The Benefits of Top-Down Thinking & Why it is Critical to Entrepreneurs

Posted on Jul 13, 2010 | 34 comments


For the first 5 years of my career I was a “bottom up” thinker and worker.  I assembled tons of data, grouped things, found results and drew conclusions.  It was difficult to make the transition to a “top down” thinker but as a senior executive – and as an entrepreneur – you’re far less effective without this skill in your arsenal.  You need to be able to structure problems / solutions at the appropriate level to communicate effective and drive decision-making.

The difference is in formulating hypothesis then testing conclusions / data vs. assembling data and finding patterns.  I know it might sound a bit esoteric so let me explain:

I started my career as a programmer.  We did big, boring but necessary implementations for large companies.  I started by doing billing systems.

In billing we literally started thinking about all of the types of bills that would be generated for customers: full payment, partial payment, split payment, senior discount, student discount, level pay plan, etc.  We then made groupings of the common features of each piece of logic so we could figure out what “shared services” we could build so that we could have reusable code.  This is bottom-up planning.  It is useful in many situations and was useful to me in this situation.

I next moved into system design where I designed computer systems to deal with large industrial natural gas customers and telecommunication companies.  I had to understand their business requirements and document them all.  I had to understand all of the normal business rules as well as all “edge cases.”  Again, I grouped them into related functions and then designed systems to handle the rules.

I spent the first 5 years of my career as a “bottom up thinker.”  It was appropriate for my job and stage of career.

Post MBA I went into strategy consulting where my job was to problem solve for clients.  Often I had a very limited time.  Clients wanted to see “preliminary findings” in 4-5 weeks and final results in 8-10.  This is a problem for a strategy consultant because you are, by definition, a generalist that is thrown into new problems again and again.  I struggled on my first few assignments.  It took too long for me to get around to speak to every departement, get data, assemble it, analyze the data to formulate conclusions and then communicate it to executive staff.

The wisest mentor I ever had was Ameet Shah, my partner on several projects.  He taught me much that I know about critical thinking.  He coached me that I had to start with the answers.  WTF?  How can I START with the answers?  How can that be effective?  ”Well, we know the basic structure of the problem we’re trying to solve and we have hypotheses about what some of the answers will be based on our experience.  You need to put this all down into a structured diagram from the first week with the answers that tie to the logic of the problem we’re trying to solve.”

Heresy.

But he had more insight, “once we know the structure of the problem and our solution we can plan the data that proves or disproves our theories.  The key is not to be wedded to our original answer.  But by problem solving in a ‘top down’ manner we can be much more focused about what data we collect.  We can also begin to socialize our answers with people in the company to get their reactions.  That alone will help us solve the problems.”

It was very difficult to get used to it because I didn’t think I had it within me to do this kind of top-down structured thinking.  I bought the most popular book on the topic, “The Mind of the Strategist” by Kenichi Ohmae, who is ex McKinsey.  I found this book very useful but still a little bit hard to implement.  I’m glad I read it though.

I later took a course with Barbara Minto (who taught McKinsey people) and bought her book “The Pyramid Principle.”  This was a breakthrough for me.  It is about structuring your thoughts, presentations and communications.  You group items into component parts in a top-down manner.  The book is expensive but for me personally this helped me enormously.  This and frankly a lot of practice.

But I approach problems in a different way now.  I start with answers and structure what I think the organization of the problem is.  I then try out my solutions by interviewing people to “prove or disprove” my conclusions.  I’m never right the first time so I spend time adjusting my frameworks.  And if data is required then I apply actual data to my conclusions.  The process is bankrupt if you simple tweak the data to support your hypotheses.

But applied correctly and this is golden.

I often go into meetings with portfolio companies with a structure worked out of what I believe the critical issues are.  I structure it top down so we don’t get bogged down in the details that are irrelevant.  To give you an example it might go something like this, here is a made up situation that a portfolio company might face:

- we currently sell through channels
- we’re the market leader in signing up our channel partners
- but not enough volume of business is yet going through the channels
- our three options are: spend more time helping the channel sell, spend more time with customers bringing them into our channel partners or sell direct
- my guess is that we aren’t prepared to sell direct because that would require a broader team and more capabilities than we have.  So the real question is – do we spend more of our time and limited resources helping our channel or educating and marketing to their customers
- on a less critical path we should evaluate the capabilities required to serve customers directly if we ever needed to and know what the channel’s response would be
- discuss

If I framed the issue incorrectly I haven’t done my job.  If it requires minor tweaks we change the discussion on the fly.  But we have the roadmap for our discussion and don’t have to wander on the back roads of unstructured conversations.  I needed no data for this discussion.  It is at the appropriate level.  It drives the conversation to what matters.

I know it sounds exceedingly easy.  It’s not.  And few people in my experience do this well so many board meetings wander.

I challenge you to consider whether you’re top-down or bottom up.  In analysis there are always circumstances for each approach.  But in leadership and entrepreneurism the top-down approach will be the right solution more often than not.

  • http://twitter.com/axavier Aaron Dyson Xavier

    For me, I look at this as strategy thinking and analytical thinking. I spent about 5 years in online marketing strategy at an agency and we purposely separated these roles when working on the clients' accounts for this very reason. If you are immersed in detailed data, you see all of the little things that need tweaking. When you take a higher level look, you are better able to identify issues that can make a huge impact. The trick is making sure you don't do both jobs at the same time. This is especially tough as an entrepreneur since you are often wearing multiple hats (or even all of them).

    Do you have any advice on how to best approach this as an entrepreneur?

  • http://fleckman.tumblr.com Peter Fleckenstein

    Great post Mark. I can't begin to tell you how many times top down thinking not only provided the correct path, it also cut the time to solve the problem dramatically. In the Marine Corps it's called reverse planning.

    Top down thinking is not our natural thinking process and it is hard at first. You made the challenges clear by your examples above. What caused me to shout 'Yes!' was your statement:

    “The key is not to be wedded to our original answer.”

    Thanks again for the great post Mark.

  • http://www.facebook.com/profile.php?id=1222306 Gagan Biyani

    Hey Mark, once again a great post. It's really cool to see you mix your non-entrepreneurial experiences into your thoughts on this blog, as I think people often forget that we can learn some great stuff from corporate management philosophy. Most of it is bull, but thanks for highlighting the stuff that is actually useful!

  • http://twitter.com/averyfisher Avery C. Fisher

    Mark, a great book that recently came out that dissects the McKinsey (/Bain/BCG/et. al.) approach to problem solving is “The McKinsey Engagement” by Paul Friga. It goes into great detail about implementing top-down thinking into every type of problem and using hypothesis-driven problem solving. Great stuff for any entrepreneur feeling bogged down by minutiae.

  • http://www.justinherrick.com Justin Herrick

    I think because of my own developer/programmer background that I am a bottom up thinker. I've always heard about the proper way that entrepreneurs and top people are supposed to think and act, but never had it put this exact way. Simply seeing the difference between the bottom-up versus the top-down way of thinking really clears a lot of it up, and now i've got some great reading material on the subject.

    Thanks for the great post Mark.

  • http://bothsidesofthetable.com msuster

    It's interesting to hear that people consciously separated the roles. As an entrepreneur I think you often need to make decisions with incomplete information so I lean toward top-down nearly always as a leader. It's not about avoiding details or data – it's about directing others in a more focused way on WHAT details to focus on. My 2 cents?

    Anyone have other views?

  • http://bothsidesofthetable.com msuster

    Thanks, Peter. I bet we call could learn much about leadership from being taught by people in the Marines.

  • http://bothsidesofthetable.com msuster

    Yeah, I learned much in the 8 years before I became an entrepreneur. I have a few more stories coming out soon from that era.

  • http://bothsidesofthetable.com msuster

    Thanks for the recommendation. I'll check it out. I also read “The McKinsey Way”

  • http://bothsidesofthetable.com msuster

    I think a lot of developers are bottom up. At least I know I was.

  • http://twitter.com/KellerII JT Keller

    Great book recommendations…it's amazing how closely the top down method of thinking resembles the scientific method. Having a strong background in science has definitely helped as both a strategic consultant and as an entrepreneur.

  • http://pranavpiyush.com Pranav Piyush

    The top-down approach has worked very well with many clients where the issues pertain to strategic questions, however, I have struggled with using this approach where real change needs to happen. The answers are not as important as the “how” of the implementation and getting the client on board the same ship as the consultant. that takes much more than a description of the answer, and its validation.

    Would'nt you agree?

  • http://bothsidesofthetable.com msuster

    Wouldn't know. I sucked at science. My high school science teacher was a deadbeat. Funny how important teachers can be (or not).

  • http://bothsidesofthetable.com msuster

    No. First, you need acknowledgement of “what” to do before designing “how” to do it. You need both but the hows need to support the whats.

  • Andi G.

    I'm currently a programmer as well but I'm preparing “for more”. This post provides a handy guidline.
    Thank you :-)

  • jamespatterson2

    The “start with the answers” approach is great if it is accompanied by “that most benefit the shareholder.” Too many times (perhaps too harsh to say “the rule”) is that consultants end the phrase with “that I think will benefit management, specifically the hiring client.”

    I am a learning entrepreneur after 15+ years in the Fortune 100 telecom environment, and the top-down approach can work, but you have to separate those decisions you can realistically steer vs. those that can only be influenced by another party (market mover, FCC, etc.).

    When I have time to go deep on something, I have picked one or two items to focus on (e.g., in my new business, it's on-line privacy for under 13 wireless users and the relationship to their parents). Ascend the summit without an innate understanding of the relationship between volume and cost, and you are likely DOA (you'll end up on a hill you thought was a mountain).

    To go with your picture, I agree with your assessment, provided that a top-down view is supported by strong legs formed by years of hiking, not by someone who got helicoptered to the summit.

  • philsugar

    I tend to look at it as “big picture” and “getting things done” as an entrepreneur you have to be good at both.

    If you never look at the big picture you can fall into the trap of being insanely busy but without generating results “effort without results is meaningless, results without effort is results”

    If you don't get the ball moving it will never move.

    So in your example the big picture thinking is we need to help our existing channel partners sell more, and the getting it done is going on the road with our channel partners instead of sitting in the office hypothesizing.

    I think your experience in consulting for big companies and running small one's highlights the strengths and weaknesses of both.

    I've always said the biggest strength of a small company is that it can make three wrong decisions and arrive at the right one well before a big company can even make the decision, and the toughest transition a big company person has going to a small company is learning the only momentum you have is the momentum you yourself generate.

  • http://twitter.com/jenny_cheng Jen

    Justin, your comments also applies for those of us who grew up in Finance. By starting us as analysts to be ordered around, banks do a dis-service having us mindlessly gather and crunch data. I had to figure out Mark's message on my own before I was promoted, and I'm happy to see that someone has finally written this advice down.

    Thanks for the timely reminder to keep our eye on the big picture, Mark.

  • http://bothsidesofthetable.com msuster

    Truthfully I think “top down” thinking can be applied at all levels of an organization and on all types of problems. Example: an assistant planning an offsite meeting can either start by creating a list of all the tasks to be done and then just start checking things off or they can start with the “what are we trying to achieve with the offsite” top-down analysis.

  • http://bothsidesofthetable.com msuster

    Totally agree, Jen. In my experience it applies to finance, accounting, legal, programming and many other professions. I had to learn by going through it myself.

  • http://www.victusspiritus.com/ Mark Essel

    Even software developers and engineers who continually get their hands dirty crave the boundary speed of top down thinking. Look at programming language design as it has evolved.
    Assembly-> C -> C++ -> Java -> Ruby (and other high level scripts)

    Each level works to essentially encapsulate greater execution and source.

    Simply exploring Ruby has changed the way I think about designing solutions to problems. Check out tryruby.org if you have any interest Mark.

    Experience becomes essential for properly framing problems, and identifying the most important tuning dials or options.

  • http://giffconstable.com giffc

    tangent: I see similarities between this and Steve Blank's message for how to approach the very beginning of a startup. You start with vision and domain knowledge and then go prove/disprove your hypotheses through real customer conversations and data. If you get lost too early in the “bottom up” with stats, surveys and A/B metrics, you can easily create something of incremental value and/or fall into the local optimum trap. I think in both this example and yours, it takes a base of domain knowledge and good instincts to run this process efficiently and effectively.

  • http://stickyslides.blogspot.com Jan Schultink

    Well said.

    Becoming top down is not only a matter of approach: with life experience comes confidence to sketch conclusions without massive analysis, but you have to have gone through the bottom up experience in order to know when to go deep, and/or develop a radar to smell when other people's bottom up analysis could be wrong.

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  • http://fleckman.tumblr.com Peter Fleckenstein

    Ok. I'll bite. Here are the Marine Corps Leadership Principles and Traits. It's important to note that these Principles & Traits are not a destination but a consistent daily/lifelong journey. I still have a lot of journeying to do and that's what makes life so great, IMHO. ;-)

    Marine Corps Leadership Principles:
    Know yourself and seek self-improvement.
    Be technically and tactically proficient.
    Develop a sense of responsibility among your subordinates.
    Make sound and timely decisions.
    Set the example.
    Know your Marines and look out for their welfare.
    Keep your Marines informed.
    Seek responsibility and take responsibility for your actions.
    Ensure assigned tasks are understood, supervised, and accomplished.
    Train your Marines as a team.
    Employ your command in accordance with its capabilities.

    Marine Corps Leadership Traits:

    Dependability: The certainty of proper performance of duty.

    Bearing: Creating a favorable impression in carriage, appearence and personal conduct at all times.

    Courage: The mental quality that recognizes fear of danger or criticism, but enables a man to proceed in the face of it with calmness and firmness.

    Decisiveness: Ability to make decisions promptly and to announce them in clear, forceful manner.

    Endurance: The mental and physical stamina measured by the ability to withstand pain, fatigue, stress and hardship.

    Enthusiasm: The display of sincere interest and exuberance in the performance of duty.

    Initiative: Taking action in the absence of orders.

    Integrity: Uprightness of character and soundness of moral principles; includes the qualities of truthfulness and honesty.

    Judgement: The ability to weigh facts and possible solutions on which to base sound decisions.

    Justice: Giving reward and punishment according to merits of the case in question. The ability to administer a system of rewards and punishments impartially and consistently.

    Knowledge: Understanding of a science or an art. The range of one's information, including professional knowledge and an understanding of your Marines.

    Tact: The ability to deal with others without creating offense.

    Unselfishness: Avoidance of providing for one's own comfort and personal advancement at the expense of others.

    Loyalty: The quality of faithfulness to country, the Corps, the unit, to one's seniors, subordinates and peers.

  • http://www.cody-swann.com/ Cody Swann

    As a top-down thinker, I definitely thing I benefit. However, there is a huge caveat to this approach. When you start with the solution in mind, you must guard against the selective bias where you find statistics and research to support your answer to the exclusion of contradictory evidence. It's hard to do. It's very easy to put blinders on and assume you KNOW the answer instead of know what the answer COULD be.

  • http://shanacarp.com/essays ShanaC

    I would say be very careful and be very open minded. it's like science- you can have your answer proven wrong and you have to be open minded to that possibility. And be ready to move when that happens.

  • http://twitter.com/TylerBeerman Tyler Beerman

    Mark I think you are very right. Unlike the public markets where a bottom-up approach can shape your investment thesis, I too believe entrepreneurs must implement a top-down approach to business/startups. Regardless of the macro-level problems amidst a volatile or seemingly fearful economic environment, it seems irrational for an entrepreneur to judge his entire schema about underlying fundamentals in the broader economy. Taking a top-down approach in this startup game can enable an entrepreneur to take an industry or sector he sees with a customer problem or burning desire for something better to completely shapeshift the industry and make the value-chain more effective for the end user. Taking-on two industries as we speak to appropriate the paradigm shift…..

  • http://twitter.com/omfericit David Nagy

    and… we should forget about the WHY's :)

  • jamespatterson2

    Good point. Ahh, the days of assistants!

  • http://twitter.com/drorengel drorengel

    @giffc great example!

    Mark – Can you provide more examples? thanks

  • http://jasonmbaker.com Jason Baker

    To me, this sounds like an example of convergent vs divergent thinking: http://en.wikipedia.org/wiki/Convergent_and_div

  • Joshua Maciel

    I used to have a book called “Science Made Stupid” — you can google it and a scanned copy is available online.

    It talks about the two approaches to science:

    Inductive:
    1) Create Hypothesis
    2) Apply for Grant
    3) Test Hypothesis
    4) Alter Data to Fit Hypothesis
    5) Publish

    Deductive:
    1) Create Hypothesis
    2) Apply for Grant
    3) Test Hypothesis
    4) Alter Hypothesis to Fit Data
    5) Publish

    I think that what you're talking about is having the second approach. I think that's a universal truth (that we should pay more attention to what works than what we think should works), and isn't a matter of “top-down” or “bottom-up”.

    I think that philsugar hit the nail on the head with “big picture” and “getting things done” as the top-down and bottom-up approach that you're discussing.

    In any business (start-up or otherwise) there is a need to understand both why you need to do something, as well as how to accomplish it. And I think that's needed at every single step of the chain. The head of the company needs to understand why we need to do something, and have an idea of how to accomplish it at least enough to communicate it with people who can break the “how” down into smaller parts, and explain the “why” in the context of their group.

    When I hear “top-down” and “bottom-up” I think of management styles more than anything. Most businesses have three elements: production (making the good), sales (selling the good), support (general management, IT, marketing, etc.). I believe that “bottom-up” means that the support groups take queues from the sales and production sides, while “top-down” means the support directs the efforts of the sales and marketing.

    I believe that truly successful management is actually bottom-up to top-down to bottom-up. You listen to what your front-line people are telling you, figure out the bigger trends, set strategy based on your understanding, and sent it back down for feedback from the market.

    But I think that's an entirely separate discussion altogether…

  • Srikanth Achanta

    I have never analyzed if my thought process was top down or bottom up. I try to keep it as organic as possible. all i worry about it what am i trying to achieve, how can i identify my hurdles and then think of the best ways to cross them.

  • John_M

    It's been my experience that the WHY question is easily derailed, for example by unintended exploration of motivation. Rather than allow a legitimate WHY be misunderstod, I pre-limit it by turning it into a focused WHAT. eg: Instead of asking WHY a particular problematic project was started, ask WHAT were the original objectives of the project. This keeps the WHAT/HOW relationship clear and simple for everyone. All you need to do is keep your heirarchy of WHATs clearly organized…