Opportunity Cost

Opportunity Cost

The idea of opportunity cost is one that I've been thinking about more recently, driven in part by watching Tick Tick Boom on Netflix. The film is about the life of Jonathan Larson, a musical theatre composer who tragically passed away at 35 years old just before his musical RENT opened on Broadway. Tick Tick Boom focuses on Jonathan writing a different musical, which ultimately doesn't work out. In the film, he's constantly evaluating whether he's making the most of his time and working on the most important things.

Recently I had a conversation where someone suggested that the defining trait of all founders is an acute awareness of opportunity cost: whether they're spending their most valuable resource (time) most effectively. I think there's some truth in this.

Founders and Opportunity Cost

For me, the primary reason that I decided to start Stairway was because I saw it as the fastest way to 1) learn and 2) scale my impact. The thought of having to wait a set number of years to be promoted within a large corporation frustrated me. I've spoken to other founders who share the same sentiment.

The fact that many of the traditional career constraints are removed when starting a company is why certain people are drawn to it, which is very much to do with opportunity cost.

Size of opportunity cost increases as leverage increases

The number of ways people can leverage their time has increased, and these have become more accessible with the rise of the Internet. Tools such as Webflow and Zapier make it possible to launch a website incredibly quickly, and tools like Vercel make it much simpler than it used to be to deploy a web application. Investors are deploying more capital as leverage into tech startups than ever before, and people are learning how to write online to increase their reach.

As a result, companies are growing faster than ever, with several recent examples of companies reaching unicorn status within two years. And we're seeing examples of companies hitting significant revenue with a small headcount as leverage increases too. Therefore, the risk (i.e. opportunity cost) of working on something that isn't working is greater.

Could awareness of opportunity cost lead to reduced focus?

But there are downsides to this too. Too much focus on opportunity cost leads to a lack of focus on what you're working on; you're always thinking about the other thing that could be a better use of time.

This increase in opportunity cost could be why we're seeing a rise in founders investing out of rolling funds on the weekends or running multiple companies at once. For what it's worth, I agree that it can be a good thing for founders to have variety in what they're working on, but that's another post.

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