The importance of avoiding really big, really dumb, mistakes may be one of life's biggest secrets. I know, I know. It sounds really "wussified" to think like that, right? It goes against the "You only live once, go for it, no regrets, no guts no glory" approach to life.
But it turns out that not only is it wise in life (at least in my opinion)… it's also wise advice in business.
Phil Town's book Rule #1 refers to Warren Buffet's two rules of investing:
Rule #1: Don't lose money
Rule #2: Don't forget Rule#1
I was talking to a seasoned businessman several years back who had built a number of businesses and was probably worth $300 million or more. (And he had a super cool corporate jet that we rode in together several times. Note: If you have a corporate jet, and like to let financial guys who love corporate jets ride along, send me a note. You'll be my new best friend.)!!!
I asked him what he considered the key business lessons or rules he had learned over the years. His answer was "the trick is to make more money in your business than you lose". Pretty much Buffet's rule with respect to investing.
He went on to say that you have to always try new things in your business. But you have to manage those things so you keep the risk of loss to a minimum. It's not wise to set out on a project or idea that, if it does not work out as planned, will lose a lot of money.
There is too much uncertainty in business to operate that way.
It's not easy, but in business you have to always consider the upside and the downside of decisions or projects or strategies. Not every investment is wise. Some have little upside but a large downside. Make sure your management team is evaluating both sides as you innovate and work on making your business more profitable.
(And always remember that the fastest way to improve profitability and cash flow is to stop doing things that lose money.)
Surviving and Thriving in Business
It is important in business to avoid making really big, really bad, mistakes. Pay attention to your downsides and how they relate to the potential upside.
Part of thriving in business is to first survive!
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