Risk – Perception more dangerous than risk itself

Sam McAfee – Risk – Perception of risk more dangerous than risk itself. Find out how to manage risk

I think that one of the things that Lean teaches us is to treat building your company and building your business as a process of learning and learning how to learn. Learning how to build your company as into a learning organization.

The thing about how risky it is to build a business, you know, there’s all these unknowns. You don’t know if you’ll be able to build it. You don’t if people are going to pay for it. Most of those risks—they’re not really big risks. They look like big risks, but they actually can be subdivided into lots of small risks.

So the first thing to do is to look at the overall problem that you’re trying to solve and the things that you don’t know and to break it into as many small questions as you can. That’s reflected in the idea of doing lots of little iterations. So you build something small and you show it to a couple of people, and then you try to get a feel for whether they’re interested for something like that. Or you come up with sort of a proxy service for your product. Maybe instead of building the product, you do something manual that basically gives them the same value.

And you know you can’t scale it as a company, but what you’re testing is, is that something of value? Will they actually pay for you to go and look up recipes for them and email it to them. Later you’ll build an app, but maybe for now you just do this sort of manual thing, see if the market is even there for that value.

So that’s part of the process of taking risks. There’s essentially a large risk and breaking it up into smaller manageable risks that you can solve with a little bit of effort, and see what the answer is, and then feed that back into your process. And then take another little step.

Marzena Kmiecik: To what extent do you actually test the idea and test while you’re in the middle? At what point do you say there isn’t a market out there? How do you take rejection to not sway you away from actual developing because maybe the people are not your audience? Maybe you’re just not asking the right people the right questions?

Yeah, I mean that’s probably the hardest question of all. Because there is no magical answer. And

if anything is hard about being an entrepreneur, it’s really that. It’s knowing when to pivot and when to quit.

And it can be really confusing when… You don’t want to quit too early. There’s something about being an entrepreneur when they talk about it during the Steve Jobs biography, about the reality distortion field. He’s sort of famous for that sense that you’re so energetic and passionate about the idea that people begin to believe in. so that has a sort of gravitational force in one particular direction that’s moving you towards doing the thing.

Usually, entrepreneurs have too much of that. They’re less likely to give up to early. They’re more likely to go too far. The learning aspect of doing iterations and doing lots of testing and experiments is a countervailing force. So that’s like getting real data that gives you that reality check, that puts a prick in that distortion field bubble you’ve created around you.

And I think it’s really tough for entrepreneurs. And I’ve certainly experienced this as a consultant. Working with clients that were really attached to their idea. Nobody wants to be told that their idea is not good. That’s a tricky thing. You have to have a thick skin to be an entrepreneur. Because it’s quite likely that your idea is not good. Or maybe it’s not the right time, or there isn’t really a market. Or the time has passed. You’ve missed that moat, now it’s time to move on. We don’t  need another iPhone app that has pictures of your dinner so you can share it with your friends. There’s already 30 of those. So you pick another thing.

change-adopt

I think that goes back to the passion, where if you have real passion about solving a problem, it’s likely that it’s more of a larger abstract problem that there isn’t just one solution. It’s not like, oh, I need the perfect widget to address this micro problem. You’re probably concerned about something  bigger. There’s lot of different ways to tackle. And your first product that you build in your company, assuming that it’s successful, maybe even only the first stone in a larger cathedral of successful that your building. And that can go in a lot of different directions.

So it’s important to take everything with a grain of salt. Don’t lie to yourself.  If the data says that there’s no market there, there’s no market. But that doesn’t mean you’re a bad person or you shouldn’t be doing business. It just means, you want to quit as early as possible on that idea and then switch to something else that might work. And that might be some subcomponent in the idea that failed. Maybe it’s still worth pursuing and maybe you pull it out. Maybe it’s for a different market segment. Maybe, like Flickr started as a game, and then they pivoted to be a photo sharing service. So that’s kind of interesting and that comes up a lot.

So you have to be able to look at the data you get and think creatively about how to either move further along to your goal. If you’re just not going to be able to get it, how to develop a new goal out of what you’ve got available. What can you make use of? Maybe there’s some other product here.

Marzena Kmiecik: So do you think in order to be successful, whether it’s a product or service, you have to be very flexible?

Absolutely.

Marzena Kmiecik: What if you’re rigid? What if you’re set in your ways? I mean, there are people who are very successful that are set in their ways.

It’s true. Although I don’t think—I mean, I haven’t seen a lot of examples of rigidity in success as an entrepreneurial. I think you see examples of people that are really particularly good at one skill or one particular sort of job role, and they may climb to the top of that particular role. But that’s not entrepreneurship, that’s not thinking creatively about problems and solutions and markets and business.

Marzena Kmiecik: So that is truly the formula for an entrepreneur? You have to be creative? You have to look around and see problems and that desire to solve them is instant? Is it something that people can train themselves to do? Does it come with you in terms of personalities?

You know, I’m really not sure. I definitely think it takes a certain type of person. I’m not usually in favor of the idea that certain things are natural or un-learnable.  I think most things are learnable. There’s something to be said for a section of the population that is comfortable doing a particular job, not being really interested in uncertainly and risk, and being very good at that job and being very happy and fulfilled in doing it. I think the vast majority of people are employees for someone else and not in business for themselves.

And for those people, I think that there are many cases in which more creativity and more freedom and flexibility can be injected into those jobs, and you get very good results from doing that. I’m definitely in favor of using entrepreneurship as a concept for overhauling regular work too. But as far as actually being an entrepreneur and starting a company yourself, it’s really hard and it’s really scary. And it takes a lot of gunship to do that. And not everybody, at least as they currently are in their mental state and skills they have, are really cut out for it. Maybe it is a learned skill.

I think that if you have an idea that you want to go after and you’re feeling that you’re willing to take a little risk, give it try. Maybe it is for you. There’s really no way to know until you try it.