Upside vs. Downside

Think about the next plan you have, at work, in business, at school, even personally, and analyze it as upside opportunity vs. downside risk.

Downside risk asks “What’s the WORST that can happen?” If your action failed completely, what’s the most you would lose? How much time, money, respect, etc. would you give up?

Upside opportunity visualizes the BEST than can happen. What if everything worked as planned? What would you gain, learn, earn, prove or create?

Iterations of the Loop take steps that limit your downside risk, while exposing yourself to upside opportunity. We take actions that require only small amount of time and that are simple and cheap to accomplish. Given this, we can’t really lose too much. Maybe a day’s worth of work, maybe a small part of our budget, maybe a little embarassment or a bit of a downer feeling. However, it’s nothing that should stop us completely. We have the motivation, time and money to start right back on the next iteration tomorrow.

When you keep Looping, you are running experiments day after day, hour after hour, setting yourself up to be exposed yourself to upside opportunity. Maybe you discover a critical problem that people need to solve, maybe you meet that one person who will change everything for you, maybe you invent a creative solution to a challenge, or maybe you’re leap forward towards creating something great. When this happens, all those little steps didn’t move you forward, or maybe even failed, become miniscule relative to a nearly limitless upside.

That’s why we iterate. That’s why we Loop. We go small so we can survive long enough for our epic win.

When I read authors who talk about taking the huge risk – dropping everything is a live or die effort – one of two things turns out to be true. First, selection bias says that although they represent only a tiny fraction of risk-takers, the winners write the books and give the TED talks. Even if many crash and burn taking a big risk, probability tells us that some people will succeed spectacularly. More often though, what looks like a big risk as part of a story turns out to be a series of small Loops that led to a big payoff. It’s just that the entertainment value telling people about small steps is pretty boring compared to the heroic effort.

Upside and downside also scale out to the larger Loops of our endevours. Startups risk less than established corporations. New products risk less than those with established customer bases. Young people with nothing in the bank risk less than those with established careers (called The Power of Zero by Nicole Glaros). Creating something new risks less than messing with tradition.

Survive, evolve, win.



Seth Godin¬†often talks about the “lizard-brain” and fear. The lizard-brain is what tells us to be fear speaking up, of talking in public, of taking a chance. One way to tame the lizard-brain is by taking a second to consider the upside opportunity and the downside risk of the action that you’re fearful of. Often we see that the real downside is minor: a bit of possible embarrasment if a talk doesn’t go well, or that somebody will know that you failed, or that your offer will be rejected. However, when compared to the upside opportunity – a talk that influences others, an experiment that proves more successful than you imagined, or the start of a relationship that is life or career changing, the risks that seemed so scary before shrivel to insignificance.

In his book¬†Antifragile, Nassim Nicholas Taleb discusses upside and downside risk in great depth (along with many other topics). He provides a framework for delineating between fragile (large downside with minor upside), robust (low downside and low upside) and antifragile systems (low downside and large upside). Mega-financial institutions who are highly leveraged are fragile, entrepreneurial startups are antifragile. The more complex and interconnected the system, the more prone they are to unexpected, unknowable disasters known as “Black Swans.” This term comes from the idea that although we may see only white swans, we cannot say that a black swan does not exists. In other words, absence of evidence downside risk is NOT evidence of absence.


What do standardized testing in schools, bureaucracy in health care, and the inflexible application of laws have in common?

They are all thoughtless.

Not thoughtless because nobody put intellectual effort into creating these structures. Thoughtless because they give us excuses to avoid using our brains.

We stop thinking because it’s seen as safe, and the view that we codify into law everything that’s right, and that human behavior can be controlled like a computer program.

In the Industrial Revolution, the metaphor of the machine influenced most fields of thought: psychology (the mind as machine), art, school (education as assembly line), science. Our culture relied on machine-like ideas to understand the world.

As we got into the latter part of the last century, the metaphor of the computer took over. Mind-as-computer, replicatable business processes, and bureaucracy by flowchart. To those we add law as computer program. The idea was that a centralized group can codify the steps and processes desired so that any machine – or person – can apply them uniformly. Inflexible on the one hand – albeit often loaded with exceptions – but one person’s rigidity is another’s fairness.

[An aside here on hacking - "hacking" used in the sense of making something your own. Hacking computer programs means changing them to do exactly what you want, and programmers have the power in this realm. The law and bureaucracies are just as open to hacking. The tools are lawyers, politicians and tax accountants, but the outcome is that the law really only applies to those who don't have the means or power to hack it. And like spaghetti-ish computer programs, complex laws are easier to hack, because there's simply more opportunities to exploit.]

What we’re beginning to see now, at least in the scientific arena is a rise in an network/complexity metaphor, which acknowledges that the world is more complicated than we think because multiple interactions and feedback loops cause behavior that goes beyond human intuition to comprehend. And because we can’t possibly plan that far ahead, the metaphor for approaching this complexity is evolution – small steps forward as we search out what works and in what contexts.

Our progress doesn’t mean we throw away all of the previous paradigms. We got mass production and major ideas in science out of the machine model. And we got the the mindset that we can automate much of our rote work, as well as information-based sciences like genomics from the computer metaphor. But as we progress and understand more about the world, it’s time to move on.

I believe we are at cusp of change now. However, the people in power are still stuck in the computer metaphor. They are “fighting the last war”. We are starting to hit a wall now where this idea that we can codify human behavior is running smack into the complexity of the world, and starting to lose.

The iterative Loop unrolled

Let’s break down the Loop a bit more and flesh out some details.

Before starting, you’ll want to establish some long-term goals. Answer the question “What would my life/business/career look like if everything was going the way I wanted it to?” Often a way to do this would be to envision a typical day for yourself. What would that be like? Although we’ll talk more about this in the future, that’s enough to get you started.

Armed with this long-term vision, we now turn reaching that goal in small chunks. The Loop is about six steps. While this may seem like quite a bit, after you’ve habituated this into your process, you’ll find that most of the steps can take only minutes, and most of your time will be spend DOING.

Approach the Loop with an eye towards momentum and action. It’s MUCH more important to iterate through the Loop than trying to complete any one of the steps to perfection. There will always be another iteration if you’re wrong this time.

  1. Focus: Figure out the most important problem to work on.
  2. Prepare: Think of an action can you take try and solve that problem.
  3. Simplify: Pare down your action to its shortest, easiest, quickest version.
  4. Do: Take the action, whatever that is.
  5. Reflect. What worked? What didn’t?
  6. Evolve: Feed what you learned and produced into the next iteration.
The Loop. The version on the right reflects the relative amount of time spent in each part of the Loop. Lots of doing.
LoopBasic LoopWeighted

Ask yourself, “what is the most important problem that I should be trying to solve?” Although there are dozens of possibilities, you can probably narrow down the list of critical items to small number. For a problem you think is the most important, ask yourself, “if I made this happen, would something else still be preventing me from moving forward?” If the answer is yes, then go work on that something else – it’s more important. We are often distracted at this point wanting to work on what’s fun, what’s easy, or what others expect us to doing.

If you’re unsure of which one to tackle, pick one and go with it. Make things happen.

To try and solve this problem, what action are you going to take? What will you create? What do you want to learn? In some circumstances this step is obvious and straightforward. “Create my web site so people can find me.” In others you may have to be more creative. “Find a way to drive more customers to my business.” Again, if you get stuck deciding, you’ve probably got a few good candidatee. Pick one and move.

Your trip through the Loop should be short, measured in minutes, hours, or maybe a day. To do this, you need to pare down your action to the bare minimum. That means putting boundaries on your actions. So “get feedback on new prototype” becomes “get feedback from 3 people on the usability of new prototype.” “Create my website” becomes “Create the home page for my web site.” “Train for 10K run” becomes “Run 2 mile distance.” You can think of this as an 80/20 situation. How can you get 80% of what you want with 20% of the work? Another way to think about it: how can you scope your task so that there are no excuses why you can’t make it happen?

Go do what you planned, whether it’s easy, scary, difficult, or even boring. This sounds obvious, but action is what separates those who make things happen from those with just ideas. Good ideas and intentions are cheap. Action, and the risk you take by doing something, are not. Remember, you don’t have to be perfect, and it is altogether possible that you may try your hardest and still fail to some degree. If you have chosen a problem to solve that will stretch you, then succeed, fail, or anywhere in between, you will have learned something that enables you to move forward or to do it better the next time through.

This is the step where most people get stuck. You can spot someone stuck on this step because they start sentences with “I had this great idea but…” or “I tried but I couldn’t because of…”

No matter how awesome you are at getting things done, if you aren’t learning from your experience you will often stay stuck in the same place. So, immediately after you are done, take a few minutes write down “what worked?” and “what didn’t?” Be honest with yourself, and include others involved in the action you took to participate (like customers, or teammates). If something worked, make a few notes on why it worked. If something didn’t work, then make notes on possible changes and alternatives. Reflecting about inventorying failures, it’s about giving you input and ideas for your next iteration.

Don’t wait to reflect, because when you’re fresh off of your action, the results will be fresh in your mind and you will still be focused on thinking about the problem. Admittedly, this can be an annoying step if you’re in a groove and making progress, but if you don’t do it now you’ll probably never do it, and if you don’t reflect you can continue go to full speed but in the wrong direction.

This is where the value of the Loop really lies. Now that you’ve tried something and learned from it, you can adjust your priorities, modify your approach, or pursue a previously unknown or unavailable opportunity. All this at a cost of minutes, hours or a day. You probably learned something about what you want to do more of, and maybe learned even more about what you don’t want to do.


Now, go back and Loop again…and again…and again, as you learn and progress towards your goal.

Will every iteration be a fantastic new opportunity? Will you make huge strides on a daily basis? No. But all you need is a few great days, and like evolution in nature, the power of the Loop will do the rest over the long run as you repeat it day in and day out.


A major tool of the entrepreneur mindset is approaching your life, your education, your career, and your business as a series of loops

Not the treadmillish, Sisyphan, “Groundhog Day” self-repeating kind of loop, but a style of iteration that allows you to explore opportunities, solve problems, and tackle big goals in a manner that reduces risk and allows discovery.

The Loop is rather simple:

  1. Focus: Figure out the most important problem to work on.
  2. Prepare: Think of an action can you take try and solve that problem.
  3. Simplify: Pare down your action to its shortest, easiest, quickest version.
  4. Do: Take the action, whatever that is.
  5. Reflect. What worked? What didn’t?
  6. Evolve: Feed what you learned and produced into the next iteration.

and back to 1.

The idea of the iterative loop is not new. Authors, practitioners and thinkers have talked about this in depth in just about every domain in existence. What I intend to do is show you how to apply this simple process to your life, to your business, and to your learning.

In a predictable, stable, linear world, there is little need for the loop. Careful long-term plans can map out with great accuracy the steps, tasks and goals required for success.

However, we don’t live in that world. The pace of change accelerates, knowledge both balloons and obsoletes faster, and opportunities appear more frequently but are less obvious. Long-term planning is difficult if not impossible in this environment because the conditions change so quickly and because we simply can’t know everything we need to know.

The Loop is a process built for such a topsy-turvy world. It’s personal evolution, allow you to learn quickly from failures and to exploit your successes.

In my next post, I’ll give a bit more detailed outline of the loop.

Entrepreneurs learn for a living

When I talk to people about entrepreneurism, people who haven’t had experience often expect the conversation to focus on business plans and investors, on marketing and advertising. While those will be important at various times, the real work of the entrepreneur is learning.

Entrepreneurs learn through doing.

More generally, the essence of the entrepreneurial process is learning. To create something that people are willing to care about or to pay for is an exercise in exploring the unknown. Who are my customers? What problem do they care about? How can I build it? What will it cost to create? What skills do I need to create it? How is this better or different than what has come before? Why do I want to create this?

To answer those types of questions, and more importantly to find out what other questions need to asked, an entrepreneurial thinker needs to be an open-minded, creative, focused, and self-motivated learner. Open-minded in that you need to be able to question your assumptions based on new evidence. Creative in combining taking action and making progress with learning. Focused on the most important unknowns. And self-motivated in that there will often be nobody else there to push you along to get things done.

Entrepreneurial learning is based on action and experimentation. Where students in a traditional classroom often see the scientific method as an abstraction to be checked off on a test, the iterative learner uses it in every aspect of their efforts. Choose the most important piece to be created or the most critical unknown. Figure out the quickest, simplest action you can take to move forward, and take that action (do something!). Afterwards, reflect on what was learned: what worked, what didn’t work, and what adjustments should be made based on this new knowledge.

Experience beats advice, every time. Mentors, advisors and teachers can help with general directions and ideas, but when you have tried something in the context of your problem, your experience provides a much surer compass than those farther removed from your goal.

Introducing the Creative Iteration blog

“Entrepreneur” has historically referred to a risk-taking creator of businesses. However, over the last several years, the term has started to be applied to people who share the characteristics of entrepreneurial businesspeople. These include:

  • acting rather than talking or planning
  • solving problems through creativity as well as perseverance
  • believing that the world and people are malleable and changeable
  • using experimentation and failure as critical tools for learning
  • viewing even problematic situations opportunistically
  • questioning existing assumptions and constraints
  • asking forgiveness rather than permission

Recognition that this mindset has applications outside of business has been known for years by designers, artists and other “creative” types. However, as the depth and breadth of change accelerates, these approaches are now becming not only applicable but imperative to the education, careers and lives of an increasing percentage of people.

The Creative Iteration blog will explore seeing our world, our lives and and our careers though the view of an entrepreneurial mindset.

I would love to hear from anyone who has feedback, ideas or comments on this topic, so if any this resonates with you, get in touch! You can find me at @pwelter on Twitter or email at