Finding Lottery Tickets on the Ground
Part 3: Can Irish Startups Play at Silicon Valley's Level
Irish entrepreneurs should be slower to go “all-in” and take more small shots on goal.
And yet, when choosing a startup idea or raising funding, the mantra is: GO BIG OR GO HOME.
Unfortunately:
Entrepreneurship is about search and execution. He or she who can search most widely at the lowest cost will - on average - stumble upon the greatest ideas. Leaving your job, taking on funding or hiring employees are all things that reduce your ability to search and explore. [1]
Being a lottery ticket in someone else’s investment portfolio might be a good idea for them, but that doesn’t make it a good idea for you. It’s the opposite, YOU should be the one picking up lotto tickets. [2]
So, don’t be a lottery ticket [3]. That’s too low a chance for one short life.
Instead, get in a position to pick up lotto tickets from the ground.
The world is a convex place.
The value of a network - whether a communication network, or a network of suppliers - grows rapidly as the network gains more members, more rapidly than the growth of members. This is convexity.
Lots of things in the world are worth zero until they are worth something. Behaviours don’t change continuously, they change dramatically when we cross thresholds, e.g. One year we took the ferry to France, but then flights got so cheap we switched to taking the plane. This discreteness (flipping of outcomes as opposed to continuous change), is another driver of convexity in the world!
If behaviours and markets are convex, knowing this should change how you think about entrepreneurship. It should raise the importance of exploring because you don’t know what’s around the corner.
And so:
The formula for success is to a) put yourself in a position of strength to explore, b) try the most things for the least cost, and c) keep doubling down on what’s working.
A Position of Strength to Explore.
Yes, once you leave your job, you have more time to explore. On the other hand, you are under pressure to make ends meet. Maybe this pressure drives you on, but it will also hinder your ability to patiently explore.
The “side-project” is your convex friend who comes with the option of doubling down.
Trying the Most Things for the Least Cost.
A convex world makes it a) hard to be concrete on ultimate rewards (~market size), and b) critical to be concrete about upfront costs.
The optimal strategy is to go after large incalculable rewards from many small calculated costs.
When it comes to costs, entrepreneurs today have the right ideas of:
a) “minimum viable product”, e.g. starting with a small offering
b) small markets are exciting, e.g. The best projects are initially small markets (convexity makes it easier to be concrete about what is small). [4]
On the other hand, entrepreneurs (including me) are ignoring the costs (especially time and reputation costs) of going all-in on ideas too early. Going all-in stops you from trying more ideas and being more selective on where you double down.
Going all-in reduces your ability to explore.
Doubling down on the best ideas
It’s the same for startup founding strategy as it is for investing strategy. The best outcomes come from having the greatest selection to choose from.
Why? Because of convexity - a small portion of opportunities are MUCH better than the rest.
Better to have a large selection to choose from, than knowing what to choose.
How to pick up lottery tickets from the ground.
Favour side-jobs and -projects. These provide a position of strength. You can always add another project. You can easily shut down what’s not working.
Leave room from for exploration. Nobody wants to invest in or join a startup where the founder isn’t committed. Commitment can be a virtue. But, even when you are doubling down on some ideas, you must leave room to explore.
Limit your time commitment. My new products at Trelis.com (AI training software) are $25-$50 and take ~2 weeks to make. Some don’t sell well. For the products that do sell, I to expand both the product and price point over time. I now have four products selling at prices above $100, and - over all products - am selling 100+ units per month. Still, my formula for new products is the same: start small and pick the winners.
Building Ambition to Explore
The world is a convex place and you can make that your advantage.
With any big decision you take, ask yourself the question:
How will this affect my ability to explore?
References
[1] Taleb - “Understanding is Poor Substitute for Convexity”.
[2] Vassallo - “Don’t be a bet in someone else’s portfolio”.
[3] Thiel in Zero to One - “You are not a Lottery Ticket”.
[4] Graham - “Probably not a Big Company”