Opportunity cost is such a powerful concept that can both hold you back or propel you in making decisions, depending on your situation.
According to Investopedia, opportunity cost is defined as the loss of potential gain from other alternatives when one alternative is chosen.
Put another way, what you missed out on if you selected another option.
For instance, let’s say you’re considering attending business school and you’re analyzing whether it will be a good investment. A core component of this return on investment calculation is how much getting your MBA will cost. You take into account tuition, rent, books, food, and other costs into your calculations.
But you also should include the salary that you’ll lose out on by not working for two years. That’s a very direct application of opportunity cost.
As an entrepreneur, I think a lot about opportunity cost.
I sometimes think about the six-figure salary I could be making if I had a corporate job. Or whether I should be spending time on another task instead of the one I’m doing right now. Or whether I should spend money on a Subway sandwich instead of that sushi dinner.
Those are kind of negative applications of opportunity cost.
I also believe that thinking about opportunity cost led me to be an entrepreneur, which to me is a very positive application of the concept.
When I was making the decision to leave my job at the Washington Capitals to head out on my own, I thought about the consequences if I failed. If entrepreneurship didn’t go as planned, could I ever find a job as good as the one I had now? Would my boss and team be as great at my next company? Would I be able to break back into the sports industry?
I contemplated long and hard about those questions. But the thought that kept coming back to me was what I would miss out on if I didn’t take a chance, and how I might regret, 40 or 50 years down the road, not taking the leap into entrepreneurship.
The potential opportunity cost of regret and disappointment of not taking a chance led me to be an entrepreneur, and I’ve happily sacrificed all of the other opportunity costs involved.
This is day 7 of my experiment to blog for 30 consecutive days.