Choose better tradeoffs

Business decisions are full of tradeoffs and tradeoffs carry consequences. Misprice a product and someone can lose their livelihood. 

Venture Capitalist Andrew Chen has a model for thinking about tradeoffs - the mighty meerkats. 

These Kalahari Desert residents have a ‘goldilocks zone’. If there are too few in the meerkat mob, their perimeter warnings have too many holes and predators slip through. Take one away from an already vulnerable group and the next predator will have an even easier time. 

But there can also be too many meerkats. The group’s capacity is what the environment can support - and the environment changes. Too little rain causes too few plants to grow and the meerkat population will shrink. 

Businesses exist in a goldilocks zone too. If there aren’t enough customers the numbers don’t work. Fixed costs need large a number of customers. Network-effect businesses like online marketplaces need plenty of sellers and buyers.

But like the meerkat, a business has an upper limit too. Manufacturers don’t want everyone as a customer because returns increase, focus drifts, and complaints rise. Networks, like Uber, Chen wrote in The Cold Start Problem, don’t need too many drivers.

It’s actually nice that rides aren’t instantaneous. Your driver will be there in a few minutes allows time to collect their keys, wallet, and phone along with checking the weather. 

Expansions and contractions. Larger and smaller orders. More or fewer customers. Which tradeoffs allow your business to thrive in its goldilocks zone? 

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