Why we need to avoid being “penny wise, but pound foolish” in our major life strategy decisions
Earlier in my career I was in a meeting with a well known local Venture Capitalist. He was an expert in negotiating acquisitions with startups, and we had asked for his advice on a deal with a company we were considering purchasing. While we were talking he made a very interesting observation about his successful investing career.
“What’s interesting is that when I look back on every deal I ever made, they only fall into 2 camps: (1) I would have happily paid 10X what I did for the company at the time, or (2) I wish I had paid nothing at all.
There has never been an instance where I’ve thought ‘that deal would have been perfect if I had just gotten it for 10% less than I paid’. When there is something critical to your strategy, it’s worth paying every penny.”
That interaction reminded me of another famous (but not well known) quote attributed to Henry Ford, the godfather of the automobile industry:
The basic principle in both cases is pretty straightforward: Don’t lose the forest for the trees.
Too often in our lives and careers, we try to optimize for every single point of margin. We haggle the price on our car purchases, we try to get X% more pay in a salary negotiation, we only want to pay $95 instead of $100 for that really cool sweatshirt we saw in the catalog. That is all well and good to a point, but if taken too far we will end up winning the battles but losing the war (our ultimate goal).
As a quick personal example – when I was a college freshman one of my roommates asked me if I’d like to help him + some friends out on his startup idea. They offered me a spot on the team. Though I thought the idea was interesting, I was too worried about the time it would take away from my homework and studies. I went on to get an engineering degree and a $65K/year job out of college. My friend’s company went on to become a multi million (and now publicly traded) company. I missed a potentially life changing opportunity because I was too busy counting “hours in the week” instead of seeing the bigger picture.
As another (more positive) a personal life example – when my wife and I bought our current home we initially thought about trying to haggle down the seller as much as we could. However I could sense that that if I did too much of this, we would risk losing the home to another interested party. We ended up paying exactly the asking price. At the time a small part of me felt that I wished I had saved a couple thousand dollars. But I also knew that this home was exactly what my family and I needed and was in the place where we wanted to be. Fast forward 4 years and in retrospect I would have happily paid tens of thousands more than what I did at the time. The home has been a perfect fit for us, and I’m extremely grateful I didn’t lose the big opportunity because I was focused on the short term cost.
Many of life’s most important choices present the risk of being “penny wise, but pound foolish”. It will happen when looking for a new job, buying a home, finding someone to marry, building a relationship with a child, or choosing where to live. Don’t let your pursuit of perfection get in the way of making what you know is actually the right choice for your life’s strategy.
If it is the right decision, you’ll realize you still made an extremely good deal. If it wasn’t, it wasn’t worth haggling over anyways.
Remember: Your goal is to pay for the forest. Not for the individual trees.
