Entrepreneurs: Learn from the averages, don’t succumb to them

Keith Schacht| December 26th, 2013
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As an entrepreneur you spend a lot of time telling other people about your business. Early on you do this to learn—you solicit feedback from people smarter than you—while later the feedback may be unsolicited. But regardless, there is a common pattern in the feedback that you will hear from people who are outside your business. It is is important to identify this pattern or you risk drawing the wrong conclusion from it. Here are the telltale signs:

“Companies in your space need to …
“Given the stage you’re at, you should …
“No one with your background has ever …

When you’re talking with wise people, these statements are generally true so it’s worth listening. But they are also admissions of ignorance and you must treat them as such. These are attempts to draw a conclusion about your business based on a general pattern you seem to fit. It’s a form of statistical thinking.

Statistics are generalizations about the world which are helpful when you are ignorant of the particulars. As soon as you have knowledge of the particulars, the generalization is mostly useless.

For example, if you find a lump in your neck and you go in for a biopsy, while waiting for the results your doctor may tell you there is a 90% chance it’s cancer based on its size and location. But as soon as the biopsy results come back negative, the lump is not cancerous, now the statistic is irrelevant. It’s still true: 90% of lumps of this size and in this location do turn out to be cancerous. But the cause behind this pattern is unknown which is why it was possible for yours to be an exception.

In business, just like in medicine, it is helpful to understanding what the typical outcomes are for people who have already walked the path you’re heading down, but only while you are ignorant of the underlying cause which determines where you will fall in the range of outcomes. Want to predict your net margins? Look at competitors in your space. Want to budget for hiring a senior engineer? Talk to startups who have hired similar people and learn the typical salary. Want to evaluate a term sheet from an investor?

But if you plan to change the world–to achieve something no one before you has. Then you need to figure out ways to achieve a different outcome than those who have ventured before you. Understanding typical outcomes is a starting point, not a constraint. Most people who give you advice about your business will treat them as laws of nature and think you are naive for thinking they don’t apply to you.

But you can be the exception. The key is to understand the cause behind the patterns you see. Once you understand the cause and can control it, then historical outcomes are irrelevant.

Find the competitor who has exceptional net margins and understand what they’re doing differently. Or if you plan to be the first in your industry, then look to industries where net margins are in the range you’re targeting and learn how they’ve achieved them. Want to hire a senior engineer but can’t afford the typical salaries? Understand what’s driving the price up. Is it because most senior people are older and have kids? Then reach out to the youngest in the field or find those without kids.

Work to understand what drives the typical outcomes if you wish to be atypical. Do this by learning to ask questions that reveal the cause behind outcomes. And seek out the exceptional cases as key examples to study and learn from.

You can be the exception. Now go forth and change the world.

2 Responses to “Entrepreneurs: Learn from the averages, don’t succumb to them”

  1. [Entrepreneurship Daily] : Issue #6 | Entrepreneurship Daily Says:
    December 26th, 2013 at 7:41 pm

    [...] Entrepreneurs: Learn from the averages, don’t succumb to them Click to read more>> [...]

  2. Joshua Patlak Says:
    January 3rd, 2014 at 9:48 am

    Keith,

    Where can I get one of the black, rollout poles that Zach had in your TED talk?

    Thank you,

    Joshua

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