The Plan B Solvency Rule
Design survival options before uncertainty turns an investment against you
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 5
- Confidence
- 92%
The Plan B Solvency Rule begins with the assumption that uncertainty cannot be eliminated, so a good decision must include a response to being wrong. Before committing resources, define failure conditions, preserve cash or other slack, and specify alternative actions. The reserve is not idle waste; it buys time when markets, technology, or customer behavior develops unfavorably. Plans B and C should have activation triggers so that decision-makers do not improvise under stress or exhaust their resources defending the original thesis. The framework changes the meaning of winning: success is not forecasting every outcome correctly, but retaining enough flexibility and solvency to recover when an initially reasonable investment becomes a loser.
Origin
Extracted from Masters in Business. Janeway attributes the core lesson to his investment-analysis mentor Ed Giles.
Core principles
- 01A winner prepares for being wrong.
- 02Markets can remain unfavorable longer than capital can survive.
- 03Cash and spare resources purchase time for adaptation.
- 04Contingencies must be designed before a crisis.
- 05Survival matters more than proving an original forecast correct.
How to run it
- 1
Define failure conditions
State what evidence would show that the investment thesis, operating plan, or product is not working. Make the conditions observable and time-bound.
Pro tip Use cash flow, customer behavior, and technical milestones rather than sentiment.
Watch out Vague failure criteria allow commitment bias to prolong losses.
- 2
Design alternative paths
Create at least one fallback and one emergency option before the initial commitment. Specify whether each path involves reducing exposure, changing strategy, raising capital, or exiting.
Pro tip Choose alternatives that do not depend on the same assumptions as the primary plan.
Watch out A backup that requires ideal market conditions is not a real backup.
- 3
Preserve survival capital
Keep enough cash, liquidity, or operational capacity to execute the alternatives. Calculate the runway available under materially worse conditions.
Pro tip Treat spare resources as strategic option value.
Watch out Maximum initial exposure can eliminate every later choice.
- 4
Set activation triggers
Decide in advance which events initiate Plan B or Plan C. Tie each trigger to an action and accountable decision-maker.
Pro tip Review triggers at fixed intervals as new information arrives.
Watch out Do not continually move thresholds to protect the original thesis.
- 5
Act while options remain
Activate the contingency before solvency or bargaining power disappears. Preserve the ability to learn, restart, or invest again.
Pro tip Measure success by survival and adaptability, not by avoiding embarrassment.
Watch out Waiting for certainty usually means acting after the useful options have vanished.
In the wild
After Level One’s first customer was acquired and the initiative was effectively closed down, its investors chose between abandoning the company and restarting it. Confidence in scientist Bob Pepper, a rebuilt board, and a renewed focus on carrying data over copper wires supported a second attempt.
→ The restarted startup was later acquired by Intel for more than a billion dollars.
A founder launching an uncertain enterprise product reserves a year of operating cash, defines a six-month customer-validation threshold, and prepares a lower-cost service model. When enterprise sales take longer than forecast, the founder activates the service plan rather than exhausting the company’s cash.
→ The company survives long enough to refine the product and pursue the market again.
Common mistakes
Treating reserves as wasted capital
Cash and spare capacity provide the time needed to react when uncertainty resolves unfavorably.
Inventing the backup during crisis
Stress narrows options and encourages denial, so contingency paths and triggers should be established in advance.
Defending the forecast at all costs
The goal is to remain solvent and adaptable, not to prove that the original judgment was correct.
Is it for you?
Best for
It is best for investors, founders, and operators making uncertain commitments with meaningful downside risk.
Not ideal for
It is not ideal for trivial, easily reversible decisions that cannot threaten survival.
From the transcript
“a winner is somebody who knows what to do when he's a loser.”
“What's the backup plan? What's the hedge? What's the cash in the bank that you the the extra resource that you have that lets you…”
“What's plan B, what's plans to see? What are you gonna do when the world goes against you?”
From the episode
An Interview With Bill Janeway: Masters in Business (Audio)
Bill Janeway