Ben Horowitz: We Like Dropouts, Insane Ideas, Tiny Markets, No Way To Monetize

Maybe I lack vision, but I think there's still interesting programs that will never achieve startup success.

For example, I'm currently writing a Lisp program that uses an LSTM neural network to compose Scottish fiddle music. As a Scottish fiddler (and composer) and AI enthusiast, this is an intensely interesting project to me. And it's certainly an insane idea with a tiny market and no way to monetize. And that's how it will remain. Scottish fiddling will always be an obscure niche, even within that community there will never be much demand for new music (and there's so many buried gems from the 18th century that this will virtually never change), and any existing demand can be easily fulfilled by the scores of people--including myself--who compose fiddle music the old-fashioned way.

Unlike Altair BASIC, this isn't a case of somebody creating a product in a growing industry people don't realize they need yet. Even I--the "founder"--don't see any potential and realize I'm providing free labor. I'm just in it because it's a great hack.

tl;dr - Distinguish between "anticipating public demand" and "doing something only for yourself".

I'd like to call this "Black Swan Hunting".

The idea seems similar to purchasing (wholesale) a crate full of swans (some of which might merely be dyed black) in the hopes that one of them will be a genuine black swan.

In many ways, this isn't a new idea. How many car collectors have dreamed about answering a classified ad for an "old car in the barn" only to have it turn out to be a Bugatti Type 57SC Atlantic? But the reality is that 99.99% of the time, it's a rusted out Buick.

It's true we need these "diamond in the rough" hunters out there, and I must admit that if I had many millions of dollars I would probably set up just such a "Black Swan Fund", but I've always imagined that I would style it after the various X-Prize-type competitions that became popular starting around the middle of the last decade. It seems to me that most such ideas can be funded "a step at a time".

The other way to do this would be to consider it as artistic patronage. That way you wouldn't expect a return on your investment other than the creation of something that might not have been there before. Of course you still keep a nice chunk of any potential earnings just in case you get lucky. :)

Actually it was not argued early on by analysts that Amazon would have a hard time being profitable. It was argued that they would be a lot more profitable than traditional bricks & mortar because they didn't need the physical stores. That was supposedly one of their great competitive advantages. This was an almost universal claim during the early years of Amazon when the bubble was in full sway.

It was only years later, toward the end of the bubble and after it, that the claim began that Amazon could / would never make money.

Amusingly, both of these popular analyst points turned out to be false.

Sounds more like "We like to invest in college dropouts with insane ideas going after [currently] tiny markets [that have the potential of growing many orders of magnitude] with [currently] no way to monetize."

Isn't this basically another way of saying "we only care about home runs, not singles"?

The interesting thing is how he says "Airbnb, for example, sounds like a crazy idea" - when I heard about it I did not think about it as a "crazy idea". It sounded as a great idea - but hard to execute (hotels, regulations, fraud control, etc.).

But they were not doing one more social network, so it had to sound as a "crazy idea" for any VC.

It seems definition of "crazy idea" for VCs is "not doing the same thing as other startups are doing".

The three companies cited as having 'figured it out' in Q3/2012:

    Amazon     -$274m
    Facebook   -$59m
    Twitter    ?? (private, supposed not profitable)

They make loads of money regardless, but it's interesting to look at.

What a horrible strategy. Proof that it is better to be lucky than smart.

All these guys do is make noise. It's been a long time since we can point to a shrewd investment they've made.