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The Planning Fallacy

It was only very recently that I learned about Amos Tversky and Daniel Kahneman’s theory of the Planning Fallacy. Basically, that we’re horrible about planning for things that we haven’t experienced before. It was presented through Reid Hoffman’s podcast series … where he also added that ventures in new industries have no clue about whether their businesses will take off and how much they’ll cost (Reid uses this to advance his argument that ventures take as much money as they can).

I was thinking about this for the Ubi. We really didn’t know how much it would cost to build a hands free voice interactive WiFi device. It hadn’t been done before (and we hadn’t done anything similar either).

When we were planning our Kickstarter, we had a soft goal and a hard goal for our project. The first was the Kickstarter project goal. This was set at $36,000 because we saw that most successful hardware projects had a low goal and we could overshoot it easily and gain momentum for the project. The second was around double that — our hard goal. This was the minimum we felt was necessary to break even on production of the hardware device. Of course, we completely neglected the design costs, setup fees, shipping, duties, etc. The reality was that it would cost more than a factor of ten of our hard goal to actually ship the product.

When we had done our initial fundraising, we had shied away from taking too much but as our angel round grew, it coincided with the budget requirements for our project. Fortunately, we had the guidance to close enough needed for us to deliver.

The resulting lesson we learned was that for new technologies, we need to budget much more than initially expected to bring a new product or service to market.

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