Decision Tree Analysis
Etheredge and Levy weigh the costs, risks, and possible regret involved in suing over a competing product. Their dilemma could be mapped in a decision tree, although no tree or probability estimates are supplied.
THE IDEA
What are their options?
In the book’s account, Etheredge and Levy researched what other entrepreneurs had done in similar situations, and they talked with lawyers about their legal options. They could send a cease-and-desist letter, demanding that Sally Beauty Supply stop making Mixed Silk immediately. But that was risky: If the court ruled against them, they’d have to reimburse the giant retailer for lost revenue, which could be substantial. On the other hand, if they filed a lawsuit and won, they could drive Mixed Silk off the shelves permanently and collect damages on top of that.
The legal option was very expensive: experts estimated $250,000 to $500,000 per year in legal costs. The case could drag on for years. Was it worth the time and the distraction?
Then again, what if Mixed Silk and its lower price point ended up crushing Mixed Chicks? How would they feel having not stood up for themselves?
The two founders agonized over the question: Should we sue or not?
The excerpt presents the dilemma; it does not supply a decision tree, probabilities, or a calculated recommendation.
When to use it
Comparing legal action with other responses to a competitor’s similar product.
Evaluating multiple business strategies, such as expanding into a new market versus improving existing products.
Choosing between job offers with different salary, stability, and growth potential.
Making an investment decision with uncertain returns and potential losses.
FROM THEORY TO EVERYDAY LIFE
In practice
Mixed Chicks vs. Sally Beauty Supply
In the book’s account, entrepreneurs Etheredge and Levy faced a decision whether to sue Sally Beauty Supply for producing a similar product, Mixed Silk. They evaluated legal options: issuing a cease-and-desist letter (risky if ruled against) or filing a lawsuit (expensive but potentially lucrative). They weighed costs ($250,000–$500,000/year), the risk of losing, and the emotional regret of not acting.
A MOMENT TO REFLECT
Put it to work.
What are the key options and possible outcomes in a difficult decision you currently face? How do costs, risks, and emotional factors influence your choice?
How might regret aversion or fear of inaction bias your evaluation of options?
In what way could mapping out a decision tree clarify the trade-offs between different courses of action?
CONTINUE THE CONVERSATION
Source texts
- Decisive How to Make Better Choices in Life and Work (Chip Heath)