Entrepreneurship Is Calculus, Not Statistics

I’ve written about the importance of statistics on several occasions. I even dedicated a full week to the topic when covering the fabulous book Naked Statistics by Charles Wheelan (here’s the book review). And whether it’s the importance of understanding randomness a’la Nassim Taleb’s Fooled By Randomness (here’s the book review) or the desperate need for us all to adopt a framework for probablistic thinking (as written here), the concepts within statistics matter a great deal. Obviously, I value it.

Maybe a little too much.

This week’s book is Ben Horowitz’s The Hard Thing About Hard Things. It is a book of genuine truths, many of which I already know and prefer to avoid, such as the idea that “no one cares”. These truths hit me like a mild slap in the face, waking me up from all the overthinking that I tend to do. And even though it hurts at first, these truths ultimately reinvigorate. So let’s drop another one from his book:

Startup CEOs should not play the odds. When you are building a company, you must believe there is an answer and you cannot pay attention to your odds of finding it. You just have to find it. It matters not whether your chances are nine in ten or one in a thousand; your task is the same.

This is the part where you might say to yourself “I don’t run a startup” or “I’m not a CEO”. I’ve often told myself similar things to avoid what is really being said here. To clarify a bit more, consider this line from the author:

I don’t believe in statistics. I believe in calculus.

What does that mean?

The Reality of Risk

In 18th-century Britain, the word entrepreneur meant “adventurer”. I like that. To call oneself an adventurer is to give a greater respect to the risk that is involved in any new effort. The word embraces risk as a critical part of the journey. No one traversed Antarctica because they thought it would be a delightful way to spend a Sunday. People risked their very lives and some did it for the glory, some for the discovery, some for the challenge.

They all did it for the adventure.

I’ve never embarked on a life-threatening adventure but my own efforts have floated just underneath that particular strata of risk-taking. In such instances, these efforts have taught me something important: you don’t monkey around with the risk.

If, for example, you were to travel the un-mapped Antarctic, you would presumably do so with a significant amount of planning, study, and careful preparation. You would treat the effort as a math problem, a’la calculus, and you would operate under the conviction that this very real problem has a very real solution. Otherwise, you would never even make the attempt. So in such an adventure, there is a single right way to do it and everything else, outside that exacting, detailed method, is wrong. The only trouble is that no one gives you the answer ahead of time.

So you would work hard and diligent to find the answer yourself. Very little would be left to chance. And still, because it’s an adventure, you would be exposed to serious risk.

This was certainly the case for Robert Falcon Scott. I’ve read a few accounts of his fatal expedition to the Antarctic and how, in 1911, he and his team of four additional men perished in their journey to the South Pole. Compared to the success of Ernest Shackleton’s expedition, the common thought is that Scott is an example of someone who didn’t prepare as well as he should have while Shackleton was a paragon of brilliant execution.

This convenient bit of narrative has been reexamined in later years and the contrast is less strong than it used to be. All the same, one thing is clear: both teams risked their lives and a bit of luck favored one group more than the other. Scott’s team suffered a terrible shift in weather that exposed them -40 degree temperatures that few in that day could have withstood. They died. Shackleton had setbacks, too, but not of that severity.

Another thing is clear, though people don’t want to grab onto it: compared to Shackleton, Scott’s team may have had a different plan for their expedition but it wasn’t a dumb one. In terms of calculus, Scott came very close to solving the problem as it was known until Fate tossed a new variable (severe weather) into the mix. There’s reason to think that Shackleton could have fared any better but there’s no guarantee.

The point? Despite the popular narrative, neither party left their work to chance. Neither expedition “played the odds”. And yet one party still failed to return home alive.

Adventure is dangerous.

Fight The Risk; Don’t Play The Odds

Scott’s final words, written as a “Letter to the Public” in the hours before his death, read as follows:

We took risks, we knew we took them; things have come out against us, and therefore we have no cause for complaint, but bow to the will of Providence, determined still to do our best to the last … Had we lived, I should have had a tale to tell of the hardihood, endurance, and courage of my companions which would have stirred the heart of every Englishman.

I can imagine him writing this while huddled against the gale force winds of a blasted tundra, ice on his eyebrows and dying men at his side.

There is a sentiment in these words that also inhabits the heart of many entrepreneurs. I don’t want to glorify the Startup CEO but, again, there is real risk in what they do and they fight against it for the same reason: for the chance of victory, a tale to tell, and the commensurate rewards. For adventure.

Unless they are the type that see the work as a play against the odds. Those types see entrepreneurship as a card-counter’s trip to Vegas. For them, it is a joyless, mechanical exploitation of the rules in order to generate a reliable return in a flawed game. Is value created? I guess. Is wealth realized? Perhaps. Is a good product or service established? Maybe.

Or maybe not. The odds, after all, are imperfect. And when they fail, people of this mindset tend to offer the attitude of “Welp, that’s how it goes sometimes.”

That sense of detachment is an artful dodge against accountability. It’s another way of being fooled by randomness, using chance as the scapegoat. We just got unlucky. Or, my new favorite, We succumbed to things out of our control.

Yes. Of course. In the end, we all succumb to things out of our control.

This is the statistical approach. It works great for index funds. But I agree with Horowitz that it should not pervade the mentality of a CEO or a founder or a polar explorer or a wartime commander or an athlete or a small business owner or anyone else who has to win.

If, instead, we treat our endeavors as a calculus, we effectively bar the door against randomness. Luck has no quarter in our world. We’ll either get it right or we’ll get it wrong but, either way, it is a problem with a solution and we’ll do everything we can to find it. There is no other option. If we fail, it is because we took a left turn when we should have taken a right. Thus, we are the authors of that failure. Not “luck”. So don’t screw it up. There is an answer. Find it.

Or Maybe Play A Different Game

If that doesn’t sound too appetizing, don’t bother with this kind of work. Don’t do things that are wholly-reliant on you finding victory. After all, entrepreneurship is a really dumb way to make money and find happiness. Just as exploring the Antarctic is a really dumb way to experience the outdoors. Make sure you know the reward you want before you determine the risk you’ll take.

If you want to play the odds in a fun, analytical fashion, I recommend poker. Or corporate management. Both are great ways of bringing the statistical mind to its greatest strength.

If you want what Robert Falcon Scott sought, which was “a tale to tell of the hardihood, endurance, and courage of my companions which would have stirred the heart of every Englishman,” then you better see this work as the calculus Horowitz says it is. It’s a wake-up call. Like so much of this wonderful book.