Let me make this easy for you. Jeff Bezos has more money than God. This is a fact to which the god-child, Elon Musk, would have to concede is true these days, so Bezos’s regrets are more ego-driven than anything else. For the King of the Amazon, losing a few billion here and there is just the cost of doing business, and his regret minimization framework is well-suited for his lifestyle. Bezos can soothe his wounded ego by building another spaceship. But when you think about buying a business, chances are it’s a far more significant gamble.
Should You Build Your Business on the Regret Minimization Framework?
Mere financial mortals don’t have the luxury of just writing off a bad business venture, so does it really make sense to go with your gut if you’re trying to make the call about buying a company? While I think there’s a lot in this theory to think about, I’d remind you that Jeff Bezos is who he is because he caught lightning in a bottle—so maybe regret minimization isn’t the best way to make a life-changing decision.
But what is regret minimization?
Regret minimization comes down to one simple question: will you look back on this decision when you’re 80 and wish you had done things differently? This is a different sort of decision-making process; most of us make decisions based on the short term. It’s basically choosing whether to be results- or process-oriented (but twisted from the norm).
What I mean by that is entrepreneurs are typically super results-oriented. You’re not nearly as interested in how you got there as the fact that you finished the journey. In the go-go-go worlds of tech and energy, this makes a lot of sense. Technologies evolve fast, and business demands a lot of agility.
But when you’re using regret minimization to make your decisions, you need to switch gears and look at the process. If you make a decision based on results, then you’re looking at the potential outcomes of that decision. If you use a process model, then you’re looking at the long-term consequences of your decision.
Four Steps to ‘Regret Minimization’ Decision Making
So if you think that this might be a good way to go, let’s look at how you get there. Although it seems like the theory of regret minimization is straight up “go big or go home,” FourWeekMBA has outlined the steps you take during the process.
First, project yourself towards the end of your life. Bezos says 80, but considering that Warren Buffet is still going pretty strong at 91 and Colonel Sanders fried up his first bucket of chicken at 62, I’d say forget the number. Just look at the overall picture. When you see yourself standing on the green at Pinehurst, right before you keel over, will you regret the decision you made regarding this company?
As you’re visualizing standing on that green, or casting a fly line, or whatever your dream retirement looks like—think about your elderly self reflecting on that decision. You can apply this to any big decision, but for now, let’s focus on the acquisition at hand.
Ask yourself: what if I hadn’t taken that risk? You’ll have a couple of feelings—regret that you didn’t take it, and the anxiety that accompanies fear of failure.
Here’s where you think long-term—failure is a short-term consequence, whereas regret lasts forever.
If both your mind and body are telling you that your regret over not taking the chance outweighs your regret if you at least tried (and failed), then whether you consciously realize it or not, you’re at peace with the decision to go for it.
Is your saggy old self happy with this decision? Is this the decision that got you to the world’s best golf courses in a comfortable retirement?
The Amazon Way
While I’m thinking about it, I’m going to share Amazon’s Working Backward Method. I know I’m supposed to be talking about regret minimization, but I’ll regret it if you don’t know this stuff. And since you’re in the tech and digital spaces, it is a great framework for an entrepreneur to staple to your head so you don’t forget.
Visionaries and innovators are really great at coming up with new stuff. But where many fall short is that they expect the customer to change to fit the new gizmo. Amazon’s process is more oriented toward customer needs. So don’t waste time trying to fit your concept into their reality—tweak your idea before you try to sell it.
What are my customers telling me? Am I hearing from everyone—or is anyone being excluded?
What problem am I trying to solve, and what’s the data that led me to the problem?
What’s the solution? How do I know that it’s better than the other options? Again, what’s the data?
How does the solution look from the customer’s perspective? How easily can I explain the benefits?
Test and Iterate
What is success? What about any unintended consequences?
Regret Minimization in the Real World
So, should you use regret minimization to make your decision about buying a company and going all in as an entrepreneur? As I said earlier, I like the general idea and the framework, but let’s get real: are you really in a position to do this?
What Are Your Responsibilities?
Let’s say you’re young, with no debt to speak of and no dependents. In general, you’re just footloose and fancy-free. Honestly, at this point in your life, what do you have to lose? Chances are that you’ll never have this level of flexibility and freedom again, so why not take that risk now? If you fail, then you can always go back to your corporate gig until the next big thing presents itself.
Do You Have a Financial Cushion?
If you buy this business, can you survive on what may well be a start-up salary level? If you’ve been targeting a company for a while and stockpiled some cash to get you through the growing pains of a new company, maybe you’re ready to open the parachute. But if you’re counting on loans and investors’ cash to buoy you through rough waters, you might want to rethink that spending decision.
You know that old rule about having three to six months of cash on hand in case of emergency? Double that amount; you should have a deep cushion of a year to fall back on.
It should go without saying, but I’m saying it anyway. You have no business even considering buying a company if you don’t have the resources to keep you afloat if it all goes boom. If you’re not seriously liquid, I can tell you right now that your biggest regret will be in betting the farm with someone else’s money.
I’ll take this opportunity to let you know that when Bezos started Amazon, he was 30 years old, had no kids, and was killing it as a senior VP at a quant-focused hedge fund (which happened to be the most successful hedge fund in Wall Street history). Safe to say, he had enough set aside to support the wife and any kiddos if his idea to sell used books online failed.
Alternative Decision-Making Models
Okay, so you’re not willing to stake your career as an entrepreneur on a gut feeling. I get that. Lucky for you. I’ve got a few other methods for making decisions that are more logical.
Rational decisions are based on facts and data. So if you’re thinking of an acquisition, you’ve only got the facts that the seller discloses and what you find during due diligence. You’ve still got enough information to make the call; you’ve just got to take a step back and consider the data in a rather cold-blooded way, with no emotion involved. Admittedly, this ain’t easy if you’ve got your heart set on the deal. But I think that’s the best reason to add a little dose of logic and rational thinking to the decision.
If you’re not rationally and logically inclined but need something beyond whether you’ll regret the decision fifty years from now, try a creative approach. It’s not exactly woolgathering, but it’s similar. Think about how you’d solve the business’s problems and drive innovation rather than worry about whether you’re making the right call. If you’re excited about things like innovation potential, you already know the answer.
Good Decisions Trump Methods and Process
My point with all this is that if you’re stalled out making any big decision, regret minimization is a useful tool in breaking through the paralysis of too much analysis so you can focus on the long-term consequences of your decision. It’s no surprise that good decisions, in the main, lead to better outcomes than bad ones. The trick is to learn to differentiate between the two, and I think that the Bezos approach does a really good job of cutting through the crap that tends to bog us all down in the minutiae and makes it impossible to see the big picture.
In reality, I think that most of us deploy a combination of decision-making processes when it comes to making the big calls. But, if you’re hung up on one aspect or another, I’d recommend getting back to the future and thinking about long-term regret. If for no other reason, it forces you to take a step back and focus on why you’re really in the entrepreneur’s game.