Sequoia Capital managing partner Roelof Botha has a strategy for making tough decisions.
The longtime venture capital investor honed it through decades of experience helping early-stage tech companies like YouTube and Instagram grow into industry giants. He repeatedly watched CEOs get stuck when trying to choose between two options, and it taught him a lesson.
“If you find yourself deciding between only two choices, maybe you need to widen the aperture,” Botha said on Sequoia’s “Crucible Moments” podcast, in a recent episode featuring billionaire entrepreneur Jack Dorsey. “Is there a third or fourth option that you haven’t even considered that you need to throw into the mix to really test whether that is the right path?”
He cited Dorsey’s own payments business Block, where Botha sits on the company’s board, as an example. In 2011, the business was known as Square, and it was struggling to expand past its namesake product — a credit and debit card scanner that could plug into a smartphone’s headphone jack.
One of the company’s first attempts to broaden its customer base was an app called Square Wallet, which customers could use to pay Square merchants. Another was a $25 million deal with Starbucks: The coffee giant invested in the company, and in return, carried out all in-store transactions with the startup’s technology.
Both ideas were meant to help the company reach more people. Merchants may have known about its credit card scanner, but everyday buyers didn’t need it, Dorsey said.
Neither garnered much initial traction. Dorsey could have waited for a larger sample size of results — but instead, he chose to toss another initiative into the mix, tasking a group of Block employees with brainstorming new options.
One of those ideas was to develop a low-cost way for people “to send money as easy as sending an email,” Dorsey said. The company officially launched Square Cash, now known as Cash App, in October 2013.
The payment service, a competitor to PayPal and Venmo, proved stronger than the other options: Block pulled Square Wallet from the store six months after Cash App was released, and let its Starbucks partnership expire at the end of 2015. The company later discovered that it’d lost $71 million paying transaction costs to credit card companies while processing Starbucks payments.
Block now has a market cap of $26.82 billion, as of Wednesday afternoon, and Cash App is responsible for half of its revenue, Botha said. Having a third option helped Block cut what wasn’t working, and invest in projects that helped make the company profitable.
This method is backed by science: On average, people are 22% more likely to choose the strongest option when they compare all their options at once, rather than examining each one sequentially, according to 2017 research.
That holds true for both big and small decisions — whether you’re choosing between colleges, laptops or pizza restaurants, the study found.