I recently came across a fascinating term when researching to launch my business: ‘Opportunity cost’.
Opportunity cost can be defined as:
the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another.
If you are a small business owner, this phrase will likely ring alarm bells. The term definitely carries a lot of weight for SMEs specifically, who, (for the most part) have their hands tied when it comes to disposable income and expendable resources. The definition may be read as ‘Invest in sure-fire returns!’, or ‘minimise exposure to loss.’ - you wouldn’t be wrong to interpret this, but there is another, more insightful way to read this ubiquitous phrase.
In my personal experience, missed opportunities often occur in situations where you second-guess your own innate sense of intuition, often due to factors of attention deficit or a lack of mental readiness to make a choice. In other words, I see opportunity cost as ‘The cost of not going after what you love’ or ’the cost of not allowing intuition in your decision-making strategy’. Let me explain.
The starting gate
Many SMEs start from a small spark: the owner/founder of an SMEs sees a real problem in the real World and decides that they can offer something which no-one else can.
Striking out on your own is already a HUGE risk (in the eyes of your parents and your boss, anyways). If you consider your day job as an ongoing opportunity, then the cost of leaving your job is already a substantial loss, with no guaranteed returns. Some concerned stakeholders in your career prospects might say ‘Better to work for a few more years, earn some more money and then go into business for yourself’, as person B opts to do.
In actual fact, starting your business is a perfect example of opportunity cost in and of itself, and intrinsically illustrates a lot of the ideas at play in this concept. Let’s dig deeper.
Business alchemy
Consider for a moment that you work in a popular high-street chain store selling cosmetics. In your spare time, your passion for beautification helps you discover a small online community of people crafting cosmetics for themselves from natural materials. With some limited research, you see that the topic of self-made cosmetics has very little traction online. On the whole, very few businesses seem to use fully natural materials. You decide that you would like to start up a small business for small-batch handmade cosmetic products
Thinking along these lines, let’s consider two different people devising strategies for launching a business:
- Person A wants to drop everything and allocate all available resources to the idea. They have seen a gap in the market and it won’t be there for long. They hope to tap into their deep-rooted passion of the idea and your love for cosmetics to capitalise on this opportunity quickly.
- Person B opts to set a launch date three years from today. Allocating themselves 15% of their income stream to invest they devise a small budget threshold, which they plan to supplement with 1 year of intensive overtime at their day job in order to try and raise more capital. In the sparse periods of spare time they have remaining, they try to read about and research areas such as Product Development, Business Marketing and Accounting.
As you can see, these launch strategies are ‘Chalk and Cheese’, so to speak, and are vastly exaggerated: person A would be very reckless to drop everything in order to start a business. Conversely planning to launch a micro-business three years in the future and not allocating a concrete strategy for it’s development is so vague it may as well be planning to put it off altogether. With our respective business personas defined, it is time to read between the lines.
Your sense of agency
Scientifically speaking, a ‘sense of agency’ is defined as:
The experience of having a causal impact on the world accompanied by a feeling of having control over one’s actions.
For layman’s terms, however, a ‘sense of agency’ usually implies a feeling of pro-activity and ownership towards a task or problem. In other words, if you are acting with agency you are acting upon a sense of personal responsibility to complete an action.
Let me be clear ‘Acting with urgency’ (i.e: slowing down for speed cameras!) is distinct from ‘acting with agency’, because the factor you are responding to is usually external. A sense of agency on the other hand, concerns itself with motivations which are intrinsic to you as a person (i.e: your passion for a specific subject or cause)
Acting with agency in your business operations is likely to be critical to establishing a competent enterprise. A pro-active mindset can help prevent issue such as decision fatigue and psychological overwhelm which can cause stagnation, burnout and depression. Whilst appearing fairly innocous initially, procrastination is a real dream-killer.
Self-efficacy and adaptability
An article about AI influence regarding career progression states:
individuals adapting to the rapidly evolving work environments of today are discovering that their confidence in their creative potential and ability for lifelong learning is becoming increasingly important.
_December 2024, Thinking Skills and Creativity, M. Gerçek & C.Özveren
Did you hear that? A scientific journal is stressing the importance of creativity! Unbelievable. Seriously though, such pioneering research into AI just goes to show the importance of being primed and ready for change. The paper goes on to say that ‘individuals adapting to the rapidly evolving work environments of today are discovering that their confidence in their creative potential and ability for lifelong learning is becoming increasingly important’.
Whilst the excerpts above are not necessarily targeted at SMEs, the message is clear: in this age of massive technological revolution, we must adapt or die. Whether we are willing to do so, however, is all about attitudes to risk - are we willing to grasp the nettle and adapt to using the A.I technologies available to us today, or will we offset it’s priority for some future date, potentially foregoing countless new opportunities along the way? The new, unknown possibilities of AI-enhanced work processes can either fill us with anticipation and excitement, or fear and dread - it’s that simple.
The role of mindfulness in the decision-making process
Intuition is defined as ‘an ability to understand or know something immediately based on your feelings rather than facts’ (Cambridge Dictionary). Within Ayurvedic medicine, intuition is being able to sense what your body needs at a given moment, selecting a medicinal plant or herb to remedy a specific issue. By intuitively knowing what to accept into the body, you must therefore also know what you should reject. But how is this useful to us as decision makers in start-up enterprise?
In the same way that intuition can be developed for our bodies and our appetites, Mindfulness practises such as MBSR, meditation or somatic breathing techniques offer a way for the mind to develop more restful states whereupon our capacity to contemplate a set of options increases dramatically. By allowing our mind to process the options available to us on a deeper level, the higher-level faculties in our brain are freed up to contemplate what options really ‘speak to us’.
In a similar way, somatic breathing techniques and somatic bodywork can help you to regulate your feelings, allowing you to identify and isolate sensations in the body as feelings arise, help you to understand your emotional reactions to certain situations when faced with multiple important choices or options. Research into Somatic breathing techniques shows that it not only help the function of the human heart, but also increase cognitive ability.
With the rise of so many new information streams and technologies in our daily lives our minds tend to be over-stretched and over-stimulated, making mindfulness techniques essential. The volume of information we are exposed to on a daily basis increases need to digest daily increases at an unprecedented rate. As early as 2022, Forbes magazine attempted to shine a light on growing concerns around the phenomenon of ‘Decision Fatigue’, and the effects it has upon our mental functioning and productivity. Decision paralysis can cause unhelpful behaviours such as procrastination, cause you to avoid making certain choices entirely or go with the default option or to make ones that aren’t in line with your goals or values.’.
Circling back to our personas, symptoms of Decision Paralysis may be evident for Person B as they enact a ’long-game’ approach to their launch strategy, but fail to enact concrete steps to reach their goal. Reading and researching is good, but long periods of contemplating options can lead to intense overwhelm or mental stagnation. With mindfulness techniques, person B might just be able to help understand what is blocking them from making a choice and build a better relationship with what ‘feels right’ by listening to subtle cues within their body as they evaluate options.
Summary
Factors in our personal mindset and lifestyle can have an impact on Opportunity Cost within a small business or startup. Attempting to move away from the conventional, materially focussed paradigm of loss of resources, in this article we delved into topics such as mental states, behavioural traits and attitudes to risk, showing how positive attitudes to change, achieving mental balance and adopting a proactive attitude towards your goals can all help to avoid opportunity cost within your daily practise.
By developing a holistic view of opportunity cost (be it time-based, emotional readiness or mental clarity), we can start to assess our own personal appetite for risk, patterns in our personal decision making processes and identify how much of our mental bandwidth is being given away to things which don’t serve us. Through such realisations, we can finally hone in on what on what ‘feels right’ for us, and take the leap into a new phase with confidence.