Worst Case Scenario
Entrepreneurs are optimists by nature. Data shows that new businesses have a more than 99.99% chance of failure. Yet, entrepreneurs feel they have a better than even chance of success. In fact, that optimism is one of the hallmarks of an entrepreneur. The low success rates of new ventures is why I also believe that an entrepreneur goes to work each day working to reduce the risks of failure.
It’s one thing to think about future success. But what many entrepreneurs fail to take into account is what could happen in the event of failure. This “worst case scenario” thinking is very crucial and needs to be done before starting up. What is the personal impact you are willing to bear – financially and otherwise? How long are you willing to give the venture before you call it quits? What are the things that can go wrong – because many of them will?
I was speaking to a friend recently and he said he had lined up 9 months of capital and was starting up. His product would be ready in 4 months and it would give him 5 months to get the early testing and initial revenues. I told him, “This is the best case scenario. Have you thought of the worst case scenario? What if your product development takes time? What if market feedback takes longer? You need to double the runway you have from 9 to 18 months. In effect, you need more capital to reduce the risk of failure.”
When I started IndiaWorld in 1995 after multiple failures, I asked myself the same worst case scenario question. My answer then was – I would lose the remaining of my savings and perhaps some family money, and perhaps two years of my time. At that time, I wasn’t thinking much about the upside. All I had to do was to make a decision whether I could accept the worst case situation. And from then onwards, every effort was towards ensuring that I never reached that outcome.
Thinking through the worst case scenario prepares one mentally so that one is not surprised when things do not go according to plan. As optimists, entrepreneurs tend to think everything will go according to plan. But what if it doesn’t? That is why entrepreneurs think of what can happen if things do not go according to plan.
Tomorrow: Part 40