The Power of Re-Framing a Tough Question

One summer during college, I ended up working at a small startup. There are so many great stories from that experience, one of my favorites of which is when my Mom thought I had dropped out of college to work there (I hadn’t). But none of those stories are the subject of this post — this post is about my compensation.

Like many summer interns in the valley for very early stage startups, I was paid (partially) in stock grants. At the times this seemed AMAZING. I remember sitting in my dorm room doing the math on $10 / share exit and picking out the color or my Ferrari. Of course, there was no exit and no Ferrari. Just a good lesson in the counting of chickens and the importance of remembering about Phase 2.

After a while, I nearly forgot that I still had the shares of this company, which continued to operate but wasn’t growing fast enough or big enough to really be worth much or experience a liquidity event. Then, a few years ago, I got a message from the founder that he had an offer from a PE firm to buy the company and would be making an offer to buy out early shareholders — including me!

Suddenly my shares went from being worth a couple of trips to Starbucks to a year of private school tuition — not a bad improvement! But then I got to thinking. If a PE firm was interested in buying the company, maybe it was growing quickly and more valuable than I thought. If they thought this price was a good deal to buy at — didn’t that mean it was a bad price for me to sell at?. Was this a smart decision or was a giving up a bunch of upside?

I seriously thought about this for a while: should I sell or not? But then I reframed the question about the answer become immediately obvious. Instead of thinking about whether or not to sell the shares I owned, I asked this related question — if the CEO of a small, private company I had no relationship or specific knowledge about called me up and asked me to invest in his company in a round with a PE firm, would I do it?Here my answer is obvious — I’m an index fund investor and a small, private company that I’m not personally involved with is well outside my investment plan. I would never consider investing in that scenario.

That’s the power of changing the framing of a question. Either way I’m asking whether I’d rather have the cash or shares in that company. But thinking of it in terms of “would you give up cash you have to buy these shares” instead of “is this a good time to sell your shares” totally changed my perspective. It was a very useful re-framing and made my decision quite easy.

I find this technique is incredibly useful in making tough decision. Try to reverse the framing or the core assumptions in your question. Assume the opposite (eg would I buy these shares instead of would I sell them) and see if the answer becomes more clear. It’s amazing how often framing a tough question in a new way can make the answer seem much more obvious.

Originally published at https://jeffkeltner.com on December 8, 2020.