You’re working in a large corporation, and you’ve been given two choices.



Choice one guarantees a profit of $1 million in the next 12 months. It’s safe, predictable, and secure.



Choice two, however, gives you the opportunity to make $1 billion. But there’s a catch: your chance of success is only 1%.



Mathematically, the answer seems obvious. One percent of $1 billion is still $10 million; 10 times more than the first choice.



But what would you choose?



This question was posed to me and a bunch of successful entrepreneurs at an event in Los Angeles by Astro Teller, CEO of X, the radical innovation arm and moonshot factory of Alphabet.



They all voted for the second choice. Which, if you are a venture capitalist, I’d expect, as the evidence is clear; extreme bets pay off in the long run.



According to CB Insights, 67% of venture capital (VC)- backed startups fail, which means that great VCs rely on a small percentage of their investments making exponential returns. They quite literally rely on the one in 20 bet, bringing back a 100 or even 1,000-fold or more returns.



The mindset is home runs matter, strikeouts don’t.



Missing out on the next Google or Airbnb is the real failure, not losing on the ones that didn’t work out. For VCs to thrive, therefore, they have to take the 1% bet.



And thrive they do, because as at May 2024, there were over 1,200 unicorns — startups valued at over $1 billion; with a combined value of approximately $3.8 trillion.



This is of course all great if you work in venture capital. But what about, if you, like I used to, work in corporate?



For me, there was no way I would have ever chosen option two. And neither would my peers. It wasn’t because we didn’t understand the math; it was because we were afraid.



Because corporates are structured to focus on certainty.



I wasn’t paid to fail or take radical bets. I was paid to deliver consistent, predictable results.



So, I know from experience just how difficult it is to push for bold, unconventional ideas in large, legacy organizations. The resistance to change can be overwhelming. Those corporate antibodies make any wannabe intrapreneurs, like I once was, feel like outcasts.



Which is why 99% of corporate leaders choose the safe bets, over and over again. It’s about self-preservation and avoiding career-ending mistakes.



All well and good you might say, if it wasn’t for the fact that predictable companies are unlikely to survive the next decade.



If you think this sounds extreme, consider this. In 1974, the average lifespan of a Fortune 500 company was 75 years. Today, only 12% of those companies remain, and the average lifespan has plummeted to just 15.



What’s pushing them out of business? The answer is obviously venture capital.



An industry that has mastered the art of the 1% bet has learned to disrupt corporates that are too scared to take risks. VCs fund innovative startups that move fast, embrace uncertainty, scale quickly and push incumbents to the brink.



So, the reality for corporations today is therefore stark. Playing it safe is the riskiest choice of all. In an era of rapid disruption, certain bets will never create the breakthroughs needed to stay ahead.



Most corporate leaders I think know this, but are simply too afraid to take the 1% bets. It doesn’t matter how much data, research, or logic is applied. Fear of failure drives their decision-making.



But if the evidence is so clear, that corporates need to take more risks to remain relevant, what can be done to encourage their leadership teams to take risker decisions?



One answer is to change the incentives, to reward executives for driving innovation programs within their organizations, in a similar way to how Alphabet has with its X company.



But the paradox here is that this requires a change in mindset from the very people who created the problem in the first place.



The board.



And to get them to change their opinions about incentives and governance can only really happen if you can get them to believe that the company is facing an existential crisis.



Not easy. But boards that realize the adverse risks of being too prudent and therefore work with their executives, to encourage their intrapreneurs to take the 1% bets, are far more likely to survive than those that don’t

Tag: Thought Leadership

FORBES AFRICA SOCIAL MEDIA

Expert-Speak: The 1% Bet, Are You Afraid To Take It?