26 Apr. 2012 | Comments (0)
The answer to the headline is "never," right?
As we said in a previous blog, if you can't afford to follow your passion, then don't quit your day job. Even just a few minutes a day immersed in doing what you love is good for you for many reasons, until you are in a better position to pursue your passion full-time.
But what if you really want to pursue your passion full-time, right now — as a new business venture, a new career or a new way of life? How do you know if it's the right time to pursue it? When will it ever be the right time? How much money (time, resources, investors, etc.) do you have to have before you're ready to go out and just do it?
Everyone will have a different answer to this question, because everyone has a different level of risk that they're comfortable with.
But let us give you a rule of thumb: Before you do anything, determine your Acceptable Loss.
You need to know how much you're willing to lose before you even start thinking about starting something new. And you need to do everything possible to make sure you don't exceed that figure. It's a variation on risk management, of course: If you're going to play in a game with uncertain outcomes, 1.) don't pay/bet more than what you can expect as a return, and 2.) don't pay/bet more than you can afford to lose.
Both of those ideas can be summed up with the phrase "Acceptable Loss," a concept where you consider the potential downside of whatever risk you are about to take — such as starting a new company or some other venture that is going to consume a lot of your time, capital, or other assets — and put on the line no more than you would find acceptable to lose should things not turn out the way you want.
As you can see, employing the concept of Acceptable Loss keeps any failures small. By definition, you never lose more than you are willing to lose. What you're willing to risk is clearly defined.
But, it also gets you to think about other potential costs and losses too — not just the financial ones. In fact, there are at least five classes of assets at your disposal and at risk.
1. Money. This is the most obvious, of course.
2. Time. You want to guard your time just as much as you guard your money. And just as you have a dollar figure that you think would be "acceptable" to lose, you want to have a time limit as well. "I am willing to give this idea up to six months to see if it will work."
3. Professional Reputation. We all have one, although when you are first starting out, it may be extremely slight. There is nothing wrong with failing if the idea you tried was worthy and you were sufficiently committed to it. You gave it your best shot. It didn't work. On to the next. But if you are seen as someone who doesn't anticipate obvious problems, or who can't conserve resources and use them properly, that failure can seriously hurt you in whatever you do next. You may find it far harder to raise money or even to get another opportunity. Damage to your professional reputation can be a huge loss.
4. Personal Reputation. People may hate the question "what do you do for a living?" arguing (correctly) that they are more than their job. Still, how people see you is, in part, shaped by how you earn your income. You don't want your new venture to be an embarrassment, which could affect your self-esteem, or fail to represent who you truly are. This kind of loss is similar to a loss of professional reputation, but it literally hits much closer to home. Losing your standing with those near and dear to you can be devastating.
5. Missed Opportunities. If you are working to start venture X, you cannot be working on venture Y at exactly the same moment, and Y, potentially, could be a far better idea. In business, this is known as an "opportunity cost" — the cost of not pursuing other opportunities. You want to be mindful of what you are choosing not to do, and you also want to recognize another form of opportunity cost: the price to be paid for not acting right away — someone else might conceive and implement your idea. And the price to be paid for inaction — you might spend the rest of your life in a job you hate, or miss a great opportunity to make an once-in-a-lifetime contribution.
Acceptable Loss does not depend on the venture, but the individual. It varies from person to person, and across the course of someone's lifetime. (For example, you may be willing to risk more when you're young, knowing that you'll have decades to recover should things go wrong; less when your kids are approaching college age and you need to save every dollar you can for those upcoming tuition bills; and then more later on once those bills are behind you.)
When it comes to determining how much you can personally risk in following your passion or starting a new venture — i.e., your own Acceptable Loss — ask yourself these questions:
• What are my assets?
• What can I afford to lose?
• What am I willing to lose in the worst case scenario?
When you become convinced that you can't succeed for technical, market, or personal reasons such as exceeding your Acceptable Loss, then it's probably not the right time to quit your day job. But, by using the concept of Acceptable Loss, you may be able to eventually come closer to your dream than you think, by keeping your risk at a manageable level.
This blog first appeared on Harvard Business Review on 04/05/2012.
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