Facing Reality: Innovation is a High Risk Activity

The Entrepreneur Daily Dose Blog from Entrepreneur Magazine discusses a new web tool that calculates business success. The Odds of Success Calculator from StartupNation.com takes 8 factors into account that have been correlated with the eventual success of a startup. They note that entering the information for Twitter gives it only a 46% chance of success:

The Wall Street Journal blog, Venture Capital Dispatch, tested the calculator using Twitter’s information. The Odds of Success Calculator gave Twitter a 46 percent odds of success over the next five years. The lack of confidence shown by the online tool for one of the most revolutionary startups underscores the improbability for any algorithm, much less one constructed of only eight variables, to provide accurate or even directional guidance. Think about it. If you were Evan Williams, the chief executive of Twitter, would you quit?

46% chance of success? That’s better than my current estimate for Twitter’s success, if success is defined as being profitable. Lots of money sinks achieve popularity – just try handing out cash and you’ll see. But sustained profitability? I give them a 40% chance of success. And that’s terrific, because in reality, the odds of success for any startup are painfully low. Innovation is a high risk activity and failure is the norm. There are things you can do to increase you odds and reduce the risks, but nothing short of totalitarian power will guarantee your success, and even that tends to be short-lived.

In Conquering Innovation Fatigue, we look at the many barriers to innovation success and reveal many steps that bold, courageous, persistent innovators can take to overcome them. But even when all is done, there are market risks, legal risks, political risks, technical risks and other risks that cannot always be anticipated or easily conquered. But by taking the right steps, you may increase your odds by five to ten times or more. For example, Clayton Christensen has shown that if an innovation can be positioned as a disruptive innovation, its odds of success increase from about 6% to about 36%. Still challenging, but much more likely to succeed.

I don’t think the success calculator should be taken too seriously, but I agree that it may be a helpful reminder that even well-funded efforts with lots of positive factors on their side may still face an uphill battle in achieving success. That’s the reality of life and of innovation. Nothing in the journey is meant to be easy. But when you do realize success, it can be very rewarding to see the difference you’ve made. So go for it with a combination of wild dreams and tempered realism. The realism part comes in listening to sound advice and understanding the risks that you face, in spite of tremendous hope and enthusiasm. You will be beaten down. It’s the ones who can keep moving forward in spite of the initial barriers that are more likely to win the prize.

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