Why don't more rationalists start startups?

by adamzerner 6y20th Jan 201499 comments

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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:

  1. Devise an idea for a product that creates demand.
  2. Build it.
  3. Market and sell it.
  4. 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.
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.

The second bullet point shouldn't be too hard, once your thinking becomes specific. And the third one is mostly a matter of taking a few days to do some research.


Build It

What I mean by 'build it' is pretty straightforward: take that idea you had, and make it real.

What could go wrong?
  • 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.
There's probably other things that could go wrong that I can't think of, but I think this is enough to work with for now.

First bullet point: you really just have to avoid unfeasible ideas. Doesn't sound too hard. I guess this could be a problem for someone at the forefront of their field, trying to push the boundaries, but who makes an error in judging what's buildable. However, I think that there's plenty of ideas that don't run you this risk.

Second bullet point: if you don't have the skills, then get them. There's plenty of resources available to learn. For one, it only takes a couple months to get the skills you'll need to build a decent website. Or you could invest more time to study something like engineering or design, which will increase your options of what ideas you could build.

Third bullet point: if you don't have willpower, it'll be pretty tough to succeed. Possible, but pretty tough. I don't recommend trying.

Fourth bullet point: thats just another thing that limits the ideas you could build successfully. Some ideas you can't build without a cofounder/cofounders, and some you can. Finding a cofounder shouldn't be too difficult though.

Fifth bullet point: this is actually a tough one. A lot of ideas will require at least seed funding (tens/hundreds of thousands of dollars) to build. There are definitely a bunch of ideas that you could build without any investment, but they're the minority. So let's say you have an idea that does require investment, but you're having trouble raising money (which I think would be understandable). Basically, I'd say that you should focus on peeling away the layers of risk. By following doing that, reading up on fundraising and using Angel List, I think you'd have a pretty good shot at raising the money you need. Still though, I think not being able to find an investor is a legitimate risk.

Sixth bullet point: I've never hired anyone before, but it doesn't seem that hard. Doing a good job optimizing your hires seems like something you'd have to be skilled at, but satisficing to the point that they could do a sufficient job building the product you envision seems to be something that any reasonable person can do.


Market and Sell It

Once you think up your product and build it, you then have to sell it to your customers. This means reaching them, convincing them, and distributing to them.

What could go wrong?
  • 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.
First bullet point: see The Idea.

Second bullet point: First of all, read that book (Influence by Robert Cialdini). I'm no expert on persuasion, but I think taking a little time to read a few books would make you sufficiently good at it. And it's not that hard to persuade people when you've got a product that they love.

Third bullet point: I'm no expert on this either. However, I do hear that internet ads nowadays make it pretty easy and affordable to reach a targeted and good sized audience. Also, as always for things you don't know too much about, read up on it and educate yourself. I don't know enough about this to argue it well, and I don't feel too strongly about it, but I get the sense that this is unlikely to prevent success. Doing this stuff seems like it'd be sufficient.

Fourth bullet point: I don't know much about distribution. It seems that distribution is really only a problem for certain types of businesses. For them, I guess that's something you have to take into account before you go forth with an idea. Otherwise, it doesn't seem like to big a deal.

Fifth bullet point: I guess this is something that could kill a business. To a reasonable person though, it doesn't seem like too big a risk.


Things Running Smoothly

Obviously, crazy things could happen. However, they don't seem too likely.

What could go wrong?
  • 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.
Most of these seem like they have pretty low probabilities of happening. Low enough where they don't influence the overall likelihood of success too much. Especially if you're doing something that genuinely helps people (if so, it's less likely that things like legal/economic/political/social changes will end up hurting you).

Regarding competitors beating you out, that's something that sounds like a big risk, but actually doesn't happen as often as you'd think. You'd think that if a startup comes across an innovative idea, that big companies that are hundreds or thousands of times the size of that startup would just copy the idea and execute it themselves, given that the big company has so many resources. Somehow that doesn't happen too often. Big companies just seem slow to adapt. By the time they react, the startup usually has momentum, which often times causes the big company to acquire the startup, or lose market share. So just based off of my understanding of what actually tends to happen, this risk seems to be something to note, but not something to really worry about (see lesson #4).


Conclusion

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. Again... you have to think about what specific benefits your idea provides... you have to map out how it'll be built, and work hard at doing so... and you have to read up on marketing, and work hard at it. As I argue above, the components all seem very doable, and thus the parent outcome seems very achievable.

I really mean for this article to be a starting point for discussion. I think that if we outline the components and discuss each one, we'll make a lot of progress in coming to an agreement. So let me know which components you think I omitted, and which components you think I'm mistaken about.


PS: A lot of people seem to disregard startups as something they don't know much about, and aren't too interested in. Why? Success = millions of dollars. Aren't you curious as to how likely that success is? If there's an outcome you desire, shouldn't you be interested in how achievable it is?

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