{"id":1571,"date":"2013-12-11T07:25:00","date_gmt":"2013-12-11T13:25:00","guid":{"rendered":"http:\/\/mikekuphal.com\/?p=1571"},"modified":"2013-12-11T07:25:00","modified_gmt":"2013-12-11T13:25:00","slug":"risk-information-time-and-moneylean-startup-conn-notes","status":"publish","type":"post","link":"https:\/\/mikekuphal.com\/?p=1571","title":{"rendered":"Risk, Information, Time and Money–Lean Startup Conn Notes"},"content":{"rendered":"

By far, the session I received the most value from during the \"Screenshot<\/a>morning talks of the Lean Startup conference day 1 agenda was Dan Milstein<\/a>\u2019s (from HUT 8 Labs<\/a>) Risk, Information, Time and Money talk.<\/p>\n

Dan started out by restating the definition of a startup per Eric Ries<\/a>:\u00a0 \u201ca human institution designed to create a new\u00a0 product or service under conditions of extreme uncertainty’\u201d.\u00a0 We are talking about established product lines well along the maturity scale.<\/p>\n

 <\/p>\n

TL;DR<\/h3>\n

Though I believe the walk down the logic tree Dan put together in his session is valuable\u2026 as I wrote it up it got fairly long.\u00a0 The walk is outlined below, but here is the TL;DR version:<\/p>\n

-) In the presence of extreme uncertainty, you make money by extracting information from reality.<\/p>\n

-) The most valuable information is that which reduces uncertainty about the largest in a chain of risks.<\/p>\n

-) To acquire information quickly, the whole team must constantly adjust its understanding of risks.<\/p><\/blockquote>\n

Opportunity Cost<\/h3>\n

You know\u2026 what money you are not making by working on certain things instead of alternatives.\u00a0\u00a0\u00a0 He gave the following example:<\/p>\n

Which would you chose (assume you have the skills to do each):<\/p>\n

1) Build customer graphics at a rate of $200 p\/h.\u00a0 Assume only 4 hours a day of work for a week (5 days).<\/p>\n

2) Build a customer website at a rate of $20 p\/h.\u00a0 Assume there is enough work to keep yourself busy 8 hours a day for a week.<\/p>\n

 <\/p>\n

When he spoke these, it looked to be a straight math problem to me.<\/p>\n

 <\/p>\n

\"Screenshot<\/a><\/p>\n

Yielding:<\/p>\n

\"Screenshot<\/a><\/p>\n

So in this example\u2026 it certainly demonstrates that choice #2, though keeping you busy all day, is not the most profitable choice.\u00a0 (Da\u2026 it gets better)\u00a0 It actually costs you $640 p\/day per person.<\/p>\n

Sometimes people\/companies get lucky\u2026 the \u2018right\u2019 work comes their way and the flip of the coin works out for them.\u00a0 Even in those situations, what are we talking about, getting the choice right 50% of the time?\u00a0 That is still, on average,\u00a0 a cost of $320 p\/day.<\/p>\n

 <\/p>\n

If working hard, and\/or luck doesn\u2019t determine success\/failure, what does? Identifying when you are working on wrong things is key.\u00a0 Make sure you are working on the most valuable thing!<\/p>\n

The choice of what you work on is critical to success.\u00a0 It\u2019s not how hard (or busy) you work, or how lucky you are, but instead it\u2019s ensuring you are working on the right (or conversely NOT the wrong) stuff.<\/p><\/blockquote>\n

Dan goes on to state the these kinds of bad choices (opportunity cost wise) are happening all the time.\u00a0\u00a0 He goes as far as to say: \u201cif you aren\u2019t sure you are working on the right thing, STOP working\u201d\u00a0 You should be terrified of working on the wrong thing.<\/p>\n

Information and Money<\/h3>\n

At this point, Dan poses the question most (including me) have on their mind given the above example:\u00a0\u00a0 Well, what if the customer requesting work doesn\u2019t provide (hides) the rate of pay for an activity?\u00a0 How do you choose then?\u00a0 Dan says in this situation, Spend a week investigating both opportunities.\u00a0 That week of investigation makes us money!\u00a0 It leads to making the decision with proper context.<\/p>\n

Taking the time to gather the proper context information before making a choice on where you spend your time makes you money!\u00a0 (Even though it feels like you are losing money because you are not \u2018working\u2019.)<\/p>\n

Information = Money<\/span><\/strong><\/span><\/p><\/blockquote>\n

Risk and Information<\/h3>\n

So..\u00a0 if gathering information = money\u2026.\u00a0 What about the relationship of Risk and Information?<\/p>\n

 <\/p>\n

Consider these possible startup choices:<\/p>\n

1) Build a teleportation device<\/p>\n

2) Build a CRUD app for an insurance company<\/p>\n

 <\/p>\n

To lower the risk of the startup, what should you do in the first month for each of the above?<\/p>\n

1A)\u00a0 Attempt to \u2018pre-sell\u2019 20 teleportation devices.<\/p>\n

1B)\u00a0 Attempt to build a workable teleportation device.<\/p>\n

 <\/p>\n

How about the first month of scenario 2?<\/p>\n

2A) Attempt to pre-sell 20 copies of the CRUD app to insurance companies<\/p>\n

2B) Build the CRUD app<\/p>\n

 <\/p>\n

In first month, I think we all would agree to reduce risk, attempting to build a teleportation device is a better choice than preselling a teleportation device.\u00a0 I also think we would agree attempting to pre-sell the CRUD app during the companies first month is more important than attempting to build it (a fairly straight forward task).<\/p>\n

The question is why do we intuitively know the above?\u00a0\u00a0 Answer: Degree of Surprise<\/span><\/p>\n

Degree of surprise is the measurement of surprise you get in what you find out from an experiment.\u00a0 We only get information when we can be surprised (or when we don\u2019t know the outcome already) Information = Surprise<\/p>\n

A startup is an information gathering entity.\u00a0 We only get information when there is uncertainty and risk.\u00a0 Demonstrated via the Degree of Surprise factor. This needs to be thought about when choosing where to spend peoples time.<\/p><\/blockquote>\n

 <\/p>\n

Information and Time<\/h3>\n

In a startup, the primary source of money is information.\u00a0 You should be searching out information that demonstrates a Degree of surprise factor.\u00a0 Ok.\u00a0\u00a0 What about Time\u2026 how does that play in the picture?<\/p>\n

 <\/p>\n

Examples of ways to measure things related to time:<\/p>\n

-) For physically moving items: Velocity = distance\/time<\/p>\n

-) For business: Revenue = money\/time<\/p>\n

For a startup, Information = Money\u2026 therefore Revenue = Information\/Time.\u00a0 The more quickly you gather the best information\u2026 the greater the chance of increased Revenue.<\/p><\/blockquote>\n

Risk, Information and Time<\/h3>\n

Very often, you get the most\/best information by going after your biggest risk items. (They would likely produce the most degree of surprise.)\u00a0\u00a0 Many times, the things you have to do to get the most information change over time.<\/p>\n

Walking the logic tree outlined throughout this post\u2026. If your biggest risks change over time, and risky items yield the most information, and\"Screenshot<\/a> information = money, How fast people respond to changing risks is directly proportional to how well the company can make money<\/strong><\/span>.<\/p><\/blockquote>\n

 <\/p>\n

Fear \/ Vision<\/h3>\n

For the leaders out there, Dan states that a startup is really a chain of risks that need to be managed.\u00a0 Many leaders (he referred to them as CEO\u2019s) actually call this their \u2018vision\u2019 as they don\u2019t have a real tight grasp on them.\u00a0\u00a0\u00a0 Many times these leaders don\u2019t articulate their fears (the chain of risks that need to be managed) and the company will have problems as those risks are the exact ones it should be attempting to test and extract information from\u2026 in the end yielding the revenue the company needs to at minimum, sustain itself.<\/p>\n

 <\/p>\n

Managing a startup is really managing a chain of risks. Don\u2019t keep those risks to yourself, but instead test them to yield the information your company needs to be successful.<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

By far, the session I received the most value from during the morning talks of the Lean Startup conference day 1 agenda was Dan Milstein\u2019s (from HUT 8 Labs) Risk, Information, Time and Money talk. Dan started out by restating the definition of a startup per Eric Ries:\u00a0 \u201ca human institution designed to create a … Continue reading “Risk, Information, Time and Money–Lean Startup Conn Notes”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1571","post","type-post","status-publish","format-standard","hentry","category-leanstartup"],"_links":{"self":[{"href":"https:\/\/mikekuphal.com\/index.php?rest_route=\/wp\/v2\/posts\/1571","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mikekuphal.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mikekuphal.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mikekuphal.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mikekuphal.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1571"}],"version-history":[{"count":0,"href":"https:\/\/mikekuphal.com\/index.php?rest_route=\/wp\/v2\/posts\/1571\/revisions"}],"wp:attachment":[{"href":"https:\/\/mikekuphal.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1571"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mikekuphal.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1571"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mikekuphal.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1571"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}