Working on the wrong thing is devastating for a startup.
Here are some startup tips for identifying risk, gathering information, and making money.
Have you worked at—or run— anything where people were deeply committed and worked long hours, yet the project or company failed? Hard work and luck are important but do not really distinguish the startups that succeed from the ones that fail. What you choose to work on is actually your biggest lever, with a huge differential effect.
The way to make more money is to quickly gather information that helps you figure out the right things to work on. This advice from Dan Milsten made a huge difference for me when I was running my startup.
You should be very, very scared of working on the wrong things. In fact, you should be terrified. I would say you should be so terrified that you actually don’t work. You should only work if what you’re working on is the most valuable thing. – Dan, 2013 Lean Startup Conference
You don’t get much information when you already know something; you get a lot when you’re uncertain.
As a startup, the kind of information you want to gather is the kind that answers the riskiest or most uncertain questions. Identifying your biggest risk can be hard because risk shifts constantly. What information is valuable depends on what decision you’re making.
Dan Milstein tells this story about a software product for hospitals, that used a public data set. Before selling or building it, the company’s biggest risk was that nobody would buy it. The startup creates a demo, and one hospital signs a $10-million contract for the product before it truly exists. That’s great! That was the right thing to do. The sales team goes out trying to repeat that and sell the second one. Then a bunch of engineers work on building that thing.
Then imagine a junior developer on the team – a bright young girl – is given a job of taking the demo app and turning it into a real production system. Working with this public data set, she discovers, to her surprise, that it’s not as comprehensive as everyone thought it was. It worked well for the demo, but for the actual hospital, it’s actually not going to work. The whole product that the company has sold is actually not going to succeed the way they’ve done it. They have to do it some other way. In the moment after this person makes this discovery, the biggest risk for the startup has changed. The biggest risk is no longer: Can we repeat this sale? The biggest risk is: Can we actually build the thing that we promised in the first sale that we thought we could build, but we just discovered we were wrong?
If the biggest risk has changed, the thing you should be doing to gather the most information has changed. Because the way you gather the most information is by going after the biggest risk. Therefore, the thing that’s going to get you the most information — and the most money — has changed. If the company is still doing what it was doing before that discovery was made, they’re doing the wrong thing.
In order for your company to move fast, the thing that will limit them is how fast they can respond to the changing nature of risk. It’s only by going after the biggest risk that you make the most money, and because risks are changing all the time, the entire organization has to be able to change direction.