By Jack Hoey

Some years ago I read a book called The Money Masters by an investment writer named John Train. I remember it because Train’s main conclusion was a real surprise to me. The most important thing that successful investors learn to do is: Preserve your capital. Small losses are an inevitable part of investing, but you must avoid the wipeout.

I had eagerly looked forward to learning the secret to multiplying money, but I’d expected the key finding to reflect a positive trait rather than a negative one. All of these investors produced huge fortunes; to conclude that the key trait they all shared was a conservative one seemed counterintuitive.

But Train studied many investors who succeeded spectacularly for a time, then lost everything. These investors were more likely to make bets that enabled them to earn huge short-term returns, but only by taking risks that, repeated often enough, were bound to produce huge losses at some point.

I sometimes am reminded of Train’s insight when I read about innovation. I enjoy reading stories about men and women whose blazing insight visualized and created entire industries. But for every innovator, there are dozens of equally persuasive visionaries who failed to bring their visions into being and lost everything.

The truth is that most innovation is the accumulated effect of many small incremental gains. Gaining knowledge is usually achieved through experimentation, and the more you experiment, the more you learn.

Have an idea? Test it on a small scale before you invest heavily in it. Most experiments fail, so keeping their cost low is important. You should never invest so much in a single experiment that its failure would threaten your company’s survival.

Keeping the experiments small doesn’t mean that the impact will be small. If you are constantly trying new approaches, some of them are bound to succeed. And those that succeed can be built upon.

Several years ago, one of my employees told me we were missing an opportunity in a certain market niche. She was knowledgeable about the market, and her idea was obviously worth exploring. We identified a way to collect data that would help us learn more about the size of the opportunity. As we looked at that data over several months, we felt it justified a small investment in equipment that would enable us to offer limited services. When that step paid off, we took another.

Six years later, that department’s output accounts for 20% of company sales, and is our most profitable segment. While we never had a grand strategy, we have constantly taken small steps to meet needs that we saw in the marketplace, building on successful steps we took.

It’s not that a small step is better than a big one, but they do have some advantages. Considered in the aggregate they are less risky because you diversify your future opportunities; you have a higher likelihood of achieving success somewhere than if you only make big bets, which because of their cost can only be made at long intervals of time.

Best of all, the discipline of constantly taking small steps produces a steady stream of opportunities. Whether markets are going up or down, you always have an opportunity to grow.

And it’s harder for your competitors to match your offerings. By the time they’ve copied a new product, you’ve already introduced a new one.

 Sometimes the only way to explore an alternative is to do so in a big way. Occasionally that’s due to the nature of the opportunity; sometimes it’s because a company’s back is against the wall. When that’s the case, small steps may not save you. On the other hand, a process that continually generates innovations creates the best chance that you’ll never find yourself in that position.

Jack Hoey is president of Coastal Glass Distributors, a leading glass fabricator based in North Charleston. He can be reached at jhoey@coastalglassdist.com.

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