Entrepreneur: “Most of what you think you know about startups is wrong”

If Eric Ries is to be believed, elusive qualities like entrepreneurship and innovation can be caught in processes – and his book ‘The Lean Startup’ is a must read for everyone who loves geeky, obsessive forays into pattern recognition.

But while Ries offers plenty of good advice, the question is whether this ‘knowledge’ is actually knowledge, says VC Jack Altman on his blog. Inspired by an article on the ‘half life of facts’, he says that it’s quite possible that half of what we think is factual knowledge will be obsolete by the end of our lifetime. This is from the article he mentions:

Fact-making is speeding up. As facts are made and remade with increasing speed, [Samuel] Arbesman is worried that most of us don’t keep up to date. That means we’re basing decisions on facts dimly remembered from school and university classes—facts that often turn out to be wrong.

The rate of decline for facts, says Altman, is higher when those facts pertain to fields that are still young, chaotic, and in constant flux.

If that’s true, it should affect the startup management theories sometimes posing as ‘facts’ that are now popping up everywhere. (The same can be said for innovation, as our contributor Michael Van Damme recently wrote).

In other words, most of today’s startups knowledge is probably wrong.

There are two type of startup knowledge that I’m talking about here, which I would describe as startup facts and startup wisdom.

Startup facts are just that; cold hard facts that are relevant to startups. These can lose their relevance because they are either proven untrue, or more likely, because they change over time. Examples of startup facts include:

  • Price of data storage.
  • Number of people that own mobile devices.
  • Government regulations.

Startup wisdom refers to generally accepted knowledge about what startups should do to succeed, a set of best-practices analogous to the generally accepted treatment methods in medicine. Current examples of this include:

  • Fail fast and iterate.
  • Raise 12-18 months worth of runway.
  • It’s easier to enter an existing market than create a new one.

How likely does it seem that all of these insights will stand the test of time? The odds are pretty low.

How should founders deal with this knowledge?

First, we should be aware of the “marriage” paradox. It goes as follows: when you see a high school couple, the odds that they will end up married are pretty low. On the other hand, if you were asked at that time to bet on the person they would marry, surely your best bet would be their high school sweetheart, says Altman.

It’s the same with startup ‘knowledge’. It might be all wrong, but it’s the best we have.

But second, says Altman: if most of what we know is wrong, then it follows that there are huge possibilities to start great companies. Because everybody will consider it “stupid” to start that particular company.

This is exactly the point that Ben Horowitz recently made by the way, when he said that he invests in ‘college dropouts with crazy ideas in tiny’ markets:

Horowitz noted that in 1975, software wasn’t something people would invest in because it always came with the computer. The market was too small, you couldn’t sell it yourself and most people thought something like Altair Basic wasn’t a viable product.

Still, that’s what Microsoft essentially did. In 1998, web search was considered to be a bad idea and investment because most of the search companies that had already launched weren’t able to make any money, yet Google figured it out.

Other examples of companies that started with a bad idea that then turned into a major company noted by Horowitz were the Odeo podcasting service that turned into Twitter and Burbn, which turned into Instagram. (source: TechCrunch)

Photo: a Halflife logo + Barbie crowbar attached to a businesscard. (Toasty Ken, Flickr).

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About the author

Raf Weverbergh

Editor of whiteboard. Raf Weverbergh was a magazine journalist whose work appeared in magazines like Rolling Stone, Playboy, Mail on Sunday, Publico and South China Morning Post. He is the co-founder of FINN, a corporate communications agency where he advises startups and multinationals on their PR and Mustr, the easiest media database for PR professionals. You can contact him on Twitter, Linkedin or Skype (rafweverbergh).

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