Startups: Don’t Overreact to Dots

“Altogether too often, people substitute opinions for facts and emotions for analysis.”

– Only the Paranoid Survive

As a startup, you’re constantly getting new data and feedback from the market. Every day, it seems like you have discovered something new about your business. It’s incredibly difficult to stay level-headed.

One thing our team has learned after spending nearly a decade in startups is this: don’t overreact. Startups take time, and you have to make decisions based on lines, not dots (major hat tip to Mark Suster). (Dots are a single data point. Lines are trends.)

Why do startup founders overreact?

In the earliest days of a startup, you’re working long hours and there are a million things to worry about.

• Do we have enough money to survive?
  
• Do people want what we are building?
  
• Did I make a mistake leaving my great corporate job?

The stress and fatigue build up every day, and it’s easy to overreact to new events and data.

What are examples of dots?

Startups are often fooled by dots. Here are a few examples of how we’ve seen this happen:

• You made 200 cold calls last week and didn’t schedule a single demo.
  
  
  
  • Reaction: Nobody wants your product. You need to pivot.
    
  • Reality: You signed up 3 customers in the prior week. It’s too early to see a trend either way.
  
  
• Your last product release took 10 hours and your customers experienced downtime.
  
  
  
  • Reaction: You need to fire your CTO and hire a VP of Engineering from Oracle.
    
  • Reality: 6 weeks ago, you delayed investing in Ops so you could launch a new feature at TechCrunch Disrupt that increased sign-ups 25%.
  
  
• The public markets just dropped 5%.
  
  
  
  • Reaction: Time to fire half your team.
    
  • Reality: Your business grew 30% last quarter.

These are examples of dots. Very strong dots. But, single dots don’t necessarily imply the same events will continue to happen in the future

What are “lines?”

Lines are trends. You can pick up a chart and see multiple dots forming a clear trend.

Here are examples of lines:

• You’ve pitched 100 potential users over two months, tried 3 different pricing strategies and still haven’t come close to signing a single customer.
  
• After coaching from your CEO and Board of Directors, your VP of Sales is missing quota by 50% for the fourth straight month.
  
• You’ve spoken with 50 VCs about raising your Series A (at a reasonable valuation). But, you haven’t sniffed a term sheet.

How to avoid overreacting to dots

Running a startup guarantees a rollercoaster of emotions, and it’s easy to treat every new data point as a major breakthrough or disaster. But, doing that will cause your startup to get caught in an infinite loop of perpetual micro-optimization.

Here are tips to stay level-head and data-driven:

Whenever you feel the need to pivot or make a major change, write down the idea. Come back to it after you’ve had 7-8 hours of sleep. This is important. During sleep, your brain will actually continue to process the new data you’ve received.

If you still feel like a change is in order, it’s time to look at the trends. Is this a dot or a line?

If you think the data supports your decision to make a change, take time to debate the idea with other people. This could be your co-founders, your board of directors, or even other startup founders. This will help you identify any hidden biases in your thinking.

“The most important tool in identifying a particular development as a strategic inflection point is a broad and intensive debate. How will it affect our business if we make a dramatic move? How will it affect it if we don’t?”
– Only the Paranoid Survive

Treat major changes as an experiment

Finally, if you feel the need to make a change, frame it as an experiment.

For example, if you’ve decided to change your branding and positioning, test it. Instead of running to a marketing agency and spending thousands of dollars on rebranding, create a hypothesis and test.

• What impact will this change have?
  
• What’s the easiest way you can test this?

For example, can you use paid ads or an A/B test on your email campaigns to test the new positioning? If the results are promising, then you have data, and more confidence, that you aren’t overreacting.

Conclusion

Founders will often spend months identifying a market opportunity or recruiting a new VP. Yet, they’re often willing to cut bait in a matter of days.

We’ve made a million mistakes by overreacting and pivoting too quickly. But, we’ve found this type of process helps us stay grounded and level-headed.

We hope it’ll help you work through the highs and lows of your startup and make better decisions.

“Startups: Don’t overreact to dots” first appeared on the Breakout Room blog.

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