As your team’s innovation abilities develop, your appetite for risk will likely increase, but the total amount of risk being undertaken needs to be understood at all times.
Carefully chosen innovations will provide average returns to the upside. It’s like gambling, but in this case you are the house. They say the house always wins, but of course this is not true. It is more accurate to say that the house wins on average. A poorly managed gambling house can be ruined by taking on too much risk at once, even if the odds are its favour.
Elon Musk’s company SpaceX came very close to being ruined by an early string of rocket failures. Launching rockets is a risky enterprise and SpaceX compounded this risk by committing to its rockets being reusable. The gamble paid off – barely.
I plan to do a post on the innovations in the development the F-14 Tomcat fighter jet soon, but for now I’ll share this gem from Youtube:
Northrup Grumman VP Mike Ciminera describes the evolution of the F-14 design in three stages. First, a new airframe was introduced. Then new engines. And finally new avionics. This segmented the risks over time.