Opportunity Cost and The Success Paradox
Choosing the right things to focus on, gives us more options to choose from
Every decision in investing or company building involves tradeoffs. Funds have limited capital to deploy, and companies have limited resources - even Amazon. It’s true for us too, we all have limited time and resources.
Our decisions are often thought of as X or Y, as in, do we do this or not? But the real tradeoff universe includes everything you're not going to do as a result of picking X.
The reality is X and everything, not X. X or Y implies only two choices, but the universe of options is essentially unlimited. The framework works from the big corporation down to the individual.
Yet, even Amazon or Microsoft can't execute unlimited projects. So, every time they launch a new one, the underlying message is that every other considered project wasn't as good as the one they chose.
When investment firms select a new strategy or investment to execute, they're leaving other options on the table. Capital is a finite resource, even for the most prominent firms.
We, individually, have limited time. We can't do everything we want to do, so we make tradeoffs. We never have one or two things we want to do. It's always seemingly ten or more.
And here's the kicker.
The "everything, not X" bucket grows with success, so picking the right X becomes more complex. The reason is that success attracts new opportunities.
Amazon can launch AWS because they built the world's best bookstore.
Blackstone gets to invest in just about everything because the first buyouts went well so investors continued to give them capital.
Startups chase shiny objects because of the feeling they get after early success.
When we have personal success, more opportunities come our way. New job opportunities, podcast appearances, and media interviews - they all come from success.
Our ability to pick the right areas to focus on creates our success. Ironically, if we do that well, the choice becomes more challenging over time because success breeds opportunities. That's the success paradox.
It’s easy to forget our focus created the opportunities we now enjoy. And it’s even easier to get excited by endless opportunity. But, it’s understanding the trade offs and choosing where to focus that keeps us moving forward.