All About Risk and Uncertainty

Today: Risk and uncertainty are two different things. Uncertainty is the key concept in the Entrepreneurial Age.

Credit: AJ Yorio

The Agenda 👇

• The difference between risk and uncertainty

• Jerry Neumann and ‘Productive Uncertainty’

• Vaughn Tan and the ‘Uncertainty Mindset’

• Further illustrations from the startup world

• Revisiting investing in the context of widespread uncertainty

Everyone in the tech world is interested in risk because building a startup or funding it is supposedly about taking risks. A concept that’s less well understood, however, is that of uncertainty—which, it turns out, might be even more relevant to understanding what is happening in the tech world these days.

I first covered this discussion about the difference between risk and uncertainty in an essay dedicated to the situation in Hong Kong, Brexit, and allocating capital at the global level in a transitioning world, Country Risk in an Uncertain World (July 2020):

In the past you could confine your business within the limits of the vaguely global part of the economy in which risks could be assessed and managed. Today, the Great Fragmentation is destroying even that “globaloney” corner—starting with Britain, Hong Kong, and even the US—and forcing everyone to realize that uncertainty, not risks, rules the world economy now.

More recently, I commented on the concept of uncertainty as discussed by venture capitalist Jerry Neumann in his masterful essay Productive Uncertainty. Have a look at my counterpoints here:

• On Jerry Neumann's “Productive Uncertainty” (Round 1) (November 2020) 

• On Jerry Neumann's Productive Uncertainty (Round 2) (December 2020) 

• Is investing in 'deeptech' a good move for Europe's VCs? (December 2020—in Sifted)  

At about the same time that Jerry was introducing uncertainty as the key to understanding what startups are all about, Vaughn Tan published his landmark book The Uncertainty Mindset about how the best restaurants in the world manage to reconcile innovation and innovation through their approach to haute cuisine. A first round of discussions covering Vaughn’s work can be found in my essay Three Theses About Cuisine (September 2020—quoting my wife Laetitia’s related article):

The Gesamtkunstwerk includes the dishes themselves, but also how they look, the story they tell and the story they are packaged in, the music they create. The way you experience the work of art is affected by the environment in which you experience it, the objects you touch, etc. So innovation in high-end cuisine encompasses everything! It requires not only a deep knowledge of ingredients, cooking techniques, chemistry, biology, food history and culture, but also creativity about storytelling, choosing furniture, and mastering photography.

🎧 More recently, I had the pleasure to feature a syndicated Building Bridges podcast in which my wife Laetitia Vitaud talked to Vaughn about topics ranging from the pandemic to his book to why uncertainty matters in today’s world:

• Make sure to listen to the podcast: The Uncertainty Mindset w/ Vaughn Tan. Automation creating jobs. Financial loops. Industries shifting. Most read essays. (December 2020)

Uncertainty might not be top of mind, but we shouldn’t be surprised that it’s emerging as an overarching concept in a world where value creation is determined by increasing returns across complex systems. Here are two of my essays that relate to these dimensions:

• An Important Point About Increasing Returns (September 2020—about the work of pioneer economist W. Brian Arthur)

• Anyone Can Build an Entrepreneurial Ecosystem (July 2020—about Brad Feld and Ian Hathaway’s The Startup Community Way)

Not everything in the tech world is about uncertainty, however. Here’s proof: private equity firms are more and more interested in deploying capital in tech companies, and they’re easily deterred by widespread uncertainty. You can read all about it in Can Private Equity Firms Make Money in Tech? (June 2020)—and I’ll be digging deeper in my forthcoming ‘11 Notes on Silver Lake’.

Finally, here are other essays that somehow relate to the discussion around risk and uncertainty:

• What Is Venture Capital? (March 2020)

• The Entrepreneurial Investor: An Overview (May 2020) 

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From Munich, Germany 🇩🇪

Nicolas