Some time ago, I read former Treasury Secretary Robert Rubin‘s book In an Uncertain World: Tough Choices from Wall Street to Washington
The book is about a third economics text book, a third memoir, and a third commentary but I managed to power through it on a few trans-continental flights. It is certainly worth a read and he is a very bright guy – both in his command of markets as well as his approach to leadership. He is part of the "now that I am running Goldman Sachs, I need more challenges so let me be Secretary of Treasury" gang like current Treasury Secretary Hank Paulson
You should pick it up yourself, but here is the short version:
- In decision making, you must balance rewards, risks, and probabilities
- It is important to determine at what point additional risk no longer carries potential rewards that exceed potential losses given the respective probabilities of the good and bad outcomes
He then goes on to describe how all of this can be laid out on an expected values table – have fun with that…
He also covers the "risk of remote contingencies" and how this remote risk can prove devastating and is almost always underestimated. As he points out, you don’t want to be in a position where remote risk can hurt you beyond a certain point or not understand "how much loss can be tolerated."
Business decisions include elements of risk and reward that must be balanced. Whether or not to pursue a given market, build a certain feature, or invest in a specific opportunity all involve taking a risk that you are correct based many times on imperfect information.
The point to not lose sight of here is the risk of remote contingencies – what happens if the deal you are chasing doesn’t close or the market you are targeting does not materialize? Have you surpassed the point where the additional risk you are taking does not justify the potential loss that may occur? What are the "remote contingencies" that you are not focusing on?
Venture Vice 