There are some people at startups who are cynics. They see everything that might go wrong and assume it will. Sometimes they even list all the things that might go wrong and assert you would have to be crazy to believe that their company might survive all these potential disasters. These people are often smart and talented in the narrow area of their job, but they are poisonous for the company overall.

There are other people who are eternal optimists. They like to focus on the big picture “we are on a mission to make the world a better place by ….” and naively assume that potential problems will work themselves out by themselves. Sometimes they hate to acknowledge that there might be problems and don’t like it when others address difficult issues. These people aren’t much better than the cynics.

The dichotomy between hope and cynicism is, of course, present in all walks of life, not just startups, and this quote from brainpickings sums it up nicely:

To live with sincerity in our culture of cynicism is a difficult dance — one that comes easily only to the very young and the very old. The rest of us are left to tussle with two polarizing forces ripping the psyche asunder by beckoning to it from opposite directions — critical thinking and hope.

Critical thinking without hope is cynicism. Hope without critical thinking is naïveté.

Successful startups embody both hope and critical thinking at the right times and in the right places. The ability to dream big and hope for massive success is essential, as is the ability to honestly confront challenges. Hope should be mostly for the medium to long term and should be grounded in reality. Critical thinking should be more about the short term and should remain positive in outlook.

Karl Popper was perhaps the pre-eminent philosopher of science of the 20th century and central to his work is the notion that for a theory to be useful it must be falsifiable. Benedict Evans posted this quote on Twitter yesterday in a debate about the applicability of Clayton Christensen’s innovators dilemma theory to the iPhone. I’ve reproduced it here because it’s useful for startups generally.

Astrology did not pass the test. Astrologers were greatly impressed, and misled,by what they believed to be confirming evidence_so much so that they were quite unimpressed by any unfavourable evidence. Moreover, by making their interpretations and prophecies sufficiently vague they were able to explain away anything that might have been a refutation of the theory had the theory and the prophecies been more precise. In order to escape falsification they destroyed the testability of their theory. It is a typical soothsayer’s trick to predict things so vaguely that the predictions can hardly fail: that they become irrefutable.

The Marxist theory of history, in spite of the serious efforts of some of its founders and followers, ultimately adopted this soothsaying practice. In some of its earlier formulations (for example in Marx’s analysis of the character of the “coming social evolution’) their predictions were testable, and in fact falsified. Yet instead of accepting the refutations the followers of Marx reinterpreted both the theory and the evidence in order to make them agree. In this way they rescued the theory from refutation; but they did so at the price of adopting a device which made it irrefutable. They thus gave a “conventionalist twist” to the theory; and by this stratagem they destroyed its much advertised claim to scientific status.

Steve Blank defines a startup as an organisation built to search for a repeatable and scalable business model that starts with a series of hypotheses about pieces of their business model. Best practice is to quickly test the hypotheses and move the company around the build measure learn loop as efficiently as possible. Doing this well requires a lot of discipline, and Steve Blank has talked about many aspects of that at length, especially having the discipline to get out of the room and test hypotheses by speaking with customers.

One element of discipline that doesn’t get talked about much is to making the hypotheses falsifiable. Popper had to write about this in the context of science because it somewhat goes against the grain of human nature. To make a hypotheses testable is to invite failure and that is difficult, even for those with the best of intentions, as can  be seen from the example with the Marxists above. Moreover, the older and more established a hypothesis (or company) is the easier it is for proponents to slip into vagueness.

With startups the challenge of maintaining falsifiability is more difficult than it is in science. As well as the having the discipline of regularly looking failure in the eye founders have to operate in a fast moving world where the evidence base and hence hypotheses are anyway continually evolving. The laws of physics are the same today as they always have been whilst founders change their hypotheses in real time as they learn about their market.

In practice maintaining falsifiability means defining targets for things like conversion rates, CPAs, and even positive responses from customer interviews and committing to re-examining key hypotheses if the numbers come in below target. At Forward Partners Right from the earliest stages we encourage companies to have a broad range of targets, and we define success as making good progress towards all of them, or maybe nailing half of them and giving up on the other half, all the while staying in constant dialogue and being prepared to switch out targets or change the levels as we learn. Failure is, of course, the inverse of success.

In 2013 Bill Gurley wrote a blog post titled A rake too far: Optimal platform pricing strategy. It’s an amazing guide to how much middlemen take in different industries and leads to the conclusion that if you’re taking more than 10-20% out then you are ripe for disruption. It is one of the top two posts that I refer entrepreneurs back to (the other is Fred Wilson’s Employee equity. How much?).

I’m thinking about that today because I’ve just read that music labels keep 73% of the money paid to them by music streaming services Spotify and Deezer. The artists and songwriters get just 27% between them.

That is definitely a rake too far. Bandcamp and others have been after this market for a while, but labels are ripe for disruption. Have been for a long time.

I saw two fun things about Tesla this morning.

First the ‘Insane button’ video below. The Tesla P85D has a acceleration labelled ‘Insane’ (see here for picture) which initiates maximum acceleration from a standing start. For passengers it’s a hell of a ride, as you can see in the video. Stay with it until 2.45 and to see two kids in the back seat.

And second, they released a software update for the P85D that makes the car faster. Owners will literally get into their cars one morning and be told that acceleration has improved and the 0-60mph time has dropped from 3.2s to 3.1s. They won’t even have to open the bonnet. That is software eating the world taken to the next level.

I’ve never been that interested in cars before. I love gadgets though, and what’s changed is that Tesla have made the car a gadget.

Steve Denning, one of the leading business thinkers pushing the business world to abandon the outdated idea of maximising shareholder value has published an interesting article on Forbes titled Why do managers hate agile?

That immediately made me think of my first experiences with agile as a board member of software and web startups shifting away from waterfall development to agile to improve productivity. On the one hand I was excited by the prospect of more efficient development and getting away from late delivery and poor quality software that I was used to, but on the other hand I struggled with the lack of predictability and commitment inherent in the agile process. As board members we needed to plan for the next round of fundraising, and that required knowing when product would be released and revenues could be expected to increase.

Reading Denning’s article I see that the trade off between predictability and productivity that I describe above is what companies everywhere are struggling with now agile as a methodology is being adopted across the enterprise and not just in development. Managers have generally been trained to deliver predictability and are generally held accountable for hitting their forecasts, making it hard for them to go down the agile route.

The good news for agile fans is that this battle is only going one way. As the world changes faster and faster the advantages of just-in-time agile methods and customer focus in generating quality output are getting greater and greater. Agile methods are also more attractive to the best employees.

That said, predictability is still important to shareholders and hence for companies looking to raise money to maximise growth. The net effect of this is to make the job of CEO and senior managers more difficult – they have to ‘manage’ self-organising teams and try to predict the output. That takes a high degree of trust and a thick skin to take the flack when things go wrong. Choosing shareholders who understand the trade-offs and can tell the difference between systemic poor performance and a blip will help.

I just read novelist Neil Gaiman’s Eight rules of writing. Numbers five and eight are priceless.

5. Remember: when people tell you something’s wrong or doesn’t work for them, they are almost always right. When they tell you exactly what they think is wrong and how to fix it, they are almost always wrong.

I love it! Generalising beyond writing, I would say trust what people have to say about feelings, but be careful with their predictions. Diagnoses sit somewhere in middle. We all know our own feelings, and don’t go wrong there very often, but if a subject is of great interest to us, as for example our company or it’s market might be, then most well meaning attempts to help will fall short because the would be helper has less understanding than we do. We must always be ready for people to call us on our blind spots though.

8. The main rule of writing is that if you do it with enough assurance and confidence, you’re allowed to do whatever you like. (That may be a rule for life as well as for writing. But it’s definitely true for writing.) So write your story as it needs to be written. Write it ­honestly, and tell it as best you can. I’m not sure that there are any other rules. Not ones that matter.

This I like because self-confidence is an entrepreneur’s greatest asset. That said I don’t think this applies totally to startups, which have to operate within the limits of commercial feasibility. The penultimate sentence is as important as the first though. Honest confidence is extremely powerful. When dishonesty creeps in confidence can quickly become arrogance.