Your plan only describes winning

Before any big bet, there are two decisions to make. Most people only make the first one.

The first is putting a number on the chance of it working. The second is deciding, in advance, that you could live with losing the lot. Accepting the downside before you start is what takes the fear out of it.

Most plans contain the first decision. Very few contain the second.

Every case in the deck is a version of winning

Open any plan written for a second site, a senior hire, a raise or an acquisition. There is a base case, an upside case and a downside case, and all three describe the business carrying on. The downside case is usually the base case with slower growth.

That is not a description of the thing not working. So the questions that actually decide whether you survive it never get asked out loud. How much of this can I lose. How long before I stop. Who else is holding it with me.

None of that is pessimism. It's the arithmetic that tells you whether the bet is one you're allowed to make.

What pricing a downside involves

• A figure, not an appetite. "We're comfortable with risk" is a temperament, not a number. The number is what leaves the business if this goes to nothing, including the cash it burns on the way down.
• A date you stop. Choose it now, while nothing is committed and nobody is watching. Stopping gets harder every month, because by then there are staff, customers and your own account of why it will still come good.
• Whose money is really exposed. The personal guarantee, the lease in your name, the supplier carrying your terms, the co-founder who put in what they had. Write the names down. Risk you have quietly transferred to somebody else is not risk you have priced.
• The cost of it merely limping. Total loss is rare. The common outcome is a venture that survives, absorbs years of your attention and returns roughly nothing. That one needs a number too, and nobody models it.

Where the loss lands

I have priced a downside badly. The first million arrived when I was 28, and by 40 it was gone.

Since then I have spent years as an owner-operator of serviced apartments and a venue, with full profit and loss responsibility. Those businesses show you where a loss lands. Rent runs whether or not anybody books. The roster is committed before you know what the week will do. The downside isn't theoretical there, and it doesn't wait to be discussed.

I also chaired the board of an ASX-listed company, ran the CEO search and took it through to a relisting. You see the same gap from the other side. A proposal arrives with the return modelled to a decimal place, and when you ask what happens if it does not work, the answer is usually a sentence rather than a number. The ones worth backing are the ones where somebody has already done that arithmetic and is not frightened to read it out.

Eighteen years and five businesses built and sold, and the ones that hurt were not the boldest. They were the ones where nobody had agreed in advance what losing would look like, so nobody could tell when it had started.

This week

Take the largest commitment sitting open in front of you. The lease, the hire, the second site, the money you are about to accept. Before it is signed, put two numbers on one page: the most you lose if it fails completely, and the date you would walk rather than fund it again.

Then say both numbers out loud to whoever carries them with you. A co-founder, a partner at home, the person whose name is on the guarantee beside yours. If you can't say the number to their face, you have not accepted it, and a risk you have not accepted is one you will keep paying for long after you should have stopped.