People sometimes describe entrepreneurs as risk takers. They see starting a company as a risky activity. Yes, there is risk involved. But, navigating uncertainty rather than being risky is the essential task of the entrepreneur. What to build, how to build it, whom to partner with, whom to sell to, and how to fund growth… these are really tasks laden with uncertainty.
But wait a second, aren’t risk and uncertainty the same thing? Well, actually, no they are not. In risky situations, you know the outcomes and probability the odds of them occurring. In uncertainty, you neither knew the possible outcomes nor the odds of them occurring. In fact, academic research has shown us that the brain processes risky information differently from uncertain information. Risk assessment is a more rational, cognitive approach – evaluating the odds. Dealing with uncertainty requires integrating across both halves of the brain, combining both a cognitive and emotional component – intuiting the outcomes and evaluating their potential.
The challenge for the entrepreneur is to figure out how to manage uncertainty across four domains: Product, Customers, Funding and Team. Even harder, where to focus changes over time. Visually, think about concentric circles of growth, reflecting the various domains of uncertainty to resolve- see the graphic below. At inception, a startup may be little more than a founder with an idea, no customers, and no funding. So, fine-tuning the idea and translating it into a product is the focus for uncertainty reduction.
In the next stage, a startup has started to build a management team, develop an MVP, and engage with customers for proof of concept. But, it probably is largely self-funded or has friends and family for support. This is the MVP stage below and the focus is first on product-market fit (see our post about this topic). It also has to make sure there is enough funding to keep the lights on.
As a startup further builds the product based on market feedback, develops a scalable base, acquires multiple paying customers, and starts to engage more formally with advisors—and maybe even hires its first employees—it may be time for outside funding. See the Launch and Early Growth stage below. Now, the focus on funding takes over while still reducing uncertainty about the product and customers.
It is after these three stages that a startup typically moves into the Scalable Product and Business Model stage which has altogether more and bigger management challenges, but noticeably less uncertainty. You can find out more about these stages and how to manage uncertainty through them, in our book The Titanic Effect. In the meantime, we have a few tips.
What are some best practices for managing uncertainty?
Recognize that the issue is uncertainty. You simply cannot know exactly what is the best next step. It’s part rational and part emotional. You have to get comfortable with not knowing and be okay with it.
Experiment often and fail fast. Startups almost never “get it right” the first time. Experimentation and learning from the results are key. Even Thomas Edison said, “I have not failed. I’ve just found 10,000 ways that won’t work.”
Seek feedback and advice through networking.Whether from possible co-founders, advisors, customers, design teams, or mentors, there is a virtual army of support for every would-be entrepreneur. Find a tribe to support you.
Make stage-appropriate decisions. Whether allocating equity, seeking funding, contacting prospective customers for feedback, building wireframes, or growing your team, moving too early or too late can create problems. We cover how to navigate Oceans of uncertainty (Human, Marketing and Technical) in more detail in the book.
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