“I could have built that in 2 weeks!”

Yes but did you? That’s the point. You’ll often hear an over zealous programmer or engineer exclaim that they could have built [insert hot startup] in no time so what was the fuss about?

The key that they’re missing out on is that it’s simple to clone, but extremely difficult to innovate.

It’s a decision tree. Every node represents a set of decisions available to you with all the possible permutations as below.

decision tree

What is visible to everyone is the path travelled, not the paths forgone. Once you know your destination, tracing the tree back to the root is relatively simple. However, starting from the root without knowledge of your destination is where true innovation happens. That is a process filled with trial, error, failure, and course-correction over and over again till you reach your final destination.

Conceptually speaking there are several startups that are in the same space – most fail but some do better than others, with one becoming a market leader. Path, Instagram, Oink, etc are all relatively similar, but you’ve heard of some and not the others. Why? They’ve all taken different paths in the tree which has enabled some greater success than the others.

First mover advantage is real. Reaching first on the scene with a product that scales gives you a distinct advantage to becoming the market leader no matter who you’re competing against. Take the case for Facebook, a company with near infinite resources and the top destination for the web. They were late to the ephemeral photo space behind Snapchat. Facebook released a Snapchat clone called Slingshot in an attempt to beat them. Despite Facebook’s resources behind Slingshot, which one do you have on your phone? They also released a Flipboard clone with Facebook News (yes they had/have a separate news app), an Instagram clone with Facebook Camera (before acquiring the former), and a Foursquare clone with Facebook places (now defunct) amongst others. They failed in every one of those cases for the exact same reason that they succeeded in out-competing Google+: they were there first.

Switching costs in networks ensure that network effects are always in play. If a user is on a hot app with his friends, he’s not going to switch to a clone that does the same thing and also convince his friends to switch, even if the second one is slightly better. The only way to convince the user to overcome the switching cost is to offer something that is 10x or an  order of magnitude better than what he is using.

Success always looks easy from a distance. That’s because it’s only the path travelled that is visible, not the entirety of the tree. The next time someone says “I could have built that in 2 weeks” simply ask “then why didn’t you get there first?”.




Unreasonable Obsession for the Startup Grind

When getting a co-founder, employee, investor or any other stakeholder for your startup, one of the most important metrics you want to scan for is belief in the startup over and above any monetary compensation. Simon Sinek says it beautifully – “If you hire people just because they can do a job, they’ll work for your money. But if you hire people who believe what you believe, they’ll work for you with blood and sweat and tears.

In any startup – things will go wrong, stuff will break, investors will pass, your product will suck, employees will quit, hiring will be a problem, deadlines will be pushed, users will not be engaged, partners will bail – but you and your team still need to keep pushing through.

You will face rejection over and over and over again – from investors, users, and pretty much everyone you talk to. You will hear people give several reasons why the startup will not work – but you and your team still need to keep pushing through.

Ben Silbermann, CEO of Pinterest said, “There are lots of ways for investors to say no to you, and I’m pretty sure I’ve heard every single one”

Elon Musk compared running a startup as “eating glass” and “staring into an abyss of death.

The TechCrunch stories of “we got 100k users in 2 days” – all have a long grind where they failed over and over again before their overnight successes.

Instagram slogged through Burbn, Twitter slogged through Odeo, Foursquare slogged through a failed acquisition by Google, Rovio slogged through 51 games prior to Angry Birds, Starcraft was almost abandoned, SpaceX blew through $120m almost bankrupting Elon Musk with 3 failed rockets – but they all kept pushing through.

When things go bad, and they always do, you need people who work with you with “blood, sweat and tears.” Startups are never easy and only unreasonable obsession can power you through the grind. Make sure you have it.

What Makes Silicon Valley Work?

Silicon Valley or the Bay Area has a completely different “vibe” for entrepreneurship. It is the epicenter of the world’s technology innovation, where 40% of all US venture capital is invested and where 90% of the highest venture returns occur. Why?

Why Silicon Valley and not New York which is filled with Ivy alumni; or Boston, home of Harvard & MIT; or even somewhere in UK or Europe or Asia? All of them have amazing engineering and business schools filled with very smart people, so why is the Bay Area the epicenter of innovation?

It comes down to the culture. The culture in Silicon Valley is completely different – where it encourages entrepreneurship to another level.  So, what is so unique about Silicon Valley culture?

1) It is OK to Fail – Yeah, you read that right. Embodying the culture, at Stanford, all our entrepreneurship professors have continually drilled into our heads – It is OK to fail! Failure is a learning process. If you start a company and it fails, then start another one. Fail fast and fail often. Go out and take risks. If you do not fail, you are not taking enough risk. Don’t be afraid to fail. Why?

Innovation by definition has a high failure rate. So, if you are afraid of the downside, you will also miss out on the tremendous possible upside. Even if you do fail, the amount you learn would be worth the cost of failure since you will not make the same mistakes again. In Silicon Valley, starting a failed company counts as experience! 

This gives Silicon Valley a very risk-seeking culture.

In India or China, if you start a company and it fails, you are considered an idiot and probably need to move to another city!

2) Trust the Young – The community trusts the young  with their ideas and does not dismiss them because of their age. The VCs on Sand Hill Road follow suit. This has given rise to entrepreneurs who have raised millions of dollars, while still in their late teens or early twenties.

This is in contrast to industries with entry level jobs, where you start at the bottom and need to be “trained” to gain experience.

The thought process is – when a new gadget comes out, who is more likely to play around with it and figure it out? A teen or his dad? The current generation of teens have been playing around with technology almost since they were learning how to walk. So, when it comes to companies revolving around technology, the young often know what they are doing and should not be dismissed.

3) Career path out of college –  Coming from undergrad at Northwestern, success there (similar to other schools in the East Coast) was more defined as landing a job in consulting or banking. Even though there was a large entrepreneurial push, the concept of becoming an entrepreneur right out of college was relatively rare.

At Stanford, entrepreneurship is more mainstream, where working on your startup after graduating is a common path apart from traditional consulting or banking jobs.  Though most of  those start-ups don’t succeed, that kind of entrepreneurial environment encourages the next Google or Sun or Cisco or Tesla to get built.

This mindset of Silicon Valley will also seem pretty ridiculous to anyone outside the Bay Area. Imagine talking to a banker on Wall Street about it being okay to fail and trusting the young. If he does believe you, he will get himself fired.

This is also why, to learn more about why the Valley works, you will need to visit and see the culture for yourself.

‘Obvious ideas’ are never obvious in the beginning

Guess what.. The obvious ideas are always taken – this applies to any industry – tech or outside it. Big companies don’t get big by going after obvious ideas. The founders initially have ideas that are completely ‘ridiculous’, ‘insane’, ‘crazy’, ‘that will never work’ – and go after them to make them work. By the time people realize the sheer potential of that ‘odd-brained idea by that weird guy’ – the company is already well entrenched in that space.

The obvious ideas are never obvious in the beginning. When they are thought of, they are almost always dismissed as being completely worthless.

Case in points:

1) When Google started back in the day, it was not the first search engine. Larry Page and Sergey Brin were rejected 3 times to sell Google for under $1million. In fact, Vinod Khosla was thrown out of Bell’s office at Excite for going back to pitch Google for a second time.

2) In 2004, imagine a kid who comes up to you and says, “I’m working on an online people’s directory.” With that phrasing, initially you think of something like a phonebook put online, and are left thinking – ‘why would that have any value?’. Then he builds it, calls it thefacebook and you use it for the first time, you’re left wondering, “this is actually addicting!”. (Describing Facebook as a ‘People’s Directory’ is how Mark Zuckerberg referred to it in the IPO in their investors proposal – the link to which has been taken down.)

3) Twitter was spun out of a failed company called Odeo. Even then there were several people wondering would they want to use twitter? By the time the ‘obvious’ functions of real-time conversations, trends and giving voices to people became apparent, Twitter was already well entrenched in the space.

4) IKEA was founded by 17 year old Ingvar Kamprad. The self-assembly concept was born 13 years later, more as a consequence of having competitors pressure suppliers boycott IKEA. Having the customer assemble furniture himself now seems like a great idea, but back in the day when every furniture shop available was assembling it for you – not so much!

5) Google bought a company called Dodgeball, a location-based social service back in 2005 and had the founders join it. However, given Google’s neglect of the service, one of the founders, Dennis Crowley, soon quit and restarted with a company called Foursquare. If Foursquare was the obvious idea, Google would have paid a lot more attention to it rather than trying to play catch-up several years later.

Paul Graham’s post talks about several other examples where “best ideas initially look like bad ideas”.

So, when you are working on your startup and people tell you ‘no one is going to use it’, ‘you are insane’, ‘this will never work’, ‘this seems like a terrible idea’ – you just might be onto something ginormously big!

The thing with VCs and early investors

The thing with VCs and early stage investors is: they are gambling!

It is just the way their business model works. Venture Capital is a ‘hits’ based business. Investors will typically invest in about 100 startups, out of which upto 75 of them will return very little or no money and 95 of them will miss their targets – in other words – 95% of them fail. The 2-3 that do succeed will return several orders of magnitude of the initial investment, which basically pays for the entire portfolio.

At the angel stage, the odds are even worse, where funds like 500 Startups, Kima Ventures etc. need to resort to a model of ‘Spray and Pray‘ – which basically means ‘spray money on a bunch of startups, and pray a couple of them succeed.’

What does this mean for the entrepreneur?

If you are one of the companies that has been ‘sprayed’ money on, what does that tell you of your investor’s belief in how well you will do? – Not much!

This applies even to top, highly selective funds like Y Combinator, which has graduated about 1000 startups (“The total value of the companies we’ve funded is around 10 billion, give or take a few. But just two companies, Dropbox and Airbnb, account for about three quarters of it.” – Paul Graham)

For the entrepreneur – the process of getting the investment really does NOT mean anything! It is just an extension of your life-line. If you have traction, then traditional VC investing metrics like strong teams, great products etc. become irrelevant in comparison. So, my belief is don’t focus too much on what Angels or VCs want but rather focus on what your users/customers want – you need to focus on building a viable business that solves a real problem – and less so on building something that investors would like to invest in or something where the VC community is ‘hot’ in.