Most entrepreneurs are in love with their business plan. They are convinced that what they’re doing will be so profitable that they fail to think about what can go wrong. This can be tragic, especially when you factor the time and energy which they have invested in a company which is doomed to fail, simply because they did not bother to think about potential problems.
This is something entrepreneurs need to be wary of because starting a company can be an expensive affair. It’s not just the opportunity cost of the salary they could have earned if they’d worked in a job – it’s also the emotional energy which gets drained in doing something which didn’t work.
Being an entrepreneur exacts a huge emotional toll. Not only does the founder have to deal with the daily unpredictable ups and downs which characterise a startup, it also puts a lot of strain on your family, because it completely disrupts your work/life balance. Founders need to be single-minded in their pursuit of success, which means they often have to sacrifice personal ties and friendships in the all-consuming desire to create something innovative.
This Is Why A Pre-Mortem Is So Useful
This is a thought experiment, where you imagine that you are five years in the future, and that your startup has failed. You then have to list all the possible reasons which could have caused it to fail.
This might sound like a doomsday exercise – isn’t imagining the possible reasons you could flop a very pessimistic way of starting off as an entrepreneur? Actually, you should do this to improve your odds of success! If you’re aware of all the reasons which would cause your startup to fail, your chance of succeeding become far better because you can prevent these problems.
This is a clever way of doing the needed due diligence on your own project before you actually implement it in real life. The good news is that it doesn’t require much money to do this – all you need is time, imagination, and a framework.
A useful way of coming to terms with reality is to actually pitch your business plan to investors and see how quickly they shoot it down. Now, you might get disheartened when people refuse to fund you but when they say no, they’re actually being quite kind. They can point out to you what the flaws in your company are – something which you may not realise because you’re too enamoured by your idea to be able to see its shortcomings. In fact, sometimes the kindest thing an investor can do is to say no to an entrepreneur, so he doesn’t waste five years of his life chasing mirages.
Now I am not saying you need to obsess about failure. The truth is that if you are aware of how and why you will fail, you will actually increase your chances of success. This is the famous Charlie Munger “invert strategy.” After all, success is the antithesis of failure, and as he says, “Tell Me Where I’m Going To Die, So I Won’t Go There!”
Most entrepreneurs try to model themselves after success stories like Elon Musk and Steve Jobs. Yes, these are inspiring heroes, but the truth is that success is usually idiosyncratic and hard to replicate because it depends upon so many factors which are completely out of your control. You need to be in the right time at the right place, and luck plays a huge part in success – and this is not something you can control.
However, the reasons for failure are usually the same – you run out of money, or you run into people problems, or you are not able to execute because the market is not ready. If you take the time to think this through, your investors are more likely to give you money, because they can see that you are aware of the risks which plague a startup and have a plan to deal with the obstacles which litter the journey of a founder.