Monday, March 12, 2007

Should I take the plunge?

Those who wish to start a company face a big question: should I take the plunge? I've seen many struggle over this question. I think a lot of times they're hoping to get one more piece of information that will help them feel comfortable with the risk level before they take the plunge. The problem is, when they get that piece of information, a lot of folks identify another important question they'd like to answer before they'll actually take the plunge.

A few articles I've read in the past year offer a different way of looking at the problem. One from HBR suggests that a company shouldn't necessarily go after an opportunity with a defined strategy but should expect to run experiments along the way until they figure it out. Internally the company should organize as a portfolio of experiments, experiments designed to obtain the information needed to define the strategy.

While that's advice for a large corporation, it applies to the lone entrepreneur as well. Basically, rather than holding back on taking the plunge, recognize that in order to get the information you need to feel more comfortable you'll need to commit some resources--your time, effort, money, contacts, reputation, etc.

It's definitely a good idea to seek out the information needed to secure commitment from other stakeholders (e.g. visionary customers, investors, early employees, etc.). But it's important for the entrepreneur to recognize that obtaining some of that information will require running some experiements and that will require the commitment of some resources, in other words taking the plunge.

Another way to look at it is to structure 'taking the plunge' in phases. You say to yourself, "I'll test x, y, and then z. If x pans out, I'll put in some of my own money to test y. If y pans out, I'll put in some more money to test z. And if z pans out, I'll quit my day job, and figure out the next set of experiments, without really knowing what those ought to be right now."

Some folks in the entrepreneurial community talk about 'the engineering mindset' that has to be overcome in order to pursue an opportunity in the absence of information about viability.

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