At lunch the other day Phil Wickham, CEO of the Kauffman Fellows Program, shared bit of insight with me that has stuck in my head. Our conversation turned towards the economy, as most conversations do these days, and how VC firms and entrepreneurs are responding to the uncertainty and deceleration. As I talked about managing risk and developing alternative strategies, Phil came out and said that Silicon Valley culture is not compatible with the strategy of hedging risk.
To use the tried and true surfing analogy, entrepreneurs are like surfers. They are out there to catch a powerful wave (market trend) and ride it to rapid growth without wiping out - and the bigger the wave the more powerful the ride and the more dangerous the wipe out. So what happens to a surfer who is not 100% focused on catching the wave, and instead is thinking about what would happen if they fall or the other surfers who are in their line? They usually wipe out.
And it is the same with launching a start-up. Unless a team is 100% focused on catching that wave, they will likely fail.
So how does this apply when our industry is in the doldrums and people don’t see any big-waves on the horizon? The strategy is the same. We may not be able to see the waves now, but they are out there and when they do start rolling in teams need to be 100% focused, or they will wipe out trying. Getting a team to stay focused in an environment where sales are below plan, cash balances are shrinking, and friends are getting laid-off is easier said than done. So what can you do? Quantify the risks, put together a new plan, and let the team know what to expect.
Getting back to the idea of hedging and distraction, the goal is not just to reduce the uncertainty, but to actually reduce the number of perceived choices. Too many choices creates distraction, creates unhappiness, creates failure. So a manager who can reduce the energy spent contemplating choices will have a happier team that is focused on catching the wave and prepared for success. This lecture by Dan Gilbert, a Psychology Professor at Harvard, summarizes the point better than I can.
Over the last few months CEOs at my portfolio companies have welcomed the opportunity provided by the economic slowdown to re-evaluate and re-forecast. Heads were up, assumptions were questioned. But now it is time to put heads back down and prepare to ride that big wave when it rolls in!
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