Harvard’s Judgment Professor: The Curse of Optionality and One Habit That Builds Better Judgment

In this Part 2 episode of Motley Fool Hidden Gems Investing, Motley Fool contributor Rachel Warren speaks with Reza Satchu, Harvard Business School senior lecturer and six-time founder, about:

• His three-word framework for spotting real conviction versus hype (authenticity, momentum, inevitability)
• Why capital allocation is the sharpest test of a CEO’s judgment
• His biggest regret as a founder (waiting too long to fire people)
• The “curse of optionality” that keeps talented people from ever committing to anything.

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A full transcript is below.

This podcast was recorded on Sept. 20, 2026.

Reza Satchu: My biggest mistakes have been waiting too long to fire people, like no question. It’s not just what you think; it’s not just that that person is underperforming and you can replace that person with a higher performer. There’s something much more sinister when a founder or leader accepts underperformance, which is that it massively, negatively impacts the entire culture.

Rachel Warren: That was Reza Satchu, Harvard Business School senior lecturer and six-time founder on the hardest lesson of his career. I’m Motley Fool analyst Rachel Warren. Last week, in Part 1, Reza and I covered why judgment beats intellect and the age of AI, whether judgment can be taught, and his billion-dollar walkaway deal in student housing. This week in Part 2, we’ll get into what it actually takes to raise capital without fooling yourself. Why capital allocation is the sharpest test of a CEO’s judgment, the curse of optionality, and the single habit that Reza wants every investor to build to train their own judgment muscle- we hope you enjoy.

You are both a serial entrepreneur as well as a founder, investor. What are some of the hardest lessons you’ve learned as a founder?

Reza Satchu: I will tell you, it’s not even close, and it’s a harsh thing to say, but it’s just my truth, which is my biggest mistakes have been waiting too long to fire people, like no question. It’s not just what you think, it’s not just that that person is underperforming, and you could replace that person with a higher performer. There’s something much more sinister when a founder or leader accepts underperformance, which is that it massively negatively impacts the entire culture, which is suddenly people are, he’s not holding everyone to the same standard. But of course, firing someone is a hard thing to do you don’t want to do it. Every time I fire someone, I remember look in their eyes, I remember thinking about their family, I remember the part I would have played in it, that I misjudged the role or the hire or whatever it may be. It’s something that’s very painful, but it is so necessary, and the cost of not doing it and waiting is far greater than I think most people calculate it to be.

Certainly, if I think about my greatest mistakes it’s been waiting for perfect information to make an obvious decision when it comes to firing, not wanting to deal with the difficulty of firing someone. As I said, it’s not just the singular person’s performance, it’s the cultural impact of that. Look, this obviously falls under a broader bucket, which is human beings have an instinct to wait for too much information before they make a decision. But I think when it comes to firing, I’d say, my personal view is I’ve waited too long on those. Oftentimes, I’ve waited too long to pull the trigger on people who on paper looked perfect. Meaning they looked great on paper and so you just were like they’re going to figure this out. Oftentimes, my world is founding businesses, but I’ve hired lots of people from larger organizations. Not always, but often, they’ve had a very hard time working in a more resource constrained environment.

Rachel Warren: Interesting. Going back to this idea of storytelling, it’s obviously vital for raising capital. But it can be a bit dangerous in some cases, if leaders or company leaders starts believing their own hype. How do you assess whether a leader possesses, say, the intellectual honesty to separate their grand vision from a current operational reality whether that’s the business, the industry, both?

Reza Satchu: Let me take both sides of it, let me say, what does it take to raise capital, what are the traits that it takes? How do you as an investor make sure that you’re not being hoodwinked by it? I played both sides I hope I haven’t hoodwinked anyone, but I’ve seen both sides of it. Let’s just say I have three words I use, and this is specifically for founders, but I think you can extrapolate it for others. As to when you’re raising capital, what you need? The first thing you need is authenticity. No one’s going to give you their money if they don’t trust you. Meaning, you can’t pretend to be someone else, you need to be authentic.

Two is you need to have momentum. There needs to be things that are happening fast and people can see that there’s action and you’re getting customers or whatever it may be, the third one is perhaps the most important and the hardest, especially for a founder, is you need to convey a sense of inevitability. Authenticity, momentum and inevitability. What does inevitability mean? Inevitability is not arrogance, what inevitability means is that you believe in your heart that this business is going to fly with or without whoever you are pitching. Meaning you have a mindset, which is not that you are begging for money, but a mindset that you are the prize and that you’re giving your investor an opportunity to make money and that effectively this is inevitable. But now to your question, you can imagine why that could lead to someone pitching something that that framework can lead to nefarious behavior. What I’m always looking for, so I do think leaders should have those three traits.

Meaning, I do think if you’re going to ask people for money, you better believe that it’s going to happen. If you haven’t convinced yourself, that’s a problem. What I’m looking for is a sense of humility if within that inevitability framework. Also what I love seeing is founders leaders addressing the inevitable negatives in their business, like the inevitable risks and starting with that. I love it when a founder are leaders. You don’t lose any inevitability when you do that, frankly, because every business has risks associated with it. What you get as a founder is you get to actually articulate the narrative around that risk. From my perspective, I am always looking for someone because when I get pitched and it’s all sunshine and roses, I’m just this is ridiculous.

But if I’m getting pitched by someone who, yes, believes it’s inevitable, but is also talking about all the competitive threats and the technological issues and how they’re going deal with it and what their plan is, knowing that it might change. That to me, is a much more authentic proposition and for me, feels much more believable because they know what the issues are. Just tell me what the issues are, and let’s figure out how you’re going to solve them because there’s no business without issues. I think I don’t want to make it as trite as lead with the bad news. I would just say that I do respect leaders who articulate in a very clear manner the inevitable risks that they’re facing and take the opportunity to address them and have a real conversation about.

Rachel Warren: I think it was Warren Buffett who once said that capital allocation is a CEO’s most important job. When you look at a leadership teams or a leaders capital allocation industry, history, what is a pattern that maybe tells you they’re playing a long-term game rather than just managing short-term expectations?

Reza Satchu: I think it’s funny because capital allocation at the core is the sharp edge of judgment. Meaning that is where judgment is most shown by a CEO. Meaning when we talk about how you evaluate it, what you’ve just identified is, how is it demonstrated from a CEO’s perspective? There’s no better way for you to evaluate a CEO’s judgment than to see the capital allocation decisions they’ve made. I think you’ve hit on exactly the point as to how we evaluate. What is the metric we should look at if we wanted to evaluate judgment for a CEO. It’s really these decisions around capital allocation, it’s probably the most important decision. I think your point is exactly the right one, which is there has to be a time frame. That is not about keeping my job for the next quarter or hitting short-term results, but much more about how to actually build a business that long-term is going to be a great compound of capital for myself, for the CEO and for his or her investors.

There’s no better way to evaluate judgment than to look at previous judgments that they’ve made. I think the way to look at Rachel is to say, I would ask the question. Tell me what the three most consequential capital allocation decisions that you made that worked and the three that didn’t work? I think through that lens, you would quickly understand, are they thinking about cap allocation from a short-term perspective, from a long-term perspective,. Because if they’re suddenly you’re talking about a capital allocation decision that was measured in months rather than years that tells you something. But I also think that the learnings that they can convey from the ones that didn’t work out are also critically important. I think the thing that you’re hitting on, which I think is very important is let them answer it in a way where they’re evaluating the time horizon. What I’d be looking for is what time horizon are they looking for to measure these decisions?

Rachel Warren: In your own ventures, how have you balanced the tension between conserving cash and aggressively deploying capital into growth?

Reza Satchu: Look, it’s such a tension point. I’ll give you an example, so we talked about the student housing business. The student housing business was one where when we had that offer for a billion and one, and we sold it for a billion and seven, we actually made about $300 million of acquisitions in that year, which ultimately was well worth it because we generated an additional $400 million of equity value as a whole. But we needed to deploy capital quickly in that year to get to that valuation. That’s an example of where we made the right call and we decided to do it. There were international students that were coming in, there was still a spread between student housing cap rates and multifamily that we thought was going to compress, there was massive institutionalization of the student housing market with lots of pension funds, Brookfield, CPP, Tomasi coming in, so there were lots of tailwinds that we thought were going to be helpful to us over the next year or so. Let’s take another story, so a business that I had founded beforehand with my brother, actually, was a storage business, actually, and Kevin O’Leary, the three of us founded it, a storage business.

Look, we did very well, we sold the business for $110 million in 2007, we started in 2003. But I would tell you, we made a massive mistake. We should have kept deploying capital, we had a brilliant idea, we were the first people to do multi-storey urban high household income focused storage, this was in Canada. No one was doing it; everyone was doing single-story in the middle of nowhere, and we had this idea, and we should have tripled down. This should have been a billion-dollar business, but we made an inaccurate decision, which was we thought that we should have taken the money off the table as opposed to deploying more capital. I think what I’d say, Rachel, when I got to student housing, I was I am not going to make that mistake again, I’m going to learn from that mistake and really think hard about this. But I think this is where there’s no science, it’s really a judgment call all the various issues. Storage is an example of one where we made a judgment that I would say is flawed. We did fine, I think we made four or five times our money, but we could have made 20 or 30 times our money in that business. That should have been a billion-dollar business. But we learned, and in student housing, I think we calibrated the risk appropriately. Now, like in anything in life, it could have gone the other way, but it was the right decision based on the factors return.

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Rachel Warren: There was an HBS case study session you did with Tim Ferris where you focused on the curse of optionality. I wanted to ask you about that. This idea that having too many paths forward can cause analysis paralysis, talked me about.

Reza Satchu: Look, I talk a lot about this in my podcast, The Founder Mindset, where you invariably see the folks on my podcast, whether it’s everyone from Reese Witherspoon to Mark Cuban to Michelle Zatlin. What you see is ultimately the impact that they’ve been able to have; the impact that every human being wants to have has come about because they have committed to a certain path. They’ve shut off a bunch of options. I started thinking a lot about the curse of optionality because here at Harvard, you have these students who collect gold stars for a living. Literally, they’ve gone to Stanford undergrad. They worked at Goldman Sachs. They then go to Cake Yard, then they come to HBS. Literally every box is checked. Many of them, you meet them, and you’re like, “Wow, I can’t believe.” You were born to a single mother in Birmingham, Alabama, or you were born in this family in India, wherever it is, and you managed to get to Harvard Business School. The trajectory was so steep. It was so improbable. Then you come to a school like this and you do entirely probable things. You go take a job at McKinsey, or you go take a job at Goldman. You take these jobs that are entirely available to our students.

Of course, the reason that’s happening is because they’re just preserving options. They’re preserving options. Because they’re like, “Well, we’ll commit to something in the future.” This just allows me to learn more, see different things, and at some point in my life, I will commit to the thing that I really want to do. It actually raises a much broader societal point, Rachel, and I’m actually writing a book about this, which is, I think, there is a massive existential risk to our society, which is that people view commitment as a sacrifice and not as a superpower. What you are seeing is that forms of commitment are declining dramatically across all all of our lives. There’s a decline in marriage. There’s a decline in people having kids. There’s a decline in home ownership. There’s a decline in people going to church. Whatever the thing is that people used to commit to is declining, and it’s been replaced by options. Most acutely, you swipe left, you swipe right. There’s lots of options at all times. My argument to you is that at the end of your life, and there have been lots of studies.

In fact, Harvard did a study; unfortunately, it’s just of men, but they had 800 men. It’s the longest longitudinal study of happiness over the past 60 years. They tracked 400 men who graduated from Harvard in the 1930s, ‘40s, 60 years ago. No, I guess it would be the ‘0s and 400 men who were in the inner city. There now 550 of them are still alive in their 80s. They said, “To what do you attribute contentment?” By a long shot, the thing that came up was, did I have long-term enduring relationships? Now, the thing about long-term enduring relationships is they all go through crises. It takes commitment. Commitment is this superpower, I believe. It’s the same thing with this curse of optionality, which is around founding, which is, I think, everyone should be a founder. Everyone should have a founder mindset in the age of AI. I really believe that. I think everyone because it’s judgment that we’re trying to build.

Where judgment matters most is when you’re actually stepping into the arena, cutting off other options, and seeing what you’re truly capable of when you commit. I think optionality: every option has value, but what’s being massively underpriced in this world is what commitment does, which is what I say about commitment, Rachel; it’s not just the obvious thing, which is you learn what you’re capable of when you truly commit to something or a path. There’s a second-order thing that happens, and I call it magic. The magic happens when people commit to you precisely because you’ve committed. I can’t tell you how many times I’ve experienced this where the first investor shows up. The first customer shows up. My first employee shows up precisely because they see the commitment from you. It’s a magical thing. What I try to teach at the core is how do you commit to a thing in the face of massive options, because I think it’s through that commitment that you will have the impact that you most want to have.

Rachel Warren: Something that I’ve seen you do on your podcast, In The Founder’s Mind.

Reza Satchu: Thank you for watching it.

Rachel Warren: Asking company founders and leaders to revisit the moments of doubt that terrify. I’ve got to turn that around and ask you, in your dirty building, six copies. What is the most terrifying decision that you had to execute before you knew it would work?

Reza Satchu: My wife has a joke where she says, “Rez, if things are too calm, you blow things up.” I actually, I think it’s a pathology or something, but I will say to you that I actually want a really uncomfortable, uncertain life. Like, I actually crave. Uncertainty and risk. Not because I want to jump off a cliff, but because I’m not arrogant enough to believe that I can have the impact I want to have without taking risks. Like, the equivalent of having real impact and not taking risk is investing in a bunch of T bills and getting S&P 500 returns. It doesn’t happen. I want to just start with the proposition that I think a life of certainty and a life without risk is, in many ways, quite inconsequential. Meaning I think we need to reframe how we think about risk and uncertainty and adversity. It is a good thing, not a bad thing. It is where learning really lies because that’s where judgment is built. I just want to start with that framework, which is I don’t view the crises or the adversity as in the moment; maybe they feel bad, but I know they’re part of the learning and the journey. To be able to generate the resources that I want to have, the confidence, the credibility, et cetera, to have the impact that I want. I start with a mindset, which is, this is going to happen. It’s good. There will be adversity; there will be crisis.

The question is, can I stay committed? How can I respond in these moments? But, look, there’s no question there are moments where there is complete terror. I don’t know if “terror” is the right word, but what I’d say is, as a founder, this idea that you’re ever certain about anything is just not true. Meaning these decisions are like 51 49, 60, 40. They’re not 90, 91. But what you realize is you have a right to recover, and even in failure, there’s real okay. The hardest decision I made was about a business that I started that ultimately failed. I had been investing personally in a bunch of hedge funds.

I was an investor in Pershing Square, Lone Pine, and some very fancy hedge funds. I met a fellow who was an academic who basically was talking about how the best way to evaluate hedge funds, and it married up with my own instincts. We created a company called Stallation. We very quickly raised a few hundred million dollars to invest in the world’s best hedge fund managers. I made a very difficult decision during the crisis to give back the capital to my investors before we had any meaningful redemptions. I did that because I was very concerned about the stability of our partnership. I was worried about our scale, whether we could get. Now, it turned out to be the right decision. I think my investors appreciated it. But you can imagine, from my perspective, it was an incredibly difficult decision because it was a public failure.

Now, what I’ll tell you about failure is it turns out, look, I’ll tell you one last thing on failure, which not only do I think we as human beings overestimate how bad failure is, but I’d also say the market values people who actually exercise judgment and fail. Quickly, one of my colleagues at Harvard did a study where they looked at 5 million data points. They only looked at two types of people, people who went and did traditional paths and people who found it and failed. People who went to McKenzie, Goldman, Google, Amazon, whatever others who found it and failed. Forget about founding and succeeding. Then they grouped them in terms of similar prior historical, educational, and professional experience. What they found was the failed founders re-entered the workforce with 2.5 years of seniority above the traditional folks.

Rachel Warren: Wow.

Reza Satchu: Think of what that tells you. What that tells you is the market values their judgment, even though it was flawed. They valued the fact that they were in the arena, making decisions, feeling the consequences of it, calibrating risk, however flawed, such that they came back into the traditional world with 2.5 years of security. It makes sense to me because even if you’re getting it wrong, you’re building judgment. Your stings are wrong. I think these are important, sort of moments, and certainly important educationally.

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Rachel Warren: Something that you’ve written and talked about what looks inevitable in hindsight usually looks completely irrational in real time. Maybe market the market signal hadn’t formed. I wonder how can one tell the difference between, say, a management team making a brilliant, irrational, but correct bet versus one that might be drifting off course.

Reza Satchu: It’s interesting because, of course, I see it from the framework of a founder. Almost inevitably, when you think about a founder, effectively, what a founder is doing is they’re imagining a world that doesn’t exist today. They’re trying to convince you of that world. Almost everyone can’t see it. It’s logical that they can’t see it because at least if everyone could see it, the opportunity wouldn’t be there. The fact that they can’t see it is why the opportunity is so large. But it often takes one person, the first investor, first customer, first employee to, I say, behave almost irrationally. To actually be the first person to come and join.

The question is, why do they do that? Why does someone how do you differentiate between a founder or CEO who’s a snake oil salesperson versus someone who actually can see something that you can’t see? I think, again, it just goes to this: what I look for is integrity, humility, and then also what I’d call this X factor, which is you can imagine this person, if they’re right, being really right, like being really right. Like they have something about them, where if they are either some combination of lucky and or good, this could have 100X outcome. It’s worth taking a shot. I think in the public context, it’s so interesting because in some senses, you’d say look at their previous judgments to see how they turned out. But we also know that we’re living in such a different world now where things are changing so quickly that people have to come up with new frameworks immediately. Again, I go back to, I’m much. I want you to paint me a vision, and I want to be excited about the vision. But what I really want to do is make sure you tell me what all the risks are and that you articulate them and tell me how you’re going to defend against them in a way that makes real sense to me.

Rachel Warren: As a founder, do you think you have learned more from your successes or from failures?

Reza Satchu: Well, that’s a great question. It’s funny. I think as a founder, you almost invariably have to be an optimist. Because you have to believe in things that others don’t believe in. I focus much more on how things can go right than on how things can go wrong. Because if you focus on how things can go wrong, you will never build anything because almost invariably, as a founder, you are always competing with people, have more resources than you do. More information, more expertise. One of my professors defines it, and I think it’s a great way to define entrepreneurship. Entrepreneurship is a relentless pursuit of opportunity without regard to resources currently controlled. That second half is the critical part, Rachel. Everyone knows you got to be relentless. But the hardest part about being a founder is you’ve got to do it without regard to resources currently controlled. What that means is you are not resource constrained. You’re purely an opportunity, Trevon. What I’d say to you is, to answer your question, I think I remember my failures. I think a lot about them. I hope I’ve learned from them. But I’m in this game to celebrate my successes, meaning or my team’s successes. Here’s what I’d say. I think I’ve learned a lot from my failures, but I remember my successes much more.

Rachel Warren: One final question for you as we draw to the end of our talk together. If our listeners, investors wanted to leave this episode with just a daily habit, a mental exercise, or an actionable question that we can ask ourselves to train that human judgment muscle, what would it be?

Reza Satchu: I’ll tell you, Rachel, and I hope I hope and we talk a lot about this in my podcast, but I really hope this resonates with your listeners. Every one of your listeners can go through life, and we see ideas of things that can be better. Products, services, healthcare, whatever it may be. They’ll look at it and they’ll say, “Wow, this is a problem for me.” I’m sure it’s a problem for others. I can do something here. Invariably, what will happen is they will dismiss the idea, and they will dismiss it because they will think there is surely someone else who has more resources that has thought about this, and I’m not going to spend any time.

What I desperately want your listeners to do, I don’t want them jumping off a cliff into shark-infested waters into this idea. But what I want them to do is what I call “do small sea commitments.” What I want them to do is the next time they get their that idea is take a small step. Not an inconsequential one, one where you’re like, late for dinner, and you stop in to actually talk to the customer or one where you like, miss your flight in order to explore the actual idea. My point is just start trusting your judgment on these small things. The way you ultimately can actually enter into the founder arena and actually jump in is by testing yourself repeatedly. What you might find, and what I suspect you’ll find, and certainly what I found, every business that I’ve built, which have been in completely different industries, have not been born because I have an experience advantage or capital advantage. It was because I trusted my judgment to do the small things to suspend disbelief that other large competitors missed it, but only because I stopped the car, knocked on the door, whatever, and picked up the phone to do the small things. The actionable step is the next time you have an idea, do something small to explore it. And guess what? Nine times out of ten, it’ll be a waste of time. But there’ll be one time out of ten where you’ll be like, “Wow, this is interesting.” Maybe I should take a little more time.

Rachel Warren: Well, I love that. Thank you so much for joining me today, Reza. Appreciate it.

Reza Satchu: Rachel, thank you. Nice to meet you.

Rachel Warren: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against so don’t buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For the Motley Fool Conversations team, I’m Rachel Warren. Thanks for listening, and we’ll see you next time.