The Tyranny of Opportunity Cost

What is failure?

Miriam wrote in, taking me to task for calling Dell a failure. I sent her this chart of Dell’s stock price vs. the S&P 500. She told me she was persuaded.

But it got me thinking about what it means to fail.

Dell makes good products. They make a profit. They keep (most of) their promises. Lots of good people work hard every day. Are they failures?

Opportunity cost and prioritization are harsh taskmasters. When you have a lot of resources and assets to put to work, the marketplace expects that you will use them in the best possible way. If you don’t, those resources go somewhere else. So, sure, a SuperBowl ad makes your business go up. But does it go up as much as if you had spent the $2 million inventing a new product instead?

If your blog has 1,000 regular readers, are you a failure if it doesn’t reach 2,000 by next month?

This is where the tyranny comes in.

If you make all your decisions based on opportunity cost and the fear of failure, you’re almost certain to fail. Safe really is risky. The Zune is the classic example of this approach. Protecting against downside and being conservative in the face of a priority list means that you’ll choose the obvious and the predictable instead of the subtle or the remarkable. And your competition, especially those that perceive that they have nothing to lose, will surprise you every time.

The laws of the market haven’t been repealed. What has changed (due to ease of market entry, low cost of technology and manufacture and the high value of fast-moving ideas) is that the way you must capitalize on opportunity has changed.

Failure now means never failing.