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I had a wonderful time interviewing Larry Gold last night at Entrepreneurs Unplugged. Larry is a special guy and someone I learn from every time I’m with him. Among the many great stories he told, including a doozy about the time he was a sophomore at Yale, he had a powerful one about how entrepreneurs assess potential outcomes. It resulted in a fun version of entrepreneurial math.
Envision a scenario where you there are 10 separate things you need to do to have a successful outcome. Each one has a 90% probability of success. What’s the probability that you will achieve a successful outcome?
I struggled with 6.041: Probabilistic Systems Analysis and Applied Probability (the probability course I took as an undergraduate) – it was one of those courses where I felt like I was a week behind for the entire semester. I did better in 15.075: Statistical Thinking and Data Analysis - maybe I was a little older, it was a little easier than 6.041, or I was more interested because I liked the professor better. If you are having trouble with a quick answer, both courses are available to you on MIT OpenCourseWare.
Back to the question. If you guessed around 35% you are correct. It’s actually 34.87%, which is (.9)^10. Now, by using the word separate, I’m implying 10 independent events, but this is the nuanced joy of theory versus practice.
Larry pointed out with glee that regardless, entrepreneurs believe when they start down the path of doing these 10 things there will be a successful outcome. Hence entrepreneurs math is (.9)^10 = 1.
Whether you agree with the math or not, it’s a great anecdote. So many things that we try as entrepreneurs and investors fail. We never make an investment thinking “this isn’t going to work”; we always invest thinking “this will work.” I don’t know any entrepreneurs who started their business thinking “this will fail” or even “this only has a 35% chance of working out.”
This shit is hard. And it’s low probability. Even if you have an ultimately successful outcome, many of the things you are going to try along the way are going to fail. But to do them, you’ve got to believe they are going to work. You’ve got to enter into the illusion that (.9)^10 = 1.