Warren Buffett, the famous business magnate, investor, and philanthropist, aptly said that the most significant mistakes in anyone's life are never seen. The errors are usually by Omission and not by Commission, i.e.; we make our worst mistakes by not pursuing things that should have been done. It could be that we are afraid of the consequences or our risk appetite isn't as much.
This is particularly correct for an entrepreneur. In economics, accounting standards add 'opportunity costs' for every endeavor. Opportunity cost is the value of the next best alternative or option; a term economists use to describe the relationship between what an initiative adds to your life and how much it might cost you by not having it, considering your other options.
However, the entrepreneurs go wrong because they often calculate it only in terms of money, whereas it can also be measured by other means like time or satisfaction. Moreover, the art of calculating future cash flows is a rare talent.
The billion-dollar question here is: how do we adjust the opportunity cost with the risk of failure?
The answer perhaps is validating the idea using age-old feasibility studies. We live in new global business culture - an idea economy, one that is characterized by disruptive innovation. The idea economy driven world can turn an idea into value faster than ever.
Your success in this new era is determined by how quickly you can adapt to new opportunities. The ability to pivot from one thing to the next is vital. Therefore, your opportunity cost is a function of your ability.
So next time you omit or decide to invest time or money into an idea, think of your ability as the weighing factor to your calculations.
In feasibility studies, this comes under operational feasibility. We try to understand if the entrepreneur or his team is apt enough to seize an opportunity. Unless the team is not capable enough, the opportunity cost will always surpass the rewards from a risk taken. And sometimes, the team is competent enough, but the risk of failure outweighs the excitement of success. This is where entrepreneurs make errors, not by commitment but by commitment.
Feasibility Studies is tested science. If done correctly, several benefits around it protect you from committing such omitting mistakes.
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