All decisions are not created equal — so why would you approach them all the same way?
In some cases, we need to optimize for speed and learning. In other cases, careful consideration and analysis are required.
Understanding the difference between type 1 and type 2 decisions is critical to help you balance the compulsion to keep things moving with the need to step back and examine the process. In this guide, we’ll give an overview and comparison of type 1 vs. type 2 decisions and demonstrate how to approach each type of decision according to the philosophy championed by Jeff Bezos.
Table of contents
- What’s the difference between type 1 and type 2 decisions?
- Examples of type 1 and type 2 decisions
- How to approach type 1 decisions
- How to approach type 2 decisions
What’s the difference between type 1 and type 2 decisions?
Type 1 and type 2 decisions are sometimes called “one-way door” and “two-way door” decisions. The distinction was popularized and widely accepted thanks to Jeff Bezos’ 1997 letter to shareholders, in which he explained how he approaches decisions and why it’s important to distinguish these two types.
Type 1 decisions are tough to reverse. It’s a door you can walk through but you can’t easily go back, whether you like the world on the other side or not — ergo, “one-way door.”
On the other hand, type 2 decisions are a two-way door: you can walk through the door, see what’s on the other side, and if you don’t like it, you can just walk back through the same door to the old world.
Examples of type 1 and type 2 decisions
To put it into perspective, let’s look at a few examples of type 1 and type 2 decisions:
Examples of type 1 decisions
Just to be precise: in theory, all decisions are reversible. What distinguishes type 1 decisions is that there are not easily reversible. Sometimes, the cost of going back is so high that it’s either not viable or really expensive to do so.
- Changing the price of the product
- Entering a new market
- Creating a new use case for the product
- Running a monetary promotion
Changing the price of the product
Different customers have different sensitivity to price changes. Increasing the price even slightly will inevitably result in a significant spike in customer churn and user dissatisfaction.
If the backlash exceeds your expectations, you technically can go back to the old price, but as a consequence:
- It reduces stakeholders’ confidence in your decisions
- There’s a high chance that users who churned due to increased prices are not coming back anyway
- It makes it even harder to increase the price in the future
- It might result in bad press
Entering a new market
Entering a new market requires localizations, translations, marketing costs, and often legal preparation. You can’t recover these costs if you eventually leave the market. Also, leaving the market would result in yet another set of costs, such as customer support, refunds, PR, or contractual costs.
Creating a new use case for the product
While experimenting with MVPs of brand-new use cases might be closer to type 2 decisions, if you decide to go all-in and fully integrate a new use case in the product, it’s hard to go back.
Let’s take Amazon Prime Video as an example. Not only did Amazon need to pay for many licensing rights, but it also spent plenty of resources to integrate it into the whole ecosystem and promote and brand it. Deciding to discontinue this service now would be yet another costly decision.
Running a monetary promotion
One common tactic to temporarily boost revenue is to run a limited-time promotion.
However, make sure you do some solid math upfront. If you realize the results on your bottom line aren’t as expected or that you are actually losing money with that promotion, you don’t have an easy option to come back. Killing the promotion early would infuriate your users and make them lose trust in you.
Examples of type 2 decisions
Type 2 decisions are, on the contrary, easily reversible.
Don’t get me wrong: there might still be some visible costs associated with reversing these decisions. However, you distinguish type 2 product decisions if the cost of going back is similar to or lower than the cost of delaying and overthinking the decisions.
Examples of type 2 decisions include:
- Changing how you communicate the value prop
- Changing the free trial length
- Experimenting with metering rules
Changing how you communicate the value prop
Assuming you are not doing a complete rebranding, experimenting with how you communicate your value proposition is a classic example of a type 2 decision. Not only can you easily experiment with a smaller group of people, but if the new communication doesn’t yield the expected result, you can reverse back to the old way without harming your users.
Changing the free trial length
Although extending or shortening a free trial length is a significant strategic decision — after all, you are changing your whole conversion strategy — reverting back isn’t such a painful decision. Assuming you don’t impact current trial users, your brand-new users probably won’t even know that the trial length was different in the past.
Experimenting with metering rules
By metering, we usually mean all types of limitations users have when using the product. It might be the limit of free previews they get or the frequency at which you display ads, for a couple of examples.
Although users are very sensitive to those changes, in most cases, they are not even aware of these rules and how they are changing. You probably don’t have a solid understanding how often exactly a Spotify or YouTube advertisement plays, do you?
How to approach type 1 decisions
Now let’s look at how you can approach irreversible decisions. In most cases, type 1 decisions are either medium or large. More minor decisions, by nature, tend to fall into the type 2 category.
When the decision is medium — that is, it has a significant but not a game-changing impact on your product, users, and strategy — optimize for objectivity.
Criteria-based assessment is usually the way you go. Decide which criteria you should take into consideration when deciding if the decision is worth the risk or not, such as:
- Expected impact on revenue
- Confidence in the given direction
- Effect on your competitive differentiation
- Number of users affected
- Expected user satisfaction
Then, try to get all the data you can to score these criteria and compare the potential impact on making the decision versus not deciding at all.
By understanding the potential opportunities and risks of making the decision, you can then assess whether the decision fits your risk appetite.
Significant strategic decisions, such as changing the monetization model or entering a new market, should be optimized for nuance.
Although principles from medium decisions still apply (some objectivity and criteria never hurt), you should also look for more nuanced information and inputs.
First of all, these decisions require an actual deep dive. Commit adequate time to research the solution’s potential impact, do proper market research, and analyze your data from various angles.
Make sure you have enough conversations on the topic. Talk to:
- Stakeholders to understand various perspectives and opinions and to get a more detailed sense of what might be the business impact
- Subject matter experts to better understand the endeavor at hand
- Your users to get a picture of how they might react to proposed changes
Also, consider running smaller dip tests earlier to test your assumptions and get more input.
There’s no silver bullet when making large, type 1 decisions. Depending on your circumstances, you might need to make these decisions within a day or spend years researching and evaluating the solution. It took a few long years for Netflix to finally decide to change its account-sharing policy.
How to approach type 2 decisions
Regarding type 2 decisions, the priority is to save time. If the decision is easily reversible, it’s often better to launch and evaluate on the go than to overthink it. It’s often better to make 20 type 2 decisions and reverse half of them than to overthink five of them.
Two common approaches to speed up decision-making include:
Using prioritization principles and product values
Product values and prioritization principles serve as a guiding light for type 2 decisions.
For example, one of eBay’s principles is prioritizing buyer experience over seller experience. So, whenever there’s a minor decision to be made, they can assess if it’s aligned with their principles, and if it’s not, then they can quickly scratch the idea and focus on something else.
Investing time in defining, refining, and then educating the whole team on your prioritization principles is an investment that pays off quite quickly, especially if you have numerous decisions to make.
Following signals and gut feeling
Assuming that making the decision doesn’t lead to heavy engineering and launch efforts (and if it does, it’s probably a type 1 decision), launching and testing it might be more efficient than spending too much time analyzing it upfront.
It doesn’t mean you should turn every single idea of yours into a production feature.
Use a combination of signals — that is, data points that indicate whether the decision is promising or not — and your gut feeling to figure out if the decision is worth testing or not. For example, you can put all your type 2 decisions in ICE or any other assessment framework of choice and see how they stack against each other.
Ultimately, assessing type 2 decisions is very similar to evaluating which features to build and which to park.
Distinguishing hard-to-reverse type 1 decisions from easily irreversible type 2 decisions is crucial. Without that, it’s easy to spend too much time focusing on unimportant decisions or too little time on crucial, potentially damaging decisions.
Start by asking yourself:
- What’s the cost of delaying vs reversing the decision?
- What’s the worst that could happen if the decision was wrong?
- Is it cheaper to spend time analyzing or just testing the decision?
When it comes to decisions that yield risk or are hard to reverse, focus on objectivity or nuance, depending on the size of the decision. Using established prioritization criteria or just following signals and gut feeling might be good enough for more minor decisions. Sometimes, done is better than perfect.
Featured image source: IconScout
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