JACK WELCH - When to Go with your Gut

As a general rule, gut instinct is nothing to be ashamed of. Quite the opposite. It’s really just pattern recognition, isn’t it? You’ve seen something so many times over your life or career that you just get what’s going on without a lot of deep thinking. Gut instinct is a deep, even subconscious, familiarity — the voice inside you that tells you “Go for it now” or “No way — not ever.” We would wager, however, that the most common gut call falls in between the two. We’re talking about the “uh-oh” response in which your stomach informs you that something is not right.

The trick, of course, is to know when to go with your gut. That’s easy when you discover, over time, that your gut is usually right. But such confidence can take years.

Until that point, we suggest a rule of thumb: Gut calls are usually pretty helpful when it comes to looking at deals and less so when it comes to picking people.

No, we’re not mixing them up. Even though proposals arrive with all sorts of data analysis and detailed quantitative predictions, and people decisions seem so much more qualitative, the numbers in deal books are really just projections. Sometimes those projections are reasonable; other times they represent little more than hopes and prayers. When have you ever been presented with a deal with a projected discounted rate of return of less than 20%? You haven’t! So when it comes to looking at deals, consider the numbers. But be sure your gut plays a big role in the final call.

Say you’ve been asked to invest in a new office building. You visit the city and see cranes in every direction. The deal’s numbers are perfect, you’re told; you can’t lose. But your gut tells you otherwise. Overcapacity is about a year away, and the “perfect” investment is about to be worth 60¢ on the dollar. You’ve got few facts, but you have that uh-oh response. More often than not, that means you should kill the deal even if it infuriates the so-called rational thinkers on the case. Odds are they’ll give you credit for prophetic thinking down the road (although probably with less public gusto than you’d like).

By contrast, relying on your gut during hiring isn’t always a great idea. The reason: Our gut often makes us “fall in love” with a candidate too quickly. We see prestigious schools and great experience on a sparkling resume. We see a likable candidate who says all the right things in the interview. And even though we don’t admit it, too often we see a person who can quickly make a problem go away—namely, a gaping position we need to fill fast. So we rush to seal the deal.

We run into this dynamic in action all the time when people call us for references. They start off by firmly stating that they only want an unvarnished view of the candidate in question. But as we begin to give them the straight story, we can hear their voices tighten. It’s almost as if they’re saying: “Oh, please don’t tell me that. All I really wanted from you was a stamp of approval.” They can’t get off the phone fast enough.

So when it comes to hiring decisions, doubt and double-check your gut. Go beyond the resume. Dig for extra data. And don’t just make reference calls; force yourself to listen, especially to mixed messages and unpleasant insights.

Overall, however, your gut can play a real role in business. Don’t worry too much about explaining that to your bosses and shareholders. They use theirs, too.