Why you’re on a startup rollercoaster

Let me know if this sounds like you:

Some days you feel like what you’re working on is going to turn into the biggest company, like, ever. You feel like you’re on top of the world. Like all you really have to worry about now is how you should style your hair on magazine covers, and whether Ben Mezrich is going to write a totally unauthorized account of your meteoric rise to fame and fortune. “No comment,” you’ll say when you’re asked if everything he says about you is true.

But on other days you feel like everything sucks. Like all of this was a total waste of time. Like your prospects are slimmer than a candle in a hurricane. Like you’re surprised that you could ever think that your idea could ever go anywhere.

And the funniest thing is that rationally you know that there is very little difference between the days when you feel great and the days when you feel terrible. In other words, even though you feel different nothing meaningful about your company has really changed.

In short: running your company is an emotional roller coaster.

Why do we feel this way? What is it in our genetic makeup that makes running a startup so difficult – that makes keeping an even internal keel so hard?

Basically I think it boils down to this:

  1. We’re highly emotionally invested in our startups
  2. Every day things happen to our companies. Some of them carry meaning for our long term prospects, but many of them are just random
  3. Because we’re invested, our brain reacts emotionally to everything that happens – whether or not those things are meaningful

Got a new customer today? “Great,” your brain says. “It’s time to start shopping for that private jet!”

One journalist not responding to your email about your launch? “Bad news,” says your brain. “This product is horrible. No one thinks this is a good idea. What am I going to say to my family and friends when that thing I was working on for 6 months never even launches? People are going to laugh at me.”

The thing about startups is that you’re forced to deal with a massive amount of uncertainty and randomness every day. There’s a lot of noise to wade through, and not much signal.

The fact that you got a customer today probably doesn’t mean much for your long-term prospects. It could be a purely random coincidence, indicative of exactly nothing about product/market fit or the size of the opportunity you’re pursuing. Even Color got a customer or two, didn’t they?

But it sure doesn’t feel that way! It feels like that customer is proof that you’re doing the right thing. That you’re on the right track. That you’re unstoppable. That you’re about to take over the world!

Doesn’t it?

And it feels that way because your brain isn’t equipped to deal with randomness. Your brain likes to take facts, and tell stories with them. Your brain likes to find causation:

“The fact that the journalist never responded means X, Y, and Z about the product.”

Those stories may or may not actually be real. But they certainly feel real.

And as a 21st century entrepreneur who’s supposed to be keeping close tabs on her business, tracking everything with metrics, and always plugged in to the latest information, the ironic part is that all that information is actually what’s causing your crazy ups and downs.

In his book, Fooled By Randomness, Nassim Taleb explains why more information can be bad in vocations that are subject to highly random events. Consider an example he presents about a Wall Street trader (another field highly subject to random events). NOTE: I’m paraphrasing Taleb here for convenience:

Consider a trader named Bob. Assume for argument’s sake that Bob is an excellent investor. His strategy is expected to earn a return of 15%, with a 10% error rate per year.

The error rate is what’s called volatility. It means there’s a 68% chance that in a given year his portfolio will return between 5% and 25%. It also means that there’s a 95% chance that it will return between -5% and 35% in the same time period.

Clearly Bob has a good strategy trading strategy that’s going to make him money. But let’s look at how randomness can make a someone trading a winning strategy, feel like he’s a loser.

Taleb says:

“A 15% return with a 10% volatility (or uncertainty) per annum translates into a 93% probability of success in a given year. But seen at a narrow time scale, this translates into a mere 50.02% probability of success over any given second as shown in the table below.”

Basically what this table is saying is that even though the trader will win in the long run, if he checks his portfolio every second he’ll FEEL like his strategy isn’t working. Because at least half the time he’ll be down, not up.

Taleb continues:

“Over the very narrow time increment, the observation [of what his portfolio is doing] will reveal close to nothing. Yet [the trader’s] heart will not tell him that. Being emotional, he feels a pang with every loss, as it shows in red on his screen. He feels some pleasure when the performance is positive, but not in equivalent amount as the pain experienced when the performance is negative.

At the end of every day the [trader] will be emotionally drained. A minute-by-minute examination of his performance means that each day (assuming eight hours per day) he will have 241 pleasurable minutes against 239 unpleasurable ones.”

But what’s most interesting is that the trader only feels he is performing badly if he checks his portfolio every second. If instead he starts to check his portfolio every month or every year, things change:

“Consider the situation where the [trader] examines his portfolio only upon receiving the monthly account from the brokerage house. As 67% of his months will be positive, he incurs only four pangs of pain per annum and eight uplifting experiences. This is the same [trader] following the same strategy. Now consider the [trader] looking at his performance only every year. Over the next 20 years that he is expected to live, he will experience 19 pleasant surprises for unpleasant one!

A few conclusions:

  1. Over a short time increment, one observes the variability of the portfolio, not the returns. In other words, one sees the variance, little else.
  2. Our emotions are not designed to understand the point. The [trader] did better when he dealt with monthly statements rather than more frequent ones. Perhaps it would be even better for him if he limited himself to yearly statements.
  3. When I see an investor monitoring his portfolio with live prices on his cellular phone or his handheld, I smile and smile.”

The bottom line: what happens day to day at your startup is subject to randomness. Randomness means that on a short time increment it’s very difficult to tell whether what’s happening is noise, or signal.

But because we’re so engaged with our startups, we assume that everything that happens is signal. We assume everything that happens carries meaning. And that affects our emotional state accordingly.

Certainly it’s good to be in tune to everything that’s happening in the early stages of your company. But whenever you feel yourself getting too down, or too up it’s worth asking yourself:

Is this signal? Or is this just noise.

As Taleb says in his book:

The wise man listens to meaning; the fool only gets the noise.


19 Jun 2013, 3:24pm | 19 comments

  • Jon Miller

    There are parallels with losing weight by eating healthy and doing exercise. If you weigh yourself every day, you’ll be disheartened as some days you’ll put on weight even when you’ve been good, and there will seem no logic to the ups and downs as your body adjusts to a fitness regime.

    But over time, if you stay focussed, the weight should shift, and taking it month by month, everyone will say how trimmer and fitter you are – the extra stress of analysing every day to day up and down serves no purpose in the long run.

    • DanShipper

      This is a great analogy. I totally agree

  • http://culttt.com/ Philip Brown

    Fooled By Randomness is a fantastic book. The whole “a chicken’s truth of getting fed by the farmer every day until it is the day that the chicken gets slaughtered” revelation of the truth could also be compared to life of a startup. (I can’t remember if that was from “Fooled” or “The Black Swan”)

    • DanShipper

      Yes I agree. Best book I’ve read in a while. That’s from Black Swan (though it’s probably mentioned in FBR). And I think he uses a turkey not a chicken. But I totally agree.

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  • http://katemats.com/ kate matsudaira

    Hey Dan – great post. I totally feel this way. I also sometimes feel like so much of how I feel is impacted by the people around me and how they react to things – I am sure this is true in a bigger company too – but in the early stages there is less people, and so each interaction seems to have more weight. At least that is my rationale :)
    Thanks again for the awesome article!

    • DanShipper

      Yes I agree with you. I also changes with experience. The longer you’ve been doing this stuff the less each conversation changes how you see things, it’s like one straw being added to a bale of hay. Glad you liked the article!

  • silverfoxf7

    Very thoughtful post, Dan. I think this feeling is magnified as you go through an accelerator program. Every day you march toward Demo Day, and thus there’s a strong urge to check your metrics every day/week. People would be wise to take Taleb’s advice…

    • DanShipper

      YES! I definitely agree. The accelerator environment definitely encourages you to track how you’re doing on a minute-by-minute basis because you have such a short period of time until demo day. FBR should be required reading for them :)

  • http://www.gordonbowman.com/ Gordon Bowman

    Great analogy. And relevant because I just finished reading FBR too. Anti-fragile is up next. Have you read it yet?

    • DanShipper

      I haven’t! But I just finished Black Swan so about to start reading that. Let me know what you think!

  • http://www.petersopinion.com PetersOpinion

    Dan, great post and I can guarantee it’s applicable to probably every entrepreneur, not only at startup stage. I’m running my company for about 7 years now and days like you described are just there. Year after year we realized double digit growth rates, but frequent “stress” periods remain, caused by all kind of different events. Just think about moments like a co-founder or important colleague leaving, clients who stop the cooperation, a project that “fails” (sometimes it just feels like a failure, same analogy applies), financial challenges, economic downturns. So may be it just means that being an entrepreneur guarantees a ever lasting rollercoaster ride. Probably we just like that.

    • DanShipper

      Hi Peter, really glad you liked it! That’s interesting, I was talking to someone who argued the opposite: that the longer you run your startup the less randomness you encounter. But I agree with you – it doesn’t seem like it changes as you get farther along. Maybe the issues you face are different, but there are still ups and downs. We definitely do like that.

      • http://www.petersopinion.com PetersOpinion

        Hi Dan, I’m not sure if you have been arguing the opposite. Basically, I believe it’s true that the level of randomness decreases when you start “managing”. Nevertheless, reality remains unpredictable and it’s these unpredictable things that keeps the entrepreneur busy I believe. I agree this will be different issues. At an early stage you have for example different HR/client issues than when you are existing for a longer period of time.

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