Starting something new always involves some risks
In April 2020, the Coronavirus pandemic significantly impacted our lifestyles, society and also our company.
Like many businesses in the restaurant and noodle industries, we faced the possibility that our operations might no longer be viable if we continued on the same path.
At moment, we intuitively understood that the world would not return to its previous state. We needed to take proactive steps to adapt to a new world. As a result, we developed two key strategies:
- Becoming a Manufacturing Company – Leveraging our technological expertise to solve noodle making industry problems, we developed an automatic shelling machine for half-boiled eggs and much more.
- Becoming a Media Company – Using our deep knowledge of the noodle business, we expanded our reach through online events, seminars and noodle (Udon & Ramen) schools.
Despite the inability to travel overseas, we successfully sold noodle-making machines by hosting virtual demonstrations for international customers.
“The Principle of Acceptable Loss,” builds upon the idea that involves estimating potential losses in advance, ensuring they are manageable, and making strategic decisions based on what we can afford to lose.
Understanding Risk in the SERVICE Industry
Risk is an inherent part of any business, especially in the food and beverage industry. We can categorize risks into four types:
RISKS…
TO BE TAKEN
These are industry-specific risks, such as food safety and sanitation. Operating a food business means accepting the possibility of foodborne illnesses and other health-related concerns.
THAT CAN BE TAKEN
Some risks are manageable. For example, hiring an employee on a probationary basis allows businesses to assess their suitability without significant financial damage.
THAT CANNOT BE TAKEN
Some risks are too great to justify. Opening a high-rent store in a prime location without the financial backing to sustain potential competition from larger chains could be an unsustainable risk.
OF NO TAKING ACTION
The biggest dangers is failing to act. Expanding without investing in staff training, for example, can lead to business instability. Avoiding necessary risks can lead to miss opportunities.
Many entrepreneurs avoid risk entirely, fearing failure
However, doing nothing can result in even greater losses. Understanding which risks are acceptable and which are not is crucial for long-term success.
The Principle of Acceptable Loss in Decision-Making
In uncertain periods of times —such as during the COVID-19 pandemic—many companies follow a “Causation” approach: setting goals, creating a plan, and executing it. This method focuses on maximizing returns while minimizing risks. Is the most used in almost all companies in all the sectors in the world.
However, there is another approach: “Effectuation“. Instead of setting rigid goals, effectuation involves assessing available resources and determining what actions are possible based on those resources. Companies who adopt this mindset:
- Acknowledge that unforeseen circumstances will arise.
- Estimate potential losses in advance.
- Move forward only if they can tolerate those losses.
This thinking aligns with the principle of acceptable loss, which encourages making decisions based on what a company can afford to lose rather than what they expect to gain.
The Benefits of Acting Within an Acceptable Loss Framework
Embracing the acceptable loss principle offers several advantages:
- Lower Psychological Barriers to Starting New Ventures – Knowing that losses are within a tolerable range makes it easier to take the first step.
- Reduces the Need for Excessive Forecasting – Instead of trying to predict success, businesses can focus on taking action and learning from the process.
- Encourages Adaptability and Resilience – If an initial attempt fails, lessons learned can be applied to future strategies.
Entrepreneurs who follow this principle see every attempt—successful or not—as a learning opportunity that increases their chances of long-term success.
How to Stay Within an Acceptable Loss Range
To minimize risk while maximizing opportunity, consider these key strategies:
1. Assess the Necessary Resources
Before launching a new initiative, evaluate how much investment is required. Find ways to start small to keep risks manageable.
2. Reduce the Scale of Initial Steps
Start with low-investment actions and take small steps to keep losses manageable.
Convert fixed costs into variable costs whenever possible. For example, while manufacturers invest in machinery and space, service businesses can reduce upfront costs by using flexible or temporary locations to test the market.
3. Consider What You Can Afford to Lose
A company risk tolerance depends on confidence, motivation, and finances. Knowing personal limits prevents excessive risks and ensures steady progress. Different risk tolerance also creates partnership opportunities, allowing companies and staff to balance strengths and resources.
4. Factor in Opportunity Costs
Risk assessment should consider the cost of inaction. Missing opportunities can be riskier than failure, especially if it leads to market loss or competitor advantage. In such cases, calculated risks are the smarter choice.
KEY’s to improve your business
- Experience is the Best Teacher – Taking action, even in small ways, is crucial for learning and growth. Failure is not the end but a stepping stone to success.
- Encourages Efficient Use of Resources – Operating within acceptable loss limits forces businesses to maximize existing assets and minimize unnecessary expenditures.
- Helps Entrepreneurs Prioritize What Truly Matters – Decision-making becomes about more than just profit—it also considers personal values, passion, and long-term sustainability.
Unlike traditional decision-making, which focuses on profit projections, the acceptable loss principle shifts focus to an entrepreneur’s internal capacity for risk. This mindset enables innovative thinking and bold, yet strategic, action.
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Noodle Business
Through our experience at Yamato, we’ve seen firsthand how effectuation can drive success. Many of our customers have used our machines and consulting services to build thriving businesses, expanding into multi-store operations and increasing their production.
Industry leaders such as Mr. Awata (Marugame Seimen) and Mr. Kawahara (Hakata Ippudo) have taken significant risks in their careers, growing their brands into global powerhouses. Their stories demonstrate the power of taking calculated risks within acceptable loss limits.
In the case of our CEO, Fujii ‘Rocky’ Kaoru , transitioned from a stable engineering career at Kawasaki Heavy Industries to entrepreneurship, facing multiple failures along the way. By strategically managing risks and using the principle of acceptable loss, he built a business that continues to support all noodle entrepreneurs worldwide.
Final Thoughts
At Yamato, our goal is to be the infrastructure for your noodle business. Our expertise, equipment, and training programs serve as a foundation for your success.
As we move forward, we encourage you to embrace calculated risks, act within your acceptable loss range, and take bold steps toward your goals. We remain committed to supporting you with valuable insights and resources to help your noodle business thrive.
Let’s make 2025 a year of innovation, growth, and success together!
Fujii ‘Rocky’ Kaoru
