What are Type 1 and Type 2 Decisions in Business?

What are Type 1 and Type 2 Decisions in Business?

Whether you are launching a startup or currently running your company, almost every decision you have to make can be dropped into one of two buckets:  Type 1 and Type 2.

Type 1 decisions can be walked back easily.

Type 2 decisions are critical decisions that cannot be walked back once entered into.

Bezos had a letter a few years back where he dove into this dynamic, and the pitfalls of taking either too seriously or not seriously enough.

Understanding these differences is such a critical element of business that it cannot be overstated enough.

Most of the time, younger companies that struggle with this do so by going all in on one type of mindset, either Type 1 or Type 2.

TYPE 1 Everything: What this means is that ALL decisions are either vetted to the point where they’re exhausted before even starting, The constant debate and analysis of every little details paralyzes the company, stalls out progress and wears everyone down.

This dynamic causes massive issues IN THE PRESENT that can completely crush your company.

TYPE 2 Everything: What this means is that despite some decisions being more important than others, NONE of them really get the research they deserve, or the attention. Critical components get overlooked and despite moving quickly, the company becomes messy, people feel it’s chaotic and a ton of mistakes and lost opportunities begin to pile up.

This dynamic causes massive issues DOWN THE ROAD that can completely crush your company.

The best way to get around this and understand the dynamic is that when a decision has to be made -whether it’s just you, you and some partners or you and a team – immediately categorize it into one of these two buckets.

Not sure how to differentiate it?

Refer to the old adage of “If it won’t matter in five years, don’t spend more than five minutes worrying about it’

Three Great Questions to Ask Yourself:

– Will this decision have the impact to potentially ruin the company?

– Can this decision be corrected in a few months, a year or later on down the road?

– What are other important items are not being addressed while we address this one, and is this a priority over those items?

Opportunity cost is the great hidden monster in every company.

Time goes by regardless of your thoughts and feelings, and understanding these concepts will help you to be more effective in the early days while saving you headaches in the years to come.

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