In any business, decision-making involves the same vital components: Deciding how much to spend on equipment, workspace, payroll, and marketing. You’ll also have to choose the right partners, clientele, and employees. But as a small business owner, how do you even start to decide?

According to a study by Gartner, poor decision-making is estimated to cost firms at least 3% of profits on average, which for a $5 billion company amounts to a loss of around $150 million yearly. The costs of making bad decisions, however, go beyond money. A single poorly handled social media exchange with a disgruntled customer, a delayed shipment to a major supplier, or an IT system malfunction can all quickly get out of hand and cause serious reputational and legal problems for businesses.

While the study only features big firms, it is equally relevant to small businesses. At some point, small businesses will also need to make informed decisions between expanding their reach and attracting new customers. To navigate these challenges, Artificial Intelligence (AI) is a strategic tool that presents a promising avenue. It can significantly enhance decision-making processes and operational efficiencies. However, to optimize its benefits and minimize its associated risks, a deeper comprehension of its limitations and capabilities is necessary before putting it into practice. 

Here’s how small business owners can start to leverage AI effectively:

1. Start with a Clear Objective

According to Igor Borovikov, Founder of Noventiq, small businesses first need to understand what AI can do for them. 

AI-powered technologies comprise a range of tools, such as virtual assistants (schedule appointments, answer FAQs, make recommendations, or control smart devices), augmented and virtual reality (product demonstrations, training and education, better navigation, and interactive marketing), and data analytics and business intelligence platforms (predict customer behavior, optimize operations, identify market trends, and improve product development). 

Large language models, or LLMs, are a class of algorithms that can understand the probabilistic structure of large amounts of data, including text, numbers, software code, images, videos, formulas, and more. Based on this data, LLMs, such as ChatGPT and Bard, can generate summaries, answers, simulations, and alternative scenarios. 

“Ask yourself how you want AI to help you. Do you want to improve your customer service, optimize your supply chain management, or enhance your marketing efforts? By having a clear goal, you can choose the right AI tools and technologies that align with your business needs,” Borovikov explains.

2. Data is Key

AI systems thrive on data. 

The quality and quantity of data available will directly impact the effectiveness of your AI solutions. According to Borovikov, “Small businesses must focus on implementing systems to continuously collect data from business operations, customer interactions, and external sources.” This can include sales data, customer feedback, online behavior analytics, and more.

For data organization, invest in data storage solutions that allow for efficient data retrieval and processing. This might involve cloud storage solutions, data lakes, or databases designed for big data. Then, utilize data analytics tools to preprocess and clean the data to analyze it for patterns, trends, and insights that could inform your business strategies. This step is crucial for preparing data for AI models. “By focusing on building a solid data foundation, you can unlock the full potential of AI to drive smarter decision-making,” Borovikov stated.

3. Understand the Do’s and Don’ts

Remember this: garbage in equals garbage out. 

Before feeding your data into your preferred AI system, you must ensure that it is accurate and relevant to the specific problem/decision at hand. An incorrect, irrelevant data can skew results and lead to inefficiencies. Additionally, a diverse dataset guarantees that the AI system is well-rounded and efficient in various settings and helps eliminate biases in AI decisions.

In terms of using it for your business in general, here’s some more tips from Borovikov:

Do’s:

  • Start small: Implement AI in small, manageable areas before scaling.
  • Focus on integration: Make sure your AI tools integrate well with your existing systems.
  • Prioritize privacy and security: Be mindful of data protection regulations.

Don’ts:

  • Over-reliance on AI: AI should augment human decision-making, not replace it.
  • Ignore the learning curve: AI systems improve over time. Be patient and allow it to learn and adjust.
  • Overlook ethical implications: Consider the ethical dimensions of AI use, especially concerning customer data and privacy.

4. Partner Wisely

Borovikov suggests finding an AI partner that fully understands your business context, industry challenges, and specific needs. This way, they can bring invaluable insights into your projects. They should know your sector’s common challenges and opportunities to tailor their solutions accordingly. This expertise can lead to faster and more effective implementation.

A good partner should also offer flexibility in their solutions, allowing for customization that aligns with your business objectives. Off-the-shelf solutions might not always provide the competitive edge you need; customization can often distinguish between a successful implementation and a missed opportunity.

“Considering these factors can ensure that your investment is not just for the present but also positions you well for the future,” says Borovikov.

5. Keep Learning and Adapting

The field of AI is rapidly evolving. Stay informed about the latest developments and be ready to adapt your AI strategies accordingly. This includes being open to new AI technologies and methodologies that could further optimize your business operations.

The Future of Businesses with AI

By 2024, 75% of enterprises will shift from piloting to operationalizing AI, driving a 5X increase in streaming data and analytics infrastructures. In fact, businesses that have integrated AI have seen a 37% reduction in errors in decision-making, making AI a very important tool for businesses nowadays.

By leveraging AI, small businesses can harness the power of AI to make more informed decisions, improve efficiency, and drive growth, all while avoiding the pitfalls of poor decision-making that can have significant financial and reputational impacts.