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If you're picking businesses, the difference that he and I had is that his mentors always

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went super, super big. They wanted to go change the world and whatnot. But what I don't think we see

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or probably vet risk or value is the graveyard full of people who went big and struck out.

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Welcome to the game where we talk about how to sell more stuff to more people in more ways and

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build businesses worth owning. I'm trying to build a billion dollar thing with acquisition.com.

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I always wished pesos, musk and buffet had documented their journey. So I'm doing it for the

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rest of us. Please share and enjoy. There are two big risks that exist in business. The first

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is the execution risk. The second is the idea risk. Now you can maybe make an argument for a third

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being, you know, environmental risk, regulatory risk, things like that. But I would say big picture

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is does the idea fundamentally work? You know, is having strangers drive kids around in cars,

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going to be a really good idea. Uber, right? Or creating lockers for cats. Is that going to be a good

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idea? I don't know, right? Or am I going to be able to execute the idea itself? Okay. So I was having

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a really good conversation with a friend of mine who's a software entrepreneur. He's had three or

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four software companies. None of them have really hit. He's about the same age as me and he and I

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sit in very different financial positions at this point in our life. And we were having a

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really in depth conversation around this topic, which is appropriately measuring risk. And so one of

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the issues that I see with a lot of newer entrepreneurs is that they overestimate payoff for a risk and

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underestimate the cost. Number one, and second, is they overestimate the likelihood of success they're

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going to have and they underestimate the risk in terms of the likelihood that they fail. And I think

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this is really interesting because he and I were discussing the first quote that I have. It's kind of

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it's in the intro of my book by Jeff Bezos. I'll read it to you right now. Outside's returns

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often come from betting against conventional wisdom and conventional wisdom is usually right.

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Given a 10% chance of 100 times payoff, you should take that bet every time. But you're still going

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to be wrong nine times out of 10. We all know that if you swing for the fences, you're going to strike

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out a lot. But if you're also going to hit some home runs. The difference between baseball and business,

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however, is that baseball has a truncated outcome distribution. When you swing, no matter how well

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you connect with the ball, the most runs you can get is four. In business, every once in a while,

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when you step up to the plate, you can score a thousand runs. This long tail distribution

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of returns. It's why it's important to be bold. Big winners pay for so many experiments.

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Jeff Bezos. And so the thing is is that there are two big costs when you're making these risks. One

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is you've got the money and things like that. But I think the biggest cost is time. And so if you think

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about portfolio theory, which is, for example, like venture capital VCs, though, let's say they take

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50 companies on and they're betting the fact that one of those 50 companies is going to, you know,

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100X and pretty much carry the return to the entire portfolio. And for the vast majority of the

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other ones, they either go out of business or basically not really do anything spectacular.

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And so for the VC, for the venture capital, the investor, it makes sense to take this approach

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because they're going to get very good returns using, you know, using this method. Whereas if you

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are one of the 49, you know, founders who has pretty much all of the net worth investing this

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thing and it takes five years of your life away to only fail, it can be harder to swallow. And so

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he and I have had very different careers and lives. And it's because we value risk differently.

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Now he would say that he is not interested in making money and he just wants to do something really

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big and really cool. I tend to be more money focused or money driven, whatever you want to say,

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because I think that the accumulation of money will allow me to do really cool things later on

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in my life. And when I say later, I mean, like, you know, give me 20, 30 years of doing this. And I

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think we can do that. Now, the reason that I want to bring up this topic is because picking the

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business that you're going to go after I think is a very important question that you're going to

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ask yourself. And you have to understand that you're probably going to fail many times before you

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are successful. And one of the hardest questions in entrepreneurship, this is also one of the things

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that come up in the conversation, is when do I push or when do I pivot? Right? When do I keep pushing?

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When do I keep persevering on this idea that's not quite working? And when do I pivot? And it's

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one of the hardest questions in entrepreneurship because you don't know whether it's you or the idea.

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And that's what's hard because sometimes it's like how many great business ideas have the

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founders have abandoned six inches from gold where they just needed to push a little bit harder

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and they were going to have the breakthrough. And I hesitate to talk about the subject because I

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think most people just don't know how to push it all. And so, you know, I put that as a big caveat.

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Now, when we're talking about business in general, I, and this is my difference from my friend,

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I prefer to only go after ideas that I think have virtually no risk of not being ideas that people

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want, which then leaves only me as the variable, the execution risk that it can be done well,

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it can be well-businessed. Right? And so, I think in a lot of ways, this is just Alex's two

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cents, most newer entrepreneurs I think would be better served going after boring businesses that

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have established needs. Right? So, people want to have, you know, businesses want more customers,

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people want to make more money, people want higher paying jobs, people want to have skills that

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are valuable, people want, you know, to lose weight, people want love, people want, you know,

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entertainment, like these are all things that are not going to change over time. And so,

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what that allows you to do is hone your skills at business because you know if it doesn't work,

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it's only you. It's only your fault if it doesn't work. Right? And so, because the problem is that

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having the perspective from which to make a judgment on whether you have product market,

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it can be, I think, a much harder decision of when to push and when to pivot, you know, as a

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total side note, because I think this is really interesting. I think there's three big questions

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that are really dichotomies that you have to manage as an entrepreneur. Right? One is one to push

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and one to pivot. The second is how much do I spend versus how much do I, sorry, how much do I

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consume versus how much do I invest? Right? Because you're going to be living your whole life if you,

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if you always forego the immediate satisfaction, you may reach the end of your life and never

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have enjoyed anything. Right? So, there's a little bit of a balance there that you have to strike.

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Right? And it probably shifts over time, but there still means that there's some level of consumption,

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even earlier on in your life. And at the same time, you also don't know if you're going to live

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tomorrow. Right? And that's where it gets really interesting. It's a personal question. Right?

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And the third is it's kind of the balance between like how much do I, you know, delegate to other

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people versus how much do I do? Right? Because you got to do something and you can't delegate

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everything, right? Like, and so there's, there's balances here. And so today, it's just about the

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push and the pivot and idea risk versus execution risk. And so for the new entrepreneurs,

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you probably suck at business. And that's okay. And that's because you're new, which is

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totally reasonable, totally acceptable. And of course, you should suck because it's hard and a lot

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of people do it. Right? And if you want to be on the top one percent, it's one percent of people.

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That means you have to beat 99 other people out of 100 in order to be the top one percent,

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which is only 400,000 year. Right? Not only him is a lot of money. Right? And so the thing is,

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is that Instagram makes everyone feel like if you're not making money, you're poor, which is not true.

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You can save 400,000 a year for not that long and have a lot of money, you know what I mean? And so,

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anyways, back to the point, if you're picking businesses, the difference that he and I had is that

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his mentors always went super, super big. They wanted to go change the world and whatnot. But what I

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don't think we see or probably risk or value is the graveyard full of people who went big and

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struck out. And I think it's an interesting caveat to this. Jeff Bezos gives this example. And I

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want to dive into it in a little bit more detail is that let's zoom out for a second. Let's let's

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eliminate Jeff Bezos Elon Musk Warren Buffett from the names that you have in your head. If we were

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to think what would be required to be number one in the world at a thing, right? You'd have to have

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the natural proclivity, right? Because if you're competing against everybody, the people who are going

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to have natural advantages based on genetic code upbringing, whatever are going to, they're going

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to, they're going to win more, right? So that'd be the first thing we'd want if we wanted to create

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this person who's going to be likely to win. Number two is they'd have to have a tremendous

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amount of skill, right? So they'd have the natural proclivity, the, the, the nurture that created

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an environment where they had work ethic to pursue the skill, right? So they have to be very,

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very good. And then third, they'd have to be lucky, right? Because if you think about a whole

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bunch of people like imagine everybody who's born really, you know, has his natural tendencies or

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proclivities towards these activities, right? And then does a ton of it in terms of volume. So

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they get very good. What then separates them? Luck, right? The people at the very, very, very top

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have all of the things aligned, comma, and luck. And so it's interesting that he has this

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quote around risk because one of the things that's unique about Bezos and even Elon, right? And

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this is probably a further discussion on business strategy overall is that they've had virtually

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limitless access to capital, right? Like as in they can basically raise money endlessly to fund

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these risks, right? And so the equation that he said, which is a magic go to Vegas casino,

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and there's a, there's a table that has a 10% chance of winning, but you get a hundred times

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out when you do. If you can play the game on an unlimited time horizon, then you absolutely

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should just play it as many times as smoothly as possible. But most of us do not have unlimited

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spins, right? And that's where this gets more interesting.

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Amos and Asian quick break just to let you know that we've been starting to post on LinkedIn

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and want to connect with you. Alright, so send me a connection request and note letting me know that

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you listen to the show and I will accept it. There's anyone you think that we should be

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connected with tag them in one of my or lalus posts and I will give you all the love in the world.

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Alright, so let's get back to the show. And so if you were to imagine a dollar as a year of life,

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okay, that you have in your entrepreneurial career. And let's say to build something really epic

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would take 10 years. And that's like minimum, you know what I mean? Like Facebook was 20 is 20

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years old now, right? Which is kind of insane to think about. I think it's 20 years old. I feel like

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it's 20 years. It's pretty old. 15 years old. It's pretty old, right? Let's just say 15, right?

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If you want to build something epic, which means and how long does it take to test the idea

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before moving on, right? That's another big question. Like how long does it take to really

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give it your all on a thing? And so we were having the discussion and he said, I think we should say

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$35 would be, you know, you have 35 years of life. And how long do we chunk? And we agreed on

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five years as a mid ground because it takes 15 to really, you know, see something all the way through.

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If we said 15 was the chunk, that didn't seem realistic because it doesn't take you 15 years

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to find out something doesn't work, right? And so it's that bad. So we said five was the number.

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You can come up with your own, right? And so a more realistic way to see this, right? It would be,

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you know, you've got a one edits and shot at 100 times payout. But the minimum bet is five.

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And you've got 35 bucks. Interesting. The conversation changes. Now let's say that you're now 15 years

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in. Let's see you bet three times you lost all three times, which would be reasonable. That would

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be expected that you'd lose three times. You could even lose all three of the first times. But now

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you're 15 years in and you have still no money. Oh, how do you feel about yourself? How do you feel

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about your skill? What's your reputation? All these things kind of weigh in. You know what I mean?

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And this is why I think this is a really interesting discussion. And so I will give you my two cents

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because he and I disagree on these things because I have the perspective that all the people that I

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know are the wealthiest in the world eliminate risk. So that's what they do. They control risk.

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They they virtually eliminated. They figure out ways to play the game in new ways where they cannot

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lose, right? I'll give you an example. If the rock came out with a, I'm trying to think of something

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he hasn't come out with because he come out with a peril and whatever. Let's say he came out with,

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let's say he came out of the book, right? Let's say the rock writes a book. Maybe he already has written

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the book. I don't know. And he writes a book. What is the what's the likelihood that it's not a best

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seller? Virtually zero, right? It's virtually zero. So he's basically limited the risk because he

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controls another variable, which is a massive audience, right? And you can build that deliberately. And

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so when we think about these things, the richest people that I know control risk and only play games

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where if they wait, they win. And my friend has not taken that approach and he's like, hey, I just

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want to go bigger, go home. And the thing is that he's gone home more than he's gone back. And so

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I will give you Alex's two cents and you can choose to do what you want with it. And I'll just

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explain my views on risk. I tend to go with the highest likelihood bet. And I tend to, if I have two

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bets, let's say one where I have a 10x payoff for a one out of two shots, right? Which would be a two

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to one at risk, adjust to return, all right? If you're curious, you just multiply the payoff by the

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likelihood or as that's a 5x, sorry, I've messed that up, but you get the idea. You multiply the

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payoff by the percentage likelihood. And if I had an equivalent risk, adjust to return another one,

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but I had a higher likelihood of achieving it. So if I had a 5x that I or a 6x that I thought I

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had a 4 out of 5 chance of getting versus a 10x that I had on the math on it, but whatever,

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a one out of two shot of getting, I would pick the the 4 out of 5 shot that had a lower upside.

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That's me. And I think part of that is because the games that are set up that way are usually going

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to be just execution risk businesses. And I feel like I can, I can pay that down in other ways,

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right? I can pay down that risk so I can virtually nothing's guaranteed, but I can virtually

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guarantee the outcome. And so my goal is to string as many of these virtually guaranteed

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upsides in my favor for a long enough period of time that I let compounding work.

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Because compounding on a long enough time horizon creates the outsize return.

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And so the idea is how can I play, how can I get as many Ws in a row and as few Ls as possible

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for a long enough time horizon so that I create the outsize return comma and get to live a pretty

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cool and stress free or not stress free, but like a pretty cool life along the way, right? Now,

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if we played the game the way that we talked about earlier where you have the 35 years that you

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can bet and your three bets in, your 15 years in and you don't have anything, that can be pretty

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hard. Hard on your ego, hard on your reputation, maybe you learn bad habit, like there's a lot of

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things because you won't know, especially if there's an idea risk that's at hand, like, is it me

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or was it the idea, right? And so for that reason, I'm in favor of the significantly lower risk and

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he and I were talking, you know, talking back and forth, he's like, you know, what I've observed

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from you is that you just, you go for the sure thing and that's 100% what I do. That is, I've always

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gone for the sure thing. And then I just continue to try and trade up the upside of my sure things,

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right? So the first sure thing you can have is a very high paying, you know, income job. And then

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the next sure thing would be like, if I were to quit a job, I would make sure that I had more

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income from my side hustle probably where I believed it would be very reasonable for me to get that,

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you know, within a very short period of time. So then I would, you know, make maybe that switch.

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And then I would look at, you know, all the opportunities that existed and think, okay,

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what are these things on a risk adjusted basis? And this is again, where people make, you know,

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errors, just assume you have to take the negative assumptions. And I'd say like the better I get at

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this, thinking this way, the more I continue to make, which is, I'm going to assume everything

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goes wrong. What, what then do I make? Right? And so if you can just say like, assuming none of the

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good things that you think are reasonable or going to happen happen, can you still win? And I think

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when you think that way, what happens is you give yourself room to be pleasantly surprised

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and exceed expectations. But what happens is when you set up the game that way where you're like,

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I'm assuming these are the five things that I think will happen and will go right, but I'm assuming

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none of them are going to go right. Do I still win? And if you can still win, then that is an

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opportunity worth pursuing in my opinion. And so that's, that has been the approach that I have taken,

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which is how can I virtually eliminate the execution risk? The limited idea risk by only going

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after things that people already know want. And then how can I stack the chips in my favor like the

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rock, where if I want to write a book, I want to make sure it's a best seller, no matter what,

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right? How do I do that? And then think about all the things that can go wrong, assume they go wrong,

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and then think, what would I do in order to still succeed even with all these things going wrong?

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And then I think when you take those actions, you may not hit the thousand x return. But let's paint

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a different game that you could play. So let's say you could play, there's, there's the two

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games. One was the one that Jeff Bezos outlined, right? Which you got, you know, one at a 10 shot at

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getting 100 times payoff. The game that I prefer to play is how can I get a three x payoff

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with a 95% chance of certainty? And I still have the same 35, right? Minimum bet. Well, I'll bet five

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and get my three. And then I'll bet my 15 and I'll be at 45. And then I'll bet my 45 and I'll be at,

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oh, there we go. I'm already at 120 or whatever. So I already got my 100 times payoff by thinking about

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it from a risk of just a basis. Now it's not going to be sexy. It's not. But if you double or triple

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or 5x things enough times, you get to the 100x very quickly and you can do it with limited

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downside knowing that you've controlled for the idea risk and have only focused on the execution

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risk, which is yourself.