Probabilistic Thinking

Probabilistic thinking is making an estimate using math or logic to determine the likelihood that an outcome is going to happen.

This often involves statistics and historical data.

If the revenue in a company has grown by 10% for each of the past five years, then probabilistic thinking will point to a growth rate of 10% for the coming year.

Founders can use probabilistic thinking also for uncertain situations where there is little historical data. 

In our example, for estimating the revenue in the first year of a company without the benefit of a track record, we can use probabilistic reasoning.

In this case, we can use logic to estimate the revenue.

For example, we could look at similar companies to see what revenue they generated in their first year. 

In applying probabilistic thinking, consider all the options.  

Expand your focus on what is probable to include what is possible.

Gather additional information to tune the probabilistic estimation.  

This is called Bayes Theorem which incorporates new and relevant information into the decision-making process.

Apply probabilistic thinking to your startup decisions.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.