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The underlying cause of failure for many startups is that the founders are afraid of discomfort. An environment where everyone is comfortable is unlikely to be an environment where personal growth and value creation is occurring.
When you are in a startup, calibrating the right amount of discomfort is often about calibrating risk.
What are your risks? Can you quantify them? Can you enumerate them? Multiplying out the probability of surviving each of those risks, then multiplying that number times the sum of the discounted future cash flows of your business will give you the expected value of your business.
Under the right circumstances, entrepreneurship has much higher expected value than a stable engineering job. The important difference is variance. Your business needs to be able to withstand the variance that bad luck can provide. And entrepreneurs themselves need to be able to withstand the variance implied by the fact that their business can completely fail and go to zero.
Leo Polovets is a partner with Susa Ventures. He worked as an early engineer at Linkedin, Google, and Factual, and he blogs at Coding VC. In this episode we talked about the proper mindset for founding a company–how to think about risk, mistakes, discomfort, and finance.
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