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October 5, 2010 / Danny Robinson

The Danger of Data – 3 tests to ensure you’re making good decisions

I love data. It’s hard to imagine entreprenuers building anything meaningful without a steady stream of good data.  It’s the key to measuring what works and what doesn’t, and tells you how to iterate your product into a compelling business.  After all, the data doesn’t lie… but it is often misunderstood.

Here are some tests that I apply before using data to make any decisions in business (or probably any other area of life) Hopefully they can help you too.

  1. Instincts are smart. Reconcile the conclusions you make against your them. If it doesn’t feel quite right, don’t just accept it, find out why.  Obviously, the reverse argument can be made, and is probably made more often for good reason.  Entreprenuers often trust their gut too much. The point is that either your gut or the data should calibrated before you should feel comfortable making any decisions.
  2. By definition, data is a view of the past, and usually you’re trying to use it to make a decision about what to do in the future.  Past behaviour doesn’t always predict future results. This is especially true in areas of fast paced change — like the Internet industry.  It’s easy to fall into this trap, since we use this system in all aspects of society, from using grades to get into university, your credit rating to get a loan, or choosing where to invest money.  The problem is that it’s not enough data to make an informed decision.  You need to add up anecdotal evidence and do your best to predict where you think the future will be and then compare that against your results.
  3. The third test is to question how was the data interpreted? Trusting someone’s analysis of data is easy.  It’s usually logical, and packed with facts that are impossible for anyone to refute.  I’m not suggesting that you become a contrarian, just stay objective and look for ways to poke holes in the logic. Looking at the same raw data and concluding something entirely different is one thing that separates followers from the leaders.

The next time your faced with a big decision, or are presented with compelling data from a research firm, or your VP of marketing, try to challenge the information you’re getting using the three tests above.  Doing so should catch some mistakes before they happen.  Good luck!



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