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Asymmetrical Risk and The Precautionary Principle

Asymmetrical Risk and The Precautionary Principle

Liston Witherill
Liston Witherill
2 min read

Getting your shit together is hard.

I know because I struggle with it daily. Here’s a list of things I should do every but I’m still not 100%:

  1. Wake up at 5am to go to the gym
  2. Contact 100 new prospects and follow up with them on LinkedIn
  3. Send a daily marketing email to my list
  4. Create new content for my business
  5. Cook and eat all meals at home

If I’m not 100% on any of these, there’s a consequence. But how large the consequence in proportion to the rewards is quite another thing altogether.

I recently spoke to someone who wasn’t yet fully utilizing a CRM to track their considerable lead flow and business development outreach. When I asked them why, they said “$50/mo for CRM is too expensive.”

Let’s talk about asymmetrical risk for a second. In finance, this is the idea that there’s a huge imbalance between the risk and reward of an investment. Think about the construction industry: they spend millions or billions of dollars on a project to get an average 3% return. If the smallest thing goes wrong, their profits are completely wiped out. Perhaps their whole business is at risk in a single project.

What to do about asymmetrical risk? One idea is to use the precautionary principle. It basically goes like this: making a decision is certain, so it’s best to err on the side of safety when the underlying inputs to a decision are uncertain. So for instance, it’s a good idea to prevent further climate change since we have no idea just how bad it can be.

Back to CRM and tracking sales and leads.

We know a CRM costs $20-$120/mo/person. What’s the cost of losing out on a single deal, though? For many businesses, it’s in the range of $50k on average. So on the one hand, you have an annual cost of, say, $1k for a CRM. On the other hand, if you lose a deal because you simply forgot about your prospect, it’ll cost you $50k.

That’s asymmetrical risk. And the precautionary principle would lead us to only one conclusion: buy the CRM and use it regularly.

What unnecessary risks are you taking in your business by not having your shit together?

Notes