2 Types of Business Risk and the One I Choose EVERY TIME

Summary

• Business success hinges on two primary risks: execution risk and idea risk, with environmental and regulatory risks also being factors.
• As Dr. Mosey of Acquisition.com, generating over $100 million annually, my goal is to make business concepts more accessible, helping more people avoid poverty.
• Often, new entrepreneurs miscalculate the payoff for taking risks, overestimating rewards and underestimating both the likelihood of failure and associated costs, especially in terms of time.
• Jeff Bezos' philosophy emphasizes betting against conventional wisdom, noting while you're often wrong when taking bold risks, the few successes can cover many failures due to business's long-tail distribution of returns.
• I recommend that newer entrepreneurs target "boring" businesses with established demands, to minimize the idea risk and focus on execution, refining business skills because if the venture fails, it's on them, not the market demand.
• Entrepreneurs struggle with determining when to push a failing idea versus when to pivot to something new, balancing risk and opportunity, and this can be a tough call, especially without knowing whether the issue is the idea's viability or their execution.
• Discussing with my software entrepreneur friend, we contrasted our views on risk: he chases big visions, whereas I focus on accumulating wealth to enable grand accomplishments in the long term, preferring to minimize risk.
• In portfolio theory, like venture capital, it's the outlier successes that compensate for numerous failures, but for individual founders, sinking years into a failure is much costier.
• I point out the importance of acknowledging the "graveyard" of failed big ventures and argue for a more conservative approach, aiming for sure things and minimizing risks.
• Success isn't just about big wins; it's about consistently winning smaller bets over time, allowing compound growth. Controlling for idea risk and focusing on execution risk increases the likelihood of success.
• Wealthy individuals I know look to nearly eliminate risk and only engage in ventures where they are likely to win, such as The Rock launching a book with high chances of becoming a bestseller due to his massive audience.
• Assess situations by assuming everything that can go wrong will but still work towards a viable path to success, which may not lead to 1000x returns but can reliably create wealth and a comfortable life.
• By choosing lower-risk opportunities with proven demand, focusing on execution, and avoiding pitfalls along the way, entrepreneurs can optimize for success in their journeys.

Video

How To Take Action

I would suggest focusing on minimizing both "idea risk" and "execution risk" to achieve business success. Here's how you can start:

1. Pick "Boring" Businesses:

   • Go after businesses with established needs like weight loss, skill development, or customer acquisition.
   • This approach lowers idea risk since there's proven demand.

2. Refine Execution Skills:

   • Your success relies more on how well you execute, not just the business idea.
   • Continuously improve your skills in sales, marketing, and operations.

3. Learn to Assess Risks:

   • Be realistic about the likelihood of success and the costs involved, especially time.
   • Don't overestimate the rewards; acknowledge and prepare for potential failures.

4. Decide When to Pivot or Persevere:

   • Evaluate if the struggle is due to the market not wanting the product (idea risk) or due to execution (execution skill).
   • If it's the idea, consider pivoting. If it's execution, find ways to improve your approach.

5. Weigh Opportunities by Probability of Success:

   • When faced with two opportunities, choose the one with a higher chance of success even if it offers lower rewards.
   • A string of smaller, successful bets can compound over time, increasing the likelihood of wealth creation.

6. Control for Risks:

   • Like wealthy individuals, try to enter ventures where the chance of winning is very high.
   • Examples include launching a product to an already established, large audience.

7. Plan for the Worst:

   • Assume things will go wrong and figure out how you can succeed under those conditions.
   • By doing this, you create a viable path to success that is less reliant on luck.

By selecting lower-risk ventures with clear market demand and concentrating on fine-tuning your execution, you optimize for long-term success and wealth creation.

Quotes

"Outside returns often come from betting against conventional wisdom, and conventional wisdom is usually right"

– Alex Hormozi

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"Big winners pay for so many experiments"

– Alex Hormozi

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"We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs"

– Alex Hormozi

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"In business every once in a while, when you step up to the plate, you can score a thousand runs"

– Alex Hormozi

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"Most newer entrepreneurs I think would be better served going after boring businesses that have established needs"

– Alex Hormozi