If you are gluten free (or vegetarian) and you ask the waiter to make sure there is no gluten (or meat) in your food, what is the probability that it will meet your dietary need? What is the probability that it won’t have any wheat (no soy sauce, no crackers, no breading, etc) or no meat (no fish, no oyster sauce, no chicken, etc)? It’s not 100% for sure. There is some probability that the waiter will understand what you mean when you say “gluten free.”
This is the problem of certainty. We think about the world as fixed. When Lance Armstrong won the Tour de France everyone thought he had won and that was that. But it turns out he didn’t. His medals were taken away. The world has much more uncertainty that we like to believe…. But how much uncertainty? If you were to bet your friend on whether your food is going to come back gluten free, what odds would you give? If the odds are really bad (let’s say 10% chance the waiter gets it right) then perhaps you need to carry around a roast chicken just in case wherever you go so you don’t go hungry. Lots people people get probability wrong in their business. What is the probability that your COO quits tomorrow. Or gets hit by a bus? What is the probability that one of your C-level executives quits or needs to be fired in the next year? Probably pretty high, but you might not have a plan for that. Let’s organize probability into operation and creative risks. What are the chances that a startup succeeds? Depends what you mean by success, but VCs typically expect only 1 in 10 investments to do really well. And to make those 10 investments they had to interview 100-1000 companies. So startup success let’s say is 10%. This is what I would call a creative risk. What are the chances that your plane is going to leave roughly on time? About 90%. Sometimes flights are substantially delayed or cancelled but usually it’s pretty reliable. This is what I would call an operational risk. If there was only a 10% chance your flight would leave on time then it would be hard to plan your vacation. “Look there is a 10% chance I’m coming to your wedding…” So we can put these risks on a spectrum. Maybe you’ve heard of 6-Sigma. Its a manufacturing philosophy with the aim that 99.9999% of products meet the quality standard, meaning that products within 6 standard deviations of the mean (6 sigma) are still accurate. It's a mental model that works for operational risk. It doesn't work for creative risk. On the other hand we have extreme creativity. What is the probability that any given chemical will be useful for fighting a condition? It’s really low. In pharmaceutical labs they have thousands of compounds in thousands of test tubes to see if any of them will react with their target. After testing thousands of compounds they may get one drug approved. If they are lucky. Related aphorisms: Don’t put all your eggs in one basket. Belt and suspenders.
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## AuthorKyle founded Grant&Co after running a biogas company in Kenya for 5 years. We raised a lot of grant capital there. And now we help other entrepreneurs raise capital. ## Archives
October 2020
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