This is a response to Bill Gross’s TED talk, The Single Biggest Reason Why Startups Succeed, which I recommend watching.
We met once, at the last TED in Monterrey. We sat next to each other in Majora Carter’s class on how to have a difficult conversation. Now I have one, and it’s with you. So let me try to take Majora’s lesson to heart and see if I can be empathic first and at least get you to consider a new point of view, second.
First, you’re an amazing guy who has built incredible companies and enjoyed a really stellar career. Many many people look up to you. You didn’t have to do it, you love doing it, and it shows. I only wish that after I had sold my company in 1999 that I had come to you and demanded that you let me be your personal assistant or something, to become part of Idealab. You have had a great run, and you’re still at it, and I congratulate you on your amazing achievements.
Second, you’re passionate and you want to share what you’ve learned, so you have given two TED talks and, I’m sure, countless other talks. You’ve been generous with your time and knowledge.
Now let’s see how to say this: I think it’s possible that you don’t actually know what makes companies succeed or fail, even those that you have been involved with. To make you feel better, neither does anyone else. It’s just a possibility. I want you to be open to it. A few basics, with some references:
The world is incredibly complex. As I have written, business is much more a connected set of ecosystems than any of the other standard metaphors, and I expect you agree with that. Tiny things can have huge impact, and it’s impossible to tell which tiny things will have what impact when they are tiny. What really caused the financial crisis of 2009? A few people are finally figuring it out. It’s not what most people think. Complexity hides cause-and-effect mechanisms and produces many false positives.
People are blinded by a host of cognitive biases. As you yourself mention, we all are, and it’s difficult to tell signal from noise, especially with small sample sizes. The “law of small numbers” says that we expect the distribution of a small number of events to look like that of a large number, but variance can easily throw that out the window.
You can’t tell the future. Nobody can, not even Warren Buffett. It would be nice to say that the top VCs know how to pick the winners, but they don’t. It’s a common misconception, because …
History is written by the winners. It’s easy to put a cause-and-effect story together if you start at the end and work backward. There’s a lovely book on this, called Everything is Obvious, Once you Know the Answer (also a TED talk, I believe).
Most successful people attribute their success to skill in one form or another. In this case, you have chosen timing as your straw man. My understanding of your talk is that you can tell more or less whether the timing is right for a given solution, and you can more-or-less tell ahead of time. It’s so CLEAR when you look back at what happened!
We all cherrypick, all the time. How many times have you done a Google search on something to learn about a topic for something you’re writing or going to say, and you choose one link/document and not another. We do it unconsciously all the time. Hedge fund guys, PE guys, and VCs are particularly unaware that they are cherrypicking — they don’t know the difference between facts and evidence.
We think it’s about working smart or working hard, or both. Strategy, execution, teamwork, tools — all these things count. Very few companies succeed by accident or winging it. Hard work is required. But how many people work insanely hard for decades and don’t break through? Most successful people look back at how hard they worked and how they stuck with it, and they attribute their success to that, but they don’t see the thousands of smart people, often extremely smart people, who work hard, persevere, don’t give up, and don’t get the reward. The story of Anthony Gatto is one I use to illustrate this.
This is where the chain breaks, Bill. You have to ask yourself whether it’s really true, or whether you are cherrypicking. What you’re not seeing is the perhaps dozens of companies with the same timing, that plenty of companies with terrible timing have managed to persevere, that some got funding and others didn’t, that tiny chance events have huge, unpredictable effects, and that the smartest people in the room fail far too often if it’s really about timing. You have seen this yourself in your contribution to the success of Google — how predictable was that? How many projects has Google tried and had to bury? How many surprises are there? When will the “timing” be right to replace Craigslist with something better? Was Jeff Bezos’s timing off when he launched a phone last year? Google Plus? Fiskar? It’s easy to say that Twitter and Facebook came along at the right time, but at that exact same time were many other things that don’t get any press today. What happened? Given the same timing, do we then go to the next skill factors you have outlined to determine the winners? I think we could study this, Bill, and you would have to conclude that in the big picture, there is simply no cause/effect machine working here.
And this is the difference between a causal vs evidential decisionmaker. We are born desperately wanting to ascribe cause to effect. It’s our “default” state. Yet some of us have managed to clear that and adopt a new set of decision tools based on evidence. It’s a skill, and I would say it takes four years of hard work to be good at it. I’m at about year three — I have master decision-science people I rely on to help me as I continue learning.
My premise is that you should replace the word “timing” with the word “luck,” and mean it. If you tell people that luck accounts for about 40% of start-up success, that’s a pretty good first-order approximation. This isn’t an easy request. It’s not something you will go for after reading this message. But if you go on the journey toward becoming an evidential decisionmaker and take notes along the way, that would be, perhaps, the best TED talk of all time.
My suggestion: It’s not about timing. It’s about trying things and seeing what happens, with enough in reserve to try something else if it doesn’t work out. You must have a great team and a great product and great sales capability, but as we both know that’s not enough.
I’m sure I haven’t been as empathetic as Majora Carter would be, but I’m glad we did get to spend an hour together once and I wish you nothing but incredible success and satisfaction going forward.
Next read: Turbulence, and Other Business Myths