The importance of market size estimates and financial projections for the investability of startups is often exaggerated. We tend to gravitate towards quantitative information and numbers, particularly if they meet our expectations of size and growth rate.Yet, it is tacit knowledge, experience and expert opinion that often drive the eventual investment decisions in early stage companies. Indeed, research indicates that quantitative financial information makes up 20-25% of investment risk. The rest is non-financial, unquantified expert know-how.Observation and Experience Yield Tacit KnowledgeMany of us have been subjected to, and love or hate the Myers-Briggs personality typology. Steeped in the theory of Carl Jung, the test is structured around the two major attitudes or orientations of personality - extroversion and introversion, and four basic functions (thinking, feeling, sensing, and intuiting). The test is often dismissed as not being scientific and thus not testable. That is not its purpose. It is based on observations of people. Decades of observations. It really only tells you how you are wired to take in and process data, not your actual skills and abilities. We live in a world of information. The more we accumulate, the more we have to process. All the time. Every day. And in the process we accumulate tacit knowledge. Knowledge informs opinions, perspectives, and decisions. Experiences influence how we project, 'market', and identify ourselves.Tacit Knowledge in Business Design and InvestmentEntrepreneurial business development is an extension of these experiences. Serial entrepreneurs and investors accumulate new knowledge from failures and successes. And using this tacit knowledge, they make investment, strategic and operational decisions. It is not knowable - until significant market validation - whether an investment has a likelihood of success....Read More
