Collins’s (and our) third stage, “Denial of Risk and Peril,” is, yes, about denial, but it’s really about how to decide whether to go forward in a world of ambiguity, incomplete and contradictory information, and inconsistent advice.
In other words, it’s not just about “denial of risk and peril;” that would be easy to avoid if we knew we were doing it, after all. More importantly, it’s also about affirmation of risk and peril and above all about how to decide when and where to affirm and embrace that risk and and when and where (and again, how) to decline assuming that risk. It’s about the circumstances for optimal decision-making under uncertainty.
Collins pivots the chapter around two contemporaneous stories of failure and of success: Motorola’s disastrous “Iridium” global satellite/cellphone network and Texas Instruments’ tremendously successful dominance of DSP (digital signal processing) chip technology.
Many people know only how the Iridium debacle ended, which in and of itself is not informative in the least: “Of course we wouldn’t make that wretched investment again!” Far too pat. What is instructive, as Collins lays out, is how Motorola got to that end point with Iridium. The story began when a Motorola engineer carrying one of their brand-new cellphones vacationed in the Bahamas and found he couldn’t get a signal to call his wife. The notion dawned on him that a globe-spanning satellite network would have solved his frustration. The year? 1985.
Robert Galvin (1922—2011), the son of Motorola founder Paul Galvin and CEO at the time, believed in avoiding “big discontinuous leaps” and instead investing small amounts in a number of little things to see what potential they might have. So he allocated seed capital to test a low-orbit satellite system. So far so good.
The crucial decision point came a decade later in 1996 (Galvin having retired years earlier), when Motorola had to choose whether to launch the 66 satellites that Iridium would require. Note that up until that point the project could have been aborted at minimal cost. And note—more importantly—that the world had changed in important ways since 1985. First of all, cellphone coverage was, if not ubiquitous all across the globe, certainly thick and spreading in any significantly populated region. Cellphones themselves had shrunk drastically in size and price, while Iridium handsets were “nearly the size of a brick,” cost $3,000 to purchase while calls were billed at $3-$7/minute. And the only places in the world where Iridium might be a preferable alternative to conventional cell service were—where hardly anyone lived.
At this point, you might think Motorola’s decision to abort Iridium would be open-and-shut, but since it’s 2016 we know that’s not the course they chose. What on earth happened? I refer you back to the name for Stage 3: “denial of risk and peril.” Five years earlier (after Bob Galvin had retired), Motorola publicly committed to doubling revenue every five years. Iridium was to deliver that promise, and the 1997 annual report claimed that “with Iridium…, Motorola has created a new industry.” It went live for customers in 1998 and filed for bankruptcy in 1999; Motorola reported a charge of more than $2-billion, and careened on towards Stage 4.
Meanwhile, what was happening at TI with DSP chips?