Say that you’re a venture capitalist who has found some semi-reliable way of categorizing entrepreneurs on their capacity to undertake action with / without first doing a lot of research … which group in the above matrix would you be most likely to back (assuming that they all come to you with equally good ideas, etc., etc.)?
Before I share my views, I want to quickly talk about risk: you see, we have some readers who, I believe, are overly concerned with risk …
… as it happens, I am (by nature) one of them, struggling to overcome my own ‘addiction to fear‘. I’ve done OK, but not without some personal psychological ‘cost’ along the way … nothing serious, just a few extra grey hairs … maybe 10 or 20 years off my life … the usual 😉
One of the ways to avoid risk, course, is to do some research before you take irrevocable action; it’s the old proverb:
Look before you leap!
Coming from my famous 20/20 hindsight, though, I can say that this an overblown theory. The reality is that too much research is just as dangerous as not enough … perhaps more so.
Let me explain …
Let’s say you take on a project and despite years of research before you plunge into it, it fails!
I have only two words for you: New Coke 😛
So, you’re out …
Now, let’s look at somebody a bit more ‘gung ho’ … they jump into one project after another, fail early and failing often … but, in just about the time that it took for you to jump into (and crash back out of) your Well Researched Project they have finally struck gold (after failing 4 times) … 5 times lucky 🙂
Perhaps not as much as you might think …
… you see, venture capitalists work on the Power of 10 Formula; for every 10 businesses that they fund:
- 7 Fail, causing them to lose their entire investment
- 2 return their initial investment, nothing more
- 1 makes it all worthwhile
Despite all their research, VC’s can’t tell in advance which of these businesses would succeed (or, they wouldn’t bother investing in the other nine, d’oh!). What ‘saves’ the VC is action … they act/fail/act/fail …. act/succeed.
So, if we look at people on a scale (in the chart above) of how much research they tend to do in advance of action (or, otherwise), I would much rather back the guys in II over the guys in III; I would almost be prepared to back the guys in II over the guys in IV simply because of their capacity to implement more ideas sooner … in my book, trial and error in the real world produces faster results than any form of theoretical research.
What’s the takeaway?
Get started in something that has a low set-up cost and you can get into the market (and, out of again) quickly … if it succeeds, more power to you. If it fails (as it probably will) you can dust yourself off and try/try again.
Internet businesses are ideal ….