If the venture fails, it is the investors who lose. This is the risk. If the venture succeeds, it is the investors who gain. This is the reward.
How to reduce the risk and maximize the reward? Two-edged swords:
- Success can and should be achieved through honest, hard, even clever work. Success can and should be honorable, and is even more so when the odds are against you, i.e., on an uneven playing field.
- Success can and shouldn't be achieved by, well, poor sportsmanship, though the opportunity is there and is often taken. Let's agree to call this greed, as that's a favorite term for those who succeed.
- Spread the risk to more investors
- It is wise to increase the number of baskets in which you place your eggs. As long as there is a reward for these risk takers, and as long as this risk taking is voluntary.
- If you've spread the risk to those without a reward, to those without a choice, who loses if the venture fails? What diluted risk is there to those who have spread the risk. Has the venture...
- Gained enough mass (traction and momentum) to perpetuate?
- Is it profitable, growing, thinking strategically, spending wisely, re-investing, re-inventing?
- ...or has it become "too big to fail?" Momentum and mass are impressive, but removing the risk removes the incentive to succeed. It removes the opportunity for that which needs to die to die. It stifles the market mechanism of...
- Competition, which
- creates new jobs, creates advances, innovates, destroys those ventures which fail to respond.
- or, competition can be met by blocking it through various barriers to entry through regulations, cartels, and monopolist behaviors. It is interesting to note that most cartels and monopolies are formed with the collusion of government.. they are established and defended where a free market cartel and monopoly will not stand. Ask Kodak, Pan Am, TWA, AT&T, and numerous other monopolies which have tumbled due to fierce competition and sloth.
The virtuous path is the best of what capitalism has to offer, growth and income, risk (responsibility) in the hands of those who would gain the rewards.
The tempting path leads to market distortions, such as false investment, a lack of concern for risk in investing, public bailouts of concerns which should fail, resulting in stifled and genuinely unfair competition, a lack of responsibility, slowed emergence of better goods to the market, and a dependency and complacency of the worker rather than an independence of responsibility.
But what about that worker? What is his risk? What is her reward? What are their opportunities?
I hope to think more tomorrow.