Why don’t more rationalists start startups?
My motivation behind this post stems from Aumann’s agreement theorem. It seems that my opinions on startups differ from most of the rationality community, so I want to share my thoughts, and hear your thoughts, so we could reach a better conclusion.
I think that if you’re smart and hard working, there’s a pretty good chance that you achieve financial independence within a decade of the beginning of your journey to start a startup. And that’s my conservative estimate.
“Achieve financial independence” only scratches the surface of the benefits of succeeding with a startup. If you’re an altruist, you’ll get to help a lot of other people too. And making millions of dollars will also allow you the leverage you need to make riskier investments with much higher expected values, allowing you to grow your money quickly so you could do more good.
A lot of this is predicated on my belief that you have a good chance at succeeding if you’re smart and hardworking, so let me explain why I think this.
Along the lines of reductionism, “success with a startup” is an outcome (I guess we could define success as a $5-10M exit in under 10 years). And outcomes consist of their components. My argument consists of breaking the main outcome into it’s components, and then arguing that the components are all likely enough for the main outcome to be likely.
I think that the 4 components are:
Devise an idea for a product that creates demand.
Build it.
Market and sell it.
Things run smoothly (some might call this luck).
The Idea
Your idea has to be for a product or service (I’ll just say product to keep things simple) that creates demand, and can be met profitably. In other words, make something people want (this article spells it out pretty well).
What could go wrong?
Failure to think specifically about benefits. These articles explain what I mean by this better than I could.
Failure to understand customers. To put yourself in their minds and understand what it is that they do and don’t want. This is distinct from the first bullet point. You could have a specific benefit in mind, but be wrong about whether it’s something your customer really wants (or about how badly they want it).
Failure to research competitors. Maybe you came up with a great idea, but it turns out that it exists already.
Our society doesn’t have the technological or scientific progress necessary to build the product. For example, I have an idea for a machine that teleports you from one place to another. Unfortunately, we as a society aren’t at a point where someone could build that.
You personally don’t have the skills to build it.
You don’t work hard enough. Maybe you try, and find that you don’t have the willpower. Maybe you try, find that you do have the willpower, but realize that the amount of work it take isn’t worth it to you.
You can’t find people with the skills to work on it with you (cofounders).
You can’t raise money from investors to hire people to help you build it.
The people you work with/hire aren’t good enough to build the product you envisioned.
You’re unable to communicate clearly to your customers what benefits they’ll be receiving if they use your product.
You’re unable to persuade them. (There are other elements to persuasion aside from clear communication).
You didn’t reach enough people. Maybe you didn’t advertise enough. Maybe you thought word would spread, and it didn’t.
You’re having distribution problems (delivering the product to your customer).
PR problems. Something goes wrong and you obtain a bad reputation.
Legal issues (current). Maybe you did something illegal and didn’t realize it (ex. copyright infringement), and sanctions or a lawsuit killed your startup.
Legal issues (future). Maybe new laws were enacted that killed your startup.
Something in your personal life goes wrong that requires you to quit.
Your competitors innovate and beat you out. Or a big company decides to enter the market, and crushes you.
Scientific findings lead to your product being obsolete.
Macroeconomic conditions change, which somehow leads to people not wanting your product.
Political/social conditions lead to people not wanting your product.
- 's comment on Salary or startup? How do-gooders can gain more from risky careers by (5 Feb 2014 23:23 UTC; 9 points)
- 's comment on Rethinking Education by (15 Feb 2014 19:28 UTC; 4 points)
- 's comment on Rethinking Education by (15 Feb 2014 23:08 UTC; 2 points)
- 's comment on Rethinking Education by (15 Feb 2014 19:14 UTC; -1 points)
This is a topic I care a lot about, thank you for bringing it up
I’ve been an entrepreneur for 5 years. I started out like most Software Developers—by starting a startup. After a few years, I became convinced that this is NOT the best way to achieve the outcome you’re talking about (financial independence, aka ~5mil USD).
My basic problem with your post is simple, and others have pointed it out—you can make up all the numbers you want, but empirically, MOST startups fail. The usual figure given is 10% of startups fail, but this is a gross simplification, and I tend to think the number is much higher. More importantly, the number of years that it takes to fail can be long—the number of years before a successful exit is usually >5. Failures can happen earlier, but the worst-case scenario is to “fail at the last minute”.
To convince me that you’re going to achieve your goal within 10 years, you have to show that for some reason, you’ll do better than the statistics suggest.
The problem with #1 is you have no real reason to think you’ll do better than anyone else. This is where a lot of people get lost—they hear this statement, they nod, but they think to themselves “but I’m [better/smarter/more rational] than everyone else.” But here’s the thing—even if that’s true, it doesn’t mean you’ll succeed where others failed. Why? One of several reasons:
Being better/smarter/more rational might simply NOT be important in startup success. It’s possible that luck is more important. It’s possible that other things are more important, and we simply don’t know what they are. A lot of things are possible. The best minds in the world still don’t consistently pick winners, why do you think that is?
Even if you ARE better/smarter/more rational than most people, and even if that trait IS important, the statistics of 90% failures includes a lot of people who are clearly, demonstrably better than you. It includes the VC’s son, who has unlimited funds and a lifetime of learning. It includes the serial entrepreneur building his 10th startup after 9 successes. It includes the co-founder of Facebook, who has a billion dollars in the bank, unlimited press, and obviously some amount of familiarity with building startups. These are some of the people WHO STILL FAIL 90% OF THE TIME. So even if you’re incredibly confident, do you honestly believe you’ll do better than THEM?
So where does that leave someone who wants to apply intelligence/rationality to making money (like me)?
Well, there are lot of routes to take. I hope I’ve at least given you food for thought as to why startups are not necessarily the best route. Personally, I still think becoming an entrepreneur is a net win, at least if you like the idea. What I personally did after my failed startup is build a Software Dev Shop, and started selling software services. This will (probably) not get me a big exit, but the expected value of my money in this is still higher than in a startup.
Another route to take is to build a bootstrapped company, which will fail/succeed on a smaller scale, but which has other benefits: it might fail/succeed faster, it might need less work to get to the FU money stage, etc.
When you’re rationally weighing your options, and aren’t stuck in “Startups are the obvious way to get rich” thinking, then you can start learning about the wider world of business which has plenty of other interesting opportunities.
You’re taking a very inside-view approach to analyzing something that you have no direct experience with. (Assuming you don’t.) This isn’t a winning approach. Outside view predicts that 90% of startups will fail.
Startups’ high reward is associated with high risk. But most people are risk averse, and insurance schemes create moral hazard.
Agreed. Some hard numbers, like from the Startup Genome would help, and undermine some of OP’s claims—the high failure rate certainly implies substantial risk since you can only roll the dice once or twice, and the constant pivoting of startups suggests minimal value to planning.
Most people say that 90% of start-ups fail, but they don’t mention how many start-ups entrepreneurs attempt on average. If: 0.most founders only attempt one startup (and first-time startups have a 90% chance of failing),
But, founders who found multiple startups have a better chance of success. Then, the inside view that (you should be able be able to succeed at a startup if you do a lot of them in your 20s) and the outside view of (90% of startups fail) can actually be compatible.
You could make your model a bit more precise by noting:
Chance of all your startups failing (during life-time) = P(1st startup is a failure) P(2nd-startup is a failure) ETC.
If:
each start-up is independent of each other. (A pretty big assumption. I would expect people to get better over time. You can gauge how much.)
Each startup takes 2 years. (You can obviously change this number around).
Then, if somebody just did 6 startups consecutively, their probability of success would be 1-.9^6 = .47. There’s certainly room for a healthy amount of optimism in this model. If you model it more like 1-(.9.7.6*.6) = .73, then those seem like pretty good odds to do lots of startups.
I’d like to see people play around with numbers like these. It’s an outside view model. You can use your inside view to predict more specific things (how long a start-up takes, how much you learn from your failures, etc).
This is better than having a model: P(Devise an idea for a product that creates demand.) = .90 P(Build it) = .90 p(Market and sell it) = .90 P(Things run smoothly (some might call this luck) ) = ?
P(success) = .9.9.9*? = higher than what’s actually true. (Though, you could contend that plenty of people can’t devise an idea for products that creates demand, and that if you can do this, then you have a much better chance than the average start-up).
Paul Graham said something like “Startup founders are / (have to be) optimists”. I’m wondering how accurate people think P(2nd-failure | 1st failure) = .7 is. It seems like it’s still pretty skeptical (closer to .9 chance of failure rather than .1 chance of failure of the purely inside view model), but is still probably optimistic compared to YC’s ~80% failure rate.
Serial entrepreneurs are no more likely to succeed than first time entrepreneurs.
Any thoughts about what to conclude from this? It might imply that success in business is mostly luck.
Your post is exactly why “how many startups can I conceivably do” is an important question. If failed startups take on average 5 years to fail, which is a reasonable assumption for a semi-successful but ultimately failed startup, then doing 4 startups takes 20 years of your life. For most people, working 20 years at a startup and making relatively low wages is not feasible or desirable.
I’m not sure what you mean by inside-view. It seems like you’re moving up the ladder of abstraction though, which isn’t productive. If you disagree, please move down the ladder, and explain why.
And for the record, I am starting a startup now, have read a lot about them, but haven’t had any actual experience before this past summer.
Inside view: “If I enumerate the things I think can make a startup fail and estimate probabilities, failure seems unlikely”
Outside view: “If I look at actual startups, empirically 90% of them fail, so failure is likely”
I would have downvoted the original post if it wasn’t for this, as it explicitly says many times over things like “I don’t know, but it seems reasonable that”, “it shouldn’t be difficult to”, “I think that it’s something that could be”, etc. I hope that your startup turns out well, and that however it turns out, you will be able to write some updates about the real process.
BTW, “inside/outside view” refers to this.
I suspect the better someone’s self assessment skills are the less likely they are to assume they are better than 90% of people (reduced succeptibility to Dunning Kruger etc.). So you would expect less rationalists to start start-ups due to reduced self delusion.
Uhm, I don’t think you’re multiplying together the likelihood that you don’t fail in each of the ways you outlined. You got so close by identifying all the hurdles you have to go through—and then instead of doing the math, you basically said “these look like stuff that can get overcome by a smart and hard working individual” and slapped the “80-90%” label on it.
I counted 21 distinct ways you said a startup can fail. 0.99^21 = 0.8. I’m pretty confident you envisioned more than one person failing in that way out of a hundred.
This strikes me as a case of what I call the Conjunction Fallacy Fallacy, because if we actually did multiply all that together, the startup success rate would be more like 1% or less.
Would you mind giving your thoughts on how much you think being specific improve ones chances at startup success?
Doing a successful startup is hard. Surpassing the default 90% lack-of-major-success rate for experienced startup founders, startup founders who are nephews of VCs, startup founders who impress even VCs, etcetera is hard. The best of our community have not yet demonstrated that they have surpassed this level. It could be that with sufficiently systematic training our community could achieve outsized returns by not just being specific but also acquiring sufficient skill levels of See Through Conventions and Avert Office Politics and Use Conditioning Correctly and Be Really Original and Cooperate With Cofounders and MurphyJutsu and Learn From Others Experience and Be Calibrated and so on. It’s not the sort of thing where you can read LW and breeze through it. Your post was downvoted because it displayed a tremendous ignorance of the problem’s magnitude, trying to hit a 16-pound nail with a 4-ounce hammer.
Sorry if it wasn’t clear, but my intentions weren’t really to make an argument, they were to open a discussion.
Open
Close
I wanted to attempt to take an Inside View at startup likelihood, and get feedback. So maybe I did start off with a 4-ounce hammer, but the idea was to bulk that hammer up so we could attack a problem that I think has major upside, and that suffers from notable cached thoughts.
Interestingly, if you assume these are the only ways a startup can fail, and that for a typical startup creator (who is self-selected as smarter and more conscientious than average) each of these has an independent 90% chance of working out (what seemed to me like a reasonable estimate), then the overall chance of the startup succeeding is 0.9^21=0.11, remarkably close to the actual base rate. This particular model is unlikely to be accurate, but it is another way of illustrating your point.
“Given all of this, I think that if you’re smart and hard working, you should have at least an 80-90% chance at succeeding at a startup.”
Your method is bad- you have come up with some imaginary numbers and not addressed the obvious difference with reality, except with the qualifier that you mean people who are “smart & hardworking”.
Surprisingly, when I went looking, you might be partially correct: at least for people who really are smart and hardworking and for certain values of “success”. To look at the Ycombinator list—the number of “failures” or dead companies is very low and this probably provides a decent filter in that they are as experienced as anyone in identifying people who are smart and hardworking in the ways relevant for a startup.
The huge caveat is of course that nearly all startups don’t get funded by ycombinator and “not dead yet” is not comparable to “success”.
Making up imaginary numbers and then coming up with a rationalisation for those numbers is still a horrible way of making an argument though. Worse, you haven’t explained why your made-up number is so different from the commonly quoted made up number that 90% of startups fail.
No, I’m just trying to take an inside view. I think the main reason why success rates aren’t as high as they should be is because of my very first bullet point of people being unable to think specifically about benefits.
This post seems like a great example of (a variant of) the planning fallacy in action.
This post by Yvain is my cached thought in response to “Why don’t more rationalists do good thing X?”
Yvain writes:
I suspect that your limiting factor for being successful at a start-up probably has something more to do with raw intelligence, having a good work ethic and good business partners, making the right connections, or things like being in the right field at the right time [citation needed]. The only evidence I have for this is that in the successful silicon valley start-ups I have observed, the founders have always been hard-working, intelligent people with a reasonable business plan, or at least a solid idea. It seemed that during the period between deciding to found a start-up and actually getting some revenue, there was a lot of hard work and not a lot of rationality used. Maybe you could use x-rationality instead of hard work (or in addition to it?) to be more successful? I have not been able to identify this happening at any point.
Edited for formatting and to add some more content.
In that case, the first step before making a startup is to research how to boost your willpower. Maybe people are simply not creative enough here, and only try a few obvious choices (which includes Beeminder and HabitRPG). Instead of… I don’t know, spending 10 minutes brainstorming a list of 12 crazy ideas, and experimenting with each of them for a month.
I am a web programmer / designer. I work at a startup, and I have attempted several (failed) website projects. I will offer an “inside view” from my own experience.
My main failed website was a cool idea. Everyone said it was cool. Everyone said they would use it. So I spent months building the functionality. Then I started working on the design and UI. As a newbie to design, the web design and UI sucked. The site was useable, but nobody cared except a couple friends. The Facebook page got around 5-10 likes. I realized that the design sucked and it would take a rewrite to improve it, but I couldn’t justify the time expenditure.
I tried a more content-oriented site as another project. My graphic/web design skills were better, so I was no longer embarrassed to send the site around to people I knew. Most of my friends read anything I posted on the site, but I couldn’t very far outside my friend circle in audience. Ran out of energy to promote the site to a wider audience. Final metrics: 70 likes for the FB page, a few Twitter followers, 100 hits a day from Google (mostly bounces), and a few cents from affiliate links (and this was not because someone bought one of the products from my site… it’s because they happened to buy a washcloth and I somehow got affiliate credit for that).
In the end, these projects weren’t total failures. I picked up some great skills, and they were good for my resume or showing friends. Could I have pushed them further with more effort? Yes, but I couldn’t justify that investment. Similarly, seeking funding would have been silly because even though the ideas were cool, any investor would have (correctly) perceived that I didn’t have the experience/skills to execute. For instance, I didn’t know much about marketing or design. Even if an investor threw money at me, I wouldn’t even know how to get good value out of hires. An investor would probably prefer investing in a team who already has made at least some progress in nailing down the design and marketing.
Theoretically, I could have sought co-founders to do some of the work (e.g. designers, writers, other developers), but why should someone talented want to work with me on a project that wasn’t their own vision, where I didn’t have great skills at execution, and when I didn’t have the budget to hire them? Personally, I wouldn’t want equity in someone’s solo project that’s really not very far along, unless some of these are true: (a) I know this person’s ability to execute beyond demo-level, (b) there are other talented people involved, (c) I’ve had input from the start. Even if the idea sounds good on paper.
Like you, I absorbed lots of optimistic messages about startups, and “minimal viable products.” Though some other friends told me that “execution” of an idea is necessary: a good idea is not sufficient.
I failed in the early stages of execution. My first project failed (mainly) because of the execution of the design and UI. Those turned out to be pretty hard. Design is a serious business. For me, it took a learning curve of 6-12 months to create anything that wasn’t ghastly and broken-looking.
My second project (mainly) failed because I couldn’t promote it and create content in a time efficient way. Writing content was time-consuming. Then posting it places was also time-consuming. Yet it I didn’t promote the site, then I didn’t have motivation to create content, and if I didn’t have content, then I had nothing to share. The lack of motivation was not a lack of willpower, it was me correctly observing that I didn’t have any remotely time-efficient way of converting my time into users.
In the end, I realized that for the projects to be successful, I not only needed good ideas, but I needed high-level execution. But professional-level execution in the area of graphic design, web design, writing, and marketing is serious business. There were simply not enough hours in a day for me to learn all of those disciplines at a pro-level. This was not a problem that I could have solved with a little more willpower or time.
If it was so easy for for full stack / backend web programmers to throw up brilliant minimum viable products and create million dollar companies, then this would happen all the time and there would be no need for professional designers and marketing people to exist. But those people do exist. That is evidence that those disciplines are serious business.
There are people on Dribbble who spend all day making colored buttons. Users will want to click on their colored designer buttons, not on the ugly buttons designed by backend developers. There are people who spend all day writing copy and agonizing over wording and getting it just right. The average web programmer simply doesn’t have the background or taste to evaluate design and writing unless they invest some time into learning those disciplines, which is hard when the backend has bugs that need fixing (just like the average designer or writer would be lost if they tried to make a web service).
Yes, a small team of talented people can wear multiple hats. But to get other people (either co-founders or investors) interested, they have to believe the project has some chance of success, not just success at sounding cool.
My conclusion is that people other than close friends do not give a shit about demo-level website functionality, unless the idea immensely out-of-this-world amazing. It takes design (graphics, UI), and marketing (copywriting, messaging, social media, promotion, etc...) to get people to give a shit.
In addition to a good idea, you need to show proof of execution/production/connections to get people to join your team. Then your team collectively must hit another critical mass of execution/production/connections to get funding (assuming, of course, that the tech/functionality is great). Why would a talented designer or marketer want to join the team unless the other parts of the production/execution are going well? A good idea is NOT enough.
My experience here is consistent with the “outside view” being correct: that many startups will fail or never get off the ground. Despite being a talented and motivated person, and despite making some demos of cool ideas, I ran face-first into a wall, and that wall was execution, production, and marketing. I decided to pull the plug on those projects instead of trying to rope co-founders and investors into projects that were unlikely to succeed. My projects weren’t at the execution/production level to attract the right sort of people to improve the execution/production.
Nowadays, I work at an early-stage startup. I get to work on a team with other talented people. And I’m learning about the other sides of business, tech, marketing, design, and media where I lacked experience. I’m also making connections with people who could potentially advise me if I tried to start my own thing in the future. This is a much better use of my skills than trying to build a business myself.
You make a lot of theoretical arguments but don’t talk at all about the fact that most of the startups VC’s fund fail sooner or later.
If all it takes to have a startup with a 80-90% chance of a $5-10M exit is checking whether the funder is smart and is hard working, VC’s should have higher success rates.
You seem wildly optimistic. Have you got an impartial outsider to do a premortem on your startup?
Not formally, but I’ve talked to lots of people about my startup, and have obtained consensus responses.
My idea is to make college reviews better, by asking specific questions instead of general ones. See http://collegeanswerz.com for all the questions. For example, how does the workload impact the social life? Are the school sponsored events popular, or do they suck? Do kids go home on weekends? Are your professors generally fair? How social was this dorm? How difficult was this major? Is there a convenient place to get groceries?
A few people don’t think there’s much of a demand for that, but most people (>95%) think that there is a demand for that. The overwhelming criticism is that I won’t be able to get students to answer the questions. I’ve been experimenting a lot with methods of getting students to answer the questions, and I think I’ve arrived at something that works: $10 to answer 25 questions, or $25 to answer 50. At a $300 budget per school, this gives me about 10-12.5 answers per question (~60 questions per school), which seems pretty good. And $30 per school of targeted Facebook advertising has been successful at spread the word of the offer to students. This has worked for the 3 pilot schools I have.
From there, I’ll have to
1) Raise ~$100k from an investor to do this at the other 297 schools (cost is ~$330 per school to pay and advertise to answerers)
2) Spread the word of the website to current students. I think following the advice here will do that sufficiently. The main methods are internet ads, talking to guidance counselors (I know a couple who are interested), high schools, blogs and news outlets who talk about how to choose a college.
3) Bonus: raise VC money, and expand into things like video tours and live chat. (I call this ‘Bonus’ because I think that if I failed here, I’d still have a successful company, just not a wildly successful one).
What do you guys think?
What you posted is not a premortem, it’s the opposite of it. Assume that a year or two from now your enterprise has failed. What caused it to fail? E.g. insufficient cash flow, lack of school buy-in, lack of investor interest, regulatory obstacles, competing services, failure to execute… For the duration of the exercise you have to suspend your natural optimism and truly believe that bad things happened. Can you do that? If not, then the 90% failure rate statistic definitely applies to you.
I’m saying that those 3 things are the most likely bad things to happen. Other than that...
A competitor comes a long and outdoes me. Maybe by getting more reliable information by doing research instead of just asking students.
The government passes laws that sway you to just go to your state university, which would decrease the demand for a service that provides information about schools all over the country.
One of the big names sees what I’m doing and copies me.
Something happens that hurts internet advertising (that’s how I plan to make money).
I can’t raise my seed round because I can’t get over the chicken-egg hump of finding an investor.
Students don’t do a good job answering questions (they’ve done a good job for my 3 pilot schools, but maybe those were outliers, and the 297 other schools will have worse quality).
I violate some law unknowingly, get sued, and have to declare bankruptcy.
My site gets hacked because I’m a newb at web development, and I have some security flaw and this leads to my database of answers getting deleted (doubtful because I’m using Disqus to have people answer questions, and Rails to build the site).
Those are obviously only a fraction of the things that could possibly go wrong. However, I’ve disregarded most of them as so unlikely that they aren’t worth thinking about. Are there any in particular that you think I should be paying more attention to (other than the 3 I listed in my first comment)?
Without commenting on the larger article (I feel like a decent fraction of the negative comments to this post are just regurgitating cached thoughts about start-ups), the thing that worries me about your above comment is that a lot of the things you listed are pretty implausible. This doesn’t seem like the sort of list that would be generated if I was trying to generate the most plausible set of reasons something would fail. Instead, I would have listed:
lack of buy-in to the website (just because the people you asked say they would be interested doesn’t mean that people will actually use your website; the overall user experience is pretty crucial to determining that)
failure to convert a user base into revenue flow
lack of perceived legitimacy of the reviews (e.g. due to the small number of responses per question), possibly caused by push-back from more established places like the U.S. News & World Report rankings
I wasn’t sure what he meant by premortem. I listed before the 3 plausible things that could go wrong, and he said that that wasn’t a premortem, so I figured he was thinking more along the lines of “think of anything and everything that can go wrong”.
To your points...
I’m highly confident that this will be something people want. I have a strong intuitive belief in this, and I actually have talked to lots (hundreds?) of people who say that this is something they do/would want. Still though, I should have mentioned this as a risk.
I don’t see this as a problem. If I my website becomes the go-to place for college applicants (or at least one of the go-to places), it’ll get a lot of traffic, and the traffic will allow advertisers to target a particular audience (college applicants). From what I understand, on the web, traffic pays.
That’s definitely a worry, and is one of the main things I want to address. Once I get rolling and get resources, I want to invest heavily into getting the most reliable information as possible. Still though, all the other student review websites have the same issue of perceived legitimacy, and they’ve been around getting users for years.
Why aren’t these people using the sites that already exist? You could just say “that’s because the questions/answers aren’t good enough,” but my guess is most of these people who say they would want it never got as far as looking at these other sites in order to see their quality of questions and answers.
They do, but they aren’t satisfied. I’ve had a lot of people say “I wish this existed when I was applying to college”, implying that they want something beyond what they already had. A lot of these people are people that I know looked through the questions (because a lot of them answered them, and because a lot of them were in the context of conversations where we either looked at the site, or I explained and gave examples of the questions).
I don’t think this addresses jkaufman’s comment. He asked:
These sites already existed when your friends were applying to college. So if they say “I wish this existed when I was applying to college”, the key question to answer is why didn’t they use any of the competing sites, which did exist when they were applying to college? Your response that “these people looked through your own website’s questions” does not address this question.
(As an aside, I would humbly suggest that you read through jkaufman’s—and a few other people’s—advice somewhat more carefully, as your responses indicate that you’ve misunderstood some of the key points, see also my earlier explanation of a premortem, which had already been explained to you once earlier in the thread.)
Apparently you suffer from poor reading comprehension (I explained the term) and are unable to google (it’s the top two hits). Given the way you react and the critique others give, I estimate that you have less than 1% chance of success. Much less. I wouldn’t take a bet on it, though, since the uncertainty is too high. After all, Facebook started as “Hot or not”. But you do not come across as Mark Zuckerberg.
I suspect that your time and money would likely be better spent attending one of the CFAR workshops.
I’d want to add at least:
You have to spend more on avertising to get a student to visit your website than that student makes for you in on-site adverts.
It turns out that the existing competition is better because having a large number of reviews in a dozen or so categories turns out to be better than having a small number of answers for a larger number of questions.
Well both of those things are yet to be seen. Why do you believe each of those things are true?
I think you’ve misunderstood what a premortem is. It is “assuming your startup fails, what is the most likely reason”? That is the context of Khoth’s comment.
Oh ok, thanks for clarifying. That was stupid of me.
Ignoring the general question of “should more people start companies”, some feedback from poking around at your site:
First impression: not a real site. I’m not sure what about it sets that off for me, unfortunately. Maybe the amount of white, the size of the main picture (too small), general non-glossyness, font of the title text, homemade appearance of the logo, and the broken aspect-ratio on the main picture? Hiring a designer can help here.
The focus isn’t that clear. As a visitor I can’t tell what I’m supposed to be doing. Am I supposed to search for a college? Click on “colleges”? I understand it’s about picking a college, but I don’t see what I’m supposed to do next.
The “get paid to answer questions” looks a bit scummy and isn’t generally relevant. Can you limit it by IP so it only shows up to people browsing to you from those universities? And then simplify it to something like “Answer Questions, Get Paid”? It’s also a weird width.
Most of the front page appears to be selling the site. Which you need to do if you’re charging for a service, but you’re not. Instead you want to get people into the flow of looking at colleges as soon as possible. Save the “what makes us better than everyone else” for an about page or a pitch deck.
Minor: having the questions in a monospace font is weird. As a programmer I love monospaced fonts, but most people don’t.
You have an audience issue with questions. You’re going for a site where people see answers to real questions, the kind the would ask someone in person if they were socially close and wanted the real deal on a college, but those questions aren’t the same for everyone. In particular, there are some questions which probably do matter a lot to some people but are irrelevant or even offensive to others. “How hot are the girls?” was the main one that jumped out to me here.
The comments take too long to load. They’re not way slow, but just clicking around some it was distracting having to wait for the spinning C each time. This limits the magic of clicking around and seeing people’s responses to questions.
Thanks for the quality critiques!
Regarding the design things, I agree with you. I basically just started learning programming and design this summer and I’m definitely flawed in each of them. I would like one of my first hires to be a designer, but I do think that the current design satisfices (won’t wow, but won’t draw people away). Do you?
Also, there are some ways in which I think my design is much better than that of my competitors. For example, on http://www.unigo.com/, it takes 2 clicks to pull up a college page (College Guide ⇒ type in search) when it should just be a search bar on the top right. Also, my site lets you browse by question, rather than by reviewer. And another one, when you’re on a school’s page, you could toggle the information section rather than having to click it and leave the page you were on.
I’ve heard this before, and am not sure what I should do. I figured that even if it isn’t immediately apparent, the user would end up proceeding to click on Colleges, and then figuring it out within seconds. But brainstorming this and redoing the home page is definitely on my to-do list.
I’m not sure how to limit by IP, but that would be cool if I were able to do that.
Good point.
I know they aren’t the same for everyone, and so I try to be comprehensive. But being comprehensive will inevitably lead to the presence of questions that some applicants aren’t interested in. I feel that being comprehensive is more important than annoying some people with some questions.
That’s something I’ll need to address. In the short term, I’m already using Disqus, and I don’t think it’s worth the time to go back and rewrite the code to have my own users and comments and stuff so I could make it faster, but I think that I will eventually. Meanwhile, Rails 4 just came out with turbolinks, which should speed it up a bit (I still need to upgrade).
Before we get into more details, here are some higher-level thoughts on the business overall: how will people get to your site and how will you make money from them?
One strategy is to pay for ads. People doing this already are easy to find: search in an incognito window with questions like “college information”, “choose college”, or “college for me” (be imaginative). Click on the ads that don’t look like they’re for particular colleges. This drops me on a few landing pages:
http://www.educationmatch.us/college_finder/
http://www.noodle.org/colleges
http://www.educationconnection.com/landingpages/programs-is
http://www.schoolguides.com/
https://www.plus-u.com/
You don’t know very much about these businesses, but you know they’re all making enough money on an ad click for it to be worth it for them to advertise here. (Looking in the AdWords keyword planner suggests they’re paying $5-$20 per visitor (CPC).) If one of these sites is doing something that seems weird to you, don’t write it off as dumb: they’re making money or they wouldn’t be able to afford to show up when you did the search. Maybe they have some low-hanging fruit in improving their layout, and they certainly don’t all look the same, but if in doubt they probably know something you don’t.
It’s also possible for people to come to you via searches. Do some searches yourself; see who shows up. This business model is harder to replicate because it’s much less clear how they got onto the front page for a search. SEO advice tends to be terrible, and for good reason: it’s an adversarial game where success is very lucrative and people are constantly pushing limits to see how scummy/profitable they can get without stepping over the line and getting banned (recent example: rapgenius).
Word of mouth and viral/social are also possible, but even less predictable. But then my bias here is for paying for traffic because I used to work in advertising and it all feels very natural to me. But however people get to your site, you want a good sized flow so you can experiment and test things and see what works. Iterating with no one watching is hard to get to go anywhere. (One nice thing about the non-ads flow is that focusing on making your users happy and have a good experience lines up with your incentives. If you go the ads flow every visitor is to a first approximation someone you’ll never see again and so you don’t care about their experience just how much money you can get from them. It’s like businesses that cater to regulars vs tourists.)
Once people get on your site, how do you get money from them? The simple strategy is to put up ads, like adsense. These pay very little, like $0.01 to $1 per thousand visits. Maybe somewhat higher because you’re in a vertical (education) where there are advertisers with a bunch of money to spend (colleges). There’s no way you can pay for ads at $5 per click and make your money back at $0.001/visit. So what are those sites like educationmatch doing? They’re collecting information from people and selling it to colleges. This is called “lead-gen” advertising. The most obvious form is when you land on a page and it immediately asks you for information about yourself. If you’re going to place search ads, you basically have to do lead-gen; nothing else is profitable enough per-visit. (When you start off you’ll sell leads to a lead-aggregator who sells them to the colleges. When you get big you negotiate deals directly with the colleges and get a bit more per lead.) If instead you want to make money by putting ads on your pages you need to go with cheaper but higher-volume sources of traffic, like being awesome, getting people to link to you and talk about you, and getting high up on search results pages.
Back to specific design notes:
To actually answer this question you need data from your site and competitors to compare bounce rates. You’re not going to get that, so the best you can do is calibrate retrospectively: when you do get a designer and redo your site you should A/B test the redesign so you can see it’s impact. This only works if you have enough traffic by then to get meaningful results.
My guess is that the appearance will make some people leave with “this looks unprofessional/fake” but this isn’t something I’m good at estimating. You should at least fix the aspect ratio on the main image; I found the vertical squishing very distracting. Cropping it instead of scaling it in the browser would work, as would using only one of height= and width=.
unigo looks more professional to me, though still not as polished as something could be. But polish isn’t everything; many of the sites I linked to above aren’t going to win any design awards. Many of them look kind of tacky and overly slick. They’re all making money, though.
Sit down with someone and watch what they do with your site. Then sit down with someone else. Look at your competitors and take the best ideas from many sources, then mock up a new front page design and sit down with another person. Repeat until you run out of fresh victims/friends. You’re too small for fully-automated a/b testing, so substitute quality for quantity and watch real users in person.
Many colleges have a contiguous IP range. For example, everyone browsing from on-campus at Swarthmore will be 130.58.something.something. Make guesses from looking at the IP of the college webserver, and if various departments that do their own webhosting (cs, math) all are in the same IP range you’re probably good. You can also look through your server logs to see the visits from people you know are at certain schools. It’s also possible that this can be looked up somewhere.
It’s a balance. Trying to channel “teenage girl” I have the impression that “how hot are the girls” would be something I would find off-putting. But my mental model is pretty bad here, having never been one.
A final note: this all sounds kind of mercenary. My perspective is that’s what you have to do if you want to make money in such a tightly competitive market. That’s part of why I’m glad I don’t work in this industry anymore.
That’s the plan.
Ok; keep in mind that this means bringing in a lot of traffic. You’re talking about wanting to build a company you could sell for $5-10M, which means either something like $500k in profit a year or the expectation of even more profit in a few more years. Your costs might be $2M/year, so you’d need to bring in $2.5M/year in ad revenue. At a $1 CPM that’s 2.5B pageviews a year or 7M pageviews daily. That’s 1/60th the traffic Wikipedia gets, and Wikipedia is massive, so this is a very challenging traffic goal.
via http://tech.fortune.cnn.com/2013/10/10/a-website-for-rating-big-life-decisions/
It’s funny, now I’m arguing for the outside view instead of the inside view :)
If they “run largely off of ad-based revenue, especially targeted advertising”, and “have 21 employees”, I could too. My guess is that the numbers work because they have higher CPMs because they have such a targeted audience.
My overarching point though, is that it could be monetized, not that advertising is the best way to do it. My evidence is that all my major competitors are multi-million dollar companies, and that I think I could out-do them (more users, more engaged users, better information, more brand recognition...).
But you can’t put yourself in the same reference class as these companies, because it’s most likely that they started out with more resources, bigger teams, more experienced founders, and/or more connections than you.
You could make that argument against a lot of startups.
Yes, it’s probably true that there are successful startups who began with less resources than the incumbents in their industries. Yet these companies may start out with more resources than you seem to have available.
There are many business models other than launching a multi-million dollar mass consumer website that monetizes from advertising. In my view, such a business is relatively risky and resource-intensive. It seems to me that you have chosen an especially challenging business model for your first startup.
Bringing a product to a mass market is a challenge; see the examples edanm and I raised of restaurants and movies flopping because they fail to resonate with the market. The wider the market it is that you are aiming for, the harder it is to make a product that resonates with them.
So, I did not intend to sound like I was making a fully general counter-argument. I want to specifically caution founders where there is a large gap between their current resources/experience, and the demands of their business model, especially when their business model requires targeting a mass market, and they have no experience marketing to even a small or niche market.
Sorry for the delay, but here’s my pitch: http://www.collegeanswerz.com/pitch . I think it’ll enable a more productive discussion of the viability of my website.
Also, check out http://lesswrong.com/r/discussion/lw/jmn/salary_or_startup_how_dogooders_can_gain_more/ .
I skimmed the pitch. I think you are probably correct that there is a business opportunity in this area. Nevertheless, my main view is that a good idea or business opportunity is only a small part of building a business.
Consequently, your pitch seems a bit more like a theoretical paper on a business case, such as in a class project as school. That’s different from attracting consumers (who require good marketing and design, not spreadsheets) and investors (who need to believe that you in particular are capable of executing on your idea).
I will continue to recommend that you learn more about design and marketing, and ideally work with other people in those areas. Unfortunately, to fully argue this point, I would need to give extensive feedback, which would take me too much time and space to write up. I concur with the critical feedback that others have given in the thread.
A big challenge is the fact that if you are the type of person who posts on LW, then your mind is quite different from the average consumer, and you will not be very well calibrated to understand what they find attractive, usable, hearable, and valuable. Bridging this gap in perspective will take considerable work.
As for the article you link to, I agree with you there is a good expected value for you in a risky project. I will still emphasize the execution risks involved in this project. Ultimately, I think that even if you fail fast at making a successful business, you will still gain value from this project, as long as you don’t burn too much time, capital, or other resources. You can always go work at someone else’s startup and build skills and connections for a future startup of your own.
Thanks for the response.
All “execution means”, is 1) raising the money I need to pay for people to answer questions at all schools on the site, 2) market this to high school students, 3) get enough momentum to raise a series A, and 4) hire the right people to help me expand. At least that should get me to be a player in the market.
I agree that I’m no expert in design/marketing, but I think I could do a good enough job at them to get me to a point where I could hire experts.
Yes. And these are all challenges with significant risks. My claim is that is that it will be hard to build significant momentum prior to getting a level of design and marketing which is significantly beyond your current ability as someone with a programming background. Even if you pay people to provide your site with good content, your visitors will not appreciate that content if is housed in unattractive design, except perhaps for some viewers who find your content so compelling that they are willing to overlook the design.
I could be wrong about this, of course (and your analytics will tell you the answer), but if I am right, then you will need to get help with design and marketing prior to steps 2) and 3). Getting either training, or significant help, or contractors, or co-founders, would need to be incorporated into your plan sooner rather than later.
This seems like an empirical question… and leaving it up to chance sounds like a risky prospect when your money and time is on the line. Given that you admittedly lack experience in design and marketing, it seems like you would be uncalibrated to estimate how much experience in those areas you need to attract funding and co-founders.
To give you some more background about why I emphasize marketing and design so much: in some deals where I’ve seen companies get funded, a big part of the funding was showing design documents and marketing strategies to potential investors. Also, I often see experienced and serial entrepreneurs worrying about the marketing success of consumer products they are working on. Being scared is a rational attitude given the uncertainty of the mass market and what people will respond to, which is why I’m trying to scare you a little bit about the risks you are facing.
Becoming good at either design or marketing (let alone both) coming from a tech background is at least 6+ months of work to produce non-amateurish work. Perhaps there is some way that you can get help or guidance in those areas in the very near future.
Ok, now I understand. (As an aside, I don’t even have much of a programming background! I taught myself Rails this past summer, and this is the first website I built.)
I disagree; I think there’s a very real need for more comprehensive student reviews, and the design of my website isn’t going to prevent people from using it. The design may not blow you away aesthetically, but I think it’s at least pretty straightforward and easy to use. Aside from my own intuition, a lot of people I’ve talked to said they love the site and would find it useful if it had reviews.
Regarding marketing, 1) I talked to a college advisor I know, and she said she likes the site a lot, and wants to tell all the other advisors she knows about it once I get reviews. So I think I could spread the word by doing more of this. 2) I talked to a guy on the school board of my town, and he said he loves it and that guidance counselors would be happy to spread the word, so that also seems like spreading via guidance counselors will also be effective. 3) There’s a lot of people writing about How to Choose a College, and I think it’ll be in their interest to spread word of my site, being that it helps people choose a college. 4) Social media advertising. 5) Word of mouth. Not to downplay the value of marketing, but from what I read, things that solve real problems tend to find their way to users.
You’re making a lot of outside-view arguments, but I’m taking an inside-view with my website (I think I have enough information to take an inside view).
It’s like the map and the territory—inside-view is like looking at a lower-level map. So it’s like we’re looking at two different maps. Your interpretation of your higher level map may be correct, but the lower level map might have more information that leads to a different answer.
Right now, I’m working on a big comparison of my site, to all of my competitors. Comparing what my site has to what they have. I hope to be done in the next few days, and I’ll let you know when I am and show you what I’ve got. I think it’ll make more sense once I could show it to you, and I think it’ll allow for a more productive discussion. (Note: I should have done this explicit comparison earlier on, like immediately. I’m very disappointed in myself for not doing so. Like this has been the most disappointed I’ve been in myself in over a year probably. Thanks for taking the time to discuss this with me.)
Sorry for the delay, but here’s my pitch: http://www.collegeanswerz.com/pitch . It should clear things up and enable a more productive discussion if you’re still interested.
Also, check out http://lesswrong.com/r/discussion/lw/jmn/salary_or_startup_how_dogooders_can_gain_more/ .
“How hot are the girls?” on the front page of your site? Really?
The fonts are unprofessional looking too.
Yes. Consider who my target audience is. I need to convey that this site provides answers to questions you normally don’t get answers for.
I agree. Within the next week or so, I’ll get some good google fonts (just recently figured out how to do that). And if I raise a seed round, I’ll buy equity and concourse.
I understand what you’re trying to do, but have you considered that even those young women who aren’t “upset” by the inclusion of that question might straight away, on the front page of your site, get the impression that this site is not for them? I assume women comprise roughly half your intended target audience. (Not to mention—are there really systematic differences in “how hot the girls are” between colleges??)
Furthermore, would you agree that if you succeed, at some point you might be interested in developing a relationship on some semi-official level with colleges—for example, you have a student rep at the college who drums up people to provide answers for you? Student unions can be pretty touchy about discriminatory type stuff. (Edited to clarify that by use of the word “touchy” I don’t mean to imply disagreement with them.)
When I was applying to university a few years ago, I reckon the equivalent question that the “alternative” descriptions tended to include to demonstrate their alternativeness and focus away from academics was “How much does a pint cost?” Less likely to be found offensive. UK, not US, though; I guess your drinking age precludes the use of that one.
Those are better fonts.
I’ve considered it, but I figure that the value of having it outweighs this. I don’t see it as something that is strong enough to draw too many people away from the site. Maybe it’d be a good idea to remove it from the front page though to be safe. What do you think?
Yup, even more.
I don’t know. I don’t see how anyone would know without having access to a site like mine.
For the record, I don’t think it should be insulting that people care about appearance. I wish I didn’t care about it, but I do (it isn’t fair because it’s not something you can control. however, pretending that you don’t care is poor instrumental rationality). I get the sense that it’s human nature, and you can’t really help it. That’s not to say that you think someone has some sort of lower “worth” if they aren’t as attractive. It’s just to say that more attractive people ⇒ better chances of finding a girl/boyfriend, and more fun hooking up. It has nothing to do with respect or social/intellectual interaction, just romantic/lustful.
I’m not sure. I’ll have to acquire more information and think about it. It does seem like something that is rather likely though (schools can help me get answerers, mentors, representatives). I would have to make sure that their involvement isn’t biasing my site though. As for the “discriminatory stuff”, it doesn’t seem worth trading comprehensiveness of my site for colleges involvement.
Removing it from the front page could certainly get you a few visitors who stay longer than to read that, react with “huh, guess this is not a classy site” or whatever, and leave.
Of course it’s simply true that people are interested in the physical attractiveness of other people. Declaring that fact insulting is a nonsensical thing to do. It’s the choice (not on this one isolated occasion, of course, but in the context of millions and millions of other such choices constantly made in the media etc) of the “hot” and “girls” framing of your understanding of this point that rankles, and may well rankle with others. Of course it’s the women who are evaluated for their hotness, not the men. Of course hotness is chosen to evaluate them. Of course they’re referred to using the term “girls”. Because it’s that way all the time. You’ll tell me that it has to be like this, because that’s how college-aged men speak and think. Pity you’ll gain some people who speak and think like that and lose some who don’t, in my opinion.
I would caution you against the Typical Mind Fallacy and believing that other people will perceive writing the way you do.
In projects I’ve seen, the founders and marketing people worked on marketing copy, and spent a lot of time fine-tuning the messaging. As as programmer and a LW reader, it is unlikely that you are well-calibrated about marketing and messaging (similar to how the typical marketing person would be miscalibrated about web development). Getting feedback from others is important to avoid biases in this area.
Have you considered rephrasing as
and have immediately next to it the question
in order to keep things gender-neutral? Presumably this latter question would also be something your target audience cares about.
I ask the same thing about males. I don’t think that’s the phrasing that my target audience is looking for.
You’ve said how you plan to spend money, but not how to plan to make money.
I’m pretty sure that back when I was choosing a university I’d have said that such a service would be good but wouldn’t actually pay for it. Paying for information on the internet is a weird and alien thing, especially if I didn’t know in advance how high-quality the information was (I’d just have to use heuristics like “most adverts on the internet offering information in exchange for payment are somewhere between not worth it and outright scam”, or “websites with a z in the name are shady”).
I agree about people’s reluctance to pay for things on the internet. For that reason, I think I’d make money via advertisements. Judging by the size of my competitors (College Prowler, Unigo, Cappex, Princeton Review...), that seems like a sufficient way to make a lot of money.
Regarding the ‘z’, I don’t like it either, but the guy who owns the ‘collegeanswers.com′ domain wanted $10k for it because it was “in development” (which is bs because since the summer when he told me, it hasn’t become a site). I don’t even have that much money. I’ve thought about a bunch of other names, but decided on ′collegeanswerz.com’.
I’m under the impression that ad revenue isn’t really considered a solid revenue strategy anymore. Am I mistaken or is there a reason it’s particularly viable in your case?
I’m not too sure. My logic is: my 4 competitors are multimillion dollar companies. I think I could be (much) better than them. Thus, I think I could be a multimillion dollar company.
But I should look into the viability of depending on ad revenue. I’ve tried googling around, but haven’t had too much success. I think I’ll try some more though, and also try to talk to the right people about it.
How much have you looked into how your competitors make money? My impression is that the Princeton Review mostly makes money by selling physical books.
I know Princeton Review makes money with guidebooks. And I get the impression that College Prowler and Unigo mix that with advertising, based on the articles I’ve read. Even so, I could get into that game too, and be better at it because my reviews are so much more comprehensive. I thought of the idea last night to make a big table comparing the information that my site provides with the information that Princeton Review, College Prowler, Unigo, Cappex, and College Board provide.
A lot of people are commenting on the feasibility of clearing all these hurdles, but I’ve got a different reason for steering clear. (It’s the same reason I avoid jobs on Capitol Hill, though I live in DC). Startups require a heckuva lot of time at their inception. The thing I’m buying instead is time with my friends.
I’m in my 20s, I make enough to have a reasonable standard of life and to save/give, but not enough to retire dramatically early, by any means. My work doesn’t follow me home after work, it’s not the main focus of my attention, and that’s just the way I like it.
I’ll also add that investing a lot of your 20s into a really time-consuming job (startups, i-banking, Capitol Hill) may really slow down your chance to date and discern marriage with a partner. Again, not a tradeoff I wanted to make.
I came to similar conclusions. Seriously attempting a startup would be very time-consuming and stressful. The original poster doesn’t understand why this is, because he miscalculates the execution, production, marketing, and team risks involved in his project. But unless he has a serious financial safety net, he will soon start burning through the limited resources of his money, time, and energy, which could hurt his social development.
Personally, working at an early-stage startup has a much higher expected value for me than trying to run my own thing.
It shouldn’t, for hu-mans Aumann’s is more like a dark artsy inspirational poster of “YOU can do ANYTHING if you just believe in yourself!” than it is a relevantly applicable theorem (the wiki article is in need of an overhaul).
I think it’s pretty much impossible for people to ‘share all information’ with each other. A lot of that information is pattern-recognition heuristics that we don’t even really have conscious access to.
Still though, I think that if both arguers are pretty rational and spend some time sharing information, there’s a pretty good chance that they end up agreeing.
Can we agree that if I disagree with that, it also serves as a counterexample?
How much time have you two spent sharing information?
… or, at least, have a pretty good idea on exactly what they have different opinions on and why.
Which is as good as it gets, for me.
You mixed up the syntax for links: Parantheses for the link text and brackets for the link itself.
Fixed. My bad.
I did a text search for “fail fast” and nobody seems to have said it in the discussion below yet, and I would be shocked if you hadn’t heard that buzzword before, but it means nothing more than this: your business idea is a sort of hypothesis, and you want to test your hypothesis as quickly and cheaply as possible. You would actually prefer to fail today if you could, so that you could be over and done with this and you could move on to the next thing and not waste any more time and money. “If it’s a bad idea, you want to know it’s a bad idea. If it’s a good idea, you want to know it’s a good idea.”
When I was a young silly lad I sunk a bit of time and money into a “startup.” I had pretty much exactly the same attitude that if I just put more of my own energy into it I couldn’t possibly fail. Unfortunately success or failure of a given idea is a function of market conditions at the time. The market has an unlimited capacity to absorb your energy and money and time.
I’m familiar with the “fail fast” idea, and agree with it. For my startup in particular, if it fails, it will fail pretty quickly.
http://lesswrong.com/lw/1p5/outside_view_as_conversationhalter/
I’m not even claiming that the inside view yields better predictions. I’m just saying, “let’s try it”. What I’m getting, from the comments is “no, you shouldn’t try it”. To claim that it’s not even worth trying, is to claim that the inside view has such a low likelihood of working, that it isn’t even worth your time/energy.
And for the record, I’m taking a Weak Inside View.
I avoided commenting on this article, because I didn’t think I’d be able to respond appropriately, given the state of mind it put me in. Seeing where that’s gone, I’ve decided to try anyway.
The quickest version is that you underestimate the likelyhood of failure at several of your points:
I’m not sure the typical LWer who makes it through the sequences is necessarily good at this. We’ve had discussions on social skills and empathy and the trouble with inferential gaps. The population (rationalist | understands potential customers) appears to be worryingly small.
This is probably easier for the typical LWer, since autodidacts appear to be a non-negligible population around here, but again, much more easily said than done.
We talk about willpower a lot. I think it’s safe to say it’s an issue among self-styled rationalists.
Could’ve fooled me.
Yes. Crowdfunding sites could help with this (unless you’re in the subset of people who can’t use them / your idea does not meet the requirements of any of the crowdfunding sites that get sufficient traffic).
Well, in that case -
… This is when, the first time reading it, I decided I shouldn’t reply. At this point, the words “Naive, wide-eyed idealism” kept looping in my head until I went to do something else. Granted, if you get your starting capital, hiring shouldn’t be that hard, since you have something to pay people (including a potential HR person who might be better at managing applicants/hirees, or maybe a legal expert if you fail a comprehension roll with the laws and regulations and paperwork and such.). But by now, we have compounded multiple “I haven’t done this, but it doesn’t seem that hard”s.
Just focusing on a few issues, it seems incredibly optimistic to estimate a probability of 80-90% chance of success (where success is measured in millions of dollars). The probability of each must be above 96%:
Understanding customers well enough that your product or service is something they will want.
Finding a (useful) cofounder.
Raising starting capital.
No issues with hiring.
No legal issues.
Marketing goes well enough to draw in a decent customer base before the innitial investment runs out.
If you can, after doing lots of examination and updating, give each of those a probability above 96%, then of course you should start a startup. But it’s usually safe to say that we’re more likely to trip over more than one of those on the way to failure.
Having said all that, this article does serve a useful purpose of laying out the paths to success and failure with startups, and is a realistic exercise in Bayesian updating, so I’m kinda bothered by how its karma was at −9 before I started writing this response.
I’m struggling to communicate this (let alone argue it), but I think the main problem is the inability to think specifically, not the inability to understand what it is people want. Ask yourself: once you break a demand down far enough into its components, is it still hard to say whether or not those components are things people want? Again, sorry for the poor communication; I wish I could do better. This is why I meant this article to be more of a starting point of discussion. Do you have an idea of what I mean? Could you word it better?
My conditions for my claim of high likelihood of success were 1) rational and 2) hardworking.
Regarding other things (hiring, cofounder, investors...) keep in mind that you just really need to satisfice, not optimize. I always try to be honest about my level of understanding, which is why I’m explicit in saying that I don’t have first hand experience. But that doesn’t mean I’m wrong, or naive, or idealistic. I’m judging by what I see from other first time startup founders. People who want cofounders and are hardworking and persistent usually find them. Same with investors, just keep peeling back those layers of risk. I’m talking about the chances you raise money given that you have a good idea and successfully built it. And same with hiring. Companies that have a good idea, hardworking founders, and funding rarely fail because the people they hired were so bad that they couldn’t sufficiently build the product.
See Eliezer’s comment: http://lesswrong.com/lw/jj8/why_dont_more_rationalists_start_startups/aeza. And note that I’m taking a Weak Inside View (my level of understanding isn’t really strong enough to be making empirical predictions). But still, a lot of the bullet points I listed I think are >99% chance of success.
The problem is people don’t want things independently of how they are presented and packaged. Design, UI, and marketing matter.
How do you know this? How do you know what level of optimization you need, and when satisficing is good enough?
It’s good that you acknowledge that you lack experience, and that you are trying to create the starting point for a discussion. Nevertheless, a lot of your claims and hypotheses sound inordinately confident given your current level of experience and evidence. Perhaps this explains the skepticism and cautioning you are facing here.
It’s possible for even rational and hardworking people to fail at execution, or to run out of money or time before they can get far enough. If you don’t see why that is, then I would say that your estimate of the risks is miscalibrated. See my previous posts in this thread for more discussion.
It’s also possible for rational people to be badly miscalibrated, or to start off with incorrect information, in which case their rationality is heavily bounded. As you note, there are significant cached thoughts on the subject of startups.
OK, but how do you build your idea to a level of execution that someone will want to fund you? That’s the challenge. Here are just a couple examples:
You might need a site redesign before you want to show your project to a potential investor. This will entail you bringing in an outside designer. Do you know designers who want to work with you? Do you have any ability to evaluate designers and make a good choice? Have you worked with designers before? If the answer to those questions is “no,” then you have a risk of a roadblock or a subpar result. Also, you will need to spend programming time integrating with the redesign. This is time that you aren’t spending developing some other aspect of your business.
You will probably have a slide presentation to show your investors. Who is going help you make it? Let’s say that your designer works on it (more hours), and then you show it to a couple friends for feedback. That’s still a considerable outlay in resources, and it will take time.
Need photography on your site? You either need to work with a photographer, or acquire stock photos. This requires money, taste in photography (or an advisor who does), and time spent picking photos. That’s not super expensive, but it all adds up.
Merely getting a basically acceptable presentation and demo will cost a significant amount of your time. Either you need to make your designer a co-founder (which would be a tough sell since the project is so green and you have a lack of experience), or you need to pay them. You have a limited budget of time and money.
I’m sure you are motivated and enthusiastic to spend those things, but it is risky to throw money into a project that has significant team risks (since you have no team, no experience building teams, and you yourself are inexperienced at development), and market risks (just having a good idea doesn’t mean that your execution of it will appeal to a market: see edanm’s restaurant analogy).
Can you see why I say that it’s at least plausible that you will run out of resources before you can peel back enough layers of risk to sufficiently impress co-founders and investors? It’s possible for you to pull it off, sure, but the execution risks are much greater than you think, because execution is way more important than you have been led to believe. If you show that you underestimate the significant execution risks in a project like this, that itself would be a red flag to a potential investor, who can’t count on you to surmount risks that you don’t fully appreciate.
I would encourage you decide a point where you will cut your losses if you don’t succeed, put your site on your resume, and then go be a web developer at someone else’s startup until you have the skills, knowledge, and connections to try your own startup again. Your enthusiasm is a good quality, but realize that it’s very possible for you to run out of resources before you can satisfactorily execute on your project to get the next level of co-founders or investors.
In the links you referenced Eliezer Yudkowsky argues against applying the outside view for the singularity and AI foom. His argument is that the singularity is like nothing we’ve seen before, and so while there are many applicable outside views, in none of them is the analogy between the particular event being considered and others in the reference class compelling.
In contrast, you are making an argument about startups, which have already been done many times, and are encouraging others to do something in the pre-existing reference class. This is exactly the domain of applicability for outside view arguments and Eliezer Yudkowsky’s counterarguments are inapplicable.
My response will just lead to ‘reference class tennis’, which is why I think that for the purposes of having a conversation, we should take the inside view.
I think that people are getting too attached to my 80-90% success rate claim, and impulsively arguing that it’s wrong. My intentions in this article (that I thought were pretty clear) are just to get a conversation going about the components, work towards agreeing on those, and then maybe try to guess at what the resulting success rate will be.
Real world rationality (defined as winning) requires very good people skills. This is something I expect the vast majority of LW community to not have (sorry, mates, but our archetypical member is a male CS student with no partner).
Actually as of the last survey only about half LWers are single, which is probably comparable to the fraction of singles among twentysomethings in the general population.
Go more meta and ask what can you do to fix that. People working in CS usually have good income. If you paid someone to be your coach, would it be worth it? You could try different coaches and see how it works.
I think it is a shame this post is downvoted. I mean, while it is clearly over optimistic, I think that the systematic way it breaks down various ways you could fail is useful.
In recent years a huge number of computer technology startups are effectively being subsidized by free money sloshing around the monetary system searching desperately for anything resembling a return in a low interest rate environment. That plus human psychology equals massive bubble valuations that are horrifically unstable and have remarkably little basis in reality.
I don’t think you can predict going forward in time that such circumstances would last.
EDIT: Also, isn’t the above post pretty much a textbook example of the planning fallacy?
This is actually an argument in favor of going into startups, no? If valuations are unusually high then your expected payout is higher than usual too. Your “I don’t think you can predict” is relevant, but it sounds like you actually are making a prediction that this all won’t last long.
The Planning Fallacy, as commonly known, refers to the fact that people consistently underestimate the time needed to complete a task, not the probably of success of an endeavour.
Well, some rationalists aren’t so capitalism-oriented.
You can do a lot of good with money.
I don’t deny that, I just say that maybe the specific environment doesn’t suit everyone.
What I’ve gotten from the comments is that you guys don’t think it’s smart to take an inside-view. That’s a separate argument in itself, but what I’m trying to do in this post is to take an inside view, so please take that as a given and comment on the components themselves.
I agree with VAuroch that this won’t help much, because in general taking the inside view is a bad idea.
But if you want a few examples of places you’ve gone wrong—both getting a good idea, and executing a business, any business, are much harder than you imagine. For example, you wrote:
“Failure to think specifically about benefits.” “The big issue here is the first bullet point. As spelled out by Eliezer’s article, people are horrible at thinking specifically about the benefits that their idea will bring customers. They’re horrible at moving down the ladder of abstraction. They think more along the lines of “we connect people” instead of “we let you talk to your friends”. Even YC applicants (probably the best startup accelerator in the world) suffer from this problem immensely. I think that this problem is the single biggest cause of failure for startups. (They say that 90% of startups fail? Well >99% of people can’t think concretely.) However, I think that it’s something that could be avoided with willpower, reading the LessWrong sequences, and taking some time to practice your new habit.”
Well, not thinking specifically is one issue, sure.
But the other, MUCH BIGGER issue, is that you might not know what people want. If you’re building something for consumers, there’s a problem in that most people don’t know what they themselves want (imagine describing Facebook to someone years before it existed).
If you’re selling to businesses, then you have to actually understand the business and the market. And understanding markets is incredibly difficult. That’s not to say it can’t be done, but it’s hard even in the best case.
Remember—Some people fail at startups built to serve an industry, after working for 30 years in that industry. They still don’t manage to create a product that’s good enough.
As for the idea that just executing a business is so easy:
Let’s say you decided to build a restaurant. You know exactly, specifically what people want, so there’s no problem with finding a good idea, and you know how restaurants work. Talk to 10 restaurant owners and you’ll even have a much better understanding. Hell, you’re building a business that’s been done millions of times before. This is the polar opposite of a startup in terms of “idea risk”.
And yet, restaurants fail ALL THE TIME. Because the execution of any business is hard. Hiring is hard. Understanding your market, TRULY understanding it, is hard and takes years of experience. Understanding how to hire and manage people is hard. The thousands of little things you do every day, are all amazingly hard. Each one takes time, each one takes experience.
Yes, it’s very difficult to predict what people want and will actually use, especially for a solo person. Asking your friends isn’t enough because they will just try to make you feel good.
To underscore your point, and try to help us calibrate risks, let’s examine the risks of significantly smaller projects:
Start a blog with 500 visitors a day
Run a Facebook page with 500 likes
Sell 100 copies of an eBook, handmade product, or piece of art
Create an open source software project with 100+ users
These goals are much more modest than starting a company with a mass market product, but they can still be tough for smart and talented people, and can easily use up all of someone’s free time for months. And it’s not guaranteed at all that someone will succeed at all in their first try at these projects.
Because executing and delivering something people give a shit about is hard. A real business is orders of magnitude more complex, risky, and time-consuming. If it’s tough to make something that a couple hundred people care about, then try to imagine how tough it is to make something that tens of thousands of people care about.
Yes. Execution is hard. Production is hard. Design and marketing are hard.
There is a big difference between class-project level execution, or demo-level execution, and professional execution that will appeal to a consumer market, especially a wide market. I believe this point has not been sufficiently emphasized in the original poster’s entrepreneurship education.
Your product (rhetorical “your”) is not the platonic ideal of your idea. Your project is the execution of your product. It’s inseparable from the design, UI, marketing copy, and other presentational and aesthetic elements. The medium is the message.
Eventually, real consumers will face the real execution of your product, and there is an immense amount of variables involved in how they perceive it, which are really hard to predict in advance, involve the interaction of the features with design, UI, writing, etc… Predictions become really hard to make, hence, risk emerges.
Exactly. As another analogy, the author is like an unproven writer with a script who believe that they can make a popular movie. Or a solo game programmer believing they can make a hit game based off an idea and a demo. Yes, it’s possible, but it’s mega, mega risky (even creating a hit at an indie level). Even big studios with immense resource often fail at creating hits, because giving people something they want is hard, and execution/production are hard.
Why? If the basic assumption of your post is wrong, the rest of the follow-on arguments are irrelevant. You can logically derive any statement from a false premise.