We have to take the risk

21 March, 2015 0 No tags 0

If you still continued reading this blog, it’s because you think life can not consist only of facts articulated perfectly predictable routine. It is true that each person is different, and that risk aversion depends on each one. It is also true that if you learned to ride a bike, at some point you have to get on the first time, you had to risk it.

No matter to stake everything on one card, or remain paralyzed by fear, or wait for a lottery will solve life. The question is not to stop betting, but to bet knowing how much to bet, how, and where is reality. Gambling involves risk. But not taking risk can have long-term consequences, even worse ones than when taking them.

Planning VS Optionality

21 March, 2015 0 No tags 0

Uncertainty is always there, and is maximal when we started something new. This is because we can not see the future and even less predicted. This forces us to make decisions with little or no information. In addition and to complicate matters, the information we have has always bias and is very comprehensive.

This means that we strive to get all the information we can in the shortest possible time, we have to fight to make our project do not crash because of decisions made in this environment of opacity in which we operate.

The weapon used to combat this uncertainty and the lack of knowledge about what awaits us, we make plans. Trust plans for us to dispel the opacity in which we operate. But what is the real purpose of these plans? If you think about it, the real goal is to reassure our head about an uncertain future. And the more detailed, more (false) tranquility generated. Millimeter plans, business plans, marketing, procurement plans if plans go awry (contingency) that support in case the first plan does not work. To infinity and beyond…

But the detailed plans have a dark side, a side that often reject unconsciously. Because when things are not going as make plans (very common thing) we block. Both time and resources devoted to its production can not volatilize so useless. No way.

The dark-side of plans:

  • An elaborate plan to lose sight makes choices that arise along the way (and deserve to be explored). The more elaborate the plan less options can generate.
  • We do not have much influence in the future as we think.
  • And worst of all (and more suicidal) when we are base don past events

Detailed plans raise expectations and reduce options. Its goal is to provide perverse false security that makes, and put pressure on the run (or have). It’s like putting a donkey earmuffs not allow us to see beyond what we face. We run towards our goal forgetting everything else. That makes us lose options automatically.

It’s much more valuable to build a system that allows us to play with the options that appear to be adding probabilities to find some worthwhile and exploit it to the fullest. We have to let the chance to do its job. In fact it will always do its job, whether we like it or not, so we better understand how it Works to be able to manage it.

The old manual says: Spend time and resources (not have) to create a detailed business plan, which contains detailed objectives, financial plans, marketing, procurement, and logistics, contingency, you will see that it doesn’t work so well.

The new way of doing things says: Do not waste your time creating too detailed business plans with specific goals too. It assumes that you have no fucking idea what can happen. Create a general plan of action, decision empowers the people that run them and begin testing. Let people try and play with what you intend to sell, and make the channels so that after you have your experience. In short, the long term is much more profitable to create an open system that allows up playing with the opportunities that are presented, to close planning objectives and hypotheses based system, which most often are false. The Lean Startup method was created for this. It is the method that makes all management operations based on uncertainty as I am explaining on this blog.

 

Concentration of risk

14 March, 2015 0 No tags 0

Our free market system works because it allows people to take risks, exploring all kinds of inventions and business. Of those people who risk a fortune and will thrive and others do not. You have more luck discover reefs that allow them to earn money and also create jobs. Just like ants do.

The system allows us to tinker with the opportunities that present themselves. This allows us to try to collect as many opportunities as we can positive black swan. So our system every day invest more in generating ideas, than in manufacturing.

We will get over this crisis, but we will not get over the next one. The concentration of financial institutions (banks, deposits, insurance, loans, financial intermediaries…) and no other birth, is sowing the seeds of disaster. This time we have delivered (and not entirely) due to a lot of financial institutions, which has allowed some will collapse and others continue to operate (at the cost of rescue with our money, but operating in the end). A higher concentration of this type of entity, what it does is reducing the probability that there are entities that are saved in the next crisis. And so it is with other sectors. We are concentrating system risks wildly. And we will end up paying.

concentracion riesgo banca

The secret is to be wrong

7 March, 2015 0 No tags 0

We have to be willing to lose. We have to accept the mistake. The question is, am I willing to accept small losses? How much is a small loss for me? You have to be willing to be wrong. To err is inconvenient, but not fatal as long as the concept explained in the previous post is understood. Besides mistakes generate a very significant amount of information, that if we leverage increases the probability of success on the next trial/ bet.

Publishing, film production, music and culture in general any well known (or so I think) this principle. Publishers know that a bestselling will help to maintain the profit for those other publications that were not a success. They know that maintaining annually a publication plan is to increase the odds of finding books with inordinate success that will outweigh the losses borne by the titles that did not have that success (the vast majority).