Many small bets are less risky than fewer large bets

betsWhen innovators talk about failure they are really talking about innovation. I.e. the road to ultimate traction with customers is the result of small iterations, constant evolution. They are talking about lots of small bets.

Larger, or more legacy-oriented organizations, sometimes hear “failure” and hear something “going out of business.” The simultaneous ironic and tragic point is that without constant, smaller risks a company is forced into a situation to make a single, company-betting decision.

Placing many small, early bets is less risky than fewer, later large bets.

A recent, pithy Jeff Bezos piece succinctly captured this point.

Bezos said “If you place enough of those (small) bets, and if you place them early enough, none of them are ever betting the company. If you invent frequently and are willing to fail, then you never get to that point where you really need to bet the whole company” (on any single initiative).

He’s building on one of my favorite thinkers, Peter Drucker is another. Peter also summarized this point with the following…

“The innovators I know are successful to the extent to which they define risks and confine them. Successful innovators are conservative. They have to be. They are not ‘risk-focused’; they are ‘opportunity-focused.’”

Of course there is nothing new here, this is a summary of how the venture capital industry lives every day. Still, there is wisdom here for all of us.

 

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