A ‘gut feeling’ or data: Which is more important for entrepreneurs?

The courageous entrepreneur who acts on his or her own "intuition" has been a hallmark of popular culture for ages. However, the idealised view of this romantic notion is being challenged in today's data-driven world.

The discourse is that whether "gut feeling" is sufficient to ensure long-term success in today's dog-eat-dog corporate world, even if they helped and provided the foundations of great enterprises.

As an entrepreneur living in the era of massive data and powerful tools that help to analyse this vast amount of data, it becomes a pertinent question whether gut-feel responses are as dependable and efficient while making critical judgments.

Can intuition be a delusion? Similarly, can data-driven decision-making result in significantly better-performing ventures? In a nutshell, data-driven decision-making is the key to business success and intuition is good but it must always complement not replace. 

Intuition, often referred to as a gut feeling, is the ability to take in the market dyanmics and make judgement calls. This paradigm is also deeply entrenched in our cognitive processes, albeit a romanticised one.

It is the product of an unintentional combination of data, emotions and experiences. In many scenarios, this form of decision-making may be very fast and generally acceptable as the individual has adequate experience to make critical decisions.

Calculated risks are the essence of entrepreneurship; however, going purely on one's gut feeling can lead to costly mistakes.

Organisations rely on data to provide a framework of evidence enabling insights into market demands, consumer tastes and competitor strategies. Insight from market research, customer surveys and sales analytics offer a more holistic view of the business environment helping to reduce this inherent volatility common in new companies.

Data can lead entrepreneurs to see things that intuition alone may miss.

As we observe customer demographics and expenditure habits, a product that may appear boring might reveal hidden potential. Data can also reveal hidden associations, resulting in innovative product design or profitable partnerships.

Netflix is a roaring success because it knows what everyone watches and produces original entertainment exactly tailored to its audience. Sharing information also promotes responsibility and transparency in the decision-making process. The gut instincts are internal and can be biased.

But data provides a level playing field.

Performance metrics by definition are key performance indicators (KPIs), and they help entrepreneurs ensure that their strategy, however conceived and launched in the market place, have indeed achieved success or need to be managed differently.

A culture where data is being used to optimise the system is all about continuous improvement and making decisions that are backed up by evidence. But simply not to pay it any heed would be incorrect.

Most likely, intuition exists out of long experience with some level of subconscious processing. It can discover tiny clues and subtleties that would otherwise be disregarded in a data-driven study.

A seasoned entrepreneur, for example, may have a 'gut feeling' about a specific market segment based on their years of industry knowledge.

According to research conducted by Warwick Business School, researchers observed tech entrepreneurs as they explored an elaborate technology fair. They invited 74 business owners recruited in Malta to think aloud as they analysed opportunities and brainstormed new initiatives.

This allowed researchers to get around their own opinions about whether the participants were rational or intuitive businesspeople; researchers just studied their reactions.

The team attempted to emulate the speed with which these occurrences occur, as well as the quick reactions required to take opportunities. This particular research shows unconventional results like the most original ideas came from a specific group: experienced entrepreneurs who were able to mix intuition and analysis - the ideal balance that produces the best ideas.

These entrepreneurs were able to quickly analyse extremely unique concepts for new enterprises. Also, there is a discussion regarding where intuition comes from and what factors contribute to its development.

The study emphasised that intuition is derived from experience. Even if a person is unable to describe why they feel a certain way, it is due to patterns in their field of expertise that they have learned over time. We emphasised that intuition is derived from experience.

Even if a person is unable to describe why they feel a certain way, it is due to patterns in their field of expertise that they have learned over time. Comprehension of these correlates to the immediate gut feeling that is known as intuition. The team discovered that the most experienced entrepreneurs in terms of new start-ups generated more original new ideas, which we ascribe to their use of intuition.

The idea is to achieve a balance between intuition and facts. 

Intuition can inspire the formulation of a hypothesis, which can subsequently be examined and validated by data analysis. This strategy helps entrepreneurs to leverage their expertise while limiting the inherent subjectivity of gut reactions.

Several successful businesses have already displayed this balanced approach. Steve Jobs the creator of Apple, highly renowned for his visionary leadership, relied substantially on market research and consumer feedback when developing notable products such as the iPod and iPhone.

Similarly, Amazon's founder, Jeff Bezos, emphasises the significance of data-driven decision-making while simultaneously conceding the usefulness of "bold bets" based on long-term strategy.

Data is crucial for growing operations and enhancing efficiency throughout the early phases of business development. There could be some use for analytics when it comes to fine tuning marketing activities and aiming them towards prospects or identifying operational bottlenecks or improving resource allocation, etc.

Making decisions based on data is very important today, for startups and established organisations alike as it leads to a better use of resources in the cutthroat environment in which entrepreneurs operate.

The primary key of an entrepreneur is intuition, but without data input, they may fail. It gives a full market view, leads to better decisions and pushes for accountability. Data integration then benefits entrepreneurs on the global business stage; but not if they only mention native wisdom.

Dr Syed Far Abid Hossain is a faculty at the BRAC Business School, BRAC University, Dhaka.

Tahsin Raysha Mallik is a student of the BRAC Business School, BRAC University, Dhaka.

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.