Experimenting vs Predicting

January 11, 2017

I am more inclined to invest in entrepreneurs who excel at experimenting rather than excel at predicting. I acknowledge the irony of writing this on the heels of posting a series of tech predictions for 2017.

Let me explain.

The act of making predictions is fun… and invaluable. It’s a prerequisite that entrepreneurs form a view of what’s going to happen in a particular market and build a company toward that vision (similar for VCs, by the way). Smart people are capable of thinking critically about their environment and accordingly, are good at making educated guesses about the future. While even the most brilliant minds are often wrong, they’re right often enough to make a difference.

The principal dangers with predictions are two-fold: i) wasting too much time ruminating so as to impede action (analysis paralysis); and ii) holding too steadfastly to our worldview while the market evolves. Changing our view means admitting we made an error. It’s a failure of sorts, and we’re wired to abhor being wrong. So we dismiss disconfirming evidence and embrace data that reinforces our view.

Meanwhile, as time progresses, the cost of reversing course increases. The stakes rise.

Experimentation, in contrast, has the expectation of failure baked in.

Adopting a mindset of experimentation is difficult because experimenting means admitting we don’t have all the answers. It means embarking on a series of paths where failing or reversing course will be necessary on multiple occasions. It means positioning ourselves to be wrong at some future point.

I submit however that experimentation is one of the most important habits of entrepreneurs, especially for those operating in a fast-paced sector like technology. Predicting the direction of change is one thing, but predicting the speed and specific form in which it arrives is impossible to do reliably.

By valuing experimentation, entrepreneurs are recognizing the complexity of social-technological-economic systems. Conducting a collection of small-scale experiments is the most efficient way to identify the best solution for the challenge at hand: be it related to product, pricing, positioning, business model, etc. Each failed experiment becomes an opportunity to learn, when the stakes are low, and enables the company to allocate more resources to the experiments that are working.

Entrepreneurs should espouse a culture of experimentation in their startups. In turn, their investors and boardmembers should foster an environment in which the founder feels safe to experiment and is not crucified for the inevitable missteps.

 

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posted in venture capital by mark bivens

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