Maximizing room for error.
There’s a strange paradox that the room for error is important to survival in the long run, but maximizing efficiency in a way that removes the room for error can be essential to surviving the short run.
Many people strive for efficient lives, where every hour is utilized. But when no time is wasted you have no time to wander, explore something new, or let your thoughts run free — which can be some of the most productive forms of thought.
Psychologist Amos Tversky once said “the secret to doing good research is always to be a little underemployed. You waste years by not being able to waste hours.”
The same is true for corporations as the world is competitive. If you don’t exploit an opportunity your competition will. So opportunity is usually exploited to its fullest extent as soon as possible. And when everything is exploited there is no room for error and the same system will eventually break when exposed to volatility and accidents.
As Flexport CEO Ryan Petersen explained:
“To show great ROE almost every CEO stripped their company of all but the bare minimum of assets. Just in time everything. No excess capacity. No strategic reserves. No cash on the balance sheet. Minimal R&D.
We stripped the shock absorbers out of the economy in pursuit of better short-term metrics. Now as we’re facing a hundred-year storm of demand, our infrastructure simply can’t keep up.”
There’s a weird quirk of human behavior that incentivizes people to maximize potential all the way up to destroying themselves.
Those who are willing to accommodate risks/errors while sacrificing short-term gain for long-term survival — are the odd ones, people who underperform most of the time but survive long enough to get the highest returns.