“Just because nobody complains doesn’t mean all parachutes are perfect.”
–Benny Hill
Hello All–
It is now post-Christmas and past that time when we have bought all our gifts, expanded our waistlines, and are hurtling rapidly toward the new year. So, we should be making resolutions and plans.
To see what you should be thinking about, see here.
And so, with the upcoming year in mind, I also wanted to discuss what it takes to “win” and achieve those plans. And given recent research, determining whether having a backup plan on some of your financial and non-financial initiatives is a good winning idea.
The conclusion is counterintuitive, like so many things, as we head into 2024.
PLANNING AND BACKUP PLANS: WHAT SOME OF THE EXPERTS SAY
At first glance, the notion that you should avoid having a backup plan seems a little crazy. To most of my readers, the idea seems akin to juggling porcupines without gloves.
Moreover, as you know, I am a fan of planning ahead. So, I was slightly surprised at a recent study that argued that having backup plans detracts from achieving goals.
The idea is that your focus must be on achieving your goals, not anything else.
The study authors say that if you want a new career, a new financial goal, or to start your own company, having a backup plan will lessen your chances of success.
THE STUDY
Two researchers, Jihae Shin, a professor at the University of Wisconsin, and Katherine Milkman, a University of Pennsylvania Wharton professor, recently published a paper in the journal Organizational Behavior and Human Decision Processes. It is entitled “How Backup Plans Can Harm Goal Pursuit: The Unexpected Downside of Being Prepared for Failure.”
According to the authors, thinking about the goal and the backup plan simultaneously splits the attention of a would-be achiever and causes them to dilute their energy toward achieving their goal.
When I look at single-minded people like Elon Musk, I can see where that reasoning may make some sense. Of course, most of us do not have his capability either. He needs a backup plan less than most of us.
However, it turns out that the researchers do not favor abandoning a backup plan altogether. They think that A) if you are part of a team, it may be that your boss is the one who should be worried about failure and backup plans, and B) you should let time pass until you are convinced you have done everything possible to achieve your goal.
ARE WE STUDYING THE WHOLE SITUATION?
I wonder if, in this situation, anyone has studied—to channel Benny Hill—the failures.
My concern has three components: 1) what happens to those without a backup plan when they fail? 2) did they only study those who succeeded without a backup plan, and 3) Did the study replicate the real-world pressure of losing all your money or your career?
It is hard to know the answer, but let me give an example of one cautionary tale about data and making sure you look at losers and not just winners before coming to a conclusion.
During World War II, the Allied command wanted to reduce the number of aircraft losses because, at the beginning of the war, only 10 percent of the airmen survived.
They decided to add armor to the planes to protect vulnerable areas on the planes where the concentration of bullet holes was the greatest.
When planes returned from their missions, they determined that the most bullet holes were on the fuselage, the outer wings, and the tail. So, it was decided that those areas be more heavily armored.
Then, the statistician, Abraham Wald, was consulted, and he disagreed with the conclusion. He pointed out that they were only looking at aircraft that had survived and returned. Instead, he concluded that areas other than the fuselage, outer wings, and tail needed to be armored because the enemy had succeeded in shooting down aircraft that had been damaged in those areas.
THE REASONS YOU MIGHT YOU MIGHT AVOID THINKING ABOUT A PLAN B.
So, I do think we need to be careful.
For instance, many studies of millionaires show they often go broke as they singlemindedly pursue their dreams. However, there is no similar study of those who fail and presumably have no backup plan either. I doubt they end up millionaires, even if they are single-minded.
But in defense of the study authors, sometimes there are good reasons to avoid forming a plan B. Here are a few:
Reason 1: You have nothing to lose.
If time is the only thing you lose, sometimes working without a backup plan is okay.
Reason 2: Your risk is hedged in other ways.
Millionaires, on average, had gone broke a staggering 3.5 times over their career. However, other data showed that millionaires are often married to teachers with consistent, steady work, pension plans, and benefits. I suspect this is not an accident and that having a steady base of income may encourage strategic risk-taking and prevent the need for a backup plan.
Reason 3: No one else is affected.
You don’t need a backup plan if no one gets hurt if you fail. The allegiance to others, usually family members, often discourages risk-taking.
Reason 4: You are okay if you lose in the worst case.
We have discussed this at length in a previous post. If you look at the worst case before investing, starting a new venture, or undertaking any activity involving risk, it is fine to go ahead if you are comfortable with the worst case. If not, you should not go ahead.
Reason 5: You have no alternative.
The Romans who burned the bridges behind their armies are a good example. There was no choice but to go forward.
Reason 6: Your boss has your back.
The study’s authors have convincingly pointed out that if you are asked to undertake a significant initiative, it is your boss’s job to have a plan B, not yours. That is true. However, I have worked for people whose plan B is to blame subordinates for failure. If you work for someone like that, your Plan A and B is to look for a different job.
Reason 7: The amount you could lose is insignificant.
This is where it helps to be filthy rich.
THE REASON DEVELOPING PLAN B IS WORTHWHILE
I am unsure that developing Plan B and achieving a goal are mutually exclusive. If I create a Plan B, it is important to shelve it eventually and put it out of my mind while I achieve my main goal. Having thought through both plans sufficiently is the key. It takes time, and it is what gives me the confidence to move forward.
Things can go wrong or take unexpected turns. I still believe in planning thoroughly and looking ahead.
Disclaimer: consult with a financial fiduciary before taking any steps outlined here. Not all advice may be suitable for your circumstances or investment style.
Image: Juanedc
License: Creative Commons