Opportunity Cost
What are you giving up by choosing this path?
Every yes is a no to something else
Perceive: What Is Opportunity Cost?
Opportunity cost is the value of the next best alternative you forgo when making a decision. It's not just about money—it's about time, attention, and strategic positioning.
When a company decides to use its resources to develop a new product, the opportunity cost is the potential profits it could have earned if it had used those resources to develop a different product or expand into a new market.
The Hidden Cost
Most people calculate the direct cost of a decision. Fewer calculate what they're giving up. The best decision-makers account for both.
| Decision | Direct Cost | Opportunity Cost |
|---|---|---|
| Hiring engineer A | Salary + benefits | Engineer B you didn't hire |
| Building feature X | Development time | Feature Y you delayed |
| Entering market A | Go-to-market investment | Market B timing lost |
Question: Why Does Opportunity Cost Matter?
Resources are finite. Time is finite. Attention is finite. Every allocation closes other doors.
The Inaction Trap
Opportunity cost isn't just about what you choose—it's also about what you fail to choose. The cost of inaction compounds:
- Markets evolve without you
- Competitors capture positions
- Skills atrophy
- Options expire
Strategic Implications
- Focus beats breadth: Doing one thing well has lower opportunity cost than doing many things poorly
- Speed matters: The cost of delay is the value of earlier learning
- Reversibility matters: Reversible decisions have lower opportunity cost than irreversible ones
The biggest opportunity costs are often invisible—the experiments you never ran, the markets you never entered, the people you never hired.
Act: How to Apply Opportunity Cost
1. Make Trade-offs Explicit
Before any significant decision, ask:
- What am I saying no to by saying yes to this?
- What could I do with these resources instead?
- What is the cost of waiting vs. acting now?
2. Calculate the Full Cost
Include in your calculations:
- Time value of money
- Learning and optionality
- Strategic positioning
- Team capacity and morale
3. Use Decision Frameworks
Two-Way vs. One-Way Doors:
- Two-way doors: Reversible decisions. Move fast.
- One-way doors: Irreversible decisions. Consider carefully.
Regret Minimization: When you're 80, looking back at your life, which choice would you regret more?
4. Review Decisions Post-Hoc
Periodically examine past decisions:
- What did we give up?
- Would we make the same choice again?
- How do we improve future decisions?
Checklist
- Have you identified the next best alternative?
- What is the cost of delay/inaction?
- Is this decision reversible?
- What learning do you gain or lose?
- How does this affect future optionality?