Worthy Articles: The list of 4 lists...

interesting ones....maps to rahul garg's quote

Sent to you by Umesh via Google Reader:

The list of 4 lists...

via Soaring on Ridgelift by 1vc on Jul 09, 2007

Whether you are the founder of a startup company or someone interviewing for an executive role in one, it's important to keep in mind the List of 4 Lists. Before you head off to your favorite book store, the List of 4 Lists isn't a book by some long expired philosopher - it's a thought exercise I use with early stage companies to get them to think outside the box.

The List of 4 Lists:

The list of things you KNOW.

The list of things you DON'T KNOW.

The list of things you ASSUME.

The list of things you DON'T KNOW YOU DON'T KNOW

Any of us looking at the business plan of a startup company can fill out the first two lists. It's easy; you have a set of knowledge and experiences whether gained through formal education or via post graduate education at U. of HK (University of Hard Knocks) that acts as review filters for the plan. You can look at the different risk factors (market, team, technology) and populate the lists - being a smart person you can then work to move items from the second list to the first by asking questions, research etc.

The third list isn't so easy - any business plan is based on a set of assumptions such as how long it will take to recruit people, develop the product, how much customers will pay for the product, etc. This isn't just about the formulas in the spreadsheet behind the modeled financials (although that is a good place to look for assumptions!) - It is about the thought process that went into building the plan. It is very helpful to make your assumptions explicit - it is the implicit assumptions that are difficult to test and often lead to nasty surprises.

The fourth list is the real challenge - it's a virtual list because the moment you identify something that should go on it, by definition you now KNOW YOU DON'T KNOW and it gets added to the second list. We always need to be on our guard and thinking about how to identify items for this fourth list - fortunately, one of the best ways to fill it is to remember that everyone has the same List of 4 Lists and THEY ARE DIFFERENT. This is one reason why a team of people is often far more effective than any individual. You can populate this virtual list by reviewing the plan as it unfolds with the executive team, cofounders, investors and advisors.

Most problems in business stem from the last two lists - assumptions prove to be wrong (or simply aren't recognized because with hindsight, it's clear they were wrong!) or something nails you in the back of the head that could have been anticipated if you'd been open to thinking about the fourth list.

Remember the List of 4 Lists!