Too Much Money, Too Little Challenge

A recent post by Ed Sim at BeyondVC makes an outstanding point that I have seen often in the history of business - those with too many advantages or resources often fail because they lack the motivation of challenge.

As Ed says, "Having too much money can be a curse, not a blessing.  More often than not, I see management lose financial discipline and avoid making hard decisions when capital is abundant and not scarce...when an entrepreneur has too much money, the tendency is to throw more money to fix a problem."

This pattern holds for monopolistic businesses like Microsoft and the old AT&T - which were slow to innovate because they rested under the protection and cash flow of guaranteed sales.  Similarly, the resource-rich oil states are the last to build democracies and innovative economies because they have too many resources.  (Read The Paradox of Plenty for a great history of oil states' failures).

Overall, the challenge of business survival is a powerful motivator.  By blessing an endeavor with too many resources, the curse of "relaxation" and poor decisions can follow.

Comments

[Michael Wilson]

That's it. I'm giving back 50% of my salary. :)

I see what you are saying though. I ran a startup at a loss for almost 3 years. The day we turned a profit I lost a little of my risk tolerance. I wasn't as anxious to sink profits into new products as I had been to sink borrowed money into new products.