I got an email overnight asking me about “affordable loss,” which is one of the four factors in my Wednesday post on Planning Startups Stories, A Seasoned Angel Investor Highlights These 4 Factors.
I can see why that phrase, affordable loss, seems contradictory or paradoxical. Wade Brooks, who used it in the Monday talk I took Wednesday’s post from, made it pretty clear to me and others; but then I was left with my notes summarizing it. I said:
Affordable loss is about planning, expense control and careful management. “A little bit of money goes a long way,” he says, when a company is careful with it. If there were no loss, they wouldn’t need angel investment at all; but a big loss means trouble.
The email I received wanted to understand that better, so obviously I didn’t explain it that well. Happily, though, that same phrase turned up in my notes to another blog post I was working on. It’s in this paragraph (emphasis is mine):
That is not to say entrepreneurs don’t have goals, only that those goals are broad and—like luggage—may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss.
So there you have it again: affordable loss is about getting to market as quickly and cheaply as possible. No wonder Wade Brooks and other angel investors (me included, in fact) like that. I hadn’t heard the phrase before, but it works for me.
(Image: Marynchenko Oleksandr/Shutterstock)