Another dimension of asymmetric betting is given by how impactful the idea can be to the business. When we have asymmetric bets that can have a high impact and are easy to reverse, we get to the “Jackpot” and go into an “All-In-Mode” of action! And how easy to reverse.
There was a time when the motto for Facebook was “move fast and break things.” This was the foundation of the “Hacker’s mindset.”
Over the years, as Facebook scaled up, its motto also changed. And it went from “move fast and break things” to “move fast with stable infrastructure.”
In short, when a company has scaled at a certain size, it loses the ability to experiment fast because almost all the experiments it undertakes are hardly reversible.
For a company like Facebook, even a small experiment targeting a few thousand users will be under journalists’ radar, amplifying the experiment if it goes wrong.
That is why – I argue – scale, to a certain extent, reduces the ability of companies to experiment.
Yet, if you’re just building a company, and your scale is limited, I think you have a valuable opportunity. As you can undertake, I like to call “asymmetric bets.”
Asymmetric bets are experiments, which are quick to implement, while they carry a very low downside, a potentially high/or unlimited upside, and they are reversible!
These, to me, are the goldmine for business people, and I’ve been obsessed with this concept for years.
Indeed, my main argument for why small startups can undertake large players it’s that small startups have in their favor these asymmetric bets.
As we saw, the case of large, scaled-up companies (like Facebook) is very hard to take advantage of because those large companies are under the radar, and any experiment they will undertake will be overseen by millions of people.
But how do you find these asymmetric bets? Let’s start by defining them!
Speed vs. Reversibility
In the speed vs. reversibility matrix, I defined four main decision-making models of action.
By looking at two main variables.
On the one hand, assessing an experiment’s risk is simply based on the worst-case-scenario test. In short, the question there is, what happens if the experiment goes wrong?
In a scenario where you know that if the experiment goes wrong, it will have a limited downside on the business, then the risk is low.
In the opposite scenario, where the worst-case scenario test can have a large negative impact on the business, the risk is high.
On the other hand, we want to ask whether the experiment is reversible.
In short, can you go back to how things were before the experiment? If the answer is “yes,” then you have a reversible experiment. If the answer is “no,” you have a non-reversible experiment.
Now we can define where asymmetric bets sit on top of this matrix!
Asymmetric bets: the sweet spot between speed, reversibility, and potential impact.
Understanding Asymmetric Betting
Asymmetric bets live at the intersection of low-risk, highly reversible experiments with a potentially unlimited upside.
But if these asymmetric bets are so powerful, why doesn’t everyone uses them?
1. Smart business people use asymmetric bets in combination with bolder bets to lower entrepreneurial risk. In short, asymmetric bets serve as a way to balance out other risks you might have to undertake as an entrepreneur. 2. Asymmetric bets require a specific mindset. You need to be wired to understand problems in the real-world (rather than looking for problems for your solutions). You need to understand that the world of perception can be more powerful than the engineering side. In short, things like UX can impact your bottom line as hard code changes the core functionalities of the product. 3. When you find these asymmetric bets, others might start to copy and paste them, thus making them less effective over time. In short, asymmetric bets follow the law of diminishing returns. 4. Those asymmetric bets might be highly contextual. They might work in one domain, not in another, so testing is critical. 5. Asymmetric bets work depending on the scale of the business. Certain asymmetric bets work until a certain size of the company. They kind of stop being effective.
With that in mind, let’s see some of these asymmetric bets in action!
Unlocking a fast-decision-making mode of action!
With that in mind, let’s see some of these asymmetric bets in action!
But before, let’s give some priorities.
Within the asymmetric betting model, we want to look for the “Jackpot” or those asymmetric bets that will unlock the “All-In-Mode!” To scout them, we’ll use two more dimensions:
1. How impactful can it be? We have either low or high-impact ideas.
2. How easy to reverse? In this case, we have ideas and experiments which are hard to reverse vs. the ones that are much easier to reverse.
Based on that, we try to give maximum priority to the “pure asymmetric bets.”
All-in-mode!
Key Highlihgts
Historical Context: The concept of asymmetric betting is discussed in the context of the evolution of companies. As companies grow and scale, their ability to experiment rapidly decreases because the consequences of experiments become more significant and less reversible.
Asymmetric Bets: Asymmetric bets are defined as experiments or actions that meet specific criteria:
They are quick to implement.
They carry a low downside risk.
They have the potential for a high or unlimited upside.
They are easily reversible.
Advantage for Startups: Small startups have an advantage in pursuing asymmetric bets because they are not under the same level of scrutiny as large, scaled-up companies like Facebook. Startups can undertake experiments with relatively low risk and potentially high rewards.
Speed vs. Reversibility Matrix: The decision to pursue an experiment is evaluated based on two key factors:
Risk assessment: What is the worst-case scenario if the experiment fails?
Reversibility: Can you go back to the previous state if the experiment doesn’t work?
Sweet Spot of Asymmetric Bets: Asymmetric bets are positioned at the intersection of low-risk, highly reversible experiments with the potential for significant impact. They are considered the “sweet spot” for business opportunities.
Why Not Everyone Uses Them: While asymmetric bets can be powerful, not everyone uses them for several reasons:
They require a specific mindset and problem-solving approach.
Asymmetric bets can lose effectiveness as others start to copy them.
Their effectiveness may be highly contextual.
They may work for a company up to a certain size and then become less effective.
Unlocking the “Jackpot”: To identify the most valuable asymmetric bets, two additional dimensions are considered:
Impactfulness: How much of an impact can the experiment have?
Ease of Reversal: How easily can you reverse the experiment if needed?
All-In Mode: When a high-impact, easily reversible asymmetric bet is identified, it can unlock the “All-In Mode” of action, where the company dedicates significant resources and efforts to pursue that opportunity.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
Discover more from FourWeekMBA
Subscribe now to keep reading and get access to the full archive.
