Evaluating Delusional Startups

Pretty spot on. Start ups do have to be partially delusional, because if people thought what they were doing was going to succeed they would be doing it too. That said you do well to spot the difference between someone who realizes that every slot on a roulette wheel has a slim chance of being the winner, and someone who tells you the last three spins have all be numbers less than 18 so the odds of a higher number are now much better.

Put differently, the math has to work. There can be unknowns like adoption rate, and customer retention, but at the end of the day the money coming in has to cover costs and give you enough margin to grow.

I recall considering a position at Ning, the team was great and they really wanted me to join, but at the time the path to profitability was to take advertising revenue away from Google for topic specific websites? I could not see any way to make that they could make that true. I pushed them on that point and realized they didn't really have any idea how to make that true either, it was a complete 'build it and they will come' faith play. I passed, spotting the delusion by doing the math. I think it would have been fun to work with that team but I wasn't sure how long it would be around.

The thing that gets me about startups is how shallow and timid so many are. They're entering densely crowded markets with very little differentiation, or they have no path to monetization that I can imagine. It might just be that I'm stupid and the founders are much smarter than me (that happens sometimes), but more often I think, no, I'm not stupid, that idea is stupid.