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[Episode 251] – A Bird in the Hand Is Not Worth 2 in a Bush – Podcast

Clearly a bird in the hand is not worth the two in the bush. It’s obviously worth exactly half. But there’s a risk you end up with no birds and that’s what the phrase is implying.

The more you have to lose the less risk you’ll be willing to take. But as a business owner, intelligent risk-taking is an essential part of business growth. In this episode, I break down our relationship with risk and how we have evolved to be risk adverse.

Emotionally the “bird in the hand” equation seems as simple as having a bird and potentially ending up with nothing. Actually there are a number of permutations in the equation:
you keep the bird you have
You lose bird a) in the bush but get bird b)
You lose bird b) in the bush but get bird a)
You get both birds in the bush
You lose both birds in the bush and end up with nothing

So actually there’s a 3/5 chance you end up with 1 bird and 1/5 chances you end up with two birds or nothing at all.

In this risk equation, it’s not about two birds or no birds it’s actually about the most likely outcome being you end up with one bird and only 1/5 chance you end up with two. I’d say, the risk isn’t worth taking but not because of how we might emotionally weigh the situation up.

If we take this thinking into investing our hard earned savings into marketing, sales or hiring staff – emotionally it feels like the risk is, it either works or doesn’t. We either lose our money or it’s successful. But that’s not an accurate perception of the risk. Actually it looks more like this:

Investment – Marketing investment of £20k that should return £100k
Perceived risk – I lose £20k or it works
Actual risk – it fails completely, it fails to a degree, it works to a degree, it works well, it’s completely successful.

In this risk/reward equation, there are actually many more chances of degrees of success than total failure. You might lose everything, or something, or break even; or you could make ten, twenty, thirty, thousand ponds etc. I’d argue this is a risk worth taking because the most likely outcome is you’d make a degree of financial returns.

This is backed up anecdotally in my own business. Rarely have I lost my money on a well calculated risk. Equally, rarely has the endeavour been a complete success. More often than not, it ends with me having a degree of success.

Where are you miss-judging the level of risk?
Where are you taking unnecessary risks?
Where are you being too risk adverse?

 

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