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Beware of Instincts

Chris Charuhas

November 12, 2004

Should a leader trust his gut? It's an important question now. When the United States invaded Iraq, Sen. Joe Biden, of Delaware, told the president he was concerned about winning the peace. The president assured him all was well.

Senator Biden then asked him, "How can you be so sure when you know you don't know the facts?"

"My instincts," the president replied. "My instincts!"

Now we're undertaking a major assault on Fallujah. Will the instincts of our commander-in-chief lead him to make good military decisions?

No! Instincts only work well when making decisions that involve a few people or factors. In situations where many factors interact, relying on instinct leads to failure.

If the President is dealing one-on-one with another leader, he should probably trust his gut. Because humans are social creatures, we've developed a remarkable ability to "read" others and figure out what their intentions are. If he were leading a 40-man platoon in combat, guts would get him by.

On that level, it's often better to pursue a bad decision aggressively than to wait to make a good one.

Commanding successful armies takes more than instincts. It takes a systematic approach to decision-making - and past experience with putting one's own butt on the line.

Since the President has an MBA, let's look at the world of venture capital to see how it's done. Investing in startup companies is nearly as complex and uncertain as waging war. The contrasting records of "instinctual" investor Tim Draper and "battle-tested" investor Jeff Osborn show which approach works better.

A third-generation investment banker, Tim Draper runs Draper Fisher Jurvetson, one of the biggest venture capital firms in the world. He has a blue-chip educational pedigree: Andover, Stanford, and Harvard Business School. He makes quick decisions, and says inspiring things like, "What we look for are heroes...people who are going to change the world."

Jeff Osborn has only a B.A. from Trinity College. In 1991 he started a company called Wilder Systems, maxed out all his credit cards to fund it, then went personally bankrupt when it tanked. He has an exhaustive checklist he uses to evaluate companies, and says dispiriting things like, "If you are doing it right, starting a company is a really grinding proposition."

Who's better at investing?

Not Tim Draper. He lost more than $200 million betting on now-defunct dot-coms, such as Product Pop and InfoRocket.com. If you invested a dollar with him in 1998, you'd have a quarter now.

It's Jeff Osborn. After his first startup went belly-up, Mr. Osborn made $10 million as one of the principals at UUNet. His venture firm, Osborn Capital, turned $3 million into $100 million. If you invested a buck with him in 1998, you'd have $35 now.

The president is more like Tim Draper than Jeff Osborn. He makes decisions based on instinct, not systematically, and has no personal experience of failure. Family support and connections have allowed him to "fail upward" throughout his life.

If he leaves the battle for Fallujah to his battle-tested generals, we'll probably win it. If he takes an active command role, like Lyndon B. Johnson did in Vietnam, our troops are in big trouble.

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