What is Affordable Loss?
By: Sara Whiffen, Insights Ignited
We asked our Coleman ECIA Community of Practice Effectuation Expert Sara Whiffen to weigh in on a good definition of the Affordable Loss principle and how it relates to community colleges as we teach and advise prospective and current entrepreneurs. Here's what Sara had to say.
- Affordable loss is what you are willing to lose to make the idea successful.
- What it is not—it is not expected return. It is not a forecasted upside.
- Most importantly, it is not a desire to lose money.
It’s not saying that you’re going to throw it away or intentionally lose money. Instead, it’s saying that if you have to lose it, it won’t bankrupt you. It’s the recognition that innovation is based on experimentation and failures that lead to successes.
Affordable loss is the safety net in response to “true” uncertainty. Making decisions in the presence of uncertainty is the essence of entrepreneurship – economists tell us this. There is known. Unknown. And Unknowable risk. Affordable loss is how you can venture into the Unknowable territory. To truly be innovative you have to go there. Affordable loss serves as your safety net in this.
It sets you up for more options in the future. Entrepreneurship is a marathon, not a sprint.
Stay tuned because in Sara's next blog she will share the perspective of affordable loss as it relates to the intrapreneur within the community college.