Second-Order Consequences

How often do you consider second-order consequences when it comes to decision-making? I am going to guess perhaps it isn’t often enough.

Second-order consequences are the ripple effect of making a poor decision. It’s what comes after you didn’t consider your actions.

In your personal life, second-order consequences could come from saying yes to one more drink, getting in your car and driving when you shouldn’t be, and harming someone in an accident. It was the decision to drink more that caused the subsequent negative and possibly catastrophic events and consequences to unfold.

This can happen in your business not only from making poor decisions but also from indecision.

Let’s say you have an ineffective manager on your team, but you’re afraid to let them go. The second-order consequences could be losing other high-performing team members and maybe even customers.

Perhaps it’s around the decision to invest in your own growth and development. You choose not to invest because it’s too “expensive.” Your business suffers because you don’t get the professional development you need to be the best leader of a company you can be.

One of the worst examples of second-order consequences I ever made was when I owned my retail business. I ordered too much inventory, which didn’t sell as quickly as I expected it to, and I was stuck without the cash flow I needed to pay for it.

Every decision you make has an equal effect associated with it. It may be a positive outcome or a negative consequence. It’s your job as a business owner and leader of your company to think through the impact beyond the emotional response of deciding in the moment.

Don’t underestimate the value of taking time to think these things through.

Recently, I invested in a new business opportunity. It was not an insignificant amount of money to be one of the 25 original founders of this business, and there is no guarantee that this start-up will be successful.

I made the decision for one key reason—when I look back at my career I can clearly see that when I started to invest more in myself, and I started to be around other like-minded people who were also willing to invest in themselves, my business really began to grow.

Thus, to me, the investment to be part of this and around these other people in spite of whether this new entity thrives or not, was worth the investment to me.

You can improve your decision-making when you take the time not only to think through the second-order consequences, but also when you think about the past and decisions you wish you had made instead.