I’ve been reading Jack Welch’s book “Winning”. It’s advice about sound leadership practices in business. He was the CEO of GE for 20 years, so he has a lot of experience behind what he writes.

There’s an underlying theme of approaching business as competition between companies, with winners and losers in that competition. I think that accurately reflects reality in free market societies like ours, and it’s quite different than a solely customer-focused approach.

This theme comes through, for example, when he advocates evaluating business divisions and rewarding their managers based on performance compared to the competition, rather than made-up budget targets.

The same theme comes through in his proposal of a simple strategic planning process that analyzes one’s business and the competition looking for a “big aha”, a strategic opportunity to beat the competition with better product, etc., followed by intense implementation of that one thing. For example, in GE’s CT scanner business, the big aha came when they observed hospitals’ frustration with the cost of frequently replacing million-dollar machines as the technology improved. Their strategy was to come out with a line of CT scanners that could have their hardware and software upgraded for a fraction of the cost of a new machine, and this propelled them to the #1 spot in that market. It was one simple strategy.

In line with this, Jack says a mission statement should be a statement of “how we intend to win” in this business. I think that’s a very clarifying idea for any for-profit business.

Knowing your stuff is absolutely essential, but to succeed you need more. I think knowledgeable people have the most impact when they are also people of humility and action.

Last week I had the benefit of talking to a business consultant with experience running businesses hundreds of times the size of mine. After that conversation I found myself thinking about bigger possibilities than I had been able to envision before. I couldn’t think big enough on my own.

Being believed in expands vision. Get around people who believe in your potential, and it will rub off on you. Being outclassed expands vision. Get around people who have been to higher levels than you have, and you’ll be inspired.

Go find those people. It’s your responsibility.

I’ve been reading authors like Seth Godin about how the lizard brain creates so much fear in us, and the wisdom of going ahead with things (like new product innovations) that scare the lizard brain to death.

I’ve also been reading about what causes people to lose a lot of money in business and in markets. Avoiding large losses appears to be more important than having the right analysis or trading strategy. There’s a psychology to avoiding large losses, and it has to do with healthy fear.

I think the lizard brain is right about something here. There is a skewness to risk that we are intuitively aware of.

Risk is skewed like this: There’s such a thing as a permanent loss, but there’s no such thing as a permanent gain.

If a gambler loses all his money, he doesn’t get to play anymore. He doesn’t get the benefit of the next random upwsing, because he is out of the game. This applies even more strongly to sheer physical survival (and this is what our lizard brains are obsessed with). If you are dead, you don’t get the benefit of the next opportunity to pass on your genes. If your business is bankrupt and shut down, you don’t get the benefit of the next big sale that might come along. There’s no upside opportunity when you are out of the game.

But the reverse is not true. No matter how big the gambling win, how not-dead (healthy?) a person is, no matter how large a sale a business just landed, those gains are still subject to downside risk.

As much as I can, I want to avoid risks in life and business that have a measurable chance of taking me out of the game. I won’t make all-in bets on new products or expensive marketing if I have a good, lower-risk alternative. I won’t borrow so much that I might get shut down by the bank if business dips.

Yes, we must learn to use our rational brains to tell the difference between dangers that could seriously hurt us, and dangers that can’t. (Public speaking for example terrifies the lizard brain but falls under the latter category.) But as we evaluate risk in business I think it is wise to account for the skewness that comes from the risk of being taken out of the game. I think the lizard brain is right about that part.

One qualifier: Although non-death losses like bankruptcy can take me out of the game, they aren’t truly permanent of course. The gambler can work and save up some more gambling money. The entrepreneur can raise new funding and try again. So the lizard brain is more afraid of these events than it needs to be. Nonetheless the skewness I’m talking about is real, and I think being taken out of the game, even non-permanently, is a loss worth taking extra precautions to avoid.

When an employee is falling short of performance expectations, the reason(s) fall into only a few categories:

• Clarity: Does the employee know what the expectation is? Does the employee know what his/her current performance is relative to the expectation?
• Character: Does the employee have the personality features and basic life skills required to meet the expectation?
• Competence: Does the employee have the specific or technical skills required to meet the expectation?
• Resources: Does the employee have enough time, tools, people, etc to meet the expectation?
• Motivation: Does the employee have the motivation required to meet the expectation?

Each of these requires a different type of action by the manager. Rather than being vaguely bothered by the situation, get specific and face the reality of what needs to happen in one or more of these five areas.