What if successful startups are just lucky?(blog.ploki.info) |
What if successful startups are just lucky?(blog.ploki.info) |
a lot of times. timing is luck. but a lot of people get lucky on timing... it's like if the bubble bursted next year then people would have said there was never an easier market to raise money / take risks / make quick money in mobile,social, etc. but i'm pretty sure there's a ton of smart people with luck on their side that's trying to do that right now; and 100 other variables besides luck will make majority of businesses fail.
how do you define luck? break down the components of luck.
but the way you hedge against that is by exposing yourself to lots of things with a potential net upside. both in parallel and serially. you might have bad luck with one thing, then good luck with another thing. just like the reasoning behind YC-style investment bets, it only takes one of your little bets to pay off huge in order to more than make up for all the other little failures. which leads to the other complimentary tactic: minimize your spend (money,time,energy) you're willing to risk on any given thing before you see an ROI from it. Also, you never have to completely give up on a thing --- in the software/digital world especially you don't have to destroy/delete/throwaway things, you simply passivate them (put on the backburner), press Pause, etc.
Say what you might about how facebooks earlier/current code was/is horrible and in PHP, Facebook has done amazing things to be able to handle a billion users every second/every day. Say what you might about how simple instagram or snapshot is, they filled a need and grew. Their products doesn't "suck", sure they might be valued ridiculously by some groups of investors, but don't discount their work.
Successful startups are not JUST lucky. There is always an element of lucky, but there is also the hardwork. One mistake a lot of "failed" startups make is thinking and believing that they failed. If your goal is to create an application that solves a certain problem and you do so. You have succeeded. A lot of startups have this goal, they don't really have a goal of making money. After they achieve a goal of building their app, then they want to make money and when they fail on that end, they consider everything a failure. The truth is that making money is not just about your apps or how smart you are or hard you worked to designed.
It takes a very different set of skills to market, hustle, and sell. A lot of programmers don't have those business skills, and they whine and cry when the world don't rush to their door for the better mouse trap. Don't cry, the world didn't know because you failed to market or they have heavily vested in another one because you started late.
If you want to really realize that startups are not just lucky, find the other group we don't talk about on HN that make money off the internet. The hustlers, these are guys with little to zero tech knowledge. They do whatever they can, outsource via internet, basic wordpress sites, they sell actually products, their business is rarely based on ads, their business is physical products, software as a service or ebooks etc. Technology is usually a small part of their game, maybe 10%, the other 90% is pure sweat and hustling. We don't hear for them, but there are many of them out there, making very good money.
Successful starts are not lucky, they out hustled the rest and that's just what it is. So if you wish to make money, don't just stay a hacker, become a hacker and a hustler.
I think it's this realization that gives rise to quotes like, "Talent hits a target no one else can hit; Genius hits a target no one else can see." by Arthur Schopenhauer.
This argument is being made against education. How much education really matters and how much outcomes are just a matter of raw cognitive ability of students and (self-)selection?
Truth is that we don't know. So most people choose to follow in the footsteps of those who have demonstrable achievements and hope for the best.
BTW This might be the first time I'm seeing a ghost blog in the wild. Just browsing the Internet, not looking at ghost blogs specifically.
I moved to ghost 2 days ago and for the moment, it works quite nicely!
OP was quite proud of his game, is confident is was great because there were 15 talented people working on it... but ultimately the idea didn't resonate with the public in the way they implemented it.
Notch on the other hand resonated with the public incredibly well. By giving away completely free versions and listening to, even literally interacting with game players: He now heads a very successful software company where most of the original code was written by one man.
I don't think a successful company necessarily involves luck at all.
Of course you can't be 100% sure that you are going to be successful. But you must try to increase your probabilities as much as you can, trying to predict your probabilities as accurate as you can.
As Laplace said: "Life's most important questions are, for the most part, nothing but probability problems".
Lottery tickets are apples to apples. Yes, the problem domains for these start-ups may overlap, but these are not apples to apples. Your MMO was not the same as WoW.
The differentiating factor between your MMO and WoW was not just luck. They're different games.
"The harder I work, the luckier I get." — Samuel Goldwyn
I define validating as getting 3 paying customers before building a viable app.
You could have built an abridged or simpler version of your game and asked people to pay you to play it. If that posed problems, you could have pivoted to a different premise for the game.
You can have all the talent in the world but not lucky to be in the right place at the right time. However, when you are at the right place at the right time you better make sure you bring the talent.
One doesn't exclude the other, you need both: talent + luck = success
So at this point how are you defining lucky? They might be lucky but then they also worked harder and longer (i.e. bought more tickets)
THIS IS precisely why its not random!!!
For full double-blindness you could even do interviews with the EXPERIMENT group, then use a program to automatically either use the interview result or not. This might be aggravating for reviewers, though, seeing their work wasted by random choices.
You get one or two huge winners out of hundreds, and they are so huge that they are bigger than all the others combined. The investors care most about getting these rare winners, and if YC does any kind of controlled study on who becomes these winners, I don't believe there will be any statistical significance to speak of.
It would be an interesting experiment if YC lower the acceptance threshold to say twice the original batch, and randomly pick from that bigger pool, and see if there's any difference between the ones that didn't make the original cut and those did. (A/B in its finest :)
The idea that the null hypothesis is the only source of information needs to die.
Your job is to select people who were lucky enough to meet the right people, meet the market, had luck to have enough traction, lived in a country where he could spend time learning and so on...
But when you are entrepreneur, you have to maximize your luck by maximizing number of opportunities.
Some skilled people succeed, therefore all skilled people succeed eventually?
Alternatively, it's a tautological statement that defines "genuinely skilled" people as those who succeeded, therefore unsuccessful people must not be skilled.
For a DropBox-like product, feeling safe you won't lose your files is the baseline. If you cannot reliably ensure the files won't get randomly deleted, you don't have a product. Once you have a product, the value you add gets increasingly more subtle - better metadata capture, nicer ways to organize your files, an outstanding slideshow or music app - and what determines your ultimate success may feel completely random and totally unrelated to the original way you defined your product.
It would be interesting if we could measure luck based on previous YC batches.
90% failure rates, but the remaining 10% (5 startups) is all Dropboxes and AirBNBs --> Average YC startup valuation up 10-fold.
"Your best? Losers always whine about their best. Winners go home and fuck the prom queen."
a) each pick his/her top 5 yc companies per batch that they think will be most successful (and main drivers why) b) each pick his/her bottom 5 that they think will be least successful (and main drivers why) c) each assign the value of each of the 5 most successful companies 5 years from now. (and build a bridge as to how that value will be achieved).
and then run some fun numbers on your predictive capabilities.
when i ran "c" for my private equity firm on all investments made over 20 years in various vintages and industries, i found my answer as to why my job of building complex financial models was pretty much worthless number painting. very low predictive ability in value drivers and financial projections being met (these are later stage businesses, too). also, i realized that i should get out when every newer vintage had a larger % of the driver of value stemming from leverage (i.e. financial engineering) than ebitda outperformance.
I don't know if it's just from growing older but I feel a lot more humble when looking at peoples ideas and actions than earlier. I literally feel that I have no clue whether they will succeed or not whereas I used to quickly get quite strong feelings in one direction or the other. In one way, this feels more mature and zen but at the same time, it annoys me a bit. I feel that conviction is the trait of a leader and something I need to possess if I want to convince anybody to engage in my projects. Maybe I'll just practice faking it and hope they didn't read this comment :-)
Edit: [1] One of my favorite examples of this is in Felix Denis' book How To Get Rich where he describes that the problem with Apple is Steve Jobs. This was written 7 years ago when Apple was struggling and it looked like Steve Jobs was driving it into the ground with his stubbornness. (The book is excellent by the way, in spite of the tacky sounding title)
"It's my belief that history is a wheel. 'Inconstancy is my very essence,' says the wheel. Rise up on my spokes if you like but don't complain when you're cast back down into the depths. Good time pass away, but then so do the bad. Mutability is our tragedy, but it's also our hope. The worst of time, like the best, are always passing away."
This too shall pass.Ryzom was a great game, but MMOs are built on one thing: atmosphere. Blizzard made WoW precisely because WarCraft was its longest running and most popular brand to date. Blizzard already had a massive fan base of WC fans ready to play WOW. The lore was considered a masterpiece, which immediately immersed the players in the world before they even played it.
With services, things are much more objective, because we don't care about branding. Using a service like Dropbox is not a deeply emotional experience, but it does work very well. Apple is one of the few companies that can instill emotion into its services and hardware, and that is due to their marketing and design philosophies, which are considered the best in the world. However, this is nowhere near the level of emotion that art invokes.
As such, I would advise the author to carefully distinguish between art and service. When making art, you should never make it with the expectation that others will like it. You should make it such that it satisfies your own tastes. If others like it, you know that your taste is shared. If not, your tastes are unique. It's a win win.
Don't regret making works of art. It is all that succeeds us when we leave this realm.
-- Thomas Jefferson (apocryphal; see [0])
[0]: http://www.monticello.org/site/research-and-collections/i-am...
Luck is when preparation meets opportunity.
– Seneca
Fools wait for a lucky day but every day is a lucky day for an industrious man.
– Buddha(wikipedia - Napoleon)
They had no qualms about changing large parts of the game. The prime example being that they changed the experience distribution in the game such that where it was first that any large group of players could play together and cooperate, after beta it was changed such that only squad-sized groups could cooperate and squads being in the same area only meant difficulties, since experience could not be shared anymore.
On the technical side they had a lot of terrible code as a result of much of their 50 man staff being students doing an internship for free there. They also had a very bad attitude towards volunteer support staff, where, for example, an issue on the web site would be reported, the dev in question would say nothing, and when asked five minutes later would say "What problem, i see none?" after obviously having fixed it.
Lastly, they also had a very bad attitude to players. The game had guilds and an ingame browser (kind of hidden, since it was the backend for 90% of the game UI), so some enterprising players had figured out how to use that to provide guild forums. The result being legal threats.
As much as i love the game still to this day, and still hold on fondly to the screenshots and memories i collected in its wonderful world, it wasn't luck that killed it. It was Nevrax' incompetence and shortsightedness.
There is no moral of the story other than: failure does not mean that you didn't do well.
While this lesson is pretty well internalized, I think there's some difficulty with the converse: just because you succeeded, doesn't mean what you were doing was right. Life is contingent.
Just because your company ran out of money and ceased to exists doesn't mean you failed.
Just because your company grew very quickly, IPO'd at a high price, and had consistently large profits for many years, doesn't mean you succeeded.
When we start talking about randomness and luck, my sense is, that people begin to feel uncomfortable because it makes the world a much more less understandable place.
That said, I do think the author has a lot of good points. Surely there is a portion of "randomness"/luck, but there's also a healthy dose of focus & determination that make things work.
To play a bit of devil's advocate, I do feel that in the last few years the idea of "success" has somewhat diverged from what it used to mean. Is Twitter successful? To their founders & early investors, certainly they are. In 5 years, will Twitter still be relevant & a worthwhile investment to their millions of new stockholders?
Was Zynga "successful"? Again: to early investors, they were wildly successful. They were able to dump their shares onto a greater fool.
To me, those are two examples of "lucky" startups. A startup like Salesforce is less "lucky" and more a well-executed product. It's not as sexy as a Facebook/Twitter/Zynga, but it's a solid business addressing a specific need. It isn't reliant on "scale massively and figure out a sustainable business model later", which to me is what the aforementioned companies are.
To paint a picture, some startups have fisherman tactics: throw as wide of a net as possible, catch as many things as possible and some small portion will be valuable. These would be startups to whom luck would seem to play a larger role (in my opinion).
Others are more focused: identify a specific set of targets to go after, and hunt them down. This would be more like Salesforce. To me, these are the startups that don't rely as much on luck.
Wrong, while I still consider myself to be smart, I don't think I'm savvy enough to rely upon good decisions to carry me. There are plenty of people smarter than me that have failed in their ventures. So, I've reverted to a brute force strategy coupled with an unrelenting resolve to see projects to completion.
Just lucky? Not just. When you build your companies with a willingness to change, frequently self re-evaluating, you will amaze yourself with how much you grow as an entrepreneur. It is ridiculous what I know today when compared against my assumptions 2 years ago.
When the author was talking about the failed MMO, I took him at his word when he said his team created an amazing game. So the point of failure is obviously marketing. Who knows what could have been if those game developers had a comparable marketing team in their corner. What if they launched a beta 1 year into development to help develop a core user group as well as aid in gamer feedback which could then be redigested by the marketing team to help them create buzz.
I love this rumored quote assumedly from Jack Dorsey "It only took 10 years for me to become an overnight success." The entrepreneur that doesn't die is hardened and polished in failure over a number of years. When luck finally strikes, he will have the tools, experience, insight, vision to take full advantage.
I'm 2 years into this journey, hopefully I'll find luck in year 3, and hopefully I will have grown enough to take full advantage of it.
I forget where I read this; it may have been on Twitter, but it could apply to startups and probably many other facets of life.
Edit: Found the source. https://twitter.com/MattRix/status/401072871323086848
You have to be in the right place at the right time. That is all luck.
You also have to recognize the opportunity and take it. That's what "making your own luck" is all about - exploiting opportunities to their full.
The person who "recognizes" the opportunity is still doing a lot of guesswork, and good luck has as much to do with his recognition of the opportunity as it does anything else.
Networking and having a head start are also key factors--show me a successful tech startup and I'd lay better-than-even odds on the founder(s) coming from a life of (relative) privilege (and also being white, if in America). What could be luckier than being born to the "correct" parents?
While the above might be a commendable personal goal, startups are indeed created for their possible exit value. The vision, the tech and the kind of things you end up working on are commanded or at least heavily influenced by these circumstances. In that sense there isn't too much difference from working for an innovative established company (except you don't get a shot at the money pot).
About being too complex to be controlled, yes maybe, but there is very good people controlling complexity.
I know lots of entrepreneurs, as I am one myself.
The best entrepreneurs will learn from other people. Take for example Steve Jobs, he was not born knowing it all, he had fckng Robert Noyce as mentor, and all his life was spent learning from the best he could, like Polaroid inventor or Sony founder.(every year he will take 100 people from his company to learn from)
No matter were you are, there is always someone 10 to 20 years over you on a topic, and the best thing you could do is learn from them instead of thinking you are inventing gunpowder(Spanish expression that means you are inventing something revolutionary nobody knows about).
I personally know a man called Warren Buffet. This man, who is super rich old(normal old people believe they know it all) and famous will cold call you if he is interested in something you do for please explain it to him, and then he will start asking you deep questions about your business like crazy and if you ask him, he would do the same for you for anything you ask. This man has amazing amounts of valuable knowledge. In public he could not say what he really things because his word alone is capable of making markets go up or down.
Successful people do something called "masterminding", that is very similar to "pay it forward" in Silicon Valley. They learn form each other what works and what does not. They do it officially or by networking and just talking.
It is not easy to prove causation.
For example, startup says "We did X and this was the direct cause of Y", where X is some random thing, and Y is "success". That is difficult to prove. And startups never say that. They just say "We did X." Maybe they also say they believe this was crucial somehow to their success. But they never try to prove causation.
Of course, no one demands anyone to prove causation when it comes to the actions and the success of any startup. The scientifc method does not apply here. We are happy to listen to someone tell us about what a startup did, about their eventual success and then let our imaginations make the supposed causal connections.
I do not think it's unreasonable to question, as does the OP, whether "luck" is a proper explanation for the success of a startup. If it were, then that leaves startups free to make their own rules instead of believing they must do X in order to produce Y. And I say that is fine. The fact is, doing X might not bring about Y for every startup that does X. Clearly there is more to this than a "formula", whether it is the YC's or someone else's.
Short of people being forced to purchase it, the only thing that makes a product successful is when people want it. How the product stands on its own merits is dependent on customers knowing about it, and choosing it over the alternatives.
When it comes to games, works in the same genre may not even be competing against each other because of the way gamers buy games. Plenty of gamers will buy Battlefield AND Call of Duty, or will buy Minecraft AND all of its derivative clones. They just won't buy things they don't want.
MMORPGs in the same genre, though, are often competing against each other. People can only play so many MMORPGs because of the time and social aspects.
Where network effects are involved, they may not even need to hit the bullseye - just getting closer to the bullseye than anyone else may be enough.
For example, the Color app had all the resources (funding, contacts), but the basic value proposition was just not there. They never had a chance. OTOH, Turntable.fm had a great product, but as luck would have it, they did not make it. Either the timing wasn't right or something else, but despite everything they are having to pivot.
You do need to be good at marketing. You do need to get product-market-fit quickly. You do need to have a good product, and so on.
The better you are at these things, the less luck is required. But you cannot get the amount of luck needed down to zero.
I like what Seth Godin has to say on failing until you succeed:
http://www.youtube.com/watch?v=fDtkBsWgzWE
And this article by Scott Adams:
"What's the best way to climb to the top? Be a failure."
http://online.wsj.com/news/articles/SB1000142405270230462610...
- What's the expected monetary return for someone wishing to enter the startup game? In particular, is it positive or negative? For example, the usual platitude "you miss 100% of the shots you don't take" also applies to the lottery, where the expected return is negative. Could it be the case that rational people just shouldn't do startups?
- What's the expected return after adjusting for diminishing marginal utility of money? For example, a person with 2 million dollars is not 2x happier than a person with 1 million. This increases the impact of the previous point: even if the decision to a startup gives you positive expected money, it could still lead to negative expected change in happiness. Most of the monetary wins go to a lucky few, which doesn't raise their happiness enough to compensate for the unhappiness of the unlucky many.
- What's the expected return if you take the previous two points into account, and also compare against the next best thing you could've done instead of a startup? For example, is there anyone on Earth who's deciding whether to do a startup and who wouldn't get higher expected money, happiness... everything, just by getting hired at Google?
- Given the above points, is it ever morally okay to advise someone to do a startup? What advice would you give people if you were truly, honestly immune to survivorship bias?
Now, once you have a baseline genius startup mind, no success is guaranteed anyway. Twitter would be nothing without an Internet-famous founder and techcrunch hyping it up constantly its first few years of existence.
That's not saying you can't be rich. Anybody can always get dumb success (especially these days) with things like advertising or affiliates or ebooks.
The money doesn't enable your happiness — the freedom money provides enables your happiness. You can substitute being rich with having a job/life you don't hate plus a good salary.
So you do all the right things, and you still only have a 1-in-20 chance. Or the other guy does all the wrong things, and he sells out in two years for 20 Million. A third guy does some good things and some really bad things, still manages to grow and flip, then he writes a book on "How to have a successful startup" that claims to know the answers.
As far as I can tell, this is pretty close to the state of things, and that's okay. It just means 1) you can't give up, and 2) you need to choose your strategy based on this state of affairs.
What you don't want to do is to acknowledge there is randomness, then throw in the towel. Or to go on some jag where you hero worship Zuckerberg or some other rich schmuck simply because the startup lottery hit for them. The truth is much more complicated -- and involves a lot of hard work.
Scientific discoveries also persist after your death. While making art is fine, it's hardly the only thing that people are known for.
On top of that, practically any action can leave a lasting impact, even terrible ones. So "effects persisting after you die" isn't really a way to determine value of your actions.
Until someone turns off the hosting servers.
Sometimes I feel this is our main differentiation from other species.
I don't know, to me both are businesses and have to deal with things such as user acquisition, user retention, average revenue per user, etc.
We've read about the author releasing the game, but don't know the back story about user acquisition - what channels were used, what was the performance of those channels, what viral mechanisms were put in place, what A/B tests were run, how user stickiness was determined and improved upon.
Behind every "luck" story there's some dude or team of dudes whose entire job is user growth.
--Louis Pasteur
Pretty sure George Simmons has this quote of Player's on one of the chapter pages in his "Precalculus Mathematics in a Nutshell" book.
-- leveling up in Morrowind (no idea who to attribute this quote to)
[1] http://en.wikipedia.org/wiki/Segway_PT#Early_history_and_pre...
I agree with you, I don't know the Saleforce history but I'm quite sure that at the beginning of the company, they had lot of luck. I'm sure at least 10 other companies tried to address the same problem on the same market and failed.
Execution is mandatory but lot of the execution is also based on lot of uncontrollable parameters, hire the right guy at the right time.
Look at Evernote for example, they were almost bankrupt even if the execution was good, the market here and so on. It's a pure luck if the are still there and so strong.
I think it goes along the lines of the quote from The entertainment industry that every overnight success is a result of years of hard work (paying your dues in the form of acting/music lessons, community theater/coffee house performances, tons of auditions).
Want to score more? Get your number of shots on goal up. Luck is just the positive result of chance being realized. Chance to succeed vs chance to fail. So as long as you don't care about the number of failures you stack up, you just keep rolling the dice until you succeed.
Perseverance is sufficient as long as it is accompanied by adaptability. You simply need the ability to recognize your strengths/weaknesses/personality type and play the game accordingly. Either invest in improving your weaknesses, or spend time networking to find a partner to complement them. Even better, pick an idea where your weaknesses will not be a factor.
What makes startups so hard is all the opportunities to fail that come along as you try and build something new. Every month, or every week, there is a new thing that wants to kill you. Sometimes these things have nothing to with the company. But, there are sooo many ways to mitigate these problems and you learn how to do so better and better the longer you play the game.
If you'd like me to go into some more personal details to show some examples, just let me know.
Edited: minor edits.
That's nice, but you also need to be able to pay the bills, right?
I have no trouble paying the bills now, but I've gone through times working on a startup where I lived on less than $4 a day, for example, without any regrets. That's not my life now, but the point is my life's goal isn't to maintain the high standard of living I enjoy now, it's to build things, try to change the world, and be happy. Having a decent amount of money does help the third thing in that list, but not without the other two.
People that are doing this should speakup but I don't believe "anybody" can do the above. Your statement is general to a certain extent and could apply to many areas but I don't think successful people in these areas are any less smart, hardworking, determined than startup founders.
Figuring out what makes people successful at starting companies is extremely complex. And without objective evidence, no level of expertise, be it PG or other VCs, will convince me to take someone's word for it.
Making that kind of change is really quite difficult and requires both luck and financial success (which in itself requires luck).
That said, I think it's perfectly honourable to be a good guy and do a good job without changing the world. My argument is merely that in my view, changing the world is a quite higher bar than "just" being successful.
There are other examples, but that's the easiest to understand.
It's well-known that the most successful startup in a group of startups is likely to earn more in profit than all the rest combined. We're here on HN talking about PG because YC has been the most successful of all incubators. However, there's always going to be one incubator that significantly outperforms all the others as a result of the distribution of startup success.
I don't know enough about how well PG's investments have done to make informed judgments, but only a very select few people are likely to have that info. I suspect those people have also done their due diligence to figure out if YC is a value-add compared to other incubators (it should be possible to do this without a convoluted double blind experiment), but anyone who's not them really can't say for sure that that's the case.
The key is to perform proper Bayesian updates in the face of evidence in either direction; if you do, as long as your prior wasn't totally insane it doesn't really matter where you started.
I think there is a lot of people that didn't start young with the entrepreneurship bug and ended up married with kids. With these people, paying the bills has a direct and noticeable impact on their family. I would say there is a lot of people in this situation and the dynamics of going "all in" with their idea just doesn't work the same.
I don't think you would argue with what I am saying at all, but there are many people that have obligations to others and we are not all single and only responsible for ourselves.
Being in this situation myself, I look at it as a optimization problem. Given the constraints I have, how can I optimize my situation to be successful with a company.
http://quoteinvestigator.com/2010/07/14/luck/
The upshot is that its origin is unknown, but goes back at least to a Walter Winchell column from 1949. Gary Player used it and became associated with it. The attribution to Jefferson is nonsense, of course.
Since the winners are what they are after they can omit the interview process.
I have a feeling that eventually there will be a Vangaurd of startups that will massively outperform traditional VC/incubators due to reduced management fees similar to index funds vs. regular funds.
So PG's claim could very well be supported by proprietary information.
Never been accepted to YC, but I gather that the value of access to YC's demo day and a strong network of investors and alumni is far from trivial.
So the question with luck is how far down the causal ladder you start considering things inputs (i.e. things which may or may not influence the outcome) instead of outputs (i.e. things which might be the result of those inputs or of luck). So with YC, is that getting or not getting into YC is an input variable that we could check against success, or is getting a YC spot one of those proximal factors, and the luck was just in getting that, at least in part?
So the "is it pure luck?" question isn't very well defined, but the GP's argument might still be useful in answering it. Moreover--larger questions of luck aside--it would be helpful in determining whether the YC selection process is actually useful. But probably only if they didn't tell anyone about it.