I recently reviewed the book Great by Choice: Uncertainty, Chaos, and Luck–Why Some Thrive Despite Them All by Jim Collins and Morten Hansen. While written about making businesses great, I believe they have perhaps inadvertently written one of the best books on improving oneself. I am taking the next few posts to lay the case of how we can ourselves be Great By Choice.
Let’s talk about risk.
Collins and Hansen talk extensively about companies that outperform their industry, calling them “10exers”. One might think those companies became big because the took large risks, reaping great rewards when they were right. Their research showed the exact opposite. Success didn’t come from risk, but from preparation, knowing the capabilities of the organization and staying within them.
On a personal level, we need to learn to stay above the Death Line, too. The Death Line is the altitude above which the air is too thin to support human life. Climbers can only go above this line if they have prepared, training such that the body has adapted to deal with the effects of less than half the oxygen of sea level. They also carry supplemental oxygen tanks. They also know the risks, preplan the cutoff points and constantly assess potential changes that increase the risk and make plans for the unthinkable.
Collins calls this way of thinking productive paranoia. The three behaviors involved are just as applicable to individuals as corporations.
- Build cash reserves to prepare for unexpected events and bad luck before they happen.
- Bound risk – Death Line risk, asymmetric risk and uncontrollable risk – and manage time-based risk.
- Zoom out, then zoom in, remaining hyper vigilant to sense changing conditions and respond effectively.
Building cash reserves allows companies to weather financial storms. The same is true for individuals. I was laid off for a year. I had built up a year’s cushion of cash prior to that event and that allowed me great peace of mind during that year. I still worked hard to rectify the situation, of course, but having the cash on hand allowed us substantial freedom to not panic and make foolish or desperate moves. For more on how to build chad reserves, read Get Rich Slowly or read one of Dave Ramsey’s books.
Risk of some level is in everything we undertake. Driving to work in the morning carries some risk. My commute of 18 miles on two busy freeways is higher risk than my wife’s one mile on rural roads. There is a rural route I can take, up and over a mountain, that carries less risk most of the time. However, in the winter, I do not want to be on that road in a show storm. I did tat once and believe me, the risk increased exponentially. I think of Death Line risk like driving on a road cut into the face of a steep cliff. The Death Line is driving right on the edge, where if any unexpected event happens, like meeting another car or a rock coming down or an unexpected obstruction in the road, the chance of going over the edge is greatly increased. Knowing where the line is and staying way away from it is where we need to be.
Asymmetric risk, in which the downside dwarfs the upside, must be watched for as well. After finding a job, I came into a little bit of money and thought I would invest it in the booming housing market. I did not analyze the asymmetric risk well enough. I had not thought through the downside well enough, looking only at the potential upside. I have good intentions: I wanted to reward my family with a very nice vacation after a year of scrimping and watching every penny. We all know what happened to the housing market and I just about took us over the Death Line in the subsequent slide. Know the risk and don’t ignore the downside.
Zooming Out and then Zooming In would have helped me see the risk, perhaps. Collins and Hansen talk about how the Everest climbers must constantly look out at the horizon, look for approaching storms below them and assess the overall situation and then zoom in to their specific situation and take appropriate action. The same holds true for us. We need to regularly take stock of the overall situation, whether it is the job market, the economy, our relationships with others, what is going on around us. Then we zoom in to decide what actions we are going to take to mitigate the risk.
A few years ago, I took the opportunity to zoom out. I had a good job at a company that was struggling. We were sure we would be turning the corner the next quarter. And the next. And the next. The leaders of the company were trying everything they knew to turn that corner. Still, it was a good job and the company was a good one. But, looking out further into the future, I was concerned. The recession was really starting to kick in and there were thousands of IT workers laid off, all looking for work in our geographically isolated area. From my experience of unemployment of a few years earlier, I knew how difficult it can be to find a job in good conditions, much less in the current situation.
I then zoomed in and looked at my personal situation. I couldn’t weather another storm like the one a few years earlier. My reserves were depleted to the edge. I couldn’t afford to be out of work for more than a month or two. I could see that should anything happen to my job, my family would instantly be in perilous danger. So, I started acting. I looked for a job outside our community. I had to get us to a larger market with more options available. That is how we ended up in Utah. My old company continued to lay off people until recently, when they laid off my entire team. Had I stayed, we would have been in serious danger of disaster. Instead, we are quite secure, building reserves and enjoying life more than we could have imagined. Zoom Out, Zoom In.
Risk is not a bad thing and brings great rewards. It was risky moving the family to another state. Many things could have gone wrong there as well. However, identifying the risk and taking action to minimize it is a behavior I am trying to improve. Taking time to analyze risk as Collins and Hansen suggest can give me the discipline to become better. Knowing the bounds can help me choose to be great.
Great By Choice Personal Improvement Series
Great By Choice: Personal Success In Reach
Great By Choice: The 20 Mile March
Great By Choice: Fire Bullets, Then Cannonballs
Great By Choice: Leading Above the Death Line
Great By Choice: SMaC
Great By Choice: Return On Luck