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Home Blog Should You Jump at Every Opportunity That Comes Your Way?
Trade-offs. In the business world, we call them “opportunity costs,” but they mean the same thing. Basically, opportunity cost is what you give up when you’re faced with two (or more choices). Do I sleep in and start work an hour later, or do I hop out of bed before my alarm goes off and finish my day two hours earlier than usual?
Personally, I like to visualize the opportunity cost of a major business decision before I pull the trigger. I did this not too long ago with my office space. I’d been wanting to move for a while and had my eye on the perfect place in a building surrounded by companies that I really wanted to work with, but when I saw the rental price, my bank account said “absolutely no.” Then COVID whacked the commercial real estate market. My dream office went from “unattainable” to “expensive-but-manageable.” I visualized the opportunity costs both ways:
Option 1: If I stayed where I was, I’d keep more money in the bank and have less stress every month to make my numbers, but…
Option 2: If I moved, I’d be in a great space but…
In the end, I had to make the choice. Spend more for an amazing office near my clients or keep doing what I was doing, which I knew I could afford? Since my bank account was showing significant signs of COVID recovery, I was pretty sure that I could weather having a bit less money in the short term. Plus, I was willing to spend more so that I could be face-to-face with my ideal clients.
I took the leap, spent the extra cash, and moved to my dream office.
You can apply opportunity cost to almost any decision. Do you go to bed early and miss out on an opportunity to meet your favorite aging rocker but gain some ZZZs and feel refreshed for work the next day? Do you take the scenic byway because it’s a relaxing and beautiful drive but miss the free hors d’oeuvres at the reception?
Sometimes, it’s easy to identify and evaluate the opportunity costs.
In the cases above, you would have to decide what’s more important, and circumstances will dictate the answer. For example, a technically superior chef would probably be more important than a friendly chef, but a friendly server will always be better than one who can do cartwheels with cocktails.
Sometimes, working out the most favorable decision can be a bit of a challenge due to the desirability of both outcomes.
You’ve been invited to pitch your design services to two competing companies. We’ll call them Company A and Company B. You only have the resources, however, to pitch one.
How do you decide?
Opportunity cost: If you choose to pitch Company A, the opportunity cost (or trade-off) is creating a name for yourself in the industry, which you would gain if you earned Company B’s contract.
If you choose to pitch Company B, the opportunity cost (or trade-off) is the guaranteed financial freedom that you’ll immediately get with Company A’s contract.
Here’s another example: People are clamoring for your custom birdhouses and the only thing that’s holding you back is a lack of supplies. You’ve found a great source for those supplies and a pretty good price, but you need to buy the supplies now. One problem: you don’t have the money.
You have two choices:
Opportunity cost: The trade-off of taking the loan is immediate profit, which you’d have if you stayed the course. The opportunity cost of staying the course, however, is three fold: company growth, meeting customer demands, and scoring supplies at a cheaper rate than in the future.
As a business owner, opportunity costs are very real and sometimes very scary. Still, you can mitigate some of the risk associated with choosing your path by doing the following:
By the way, if the opportunity you’re looking at seems impossible because you don’t have the money to make it a reality, consider applying for a loan or other financing through Lendio. With a simple 15-minute, online application, you can be matched with funding from Lendio’s network of more than 75 lenders ready to help small businesses take advantage of the opportunities that come their way.
Lendio contributor Dan Yurman is the co-owner of Re:word Content Co., a content agency in Toronto, Canada.
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