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The Danger of Probabilities – Why Most Things Aren’t Going to Happen

June 27, 2012

Brad Svrluga

I’m deep in the midst of a search for a partner to help me build the next chapter at High Peaks. It’s been a fun and fascinating process. Since starting the process with a very public casting call a couple months ago, I get asked almost daily by a friend or colleague “so how’s the search going?”

I generally reply, “I’ve met a bunch of people I really like and am having a lot of interesting conversations, but I have no idea how it’s going.”

“Huh?”

“Yeah, I don’t really know. I’ve got a handful of prospects I’m very excited about, but it’s impossible to say how it’s going overall. After all, when you really think it through, at this point each one of them is more likely to not work out than get all the way to the altar.”

“Huh?”

I’m actually really excited and optimistic about the outcome of my search. But I also know the importance of being realistic about any individual candidate.

The thing is, most people don’t really understand the way probabilities work. They have a couple of good conversations, think things feel good, and get overly excited. But outcomes are generally dependent on multiple variables, and multivariate probabilities are deceiving. They’re multiplicative, and that leads people to consistently, and often dangerously, overestimate the likelihood of a given outcome.

Let’s imagine I was pretty far along in discussions with a particular candidate and things were feeling good. Is that person likely to become my partner? The reality is that even if things are looking quite good, the answer is probably no.

Any outcome like candidate X becoming my partner is dependent on multiple variables, each of which has its own probability. Again, probabilities multiply. And when they do, things become unlikely to happen surprisingly fast.

Let’s consider a discussion with hypothetical candidate Sally. What has to happen for Sally to become my partner? There are at least three major elements, each with their own probabilities

  1. I have to decide I want Sally to be my partner
  2. Sally has to decide she wants to work with me
  3. Sally and I have to negotiate terms for her joining the firm that work for both of us

Pretty straightforward. But now let’s do what most people fail to do in assessing outcomes – think through the individual probability of these three independent variables:

  1. Based on our discussions thusfar, I think there’s a 2/3 chance that I’m going to decide Sally is the one.
  2. Sally has indicated that she’s quite interested in the position, but she would also be leaving a pretty good current gig, so I’d say she’s no more than 2/3 likely to say yes if I ask her to join me.
  3. If we both want to do it, I think we’re pretty reasonable people, so it’s highly likely that we’d be able to find terms that work. 90%.

So is Sally likely to become my partner? I doubt it.

It’s amazing how human psychology works – the vast majority of us are natural optimists, it seems. Most people hear 2/3, 2/3, and 9/10 and get excited, thinking it’s probably about 2/3 likely to happen.

But when you do the math and actually multiply out these probabilities – multiplying .67 x .67 x .9 – you end up at 40%. There is in fact a six out of ten chance that Sally will NOT become my partner.

It’s a surprising and important reality. In fact, in any three variable probability tree all you need is a 79% probability for each variable and you dip below 50% likely to achieve the final outcome.  Sobering, isn’t it?

Of course this sort of math is unrealistically precise for the purpose of definitive, concrete analysis of any real world scenario. We never actually know the exact probability of any individual variable, after all. But the point is not in the precision, it’s in making sure that you understand how probabilities interact to effect outcomes in complex decision processes, even when you are evaluating things at a very rough level.

Entrepreneurs are by their nature optimists. It’s an absolutely essential component of their success. But I’ve seen that same optimism all but bring down a few companies in the past as entrepreneurs bet the ranch on outcomes they believe are going to emerge but which they can’t ultimately control. It happens with big partnerships, estimating product shipments, and assessing sales pipelines. Very painfully, it happens all the time around critical hires, as managers fall in love with one candidate, thinking that individual is going to join the company and solve all their problems. They fail to cover themselves by maintaining alternative candidates, and when the lead guy drops out of the running the company is, at least temporarily, up a creek.

So I simply ask you to remember a little bit about the laws of probability when making important planning decisions. Keep multiple candidates engaged in any hiring process. Don’t bet the farm on that big partnership with Apple/Google/Whomever. Remember that for it to come to be you’ve got to decide it makes sense for you, they have to decide they want to do it, and then you need to find mutually acceptable terms.

Even if those pencil out at 90%, 90%, and 90% you’re still <75% likely to get there. Is it probably going to happen? Sure. But is it so in the bag that you want to bet the company on it? I sure hope not.

The Family That Eats Together

June 15, 2012

Brad Svrluga

Much has been made over the years about Google’s amazing employee perks, most notably their incredible company cafeterias, with their sushi bars, hand tossed pizzas, and made-to-order omelettes.

Google feels incredibly strongly about the importance of this perk – enough so that I know of two companies recently purchased by Google where literally the morning after the transactions closed the Google “Food Team” rolled into the acquired company’s offices to set up snack stands and lunch service stations. Google HR didn’t want these new employees to have even a single day pass in their lives as Googlers where they didn’t experience the full compliment of perks.

It sends a powerful message to employees about how the company is going to treat them, and I think that is a good thing. These cafeterias also encourage Googlers to stay in the office and eat with their colleagues, which no doubt makes some real contributions to inspiring collaboration and innovation.

I’ve had lunch at Google a few times, and it is indeed great. But this week I experienced a version of company-sponsored dining that taught me some brand new lessons about company culture.

A friend of mine is an angel investor in a NYC-based mobile wellness company called Noom. These guys are doing some really interesting stuff using highly sophisticated mobile experiences to promote wellness. The company is still pretty early stage, but they’ve got millions of active users of their cardio fitness and weight loss apps, and based on my playing around with the product, I think they’re on to something. But while their products are cool, what I think they’re most uniquely onto is building a powerful company culture that is rooted in values that are core to the business they are building.

A minute after walking into the Noom office I knew I was somewhere special. It’s a very comfortable, relaxed, and homey feeling place. The kind of environment that makes you want to sit down with a book or a sketchpad or a blank Word document and start thinking, learning, and creating. And wellness is all around you, with shelves stocked with books on wellness, yoga mats & balance bells, and a general healthy, zen-like vibe.

As co-founder Artem Petakov gave me a tour, it was clear that this was a very happy, connected, and productive bunch.

Artem explicitly invited me to come at lunchtime. A few minutes after my arrival, i understood why, as that enabled me to witness what I suspect is the keystone on which much of this tight-knit culture depends.

Around 12.15, a few team members came into a large meeting room that is adjacent to an open kitchen, broke apart the big conference table into two pieces, and arranged chairs around them. They set the table, and then called in the rest of the team. Jane, the company’s amazing chef, had laid out a gorgeous buffet of interesting and magnificent looking & smelling dishes. In keeping with the mission of a wellness company, everything was organic and very healthy.

The team dropped their work, filled their plates, and sat themselves around the tables. Artem and I joined them. It was a wonderful experience that felt far more like a family gathering than a business event. Thanksgiving dinner came to mind. The conversations were all over the place – some about work, but most not.

Twenty-25 minutes later everyone finished eating, cleared the tables, and went back to work. Jane did the dishes and then laid out snacks and set leftovers for the team to eat throughout the afternoon and evening.

I sat there for a bit afterwards, pondering what I had just witnessed in a mild state of awe.

It was so simple, after all – get the whole team together for lunch around a family table, give people a structured break from work, and foster connectivity and community amongst the team. This simple ritual completely reinforces the mission of the company – promoting wellness – by ensuring that every employee eats a highly nutritious meal at least once/day. (Not surprisingly, several employees commented that their delicious and healthy lunches had inspired them to change the way they ate outside of the office, too!)

It’s not cheap to do this, of course. Noom spends good money to offer such a high quality experience. It could likely be effectively done at half the cost, but Noom is making an I think reasonable choice to over-invest in exceptional natural cuisine as a way of doubling down on their company mission and values. For other companies, though, I would think that simple salads and sandwiches would do the trick.

But even at Noom’s high price, I’d bet the ranch that through the obvious value of the perk of a great lunch and, much more powerfully, the enhanced sense of community amongst the team, that extra expense will have a very material payback on employee retention over time. Again, this place genuinely felt like a family – something that is pure gold for a startup.

I’m going to talk to the CEOs of our companies about this and hopefully inspire some of them to adopt the “family lunch.”

Culture and community is such a critical element of startup success, and employee retention is so challenging in this hyper-competitive startup labor market, I’m not sure you can afford to NOT spend a little extra to inspire your team to truly become a family.

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