In two previous blog entries, (#1 and #2), I discussed the psychology behind risk taking. In particular, I explored why people take risks to minimize losses, yet play it safe when it comes to increasing gains.
In this blog entry, I discuss a number of implications of this mindset. Here are 10½ – potentially irrational – ways in which people do everything in their power to minimize losses, even though the gains that can come from risking the loss can be amazing.
1. CREATIVITY: According to studies, 98% of children age 5 are highly creative, yet only 2% of adults over the age of 25 are. Why? One reason is that children do not worry about looking silly. Adults do. Adults will stifle a potentially great idea in order to avoid losing face. Action: Add some play to your life and work. Stop being so serious. Take improv comedy lessons. This will certainly get you comfortable with looking silly!
2. INNOVATION: Companies continue old business practices, processes, and products because the perceived risk of losing these is too great. Action: Keeping a business or product because of sunk costs is stupid. Ditch anything (including people) that is not working. Ask yourself, “If I were starting my business from scratch, how would I design it?” If it is different than your current model, then maybe you should get rid of a few things. What you stop doing is often more important than what you start doing.
3. INVESTING: Stock owners often hold on to investments that they would not buy if they did not already own them. Or worse, if they own a stock that is tanking, they buy more on the belief that “because I own it, it will recover.” I did this with Webvan stock. I kept buying more stock as the share price plummeted, convinced it would bounce back. Alas, you can’t buy anymore when it is worth nothing. Action: Sell anything in your portfolio that you would not buy if you did not own it. Low transaction costs make holding on to duds irrational (unless tax implications indicate otherwise).
4. CAREER: People often stay in unsatisfying careers because the “devil you know is better than the devil you don’t.” I know what you are thinking. “Why should I give up my crappy job that gives my ulcers and high blood pressure? I worked my entire life to get where I am.” Um, I don’t know. Maybe because there are at least 1,000 better careers for you. Action: If you don’t love your job, quit. Ok, not so fast. But imagine leaving your job. Explore what is possible. When you discover something better, list all of the reasons why you are still not prepared to leave your current situation. Then find ways of addressing each of these concerns.
5. CUSTOMERS: Are all of your customers profitable? Are all of them desirable? The odds are, you have many customers or customer segments that are just not worth the effort. Ironically, companies often spend an inordinate amount of time with customers that provide the least returns. Action: Ditch the least profitable 20% of your customers. Or at least find creative ways to make them more profitable – and less time consuming.
6. DATING: People will do anything to avoid losing face. The fear of rejection stops people from asking others out on a date, even though if they said “yes” it could lead to a new relationship. Action: Stop being a wimp! Rejection never killed anyone. Ask out that person you’ve had your eye on. Go up to a stranger in a bar and say, “I’m thinking of changing my name to Romero. What do you think?” (if you don’t know the Romero story, click here)
7. RELATIONSHIPS: Imagine that you are in a relationship that is going nowhere fast. Your gut tells you it should end, but for some reason you do everything in your power to keep the relationship alive. Action: First, do what you can to bring the relationship up to the standards you deserve. If that does not work, find an equitable way of ending things and moving on. Do you really want to wake up 25 years from now in the same wretched relationship?
8. BELONGINGS: Go through your closets. Look in your bookcases. How much “stuff” do you have that you really need? How much of it would you buy if you did not own it? 20%? 30? Certainly not more than 50%. I often hear people say, “as soon as I throw something out or give it away, that’s when all of a sudden I find a need for it.” Although this phenomenon is not true, it seems real. As a result we hold on to things “in case” we need them, rather than “because” we need them. Action: Go through everything you own. If you haven’t used it in a year, put it in a box. If after a year you haven’t opened the box, give away (or sell) the entire box.
9. HEALTH: People will spend a lot of money on health insurance – a way of reducing losses associated with an illness. But they won’t put much time or energy into increasing their health. Action: For every dollar you spend on health insurance (loss prevention), spend at least 10 cents on things to improve your health. Get a gym membership. Buy vitamins. Get a massage. Take a stress relieving vacation.
10. REQUESTS: People are often afraid to ask for help because they don’t want to seem needy (lose face), or impose upon and risk losing their friends. Action: Identify 10 requests you could make of 10 different people (e.g., a connection with a person who may be able to help your business, feedback on a new business idea, financial support, moving your house). Then, ask these people for help. You may be surprised to find that few people say “no” and that most people are willing – and want – help you.
10½. Why do I blog on a regular basis? One motivator is to avoid losing readers. I currently get 50,000 visitors here a month. I intentionally write for a mass-market to attract as many diverse readers as possible. I have considered writing only for a niche market (e.g., corporate innovation), but I know in doing so I would lose a lot of readers. I realize that having fewer, yet more active readers may actually be a good thing. Alas, for now, I like appealing to a large audience.
Where in your life have you given up something only to find a huge gain? Where have you held onto something knowing it was holding you back?