the right time to slow down and hand over leadership. If your organization is achieving wonderful things, growing, making a difference for more people every year, adding cash to the bottom line and providing a wonderful work environment, why in the world would you want to leave?

If, on the other hand, you are falling behind or not achieving what you set out to do, your competitive drive won’t let you quit. After all, a lot of what you achieved was due to the fact that you kept going against all odds. You persevered when a lot of other people would have thrown in the towel. You will be convinced that you will be able to turn the ship around if only you are given a bit more time.

When deciding on the right time to leave, consider these two useful principles:

  • You make the call – leave while you can still make the decision rather than having the decision made for you. Remember that being able to choose the right time to leave is a privilege. Many leaders are not that lucky. They either get pushed out of their position (by the board, other family members, or their successor) or their health forces them to step down. Treat this choice as the privilege it is and don’t simply bury your head in denial about your eventual departure.
  • Go when you feel pulled towards something rather than when you feel pushed out of the business – While it will be difficult to leave your current position, try to make the move at least in part because you have ‘something better’ to do afterwards. Move while you are attracted to and intrigued by (and in demand for!) a different opportunity and before you are pushed out of your leadership position either by higher forces or by the fact that you have tired of the top job.

Building a Great Rest of Your Life
‘Who am I going to be?’ and ‘What am I going to do?’ are the all-important questions you have to ask yourself as you prepare for succession.

Most retiring leaders leave their positions in their sixties when they are in good health and have twenty + years ahead of them. For the majority, a leisurely retirement spent sampling cruises and chipping away at their golf handicap is not an option. Many have tried it. Most realize that the desire to just rest and relax won’t last very long and that their drive and ambition did not simply disappear with their job. Simply stopping might therefore not be an option.

Today’s retiring leaders are looking to continue to make a contribution and pursue something that has true meaning. Instead of becoming a person who used to make a difference, they want to remain a person who still is making a difference.

They are also looking for happiness realized by living lives full of meaning and contribution, and enjoying close relationships with friends, family and the new team members in the ‘after job.’

If you are nearing succession, think about the rest of your life. Now is a great time to start planning and challenging yourself. How can you make a contribution? What makes you really happy? How can you find meaning?

You might have 20-30 years left. How can you make this time count for yourself and for the people around you?

If you have a path beyond your current leadership role that you believe will give you meaning and make you happy, it will be much easier for you to let go. If on the other hand, you see no options that excite you, you are more likely to hang on much longer than you should.

Three concrete things we encourage our clients to do when we’re coaching them through handing over the baton of leadership of their business:

  • Learn from others who have been in your shoes. Seek out peers who have gone through the process. Find out what has worked for them and what has not. Remember: a smart person learns from her mistakes. An even smarter person learns from the mistakes of others.
  • ‘Interview’ the people who know you best about potential pitfalls and opportunities of the succession process. Treat this as a research project: What do your friends and family think? What are they most excited and most worried about for you? If they could give you once piece of advice, what would it be?
  • In thinking about how to build a great rest of your life, fast-forward 5 years and write a holiday letter for 2015 to your friends and family. What did your life look like this year? How did you spend your time? What got you excited? What were the challenges? What are you looking forward to in 2016?

Note: this article was inspired by the writing of Marshall Goldsmith, in particular his book: Succession. Are You Ready? Harvard Business Press 2009.