Three types of risk: making decisions in the face of uncertainty

  • Fatal risks can kill a company, so you need to be extra careful to watch for them as your company grows and ages. It is easy to get complacent but there is no recovery from such decisions gone wrong.
  • Painful risks have lower but significant repercussions: missing a key goal or losing key people. But you can recover from them.
  • Embarrassment risks have no significant impact beyond just what the name states. You just need to acknowledge the mistake, change course and move on.
  • Another way to think about risk is Jeff Bezos categorization of decision making into Type 1 (irreversible, so spend time on them) and Type 2 (reversible, as with painful and embarrassing risks, so make the decision quickly and move on).

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