For years I have described starting a business as learning to surf. Everyone on the beach wants to talk about surfing: the boards, the waves, the people already up and riding. Far fewer wade into the cold water and start paddling, because paddling is slow and unglamorous and everyone on the beach can watch you fall off. The beach is where ideas stay ideas. I have written the full analogy up here: Surfing the Entrepreneurial Wave.
And the thing that keeps most people on the sand is not the paddling. It is the fear of failing where everyone can see you. Anyone who has ever thought about starting something has heard the number that justifies staying dry: 90% of restaurants fail in the first five years. It gets repeated at dinner parties and in business school lectures with total confidence, and it has probably talked more people out of more ideas than any recession ever has.
It is not true. Researchers at Ohio State followed restaurants over several years and found that roughly six in ten close within three years, and the broader government data says about one in six new businesses close in their first year, with roughly half still standing at five. Trace the 90% figure back far enough and you do not land on a study at all. You land on a credit card commercial from 2003. Half is still a sobering number. But half is a completely different game from nine in ten, and it tells you something important before we go any further: most of what we believe about business failure is folklore, repeated until it sounds like data.
That bothered me more than it probably should have. Because I am at the point in my career where I am looking hard at what comes next, at the opportunities in front of me, and I wanted something better than folklore to judge them with.
The math the funds get and you don't
If you run a hedge fund or a venture capital fund, you do this math every day. You do not ask "will this business work?" as a matter of feeling. You ask what the base rate of success looks like for this kind of company, what specific factors move this one above or below that line, and what the expected value is across a portfolio of winners and losers. Nobody at a fund finds this exotic. It is simply the job.
But nobody hands that math to the individual operator. The person deciding whether to open the shop, buy the distributor, or leave the salary gets the folklore, the 90% myth on one side and the follow-your-passion poster on the other. I wanted the fund math, for myself first and then for anyone else standing on the same beach. An empirical way of looking at an opportunity and asking: what are the odds, and what would change them?
Averages first, then levers
The starting point is the industry average. If half of all restaurants make it to five years, then before you know anything else about a particular restaurant, that is your number. Statisticians call it the base rate, and ignoring it is one of the oldest mistakes in decision-making.
But the average only tells you so much, because you know things about your specific opportunity that the average cannot. You know whether the location is strong, whether the margins have room in them, whether you have done this work before or are learning on the job. Those are levers, and each one tilts the odds in your favor or away from it. Not to certainty in either direction. Just a tilt, a distribution edging one way or the other.
That crossing of base rates and levers is the whole idea. The trouble is that for most people it is also the moment their eyes glaze over, because it is probability, and probability on a spreadsheet is boring even when it is about your own life. So I built it as something you can watch instead.
Watching a thousand businesses run
The Drop Test is a Galton board, the old wooden device where balls bounce down through rows of pins and pile up in a curve at the bottom. Each ball starts black at the top, bounces pin to pin, and resolves as it falls: drifting left it turns red, drifting right it turns green. The board starts from the real survival data for your kind of business, and your honest answers about the levers tilt it from there.
Drop a hundred balls and you are watching a hundred versions of the same business run their course. Drop a thousand and the distribution stops being an abstraction and becomes a shape you can point at. This is what the fund managers see when they close their eyes.
But here is the thing the thousand-ball view cannot tell you, and it is the most important thing of all. You do not get to run a thousand businesses. You get to run one. One ball, one drop. Sometimes the one goes right, and sometimes the one goes wrong, and no distribution, however honest, changes the fact that you live inside a single run.
The first pin
So I started watching single balls instead. And that is where the tool taught me something I did not build into it.
Watch one ball fall and you can tell, shockingly early, which side of the board it is heading for. The very first pin decides more than seems fair: bounce left, and whole stretches of the right side of the board quietly go out of reach. By the third or fourth pin, the ball has something you can only call a trajectory. It has not landed. Nothing is certain yet. But the range of places it can still end up has narrowed, and it narrowed while you were barely paying attention.
Economists have a name for this, path dependence, the way early outcomes constrain everything that follows. But I did not experience it as a concept. I experienced it as a ball bouncing off a pin, and then a translation I could not unsee.
The first pin is your first product. It is your first website. It is the location you sign for, the first hire you make, the first contract you negotiate, the first price you put on the thing you sell. None of these decisions feels final at the time. Every one of them is made early, quickly, often with the least information you will ever have. And every one of them sends the business bouncing in a direction, closing off parts of the board you will never get back.
That is what I will carry into whatever I do next, and it has changed how I look at every opportunity in front of me. Not just "what are the odds for this kind of business," but "what is the first pin here, and how much attention does it deserve?" More than I used to give it. That much I know.
Go drop a ball
That is why I built The Drop Test, and what I was thinking about while I built it. It is free, and it lives at alastairmsanderson.com/tools/drop-test. Pick the kind of business you are looking at, answer the questions honestly, and drop a thousand balls to see the shape of your odds.
Then drop one, and watch the first pin. Or just start here: