Many entrepreneurs find that success depends on their ability to size up a situation and make the right call.

By Karen M. Kroll

When Vickie Milazzo, 51, started her company in 1982, she had little more than a hunch to go on. Milazzo’s company, Vickie Milazzo Institute in Houston, trains nurses to work as consultants to attorneys and insurance professionals.

Milazzo, who is an RN and a lawyer as well as an entrepreneur, saw the need for health-care professionals who could assist attorneys handling medical disputes. “How would an attorney who is dealing with a medical case know how to read medical records or know the terminology?” she asks. Nurses, she says, are the answer, as they’re most familiar with patients’ records and are less expensive to hire than doctors. Despite the logic of her insight, as far as Milazzo knows, no one else was offering such services. “I defied conventional wisdom that said if something hadn’t been done before, it’s not worth doing,” she says. “However, I knew I could save attorneys a lot of time and money.”

She was right. Over the past 19 years, Milazzo’s firm has trained more than 20,000 nurses as legal consultants through seminars and home-study courses. Along the way, she’s built a $10.4 million business.

Phrases like “trust your gut,” “follow your hunch” and “go with your in-stincts” resonate with entrepreneurs for good reason. Some, like Milazzo, listen to their instincts and successfully exploit opportunities others don’t even notice. Many entrepreneurs create businesses just by listening to their hearts and bucking conventional thinking. And almost all entrepreneurs find that being able to trust their hunches is a matter of survival, since most have neither the time nor the resources to analyze every option. They’ve got to quickly size up a situation and decide which way to go.

“Gut” Defined
When people talk about trusting their gut, they’re drawing on their experience, observations and knowledge to guide their actions. “Intuition is a quick, almost subconscious reaction to a choice,” says Thomas Becker, associate professor of management at the University of Delaware in Newark, Delaware. “If you’ve got a lot of experience and good judgment, that intuition can be pretty reliable.”

While successful entrepreneurs often go with their gut, they don’t shoot from the hip. “[They make] very informed decisions, but decisions that have qualitative aspects vs. all quantitative,” says ArLyne Diamond, head of Diamond Associates, a Santa Clara, California-based management consulting firm.

Consider Mark Fasciano, 36, CEO of FatWire Software, a developer of content-management and web-application software with 150 employees. In 1999, Fasciano was looking for a new office space for his company. Many VCs insisted FatWire be located in New York City’s Silicon Alley, near other high-tech businesses. Fasciano wasn’t sold. “My gut said major software companies locate outside major metro areas,” he says.

From his years in the software industry, Fasciano knew software firms need access to airports and public transportation so clients and employees can easily get to them. He also knew this type of access could be found outside city centers. Equally important, locating outside urban areas makes it easier to develop a campus setting, a la Microsoft. The clincher: Fasciano had heard horror stories of companies heading to Silicon Alley only to spend weeks without reliable phone and utility connections.

Fasciano and his colleagues decided on Mineola, New York, a 20-minute drive to both John F. Kennedy Inter-national Airport and LaGuardia Air-port, and several blocks from public transportation. Real estate costs were about 40 percent lower than in Sili-
con Alley. While some investors didn’t take to FatWire’s off-the-beaten-path location, one did stick with them. And during FatWire’s latest round of fi-nancing, not one asked why the company was outside Silicon Alley.

Beyond Intuition
What happens if your gut is telling you something, but you’re not sure how valid it is? It’s time to do some hard research.

Denis Kelleher found himself in that situation. Kelleher is founder and CEO of Wall Street Access, a securities brokerage firm in New York City. Throughout its 20-plus years, the company has focused on higher-end investors.

In the late 1990s, however, all the hype said big money would be found in serving independent investors via the internet. Kelleher instinctively questioned the strategy’s feasibility, recognizing it would mean sacrificing personal service to become a low-
cost provider. “That might be OK for one or two players, but we thought that ground was probably staked out,” says Kelleher.

To check whether his instinct was on track, Kelleher calculated how many brokers and operational employees his firm would have to add to reach a mass market and process larger volumes of trades. He also figured in the cost of advertising to a wider audience.
His conclusion: To make a profit, Wall Street Access would have to capture an unrealistically high number of small investors. Kelleher stuck with his initial gut reaction and remained focused on higher-end investors. Says Kelleher, “Your gut is important—but only [until] you have empirical evidence.”

Enter the Experts
Contrary to conventional wisdom, going with intuition doesn’t preclude listening to others’ advice. Most successful entrepreneurs actively solicit input from experts, such as accountants, as well as peers at other companies before making decisions.

“That’s how you use experts: not to tell you what to do, but to feed you the brutal facts,” says Jim Collins, author of Good to Great: Why Some Companies Make the Leap . . . and Others Don’t. Successful entrepreneurs analyze facts even as they exploit their intuition and judgment, says Collins. He compares the process to Mozart’s ability to compose music that has set the standard for centuries: “It’s an intuitive process but also enormously disciplined. The notes have to work together.”

Often, an effective gut call results from closely reviewing an enterprise’s mission. For Mark Raper, 51-year-old chair and CEO of Carter Ryley Thomas, a 53-person PR marketing agency in Richmond, Virginia, that means offering a work environment that fosters creativity and loyalty in employees.

When Raper and his colleagues purchased the company eight years ago, they departed from the normal agency structure in which just a few people have ownership and a chance at the top jobs. An “us vs. them” mentality can spring up between workers and owners, dampening creativity and prompting turnover rates of 30 percent among both employees and clients, says Raper. He thought there had to be a better way, so he and his colleagues distributed owner-ship among all the employees. They’ve also decided to periodically rotate the role of president.

Some of Raper’s advisors warned against the structure, calling it “socialist” and arguing that it left a lack of control and responsibility. Raper counters that the firm has a senior group of executives who make major decisions. Equally important, employees know it’s possible for them to advance to the top spots. As a result, the firm’s turnover rate—among both employees and clients—is about one-sixth that of the typical advertising agency, according to Raper. And revenue has grown to $9 million a year.

Still, the structure isn’t for everyone. Raper acknowledges that, at least at the outset, his paycheck was smaller than it might have been had he organized the firm in a more traditional manner. But he believes the move was worth it. “If someone else makes a few more dollars, that’s OK,” he says. “This is a group effort, and the group should benefit.”

Christine Dimmick, 35, founder of The Good Home Company, a developer and wholesaler of personal and home-care products in New York City, re-turned to her mission statement when deciding whether to listen to an outsider’s advice. In 1995, Dimmick was getting her company off the ground and trying to nab a large home-products retailer as a customer. One buyer told her she’d be better off concentrating on a single product so she didn’t spread herself too thin.

Dimmick considered, then rejected, the suggestion. “It didn’t feel right,” says Dimmick. “How can you create a ‘Good Home’ through just one item? My gut told me it was not my mission.” Still, ignoring the suggestion wasn’t easy. “At the time, I was quite green. That kind of advice, you take seriously,” says Dimmick.

She continued to add all-natural products such as laundry fragrance, home fragrance and home cleaning products. Annual sales should top $3 million this year, and several na-tional retailers, including Nordstrom, carry her lines. Had Dimmick not broadened her inventory, retailers may not have considered her company. She says, “It could have been a disaster.”

Bouncing Back
Though listening to your inner voice is essential, not all gut decisions work as planned. The key is to keep setbacks in perspective and figure out how to bounce back. “You have to trust yourself to know that if you’ve made the wrong decision, it won’t be disastrous,” says Diamond.

One example: Several years ago, Milazzo thought potential customers would want a three-day version of the seminars her company produces, rather than the one-day introductory course she’d been offering. She was wrong. “I thought I knew the market better than I did,” admits Milazzo. Market research might have tipped her off, she acknowledges. With the seminar approaching and enrollment nowhere near a profitable level, she added material and began promoting it as a comprehensive, rather than introductory, course. The revamped offering just about sold out.

Successful entrepreneurs recognize that some decisions simply don’t lend themselves to a from-the-gut approach. These tend to involve more quantitative questions that have one, or just a few, answers. “Regulations, audits, figuring out how contracts should be written—these are clearly outside the realm of the gut,” says Fasciano.

For many other situations, however, a well-honed gut instinct can be the difference between surviving and failing, or thriving and just getting by. “Issues more fundamental to the success of the company, where there are no rules or regulations—that’s where your gut comes in,” says Fasciano. “If your gut says no, you have to go back to the drawing board.”

Karen M. Kroll is a Minneapolis-based business and financial writer whose articles have appeared in AARP: The Magazine, American Way, Business Finance, Inc. and other publications.