Managing Risk and the Cost of Failure

Paper cranes and crumpled paper - the cost of failure

By Colm O’Reilly, Certified Two-Brain Fitness Business Mentor

This might be hard to believe, but most of my jokes fall flat. In fact, if I get 30 percent of them to elicit a chuckle or groan, I consider them a success!

But my misses don’t matter because the cost of failure is pretty low when you’re telling a bad joke. For example, comedians Chris Rock and Jerry Seinfeld do smaller shows for months to refine their jokes and routines until they’re ready to do a big tour. 

What does this have to do with business? There are two important points:

  1. Business is a constant stream of iterations.
  2. We need to manage the cost of failure.

In business, we’re never going to reach the stage where everything runs perfectly. We’ll need to adapt to changing circumstances (hello, COVID!) or simply improve in an important area. The key is knowing what to focus on, determining how much work will be required, defining what success looks like, and laying out the conditions for cancelling the mission or rolling it back. 

It’s tempting to want to launch a new service—like nutrition or a kids program—and imagine all the extra revenue that will roll in (which, in your mind, will be pure profit). It’s vital that we investigate what work is required to get the program running, how much time and money it will cost, and how long it will take to see a return. We also need to ask a key question: Can you afford all this right now? 

None of this is intended to deter you from trying new things. In fact, you need to try new things constantly. You cannot just keep doing the same old, same old. If you stagnate, it’ll be too late to try new things and you won’t have the skill of adapting and iterating. I simply want to protect you from disappointment and “failure” up front by getting you to plan your actions.

In my business, we could launch secondary revenue streams (nutrition, kids and mindset coaching) because we could afford the time and capital expenditure to nurture these programs. Our primary revenue stream supported the work. We also review all programs to ensure the time invested is giving us a return, and we are prepared to refocus our energies based on those reviews.

What’s just as important is knowing and understanding the cost of failure for everything.

Coca-Cola reportedly lost US$34 million on New Coke but survived the disaster. As a small-business owner, you want to avoid disasters completely and minimize the costs of failure.

For example, launching a weightlifting program might cost you up to five figures in new bars, bumpers and platforms. It could take a long time to recoup that money, and you might not do it if the program flops like a bad joke. A nutrition certification at $1,500 is a much lower sunk cost, and you can offset much of it with a stellar program launch (Two-Brain tells clients exactly how to launch a program to give it the best chance of success). Which program would carry fewer risks and offer greater potential benefits for your business?

When planning any changes or expansions, work with your mentor to determine what’s worth it right now, when you should wait, what failure will cost, and how you’ll recover if things don’t work out—or how you’ll capitalize if they do. 


One more thing!

Did you know gym owners can earn $100,000 a year with no more than 150 clients? We wrote a guide showing you exactly how.