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Financial theory says that leaders who hoard cash in their companies are irresponsible in their deployment of capital.14 In a stable, predictable, and safe world, the theory might hold; but the world is not stable, predictable, or safe.
the 10X companies carried 3 to 10 times the ratio of cash to assets.
Think “debt eats equity” - Ray Dalio Principles. When debt is greater than cash and assets, you’re one wrong step from a crash.
80 percent of the time, the 10X cases carried a higher cash-to-assets ratio and a higher cash-to-liabilities ratio than their comparisons.
When we reemployed the same analysis on the first five years after their respective initial public offerings, we found the pattern was already in place, with the 10X cases showing greater financial prudence relative to the comparisons.
Like Breashears and Amundsen, the 10X leaders built buffers and shock absorbers as a habit early on, preparing to absorb the next “Black Swan” event.
But it is possible to predict that there will be some Black Swan, as yet unspecified.
but the probability that some Black Swan event will happen is close to 100 percent;
With what frequency and over what time frame? Importance here though, prudence, discipline, and ritual built into culture of company to prepare for the inevitable, learning and acting to cap the downside
Since it’s impossible to consistently predict specific disruptive events, they systematically build buffers and shock absorbers for dealing with unexpected events.
“As long as we never forget the strengths that enable us to endure and grow in the midst of economic catastrophe; as long as we remember that such economic catastrophes recur with regularity; and as long as we never foolishly dissipate our basic strengths through shortsightedness, selfishness, or pettiness, we will
continue to endure; we will continue to grow; and we will continue to prosper.”
“Our philosophy of managing in good times so as to do well in bad times proved a
marvelous prophylactic.”
we first identified three primary categories of risk relevant to leading an enterprise: (1) Death Line risk, (2) asymmetric risk, and (3) uncontrollable risk.
Death Line risks are those that could kill or severely damage the enterprise. Asymmetric risks are those for which the potential downside is much bigger than the potential upside. Uncontrollable risks are those that expose the enterprise to forces and events that it has little ability to manage or control.
the categories of risk are not mutual...
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caught in the dark and running out of bottled oxygen—he took an unnecessary Death Line risk.
Breashears maintained his margin of safety and didn’t let her attempt the summit.
Breashears, in contrast, believed that the downside of limited oxygen far outweighed the cost of having an extra cache.
shunned uncontrollable risk, recognizing that the large number of climbers heading up the mountain on May 8, 1996, could create a situation over which he’d have no control.
10X cases behaved like David Breashears. They took less Death Line risk, less asymmetric risk, and less uncontrollable risk than the comparison cases.
Subjective though? What criteria were applied for each risk? One challenge with risk assessment is unknown unknowns. Something that seems to be a risk worth taking could become a disastrous risk. What do the 10xers do then, when circumstances change the risk factor?
the 10X leaders took risks, but relative to the comparisons in the same environments, they bounded, managed, and avoided risks.
there was one additional and very important category of risk to consider, time-based risk; i.e., when the degree of risk is tied to the pace of events, and the speed of decision and action.
recognizing a change or threat early, and then taking the time available—whether that be short or long—to make a rigorous and deliberate decision yields better outcomes than just making a bunch of quick decisions.
“How much time before our risk profile changes?”
He considered his time frame and recognized that his risk profile wouldn’t change significantly in a matter of weeks.
He then used that time to rigorously develop a plan of attack, considering all the various possibilities
he didn’t make a quick, reacti...
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Sometimes acting too fast increases risk. Sometimes acting too slow increases risk.
“How much time before your risk profile changes?”
The primary difficulty lies not in answering the question but in having the presence of...
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The 10X teams tended to take their time, to let events unfold, when the risk profile was changing slowly; yet equally, they prepared to act blindingly fast in the event ...
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you soon realize that uncertainty will never go away, no matter what decisions we make or actions we take. So, if we have time to let the situation unfold, giving us more clarity before we act, we take that time. Of course, when the time comes, you need to be ready to act.”
10X leaders remain obsessively focused on their objectives and hypervigilant about changes in their environment;
perfect execution and adjust to changing conditions;
Zoom Out Sense a change in conditions
Assess the time frame: How much time before the risk profile changes? Assess with rigor: Do the new conditions call for disrupting plans? If so, how?
Zoom In Focus on supreme execution of plans and objectives
Notice that the question “How much time before the risk profile changes?” is part of the zoom out.
allocated a multimillion-dollar budget the following Tuesday.
Assume this was from a cash reserve, ready to respond to turbulence
When facing fast-moving threats, 10X teams neither freeze up nor immediately react; they think first, even when they need to think fast.
10X enterprises at their best respond to empirical evidence rather than hype or scaremongering, and stick with proven principles and strategies in the face of frightening
understood that they were in a race to be first, but they didn’t sacrifice their detailed, methodical approach
he’d planned to go to the North Pole.
While making his preparations for the North, Amundsen received crushing news. The North Pole had fallen. First Cook, then Peary, had reportedly reached 90 degrees North. So, Amundsen decided to redirect his expedition and channeled his energies into preparing for a new destination, the South Pole.
If Amundsen had said, “Well, my plan is to go north, so that’s what I’m going to do,” if he refused to reorient his focus, he would not have led his team to a 10X achievement.
he zoomed out to consider the changed conditions; then he zoomed in to execute a new plan to go south.
10Xers distinguish themselves by an ability to recognize defining moments that call for disrupting their plans, changing the focus of their intensity, and/or rearranging their a...
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We will all face moments when the quality of our performance matters much more than other moments, moments that we can seize or squander. 10Xers prepare for those moments, recognize those moments, grab those moments, upend their lives in those moments, and deliver their best in those moments. They respond to unequal times with unequal intensity, when it matters most.
10X leaders exercise productive paranoia, obsessing about what can go wrong.
They ask questions like: What is the worst-case scenario? What are the consequences
