Nov
27

In a world of certainty, profit doesn’t exist.

Profit, both social and fiscal, is only possible with uncertainty in the markets. Without uncertainty, every market would be at perfect equilibrium all the time. Profit margins disappear. There would be no stock market. Venture capital becomes impossible.
Why? Because uncertainty inspires risks, and risks create opportunities for profit.

Uncertainty is the cliff lying ahead of the base jumper. Risk is the jump — the commitment to free fall, fully embracing the very real possibility of catastrophic failure. Profit is the parachute deploying — surviving the fall, with a chance of striking the perfect landing upon touchdown.

Sometimes these risks lead to monetary profit. Peter Thiel took a risk on Facebook — a big risk at that, and he’s made about $7 Billion for his willingness to throw $500,000 at a startup trying to do the unthinkable: connect the world. In 1999, Sequoia Capital and Kleiner Perkins took a massive risk on Google, investing $25 Million for 20% of the company. Now, with Google’s market cap at $182 Billion, they’ve become Silicon Valley legends for that single investment.

Sometimes it’s social profit. Not (necessarily) in a ‘social entrepreneurship’ sense, but in the broader sense — simply that they end up changing the world. Society is better off because of the risk someone took. A recent, and perhaps uncanny example of this is Airbnb. No one thought it would work. Not even Fred Wilson. But Paul Graham believed it would — so much so that he incubated them at Y-Combinator. They are changing how people travel, disrupting the entire hotel industry, and driving income for people who would otherwise be struggling to make ends meet. Or, take Ushahidi. Omidyar Network, the Knight Foundation, and others took a risk funding Ushahidi in 2008 following the post-election violence in Kenya. Today, they’re changing the way information flows during crises, with more than 20,000 deployments of their crisis mapping platform across the globe.

The point is, very rarely does anyone find success by fabricating a risk-free venture. It’s in the darkness of uncertainty that the largest opportunities lie. People that consistently embrace risk — and uncertainty — usually end up changing the world.

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Photo licensed under Creative Commons from Roo Reynolds via Flickr

 

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  • Anonymous

    This post explains why the Occupy Wallstreet movement, despite having some very good points to make, turns me off a bit. Their rhetoric sounds like they do not understand that creating anything takes a lot of risk and that people need to be rewarded for this risk or innovation will not come. There is nothing inherently wrong with creating wealth instead of stealing it. A slight change in their rhetoric will do wonders in spreading the movement to middle america. Luckily its easier and easier to create any sort of business nowadays. Technology has created a market that instead of the emphasis on capital investment in factories, which is out of the reach of most average people, one lone programmer can create a minimal business that can rival larger companies. The big barriers in the past to creating these businesses were not just technical, but institutional. In order to get any sort of traction you had to get media attention, which required knowing the right people. Now, with social media, these barriers have (to some extent disappeared) and with tons of companies listed at http://www.buyfacebookfansreviews.com providing these sorts of services, a great many of the potential barriers to creating a business are reduced. That’s not to say that there’s no risk. There’s a risk in time and money still. But this risk should not dissuade talented people from trying to create awesome products that benefit everybody.