Ep 192 | There are Tradeoffs to Everything in Life

Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. Let's get into it. Today I want to talk about the concept of opportunity cost and how opportunity cost plays a role in all of our decisions in life, in business, in relationships, in health, and everything that encompasses our, our respective worlds. We've probably heard of the term opportunity cost, but let's make sure we're all on the same page. What exactly is opportunity cost? Opportunity cost refers to the potential value or benefit to an individual or a business or society a value or benefit that is foregone, that, that someone foregoes when choosing one alternative over another. It is the cost of not choosing the next best alternative when making a decision that of course involves trade-offs. So in other words, when you make a choice between, a couple of options. The opportunity cost is the value of the benefits you could have gained from choosing the alternative, the one that you did not choose. It's not always measured in terms of money. It can of course also involve time or resources or any other factors that are relevant to the decision. So a good example, If you have the choice, let's say between studying for a test, studying for an exam, or going to a social event, the opportunity cost of going to the social event is the potential improvement in your exam performance that you sacrificed by going out and not studying. Now, vice versa, if you chose to go study, then the opportunity cost to missing that social event was maybe an opportunity to meet new people or deepen certain relationships. So these are the trade-offs. So understanding the opportunity cost is critical. It's crucial in decision-making, whether it's in finance or business or whatever aspects of life. Bottom line is understanding opportunity cost allows us to make more informed choices. Let's talk about some examples in the real world. Okay, I think a good one to consider is Netflix. I've used— I like to use Netflix, I think, as an example for a lot of things. Today we're going to use Netflix as a company that, uh, had to leverage or had to analyze opportunity costs. So Netflix in the early 2010s was primarily known as a DVD-by-mail company. They mailed out DVD rentals. However, with the rise of, of digital streaming and the decline of actual physical media and even brick and mortar, the company recognized that it needed to adapt its business model. So in 2011, Netflix was faced with this pretty crucial decision regarding its direction. The company's leadership had to really choose between two, two alternatives. The first was, of course, keep the DVD-by-mail service going. Now, the benefit was that if they continue to keep the DVD-by-mail service going, Netflix would maintain its, its current revenue stream from the DVD rentals. Now, the con, of course, was that the market was shifting towards digital streaming. And the potential for growth in DVD rentals was actually declining. Now on the flip side, if they focus on digital streaming, what was the pros? You know, what are the pros to focus on digital streaming? They'd be embracing this digital streaming process and, and could tap into a rather rapidly growing market, reach a bigger audience, offer more— a more scalable and modern business model, and of course, potentially grow their revenue indefinitely. Now, the con to this would be a shift, you know, it would involve a significant shift, and, and that would produce, of course, upfront costs for content acquisition and building out the proper technology. So what did Netflix ultimately do? I think we all know the story here, right? Netflix ultimately chose to prioritize digital streaming and transition away from the DVD mail service. This decision involved acknowledging opportunity costs, forgoing the short-term stability and the revenue that the DVD rental business created in favor of the potential long-term gains for streaming. And of course, that, that decision was a smart one. Now, I think another company we could talk around that was faced with similar analysis would be Blockbuster, right? We all know the story of Blockbuster. They had to make a decision as well. Blockbuster did have Blockbuster On Demand. They were starting to play in the streaming world, but they had to weigh that against the brick-and-mortar VHS and DVD rental business that they ran. They made a decision quite a bit different than Netflix in that they pulled back because they felt that the opportunity cost in foregoing the brick and mortar was just too great. As a result, they kept the brick and mortar, never got into the streaming game to the level of anybody else or their competition, and sure enough became extinct. That was poor analysis around opportunity cost. So bottom line, acknowledging that there are trade-offs to everything in life, helps us build what I would say is a more satisfactory and realistic model of the world. Everything that we do, every yes we say, every no we say has, has a, has an alternative or has a trade-off in some way. Setting acceptable trade-offs for ourselves helps us to focus better and helps us to make smarter decisions. And in the long run, Making smarter decisions means that we'll go further. So in summary, I think we're all familiar with this opportunity, opportunity cost concept, but I want everybody to recognize that as we're making a number of significant decisions each and every day, we should be contemplating the opportunity cost of foregoing the alternative. We should be analyzing these things. Now, what is the key to doing this? Slow down. Slow down. And I think when you study the best decision makers, the best leaders, what you'll find is that one thing that they do better than most is they slow the process down. They take time and they allow themselves, themselves to consider all different sorts of things. One of which of course is going to be the opportunity cost associated with the different alternatives. So the focusing question for you today, How do you incorporate what we're talking about in today's podcast? How do you incorporate it into your decision-making process? Where can you do a better job, or where can you presently take a step back, do a deeper dive on opportunity cost, see what in fact you're potentially foregoing, and make better, more educated decisions that furthers your progress and your success? That's all I have for you today, the No Days Off Podcast. Thank you so much for listening, and remember, every single day brings a new opportunity to get better. So let's get after it.