Since the beginning of time, the admonishment from parents to their offspring has been: “It’s always better to be safe than sorry.” Beware, however, because this broad generalization does not apply to many complex situations. Other trite phrases, such as “no guts, no glory” and “no risk, no reward” can be spot-on for unblocking inertia.
When it comes to risk and reward, a go/no-go decision requires thought, deliberation and, most importantly, rigorous calculations. Most of the time, without realizing it, we make these determinations based first on an idea, followed by “what ifs” using our empirical knowledge of what worked and what didn’t in the past under similar circumstances. Most successful business people quantify the upside and especially the downside of potential catastrophic consequences if they’re completely wrong.
It is very difficult to build a thriving business by always operating within the lines and never taking chances. The operative word here is “chances,” and the calculation must include an analysis of what happens if something goes south, combined with the anticipated cost of anything from a small failure all the way to a big bust versus the reward of a big win.
Let’s use oil exploration as an example to frame this thought process. In an oversimplification, assume some little, run-of-the-mill driller stumbles across a potential site that could hold more oil than the operator ever dreamed of. The good news for this wannabe big company is that it could be a game changer leading to fame and fortune. The problem in this scenario is that to find out if the oil is there, the explorer must beg, borrow or otherwise find enough money to commence exploration. If it hits a dry hole, then it’s virtually a certainty that this hand-to-mouth bootstrapper will go belly up. In this scenario, the risks far outweigh the possible home run because the chances of hitting the ultimate mother lode are always sketchy and, more importantly, if the driller is wrong the company won’t live to fight another day.
In a case of betting the ranch, the odds of success should be extraordinarily high — at least 90 percent or more. A more conservative and realistic strategy would be for this undercapitalized business to find a deep-pocketed partner who can afford to be wrong. On the flip side, if the oil driller is a multinational mega player whose loss on the well if it is a stinker would be a rounding error, this titan likely would be setting up rigs before the ink dries on the permits needed to proceed.
Bottom line is, no matter the size of the enterprise, the “safe vs. sorry” equation must be a thorough, thoughtful and at times agonizing exercise. When a company is small, it can still take measured risks in baby steps and, as it gains scale, it can become more daring.
In the end, father and mother do know best when they say that it’s better to be safe than sorry, when pure survival is at stake.
Serving on a number of boards, Michael Feuer is a frequent national speaker, and author of the business books “The Benevolent Dictator” and his newest book ”Tips from the Top.” His long running nationally syndicated Smart Business magazine column has received more than 10 awards for excellence.
