Leap of Faith

Value creation requires a leap into the unknown and this often requires a leap of faith. More specifically, creating value requires action in the face of uncertainty. There seems to be something special about being action oriented, forward thinking and forward moving. Being action-oriented is not a characteristic of all firms or all people. To be proactive the organization must be willing to accept some risk.

How? Well, when the firm acts the result of its actions is unknown, so that is risky. Businesses that are unwilling to accept this risk will be less proactive and create less value. For example, consulting giant McKinsey completed a study of 1200 companies over a last twenty years. It showed that many of today’s industry leaders gained more ground during bad economic times as they took a leap of faith and increased spending during the 1990-1991 recession. The study found that Intel doubled its R&D spending to $780 million from 1989-1992. Ten years later during the first year of the 21st century IT slowdown Intel spent an awe inspiring $11.5 billion on R&D and capital expenditures which represented 45% of its revenue. Maybe there are reasons why Intel commands 82% of IT industry’s market share. In Las Vegas they might call that doubling down, for bold industry leaders like Intel, it is just business as usual.

Interesting enough Barry Diller said, “Now I don’t think I’ll (ever) go irrational but there are certain situations that are not rational, and they are great opportunities.” These not rational and sometimes even irrational situations often require a leap of faith. Diller was discussing the biggest mistake in his life when he dropped out of the bidding for Paramount Studios at $10 billion. The assets were subsequently sold for $20 billion. Diller said that he made this decision while he was still an administrator/manager and millionaire. He was unwilling to take that leap of faith then. However, he learned and was eventually rewarded for it. As a result he became the entrepreneur/manager and billionaire he is today.

Millionaires don’t believe in astrology, but billionaires do.

J.P. Morgan

The lesson from this quote is twofold. First, millionaires are successful because they work hard. Billionaires are billionaires most likely because they were willing to take some huge leap of faith and believe in some crazy ideas that no one else believed. The second lesson is that billionaires are perhaps more open to exploiting ALL sources of information both traditional and non-traditional.

The successful business is entrepreneurial and willing to face uncertainty. These businesses have faith in the fact that they will either be successful or that they will be flexible enough to adjust to whatever outcome results. The truly successful organization must be willing to go out on a limb (and sometimes saw it off), just as the Vikings did. This is the leap of faith that great organization must have.

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