TOMASZ TUNGUZ
venture capitalist at redpoint
 

The Challenge of Uncertainty

There’s the challenge of dealing with uncertainty, where you’re operating in the weird zone that you’re making decisions that have significant long term impact or that are difficult to reverse or course-correct in the face of great uncertainty.

Uncertainty is often unnecessary in the sense that you could, in principle, reduce the uncertainty. You could go research the question more. You could obtain more information, or run an experiment.

It’s not cosmic uncertainty, without absolute knowability. When there’s true, deep, un-mitigatable uncertainty then it’s not to hard to say, “we’re just going to choose something and make the best decision we can.”

There’s a more frustrating uncertainty. When the uncertainty is not necessary. But the thing that’s limited is the cost in obtaining further information to reduce that uncertainty. And so you’re left in a dissatisfying situation in which I have to make a highly consequential decision with a lot of uncertainty. We could have less uncertainty, we could take steps to mitigate that, but we just don’t have time to.

Patrick Collison said this in a recent interview with the Knowledge Project. It’s a brilliant description of one of the most challenging parts of startups and business more broadly. Leaders must constantly decide critical decisons with limited information, and quickly.

The management team of a company is a decision-making and productivity chokepoint. Critical decisions flow through them. If the management team ruminates on most decisions, the company’s progress stalls. In a 100 person startup, five slow-to-decide executives limit the productivity of 95 employees. In a 1000 person startup, the ratio might be 10:990. There’s enormous leverage in a hierarchical organization if the leadership moves quickly. The converse is equally true. Sluggish decision-making halts all progress.

The cost of deciding slowly seems small. Just a day or a week of more research; one more experiment. But a day’s delay in a 1000 person organization costs the company more than $400k in lost productivity.

Deciding quickly implies becoming more comfortable with three things. First, not making a decision is a decision itself. Second, identifying when you have sufficient information to decide. Third, reconciling yourself that you will often be wrong.

To seize a startup’s advantage - focus and speed - and to leverage it to create enduring businesses means wrestling with uncertainty every day, fighting that frustration, and dispatching decisions quickly based on sub-optimal information.


Published 2018-05-04 in best-practices 

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