I am back! I took a week off to travel with my family and spend some time in the real world, if there is such a thing.
A friend of mine once asked me a question that stuck with me.
“I have been doing startups for twenty years, how come I do not have Mark Zuckerberg kind of wealth?”
I want to talk about that.
It really has a lot to do with timing. And honestly, quite a lot of luck.
There is a saying from someone famous that goes “the harder I work the luckier I get”. It is one of those things you see on startup posters, tshirts, hats, mugs, and tombstones. I have a speech where I talk about my own tombstone. I don’t get an affiliate fee from Amazon but you should totally click on that link.
Back to talking about luck. Startups are hard. Quite often people don’t realize that in addition to building a product, you are also building a business. Sometimes you are also building a team too, unless you happened to preassemble that from previous companies.
My son plays baseball and I find that interesting because a baseball player is successful when he bats .300, or gets 3 hits in 10 plate appearances. I like to compare this to startups because a startup person is successful if they are batting .003, or getting .3 hits in 100 attempts. For those of you who struggle with math, those are not very good numbers.
There are people who love to gamble on startups. Sometimes they gamble their time, sometimes they gamble their lunch money and sometimes they gamble a few billion dollars on behalf of other people. With these odds, you have to understand you will burn quite a bit of money on things that are not successful for that really rare company that winds up becoming a Facebook or an Amazon or a Netflix or a Google.
I spent some time looking at various companies—what they set out to do at the start, and where they are today. The goal of that exercise is to try to figure out how to ensure a new business venture is more successful than its predecessors. Here are some things I have learned along the way that are mostly supported by my own empirical observations.
Timing is a big factor.
We all love our fancy iPad and Android tablets, but the Apple Newton was not a well-loved product. You can always create a product that is too early to be successful.
Similarly, you can also make a product that arrives too late. I am looking at you, Palm Pre. I loved that phone but it was a dead product a year before it arrived in consumer’s hands.
There is a narrow window for every product to have a moment where it catches on with consumers and reaches critical mass. Sometimes there are multiple moments. You can see the console wars between Sony, Microsoft and Nintendo for a good example of this.
Something something pivot.
If you look at the origins of Facebook, Google, and Netflix, they all started doing something very different from what they are doing today. You could say the same thing about Walgreens if you want a low-tech comparable.
I tell quite a few people who are starting companies that you will likely start to build a product and, in the process of developing or marketing that product, you will discover there is a better business opportunity. It is always hard to predict “product-market-fit” until you have something in a customer’s hands. The best businesses have a tendency to move towards a better marketplace based on what they have learned along the way.
When I hear a friend say that an investor declined because they did not like the product or service, I have to scratch my head. I believe there is probably a deeper reason they did not invest, given the lack of correlation between original idea and success of many unicorns.
Taking Advantage.
When you are building a business, you have to be able to ask yourself what it is about you and your team that makes your business special. To get to an unreasonable outcome, you need to have unreasonable advantages.
If you cannot explain your unreasonable advantage to someone, it probably is not much of an advantage. Let’s talk about a few of them.
First mover advantage is a flimsy advantage most of the time—you can be grossly outspent by fast followers.
Sustainable competitive advantage is a better one. Whether it is team, or technology, there are things you can do that you can claim you will always do better than other people. It is a good thing to have in your pocket.
Unique unreasonable advantage is the last one. I almost wanted to call it an unfair advantage, but people who own them would probably take offense at the thought that it is unfair. A unique unreasonable advantage is a business relationship or intellectual property position (such as a patent) that is generally unassailable by competitors. You might have some incredible license to a brand, or a partnership with a distribution channel. You might have a patent you can use to leverage your way into your competitor’s revenue streams, or even to block them from access to their own markets.
Good leadership.
If you look at the last three items, almost all of these require some amount of thinking and decision making. This is the responsibility of leadership. You might be slightly early to a market opportunity, and have a decent amount of advantages. It is the job of leadership to figure out if it makes sense to stretch the runway to wait for the market, or to decide if that is too great of a risk and to change direction. The wrong decision usually dooms a company.
Amazon talks about this in their book The Amazon Way (ironically linked here on Amazon with an affiliate code). One of their fourteen principles is “Leaders are right a lot”.
Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.
I haven’t worked at Amazon before but I did interview once there. If you plan on doing that I highly recommend reading this book.
Up all night to get lucky.
This brings us to the point I wanted to make. You can have everything going in your favor at your company and still fail for really random reasons. The odds of success are really, really low, like hit-by-space-debris kind of low. Okay maybe better than that but not by much.
You seldom see a first-time entrepreneur create a gigantic unicorn out of the blue. Generally there is a seven-year story behind every overnight success.
Interestingly the second-time entrepreneur is probably the worst bet to make. They might believe so strongly in everything that they did the first time around that they are guaranteed to hit another one out of the park. I have seen some truly crazy second-time entrepreneur pitches. I am curious if someone has done any analysis on this particular thesis, but I believe that the second startup by a founder is probably their worst performing one.
By the time they get around to the third or fourth one, most of them get a deeper sense of the patterns around them and what things they can control. More importantly they get a deeper sense of what they cannot control.
Of all of these factors, I always try to tell people that luck is a really big factor. You can increase your odds in many many ways, but the odds are very dismal to start with. The internet tells me Wayne Gretzky said “You miss 100% of the shots you do not take”. I agree with this.
My personal specialty is creating products and creating development teams. There are two things I can control in that process. How many shots on net can I take? How can I increase the likelihood of a goal with each shot?
I have about three months of time to figure out how to create customers for my most recent shot on net. I missed the first shot on net with it, and I think I can get a goal on the rebound.
If not, then I will have to figure out what to stack on top of it. Maybe I will become luckier with the next product.
Thank you as always for reading along. Five stars best readers would write for you again!
