Hi, I’m Rana Gupta. In the last module, we introduced the notion
of assumptions and how assumptions for our plan are building blocks—they’re foundational
to the plan. Let me introduce you to three types of assumptions,
three categories. A primary assumption we’ll call a personal
experience such as, “It takes me this long, you know, so many minutes, to go from my house
to the train.” Or let’s say a trusted colleague or friend
has also experienced something personally—that’s a primary assumption. A secondary assumption we’ll refer to as
something that’s referenced. So, it can go anything from a publication
to a friend of a friend of a friend. But it’s something to which you reference,
but you, yourself, have not personally experienced it. A tertiary assumption is a guess. Let’s call it—you know, I think it’s
going to take three to six months, or it’ll take $50,000 to $100,000. And the point of the guess is not that you
get it exactly right, but you’re conveying to yourself and the audience for your plan
that it’s not going to cost $500,000. It’s going to cost, let’s say, $50,000
to $100,000. Now, in your plan, however, you have to delineate
which type of assumption a given assumption is. It actually adds credibility to your plan,
not only that you’ve made these assumptions but you’ve also labeled them accordingly. Let’s back up. Why are assumptions so important? They’re so important because assumptions
establish a business conversation. In the absence of assumptions, you just walk
in with a plan. So, imagine you walk in and you state to an
investor, “Here’s my plan. I’m going to do this and then I’m going
to do this.” Now, the investor may say, “All right, but
how are you going to do that? How’s that going to go?” What the investor is really asking is, “What
are your assumptions behind that plan?” Now, if you don’t have your assumptions
to answer the how and the why you’re going to do something, then what ensues is a very
uncomfortable what I call parent-child conversation where the investor is the parent and they
just start to beat up on you and they start to ask, “Well, why are you going to do it
this way? And how do you know it’s going to cost so
much?” And now you find yourself in a defensive position
rather than if you have your assumptions, you’re two adults engaged in a business
conversation looking for a common solution, which is the essence of a business conversation. Recall something like this—here’s a life
example for you. You’re 12 years old. You want to go to your friend’s house. Now, you know you want to stay late tonight
at your friend’s house. You have one of two choices. You can either go to your friend’s house,
call your mom up at 10:00 tonight, and say, “Hey, Mom, would you come pick me up?” At that point, you will probably incur the
parental wrath that you so well deserve. Or you could say to your mother, “Hey, I
want to go to my friend’s house, and could you pick me up at 10:00 tonight?” To which she might say, “Hmm, 10 is a little
late; how about 9:30?” Look, it’s a simple example, but it’s
a perfect example of what it means to involve your benefactor in your plan and your assumptions. So, in front of investors, state your assumptions
clearly and quantitively, even if it’s a tertiary assumption—it’s a guess. Say so. State it cleanly, state it right up front,
and say, “And I’m working on it.” Because the goal here is to move from a position
of looking for a weakness, which is what an investor starts with, instead to one where
you’re perhaps identifying the weaknesses together. Who knows? Maybe the investor will know somebody that
will help you take a tertiary assumption and move it up to a primary assumption. People want to help other people at heart,
but you have to get them started with the fact that you’re making the effort to propose
quantitative assumptions that address the constraints behind your plan. Let’s try a little more extravagant example
of going from here to Mars. So, a child may say, “All right, I have
my backpack. I’m going to fill it up with water, fill
up my spaceship with gas, and off I go.” But, now, we, as adults, will have to be far
more circumspect and quantitative about how we’re actually going to go to a distant
place, Mars. And we have to quantify, because an investor
is going to want to hear, well, how much gas are you going to burn? How long is it going to take? What are you going to do when you get there? How do you know you have enough to get back? An investor wants to see your primary, secondary,
and tertiary assumptions quantified because an investor wants to make sure you didn’t
just wake up that morning with an idea and say to yourself, “I need money.” Let me give you an example in my personal
life. When I started this company that I’m now
doing, I spent a year talking to customers, and one of the many assumptions I had to challenge
was: How long was it going to take to engage in a joint product development? Almost unanimously, I heard from all the customers
at least 18 to 24 months. Okay, that’s a big number. But then I learned, on top of that, once we’re
finished with all the development, they’re going to require another year before they
can actually launch. So, now, I’m looking at two to four years
of development and cycle before I can actually launch a product. I did not know that before I started. When I went in front of investors, I had primary
assumptions from customer interviews that gave me enormous credibility so that investors
understood my plan and the assumptions behind it. Two points to be made here. First, many people think of assumptions as
extraneous and extra work, and they don’t realize the power that they have to bring
about a business conversation. The second is, even if they do understand
the power, they don’t do it. Why? Because it makes us feel vulnerable. And then you might ask, “Well, why does
pursuing assumptions make us feel vulnerable?” Because the fact is, pursuing that hard work
and the hard truths that underlie the quantitative assumptions behind a plan—what we may find
out after doing all that work is that our idea isn’t viable, so we feel vulnerable
about that. Secondly, there’s discomfort associated
with pursuing a complete set of assumptions because in order to do it thoroughly, you
have to get into areas such as marketing and sales, which is out of a researcher’s comfort
zone, traditionally. So, for those two reasons, people avoid assumptions
at their peril. Up until this point, we’ve used life as
an analog. We’ve looked at the decisions that we make
in life and realized, oh, those are the same decisions that we have to make in our venture,
to understand we already know how to do this, actually. But let’s look at life differently. Let’s now include our lives in our plans. So often, what we do is we say, “This is
my life, this is my plan, and we keep them separate.” Unh-uh; can’t do that. The fact is, it’s your life; it’s your
plan; it’s your venture. And you have to include your life in your
plan, but we avoid doing that. Personal assumptions are primary assumptions. They’re actually the easiest ones to make. But here comes the reality disconnect. They’re the ones we choose not to incorporate. Even worse, we actually convince ourselves
that by ignoring them, we can keep our personal needs and our venture separate. Huge risk here—technically speaking, we
call it a double whammy. Risk number one is to the venture. Risk number two is to your personal needs. So, we avoid it. But self-reflection is difficult, and that’s
why we choose not to do this because, just like vulnerability, we have another emotional
reaction here, which is that we’re afraid that if we incorporate our personal needs
into our plan, we’ll find out they’re not compatible. Here’s the thing—you owe it to yourself
to know. Look, this venture could take three, five,
nine years of your life. There will be life-changing events, some of
which you want to take place, that will take place in the course of this venture. You have to include you in your venture and
all the assumptions that that includes. Again, I’m not saying you have to share
with investors every little piece of your life, but you do owe it to yourself to set
yourself up to succeed by including the detailed needs of your personal life in your venture. Let me introduce two concepts to help you
introduce your life into your venture’s plan. The first is personal constraints. Let’s be as specific as we have to be. You’re a wife, you’re a mother, and you’re
a researcher. And now you want to start a company? Well, then your goal has to be to include
your personal constraints—time and money, quantified—into your plan. So, while you’re sitting around dreaming
and thinking about how wonderful this technology is and all the good you’re going to do for
patients and doctors, you have to incorporate your life into your plan, specifically. One of the objectives of these modules is
to set ourselves up to succeed, to be true to ourselves, and not ignore or pretend the
reality that is about to take place. This brings up a third rule. Rule number three—there are no “coulds.” You may not say the word “could.” I could do it if…. I could make the time if…. The fact is, we all know exactly how much
time we have, extra, on top of our current lives, to start a venture. We all know how much money we require to make
ends meet. You may not exaggerate the amount of time,
and you may not decrease the amount of money that you need. You may not use the word “could.” Let’s say this out loud. If you’re expecting this venture to be your
primary source of funding, you must write yourself into the plan. And, again, I’m not saying that you have
to tell investors the details of your personal needs, but you owe it to yourself to write
the needs that you have into your plan. And the danger is if you use the word “could,”
that you’ll find yourself, at some future date, desperately looking for money to fund
not just your venture but your family and yourself. And that’s the dangerous situation that
we alluded to in the last module when we talked about, there, running out of gas between exits. But at this point, it’s a much more dangerous,
frightening situation to be running out of money in-between fundings when that’s what
we’re relying on for our personal needs. The second concept for incorporating your
life in your plan goes like this. Ask yourself, “What’s my objective? What’s my objective in starting this company?” I’ll give you some examples. Maybe your objective is you’ve always wanted
to start a company. Or you want to run a company. Or you want to learn to be a businessperson. Or you now want to be a researcher and a businessperson. Or the one that I hear the most often, which
is, I just want to get my technology out there. Those are all perfectly fine objectives. Every single one of them is a reasonable objective;
however, there are two results from this. Once you’ve realized what your objective
is, the first is going back and visiting your personal constraints; for example, if you
want to be a researcher and a businessperson, that’s a huge demand on your time. Make sure you can meet those needs. Now, the second result from knowing one’s
objective is your financial plan. Each one of those objectives, it stands to
reason, has a different financial path, different financial mechanisms that you’re going to
use to reach your objective. Let’s say, for example, your objective is,
“I just want to get my technology out there.” So, it’s a technology commercialization
objective. Well, I’m going to maintain that venture
capital may not be the right financial means for you to reach your objective. Why is that? A venture capitalist’s objective is to make
a lot of money. Your objective is to commercialize your technology. This is a mismatch. It’s a bad fit. I like to call it a bad marriage, actually. It gets people’s attention, certainly. So, in my company, when I realized what this
technology is and I thought about what my objective is, and I realized it’s to build
this company and it’s probably going to take 10 to 20 years, actually, so I realized
venture capital at the early stage is probably not a good fit for me. It may be at a later stage but not at this
time because a venture capitalist fund has a cycle of about ten years. Realizing my objective is to grow this company
for probably more than ten years, I realized it’s not an optimal fit at this time but
maybe at another time. Here’s a marriage analogy for you to drive
home the point. Let’s say we know two young people in a
serious relationship. One of them doesn’t want to get married
and wants to live in New York City in an apartment. The second one wants to get married, have
children, and move to the suburbs of Detroit. We have ourselves a mismatch. We have the potential for a bad marriage. Now, let’s take it back to the example with
your investors. If you and your investor don’t share similar
objectives, the probability is you’ll both fail. So, you have to state your objectives, and
the onus is on you, actually, to find the appropriate funding that will help you reach
that objective. Otherwise, you’re going to end up with a
mismatch, and you’ve increased the probability of not succeeding. What have we covered in this module? This module attempted to lay out the bare
truths that we have to incorporate our personal constraints into our plan. These are primary assumptions. These are known data. And you have to quantify your personal needs
into your plan. To thine own self be true. You have to do that; otherwise, you’re not
setting yourself up to succeed. And if you don’t incorporate yourself into
your plan, then the rest of these modules are just going to be academic because that’s
the reality of how you can set yourself up when you make sure that your needs are taken
care of as part of your plan and you’ve found the appropriate funding to do that for
yourself.