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Black Swan Farming

paulgraham.com

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Re: Black Swan Farming

#141

Post by bryanallen22 »

sidcool wrote: post #134
ten_fingers wrote: post #67

PG, In part you are correct, but you are making some huge mistakes and, in a saying from my past, are "straining over gnats and forgetting elephants". > That's made harder by the fact that the best startup ideas seem at first like bad ideas. I've written about this before: if a good idea were obviously good, someone else would already have done it. That's likely true from what you and Silicon Valley see, but that's j…

Why's your post blurred?

It's a downvoted post. (There are a few shades of gray.)

Note that you can't downvote until you have enough karma, which I believe is 500 right now. The threshold goes up as the site grows and karma becomes easier to acquire.

Re: Black Swan Farming

#142

Post by lsc »

The thing of it is that a bubble is not the right time to start a lifestyle/sustainable business. During a bubble there is all sorts of investor money floating around driving up prices on things you might want to buy as a sustainable company, and as a sustainable company, you can't compete with investor money for inputs.

So yeah; right now? PG is absolutely doing the right thing. But if I'm right, after the crash? assuming he comes through financially able (which I assume he will; he doesn't seem the type to bet the farm on facebook stock) and wanting to continue investing, at that point? he will look for sustainable companies. If you are trying to start a traditional sustainable company, in many ways, it's easier to do during a downturn. There is little competition for inputs, so you can get everything you need much more cheaply, and there is a lot less competition, so if you come up with something new, you won't have 5 other 'me too' companies copying you in the first year.

Really, there's less opportunity cost for the founder, too. I mean, right now, the temptation to get a job at facebook or google is really strong, even for me; I'd get to work with some really great people, and probably make about 3x more 'profit' than I do now.

During the downturn, getting those plum jobs that pay really well while letting you work with really great people is a whole lot more difficult, so taking the pay cut while you get your business off the ground is not as big of a deal.

Re: Black Swan Farming

#143

Post by notJim »

pg wrote: post #59
thaumaturgy wrote: post #55

Earlier quoted context omitted.

Off-topic, but something I've been chewing on lately: what's it like to have your every written (or spoken!) word analyzed by a bunch of people? Esp. people that you end up having some form of contact with. It seems like it would be difficult to just have a public conversation about a topic. Do you think about that much when you write?

It's pretty grim. I think that's one of the reasons I write fewer essays now. After I wrote this one, I had to go back and armor it by pre-empting anything I could imagine anyone willfully misunderstanding to use as a weapon in comment threads. The whole of footnote 1 is such armor for example. I essentially anticipated all the "No, what I said was" type comments I'd have had to make on HN and just included them in t…

> I had to go back and armor it by pre-empting anything I could imagine anyone willfully misunderstanding to use as a weapon in comment threads

This is perhaps the worst thing about discourse on the internet. If you and I were having a conversation in room, you'd never pretend to not understand me to rip into me (maybe to understand my point better.) But on the internet, so many people are just trying to score points that it's nearly impossible to have a conversation.

Re: Black Swan Farming

#144

Post by caf »

You not only have to solve this hard problem, but you have to do it with no indication of whether you're succeeding. When you pick a big winner, you won't know it for two years.

That's a lot like distilling whisky - you have to wait at least a decade to find out how good a batch was.

Re: Black Swan Farming

#145

Post by femto »

harryh wrote: post #50
pg wrote: post #39

Earlier quoted context omitted.

Yes, Dropbox was in the Google category of bad ideas: there were already lots of similar things. Success turned out to depend on execution. Dropbox was the first application of its type that worked sufficiently well. But that sort of thing is hard to predict.

I asked a similar question of paul down below but it seems to me that big successes can come in 2 flavors: 1) Execution driven success in a winner take all market. The idea seems good, but there is lots of competition so it's hard to see how the startup will break through & win the market. 2) A genuinely "good idea that initially looks bad" like you describe in your essay. It's hard to think back and decide which, no…

I'd give bonus points to #2 if the idea seems so bad that you go though periods of doubt yourself, but keep on returning to the view that "it's great".

If you're absolutely certain of yourself, chances are that there are others out there who are just as certain, so you will have competition. If you're uncertain, and feeling lonely, there's a better chance that you have the field to yourself.

My experience of this is being involved in the development of the first WiFi (802.11a) system. It was only with hindsight that the significance was clear. The reality at the time was an isolated toil in the dark, not a high flying roller coaster ride.

Re: Black Swan Farming

#146

Post by tlogan »

paul wrote: post #12

The counter-intuitive nature of startup investing is a big part of what makes it so interesting to me. In most aspects of life, we are trained to avoid risk and only pursue "good ideas" (e.g. try to be a lawyer, not a rock star). With startups, I get to focus on things that are probably bad ideas, but possibly great ideas. It's not for everyone, but for those of us who love chasing dreams, it can be a great adventure…

This is probably true also for evaluating entrepreneurs where blindest is even greater (I call it "young white male syndrome").

It seems like if an entrepreneur is a little different (black, hispanic, women, little eccentric, older, etc.) he/she need to act and behave like "white young male" in order get noticed and funded. However, in that case he/she might be hiding the characteristics which will make them "rock star".

Re: Black Swan Farming

#147

Post by lsc »

patio11 wrote: post #139
lsc wrote: post #135

Earlier quoted context omitted.

>it's really rare to find a lifestyle technology business. You... must live in a different world from me. I mean, I am a lifestyle "technology" business. Most of my customers are, too... a whole lot of them are so small that they still have dayjobs. For that matter, most of my suppliers are, too. But think of all the web design firms that exist. All of the small-business IT firms. The small consulting shops of variou…

Slicehost is the counterexample; my understanding is that they started in a very startup-y manner. Maxed out their credit cards, tried to find angel funding in St. Louis, and got told the going terms were "We'll get 50% of the company to cosign a loan for you " so they continued to bootstrap, managed to successfully structure a pricing model such that customers pre-paid for services (allowing them to service most of…

hm. do you know where I can read more about them? or is this stuff you know personally?

They did seem to grow... very quickly. My impression was that they grew much faster than linode or I. Of course, I have no numbers to back that up either way.

Re: Black Swan Farming

#148

Post by ten_fingers »

ucee054 wrote: post #125
ten_fingers wrote: post #67

PG, In part you are correct, but you are making some huge mistakes and, in a saying from my past, are "straining over gnats and forgetting elephants". > That's made harder by the fact that the best startup ideas seem at first like bad ideas. I've written about this before: if a good idea were obviously good, someone else would already have done it. That's likely true from what you and Silicon Valley see, but that's j…

You overestimate the value of academic research and of PhDs

No, I never claimed that academic research and Ph.D.s have high average value.

The "value" of these two in nearly all cases is low. But, the value in particular cases is astoundingly high, totally blows away nearly everything else. What is crucial, then, as I explained very clearly, is EVALUATING the research. Then what the "value" is in most cases is irrelevant. Instead, what is relevant and crucial is the value after good results from a careful evaluation.

I didn't suggest investing in research and only suggested evaluating research that has already been done.

The US DoD has a fantastic track record both in evaluating projects to do research and in evaluating research already done.

The US research universities are also good at evaluating projects to do research and also research already done. Believe me, in technical fields, the US research community is quite good at evaluating both research proposals and completed research.

The information technology part of Silicon Valley won't even attempt to evaluate research even that is already done.

Does Silicon Valley get a lot of project proposals with such research? Likely not. But, as PG's essay explained, so far Silicon Valley nearly never gets project proposals for projects that are "big wins" and that SV can tell with good accuracy are "big wins" early on.

So, since, as in PG's essay, SV is struggling, especially in project evaluation and refuses to evaluate research, I mentioned, as in my Step 2, that research can yield powerful solutions to important problems from my Step 1 and that the US DoD does well in evaluating research. So do many other parts of our economy, e.g., essentially all of aerospace and huge fractions of all the parts of our economy involved with challenging engineering, and in these cases the evaluations are for high financial ROI.

In simplest terms, the ROI averaged across Sand Hill Road and Winter Street sucks; as PG's essay explained early project evaluations are shot in the dark; research can provide powerful solutions for important problems; research really can be evaluated with good accuracy; but SV refuses to evaluate research. As PG's essay explained, to get SV's returns up takes only a tiny number of "big wins"; well, the US DoD has done well evaluating "big wins" with high accuracy for over 70 years. So, I made a contribution, but I got attacked with heavy down voting. There are people on HN with a lot of power who don't want to hear about different ways to operate that promise to solve the problems they are struggling with. Piss poor.

Re: Black Swan Farming

#149

Post by patio11 »

lsc wrote: post #147
patio11 wrote: post #139

Earlier quoted context omitted.

Slicehost is the counterexample; my understanding is that they started in a very startup-y manner. Maxed out their credit cards, tried to find angel funding in St. Louis, and got told the going terms were "We'll get 50% of the company to cosign a loan for you " so they continued to bootstrap, managed to successfully structure a pricing model such that customers pre-paid for services (allowing them to service most of…

hm. do you know where I can read more about them? or is this stuff you know personally? They did seem to grow... very quickly. My impression was that they grew much faster than linode or I. Of course, I have no numbers to back that up either way.

It's public knowledge which I picked up in being an early customer and fan of the company. I think much of the story is summarized here:

http://37signals.com/founderstories/slicehost

Re: Black Swan Farming

#150

Post by pmarca »

a45l98 wrote: post #128
pmarca wrote: post #93

Earlier quoted context omitted.

Yes -- this is why, for example, we (at A16Z) have such a strong bias towards technical founders with strong personalities, typically with a background of accomplishment of some reasonably strong form (even if very young). You have to screen at the founder level since there are too many bad ideas from less qualified founders otherwise.

And how has that worked out for you? Have you ever experimented with an opposing strategy? (Funding "non-technical" founders with "weak" personalities.) Probably not, lest you would risk your reputation. Hence, you might not have evidence to show that this approach would not yield suffcient numbers of "big winners" to justify the investments. For example, if someone sugested the hypothesis that from a set of a given…

I don't recall arguing that our criteria are the only criteria one could use. I would love for someone to start the venture firm that focuses on non-technical founders with weak personalities! It would either be highly profitable or highly entertaining to watch...
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