In the early part of each new year, experts and opinion leaders in many fields customarily offer their predictions for what will transpire in the 12 months to come. This year, not surprisingly, the predictions have been especially abundant on the political front as prognosticators try to anticipate what will happen under a new — and a new kind of — administration in Washington. Meanwhile in the business world, the usual beat goes on with countless articles and blog posts casting visions for what trends and changes lie ahead for markets and industries.
Of course, the world of venture capital and entrepreneurship is not immune to prediction season, as I was reminded last week at a venture outlook conference for entrepreneurs in Raleigh. The packed event included a distinguished group of very well-respected and accomplished venture investors who were asked to offer their outlooks on 2017. While opinions varied somewhat, there seemed to be general agreement on a slowing of overvalued venture capital investments, an increase in acquisition and IPO activity, and the continued inexorable progress of dogged entrepreneurs finding ways to solve problems and create value. All of which are healthy potential indicators for innovators and investors in the year ahead. In each case, I’m generally inclined to agree with their forecasts.
However, I’ve learned to grow skeptical of trusting my own predictions. My reading list of late has included several books and articles that probe our cognitive biases — including our overconfidence bias — and so I revisited Nassim Taleb’s book “The Black Swan.” Taleb points out that while most of life occurs in that reasonably steady, predictable area in the center of bell curve probabilities, the really impactful stuff happens way out in the tails of the curve — and those things are inherently unpredictable (although in hindsight we think they could have been anticipated — another bias).
In a subsequent book, “Antifragile,” Taleb goes on to explain that since we can’t predict what the truly impactful events will be, nor when they will happen, we can work instead toward positioning ourselves and our organizations to gain from that stress rather than remaining fragile in the face of it. He coined the new term “antifragile” to describe systems that gain from volatility.
As I was listening to the insightful predictions at the venture conference, I was also thinking about the entrepreneurs we work with who, according to Taleb, can’t predict the future — and what they should do about it to help them become antifragile.
Since I too am a poor prognosticator, rather than offering predictions for this year, I’ve chosen instead to offer new and aspiring entrepreneurs some unsolicited advice: Since they can’t predict the future, they should create it.
That’s the essence of what entrepreneurs do, and that’s the lesson from another insightful thinker named Saras Sarasvathy, who has done groundbreaking research on “what makes entrepreneurs entrepreneurial.”
Sarasvathy says that true entrepreneurs don’t have to rely on predicting the future, because they set to work finding ways to shape it. In traditional “causal” management, the process starts with a stated goal (say, 10 percent revenue growth), and then managers marshal resources to meet the target. But in effectual thinking, the entrepreneur flips that logic on its head. The entrepreneur doesn’t start with the narrow goal, but rather begins by considering the means already available to her (who I am, what I know, and who I know) and then experiments with combining those inputs to determine what valuable new thing might emerge.
With a mindset of controlling the controllable, the entrepreneur leans on four additional principles:
- The “bird in hand” principle means the entrepreneur starts to take action with the means and resources available without waiting for the perfect plan or timing.
- Unlike the myth of the risk-seeking entrepreneur who bets it all, the “affordable loss” principle suggests the entrepreneur take incremental steps with limited downside — not risking more than she can afford to lose.
- The entrepreneur also embraces surprises and setbacks, using the “lemonade” principle to turn sour fruit into something more appealing. In other words, he learns to gain from volatility, as Taleb would say — or in the lingo of the day in startups, he is willing to pivot when necessary.
- Finally, instead of spending isolated time analyzing potential competitive risks, the entrepreneur employs the “crazy quilt” principle to weave together partnerships with people and organizations willing to help craft the new future.
In short, effective entrepreneurs are effectual doers.
So therein lies my advice to entrepreneurs and my addition to the litany of predictions for 2017: Predictions will continue to be risky business, and at UCAN and VentureSouth, we’ll be looking to invest in effectual and antifragile entrepreneurs who are creating the future.
(P.S. We’re also seeking more investors to join us in this unpredictable adventure! Learn more at venturesouth.vc.)