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Couple of points. First, The idea of risk-reward trade-off is stupid. (This is demonstrated in my footnote.)[1] Second: startups aren't startups because the

Couple of points. First, The idea of risk-reward trade-off is stupid. (This is demonstrated in my footnote.)[1] Second: startups aren't startups because they have a high risk of failure. Simply because they expect to be much bigger in 24 months than they are today. Someone making an app they want to sell on Android and iOS for $2 to all of the people who use smart phones is not a "small business", it's a startup. Why? Because there are 3 billion people on mobile phones. At Internet-scale, there's really nothing between the two. There's no such thing as a mom and pop mobile game. Doesn't exist. If it's a mobile game, everyone can play it. Either you're in business around it or you aren't. if you're in business on the world stage, you're not a small business, you're a startup. the only thing that matters is whether you would like to address the world's population or not. i.e. whether you're "trying" (to hyper-grow.) If you're trying to be much bigger later than you are now (by many orders of magnitude) then you're a startup. By the same token, anyone who has a plan to eventually make a million of anything is a startup. doesn't matter where you are today. - [1] You can show yourself that risk/reward is not true. Suppose that I transport from the future to today the entire faculty of MIT and Cal Tech, who know all of the major technology breakthroughs that have happened between our time and theirs. It stands to reason that they are worth more the farther from the future you transport them. 12 months is worth less than 24 months is less than 72 months is a lot less than 70 years. Does it stand to reason that the more value they're bringing with themselves, the higher the risk of failure? No, of course not. It's just objectively higher value. So stop talking about risk/reward, I've just proven that it doesn't exist. The only thing that matters is the value you're bringing to the table. You don't automatically run a higher risk of failure if you bring the world $1 billion of value versus bringing the world $100,000 of value. Doesn't exist. No law makes this the case. Zuckerberg didn't suddenly increase his risk by 1,000,000 when he decided to target a million times as many people (the world's population versus Harvard's student body). It's just false. You don't need to go through a million zuckerbergs to get another facebook. You don't even have to go through fifty thousand of them. You just need people targeting the world's population who know what they're doing. This is why VC works.

logicallee 11y ago
I was watching this comment carefully as I thought I might have to delete it (due to people not understanding the arguments therein). It started rising to +2 or +3, so I stopped watching it. Now that I've checked again, I see that a few downvoters got it down to -1. Since it is too late, I am happy to explain the thoughts in the above comment. I studied this area of economics from formal sources as well as having exposure to startups. To summarize. One might think that if, say, a guy might be able to get a pizzeria off the ground, and it's 50/50, if it works he'll make a business with an enterprise value of $20,000 using his $5,000 investment, that's our assumption -- then if he wants to raise his sights and make the same investment, but this time is targeting $200,000 - his chances of success drop to 5%. And if he targets $2M then they drop to 0.5%. And if he targets $200M then they drop to $0.005%. If he targets $2B then they drop to $0.0005%. And if he targets $20B then it drops to $0.00005%. If he targtes $200B then it drops to 0.000005% But 0.000005% is 1 in 20,000,000. There are 318 million people in America, so by those odds, the number of people in America who are capable of building a $200 billion business is exactly 15. Yet there are more than 15 American companies that had those kinds of valuations in the past couple of years; Apple alone would account for 3 of them. So with these kinds of large-scale successes, the risk-reward equation clearly doesn't actually work. And this ignores all of the home-run hits short of $200 billion. Clearly, risk does not increase at the same rate that reward does. The risk-reward trade-off is just not a model that you can successfully employ when it comes to startups. --- Secondly (this is not directly related to the above) the world is super-connected. There is 0 chance that if I find a pizzeria run by some guy in the city with 1 location as a small business, that 14 months from now it will have 50 locations that he personally operates. But if you find some guy with 2,000 downloads today from the Google Play store, there is no reason this same guy can't make something else and get 200,000 downloads. That is a factor of 100. So the whole IDEA of a "small-business" just doesn't apply to online startup-like economies. The only question is whether the guy who made a niche app with 2,000 users is even interested in trying to use his same skills making something innovative and new, which he gets good press for, but which addresses the whole global smartphone audience. The thing that makes it a startup is this hyper-growth component, like whether he's trying to roll out at that scale. If someone doesn't understand either of the two (quite distinct) arguments above, or has any type of comments or rebuttal, I can follow up. Thanks for your time.

logicallee 11y ago

I was watching this comment carefully as I thought I might have to delete it (due to people not understanding the arguments therein). It started rising to +2 or +3, so I stopped watching it. Now that I've checked again, I see that a few downvoters got it down to -1. Since it is too late, I am happy to explain the thoughts in the above comment. I studied this area of economics from formal sources as well as having exposure to startups. To summarize. One might think that if, say, a guy might be able to get a pizzeria off the ground, and it's 50/50, if it works he'll make a business with an enterprise value of $20,000 using his $5,000 investment, that's our assumption -- then if he wants to raise his sights and make the same investment, but this time is targeting $200,000 - his chances of success drop to 5%. And if he targets $2M then they drop to 0.5%. And if he targets $200M then they drop to $0.005%. If he targets $2B then they drop to $0.0005%. And if he targets $20B then it drops to $0.00005%. If he targtes $200B then it drops to 0.000005% But 0.000005% is 1 in 20,000,000. There are 318 million people in America, so by those odds, the number of people in America who are capable of building a $200 billion business is exactly 15. Yet there are more than 15 American companies that had those kinds of valuations in the past couple of years; Apple alone would account for 3 of them. So with these kinds of large-scale successes, the risk-reward equation clearly doesn't actually work. And this ignores all of the home-run hits short of $200 billion. Clearly, risk does not increase at the same rate that reward does. The risk-reward trade-off is just not a model that you can successfully employ when it comes to startups. --- Secondly (this is not directly related to the above) the world is super-connected. There is 0 chance that if I find a pizzeria run by some guy in the city with 1 location as a small business, that 14 months from now it will have 50 locations that he personally operates. But if you find some guy with 2,000 downloads today from the Google Play store, there is no reason this same guy can't make something else and get 200,000 downloads. That is a factor of 100. So the whole IDEA of a "small-business" just doesn't apply to online startup-like economies. The only question is whether the guy who made a niche app with 2,000 users is even interested in trying to use his same skills making something innovative and new, which he gets good press for, but which addresses the whole global smartphone audience. The thing that makes it a startup is this hyper-growth component, like whether he's trying to roll out at that scale. If someone doesn't understand either of the two (quite distinct) arguments above, or has any type of comments or rebuttal, I can follow up. Thanks for your time.