Startup School And Survivor Bias
jfornear.co
jfornear.co
For every successful startup that has ran their bank account down to $100, maxed out their credit cards, had trouble fundraising, etc., dozens (hundreds?) more have done the same but ended up in the deadpool.
For me it highlights the insanity of our pursuit. Not only do founders struggle, experience the trough of sorrow, and often not emerge... there are often not even any indicators that things are going to turn around. The feedback you get from being $100 away from failure and $100 away from almost turning around and being huge might often be the same.
It's like fate's deliberate and cruel punishment to those who have elected the startup path, telling you that you can't quit, no matter how bleak it feels, because, well ... you don't even have a way to know if it IS bleak.
It's not over til it's over.
So increase your luck surface area, work hard - and most importantly of all time your entry and ideas just before their time.
People like to speak of 10x productivity, non-stop work and geniuses - but the reality is much less interesting. A large number of small teams working on many different problems will by definition have a great variance in outcomes just by random extraneous factors (also known as the law of small numbers and insensitivity to sample size).
> A certain town is served by two hospitals. In the larger hospital about 45 babies are born each day, and in the smaller hospital about 15 babies are born each day. As you know, about 50% of all babies are boys. However, the exact percentage varies from day to day. Sometimes it may be higher than 50%, sometimes lower.
For a period of 1 year, each hospital recorded the days on which more than 60% of the babies born were boys. Which hospital do you think recorded more such days?
1) The larger hospital
2) The smaller hospital
3) About the same (that is, within 5% of each other)
56% of subjects chose option 3, and 22% of subjects respectively chose options 1 or 2. However, according to sampling theory the larger hospital is much more likely to report a sex ratio close to 50% on a given day than the smaller hospital.
Relative neglect of sample size were obtained in a different study of statistically sophisticated psychologists
-- http://en.wikipedia.org/wiki/Insensitivity_to_sample_size
> A deviation of 10% or more from the population proportion is much more likely when the sample size is small. Kahneman and Tversky concluded that "the notion that sampling variance decreases in proportion to sample size is apparently not part of man's repertoire of intuitions. For anyone who would wish to view man as a reasonable intuitive statistician such results are discouraging."
-- http://www.decisionresearch.org/pdf/dr36.pdf
Taking lessons as gospel from these "10x" events is by definition foolhardy and merely an extension of the bullshit pushed by the entire "Good To Great" Jim Collins business book industry.
It's like taking lessons from survivors of the Titanic on how to survive the sinking of a ship. It's quite simple - be a young female child with a life vest and rich parents (or in startup land - a young upper-middle class male living in California during a venture bubble, a cyclical investment in the Valley with a convergence of secondary technologies, above average intelligence and a college degree from a reputable university).
I have a personal rule with any kind of advice or explanation coming out of anyone working in a "soft" industry - if it's vague - it's bullshit. All of the advice given at these events are bullshit by this definition. So are many other things - and yeah it doesn't preclude me from spouting it. Or using the advice at my discretion.
But honestly - startup founders literally have no idea why things take off and they have no idea why they win. That's why they have to keep pivoting - it increases their luck surface area and their ability to gain traction - after which they simply must hold on tight while surfing the wave.
YouTube was a dating site - didn't work - pivot - video traction - venture up - ride.
PayPal was a Palm Pilot app - didn't work - pivot - traction - venture up - ride.
Google sold corporate search - didn't work - pivot - copy PPC from Overture - lever up - traction hits - ride.
Instagram - started with a location checking HTML5 app 2 years too early - pivot - copy PicPlz and Hipstamatic - hit traction - lever up - ride.
Angry Birds - fail at hitting nearly every game in the past decade - pivot - take a shot at the iPhone - hits traction - lever up - ride.
Of the startups that didn't pivot - they either skipped the pivot thanks to previous side projects/companies or already had traction - and all they had to do was lever up and ride.
I'm going to make this clear - there is absolutely, positively nothing wrong with this - not at all - it is merely reality and not particularly unfair.
People stating pointless platitudes that success is due to things like "Be 10x more productive", "Commitment" and "People, product, and philosophy" are simply wasting their breath, other people's time and confusing what actually happens. These things may or not be either actionable, predictive or sufficient for success.
Here's my list of startup advice:
Be alive. Be male. Be young. Don't have health issues. Be born in America or move there. Enter the cycle after a recession. Speak English. Enter a growing/new field where the level of competition is low and so is the sophistication of your competition. Surf cost trends down from expensive to mass consumer markets. Work bottom up - on small things. Be of above average intelligence. Have family support. Have a college degree.
Oh and most importantly of all: Get fucking lucky.
The hindsight/survivorship biases in combination with faulty causality and the narrative fallacy will completely hose your thinking - so be careful.
More interesting stuff:
http://en.wikipedia.org/wiki/List_of_biases_in_judgment_and_...
http://en.wikipedia.org/wiki/Black_swan_theory
http://en.wikipedia.org/wiki/List_of_fallacies
http://en.wikipedia.org/wiki/List_of_memory_biases
http://www.econ.yale.edu/~shiller/behfin/2000-05/rabin.pdf
Disclaimer: Biases rule your thoughts and mine - this post is also subject to both bullshit and biases (mostly bullshit - I do love that word). Think for yourself.
> Get fucking lucky.
That is the most important factor in business success, and nobody, not even YC with all their algorithms has been able to consistently increase this factor.
All other factors will have some impact on your chances but without luck you're stranded.
YC has become a proxy for luck, if you get into YC that in itself counts as you being lucky and your chances for a future success go up enormously. Not because YC has some kind of magic sauce but because others see it as you having been vetted.
But with that in mind, what I really find shocking is that there are quite a few stories of people that did get lucky and managed to throw it all away.
So another factor in failure is quite probably the extent to which people are able to recognize and capitalize on their luck. There is probably no life without opportunities but they're few and far between.
If you're asleep at the switch when luck passes right in front of your nose then all your execution skills and connections will amount to nothing.
How many sperm cells were present during one's conception?
Answer: 200-500 million.
Compound this with the fact that over 125 billion people have lived on this planet since we first evolved. Only 7 billion are alive today.
That's pretty darn lucky. Or more humorously: http://www.youtube.com/watch?v=GvpbzRf99-8
Being rich does wonders for your chances of success, as does being alive. Sadly it does the same with one's ego.
One of the reasons for that is that very few start-ups are sustainable in the longer term without acquisition by a larger partner. And if they are they are by definition home-runs, but only very very few (< 1%?) manage to get that far under their own power based on only the initial investment at the time of founding.
And as soon as additional investment is accept the conditions around the company change substantially.
'lifestyle businesses' (which I'm a huge fan of) usually do not require big capital outlays, have a significant chance of staying afloat compared to what is referred to as start-ups on HN and can make more than enough money to make the start-up risk look like it isn't worth it for most players.
So William Goldman wrote an entire book on this very subject - http://en.wikipedia.org/wiki/Adventures_in_the_Screen_Trade#...
That book has chapter upon chapter upon chapter with the same exact advice - "Nobody knows anything"
Goldman says after he wrote the book, his phone simply stopped ringing for four full years, because he calls everybody a liar - the director, producer, screenplay writer, actor, story consultants, everybody - none of them know why one movie works & another doesn't. Finally, it was The Princess Bride in 87 that salvaged his reputation (http://en.wikipedia.org/wiki/The_Princess_Bride_(film) )
I used to be a Film Major and it was repeatedly banged into our head that "Nobody knows anything", so we couldn't say "your script sucks" when our classmates read their script ideas aloud in class.
I went to the event with a couple friends (them: corporate + quarterlife-ish crisis) and found the event to be heavy on the inspiration side, with the constituency consisting of those hungry (students, underemployed folks) and those who are in the process of "killing it" and looking for new acolytes.
I had a mildly unsettling feeling that, at the end of the day, like any other domain that celebrates superstars, this celebration serves the interests of the investors who want and need that kind of competition to hone the best of us into market-disrupting entities. And while the interests are completely understandable, they are maximized towards extreme outcomes... good and bad. Some would see it as tough love; others… need to see it.
And to be fair it is what it is -- the ability to efficiently bring about change makers is a net positive to society as a whole. But the vision and expectations of many people in MemAud that day were probably on the prize of greatness and billion dollar valuations, not in seeing what constitutes passion, work, and self-awareness. (Many speakers touched on this, though perhaps it's just poor sampling on my part to the people I interacted; it left nary a mark on them.)
I guess if I had to sum up my thoughts and highlight some advice from SS as a startup survivor (Bellyup School, if you will):
Things are always harder than they seems (Marc Andreessen touched on this with his MJ story).
Dedication does not preclude optimization (focus on your startup only after you get the commitment in terms of users or funding -- see Zuckerberg/Livingston stories on both).
Work hard, and be luckier/opportunistic. For every Dropbox that nailed the vision/execution, is most every other startup that pivoted a bunch till they found their niche.
Hrm, I gotta admit, now that I'm reviewing things, pretty much everyone has warned of how much things would be difficult... but somehow it just doesn't stick with most of us. Caveat emptor. :)
Interesting Concept/Term. I'd been looking for an official term to describe my problem with The American Dream(sm) and the Bootstrapping myth.
I feel the reason why large parts in our society simply don't care for the plight of the failed (poor/bankrupt/downtrodden) is a combination of Survivor(ship) Bias combined with the "I did it all by myself, which means you can do it too, now get off my lawn" myth/mechanism.
This is also a major issue in the startup world. So often we are led to believe that successful startups are the result of mere perseverance, blood, sweat and tears (and a little bit of luck), instead of'I got money from my uncle/grammy/mommy/daddy/mentor'.
It irks me that there are many self-reflecting stories on startup failure and what went wrong, but so very few on the financial contribution received from family, so often described as 'investors' or summarized as 'self-funded'.
Don't get me wrong, it's great to start off with positive thoughts, but for anyone to make an informed decision, it makes sense to have all the facts, not just the myths.
Life itself is mostly an exercise in survivorship bias. Startup goes into deadpool, you don't hear about it. Similarly, John Doe dies, and nobody ( other than his family & relatives ) hear about it. I mean, what are you going to say to the world at large ? John Doe was born, John Doe went to accountancy school, John Doe became bean counter at big-corp, John Doe died, ergo John Doe's 401K = $xyz => goes towards Junior John Doe's accountancy school. Repeat cycle. GOTO 1.That's what the obituaries are for.
What you really need is to hone your ability to recognize success and failure on a minute-by-minute basis in your own startup.
Jessica Livingston's book (http://www.amazon.com/Founders-Work-Stories-Startups-ebook/d...) goes into some detail on this topic. Very insightful and enlightening.
I did meet one audience member at startup school during lunch this weekend who briefly related his story of a recent startup failure and commented that he was recovering from the painful experience. Is it too painful to share??? Could be. But it is the one out of fifty 10 minute conversations I remember most.
Only the very brave are willing to share.
Let's celebrate failure, though, because it is only through many small failures that the path to big success makes itself known.
What if we look at starting a startup from a different perspective in which success nor failures exists. Its a work you do everyday to solve some problem. At the end you might not solve the problem but you reconfigured the universe in which the problem you were trying to solve has been little bit more "digested" for you or others. Doing hard work for many years does matter, at least if you enjoyed doing it.
If you start a company just to make money in a very short time, working hard for many years and still failing sounds terribly scary.
It's always a little disappointing to me to hear stories about how someone succeeded, that's likely to contain relatively little replicable information. A story of failure however tends to contain plenty of examples of concrete things to avoid doing! Not a universal precept of course, many of those who succeed do so by violating known rules, but after hearing many failure stories you start to better understand common threads.
I'm no accountant, but say they give every startup $18k * 460 = $8,280,000. AirnBnB gets valued at 1.3 Billion * .07 = $91,000,000.
There are generalizations aplenty in my reasoning, but I'm sure that ycombinator being profitable isn't an issue.
So while you're technically correct that they don't own 7%, it's unlikely to matter in this example.
- All these startups compete in winner-take-all markets, where the luck factor would amplify enormously. This may be true for consumer web startups where people vote with their fingers, but it's hard to imagine how it would be true for all startups in every industry VCs invest.
- All VCs are really bad at identifying people who are really good. This is very doubtful, especially for YC. YC seems to be better than most at identifying very competent people.
- Luck is really a huge factor. So far, all the evidence I've seen suggests this is the more plausible explanation.
This is even the case, indirectly, where the Startup School presentation can't fit the speaker's whole story.
For example, I think the Travis Kalanick presentation about Uber at Startup School was great. (I'd love to see the time-unconstrained 'two-hour' version of the same talk.) But, it was just about Uber: a current big success.
Kalanick also did a shorter -- and perhaps even better -- talk about his previous ventures at the 2011 FailCon:
http://www.youtube.com/watch?v=2QrX5jsiico
Combined with the SS12 Uber presentation -- indeed, perhaps best viewed just before -- it provides real context, and a much better idea of the range of outcomes and challenges startups face. And, of the entrepreneurial qualities that gave Kalanick repeated chances at Uber-like success.
That is not what pg interjected with. He said he wished more people had companies that started themselves, like facebook did. As in, I have to build this company because this little project is growing like a weed and it's my responsibility to see it through - as opposed to more founders who just want to be founders.