When Jeff Bezos started Amazon.com Inc. in 1994 as an online bookseller, he thought his company would fail.
He was upfront about it with Amazon's investors, starting with his parents.
As Bezos told an interviewer in 2000, three years after Amazon went public, I thought there was a 30% chance that we might build a successful company. I never thought we would build what Amazon has turned into, and I am the most surprised on the planet. He told his parents that it was very likely that they would lose all of the $245,573 they were investing in Amazon.
Bezos calls his approach regret minimization. The odds were against him, but there were only two possible negative outcomes.
One was the risk Amazon would fail after he launched it. That failure would cost him time and money, along with losses for his investors.
In Bezos eyes, he would never take the plunge on Amazon and spend his life not knowing what he could have achieved. He tried to be clear-eyed about the risks while being clear-eyed about the risks, but that would have been a bigger source of regret than trying and failing.
It is realism and humility that should speak to investors. Even in 1994, when Amazon was just an idea, Bezos had much to boast about. He had risen from flipping burgers at a McDonald's to a stable job at a hedge fund. He could have emphasized Amazon's many advantages while downplaying risks.
He was upfront about the long odds his company faced. The investment was a good fit for his parents.
The principle of regret minimization also applies to investors. If you have money that you can afford to lose, you may be able to minimize regret by investing it rather than keeping it on the sideline.
There are examples of this, but the most famous is probably criptocurrency.
Even if the odds against Bitcoin are slim, are they really 100 million to 1 against? After its pseudonymous founder Satoshi Nakamoto, the story of Hal Finney, the computer programmer who was likely the second in history to mineBitcoin, tell us the story of Hal Finney.
After mining a block of Bitcoins – 50 in total – he sent a congratulatory email to Satoshi Nakamoto along with some musings.
Before sending, he capped his congratulations with a final thought.
Even if the odds of Bitcoins succeeding to this degree are slim, are they really 100 million to 1 against? At the time,Bitcoin was officially worth nothing. A handful of people didn't know they existed, and they could easily mine 50 Bitcoins for just a few cents worth of electricity.
Most of the startups have a principle of regret minimization.
In their early stages, like Amazon andCryptocurrencies, a startup company is risky. The most likely outcome is that investors lose 100% of their money.
The investors should not invest more than they can afford to lose, because they should tread cautiously.
The Benzinga team is tracking a handful of opportunities that could present similarly asymmetric risk-reward ratios, including a startup with several paths to glory in a $152.5 billion market.
See more on the startup investing from Benzinga.