It’s tempting to want to only focus on ideas that offer the biggest potential upside, and fixate on determining the exact ROI you can expect before moving forward.

But breakthrough solutions don’t always start out as obvious home runs. Sometimes you need to test and iterate on your idea before it can evolve into something truly game changing.

The less comfortable you are with this kind of ambiguity, the greater the chance that you’ll mistakenly throw away your best ideas.

Shifting your focus from ROI to “affordable losses” frees you to make the best use of your resources, experiment with different approaches, and discover solutions that could have nearly unlimited long-term upside.

“It’s impossible to innovate if your sole focus is generating a forecastable return on investment. By definition, innovation involves risk and confronting uncertainty. Affordable loss shifts the focus away from attempting to hit a fixed target and toward learning about customers’ needs and market dynamics.” (Csaba Konkoly and Matt Watkinson)

The principle of affordable losses builds on the concepts of reframing, purposeful bets, and smallest executable steps. Rather than going “all in” on your idea based on a gut feeling, you focus on testing different approaches in the real world, and then double down on the ideas that show the greatest promise.

Imagine you’ve been struggling with high customer churn. After spending some time exploring and reframing the problem, you come up with a potential solution that you feel could work really well. The trouble is, there’s simply no way to know the true long-term upside or ROI your idea will bring.

Instead of guessing about some unknowable ROI, you can focus on calculating affordable losses, and make purposeful bets designed around the smallest possible executable steps.

You can choose to set aside a relatively small amount of time and money to do things like run a limited pilot program, create a simple prototype, or test your idea with a portion of your customer base.

If that initial experiment doesn’t work, you still have resources available to test out other ideas. But if your solution to the problem is successful, the long-term ROI of that new direction—including all the new ideas and strategies your solution leads to—could easily exceed even your most optimistic projections.

What will you do today to incorporate the principle of affordable losses into your problem-solving process?

Will you stop trying to guess about long-term ROI, and instead think more strategically about making the best use of your available resources?

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