7 Tips for Founders: Avoid False Positives, Succeed or Fail Fast

Brendan OHara
Tech / Business
…

Kat Klasnic
Business / Tech
…

If your idea is
any good…
…

…it’s probably
not original
…

Stop worrying
about people
stealing it
…

If your idea’s that good, it’s probably
not that rare. I hate to be the one to
point it out, but protecting your
idea in general is a fool’s errand —
good execution is hard to find, but
good ideas are cheap. —
— Anil Dash

This mindset is still
common among many
early stage founders

My idea is wholly
original and by itself
has tremendous value.

I like the confidence this
exudes but it often leads to
founders spending too much
of their mental energy on
protecting their “idea”.

This is energy that needs
to be focused on execution
and building a team of co-
founders who can execute

It will make it seem
like you overvalue
ideas and undervalue
execution

Don’t worry about people
stealing your ideas. If your
ideas are any good, you’ll
have to ram them down
people’s throats.
— Howard Aiken

Don’t ask people
to sign an NDA

If you think you need
an NDA because your
idea is so good that
anyone can do it

Then you should
assume that
someone already has

Every Angel or Venture
Capitalist has been
asked to sign an NDA
by an entrepreneur

who eventually tells
them anyway after
they refuse to sign it.

If that happens and
you get the chance to
pitch your amazing
idea for a business

Make sure that it
doesn’t already
exist.

This happens
more than you
would believe.

You need to
objectively evaluate
your “idea”

To determine if it
is an opportunity

If there isn't a
group of people
who will buy it

Then no one will
invest in it

Having an idea
isn’t the same as
having a startup
…

And your
startup isn’t
your baby.
…

You need to
objectively evaluate
your “idea”
…

No one is going
to evaluate the
ROI on their baby

Do a cost calculation
to determine whether
to feed it or burp it.

So if you identify
too much with your
idea or startup…
…

…you prevent yourself
from doing this
incredibly important
activity.

Objectivity is the
hard part!

We know we cannot rely
solely on our intuition in
deciding to go forward
with a startup

Evaluate, validate and
test all hypotheses
about our idea and the
business opportunity we
want to build

This is a minefield of
biases and logical fallacies
that we need to avoid or
attempt to mitigate.

Basically someone only
believing or seeking out
information that confirms or
reaffirms what they already
believe or want to believe.
…

This sees us undervalue
facts that say we are
wrong and overvalue facts
that say we are right.
…

You see it frequently in
the news sources
people trust based on
their political leanings.
…

It is almost impossible
to avoid confirmation
bias so we need to
mitigate it instead.
…

You need to listen
to dissenting
opinions
…

The first principle is that
you must not fool
yourself and you are the
easiest person to fool.
— Richard Feynman

What are you
listening for?
…

What we know
we don’t know
…

But we also
need to know
…

What we don’t
know we don’t
know
…

Calculate your
Opportunity Costs
…

Opportunity Cost:
the loss of potential gain
from other alternatives
when one alternative is
chosen.

Opportunity Cost:
Number of Partners *
Average Salary *
Time

Opportunity Cost:
Let’s assume you and 2
partners are going to need
work without pay for a
minimum of 12 months.

Opportunity Cost:
Plus each will invest
$25,000 of your own
money to cover business
expenses

Opportunity Cost:
Before your startup either
is breaking even or has
enough traction to warrant
investment.

Opportunity Cost:
Now let’s say the average
salary of you and your
partners is $120,000 per
year or $10,000 per month.

Opportunity Cost:
Number of Partners (3)*
Average Salary ($10K) *
Time (12)

So the opportunity cost
of you and your partners
doing this startup is
$360,000 plus the
$75,000 you invested.

So this would seem to say that
if you can somehow accurately
project that the value of your
startup after 12 months will be
over $435,000 then this seems
like it is a worthwhile endeavor.

Now let’s say we think there
is an 75% chance of failure
(total loss) and a 25% chance
the company is worth
$2,000,000 after the 12
months.

That is an average
return of $500,000
against the cost of
$435,000.

That is a positive number
but a lot of risk for $65K.
Here is the calculation:

But what if you knew
the 75% of times it
was going to fail after
4 months instead of 12

That would still be an average
return of $500,000 but
against a much lower average
cost of $217,500 = ($435,000
* .25) + ($145,000 * .75).

That is obviously a better
potential investment but it
puts additional pressure on
you and your partners to
ensure if you fail, which you
probably will, that you fail fast.

Avoid False
Positives
Succeed or Fail Fast

When you test
out your idea
…

Incorrectly tells us an
idea is not worth
pursuing but at least
they allow us to fail fast.
False negatives

That means that we
may give up on a good
opportunity once in a
while.
False negatives

Because “failing fast”
means the opportunity
cost is much lower.
False negatives

This causes founders
to stick with a start-up
long after it is viable.
False Positives

It should be clear it
doesn’t have a realistic
chance of success.
False Positives

That means for
founders the
opportunity cost is
extremely high.
False Positives

Because “failing fast”
means the opportunity
cost is much lower.
What to remember

7 Tips for Founders: Avoid False Positives, Succeed or Fail Fast

7 Tips for Founders: Avoid False Positives, Succeed or Fail Fast

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