Winners Take All

Anand Giridharadas: Winners Take All : The Most Important Book on Tech in 10 Years

We don’t post book reviews often on this blog. Sometimes we recommend books we think our startups should read. We have a reading list, which deserves an update as well. More often we talk about books with our startups in person, and many that the management team recommend are standard fare for startups and business. Dale Carnegie, Al Ries, and business classics like Zero to One, Crossing the Chasm, or books and articles by Malcolm Gladwell. 

This post is a bit different, because the critical consensus on Anand Giridharadas’s new book Winners Take All : The Elite Charade of Changing the World, has not yet been formed. Still Giridharadas’s well known views, first as a columnist for the New York Times, and then as a member of the speaker circuit he himself criticizes in his new book, are rare harsh words from a tech industry insider who knows of what he speaks better than most.

In truth, the book is a kind of validation for us as well. StartupYard has been publicly critical of “Thought Leadership,” and the incestuousness of the idea space that tech startups and corporations tend to occupy. We have been publicly in favor of many of the solutions that Giridharadas suggests, including Universal Basic Income. Still, his book comes as something of a wake up call for our industry. One that should not surprise anyone, but probably will.

“Making The World a Better Place”

When we refocused StartupYard 5 years ago on global projects with an emphasis on novel technologies, part of our thesis was that it would not be enough for us to “make the world a better place.” This is not least because “making the world a better place,” often functions as an excuse for failing to take on important, and yet smaller issues. Instead, we focused on developing the ecosystems in which we live and work, be they the city of Prague (in multiple cooperative hackathons with the city, and by investing in local startups), the Czech Republic, CEE, or finally, the globe. We also live on the globe.

We also tried to focus on problems with a deep impact on the world that could be widely felt. That led to our investments in companies like Gjirafa, Neuron Soundware, OptioAI, Rossum, or TurtleRover. Each of these companies does more than simply allow large companies to increase profit margins. They create new markets and new ways of looking at old problems. They create opportunities for small actors who can’t afford to compete with the bigger players. They drive competition, not individual competitiveness.

What we tried hard not to do was to choose startups and make investments solely based on the idea that these companies might be financially successful. Moreover, would their impact on real people’s lives be meaningful, measurable, and tangible, ultimately, to the founders and to us?

That might sound like “Making the World a Better Place,” but it’s not the same thing. To develop and push the world towards a more just, more fair, and more prosperous future is not to simply “make the world a better place.” In fact, it should not surprise the reader that new technologies can make the world a harder place to live in.  These are issues that we must face as moral actors in the world. Thus: will the automation, or new ways of working and living our startups are trying to invent, make the lives of the individuals it is most important to, better in a meaningful way to them?

When we talk about a better world, we often just mean a better world for us. One in which we feel better about ourselves. Yet, this is not enough to help a person sleep at night. At least not to help this investor sleep at night.

Giridharadas gives shape to these thoughts in his book. He asks us: who suffers so that we may succeed? These are the people to whom a debt is truly owed, no matter who they are. Our responsibility to the world around us does not end with the interests of our shareholders. It extends to all who our technologies touch, directly or indirectly. It extends to promoting a moral worldview to the founders we work with – one in which greed is not good. Giridharadas also asks something more: what happens when success does come? What will we do when and if we do win?

Facing Win-Lose Scenarios

One of the themes of Winners Take All, is pointing out and challenging the insidious idea that any technology company can do essentially anything it wants to do, and still one can find “win-win” scenarios, in which the impact of their choices can be seen as positive for everyone involved. It’s ok that Uber destroys the taxi industry, because the net impact will be good. It’s ok that Airbnb might raise property prices, because in the long run, it will all balance out. Having personally met with and heard talks from executives at these companies, along with many other major tech players, I can assure you that they do not have a concrete view of how this balancing act will work

In tech, most do not take responsibility for this balancing out. We disrupt, but we don’t fix the problems we create.

Worst of all, investors and startups may justify their negative impacts on the world around them by spending the money they earn on fixing the very problems they created, via charities, or via yet new startup businesses. This can be like treating a hangover with more alcohol. It tends to lead to similar results. New approaches are needed.

Thus tech companies can disrupt and invalidate systems that employ and support large numbers of people, and they can justify this disruption by pointing to a possible future in which their impact will be seen as positive by those who suffer today. Often the worldview is passed down from the investor, to the startup, to the individual team member: “it doesn’t matter if we wreck a few lives… eventually they’ll thank us for it.”

This is not good enough. That is why StartupYard is in favor of Universal Basic Income research, among other governmental and regulatory approaches to protecting individuals, classes of people, and regions from the negative effects of the very innovation we invest in. We simply will not profit from a world that we are destroying. That’s also why we have consistently criticized governmental approaches to innovation that idealize the tech industry as a cure-all for social and economic inequality. We can do many things, but we cannot replace democratic institutions, or be the voice of unheard people.

Sometimes winners win, and losers lose. In a just world, and in a world we do want to live in, the losers don’t have far to fall. Losing is, after all, what almost all of us have to do at some point before winning. The waste and the pity of a winner take all world is that so many great things come from those who have lost something before – people who fail know the value of succeeding.

Survivorship Bias – The Nose Goes

Finally Giridharadas asks important and difficult questions about what it means to actually be a winner. Can we ever know, if we do succeed, that this success is due more to our abilities and our hard work, than to luck, or to the simple fact of who we are?

He reminds us of something that is also part of StartupYard’s DNA: the belief that someone’s CV is not their life. In our business, it is easy and in some ways much simpler to follow the signals of success that follow certain people through their lives. Did the person go to Harvard? Did they have a good position in a previous company? Did their past startup succeed?

We focus very little on these details, because they don’t tell us that much about people. There are plenty of idiots in C-level positions. There are plenty of bad founders from Yale or Oxford. Hard experience has shown us that a person’s CV doesn’t always have a strong relationship with their individual potential when it comes to founding and building a company. If we were to only look at Ivy Leaguers from prestigious tech companies as founders, we’d miss people who have no such credentials, but have far more important qualifications than that. Qualifications like knowing their customers better than anyone else. Like being more devoted to what they do than anyone else in the world.

What is interesting about the culture of startups is that we “celebrate failures,” but actually we celebrate learning from mistakes. True failures, like not working hard enough, not getting good enough marks in school, or failing to even act on an idea you had in the past, are not celebrated this way, because we don’t tend to learn from them. A story of real failure is not interesting, because it doesn’t have a happy ending. It just ends. Somebody who failed at 25 is inspiring. Somebody still failing at 50 is pathetic. We celebrate people who almost succeed, and probably will succeed in the future. That isn’t the same as failing.

The heuristics you use for making decisions about people should be based on your own experiences, and not those of others. This is what we call “instinct,” which for some reason has become taboo in the technology world, where everything is data and metrics driven. We believe in following your nose. Your nose tells you things your eyes and ears will never quantify.

Read the Book

Enough of my opinion on the topic. Read the book! I promise you’ll at least learn something you probably didn’t know before.

ideas

Your Ideas are Worthless. You Should be Glad.

Yesterday we received an email that I can only describe as an “hysterical screed” from a disappointed startup founder who felt that his ideas had been “stolen” by the likes of Y-Combinator some years ago. The email included links to an elaborate set of documentation including YouTube videos that compared two products that sort of, kind of do similar things.

Note, neither the message nor the documentation ever contended that any actual intellectual property, such as code or wireframes, had been stolen. Only the ideas behind them.

What was more arresting was the content of the email, which verged into conspiracy theorism and fantasy.

We get our fair share of weird mail. Investors seem to attract people who combine sad desperation with megalomania. Some just want money. Still when Cedric sent me this email saying: “Maybe a blog post?” I responded: “Hell yes.”

I am not posting this to defend the good name of startup accelerators worldwide, nor to defend StartupYard against such an accusation. I’m also not posting it to ridicule this person, because I am sure their problems are deeper than professional disappointment.

Rather I’m hoping to show startup founders how insidious and destructive the concept of “Idea Ownership,” really is, and why they ought to think very hard before making accusations of IP theft. Again, not because these accusations are particularly damaging to those who are accused, but because they are quite damaging to those who make the accusations, and to the many people out there who have great ideas to share.

You’ve Got an Idea? That’s Nice Dear.

The general gist of the supposed conspiracy was summed up in a few bullet points I will paraphrase (though I won’t give free publicity to the author):

Step 1: Accelerators Collect Startup Ideas (via F6s)

Step 2: We “Steal those Ideas” and Give Them to “Our” Startups

Step 3: We Exit Companies 5 Years Later for $300m

Please understand, I am not exaggerating. It was taken as a given that finding the best ideas out of thousands of applications would lead to multi-hundred million dollar exits.

If only that were the case! How easy life would be for accelerators like StartupYard. Not to mention those lucky startups we would give the stolen ideas to.

But sadly no, it just does not work that way. Your ideas are pretty much worthless. Let me explain why that is:

  1. Your Ideas Aren’t New, and We Don’t Care

The central plank of this theory is that investors and VCs are out digging through your garbage and listening to your phone calls trying to steal your ideas.

We’re not. You know why? Because we’ve heard them already. Yes, even that one. A typical VC is pitched a couple of hundred ideas a year. I see around 400-500 a year. Every year. It gets so that when I hear a pitch these days, I sometimes struggle to remember whether I have already met the founder who is pitching, because I know about the idea already.

What was funny to me about this particular email was that the idea the author purported to own was not only not a new idea, it was a problem already being solved by existing enterprise software. The pitch was for turning existing functionalities into an SME level product. That’s what we call “an execution play,” in investor lingo. It means the idea is the market, not the product.

You should know this if you’ve ever been to a pitching event with a Q/A. There’s always a smarty-pants judge who points out he’s heard every idea before. Most of them have, it’s just that lazy judges say that instead of something more useful. We’ve all heard the ideas before. There’s nothing new under the sun.

That’s ok because we don’t care much about ideas. We care about finding big problems to solve, because that is going to determine how successful your company is. The thing about big problems is that everyone knows about them. If they didn’t know about them, they wouldn’t be problems to begin with.

So our biggest problems with picking startups is finding the right team to solve that problem, and doing it at the right time.

Just think about this logically for a minute: you have an idea, and it’s a pretty good one. Genius in fact. What industry is it in? How big of a problem does it address? How many people work in that industry? How many people are customers or users of the products of that industry?

ideas, startupyard, accelerator

Even if we’ve never heard an idea before, it usually takes about 30 seconds of googling to figure out it isn’t a new idea. Even if we can’t figure that out, one of our alumni or mentors can, and frequently do. The question is not whether an idea is new, but whether the problem being solved is real.

The bigger the problem you’re solving is, the higher the likelihood that somebody, somewhere (and more likely many people, everywhere), have had the same exact thought. Their description of it might be different, and their way of fixing it might be different, but the idea is effectively the same.

2. Ideas are Easy to Copy. Vision cannot be copied.

We choose startups based on their vision, and how that vision makes sense for that team, that technology, and the problem they want to solve. It is mostly about people.

To someone not familiar with our thinking, it might look like we hear ideas, then “give them” to our startups. But, thats pretty misleading.  It would be like accusing a filmmaker of watching other films, or being inspired by literature. Ideas are wonderful and sometimes very clever. They are just never really entirely new. If they were, they wouldn’t make sense when you heard them.

Of course the iPhone would have been a truly new idea before the invention of electronics. But then, nobody ever had any reason to imagine such a thing before the discovery of electricity, let alone computing and the million other nested inventions in a smartphone. Inventions are always a blend of established knowledge with new approaches.

This popular phenomenon of “idea theft” is more pronounced today in the tech industry than in almost any other- and it’s particularly true in products that rely on a simple central value proposition that is easy to copy. Many products can “do the same thing,” but very few can do it in just the right way.

Look at Facebook, and the endless accusations of their “stealing,” the Stories idea from Snapchat. It’s true that Facebook recognized an opportunity when it presented itself, but the idea of using media to create a narrative was invented in the past few years is ludicrous. Do we accuse Uber of stealing the idea of a livery service?

One of my favorite ever blog posts about this topic is from the creator of the game 3s. When I first read this piece when it was published, I was a fan of their copycat competitor, 2048. Since then, I’ve adopted 3s and actually played it on a near-daily basis for the past 3+ years. Today I understand the piece very differently. What I saw then as mostly whining about competition, today I see as a powerful argument in favor of vision:

“We wanted players to be able to play Threes over many months, if not years (…)The branching of all these ideas can happen so fast nowadays that it seems tiny games like Threes are destined to be lost in the underbrush of copycats, me-toos and iterators. This fast, speed-up of technological and creative advances is the lay of the land here. That’s life! That’s how we get to where we’re going. Standing on each others shoulders.

We want to celebrate iteration on our ideas and ideas in general. It’s great. 2048 is a simpler, easier form of Threes that is worth investigation, but piling on top of us right when the majority of Threes players haven’t had time to understand all we’ve done with our game’s system and why we took 14 months to make it, well… that makes us sad.”

What this really is, is a startup founder talking about how simple his idea was, and how important his dedication to his craft was to the delivery of a special product. He was absolutely right to point out that comparisons between his product and the copycats were unjust, and would eventually be judged premature.

He may not have ended up with the most popular game, but he did end up with the best game, and customers paid for that game, not for the copycats (which were free). They “lost” in terms of being a market leader, but they succeeded in their vision for their users and product.

When you actually stop to think about it, it’s hard to name a lot of first movers in tech who managed to dominate their industries, or even survived. As CBinsights has pointed out using data supplied by failed startups themselves, “late to market” doesn’t even qualify in the top 20 reasons for failure.

  1. First to Market Isn’t a Predictor of Success

Shockingly, being first on the market is not a powerful predictor of success. In fact, study has shown that it may be associated with a higher risk of failure. MIT Sloan Management Review noted over 20 years ago that claims of first-mover advantage among successful businesses across a broad base of industries was caused by an effect known as “Survivorship Bias.”

Survivorship Bias, a form of selection bias, occurs when we attempt to judge the relevant qualities of a group, such as a group of startups, after they have become successful, while ignoring the qualities of those who don’t make it. This can lead us to misjudge the importance of some qualities in survival, because we are not looking at all the data.

The logical error is easy to spot when you know how. If I told you that a study of billionaires shows that 75% of them wear white shirts, but only 25% wear other colors, you could conclude that having a white shirt improves your own odds of success. But you would likely be in error. The population as a whole might be 90% white shirts, meaning that in fact another color is even more correlated with success when looking at all the data.

Think about that the next time you dress a certain way because Steve Jobs did. That would be aggressively missing the point.

Survivorship bias arises when we don’t have good data on failures, obviously because they have failed. However, there are ways of determining that survivorship bias is at work. For example, the inconvenient truth that the failure rate for Silicon Valley based startups is actually *higher* than in many other regions. As the Guardian suggests in the above article, this is precisely because so many successful companies are based there. The local standards for success are higher, so failure rates rise.

Does that mean you should or shouldn’t move to Silicon Valley? I don’t know. I know it does mean that moving to Silicon Valley is not guaranteed to help you.

Want even more proof of why first to market is overrated? Of the top 10 startups according to StartupRanking.com, not a single one of them was first to market. Some, like Slack, were not even the first multi-billion dollar companies in their own category. Booking.com offered private flat rentals in the 90s, a decade before Airbnb, and Couchsurfing was founded in 2003, a full 5 years before.

4. Most Ideas Don’t Come from Startups Anyway

A dark and terrible secret of the tech industry -just kidding, it’s obvious- is that most of the ideas that end up getting made don’t come from the founders themselves anyway. The core idea is there, but the final product with market fit is usually a distant cousin of the prototype- the work of many minds.

Where do most actionable ideas come from? Users, customers, advisors, investors, partners, friends, family, and hatemail. I’m only sort of kidding on that last one. The point is that startup founders generally start with wanting to solve a somewhat unclear problem in a somewhat unclear way. They attend accelerators and get early users, investors, and corporate partners on-board to help them make the problem and the solution more clear and actionable.

The really successful founders are not idea machines, they are execution machines. They know how to listen, recognize a good idea when they hear one, make it work, observe the results, and adapt further. There is great creativity and invention in this process, but it is not about ideas, it is about empathy, passion, and skill.

You Should be Glad Ideas Are Worthless

Now that I’ve ruined your beautiful vision of the perfect idea that will make you rich, I will give you a moment to thank me.

You should be happy after all: now you can get on to the stuff that really matters, like building a company you can be proud of, that provides something your customers really value.

Here’s another reason you should be celebrating: you can work on anything you want to. Somebody else already tried it? Not like you will. The problem is already solved by somebody else? I bet some of their customers aren’t happy.

Oh and nobody can credibly accuse you of “stealing their idea,” since ideas are not automatically intellectual property. Intellectual property is the work product of an idea, not the idea itself. Copyright applies to words and images and code. Patents require you to actually design an invention and describe how it works in detail; even then, it’s not automatic. A patent is for the bread slicer, not the sliced bread.

ideas,

Call the lawyers. We’ve got a live one.

If someone has already done what you want to do, thank God somebody has already proven you can make money in this field- that makes your job a lot easier. Or thank goodness somebody else tried this and failed. Now you know not to make those same mistakes. See? Now that ideas don’t matter, the world is truly your oyster. Go forth and start up.

Michal Kratochvil, StartupYard, BudgetBakers, Startups, Accelerator

VIDEO: Mentor, Investor, Startup CEO: Michal Kratochvil Talks Acceleration

Mentor, Investor, Startup CEO: Michal Kratochvil talks about life at StartupYard

StartupYard investor, mentor, and CEO of StartupYard alum BudgetBakers, Michal Kratochvil joined the world of startups after a career in corporations as Managing Director of Accenture Consulting in Prague. Michal gives us an idea of how working with startups has changed his view of business in the past few years, and how he became a believer in Acceleration.

Posted by StartupYard on Monday, 15 January 2018

 

Michal Kratochvil joined StartupYard in late 2015 as an investor, and our 3rd “Executive in Residence,” and has continued in that role ever since. In 2016, he took over as CEO of BudgetBakers, a StartupYard alumni company and personal finance platform that has grown rapidly to hundreds of thousands of active users under his leadership, and now employs about 30 people.

Michal joined us after a distinguished career at Accenture Consulting, where he served as Managing Director for Central Europe for over a decade. His switch to the startup lifestyle was gradual, as he slowly converted from his customary suit and tie, to t-shirts and jeans, also switching from an IBM notebook to a Macbook. Today Michal is deeply involved with StartupYard’s operations, particularly in selection of startups, and helping companies to grow their networks through his impressive personal rolodex.

Michal also studies martial arts, and is a fan of western style horseback riding, participating in rodeo events and exhibitions.

Great interview about #startup #acceleration with @BudgetBakers CEO Michal Kratochvil @startupyard in Prague! Share on X