Margin of Safety
When failure is expensive, it's worth investing in large margins of safety. A margin of safety is a buffer between what you expect to happen and what could happen. It's designed to save you when surprises are costly.
Margin of Safety Heuristic: The margin of safety is often sufficient when it can absorb double the worst-case scenario. So the baseline for a margin of safety is one that could withstand twice the amount of problems that would cause a crisis, or maintain twice the amount of resources needed to rebuild after a crisis.
However, you need to adapt your margin of safety to the specific situation and your level of expertise. If the cost of failure is high, and outcomes are more consequential, you want a large margin of safety. But if the cost of failure is low, and outcomes are less consequential, you can often reduce or skip the margin of safety.
If you have a lot of expertise and data, you can further reduce your margin of safety, as you'll have a better sense of the realistic worst-case scenario.
Bullets before Cannonballs
One way to maintain optionality and a healthy margin of safety is to take small, low-risk steps toward as many options as possible before committing everything to just one. This approach is sometimes called "bullets before cannonballs."
Step 1
When you're gathering information about your options, your best bet is to gather as much information as possible about each without investing too much time, money, or energy in any particular one.
Step 2
Rather than investing heavily in one candidate and turning down others, consider having two or three candidates perform a small test project lasting a couple weeks. These small simultaneous tests would maintain your optionality, and seeing the candidates perform in real life would be magnitudes more insightful than interviewing them or reading their résumés.
Performing small, low-risk experiments on multiple options keeps your options open before you commit the bulk of your resources to a single path of action. This is crucial, as preserving optionality can make you look "short-term stupid" in the eyes of those who don't understand the value of keeping your options open.
While some people are quick to join the crowd, others prefer to be correct. Preserving optionality can make you look foolish in the short term, which means that from time to time you'll have to tolerate people treating you like you're a fool. But if you look at the most successful people in the world, they've all looked short-term stupid on a number of occasions, when they were keeping their options open and waiting for the right time to act.
Live with a Decision before Announcing It
Another way to build in a margin of safety is to live with a decision before announcing it. Many leaders want to announce a decision the moment they've made it, but this can be a mistake.
Step 1
Make major decisions and then sleep on them before telling anyone. This allows you to look at the decision from a fresh perspective in the morning and verify your assumptions.
Step 2
Before going to bed, write a note to yourself explaining why you'd made the decision. Reading this note the next day can sometimes reveal flaws in your thinking that weren't apparent the night before.
Living with a decision on your own for a day or two also allows you to check it with your emotions. Sometimes a decision will feel fine in the moment, but upon further reflection, it just won't feel right. Listening to that gut feeling is important, as it can reveal blind spots or unintended consequences you hadn't considered.
The Fail-Safe Principle
Implementing fail-safes will help ensure that your decision is executed according to plan. Fail-safes leverage your best thinking to protect you against your defaults when you're at your worst.
There are three main types of execution fail-safes:
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Setting trip wires: Determine in advance what you'll do when you hit a specific quantifiable time, amount, or circumstance. These act as precommitments to a course of action.
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Empowering others to make decisions: Use "commander's intent" to give your team enough structure to carry out a mission but enough flexibility to respond to changing circumstances without you.
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Tying your hands: Find ways to make sure you'll stick to the path you've decided is best, such as creating rules or processes that limit your ability to deviate.
By implementing these types of fail-safes, you free up mental space to focus on other problems, confident that you've protected yourself against your own weaknesses and defaults.
In the end, investing in a healthy margin of safety is about preparing for the widest range of possible futures, not just the one you expect. It's about making your decisions and executing them in a way that sets you up for success, no matter what challenges arise. With the right safeguards in place, you can have the confidence to make tough choices and the resilience to weather the unexpected.