“As soon as there is life there is danger.” – Ralph Waldo Emerson

Chapter 5 of Great by Choice by Jim Collins explores three key dimensions of productive paranoia:

1. Build cash reserves and buffers to prepare for unexpected events and bad luck before they happen.
2. Bound risk – Death Line risk, asymmetric risk, and uncontrollable risk – and manage time-based risk.
3. Zoom out, then zoom in, remaining hypervigilant to sense changing conditions and respond effectively.

Today, I’ll be breaking down these three dimensions as they are extremely important in being successful when your path to success changes unexpectedly.  This chapter is particularly interesting when thinking about the real estate industry over the last few years.  In 2005, there were roughly 80,000 real estate companies and by 2009 that number had dwindled down to about 43,000, a loss of 47%.  Many real estate companies just didn’t have the cash reserve to survive.

Build cash reserves and buffers to prepare for unexpected events and bad luck before they happen.

10Xer’s know that they can’t always predict future events, therefore they over prepare for every potential scenario that could occur.  This way, if something does come up, they’re ready for it.  Determining your plan of action ahead of time – and sticking to that plan – is really what makes all the difference when you are in the situation.  It is the difference between pulling ahead, falling behind or dying when the storm hits.

When it comes to managing risk, 10x cases are extremely prudent paying special attention to three categories of risk:

1. Death Line risk (which can kill or severely damage the enterprise)
2. Asymmetric risk (in which the downside dwarfs the upside)
3. Uncontrollable risk (which cannot be controlled or managed)

Zoom out, then zoom in

Before making a move when changes occur in their environment, 10Xer’s continue to execute but adjust accordingly to those changes instead of freaking out, or feeling like they have to continue with their original plan.  They do this calmly and methodically taking as much care in the new plan as they had in the original.  When there is a potential for danger, they zoom out to assess the situation appropriately, considering how quickly it might affect their motion.  Only after that will they zoom back in to refocus in executing their objectives.

Through all of this, it is important to be disciplined with your decisions and your actions.  Your contingency plan is no good if you don’t stick to it.  Asking yourself every possible question before environmental changes happen will keep you prepared for those changes.  Weigh the risks appropriately and be prepared to adjust your original plan calmly and efficiently.