Market is the most important factor in a startup's success or failure (2007)
pmarchive.com
pmarchive.com
Apple arguably did this with the iPod.
The one ingredient missing is that you often also need a pile of capital to strong-arm yourself into the market and become a viable competitor. There's definitely an optimal point to do this as someone else pointed out: too early and you suffer the market exploration costs and failure risks, too late and you may never catch up.
I personally don't think these sorts of strategies should exist from a perspective of principals (it encourages capital to copy, not innovative, and further punishes those who take on the real risks who are disproportionately awarded) but they do. This why IP protections like patents came about in the first place, but these systems too have been gamed so far they often make little sense anymore either (e.g. slight derivations of existing patents that mimic the same functional outcomes but are allowed just to name one perverse abuse of the patent system--still allows a high degree of copying).
I think the latter (joining late) can often be overcome with more capital though. The issue often isn't that you can't catch up, it's that it's often not worth the investment and risk perceived by investors with sufficient capital to try and split any existing market and innovative over what exists, especially if it's capital intensive. There are usually other lower barrier to entry markets to muscle into and get money out of.
To play devil's advocate - what about network effects? There are plenty of examples where a possibly inferior service built a moat around itself through network effects, preventing a potentially better rival from competing.
It’s not a binary choice between copy or innovate. Many successful clones made significant innovations atop a basic category defined by a less successful first mover.
The micro-HDD that let you carry an actually useful amount of music was the other big feature. They weren't the first to have a big drive, but they were the first that had a big drive and a useable music store.
So did Google — remember AltaVista? [0]
IBM targeted a business market that hadn't really been seriously targeted by the "hobbyist" systems. The Compaq was really at the spearhead of the clones. (And IBM subsequently whiffed with the PS/2 and OS/2.) And then Dell revolutionized distribution. And even that is a gross over-simplification.
"Not tinder" at the point where a "not tinder" was due to emerge.
Dating apps always run on the same cycle.
No dating app solves the fundamental problem of women in this day and age have a totally distorted view of the range of "attractiveness" for men.
Can you explain what you mean? Are you saying that the reason that modern dating is hard is because women are too selective?
https://www.gwern.net/docs/psychology/okcupid/yourlooksandyo...
That's a gigantic problem in that even if a woman estimates herself correctly relative to other females, she totally mis-estimates the men she's equivalent to.
Men, on the other hand, understand female attractiveness quite well. However, they put in a lot of effort to land that female that punches above their weight in attractiveness.
All the data says is that women think that the average man on OkCupid in 2009 is less attractive than the average man.
Your conclusion: women don't rate mens' attractiveness accurately.
Another conclusion: the average man on a dating site is less attractive than the average man.
Another conclusion: women and men interpret the survey question differently.
You also make the additional assumption that this is some sort of fundamental problem, but that's a separate issue.
The female estimate looks like a power curve from zero.
https://www.gwern.net/docs/psychology/okcupid/yourlooksandyo...
Successful early movers realize how the value-creation is going to happen once the tech is mature, and focus on that.
Wow, looks like a smaller Nintendo Switch, I thought. He told me there’s homebrew to connect it to a larger screen.
Timing is everything.
> Timing is everything.
Yeesh. I assume you know what homebrew means.
Perhaps putting features in your product is what mattered more than timing here.
You would think Sony could at least iterate on their product with features the gaming community wants instead of shuttering the product line permanently.
https://ted2srt.org/talks/bill_gross_the_single_biggest_reas...
I'm sure this wisdom is coming from ages of experience, and everyone respects this guy, but an outsider would have zero reason to adopt this other than "huh, that's sensible".
I think it's intuitively obvious and needs reinforcing, but obviously market isn't the "only" thing that matters. You do need a reasonably competent team and a reasonably workable product and all that requires a huge non-zero effort and a lot of wins.
For example, e-ink displays. Personally I think the idea of having a photo or framed image on a wall that can display an effectively infinite number of different pictures, another one every day, is an extremely attractive proposition compared to the low-tech standard of leaving the same image there for years.
But it looks to me that the pricing for the display modules is holding that market back. Maybe because of a patent or something and not enough competition. But also, it COULD become a big thing at any time for a wealthy demographic, especially for the smaller ones say the size of a normal sheet of paper. But that depends on whether it becomes trendy. Which is partially about luck and what individual people do and how many friends they have.
Nope. It is volume. In the display industry, if you're selling less than a million panels a month, then you're a niche exotic industry. E Ink is probably not even reaching 50% of that. Think about this way. E Ink in the display market is unfortunately the equivalent of a sports car in the car market. It'll only become cheap if it can defeat or be competitive with LCD/OLED displays and step up to reasonable volumes, and that's unlikely to happen just due to the physics of electrophoretics.
And that's the one example you can give? I know what a batting average is. Your comments are insulting in a backhanded way.
Everything new from the car, airplane, computers, phones, OLED, has had people like you claiming it was never going to be economically viable.
My perspective: Always just do it. If you're good enough to succeed you'll succeed, and if you're not good enough, you never were gonna succeed anyway. Of course, you need to be scientific in your approach, but nothing on this page is scientific. Apart from my perspective ;)
The first time I read this post was two years ago. I was working a problem: how to practice Japanese. I had users and revenue, but no growth. Simple maths told me my product would never grow as a startup, and I had no way out of the niche. This post helped me confirm my worry: my market is too small.
What I learned: add a filter to the problem I want to solve. Is the problem big, or is it going to be big? This is expecially important when I am working on something I am passionate about. There is confirmation bias and wishful thinking when it comes to what I love.
Now I am working on a problem I care about, and the problem is big.
This post expresses an idea that I can easily relate to, given my experience. In this sense, it is useful.
Although Marc doesn't present the evidence that his claims are based on, I'm sure his thesis is based on the thousands of companies he's witnessed succeed and fail.
Needless to say, next time (if there is a next), I'll spend a lot more time analyzing market before diving in head first.
One thing I'm curious to see: if you've got a great team and run a tight ship can you take your time and eventually wait for your market opportunity?
Luck and connections, too, friend.
Also note just because some companies aren't flashy with their marketing, doesn't mean they aren't doing any.
The next startup had a few really horrible people on the team, and they succeeded in spite of that fact. Eventually though larger macroeconomic conditions soured for them (ie the market evaporated) and the company failed.
For one thing, luck is not really a single factor, rather it's the sum effect of all the chaos and entropy in human systems. Any given instance of luck (eg. IBM licensing MS-DOS in 1981 because they didn't foresee the market value of software) is just one-off serendipity unrelated to all other instances of luck. In a tautological sense luck is definitely the most important thing because if it wasn't, a given opportunity would be obvious and already exploited.
But my true critique is more personal—luck is by definition is something which one has no agency over. Some use this as a mental crutch to justify sour grapes about their own lack of success. However by focusing on luck and thinking of it as the end-all-be-all, one can easily lose sight or motivation to do the things under their control, which, ironically, could improve their luck.
The better mental model I believe is to focus on your base qualities: develop hard skills, a work ethic, systems understanding, and relationships. No one is great at everything, but within these broad categories are many valuable traits, and by combining a few of them you can open the door to novel opportunities. By doing so, you are primed for luck (although you still may need to recognize and seize it), and will be in a much better position than someone whose mental energy was on the things outside of their control.
Luck plays a huge role in early momentum. So does money and previous experience and a growing market. They all fade sharply as you get established.
It’s still not a particular helpful frame to evaluate startup success. In some ways it’s a tautology, momentum comes from momentum. But I still think it’s probably more descriptive than most of the original post.
That’s why the best startup advice is often so frustratingly vague. Stay focused, pick the right collaborators, release the first version as quickly as possible. They’re all dancing around the same basic idea which is you need to get the flywheel moving at basically any cost.
Luck is not a factor here, in that you have no control over it. This conversation is about what factors you can control are the most important. Which ones reduce the amount of Luck you need.
No one is saying you can reduce Luck out of the equation, but choosing the right Time to be in the right Market seems to matter more than anything else.
If advantages are important doesn’t it follow that advantages like intellect, wisdom, or courage might be decisive?
A startup is always: creating value by addressing a need for a group of people.
Skill and luck weave through all of this. Finding the group of people? Maybe you strategize and seek those out, often they end up being the group you’re a part of or adjacent to (luck or skill?). How about finding that need for that people, and an important need too? If you have past experience maybe you know where to look, maybe you know how to filter the opportunities better and what to focus on. The process of creating value? Maybe you went into a discipline seeking those skills specifically for a startup, or you just happen to know people with the necessary skills to execute.
Overall: it’s a hard problem with constantly changing rules and strategies, and often you end up competing with other smart and talented people. Skill stacks the odds, but the problem is so complex that what we call luck is just the lack of deep understanding of the problem.
There is probably a set of steps that you could take one after the other that guarantees you’d make $1 billion dollars. Figuring that out is so difficult and complex and changing that thus far the best one can do is be as skilled and hardworking as possible, optimizing where you can, but even that doesn’t guarantee the solution: hence luck. The whole thing IS a skill problem, but it’s so complex that all the parts we can’t fit in the equation we just call luck.
Serial founders have gone farther in deciphering that “luck” into skill, so luck is less of a factor for them.
If that were true, I would expect each next conpany to be much more succesfull as the person accumulates capital, network and skills.
Instead what I've seen (and i do not study this as my day job) is that someone has a very successfull startup, and then creates a few 'meh' companies.
Peter Thiel never replicated his success, Elon's Boring Company and Hyperloop are unimpressive, Mark Zukerberg or Blly G never surpassed their initial success.
This leads me to conclude that with the right skill, funds and connections you can create a business, but to have explosively growing startup is really not a repeatable process
Thiel's Palantir is a $40B company. That's a long way shy of PayPal but its certainly quite successful. Musk has had moderate success with Tesla and SpaceX.
They might not have surpassed PayPal (yet) but they are both doing successful second and third businesses.
I'm not suggesting that poster above is saying this, but I have found a lot of founders who fail say that luck is important, while a lot of serial entrepreneurs say luck isn't a big factor. On some level it might be the case that people use luck as an excuse for their failure because they're unwilling to be introspective enough to work out a more tangible set of reasons why their startup failed. On the other hand, maybe the serial entrepreneurs are just lucky and like to say it was actually their skill instead.
The Pmarca Guide to Startups, part 4: The only thing that matters (2007) - https://news.ycombinator.com/item?id=14412463 - May 2017 (17 comments)
- He uses team (i.e., a balanced and cohesive unit), when he really means "team" (i.e., a collection individuals on the same payroll). Put another way, talent is not synonymous with team.
- This differentiation is important because Team is far more likely to find p/m fit than "team". Put another way, unless the market is new / created then it's there...sitting...waiting. Then the question is: Who finds it first? Answer: The most able team.
Money - lots of money, $1M basically just gives you the freedom to tinker on your own time - basically gives you the ability to hire other people to do the actual work of serving customers. If you want a successful startup, you need to know which customers, what work, and how it should be done, in a way that nobody else has figured out yet. An employee is not going to figure it out for you; if they could do that, they'd be off starting their own business. If your competitive advantage is that you have more money than everyone else, you will still fail; people who lack money are unaware of just how much money is floating around in capital markets and how little that differentiates you. Conversely, if you do have a unique insight into an untapped market that's more profitable than any existing way of doing things, financiers will be falling over each other to give you money and take a slice of those profits.
In my experience, the key reagents to a successful startup are information, insight, timing, luck, connections, and technical skills, in that order. This is largely reiterating the thesis of the article - "market matters most" - but in terms where it's the entrepreneur's job to find an untapped market, at precisely the moment in time when it's ready to be tapped.
I think few people truly believe money guarantees success and that's rarely claimed from my experience. There are plenty of other factors that need to be met to start a successful business, but if you have money, those other factors can be focused on more intensely and you'll be less hamstringed on factors like timing and time to market, innovation/added value, network effects/marketing, and so on.
You're working at a disadvantage in most other aspects needed for a successful business if you don't have a certain baseline of capital to work from. Often times more capital infusion beyond that baseline can help. There are certain problems addressed by startups that throwing money at no longer helps and you can reach diminishing returns. That's a nice problem to have.
To your point, money can buy you a Monte Carlo (or MCMC for 'better') approach to market exploration for your businesses products/services. You can try, fail, and adapt.
For many without piles of money, starting a business can afford only one failure (if they're that lucky) in their lifetime. No retries with refinements.
Since then, for about 5 years I did full time corporate work while they failed maybe two dozen businesses. The nice part is that out of those failures, two companies took roots and basically now they’re a lot wealthier than their parents and they long since paid of all the money they lost during those years.
While the rest of us need to get funding from experienced investors who vet our plan first. In a system where there are investors looking for people to invest in, this approach is bound to succeed more.
On the other hand, having the money and luxuries may eliminate the so much needed evolutionary pressure on a personal level. On the company level, there's also the trap of creating a "charity business" that is not profitable, but that's if you really have loads of cash to blow / VC-funding yourself.
Please don't interpret this message as "if I was rich, I would be successful". I just think it's harder and takes more time and more sacrifice when you have to work for a living, but creating a successful company is hard either way and requires full attention.
"just"? Seems like you identified it as a main factor just like the parent. It's like the difference between necessary and sufficient but put in terms of probability instead: it significantly increases the chances that it's even possible to make an attempt. It's clearly not sufficient though, as you both point out though.
I started my first startup with $30K, saved up from 2 years of working at someone else's startup. That bought me a year and a half of tinkering time and 4 shots at goal. It'd cost more now, particularly with Bay Area prices (I was in Boston), but we're talking about $100K, not $1M.
If you want to make an attempt, go work for a FAANG or one of the recently-public tech companies for 2 years, live like a grad student, and bank the difference. Then work for somebody else's startup for a year to see what life outside a big corp is like, then you should have 2-3 years saved up if you haven't increased your living expenses. If you can't get a job at a FAANG, unicorn, or one of the other leading companies in your field, you're probably not ready (in terms of knowledge and technical skills) to found a startup. Once you do you're looking at ~$200K/year in total comp, which saves up really fast if you're still living like peers who make $60-70K/year.
that's an overstatement right there. real life evidence points otherwise. lots of companies are founded on the humble crud stacks - php, django, rails etc where the founders or engineers hardly knew what they were doing.
however yeah, I agree having runway by cutting expenses buys you a lot of time to tinker around.
Work in a company with more than 50 people. Spend your time learning who are the two people that bring 80% of value to the business. Join those two when they go off to start their own business, which they choose to do because they are grossly underpaid at their current company relative to their impact.
If I can land a job at faang why would I quit after two years to start a one person startup myself with $100,000 capital live horribility for 2 years at a faang and probably 2 more years trying to live off of that 100,000.
It sounds naive. If I want my startup to succeed I can't wait two years to basically bootstrap the business. If I'm at a faang why not wait a little longer and leave with someone else and get millions in seed money?
I've seen startups run by children of very wealthy people that failed because they didn't fundamentally understand the value of the dollar, or what reasonable spending should look like during lean startup times.
I've seen the repeated loans of a million dollars, and believe it or not, a million doesn't go very far in startup world. If you don't have revenue to offset your burn, you'll be in endless raise land.
This can only go on for so long, regardless of your family's money situation.
Conversely, I've seen several startups succed that were run by folks who did the obligatory teenage time working a counter at McDonald's (or equivalent). Part of their success was their ability understand and control costs, especially their lifestyle while in early stages.
I've run into many people who want to get into entrepreneurship but are unable to because their lifestyle bills are so high, they'd require a salary level that no reasonable investor is willing to pay during founding.
People way overestimate how much contacts help.
We've had meeting with all types of influential people in our industry who were friends or relatives of a founder and they just haven't been that helpful.
Our most valuable contacts are people we met along the way, because they really believe in the product. And that means so much more than oh your the son of an ex coworker and you have a startup you want to tell me about during lunch.
Bottleneck is that the market moves on in the time you spend pivoting, and eventually your inside information about what's hot and what's worth building gets stale, along with your technical skills. I know a number of other entrepreneur/retirees in the same boat - 5+ years working on various ideas, often after having a previous exit - and it never seems to result in a big company.
My startup is growing 5% every week for last 6 months and it took me 3 years to get here. If my bank account was bigger I could have done it in an year. and because I am bootstrapped I am losing my amazing tech team to highly funded companies that can give them 3x salary and stock options
What about buy an existing startup vs bootstraping?
Lots of people don't realize learning to read the market is also a separate skill that can't be learned through working for a company. It takes time and a few failures to wise up.
I moved to Sydney, Australia about 9 years ago. This city is VERY clqiey. For Sydneysiders, it's all about what school you went to and who you know.
But if you're a foreigner, you kinda automatically hack the system, because they don't know anything about the school or people where you're from. It doesn't even come up in conversation that I didn't go to University, like they automatically assume I went somewhere, and that they can't qualify me anyway.
This isn't a way to hack the early dollars of a rich parent who can payroll a start-up, but you may be surprised how you can get into the "right places" and meet the right people.
At the same time, if you've got the attitude that says everyone else has benefits that I don't have, you'll get that in return. Same if you just go looking for "connections" I suspect.
Rich kids are not starting good startups. They're not coming from mega mansions driving ferraris. Their parents are professionals, they live in what look like 'normal homes', like 'TV homes'. Usually stable family environments.
They didn't have to worry about stuff and if they got into an Ivy League school they were surely going to go.
If they got into trouble, the risk was dampened.
So 'privileged' but not 'spoiled rich'.
Basically - enough money for the 'good things' that money can get you, while avoiding the 'negative' stuff.
Most founders did not use their parents millions to get the business going.
But good point. Many of these articles seem to take things like money and contacts for granted.
It's clear that people who have more personal runway get more chances at trying to find the right market.
Jan Koum of Whatsapp (Ukrainian immigrant, came to U.S. with nothing, was on food stamps as a teenager).
Brian Chesky of AirBnB (child of social workers, attended RISD).
Sergey Brin of Google (parents were professors, but emigrated from the Soviet Union with nothing. Attended University of Maryland).
Marc Andreesen of Netscape, Loudcloud, Ning, and a16z (parents worked for Land's End and a seed company, grew up in cornfields of Iowa, attended UIUC).
Also, add Chad Hurley co-founder of YouTube to the list:
(Public school in rural red county Pennsylvania, Indiana University of Pennsylvania for college)
"As a child he was homeschooled by his mother, took sailing lessons,[7] and had an intense interest in electronics and engineering.[3][8] He took community college courses at Golden West College and Long Beach City College[5] beginning at the age of 14 or 15, and started attending courses at California State University, Long Beach[1] in 2010.[6] He wrote and served as online editor for the university's student-run newspaper, Daily 49er.[9]
During his childhood and teenage years, Luckey experimented with a variety of complex electronics projects including railguns, Tesla coils, and lasers, with some of these projects resulting in serious injuries.[1] He built a PC gaming "rig" worth tens of thousands of U.S. dollars[8] with an elaborate six-monitor setup.[10] His desire to immerse himself in computer-generated worlds led to an obsession with virtual reality (VR)."
I think the winner-take-all nature of many of these hot markets is something more apparent now than it was in 2007.
Who was he talking about? Anyone has any clues?
I believe the issue is that their product is expensive and therefore did not become popular and therefore has relatively few applications and so does not become popular.
But the when is anyone's guess and could easily be a decade or three out.
Some of the optical waveguide prototypes are quite similar to normal glasses especially with power and compute on a tether in a pocket or something. I will be very surprised if it really takes ten years.
So I wouldn't be shocked if there were mainstream consumer AR glasses before the end of the decade. I also wouldn't be shocked if 10 years from now they were still at the "real soon now" stage.
I think this is wrong, should be: "When a lousy team meets a great market, a competitor wins."