Make Better Decisions More Simply: Use the Iron Triangle

Recently, I've applied an old decision making framework of the "iron triangle" thinking to all sorts of startup activities ranging from fundraising, recruiting executives and talent, sales results and software development, with very satisfactory results, and I just wanted to briefly share this concept  with you.  (Although it might sound a little dry, bear with me as I think it's important, and I try very hard not to blog about unimportant things.)

It's probably the most powerful and oldest concept there is to simplifying a business decision to it's base parts: there is *always* a trade off between price, quality, and speed.

Trade-offs are a fact of life.  Sometimes though in the heat of rapid decision making in a world where information is quite limited, it's easy to forget, and just say "ok, sounds great!".   If you believe that you can get 1/ great quality, 2/ at low cost, and 3/ at high speed, it's likely that you don't know what you are doing or don't realize the inherent tradeoffs all that well.   There is always either hidden costs, hidden delays or capitated quality, and it's better to be aware of them than blithefully unaware.  As I like to say: you get to only pick 2 of those traits, you can't have them all.

Here are some examples:

1/ Product development 

The first CTO I ever hired, Ian Lintault, shared this concept with me as applied to software development.   Although Ian didn't blog about it, Scott Ambler on his website explains regarding software development specifically, , "[t]he iron triangle refers to the concept that of the three critical factors – scope, cost, and time – at least one must vary otherwise the quality of the work suffers".   As you can imagine, when I demanded from Ian faster work or deliver more robust feature sets, he wanted more resources. That was a short discussion to my dismay sometimes, but he was right to point it out and we were far more productive by being very open about those tradeoffs.

2/ Recruiting Talent

A potentially good recruit comes in as a referral for a position you desparately need to fill.  They might lack some of the qualities you are looking for, perhaps lacking experience in your particular industry sector.  But, they might be cheaper, and certainly a faster hire, than taking a more active recruiting approach. I think every startup faced with limited budgets and need for speed faces this tradeoff on a regular basis.  I call it the "Mr. Right vs Mr. Right Now" trade off (I owe someone credit here just don't recall whom).  Sometimes one is better than the other depending on a lot of factors. 

3/ Raising Money

A potential investor wants to invest in your company.  Perhaps, their capital is cheaper, and it's certainly quicker than hitting the road.  But the tradeoff again here is potential the quality of the investor they bring as well that would serve you well to diligence.  Or perhaps, after hitting the road and investing some time in the money raising process you get a higher quality sophisticated investor interested; that sophisticated investor might come at a dearer price or worse terms or insist on investing more money (with hopefully good reasons to do so) than a less sophisticated investor but might be able to help you in many other ways.  Again, it's a tradeoff.  Mine as well be transparent about it.

4/ Selling

A potential customer wants your product or service.  He wants it faster than your competition, he wants the highest quality-- and he wants to pay next to nothing for it.  Sound familiar?  You'd be surprised how often in a sales pitch I've used the cost/quality/time triangle to convince them that there are trade-offs in the world.  Draw a Triangle (with C Q and T as the end points) on their whiteboard.  Tell them they can pick two, but they can't expect all three. If they threaten you with the old "I can build this myself" thing, well yes, they can, but at what cost, what amount of time, and what kind of quality?   This framework is also helpful in a build vs buy context when deciding on your own vendors internally or used in the product development toolkit mentioned above.

5/ Board management

Particularly at the board level, I find this iron triangle of significant benefit, as projects or decisions, oftentimes as not, have competing constituencies of speed, cost and quality.  By pointing out this iron triangle of trade-offs, it makes it clear to managerial and board decision makers that if speed and low cost are the objectives, quality is going to suffer, and likewise that if cost and quality are the main drivers, don't be surprised if the project comes in slower than expected.   Oftentimes I find what happens is that everyone is fooled into believing that all three can be achieved simultaneously.  When one objective lags, it's often because the tradeoff wasn't explicit or made clear to or by the decision makers.  Or if the board is unreasonable in it's demands the management team can oblige, but often it's only delusional, and hides the issue; you can't avoid the tradeoff, ever, so what ends up happening is that it's potluck and 1 of the 3 gets tossed out without any real discussion.

And that really sums it up; by being explicit about the tradeoffs, and sharing those points with others and yourself, you can make better decisions. 

That's all I got on this; hope it's helpful to you.  If so, do comment!