One of the hardest parts of running a business is making decisions when you don’t know exactly what will happen.
Should you hire another employee?
Should you launch a new product?
Should you enter a new market?
Should you borrow money to expand?
Should you increase your prices?
Should you invest in new equipment?
In each case, you can research the market, examine your finances and gather advice. But you still won’t have complete certainty.
This is the reality of entrepreneurship.
Good entrepreneurs don’t wait for certainty. They learn how to make good decisions despite uncertainty.
Decision-making under uncertainty is the ability to evaluate incomplete information, consider possible outcomes and risks, and make a sensible decision even when the future cannot be predicted with confidence.
It is an essential entrepreneurial skill because business is almost always about making choices today that will affect an uncertain future.
Uncertainty Is Normal in Business
When you’re starting or growing a business, you might wish you had perfect information.
You might want to know:
- Exactly how many customers will buy your product
- Exactly how much revenue you’ll generate
- Exactly what your competitors will do
- Exactly how much demand will change
- Exactly how much an investment will return
- Exactly when you’ll need more employees
- Exactly what the economy will do
Unfortunately, nobody has this information.
Even large corporations with research departments, economists, analysts and sophisticated forecasting systems still make incorrect predictions.
The objective isn’t to eliminate uncertainty.
Instead, the objective is to manage uncertainty intelligently.
Risk and Uncertainty Are Not Exactly the Same
The words “risk” and “uncertainty” are often used interchangeably, but there’s an important distinction.
Risk generally refers to a situation where you can identify possible outcomes and estimate their likelihood.
For example:
“There’s approximately a 10% chance that this equipment will fail during the first year.”
You may be able to estimate this based on historical information.
Uncertainty is more difficult.
You may not even know all the possible outcomes or how likely they are.
For example:
“How will customers respond to our completely new type of product?”
There may be little historical information available.
The distinction matters because you can often calculate and manage risk more easily than genuine uncertainty.
Don’t Confuse Uncertainty With Ignorance
Not knowing everything doesn’t mean you know nothing.
This is an important mindset for entrepreneurs.
Suppose you are considering opening a second location.
You might not know exactly how many customers you’ll attract.
But you may know:
- the population of the area
- average household income
- competitor numbers
- rental costs
- your existing customer demographics
- your current profit margins
- your capacity
- industry demand
- your estimated break-even point
You don’t have certainty.
But you have information.
The decision is about using the information available to make the best judgement you can.
Start With What You Know
When faced with uncertainty, separate information into three categories:
What we know
These are facts supported by evidence.
For example:
“Our current location generates $500,000 in annual revenue.”
What we estimate
These are reasonable predictions based on available information.
For example:
“We estimate the new location could generate $350,000 in its first year.”
What we don’t know
These are genuinely uncertain factors.
For example:
“We don’t know how quickly the new location will build a customer base.”
This simple exercise can make an uncertain decision much clearer.
It prevents assumptions from quietly being treated as facts.
Avoid the Need for Perfect Information
One of the biggest mistakes entrepreneurs make is delaying decisions indefinitely because they want more information.
Research can be useful.
But there is a point where additional information has diminishing value.
Imagine you’re considering purchasing a new piece of equipment.
You might research:
- five suppliers
- ten suppliers
- twenty suppliers
- hundreds of reviews
- dozens of articles
- different financing options
- every possible specification
Eventually, you may spend more time researching the decision than the decision is worth.
Ask:
“What information would actually change my decision?”
If discovering another piece of information wouldn’t change your decision, continuing to research may not be productive.
Identify the Decision’s Importance
Not every decision deserves the same amount of analysis.
A useful approach is to consider two factors:
How important is the decision?
and
How difficult is it to reverse?
A decision that costs $100 and can easily be reversed doesn’t require weeks of analysis.
A decision involving $500,000 and a five-year commitment deserves considerably more investigation.
This creates a useful principle:
The bigger and harder-to-reverse the decision, the more carefully you should analyse it.
Separate Reversible and Irreversible Decisions
This is one of the most useful concepts for entrepreneurs.
Some decisions are relatively easy to reverse.
For example:
- changing a website headline
- testing a different advertisement
- changing a software subscription
- trying a new sales script
- introducing a limited-time promotion
Other decisions are much harder to reverse.
For example:
- signing a long commercial lease
- purchasing an expensive facility
- acquiring another business
- taking on substantial debt
- entering a long-term contract
- hiring a large team
For reversible decisions, you can often act quickly and learn from the result.
For difficult-to-reverse decisions, you should spend more time analysing the possibilities.
Use Small Experiments
When uncertainty is high, don’t always make a huge commitment immediately.
Instead, look for ways to test the idea.
Suppose you want to launch a new product.
Instead of immediately producing 10,000 units, you might:
- Create a prototype.
- Show it to potential customers.
- Collect feedback.
- Produce a small batch.
- Sell it to a limited audience.
- Measure the results.
- Improve the product.
- Scale production if demand is strong.
This reduces the amount you have to risk before learning what customers actually want.
The same principle can apply to marketing, pricing, services, locations and business processes.
Think in Scenarios
When you cannot predict the future, don’t rely on a single forecast.
Create several scenarios.
For example:
Best case
Sales are significantly higher than expected.
Expected case
Sales are approximately what you forecast.
Worst case
Sales are considerably lower than expected.
You can then ask:
“What would happen to the business under each scenario?”
For example:
| Scenario | Revenue | Profit | Cash Position |
|---|---|---|---|
| Best case | $1.2m | $250k | Strong |
| Expected | $950k | $140k | Healthy |
| Worst case | $700k | $20k | Tight |
The exact numbers will vary by business, but the principle is powerful.
You’re not trying to predict the future perfectly.
You’re preparing for several plausible futures.
Ask: “What If We’re Wrong?”
One of the best questions an entrepreneur can ask is:
“What happens if our assumption is wrong?”
Suppose you believe a new product will generate $200,000 in sales.
Ask:
What if it only generates $100,000?
Then:
What if it generates $50,000?
Then:
What if almost nobody buys it?
If the business can survive these outcomes, the decision may be relatively safe.
If the worst reasonable outcome could seriously damage or destroy the business, you need to think much more carefully.
Understand Your Downside
Entrepreneurs naturally focus on potential rewards.
You might think:
“This investment could generate an additional $500,000.”
That’s exciting.
But critical decision-making also asks:
“How much could we lose?”
Suppose an investment has:
- potential profit of $500,000
- potential loss of $50,000
That may be very different from an investment with:
- potential profit of $500,000
- potential loss of $500,000
The upside may be identical, but the downside is dramatically different.
Good entrepreneurs consider both.
Think About Asymmetric Opportunities
Sometimes a decision has limited downside but substantial potential upside.
Imagine spending $5,000 testing a new service that could eventually generate $200,000 per year.
If the test fails, you lose $5,000.
If it succeeds, the potential return could be enormous.
This is an example of an opportunity with an attractive risk/reward profile.
However, don’t assume every “small investment with huge potential” is automatically a good idea.
You still need to investigate the assumptions.
Use a Pre-Mortem
A pre-mortem is a useful technique for uncertain decisions.
Imagine that you have already made the decision.
Now imagine that one year later, the project has failed badly.
Ask:
“What went wrong?”
Write down everything you can think of.
For example:
- Customers didn’t want the product.
- Costs were higher than expected.
- The launch was delayed.
- A competitor responded aggressively.
- We underestimated staffing requirements.
- The marketing didn’t work.
- Cash flow became a problem.
- The supplier couldn’t deliver.
You can then look at each potential failure and ask:
“What could we do now to reduce the chance of this happening?”
This can uncover risks before you commit.
Consider the Cost of Doing Nothing
Uncertainty can make entrepreneurs reluctant to act.
But inaction also has consequences.
Suppose a competitor is developing a new product.
You could decide not to respond because you’re uncertain about the market.
But what happens if the competitor succeeds?
You could lose customers.
You could also miss an opportunity to establish yourself in the market.
Therefore, the decision isn’t always:
“Should we take the risk?”
Sometimes it is:
“Which risk is greater — acting or not acting?”
Doing nothing is still a decision.
Don’t Let Fear Make the Decision
Uncertainty can create fear.
You may worry about:
- losing money
- making the wrong choice
- disappointing customers
- hiring the wrong person
- entering a competitive market
- expanding too quickly
These concerns are legitimate.
But fear can cause entrepreneurs to become excessively conservative.
A business that never takes risks may also miss opportunities.
The objective isn’t to eliminate risk.
It is to take calculated risks that the business can afford.
Don’t Let Optimism Make the Decision Either
The opposite problem is excessive optimism.
Entrepreneurs are often naturally optimistic.
That can be a tremendous strength.
Optimism helps you:
- see opportunities
- persist through difficulties
- motivate employees
- convince customers
- pursue ambitious goals
But optimism can become dangerous when it causes you to underestimate problems.
Watch for statements such as:
“It will probably be fine.”
“I’m sure customers will love it.”
“We’ll work out the money later.”
“The competition won’t matter.”
“We can always fix it.”
Replace optimism without evidence with confidence supported by preparation.
Use Probabilities When Appropriate
When possible, estimate probabilities.
For example:
“There is approximately a 60% chance that this project will meet our target.”
You don’t need to pretend that the number is scientifically precise.
The value comes from forcing yourself to think about likelihood.
Ask:
- How likely is success?
- How likely is failure?
- How severe would failure be?
- How large would the reward be?
- How much would we need to invest?
This can reveal when an exciting opportunity isn’t actually attractive.
Use Expected Value Carefully
A simple decision-making concept is expected value.
Imagine an investment has:
- 50% chance of making $100,000
- 50% chance of losing $20,000
A simplified expected value would be:
(50% × $100,000) + (50% × -$20,000) = $40,000
That doesn’t mean you’ll actually make $40,000.
You will either make $100,000 or lose $20,000.
Expected value is simply a way of comparing uncertain choices mathematically.
Real business decisions are more complicated because you also need to consider cash flow, timing, risk tolerance, strategic value and the consequences of failure.
But the principle is useful.
Consider Your Cash Flow
A profitable decision can still create a cash-flow problem.
Suppose a project is expected to generate $100,000 in profit over three years.
That sounds attractive.
But what if you need to spend $150,000 today to make it happen?
If the business doesn’t have sufficient cash or financing, the project could create serious financial pressure before the expected returns arrive.
Under uncertainty, always consider:
“Can the business survive long enough to reach the expected return?”
This is one reason cash reserves are so valuable.
Build a Margin of Safety
When the future is uncertain, avoid plans that only work if everything goes perfectly.
Suppose your forecast says you need to sell 1,000 units per month to break even.
If you expect to sell exactly 1,000 units, that’s risky.
What happens if sales are only 800?
A stronger business model might remain viable at 700 or 800 units.
This is called building a margin of safety.
Margins of safety can come from:
- lower fixed costs
- cash reserves
- flexible staffing
- conservative forecasts
- multiple suppliers
- diversified customers
- manageable debt
- scalable systems
The less certain the future, the more valuable a margin of safety becomes.
Know When to Change Course
Making a decision doesn’t mean you must defend it forever.
Sometimes new information proves that your original decision was wrong.
Good entrepreneurs are willing to adjust.
Before starting an important project, define trigger points.
For example:
“If sales don’t reach 500 units within six months, we’ll reconsider the product.”
Or:
“If customer acquisition costs rise above $80, we’ll change the marketing strategy.”
These predetermined thresholds can prevent emotional decisions later.
Beware of the Sunk Cost Fallacy
One of the biggest problems in uncertain decision-making is continuing with a bad decision simply because you’ve already invested money into it.
Imagine you’ve spent $50,000 developing a product.
The product isn’t selling.
You think:
“We’ve already spent $50,000. We can’t give up now.”
But the $50,000 is already gone.
The better question is:
“If I had not spent the $50,000, would I invest the next $20,000 into this project today?”
If the answer is no, continuing simply because of past expenditure may make the situation worse.
Past costs should not automatically determine future decisions.
Make Decisions at the Right Speed
There are two common mistakes.
The first is acting too quickly.
The second is thinking forever.
Neither is ideal.
A useful approach is to match decision speed to decision importance.
Low-cost, reversible decision
Act quickly.
Moderate decision
Gather information and evaluate alternatives.
High-cost, difficult-to-reverse decision
Analyse carefully, seek advice and test assumptions where possible.
This creates a practical balance between speed and caution.
Create a Decision Journal
For major decisions, consider keeping a simple record.
Write down:
- the decision
- why you’re making it
- the information available
- key assumptions
- expected outcome
- major risks
- confidence level
- what would cause you to reconsider
Then review the decision later.
This has two major benefits.
First, you can learn from your decisions.
Second, you can distinguish between bad decisions and bad outcomes.
A good decision can sometimes produce a bad outcome because of luck.
A bad decision can occasionally produce a good outcome because of luck.
You want to evaluate the quality of the decision-making process, not simply the result.
Learn to Make Decisions With Incomplete Information
The goal of decision-making under uncertainty isn’t to become someone who always knows what will happen.
That’s impossible.
Instead, develop a process:
1. Define the decision.
Know exactly what you’re deciding.
2. Gather the important facts.
Don’t confuse useful information with endless research.
3. Identify assumptions.
Know what must be true for your plan to work.
4. Consider alternatives.
Don’t assume your first idea is your only option.
5. Evaluate the downside.
Ask what happens if you’re wrong.
6. Consider the upside.
Understand the potential reward.
7. Test where possible.
Use small experiments to reduce uncertainty.
8. Make the decision.
Eventually, you need to act.
9. Monitor the results.
Watch for evidence that supports or challenges your assumptions.
10. Adjust when necessary.
Be willing to change direction.
The Entrepreneurial Mindset: “Decide, Learn, Adapt”
One of the most useful attitudes toward uncertainty is:
Decide → Act → Measure → Learn → Adapt
You make the best decision you can.
You take action.
You observe what happens.
You learn from the results.
Then you adjust.
This is much more realistic than expecting yourself to make the perfect decision at the beginning.
Business is often a process of learning your way toward better decisions.
A Practical Example
Imagine you own a small café and are considering extending your opening hours.
You don’t know whether the additional hours will generate enough sales to justify the costs.
Instead of simply guessing, you could approach the decision systematically.
Step 1: Gather data
Look at:
- sales by hour
- customer traffic
- competitor opening hours
- employee costs
- electricity and other operating costs
- average transaction value
Step 2: Identify assumptions
You might assume that enough customers will visit during the additional hours.
Step 3: Estimate scenarios
Best case: strong evening demand.
Expected case: moderate demand.
Worst case: very few additional customers.
Step 4: Test the idea
Open for extended hours on selected days for four weeks.
Step 5: Measure
Track:
- revenue
- gross profit
- labour costs
- number of customers
- average transaction value
Step 6: Decide
If the results are strong, continue.
If the results are weak, stop or modify the experiment.
Instead of making a large uncertain commitment, you’ve turned uncertainty into a relatively inexpensive experiment.
That’s smart entrepreneurial decision-making.
The Goal Isn’t Certainty — It’s Better Decisions
Entrepreneurs sometimes believe successful business owners have an instinct that allows them to know which opportunities will succeed.
In reality, experienced entrepreneurs often become better at something more practical:
They become better at making decisions when they don’t know the answer.
They learn how to:
- identify what they know
- recognise what they don’t know
- test assumptions
- calculate risks
- protect the downside
- look for asymmetric opportunities
- make small experiments
- monitor results
- change direction when necessary
You will never have complete information.
You will never know exactly what customers will do next year.
You will never perfectly predict competitors, markets or economic conditions.
That’s okay.
The entrepreneurial skill is learning to move forward intelligently despite that uncertainty.
You don’t need to know exactly what will happen. You need a good enough understanding to make the best decision you can — and a plan for what you’ll do if things don’t go according to plan.
That is what effective decision-making under uncertainty is really about.