Tuesday, January 29, 2013

How do you deal with uncertainties?

Everything in life is uncertain.  Nothing is guaranteed.  Your idea may have a good chance of working.  Or it may not.  Your brilliant product may take off given a good marketing push.  Or it may not.  The startup that you are working on may be a huge success.  Or it may not.

No one knows for certain that your project will succeed.  No one can guarantee whether your product can find customers who are willing to pay for it.

This raises an interesting question.  How do you know whether your product idea is a dud?  What can you do to test whether your product has a chance of getting some traction?  How do you know how much traction is promising enough to continue investing your time and money?

Simple answer:  There is no answer.  No one is going to be able to tell you whether your extra month of efforts would have made the difference.

Then the only way to deal with this uncertainty is to go backwards from what you know for certain, that is available amount of resources.

Imagine you are walking in to a casino.  You don't know whether you are going to win big on your first hand or your 100th hand.  But you have this great feeling that you are going to come ahead at the end somehow.  You pick out a poker table to sit down.  Then you check your pocket.  How much do you have?  Do you have $100 or $1,000?  If you don't know how much you have and how much you are willing to spend, then I recommend you don't play at all.

Most likely you will know how much you have.  A fixed number.  Then come up with a number that you are willing to lose.  If you are willing to lose everything, then your investment should be everything you have (I don't recommend doing this, by the way).  If not, you should set your limit.  Your promise to yourself is that you will get up and walk away, when you exhaust your limit.

Of course as you leave your table, no one knows the outcome of what-if question.  What if you stayed one more round?  What if your luck reverses and you start winning back your money and you end up winning everything that you had and then some more?  No one knows.  But one thing is certain.  You ran out of your run way.

Same thing should be true with a startup.  When you start investing your resources in a new idea, you should always think about how much you are willing to invest, i.e. lose.  Calculate how much run way you have with available funds (resources).  Set that number before you sit down to work on your idea.

Be honest with yourself.  If you are going over the budget, then call it quit.  Or at the least seriously reconsider the merit of continuing*.  As my boss once said, there is no problem that cannot be solved with unlimited resources.

Your resource is finite.  Start from that certainty.

Don't fall for this one-more-round trap.
Source: http://doubleflypoker.blogspot.com/2012_06_01_archive.html

* Footnote: I want to note that gambling analogy works to an extent for doing a startup, but it starts to break down as you play it long enough.  Unlike poker where your each hand is independent random variable, the more you spend on startup, the higher the chance of getting it work to a degree.  But that does not mean that you have a guarantee to win back your investments.  Play responsibly.

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