18th July, 2021
Doubt is not a pleasant position, but certainty is absurd.
It's important that we don't confuse risk with uncertainty:
If we know how to do something, but don't know if we can or will, that's a risk.
If we don't yet know if that thing is even possible, that's uncertainty.
Investors in early-stage companies often spend a huge amount of time and effort trying to understand the risk they think they are taking. This is sometimes called "due diligence".
It's tempting to think that if we just do enough work and ask about all of the things that could possibly go wrong, then we can eliminate all of these risks.
But that never happens. There are always questions that we're not able to answer. There are always things that are just uncertain.
In this case I think it's useful to be explicit about the leap of faith.
In other words, articulate exactly what we believe is possible, without evidence.
All investment is speculation. The only difference is that some people admit it and some don’t.
— Gerald Lobe
If we can describe this uncertainty it allows us to be much more honest about what we know, what we don't know and the specific things we need to do to close that gap.
Everybody involved in an early-stage venture can use this technique. If you're a founder seeking investment, don't wait for others to do this work. Be explicit about the leap you're asking investors to take. Spell it out. I've found it's a great way to separate those who believe that you can do it and those who are likely to waste a lot of your time while they try to prove it in advance. I suspect the reason very few founders ever do this is because they think that investors want them to pretend they are certain.
Even after we've identified the leap of faith we will sometimes still feel tentative. In that case, another question we can ask is: What are we waiting for? Or put another way: What do we need to know before we would commit (or decline)?1
Often just framing it that way highlights that we're asking for something that is not going to be clear until much later. Rather than wasting energy on that we can instead think about the smaller things that we can do immediately to start to resolve that uncertainty.
Making sure that everybody understands the leap of faith in advance continues to pay dividends even after the investment is confirmed, because it gives everybody a clear thing to constantly test and track: Do we still believe?
If the answer is yes, then what's the next thing we need to do to get closer to knowing? If the answer is no, then it's time to stop and make different plans!
We mitigate risks by understanding them in advance and thinking about how to avoid them.
We mitigate uncertainty by understanding what we'll do if we're wrong and by asking "What is Plan B"?
This present moment
to become long ago.
— Gray Snyder
This present moment
used to be
the unimaginable future.
— Stewart Brand
A few years after Trade Me was sold, I bumped into somebody who started there shortly after I had left. I asked them how it was going. They complained that the culture was changing. The implication was that it was no longer as enjoyable to work there as it had been previously.
I couldn't help but chuckle and tried to explain to them that right from the beginning the company had only ever changed, and I expected it to continue to only ever change as the company got bigger and more mature.
Growing really fast isn't a natural state for a company. And as a result it's always fleeting.
Actually, if you think about it, most things that grow really quickly are bad things - cancers, viruses, wildfires.
To keep fast growth under control and make it a positive experience requires careful curation and constant attention. It doesn't just happen.
If you're lucky enough to work on something that is in that mode, try and appreciate it in the moment. It's difficult, maybe impossible, to see it when you're in the eye of the storm, but those are the good old days you'll look back on and reminisce about.
You're not stuck in traffic. You are traffic.
Occasionally, in a moment of weakness, I listen to the traffic report on the news. I always wonder what those stuck in congestion imagine life is like outside of the bigger city where they live.
New Zealand is often condescendingly described as a small island a long way from anywhere.
Is it, though?
When you overlay them against other more recognisable land masses, Te Ika-a-Māui and Te Waipounamu are revealed to be much larger than most people realise.
e.g. (using The True Size)
East Coast of United States
UK & Europe
Japan & South Korea
So, we're not small at all, just very lightly populated (at least compared to all of those examples).
What do all of those people living elsewhere imagine life is like here? I reckon they are a lot like Aucklanders stuck on the Southern Motorway in the morning rush hour.
We're not a long way from anywhere, in the middle of nowhere, unless you believe right here isn't somewhere.2
I wish we would lean into this. Rather than resigning ourselves to the "tyranny of distance" (why should it stop me?!) how could we re-frame this to highlight the advantages?
Here is one idea...
Our tiny population means that the normal theory of six degrees of separation breaks down completely. In the "team of five million" the number of connections you need to traverse in order to get in contact with anybody is typically much smaller - maybe two or three at most.
Metcalfe's Law (“the value of a network is proportional to the square of the number of people connected to the network”) would suggest this is really valuable.
It makes us more open and accessible, less likely to be locked away in our own gated communities or stuck out of sight in a negative situation we are unable to escape. Those who might be inclined to hide can't do that for long, and those that need help are not so easily ignored.
It makes us less reliant on the social cues that are vital elsewhere - like where you went to school or what job you have - because you can just ask others who know and quickly find out what somebody is really like.
And, it encourages good behaviour. Anybody who is a dickhead can reasonably expect to get exposed pretty quickly.
Of course, those things are not universally true. We should all be motivated to try and preserve and extend them to everybody, because it's one of the things that makes us unique.
What are the other competitive advantages we get from being geographically isolated and sparsely populated? I have one more idea, which I'll write about next week, but I'd also love to get your suggestions. Let me know...!
Top Three is a weekly collection of things I notice in 2021. I’m writing it for myself, and will include a lot of half-formed work-in-progress, but please feel free to follow along and share it if it’s interesting to you.
Sometimes the answer is: “all of those things are already true”, in which case we're just procrastinating for no good reason.
Last week I wrote about the difference between "we" and "they". This was really highlighted this week reading the Australian media response to a new wave of COVID lockdowns over there - just count the number of references to "the government" assumed the people making decisions (or deferring hard decisions) were “they” rather than “we”.