JUST START TAKE ACTION EMBRACE UNCERTAINTY CREATE THE FUTURE Len Schlesinger Baker Foundation Professor Harvard Business School March 2014

Continuum of “Predictability” 2 Known UnpredictablePredictable

The Predictable 3

Google Maps, GPS Universe 4 You always know the optimal thing to do You’re never lost

5 What is the best logic in relatively “known” futures where things can be predicted based on the past? 1.Where are you now? and What result is wanted, needed and best? 2.What are the various ways of achieving the result? 3.What are the required resources and their costs 4.Select the optimal path 5.Assemble the required resources 6.Execute the plan, and, if required, get back on track.  Inductive and deductive logic  Mathematical and analytic methods  Rules of thumb  Core logic of virtually all educational settings  Core logic of large organizations  Works great when the future can be extrapolated Prediction Logic

6 What logic works best when things are very unpredictable? Prediction Logic

7 t t Discuss with 1 or 2 colleagues: What principles do you use to get out?

What would rational thinking and behavior look like in the face of unknowability? 8 You either sit and think or you act… But, you can’t think your way into an unknowable future Therefore, the only logical thing is to ACT.

What would rational thinking and behavior look like in the face of unknowability? Therefore, the only logical thing is to ACT. 9 How to Act Smartly? Where are you? Do you want something else? What do you have at hand? Anyone who can help/rescue? Small steps. On firm ground. Take stock & learn. Build off what you actually find Build LearnAct

10 How well does Prediction work in the face of unknowability? What’s current reality - what is wanted, needed and best? How can you achieve that result? What resources are required? What’s the best path? Assemble the resources. Then, execute the plan and get back on track if you get off You don’t know You can’t know Build LearnAct Small steps. Take stock & learn. Build off what you actually find What do you have at hand? Who can help?

Popular Views of Entrepreneurs 11 High Appetite for risk Visionary Able to foresee the future Creative Self Confident Determined, controlling, decisive, egotistical… Popular PerceptionCloser to Truth LOW Appetite for risk Often start with no sharp goal or vision Distrust predictions of the future Creates new businesses, but not necessarily original No more self confident than others Determined, controlling, decisive, egotistical… but not always

Behavior or thinking? 12 Behavior & Actions Behavior looks idiosyncratic and contradictory Results

13  Started multiple enterprises ranging from $200Million to $6.5Billion  How they thought about taking action Entrepreneurial Thinking 13 Saras Sarasvathy, University of Virginia studied 30 “expert” entrepreneurs

Behavior or thinking? Behavior & Actions Results Thinking Behavior & Actions Results Strong consistency in thinking that explains unconventional behavior. 14

15 Prediction and Act Learn Build Two Complementary Logics  Contrasts with prediction  Favored by entrepreneurs 89%  Favors what is real and confirmable  Smart action trumps analysis  Use when the future cannot be predicted from the past Build Learn Act Prediction Taken together they form Entrepreneurial Thought and Action

Uncertainty / Unknowability the Context and Setting for Build LearnAct 16

DESIRE fuels… 17  Entrepreneurs are always doing what they want, or something that will get them what they want.  In the face of the unknown, it makes no sense to act unless you want to, whether you have to or not. Build Learn Act

DESIRE 18 Intriguing area, attractive partners Fully formed vision, robust plan Sufficient to get started Act quickly with means at hand Act Learn Build is based on current reality: who you know, what you know and anything else relevant Pay only what you can afford to and want to – Acceptable Loss Money & time Reputation (professional & personal) Opportunity cost Bring others along Tangible sales and other assets Other borrowed or bartered resources Intangible assets (ambassadors, reputational capital) through enrollment Act quickly with means at hand Pay only what you can afford to and want to – Acceptable Loss Bring others along ACT Build on what you find ACT Passion isn’t required Smart Steps Surprises are often good. Make them an asset Befriend reality With each action, reality changes DESIRE fuels…

Continuum of “Predictability” 19 Known UnpredictablePredictable More logical to act Employing the tools of prediction doesn’t make sense and wastes time and resources

Continuum of “Predictability” 20 Is it big enough to interest me? How do I get started with the means at hand? How do I make progress with a step-by-step acceptable expenditure of resources? How do I bring other people along and spread the risk? How do I build each next step of the reality I have created with the previous one?

Continuum of “Predictability” 21 Known UnpredictablePredictable Every ALB includes some Prediction At some point predictive tools require evidence to work As you learn, you can begin to Predict

 You need both  You employ them reflexively, like a second language  Consider using ALB even in predictable situations Derails the habit of prediction Action might be equally reliable, cheaper and faster Action changes reality, predicting doesn’t  Use both simultaneously 22 Build Learn Act Prediction

23 12% 88% Where Serial Entrepreneurs Like to Play 23 New MarketExisting Market Existing Product New Product Suicide Quadrant Manage (incremental) Adapt (evolutionary) Extend (evolutionary)Everywhere Opportunities are largely found Create (revolutionary) unusual in their comfort and preference for this quadrant Opportunities are largely made Act Learn Build is required. In this quadrant Action Trumps Everything Why? No competition Expensive Prediction tools are not required They like to create opportunities

Optimize Your Actions DESIRE Predictable Optimization is possible Unpredictable Optimization is impossible You must Satisfice Satisfy (desire) + Suffice (good enough, not necessarily optimal or “the best.”) Nobel Laureate Herbert Simon

DESIRE 25 Intriguing area, attractive partners Fully formed vision, robust plan Sufficient to get started Act quickly with means at hand Act Learn Build is based on current reality: who you know, what you know and anything else relevant Pay only what you can afford to and want to – Acceptable Loss Smart Steps DESIRE fuels… Passion isn’t required

26 Acceptable Loss 26 Currency: o Time, money and other tangible resources o Reputation and social capital o Opportunity cost These are all knowable in the present moment Acceptable Loss removes all of the psychological and most of the actual risk Is it big enough to interest me? Pay to Play What can I afford to lose? What am I willing to lose? How big is the “prize”? Expected Return Cost to execute the plan PAYBACK $ x 75% = “Risk Adjusted Return” Acceptable Loss Specific Desire + Means at Hand + within Acceptable Loss ACT

DESIRE 27 Intriguing area, attractive partners Fully formed vision, robust plan Sufficient to get started Act quickly with means at hand Act Learn Build is based on current reality: who you know, what you know and anything else relevant Smart Steps Pay only what you can afford to and want to – Acceptable Loss Money & time Reputation (professional & personal) Opportunity cost Bring others along

28 Bring Others Along 28 Thanks for joining me… Tangible resources Early Sales and Cash Bartered and borrowed resources Free help Idle capacity + Intangible resources Reputational capital Relationships Reduced load on entrepreneur’s assets Spreads the cost and therefore the risk for any one player Confirms your judgment

DESIRE 29 Intriguing area, attractive partners Fully formed vision, robust plan Sufficient to get started Act quickly with means at hand Act Learn Build is based on current reality: who you know, what you know and anything else relevant Smart Steps Pay only what you can afford to and want to – Acceptable Loss Money & time Reputation (professional & personal) Opportunity cost Bring others along Tangible sales and other assets Other borrowed or bartered resources Intangible assets (ambassadors, reputational capital) through enrollment ACT Build on what you find Act quickly with means at hand Pay only what you can afford to and want to – Acceptable Loss Bring others along ACT

30 Build on What you Find 30 In a predictable world, surprises are a problem… And you solve them when you can In the unpredictable world, you can’t know what you will find until you act. Transform problems and obstacles into assets Befriend reality and welcome surprises

DESIRE 31 Smart Steps Act quickly with means at hand Pay only what you can afford to and want to – Acceptable Loss Bring others along ACT Surprises are often good. Make them an asset Befriend reality With each action, reality changes Intriguing area, attractive partners Fully formed vision, robust plan Sufficient to get started Build on what you find