Uncertainty, in startups and life
The shadow that lurks with us
If I boil down a lot of discomfort that people have with themselves (and the world), I think it comes to uncertainty.
And it seems we do such a poor job at understanding it and its consequences.
Uncertainty stems from the dissonance that the future is inherently unpredictable but we would want to put some predictability on to it.
I’ll write about this in two aspects: Startups and general
Before we start, a quick caveat:
A lot of people may be confusing some of the points below with risk, so it’s worthwhile to mention the difference. Risk is measurable and predictable with some probabilities, but uncertainty is completely unpredictable, even probabilistically.
Startups
The word startup is used in a lot of contexts so I’d quickly define what that means. I find PG’s definition the most relevant here, startup is anything that can grow very fast. In that sense, it is very different from a traditional business. The reason it grows very fast is there is an unsolved need felt by a large market, that the startup is solving.
How does uncertainty factor in here?
Market Uncertainty
The key uncertainty here is — do people want what you’re building?
This is often not a clear yes or no. Because, in an efficient market, if it were clear that people want it, there would be large players in the market serving it already. And if it was clear that they don’t want it, it would have been an empty market.
The tension arises when you see that there is some demand but you dont know if that’s real enough. This is also why PMF is so elusive to define, it’s just very hard to know early on if people want what you are offering.
There are often some other uncertainties also related to market:
How will you make money
Will you be able to influence your supplier partner ecosystem to deliver better quality / lower cost
Will you be able to operate profitably
However, if the eigen question of “Do people want it?” is solved, these are smaller uncertainties.
Technological Uncertainty
For a lot of people working on technology that is not yet commercially viable, the key uncertainty is often
whether the hard technical problem will be solved
whether it will become commercially viable
E.g. Faster transport —> Bangalore to SF in <4 hours. Is the demand clear? Yes, overall arc of progress is towards faster transportation. However, will that problem be solved in a commercially viable way? Hopefully.
We already have examples where this has happened successfully in the past (AI, iPhone, Chips, Storage, EV etc)
Solving technological uncertainty requires a lot of time and capital.
Regulatory uncertainty
Think crypto 5 years back. Or fractionalised share purchase in India. The key factor concerning progress is will regulation work favorably for the idea.
This is why one important question in evaluating startups is what uncertainty are you facing?
The bigger the uncertainty, the lesser the chance of success but the larger amount of success if it works. Huge if works.
Similarly, other questions to ask in startups are:
How will these uncertainties be mitigated?
When will they be mitigated, relative to product launch?
Will competitors be able to see that they have been mitigated (and/or how we mitigated them)?
Funding
If you frame the entire startup game this way, you will start to understand how companies get funded. The basic reason for funding a startup is giving it leverage to do more. That more can be faster product development, more marketing spend or something else.
So venture funding is ultimately a way to accelerate the process of eliminating uncertainty favorably1.
Let’s take an example.
It is 2004 and Tesla is looking to operationalise it’s vision of a mass EV. If it wouldn’t have gotten funding, it would have either died because of the high capital requirements in producing cars, or best case, progressed modestly. After raising funding in 2004 (and also subsequent rounds), it was able to move faster and deliver cars (~150 by 2009 after raising $187 Mn).
Was the capital used most efficiently? We don’t know. Would the cycle been longer without the capital? Definitely.
However, not all uncertainties are equal. E.g. If the unit economics of the entire business is in question, that generally won’t fly anymore.
This is a good article on how VCs can think about this dimension while investing.
First-mover advantage
There’s a big debate on whether there’s actually a first-mover advantage as products (especially software) get copied very quickly. In addition to some other sustainable advantages like stakeholder relationships, high switching costs etc, the real first-mover advantage is reducing uncertainty.
Everyone started producing EVs once Tesla showed that it can be done and has demand.
Similar instances have happened in history with Instagram, Tiktok, Figma, Uber clones etc.
This is contingent on whether the first company to reduce uncertainty is smart enough about sustaining its advantages. That is also why moving fast is so stressed upon in certain industries.
We’ve seen this happen multiple times with Meta. Some social product starts getting viral (i.e. reduces market uncertainty) and Meta either copies it fast or acquires it. That is the exact thing first-movers have to be really cautious of, if they are actually onto something.
General
A lot of us think we fear the unknown. But that’s not true. What we truly fear is the unknowable.
What’s the difference?
Unknown is something that you don’t know right now but can be figured out with some action. E.g. You are facing a critical but common health condition and you don’t know what to do, you can ask a few doctors and figure out the path or atleast probabilities.
Unknowable is when despite your actions, you won’t have clarity on the path and probabilities. E.g. Long term effect of covid vaccines when they were introduced in 2020.
And this unknowability leads to us fearing uncertainty and hence inventing ways for us to reducing it. As time passes and new knowledge emerges, the unknowable moves towards the unknown and the unknown moves towards the known.
The entire designation framework in organizations is to reduce uncertainty. You don’t know what your career is going to be, so there’s a path laid out for you - associate, manager, vp, cxo etc.
Having a set path in front of us gives us a way to evaluate how we are progressing. This is true in personal lives as well.
However, following this path doesn’t fundamentally reduce uncertainty, it just gives you the illusion so. You truly don’t know what will happen next day, next month, next year etc. But at least having a path in front of you gives you a sense of direction.
To be clear, there’s nothing wrong with following these paths. Just that, sometimes these paths don’t go as linearly as you’d think and people who truly internalize uncertainty about the future are much better equipped to deal with the curveballs life throws at them. Internalising uncertainty is not a prescription for not having plans though. You can still have plans but you have to be supremely adaptable.
Action is often a way to reduce unknowability. E.g. If you don’t know whether you will get into some dream job, try applying sooner and get the feedback faster. This doesn’t work everywhere though e.g. you can’t do an action now to predict whether your marriage will survive 10 years down the line or not.
However, this action can also lead to anxiety, as the mind often seeks predictability as a proxy for survival. This gets better though as you get better at internalizing uncertainty. That doesn’t come without its tradeoffs though.
Just like startups, our uncertainties often determine our course of life. The meta point is to be aware of them and live with them.
Favorably because the end expectation is that the uncertainty will be removed and a large business will emerge