December 28, 2021
The Law Of Twos For Entrepreneurs
The Law of Twos is a firm law for entrepreneurs, foreshadowing the journey you are either about to take—or are currently on! This law is like gravity! You might think you can change it, or even manage it, but gravity always wins. To this day, I continue to experience this law in many aspects of new ventures.
Here are the four components of the law:
- Everything takes about twice as long to happen versus your original plan. It’s just human nature for things to take longer when you put them out there in the market place. Remember, the world was probably not waiting for you to start a business, so understand things take time… and something twice as long.
- Everything comes in half as large as you thought it was going to be. As much as you want to price your goods and services the way your plan calls-for, the marketplace will invariably decide the market price. Also, you may have to do some discounting or ‘seeding’ of your product or service just to get off-the-ground.
- You’ll need twice as much money to get it off the ground. No matter how elaborate your expense and launch plans are, I have found you will need 50-100% more than you anticipated. This additional expense is just a reflection of getting the product “out” to more than just the people and customers who were in your sphere or line-of-sight.
- It will take two times the effort to get it off the ground and you’ll be working weekends. I have spent enough time outlining how ‘hard’ (but gratifying) starting a business is, and the fact is, it is harder than you might imagine. Whether delays, curveballs, unexpected competition… whatever the issue is, it is harder than you think. That said, if you are getting traction—forge ahead—because it is so gratifying.
Now, while this law, in my opinion, is unavoidable, it should not scare you or mean you should not forge ahead and keep building the business. The key to this law is to recognize its likelihood and do some planning around it. Here are some actions you might want to think about it.
- Develop one or two financial models that factor the law in, and see what that looks like. Can you survive the Law of Twos? Are you able to take your revenue projections for year one, and stretch them out so it takes two years? What about taking your expense projections and double them in the first year? Can you account for the amount of time it was going to take and double it?
- Examine whether you have the resources and ability to see it through. If you needed more money, where would it come from? If you had to wait to spend certain amounts of money (e.g., office space, new hires), what would it mean?
- Use the Law of Twos as a continuous forecasting mechanism and as a way of reviewing optimistic and pessimistic scenarios. Just because you put together a pessimistic (or worst-case) scenario does not mean you lack confidence in the business. It means you want to review what worst-case looks like so you can digest it and avoid it.
In summary, understand and recognize the Law of Twos but forge on and drive your success.