I enjoyed reading this post earlier this week, which tries to bust the myth of overnight successes in startups.
I agree and strongly support the points that Titanas made there and I would like to add another visualisation for this problem.
I’m going to start by introducing the following puzzle.
Let’s say one day I send you an email telling you that I have come up with a fantastic method of picking winning stocks. I know this is hard to believe, so as proof, I will tell you what three stocks I’ve picked for this month with my method.
A month later, I email you and point out that the stocks I’ve picked have gone up significantly this month. To demonstrate this was not random luck, I’ll share my picks for the next month as well.
These will also do well. And then the month after that also!
At this point I stop sending you free picks and ask that if you want to get further updates, you need to pay a subscription fee. Convinced by my three months streak of success, you’d be a fool not to!
This if of course, a scam, but a very useful one for making this point.
How does it work?
It’s hard to work out the trick from what you see. The catch is, of course, like with all magic and scams, in what you are not seeing.
You see the winning stocks, so you assume that I only hand-picked those and emailed you. Truth is, I sent out thousands of emails like this in the first month to different people, each with randomly picked stocks. For the vast majority of these, the stocks didn’t get any good results so I didn’t follow up. But on all the ones that did come through, I sent a second email. I applied the same logic again, randomly selecting stocks for each person. Again, I only followed-up on the winning ones. While the number of people that see the streak of winning stocks gets smaller each time, the people receiving the emails are not aware of that, because they don’t know about everyone else. I did nothing but random selections and sending a lot of emails.
This is a very useful example to use for understanding a lot of situation where our view is restricted by our lack of visibility into the bigger picture. Richard Dawkins uses it in The God Delusion, for example, to support his thoughts on why we live in a universe where all the physical constants are just right for life to exist.
I feel this is very useful for forming a more realistic view on the startup world as well.
For the most part, we only see the winning streaks. We tend to pass judgement based on this, such as what the winning ideas are like and what makes a winning team. I wonder if such a thing even exists, or we’re just lying to ourselves, unaware of the statistical irrelevance of these few success stories. I will speculate that perhaps we are trying to find patterns where none exist. Some percentage of startups will succeed and that’s what we see, the winners. But we don’t really see all the ones that have failed, so we can’t really know why the winners made it when others didn’t. It’s possible that many other startups existed, with a similar team composition, with a similar idea and a similar approach, and nonetheless failed, without any obvious reason that we can fit in our pattern. I think it is naive to make recommendations based on the winners, when that represents less than 10% of the total information we should be considering. Instead we should embrace this uncertainty as just part of what a startup is.
When you think about doing a startup, you should focus on doing the best you can with what you have in mind, work hard, enjoy the ride and don’t worry about being like X or Y. Accept early the fact that there is no key to success, no winning formula or silver bullet and that no one really knows whether your little business will be completely unknown in 6 months or will become the next big thing®. The only guarantee you have is that if you don’t try, it won’t become anything.