On a podcast episode I listened to yesterday, hedge fund manager Mohnish Pabrai argued that good entrepreneurs don’t take risks. He noted the story of Richard Branson launching Virgin Airlines. Branson needed a $150 million passenger jet. He called Boeing repeatedly until they agreed to lease him a plane. As is typical in the airline business, Branson pre-sold flight tickets months before departure and didn’t have to pay the plane’s lease payment immediately. He brought in revenue before incurring any costs. If it’s possible to start an airline with zero risk, Pabrai argued, it’s possible to start any business with zero risk.
Most of the decisions we agonize over are not permanent. They are what Jeff Bezos calls “two-way doors”.
“Most decisions are two-way doors. If you make the wrong decision, if it’s a two-way door you pick a door you walk out you spend a little time there, if it turns out to be the wrong decision you can come back in and pick another door.”
—Jeff Bezos
To accelerate our education and success, we open two-way doors without delay and without hesitation. If we can handle the worst-case scenario, we waste time deliberating.
In Lesson 17, I advised you to buy a sports car if you want one and can easily afford one. You’ll get insurance, so the worst case scenario is not a total loss of value (if you crash); the worst case is you overpaying and losing 25% the next day you try to sell it. If you’re worth $1 million and buy a $200,000 sports car, that’s a $50,000 loss. It’s not a small amount of money, but, at 5% of your net worth, losing it is not devastating. That’s also the worst case — your expected loss is much less. Buying a sports car you can afford is a two-way decision.
Getting married, divorced, or pregnant, are one-way decisions. Sure, some interesting people get divorced and remarried multiple times to the same people, but most people don’t forget. Your sports car doesn’t “know” you gave it up, your prior spouse does.
Selling a business is also a one-way decision. You can’t ask for it back the day after the check clears, if you change your mind.
Is it a Two-Way or One-Way Door?
Before making a decision, ask yourself, “Can I reverse this decision quickly, inexpensively, and with little long-term damage if I don’t like the outcome or change my mind?”
If the answer is yes, it’s a two-way door. Proceed quickly and confidently.
If the answer is no, be careful. Do your research. Get advice from others with experience and/or wisdom. Listen to those who disagree with you.