Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand: your task is the same. (…) I don’t believe in statistics. I believe in calculus. Ben Horowitz, The Hard Thing About Hard Things
Average equity analysts love to attempt to model reality into bear-bull scenarios. They assume growing an additional two percent a year or increasing 100bps of profit margins is as easy as typing a few inputs on Excel.
Curiously enough, they cannot properly anticipate or calculate the odds of the few relevant outcomes - the infamous fat tails. Yes, the world is probabilistic, but the business world doesn’t really welcome probabilistic leaders.
Companies ought to survive and aim to thrive, regardless of pre-conceived scenarios. Leaders must engineer their way out of problems and find answers to grow and be profitable. When there’s too much at stake, failure is not acceptable, even if it’s a theoretical possibility.
Although probabilistic thinking is essential to the investment business, as it implies acknowledgement and respect for the effects of randomness and luck, it’s less useful when looking at (growing) businesses and understanding how ambitious leaders think and manage. They need to be deterministic.
Anedoctally, at a recent deal roadshow, when asked a founder the possible missteps of his business plan and how he planned to mitigate these risks, he bluntly replied: “We don’t deal with the odds of failure”. His mind worked like a 0-1 switch, marked with either success or defeat.
Innovative leaders usually keep their focus on executing, effectively “doing” and looking for what could go wrong, so the business never does. If they focused on the chances, they would have never started a business in the first place.