When I left BigLaw, the plan was to start PlexMarkets, an exchange where anyone could trade futures contracts whose value is tied to patent litigation outcomes. The idea was to give companies that are frequently sued for patent infringement the ability to transfer patent risk to the capital markets and to give investors with an appetite for exotic risks the opportunity to invest in a new type of high-yield bond.
It wasn’t a bad idea, but what was missing was a standardized and widely accepted method of pricing patent risk. Without risk pricing methodologies, there was really no chance that market participants would be willing to transact on the exchange.
Market readiness for an idea is one factor Noam Wasserman uses when he frames how people should think about taking the leap to start a new venture. The essential question is whether the market is ready for your company’s offering. In his book The Founder’s Dilemmas, Wasserman also says would-be founders should ask themselves whether their careers have equipped them with the skills, network, etc. required to run the companies they want to start and whether they have a firm family/financial foundation to support them through the ups and downs of founderhood.
This short video does a great job of explaining Waserman’s framework in more detail.
Wasserman suggests re-thinking your plans if you find yourself deficient in any of the three areas - career, market, and personal. Based on his analysis of data from thousands of founders and early-stage ventures, he suggests that’s its better to wait until you optimize in each of the areas than it is to leap if you’re deficient in any one of them.
Things get interesting when people take the leap anyway. If people waited for all the conditions to be just right, they might never start something new. And thinking about founderhood simply doesn’t lend itself to the same risk-reward framework you might use if you were trying to price, say, a patent bond. People are driven by their passions, and they use things like faith, persistence, or an “I’ll figure out” attitude to fill in the gaps.
There’s a fourth factor that’s at play here, and it’s your gut. Experience teaches us that the proverbial gut check is as important as your self-assessed progress along the other dimensions. Getting good at knowing when to trust your gut is just as critical in founding your new venture as is gaining skills, timing the market, or feathering your nest egg. Innovation by its very nature leaves founders with incomplete information, and they base important decisions on gut checks all the time. That’s not a bad thing. In fact, I’d say that the best founders understand almost intuitively when they should set aside analysis and trust their gut instincts instead.