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In Today’s Email:

• 🧭 A framework for making better decisions

• 🥓 Last week’s record crispy

• 🙏 A favor to ask

THE DEEP DIVE

The Secret CFO Problem Solving Framework

Overload is one of the biggest challenges in a C-Suite role.

And decision fatigue is real.

Barack Obama was once asked why he wore the same thing every day:

I read this 5 years or so ago, and it immediately struck a chord with me. I had never thought about things that way, and could identify with the idea of decision fatigue.

I decided to get disciplined about it. I set out the criteria I would use to process different decisions and problems.

The end result was a 2 x 2 grid. (Classic)

And I use the output of that grid to determine the approach I use to solving a particular problem.

Here’s the grid:

This matrix has four categories:

1. 💻 Computers (low complexity, high impact)

2. 🕹 Lemmings (low complexity, low impact)

3. 💩 Turds (high complexity, low impact)

4. 🦖 T-Rex (high complexity, high impact)

And the category of problem, defines the approach to solving that problem.

But before we get into the detail of the categories in detail, let’s understand the axis.

First the x axis.

Complexity of Issue

Complexity is defined by one or more of the following:

• Number of variables or inputs (more = more complex)

• Size of unknowns (the more assumptions, the more complex)

• Interdependency between variables (circular formula error. yuck)

• Stakeholder map (how many stakeholder groups and opinions are involved. The more humans with the more diverse opinions = complex)

• There isn’t a precedent to use.

• Conflict between objectives (for example, an ESG goal that has adverse financial consequences. This is a conflict / trade-off between two stated business goals).

One quick way of parsing a decision for its inherent complexity is the ‘it depends’ test.

If your gut answer is ‘it depends’ then ask yourself ‘depends on what’.

If that question is hard to answer with a simple binary ‘a or b’ type answer. Then you may have something complex.

Now onto the y axis.

Impact of Result

In short; how much is at stake?

Ask yourself three questions in order:

1. If I solve the problem well, what impact will it have on the business?

2. If I solve the problem badly, what impact will it have on the business?

3. How big is the difference between 1 & 2?

Put another way: what is the marginal impact as a direct consequence of solving the problem well or badly.

Deciding whether to do a large acquisition would be an example of high impact problem:

• If you buy the business and it goes well, that will be great, and create lots of value

• If you buy the business and it goes badly, that will suck. It will destroy shareholder value and detract focus from our core business.

Likewise, deciding whether to wear a gray or blue suit is a low impact problem. No-one cares, except you.

Often business throws at you a problem that the best case scenario is that things only get a bit worse. But the downside is so significant that a bad result would be catastrophic. This is a high impact problem.

A liquidity crisis would be a good example of this. Damage limitation.

That is the axis dealt with.

Now let’s talk about the four categories of problems the matrix creates, and how you solve them:

1. 💻 Computers (low complexity, high impact)

Problems that are high impact and low complexity are important to get right. But also should be straight forward.

At their core, they are math problems.

They get solved by math and systems, and automated as far as possible. Freeing up human intellectual horsepower to tackle high complexity problems.

Examples would include:

• Setting pricing for products based on a pre-determined pricing policy

• Scheduling staff based on projected demand and availability

• Optimizing inventory levels

There will be a lot of such decisions to make. And because they are high impact, our target is to get 100% correct.

It is important that these problems aren’t consuming lots of mental energy.

In a good business, the smart energy on these problems goes into setting the rules, and automating their application. Policies, strategies and frameworks. Tramlines inside which to compute these problems.

You should be happy to spend time on computer problems, as long you are building a solution which is repeatable. Or improving the logic of a system that is already in place.

2. 🕹 Lemmings (low complexity, low impact)

When I was a kid, there was a PC game called Lemmings (1991).

It was brilliant.

You’d be in control of this big group of cute creatures with green hair. They would blindly walk towards their doom. Unless you intervene to save as many of the little guys as possible.

You might be in control of 50 of these guys, and to pass the level you would have to make sure 25 of them survived.

You could afford to sacrifice any one of them, but not all. And each individual lemming was as important as the other.

And the most important factor for success in Lemmings? Speed.

Well, that’s how to think about low impact, low complexity decisions

Examples of Lemmings would include:

• Which investors to give 1-to-1 meetings at an investor day

• What format to use for your board packs

• Choosing a date and location for the company picnic

Work quickly, and trust your gut.

You need to make sure you have enough in place to get these decisions mostly right, rather than perfect.

But the impact is low, so make sure processing these problems consumes as little energy as possible.

Don’t want to waste time here. Delegate, or decide quickly. Using best judgment based on the immediately available facts. Thinking fast.

3. 💩 Turds

In theory, these are the easiest to deal with. In practice it can be different.

Turds stink.

And anything they touch will stink too.

You want to be as far away as possible, to make sure you don’t get any of that stink on you.

A high complexity problem, that is of little consequence is not worth your time. It will consume your mental energy, with no meaningful output.

It will drain the denominator without moving the needle on the numerator.

You need to prevent turds from coming into your purview.

The bad news is that people will bring their turds to you, so you must be disciplined.

Examples of turds would include:

• Company politics

• Complex internal projects (without clear goals)

• Re-designs of internal documents and processes that aren’t broken.

There is only one acceptable way to spend time on turds. Building a simple system for keeping turds at arm’s length (so to speak).

This would then become a high impact problem, because of the benefit to your time and mental energy in doing so.

You also need to distinguish between something that is a turd to you, vs something that is a turd to the business.

If it’s a turd to the whole business (i.e. a bad project), then as a leader, you have an obligation to squash it for everyone. Don’t hand other people your turds.

4. 🦖 T-Rex

These are problems that have a high impact on the business.

If there is a T-Rex in the room, you should spend your time on dealing with the T-Rex and not much else.

The problem is… how do you deal with a T-Rex?

Complex problems, with lots at stake.

Examples would be:

• Decisions to close or restructure major parts of operations

• Policy setting that affects across the balance scorecard (pricing policy, pay policy, etc)

• Decisions where there is a lack of consensus in the organization or board.

• Major capex / acquisition proposals that affect more than just the financials

T-Rex problems are where the intellectual horsepower needs to be. It’s where you need your smartest people, levering most of their effort.

You tackle these sorts of problems in a very methodical way.

By definition each problem is different, but that doesn’t mean the approach needs to be.

Next week’s edition of this newsletter will deep dive on the step by step approach for tackling a T-Rex.

Part of the challenge of turning an early stage business into a grown up is putting systems in place.

For example, tackling a T-Rex, so that similar future decisions can be tackled like Computer problems. Pricing is a good example.

But do this too early, and you saddle the business with unnecessary process. In short, you are bringing the business a Turd, not solving a T-Rex.

The most high value problem solving is taking a T-Rex and solving it in a way that it is treated like a computer problem in future.

Senior management should spend as much time as possible dealing with T-Rex problems (90%+). By definition these are the problems the rest of the business can’t solve.

You get paid more than others because you can solve these problems.

The key here is being ruthless in how you efficiently deal with the other 3 types of problems.

And the smaller the number of T-Rex problems, the more horsepower there is to tackle each of those problems. This is an incentive to systemize repeating T-Rex problems. So they can be tackled as Computer problems.

But remember. What is low impact at one level of the organization, could be high impact at another.

The same problem could sit in different categories, depending on the timing, circumstance, and the person holding the problem.

In other words …

One man’s Turd is another man’s T-Rex.

Anyway… I’m off to wash my hands.

Next week’s edition of this newsletter will be a ‘part 2’ to this newsletter. Focusing on how I approach solving T-Rex problems with a worked example.

MEME OF THE WEEK

If you know … you know.

BOOK CLUB

I‘m still deep in CEO letters. This week I’ve read Invent & Wander.

This is Walter Isaacson collection of the best writings of Jeff Bezos. It takes the best of his shareholders letters and personal notes.

I had no idea JB was such a good writer. So simple and clear. And if that wasn’t enough he loves FCF per share, and hates quarterly reporting to Wall Street. He’s one of us.

The book didn’t shed any light on what drove his transformation from balding computer nerd, to super jacked space tourist. So, I think we’ll just have to keep assuming it was the divorce…

Regardless, naturally I’ve always respected what Bezos has achieved, but this book gave me a deeper appreciation for how he has achieved it.

FEEDBACK CORNER

The feedback from last week’s newsletter bowled me over. I had well over 100 reviews and over 97% of them were Super Crispy 🥓🥓🥓🥓🥓

Thank you very much, it made my weekend.

Here is my favorite:

As promised, I will run an update on the acquisition every few months, so you can follow the journey with me.

TED OF THE DAY

If I could bottle Ted Lasso vibes and sprinkle it across my team, I’d do it …

PUBLIC SERVICE ANNOUNCEMENT

I’m spending 10 hours or so per week creating content. And the pay is sh*t. By shit, I mean zero.

So, this week’s newsletter is NOT free.

There is a cost.

The cost is this…

I want you to head over to LinkedIn. Find the Secret CFO page under ‘Companies’. Then click ‘Follow.’

That’s it. Hours and hours of crispy a$$ content, and all I’m asking you for is a couple of clicks.

Getting a new social media page going is a bit of a slog. So I’d appreciate your support.

And besides, I’ve got some exciting stuff planned for LinkedIn. So it’ll be worth your while.

Oh, and don’t worry, you can still find me here on CFO Secrets, and here on twitter.

Anyway, until next week…

Stay Crispy,

The Secret CFO

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director or friend. Well, maybe I’m your friend. But I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need to make the right decisions.