Minimize Failure: What’s Your Worst Case Scenario?

My weekly post on Seattle 2.0.

The startup media is biased towards success. Understandably so: it’s the success stories that inspire new entrepreneurs to dream big. Every entrepreneur you speak to appears completely confident they will succeed, but so are their competitors. You know it’s true, but you rarely (if ever) hear anyone say it: if you are working on a startup, you’re probably going to fail.

I get worried when I hear stories of how truly successful entrepreneurs bet everything – how they cash out their 401k, they risk their home, and they max out their credit cards. It makes a great story when the company succeeds (see the Be A Cockroach talk by the founder of AirBnB at Saturday’s Y-Combinator’s Startup School), but what about the entrepreneur who bets everything and fails? They may be just a little upset that they were encouraged to do this. They may be even more upset when they realize they have to return to the corporate life they worked so hard to escape to pay off so much debt.

Do you have a failure plan? Probably not. You’ve been told to have an ‘all or nothing’ mentality when it comes to your startup. You’ve been told success is the only option. That anyone who won’t bet big doesn’t have what it takes. That anyone who won’t bet it all doesn’t believe in what they’re doing.

Dreams and security can coexist. Entrepreneurs can minimize failure by setting up a worst case scenario. If you go to Vegas, do you keep betting until you either win or go broke? No. The best strategy is to set a limit for losses before you arrive at the casino. A startup is a big gamble, and just like a trip to Vegas any entrepreneur should have a predefined limit on how much they’re willing to lose. Will you wager your savings? Your home? How about your marriage?

Those arguing for the all-or-nothing mentality may say “but having so much on the line motivates the entrepreneur to make it work”. I argue that if you know your preset limit, you’ll be just as motivated because you’ll know when you’re running out of time.  Parkinson’s Law says that ‘work expands so as to fill the time available for its completion’. A variation of this law is that spending expands so as to fill the available budget.  Know your budget.

Critics may also say “but investors want to see confidence”. AirBnB was accepted into the Y-Combinator program because Paul Graham was “looking for people that wouldn’t die” (he told the team they were like cockroaches).  If I was an investor, I’d want to see someone who will be realistic, plan long-term, consider all outcome and risks, and not bet the whole company.  Where are the stories of the founders who bet everything and lose?

In addition to setting a limit, an entrepreneur should also actively plan for the possibly their startup will fail. What will you do next?  Will you try again? Will you return to a corporate job? Will you work for someone else’s startup? Based on your backup plan, focus on developing skills and a network so that you’re ready for the next step.

A startup isn’t all-or-nothing. If your startup doesn’t succeed, it doesn’t need to be a failure. The most important thing is the journey and growth from beginning to end. You have control over how things end, both the best and worst case scenarios. With the proper planning you can end up in a better place than where you started, and that’s what matters more than anything.

What do you think? Should an entrepreneur bet everything?



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