Getting it Wrong (5 Entrepreneurial Fallacies)

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Ray Dalio, who has been called the Steve Jobs of investing, wrote a fascinating PDF document called “Principles.” One thing that sticks out is Ray’s ongoing concern with “reality,” and his strategies for being as accurate as possible.

“Bad opinions can be very costly. Most people come up with opinions and there’s no cost to them. Not so in the market. This is why I have learned to be cautious. No matter how hard I work, I really can’t be sure.”

But who really loses more when a poor series of judgments is made? Ballin’ Ray Dalio or the aspiring entrepreneur, artist, or small business owner who wants to change their life and experience a whole new level of personal freedom? What’s a bigger tragedy– Dalio dropping a couple million, or the upstart entrepreneur not managing to get their dream off the ground?

I’ve said it myself in passing— entrepreneurs do seem to “good at reality.” Afterall, their job is to manipulate it. That’s what we mean when we say “create results.”

Dalio’s “Principles” got me thinking of some of the most common entrepreneurial fallacies that keep us from the truth. Here’s 5 I came up with, let me know if you can think of more.

Diagnosing business and life problems with non-falsifiable statements.

A non-falsifiable statement is one that cannot be disproven. All swans are white” can be falsified if a black swan could be found, but “this photo is beautiful” is non-falsifiable. There isn’t a particular piece of data that would, in-theory, change your mind. Jeff Bezos said recently: “people who were right a lot of the time were people who often changed their minds. By ensuring that you use falsifiable statements to diagnose business problems, you keep yourself open to data and experiences that can change your mind.

“Everything happens for a reason.”

Unfortunately this isn’t often used with ruefulness or jest like c’est la vie!  The “everything happens for a reason” attitude asserts that the purpose of outcomes will be revealed to us in good time. This perspective pre-disposes the speaker to a ‘suck it up’ mentality. Why not instead try and discover the truth of the matter and try to discover increased level of control in the future?

Mistaking objectives for strategic actions.

Business owners often lay out their quarterly objectives with no mention of the strategy that they suspect will achieve them. I’m going to make $4500 in personal income by the end of March isn’t a particularly useful objective if it isn’t accompanied by a strategy that you can test and measure.

Instead, accompany your objective with a concrete strategy and a time to stop and test for effectiveness. I’m going to make $4500 in personal income by the end of March by attending twice as many conferences over the next quarter. My data says that’ll add 10 more customers to my roster, and with that workload I won’t need to increase my operational costs. At the end of the quarter, I’ll measure my progress.

Don’t forget the cost of implementing your strategy, especially if your objectives are income or profit oriented.

Essentializing ourselves and our roles in organizations.

Being a business owner is a consistently humbling and often confusing experience. On the one hand, we are supposed to be driving the whole thing. On the other, once businesses get started they can often take on a life of their own. Although I’ve taken the same actions in a large number of product niches, I’ve encountered an almost equally large range of outcomes. I’ve lost money, made money,  made people mad, made people happy, and operated under false pre-tenses there. Often people who’ve been trying at business for a few years and failing put much of the burden on themselves when it’s actually market conitions that are preventing their success. Why try to change yourself when you can change your venue? 

Confusing relevant experience (intuition?) with taste.

Sometimes going with your gut can be great, and other times it can be disastrous. One of the coolest things about having a business is that it provides you with a relatively small and propriety version of reality. You’ve got proprietary data and customer information– stuff that tells you how reality works– and over the years that can lead to a solid entrepreneurial intuition. I find I struggle with this a lot. Intuition at it’s best is an incredibly powerful tool for making judgements. How do we separate that from our opinion, which it has been well documented, means very little when it comes to the success of our endeavors? :)

Those are just some that came to mind. I’d love to hear if you know about any other entrepreneurial fallacies.

Cheers,

Dan

PS, here is a download link to Ray Dalio’s “Princples.”

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Published on 11.20.12

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