Really cool article on how entrepreneurs think, here’s the gist:
Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss.
And the zinger:
They do not believe in prediction of any kind.
The point is that you’re only focused on something when you’re asked to spend money. This is why prediction markets are so interesting. No amount of fancy pants grad degrees or big scores on I.Q. tests can replace the focusing power of cash on the line.
I work in a business that is obsessed with forecasting the future: no surprise when you sell a product without knowing how much it will cost! The people who are in charge of figuring out the COGS are actuaries, who use all kinds of fancy math for describing (and so forecasting!) processes nobody really understands.
Now, the frustrating thing about actuaries is that they know they’re going to be wrong. And that if they’re wrong in the wrong direction (ie understating the COGS), the company blows up and everyone has to go find a new job. The incentive is pretty strong to overstate the COGS.
Not only is this forecasting, but it’s deeply biased forecasting. To an entrepreneur this kind of thinking is radioactive.