If you take any ship and punch holes above its waterline, it’s not going to sink. If you start to punch holes below the waterline, there is a decent probability the ship is going to sink. Most decisions we make in a young, fast growing startups comes with risks, probabilities and tradeoffs (most decisions are not with 100% certainty).
Bill Gore of W. L. Gore and Associates, a company we most certainly have never never heard of but have probably used their waterproof Gore-Tex product on waterproof jackets and clothes, articulated a helpful concept for risk taking and decision making in what he called the ‘waterline principles’.
Think of being on a ship, and imagine any decision gone bad will blow up a hole on the side of the ship. If you blow a hole (analogous to any decision) above the waterline, then the ship won’t ship and you can patch it up, learn from the experience on and move on. On the other hand, if you blow a hole below the waterline, you will find water gushing in and slowly sink to the bottom, and if the hole is sizable enough, you might sink the ship instantly.
Great companies do (and should) make big bets but it’s equally prudent to avoid making big bets below the waterline. When making risky bets, it’s worth asking these 3 questions to help a more informed decision:
- What is the upside, if the event turns out well?
- What is the downside, if the event turns out horribly bad?
- Can you live with the downside, truly?
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