12 ms·

Survivorship bias and startup hype

340 points by ifcologne 8y ago

eksemplar 8y ago
I think you should stay in school. I know it’s harder t justify in America where it’s really expensive, but the benefits can be immense if you use your time in the educational institutions correct. It’s really the most secure path to a meaningful life if you’re willing to work hard at bettering yourself. That being said I think the article stumbles a little. Where there 1000 Steve Jobs and Wozes working on a personal computer at the time? Where there 1000 people working on an global online payment system when Musk was building PayPal? I think timing is important, but I don’t think luck makes that much of a difference. You don’t obtain connections by being lucky, for instance, you obtain them because you want them and work hard at it.
- AJ007 8y ago
  When I dropped out of school I thought the odds on the outcome of staying and graduating were worse than leaving. The bad outcome having been getting an average salary at a job I was unhappy with. I dropped out with a tiny income from my business, and the extra free time made a massive difference within 12 months. The biggest lesson I’ve learned was to think through problems myself. There are a lot of degrees and dimensions to success. If you live in a first world country, are physically healthy, and everything is working with your brain, you are 90% of the way there. Exceptionalism is not a requirement to success.
  - TrinaryWorksToo 8y ago
    That in itself sounds exceptional.
- blackflame7000 8y ago
  "You don’t obtain connections by being lucky, for instance, you obtain them because you want them and work hard at it."- I have to disagree. You have little control who comes into your life outside your 1st and maybe 2nd degree of separation. You have almost no control over who will be assigned your freshman dormmate, your instructors, or even your boss. You can't work hard to be put in the same dorm as mark zuckerberg. That is just plain flat out luck. However, smart people are attracted to other smart people and that is why smart people tend to "Create" their own luck. They dont posses any special ability, per say, other than a desirable trait that others like them want to exalt.
  - TAForObvReasons 8y ago
    The luck really starts with your parents and grandparents, as their financial status generally determines your early social network. http://philip.greenspun.com/bg/ http://philip.greenspun.com/bg/ discussed some of Gates' early advantages, like having a trust fund to fall back on if risks don't pan out.
    - blackflame7000 8y ago
      But that excludes countless counterexamples with people being born with nothing and becoming self-made millionaires. Again that's not luck its a product of work.
      - TheOtherHobbes 8y ago
        And that excludes even more countless examples of those who work hard and fail. There are vastly more of the latter than the former. Work - if it’s the right kind of work - can only ever increase your odds. It can never guarantee success. What’s needed is hard data about the relative influence of market fit, hours worked, personality, network and wealth of origin, and so on.
        BkBlue 8y ago
        Analysis paralysis is arguably as dangerous as survivorship bias. Of course winning the genetic lottery bestows tremendous advantage. And of course luck is a huge variable. But the intersection of luck, preparation, and willingness is serendipity. And every successful entrepreneur has that in spades in the end, regardless of where they started. Sure that sounds like another empty platitude, but the fact of the matter is there is no formula or one simple trick.
        civilitty 8y ago
        I fear that winning the genetic lottery is more than just a simple advantage. In the case of being born into a wealthy family, it turns the situation from "it's all up to you to succeed" into "all you have to do is not fuck up." Since tremendous luck, good or bad, is relatively rare the condition from generation to generation just doesn't change much - regardless of hard work - except in so much as society itself grows wealthier.
- erikb 8y ago
  Young people usually don't look for "secure" though. But I would say if you don't have rich parents it is even the quickest way with the most success. Even the chance to a successful startup increases if one follows a stable career path in the beginning. Everyone who succeeded without it, like Bill Gates, actually succeeded because they had a secret joker through the success of their parents. I myself had to become 30+ before I understood this, though.
- ainiriand 8y ago
  Agree 100%. Reminds me of what they say in Wall Street, to be successful dont try to time the market, put time in the market.
fermienrico 8y ago
This is a great article on two standpoints - it provides important high-level "abstract" advice to new founders without sounding like Sam Altman (more on that later). Secondly, it criticizes the general human tendency to look for examples of success, read biographies, watch interviews and think mimic those traits in themselves thinking that they've won the ticket to silicon valley lottery. I'd like to quote Richard Feynman, "... for nature cannot be fooled." and the world is an insanely complex place with a number of external factors that founders have no control over. Doesn't mean we should all give up on starting a company, but it should be humbling to learn this and internalize it. Every single advice that Sam Altman gives has survivorship bias written all over it. I have never learned anything remotely useful from his vague generic articles and speeches. I'd rather watch Drew Hudson's startup pitch or read about Chad Rigetti and his quantum computer venture. Or maybe learn how Instacart managed to photograph every single grocery store item by literally going to the store and buying everything. Sam Altman's interviews are fantastic and I thank him for that but I think he should stop marketing himself as a startup guru of some kind. Each situation is unique and my personal opinion is that particular qualities such as leadership, convincing abilities, and charisma cannot be learned. It can only surface as a result of how one thinks and acts. This is why leadership courses are bullshit.
- oceanman888 8y ago
  ->Every single advice that Sam Altman gives has survivorship bias written all over it. I have never learned anything remotely useful from his vague generic articles and speeches. Every and never are really strong words, I don't think he intend to market himself as startup guru at least intentionally. He is young and already had 10 years of experience of watching top notch startups rises and falls. Main message I am getting from him is practically advice about start-ups. like, do this and don't do this, then you may succeed.
  - jacquesm 8y ago
    > like, do this and don't do this, then you may succeed. That's the whole point. It's 'may' and not 'will' or 'probably will'. Buy a lottery ticket and you may win. Real advice should alter your chances, not leave them exactly the same as before. If Sam Altman were a successful serial entrepreneur with a track record of one hit after another some of what he writes might be worth emulating but on the whole it is like observing the lottery playing crowds and noting that the ones carrying umbrellas ended up winning more lotteries so therefore you too should take your umbrella with you.
tsenkov 8y ago
Such a nice article. But I have to note that the linked (2013) piece is even better: https://youarenotsosmart.com/2013/05/23/survivorship-bias/ https://youarenotsosmart.com/2013/05/23/survivorship-bias/
- mmt 8y ago
  It's also quite a bit longer, though I agree it's worth the read. > You succumb to survivorship bias because you are innately terrible with statistics. This one line is probably one of my biggest takeaways, and I wish we had a good term for our poor-intuition-about-stats. Recently, I've seen it conflated with "innumeracy" here on HN, but that misses the point, as educating someone in statistics doesn't necessarily remove the natural intuition, which remains poor. We still need to be aware of it and the, not necessarily obvious, effects on our judgment it can have.
1ba9115454 8y ago
To me survivorship bias is looking at someone who made it. Assigning some charateristics to that person. i.e. Hard working, motivated etc etc. But, forgetting that lot's of people who didn't make it also had those charateristics. Then you have to factor in luck. 2 Entrepreneurs with the same work ethic and idea but one gets lucky. The difference in money generated can be huge.
maehwasu 8y ago
"In the same vein, a stunning proportion of partners at VC firms graduated from a handful of tony universities, as if the seal on a person’s diploma were what indicated investing abilities. (Granted, the incidence of leveraged social connections and postgraduate degrees may amplify that trend.)" Or it could be that these "tony schools" are primarily designed to select for hyper-ambitious people with high IQs. Crazy, I know.
- jimbofisher1 8y ago
  Considering around 1/3 of students at schools like Harvard are Legacy Admits who would never otherwise get admitted on their merits, I don't think your argument holds much weight. You seem to be admitting that they are selecting for elite education, if they were selecting ambition and intelligence there are countless people like that who went to a big State school instead of Stanford yet they are not represented in "Elite" firms whether that's VC, IB, Tech etc..
digilus0 8y ago
I would like to see an analysis of startups that passed two years of age. That sounds to me like enough time to learn how it feels and learn and experience most of the issues in running a small business, and not enough time that it's "wasted". If it turns out that 70% of 3 or 4 year old startups fail, then I'd say it's a seriously bad tradeoff.
katzgrau 8y ago
If you don't mind being relatively unheard of and only want to make enough money to be independent, then it actually isn't very hard to bootstrap a business. It does take time, effort, and a lot of mistake making, but it's like learning anything of value. I think it makes you a stronger and more independent person all around. Even though this article attempts to deliver a dose of reality, it focuses on VC backed companies which is a completely different field. VC backed startups tend to do highly risky things in an effort to increase traction and valuation as quickly as possible. Most notably, spend a lot of investor money in pursuit of those things without having any real revenue. The odds of failure skyrocket. I've seen a lot of commenters go on about survivorship bias. I believe that the real problem isn't being considered: the absolutely batshit advice and business building strategy that comes out of the world of venture capital and tech accelerators.
- cyberferret 8y ago
  > the absolutely batshit advice and business building strategy that comes out of the world of venture capital and tech accelerators Part of this includes the whole concept of rushing a 'knocked together' MVP out there. It all depends on the product. Yeah, if you have an app to share cat pictures on a social network, then who cares if you have a flakey cobbled together app that doesn't upload half the time. The consequences are minimal. If you have an app that is responsible for administering a life saving drug on a periodic basis, then you had better be sure the thing is polished, tested and reliable before even beginning to test it in the market. The whole 'lean' system sausage factory is just that - creating a mass production line of ideas where only less than 1% float to the top. Very often only based on the fact that the creators shouted louder than others who may have had better (or more boring) ideas.
  - asdguiuiobuibui 8y ago
    Or if you're, say, building a system for self-driving cars. This Silicon Valley arrogance and recklessness has killed people. It's not just academic.
    - 8y ago
cushychicken 8y ago
There's always this perverse focus on who is making this thing, when there should be a focus on who is buying this thing. Seems like the number one indicator of success in many of these businesses is when people actually purchase or use the product.
John_KZ 8y ago
The massive amount of failed startups is caused by people who think this is a fun popular way to make money out of thin air. If you're level-headed and sensible, you can do your analysis, make a business plan and figure out if your idea is marketable or not. Then, there's the business-doing portion, which is extremely complex, different from your technical work, and will make or break your company. But that only works if you have a financially viable, novel idea. Unless you intend to scam bad investors, you can't have a startup without real innovation, period. The startups were meant to be a way for experts in some field to materialize an (actually) innovative idea with economic potential, and generally an idea that doesn't require absurd amounts of capital. This could be done in a typical corporate environment, but when the innovation originates from a single individual, the startup model allows him/her to better protect his interests and grow his business faster. When running a startup became a trend (in many areas of Europe it did, I don't know about the Americas) there was a huge influx of people with no technical expertise, all of whom simple wanted to be a startup owner for the sake of it, with no plans or targets, just to be managers. These people fail over and over, sucking up EU and local government resources with them, and dragging the name of real startups in mud. Many of them are just the kids of wealthy individuals with connections. They leverage these connections to get investments and loans and waste 100s of thousands to millions on repeated failed attempts to materialize some retarded idea, like solar freaking highways or the 10,000th taxi hailing application on the market. Survivorship bias is bad, but this situation would persist even without it.
- mmt 8y ago
  > (in many areas of Europe it did, I don't know about the Americas) there was a huge influx of people with no technical expertise, all of whom simple wanted to be a startup owner for the sake of it, with no plans or targets, just to be managers. I find this perspective quite fascinating, as it is something of the converse my impression of some of the complaints I've read about the startup scene here in the US (mostly SFBA/Silicon Valley). Here, the complaint seems to be that (some) founders may have technical expertise but lack the business/managerial savvy (or, again, with no plans or targets) to turn it into a real product that makes money. I'm unsure if either criticism, lack of business or technical acumen, is actually fair or accurate, but it may be a subtle indication of an over-focus on one over the other (by the investors) in each of our regions to the detriment of overall innovation.
danielndukwu 8y ago
This article is true. It’s not much use to someone who’s never tried before. What’s the use in telling someone who’s never built or sold anything that most of the advice out there is faulty and probably won’t work because success stories are amplified and repeated? Though there’s no true step by step framework, I’d like to see article pointing people in the right direction. On the other hand, it’s not impossible to build a successful bootstrapped company that caters to you and a few key employees. Not everyone wants to be a unicorn. Many people just need $100,000 in personal income and they’ll be more than OK. There’s no shame in building a sustainable business that serves your customers well and taking time to do that.
nathan_long 8y ago
Survivorship bias is a problem in science, too, IIRC. Eg, "I looked for evidence that eating onions causes cancer and found nothing" doesn't get published, but the "successful" study does. I remember hearing of efforts to make researchers state their intended research up front and publish the result either way. Similarly, shouldn't business schools should be eager to do studies following new businesses, bootstrapped and funded, and analyzing their success or failure? YC and bootstrapping communities could provide a lot of interviews if they wanted to. (This seems obvious and has probably been done.)
diehunde 8y ago
Now my question is, in all of those success cases, what was more important, luck or work and dedication? Because if someone wins the lottery, it doesn't matter if they bought 100 tickets every day. Luck would still be the main factor of the success. Would also be the same for these companies like Facebook and Google?
ksec 8y ago
But the world as whole, doesn't accept Luck. Not middle or even top management. Those who do, are actually founders, Bill Gate and Steve Jobs both talk about how lucky they are. I mentioned Luck in most of my interview and not a single one likes it. The older I am, the more I became aware how many of my success or wins , are not really because I am ten times better then others, yes it may have played a part, but there are lots of moving parts, and I am only a small part of it. In essence, I got lucky. There is no way, a human, or even machine could calculate what is going to happen next. The possibilities and probabilities are endless.
- the-dude 8y ago
  I agree luck is a factor. But you can increase your chances, by the choices you make, by perseverance ...
- bufbupa 8y ago
  “Luck is a matter of preparation meeting opportunity” - Oprah By and large you can't control what opportunities sprout up around you, but you can control how prepared you are to take advantage of them when they do. EG: you can spend more of your free time learning new technologies, so that you might at least be passable at them should the need arise. I think the reason interviewers don't like talking about luck is because they'd rather hear what you're doing to help yourself at getting lucky. How do you best prepare yourself for the unknown opportunities coming in the future? Sure, its only half the equation, but its the half you get to control.
  - 6cd6beb 8y ago
    Generally I think you're right, but Seneca may have said that before Oprah did.
- Terr_ 8y ago
  Right, humans seem hard-wired to discount/ignore luck, because it's hard to fit it into a conceptual framework. We prefer to create stories with clear causes even in situations which we abstractly know are random. (Ex: The myth of a "hot hand" or "I'm due for a change of luck.") This extends to how they try to explain outcomes, so that the wall-street executive is either seen as a leadership-god or else as a corrupt shark, rather than a mostly-regular person with luck. In closing, some humor I remember reading once: > Most people won't admit how they got their current jobs unless you push them up against a built-in wall unit and punch them in the stomach until they spill their drink and start yelling, "I'LL NEVER INVITE YOU TO ONE OF MY PARTIES AGAIN, YOU DRUNKEN FOOL!" > I think the reason these annoying people won't tell me how they got their jobs is because they are embarrassed to admit luck was involved. I can't blame them. Typically, the pre-luck part of their careers involved doing something enormously pathetic. -- "The Dilbert Future", by Scott Adams
motohagiography 8y ago
It is a relief to see this view reflected. In an efficient market for business talent, VC should not exist. They could be seen as in effect talent arbitrageurs. Something about business culture over a certain size creates a massive inefficiency where someone with the level of skill required to build a successful product is not snapped up by existing firms. Personally, I like anyone who takes an arbitrageurs view because to me betting against bullshit is a costly signal of outlier intelligence. However, viewed this way, it's not about kids in hoodies. College dropouts were useful because the key signal (ivy certificate) that gets them picked up by a firm that would smother their productivity, had been suppressed. That they were selected for the school in the first place was a great negative filter as well, so betting on the remainder is practically a no-brainer. Given the exponential distribution of returns, from a statistical perspective, there isn't much value in explanations for failure because it's by far the most probable outcome anyway. e.g. who cares why startups fail, %90+ of them necessarily must, and merely avoiding a subset of failure scenarios is not equivalent to success. In that environment, there is only one necessary condition for 80th+ percentile talent to maintain: survival. Being the person who climbs up that return curve means surviving the twin perils running out of runway, and of being snapped up by a firm for a job you were originally more suited to anyway. This second peril is the other major attrition factor that prevents people from benefiting from survivor bias. The business of VCs who throw money at geeks in hoodies is to mitigate the former and get exposure to that overlooked subset of the latter. Given the remaining members of that sample, the people who also selected out of being snapped up for jobs will be necessarily over represented - and on that very steep curve. I think this explains why investors like colorful founder stories, because they are (consciously or not) looking for how the founders 1-stddev+ talent signal might have been suppressed. Good news is: the confluence of a) an exponential distribution of success and returns, b) the guaranteed competitor attrition from failures, and c) the further guaranteed competitor attrition from the job market - survivor bias may be less of a bug, and rather, a feature.
jeffreyrogers 8y ago
I guess there's some survivorship bias for startups if we define startups as companies that take VC funding and intend to grow really fast, but those are less than 0.5% of all companies. The fact is that people with domain expertise, financial discipline, and a real product or service manage to do quite well in business and the success rate is much higher (I believe around 50%).
- edanm 8y ago
  Do you have a reference for that number? That sounds really high.
  - jeffreyrogers 8y ago
    Yes.[0] See item number 6. Anecdotally I know a number of people who have started service businesses and they were all quite successful. They don't have FU money and they probably have to keep working in some capacity, but they seem pretty satisfied. [0]: https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-WEB.pdf https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017...
    - edanm 8y ago
      Interesting! I agree about some services businesses. Hell, I'm running my second successful consultancy, and have been known to recommend to people not to pursue the standard startup route. Still, considering the sheer number of e.g. restaurant openings, small store openings, etc, which I assume have a relatively high 5-year failure rate, made me suspect the number was high. I do wonder how your reference counts an establishment surviving after 5 years. E.g. if I start a company of 1 person (myself), and I keep it around after 4 years, but I'm working a full-time job besides, I understand from the reference that it would be counted as a firm that is still going after 5 years, although I wouldn't classify it as such. But I might be reading this wrong.
throw2016 8y ago
You should be able to 'afford' to fail? If you can't afford to fail then the risks are possibly too high. It will likely set you back decades, destroy your finances and credit, possibly impact your family life if you have one or further the possibility of starting one and take a serious toll on your health.
fourseventy 8y ago
So was Elon Musk lucky in all four of his main ventures? (zip2, paypal, tesla, spacex) Or can the luck factor be overcome if you are good enough.
- joyeuse6701 8y ago
  I think previous failures and successes up your chances for success in subsequent adventures. The failures teach. The successes teach and come with a payout. The subsequent ventures make it easier to retain control with your private money, as does the trust gained from previous successes, and your own experience. I think Musk has improved his chances of success by the principles above and is improving his future chances by consolidating technologies in his companies. Solar City, Tesla battery technologies, The Boring Company's use of Model X chassis, The Boring company using the Hyperloop concept? Of course, none of this would be possible without some runway, either investors or private money.
  - slededit 8y ago
    There is more information in Success. If the likelihood of success is very small you've potentially found at least some causal factor to help succeed - the needle in a haystack. If you fail you've found one of the million reasons you can fail. It's simply less informative.
- vertexFarm 8y ago
  It's not being lucky or being good. It's being lucky and being good. Nobody can succeed without both. Of course there are occasional exceptions where somebody is successful purely through luck. However, very rarely is somebody successful with no amount of luck at all. It's hard to pin down just how much of an influence random chance has had in this chaotic world. However there are plenty of very good and hardworking people who have yet to overcome a lack of good circumstances. The world is filled with failed geniuses.
deleted 8y ago
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curo 8y ago
I've worked in a lot of coworking spaces where inevitably someone starts a group to talk about the harsh realities of starting a business. It sounds like Gambler's Anonymous. Surprised to hear only 70% fail. Those odds actually sound pretty good. I've made enough in the startup world to pay the bills for a decade, but probably below my market rate at a big tech co. I don't regret a thing. Each time I get a bit further into the wealth creation game. But I also wouldn't recommend it to anyone, and actively work on dissuading new founders from trying.
- justherefortart 8y ago
  I'm on startup #8. I would be retired if I just worked the last 25 years instead of doing startups. Startups are fun though, working at corporate jobs is so soul sucking I can barely do it for the time frames between startups. If I'd just followed the safe path, I would have totally regretted not trying to go out on my own. My only regret is marrying a terrible person the first time around, crapped out on that one :-/
pedalpete 8y ago
I wonder if there are any stats around probability of success (measured by not going bankrupt) at different levels of revenue? For instance, what percentage of companies that are able to reach $5k monthly recurring revenue go under then the same metric at $10k, $20k, etc etc Anybody seen anything like that or have an idea?
zebraflask 8y ago
The real problem is that 100K and some advice sets up the vast majority for failure right out of the gate. Also weeds out the flakes, so there's that, too.
jokoon 8y ago
Are start uppers copying how Carmack started to do software? I don't understand why there is so much need for raising money when all you need is a roof and a computer to do this job. I know that not everyone is talented like carmack, but sometimes I wonder if money is not spoiling and troubling the IT sector. So in fact a startup might think it failed because it doesn't have enough money or because investors don't want to raise funds, but the reality is that software is so cheap to make, I really don't understand the world of investing in IT.
nickstefan12 8y ago
"How I won The Lottery" (joke tech talk) https://www.youtube.com/watch?v=l_F9jxsfGCw https://www.youtube.com/watch?v=l_F9jxsfGCw
stevensonbaines 8y ago
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340 points by ifcologne 8y ago

I think you should stay in school. I know it’s harder t justify in America where it’s really expensive, but the benefits can be immense if you use your time in the educational institutions correct. It’s really the most secure path to a meaningful life if you’re willing to work hard at bettering yourself. That being said I think the article stumbles a little. Where there 1000 Steve Jobs and Wozes working on a personal computer at the time? Where there 1000 people working on an global online payment system when Musk was building PayPal? I think timing is important, but I don’t think luck makes that much of a difference. You don’t obtain connections by being lucky, for instance, you obtain them because you want them and work hard at it.

AJ007 8y ago
When I dropped out of school I thought the odds on the outcome of staying and graduating were worse than leaving. The bad outcome having been getting an average salary at a job I was unhappy with. I dropped out with a tiny income from my business, and the extra free time made a massive difference within 12 months. The biggest lesson I’ve learned was to think through problems myself. There are a lot of degrees and dimensions to success. If you live in a first world country, are physically healthy, and everything is working with your brain, you are 90% of the way there. Exceptionalism is not a requirement to success.
- TrinaryWorksToo 8y ago
  That in itself sounds exceptional.
blackflame7000 8y ago
"You don’t obtain connections by being lucky, for instance, you obtain them because you want them and work hard at it."- I have to disagree. You have little control who comes into your life outside your 1st and maybe 2nd degree of separation. You have almost no control over who will be assigned your freshman dormmate, your instructors, or even your boss. You can't work hard to be put in the same dorm as mark zuckerberg. That is just plain flat out luck. However, smart people are attracted to other smart people and that is why smart people tend to "Create" their own luck. They dont posses any special ability, per say, other than a desirable trait that others like them want to exalt.
- TAForObvReasons 8y ago
  The luck really starts with your parents and grandparents, as their financial status generally determines your early social network. http://philip.greenspun.com/bg/ http://philip.greenspun.com/bg/ discussed some of Gates' early advantages, like having a trust fund to fall back on if risks don't pan out.
  - blackflame7000 8y ago
    But that excludes countless counterexamples with people being born with nothing and becoming self-made millionaires. Again that's not luck its a product of work.
    - TheOtherHobbes 8y ago
      And that excludes even more countless examples of those who work hard and fail. There are vastly more of the latter than the former. Work - if it’s the right kind of work - can only ever increase your odds. It can never guarantee success. What’s needed is hard data about the relative influence of market fit, hours worked, personality, network and wealth of origin, and so on.
      - BkBlue 8y ago
        Analysis paralysis is arguably as dangerous as survivorship bias. Of course winning the genetic lottery bestows tremendous advantage. And of course luck is a huge variable. But the intersection of luck, preparation, and willingness is serendipity. And every successful entrepreneur has that in spades in the end, regardless of where they started. Sure that sounds like another empty platitude, but the fact of the matter is there is no formula or one simple trick.
        civilitty 8y ago
        I fear that winning the genetic lottery is more than just a simple advantage. In the case of being born into a wealthy family, it turns the situation from "it's all up to you to succeed" into "all you have to do is not fuck up." Since tremendous luck, good or bad, is relatively rare the condition from generation to generation just doesn't change much - regardless of hard work - except in so much as society itself grows wealthier.
erikb 8y ago
Young people usually don't look for "secure" though. But I would say if you don't have rich parents it is even the quickest way with the most success. Even the chance to a successful startup increases if one follows a stable career path in the beginning. Everyone who succeeded without it, like Bill Gates, actually succeeded because they had a secret joker through the success of their parents. I myself had to become 30+ before I understood this, though.
ainiriand 8y ago
Agree 100%. Reminds me of what they say in Wall Street, to be successful dont try to time the market, put time in the market.

fermienrico 8y ago

This is a great article on two standpoints - it provides important high-level "abstract" advice to new founders without sounding like Sam Altman (more on that later). Secondly, it criticizes the general human tendency to look for examples of success, read biographies, watch interviews and think mimic those traits in themselves thinking that they've won the ticket to silicon valley lottery. I'd like to quote Richard Feynman, "... for nature cannot be fooled." and the world is an insanely complex place with a number of external factors that founders have no control over. Doesn't mean we should all give up on starting a company, but it should be humbling to learn this and internalize it. Every single advice that Sam Altman gives has survivorship bias written all over it. I have never learned anything remotely useful from his vague generic articles and speeches. I'd rather watch Drew Hudson's startup pitch or read about Chad Rigetti and his quantum computer venture. Or maybe learn how Instacart managed to photograph every single grocery store item by literally going to the store and buying everything. Sam Altman's interviews are fantastic and I thank him for that but I think he should stop marketing himself as a startup guru of some kind. Each situation is unique and my personal opinion is that particular qualities such as leadership, convincing abilities, and charisma cannot be learned. It can only surface as a result of how one thinks and acts. This is why leadership courses are bullshit.

oceanman888 8y ago
->Every single advice that Sam Altman gives has survivorship bias written all over it. I have never learned anything remotely useful from his vague generic articles and speeches. Every and never are really strong words, I don't think he intend to market himself as startup guru at least intentionally. He is young and already had 10 years of experience of watching top notch startups rises and falls. Main message I am getting from him is practically advice about start-ups. like, do this and don't do this, then you may succeed.
- jacquesm 8y ago
  > like, do this and don't do this, then you may succeed. That's the whole point. It's 'may' and not 'will' or 'probably will'. Buy a lottery ticket and you may win. Real advice should alter your chances, not leave them exactly the same as before. If Sam Altman were a successful serial entrepreneur with a track record of one hit after another some of what he writes might be worth emulating but on the whole it is like observing the lottery playing crowds and noting that the ones carrying umbrellas ended up winning more lotteries so therefore you too should take your umbrella with you.

tsenkov 8y ago

Such a nice article. But I have to note that the linked (2013) piece is even better: https://youarenotsosmart.com/2013/05/23/survivorship-bias/ https://youarenotsosmart.com/2013/05/23/survivorship-bias/

mmt 8y ago
It's also quite a bit longer, though I agree it's worth the read. > You succumb to survivorship bias because you are innately terrible with statistics. This one line is probably one of my biggest takeaways, and I wish we had a good term for our poor-intuition-about-stats. Recently, I've seen it conflated with "innumeracy" here on HN, but that misses the point, as educating someone in statistics doesn't necessarily remove the natural intuition, which remains poor. We still need to be aware of it and the, not necessarily obvious, effects on our judgment it can have.

1ba9115454 8y ago

To me survivorship bias is looking at someone who made it. Assigning some charateristics to that person. i.e. Hard working, motivated etc etc. But, forgetting that lot's of people who didn't make it also had those charateristics. Then you have to factor in luck. 2 Entrepreneurs with the same work ethic and idea but one gets lucky. The difference in money generated can be huge.

maehwasu 8y ago

"In the same vein, a stunning proportion of partners at VC firms graduated from a handful of tony universities, as if the seal on a person’s diploma were what indicated investing abilities. (Granted, the incidence of leveraged social connections and postgraduate degrees may amplify that trend.)" Or it could be that these "tony schools" are primarily designed to select for hyper-ambitious people with high IQs. Crazy, I know.

jimbofisher1 8y ago
Considering around 1/3 of students at schools like Harvard are Legacy Admits who would never otherwise get admitted on their merits, I don't think your argument holds much weight. You seem to be admitting that they are selecting for elite education, if they were selecting ambition and intelligence there are countless people like that who went to a big State school instead of Stanford yet they are not represented in "Elite" firms whether that's VC, IB, Tech etc..

digilus0 8y ago

I would like to see an analysis of startups that passed two years of age. That sounds to me like enough time to learn how it feels and learn and experience most of the issues in running a small business, and not enough time that it's "wasted". If it turns out that 70% of 3 or 4 year old startups fail, then I'd say it's a seriously bad tradeoff.

katzgrau 8y ago

If you don't mind being relatively unheard of and only want to make enough money to be independent, then it actually isn't very hard to bootstrap a business. It does take time, effort, and a lot of mistake making, but it's like learning anything of value. I think it makes you a stronger and more independent person all around. Even though this article attempts to deliver a dose of reality, it focuses on VC backed companies which is a completely different field. VC backed startups tend to do highly risky things in an effort to increase traction and valuation as quickly as possible. Most notably, spend a lot of investor money in pursuit of those things without having any real revenue. The odds of failure skyrocket. I've seen a lot of commenters go on about survivorship bias. I believe that the real problem isn't being considered: the absolutely batshit advice and business building strategy that comes out of the world of venture capital and tech accelerators.

cyberferret 8y ago
> the absolutely batshit advice and business building strategy that comes out of the world of venture capital and tech accelerators Part of this includes the whole concept of rushing a 'knocked together' MVP out there. It all depends on the product. Yeah, if you have an app to share cat pictures on a social network, then who cares if you have a flakey cobbled together app that doesn't upload half the time. The consequences are minimal. If you have an app that is responsible for administering a life saving drug on a periodic basis, then you had better be sure the thing is polished, tested and reliable before even beginning to test it in the market. The whole 'lean' system sausage factory is just that - creating a mass production line of ideas where only less than 1% float to the top. Very often only based on the fact that the creators shouted louder than others who may have had better (or more boring) ideas.
- asdguiuiobuibui 8y ago
  Or if you're, say, building a system for self-driving cars. This Silicon Valley arrogance and recklessness has killed people. It's not just academic.
  - 8y ago

cushychicken 8y ago

There's always this perverse focus on who is making this thing, when there should be a focus on who is buying this thing. Seems like the number one indicator of success in many of these businesses is when people actually purchase or use the product.

John_KZ 8y ago

The massive amount of failed startups is caused by people who think this is a fun popular way to make money out of thin air. If you're level-headed and sensible, you can do your analysis, make a business plan and figure out if your idea is marketable or not. Then, there's the business-doing portion, which is extremely complex, different from your technical work, and will make or break your company. But that only works if you have a financially viable, novel idea. Unless you intend to scam bad investors, you can't have a startup without real innovation, period. The startups were meant to be a way for experts in some field to materialize an (actually) innovative idea with economic potential, and generally an idea that doesn't require absurd amounts of capital. This could be done in a typical corporate environment, but when the innovation originates from a single individual, the startup model allows him/her to better protect his interests and grow his business faster. When running a startup became a trend (in many areas of Europe it did, I don't know about the Americas) there was a huge influx of people with no technical expertise, all of whom simple wanted to be a startup owner for the sake of it, with no plans or targets, just to be managers. These people fail over and over, sucking up EU and local government resources with them, and dragging the name of real startups in mud. Many of them are just the kids of wealthy individuals with connections. They leverage these connections to get investments and loans and waste 100s of thousands to millions on repeated failed attempts to materialize some retarded idea, like solar freaking highways or the 10,000th taxi hailing application on the market. Survivorship bias is bad, but this situation would persist even without it.

mmt 8y ago
> (in many areas of Europe it did, I don't know about the Americas) there was a huge influx of people with no technical expertise, all of whom simple wanted to be a startup owner for the sake of it, with no plans or targets, just to be managers. I find this perspective quite fascinating, as it is something of the converse my impression of some of the complaints I've read about the startup scene here in the US (mostly SFBA/Silicon Valley). Here, the complaint seems to be that (some) founders may have technical expertise but lack the business/managerial savvy (or, again, with no plans or targets) to turn it into a real product that makes money. I'm unsure if either criticism, lack of business or technical acumen, is actually fair or accurate, but it may be a subtle indication of an over-focus on one over the other (by the investors) in each of our regions to the detriment of overall innovation.

danielndukwu 8y ago

This article is true. It’s not much use to someone who’s never tried before. What’s the use in telling someone who’s never built or sold anything that most of the advice out there is faulty and probably won’t work because success stories are amplified and repeated? Though there’s no true step by step framework, I’d like to see article pointing people in the right direction. On the other hand, it’s not impossible to build a successful bootstrapped company that caters to you and a few key employees. Not everyone wants to be a unicorn. Many people just need $100,000 in personal income and they’ll be more than OK. There’s no shame in building a sustainable business that serves your customers well and taking time to do that.

nathan_long 8y ago

Survivorship bias is a problem in science, too, IIRC. Eg, "I looked for evidence that eating onions causes cancer and found nothing" doesn't get published, but the "successful" study does. I remember hearing of efforts to make researchers state their intended research up front and publish the result either way. Similarly, shouldn't business schools should be eager to do studies following new businesses, bootstrapped and funded, and analyzing their success or failure? YC and bootstrapping communities could provide a lot of interviews if they wanted to. (This seems obvious and has probably been done.)

diehunde 8y ago

Now my question is, in all of those success cases, what was more important, luck or work and dedication? Because if someone wins the lottery, it doesn't matter if they bought 100 tickets every day. Luck would still be the main factor of the success. Would also be the same for these companies like Facebook and Google?

ksec 8y ago

But the world as whole, doesn't accept Luck. Not middle or even top management. Those who do, are actually founders, Bill Gate and Steve Jobs both talk about how lucky they are. I mentioned Luck in most of my interview and not a single one likes it. The older I am, the more I became aware how many of my success or wins , are not really because I am ten times better then others, yes it may have played a part, but there are lots of moving parts, and I am only a small part of it. In essence, I got lucky. There is no way, a human, or even machine could calculate what is going to happen next. The possibilities and probabilities are endless.

the-dude 8y ago
I agree luck is a factor. But you can increase your chances, by the choices you make, by perseverance ...
bufbupa 8y ago
“Luck is a matter of preparation meeting opportunity” - Oprah By and large you can't control what opportunities sprout up around you, but you can control how prepared you are to take advantage of them when they do. EG: you can spend more of your free time learning new technologies, so that you might at least be passable at them should the need arise. I think the reason interviewers don't like talking about luck is because they'd rather hear what you're doing to help yourself at getting lucky. How do you best prepare yourself for the unknown opportunities coming in the future? Sure, its only half the equation, but its the half you get to control.
- 6cd6beb 8y ago
  Generally I think you're right, but Seneca may have said that before Oprah did.
Terr_ 8y ago
Right, humans seem hard-wired to discount/ignore luck, because it's hard to fit it into a conceptual framework. We prefer to create stories with clear causes even in situations which we abstractly know are random. (Ex: The myth of a "hot hand" or "I'm due for a change of luck.") This extends to how they try to explain outcomes, so that the wall-street executive is either seen as a leadership-god or else as a corrupt shark, rather than a mostly-regular person with luck. In closing, some humor I remember reading once: > Most people won't admit how they got their current jobs unless you push them up against a built-in wall unit and punch them in the stomach until they spill their drink and start yelling, "I'LL NEVER INVITE YOU TO ONE OF MY PARTIES AGAIN, YOU DRUNKEN FOOL!" > I think the reason these annoying people won't tell me how they got their jobs is because they are embarrassed to admit luck was involved. I can't blame them. Typically, the pre-luck part of their careers involved doing something enormously pathetic. -- "The Dilbert Future", by Scott Adams

motohagiography 8y ago

It is a relief to see this view reflected. In an efficient market for business talent, VC should not exist. They could be seen as in effect talent arbitrageurs. Something about business culture over a certain size creates a massive inefficiency where someone with the level of skill required to build a successful product is not snapped up by existing firms. Personally, I like anyone who takes an arbitrageurs view because to me betting against bullshit is a costly signal of outlier intelligence. However, viewed this way, it's not about kids in hoodies. College dropouts were useful because the key signal (ivy certificate) that gets them picked up by a firm that would smother their productivity, had been suppressed. That they were selected for the school in the first place was a great negative filter as well, so betting on the remainder is practically a no-brainer. Given the exponential distribution of returns, from a statistical perspective, there isn't much value in explanations for failure because it's by far the most probable outcome anyway. e.g. who cares why startups fail, %90+ of them necessarily must, and merely avoiding a subset of failure scenarios is not equivalent to success. In that environment, there is only one necessary condition for 80th+ percentile talent to maintain: survival. Being the person who climbs up that return curve means surviving the twin perils running out of runway, and of being snapped up by a firm for a job you were originally more suited to anyway. This second peril is the other major attrition factor that prevents people from benefiting from survivor bias. The business of VCs who throw money at geeks in hoodies is to mitigate the former and get exposure to that overlooked subset of the latter. Given the remaining members of that sample, the people who also selected out of being snapped up for jobs will be necessarily over represented - and on that very steep curve. I think this explains why investors like colorful founder stories, because they are (consciously or not) looking for how the founders 1-stddev+ talent signal might have been suppressed. Good news is: the confluence of a) an exponential distribution of success and returns, b) the guaranteed competitor attrition from failures, and c) the further guaranteed competitor attrition from the job market - survivor bias may be less of a bug, and rather, a feature.

jeffreyrogers 8y ago

I guess there's some survivorship bias for startups if we define startups as companies that take VC funding and intend to grow really fast, but those are less than 0.5% of all companies. The fact is that people with domain expertise, financial discipline, and a real product or service manage to do quite well in business and the success rate is much higher (I believe around 50%).

edanm 8y ago
Do you have a reference for that number? That sounds really high.
- jeffreyrogers 8y ago
  Yes.[0] See item number 6. Anecdotally I know a number of people who have started service businesses and they were all quite successful. They don't have FU money and they probably have to keep working in some capacity, but they seem pretty satisfied. [0]: https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017-WEB.pdf https://www.sba.gov/sites/default/files/advocacy/SB-FAQ-2017...
  - edanm 8y ago
    Interesting! I agree about some services businesses. Hell, I'm running my second successful consultancy, and have been known to recommend to people not to pursue the standard startup route. Still, considering the sheer number of e.g. restaurant openings, small store openings, etc, which I assume have a relatively high 5-year failure rate, made me suspect the number was high. I do wonder how your reference counts an establishment surviving after 5 years. E.g. if I start a company of 1 person (myself), and I keep it around after 4 years, but I'm working a full-time job besides, I understand from the reference that it would be counted as a firm that is still going after 5 years, although I wouldn't classify it as such. But I might be reading this wrong.

throw2016 8y ago

You should be able to 'afford' to fail? If you can't afford to fail then the risks are possibly too high. It will likely set you back decades, destroy your finances and credit, possibly impact your family life if you have one or further the possibility of starting one and take a serious toll on your health.

fourseventy 8y ago

So was Elon Musk lucky in all four of his main ventures? (zip2, paypal, tesla, spacex) Or can the luck factor be overcome if you are good enough.

joyeuse6701 8y ago
I think previous failures and successes up your chances for success in subsequent adventures. The failures teach. The successes teach and come with a payout. The subsequent ventures make it easier to retain control with your private money, as does the trust gained from previous successes, and your own experience. I think Musk has improved his chances of success by the principles above and is improving his future chances by consolidating technologies in his companies. Solar City, Tesla battery technologies, The Boring Company's use of Model X chassis, The Boring company using the Hyperloop concept? Of course, none of this would be possible without some runway, either investors or private money.
- slededit 8y ago
  There is more information in Success. If the likelihood of success is very small you've potentially found at least some causal factor to help succeed - the needle in a haystack. If you fail you've found one of the million reasons you can fail. It's simply less informative.
vertexFarm 8y ago
It's not being lucky or being good. It's being lucky and being good. Nobody can succeed without both. Of course there are occasional exceptions where somebody is successful purely through luck. However, very rarely is somebody successful with no amount of luck at all. It's hard to pin down just how much of an influence random chance has had in this chaotic world. However there are plenty of very good and hardworking people who have yet to overcome a lack of good circumstances. The world is filled with failed geniuses.

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curo 8y ago

I've worked in a lot of coworking spaces where inevitably someone starts a group to talk about the harsh realities of starting a business. It sounds like Gambler's Anonymous. Surprised to hear only 70% fail. Those odds actually sound pretty good. I've made enough in the startup world to pay the bills for a decade, but probably below my market rate at a big tech co. I don't regret a thing. Each time I get a bit further into the wealth creation game. But I also wouldn't recommend it to anyone, and actively work on dissuading new founders from trying.

justherefortart 8y ago
I'm on startup #8. I would be retired if I just worked the last 25 years instead of doing startups. Startups are fun though, working at corporate jobs is so soul sucking I can barely do it for the time frames between startups. If I'd just followed the safe path, I would have totally regretted not trying to go out on my own. My only regret is marrying a terrible person the first time around, crapped out on that one :-/

pedalpete 8y ago

I wonder if there are any stats around probability of success (measured by not going bankrupt) at different levels of revenue? For instance, what percentage of companies that are able to reach $5k monthly recurring revenue go under then the same metric at $10k, $20k, etc etc Anybody seen anything like that or have an idea?

zebraflask 8y ago

The real problem is that 100K and some advice sets up the vast majority for failure right out of the gate. Also weeds out the flakes, so there's that, too.

jokoon 8y ago

Are start uppers copying how Carmack started to do software? I don't understand why there is so much need for raising money when all you need is a roof and a computer to do this job. I know that not everyone is talented like carmack, but sometimes I wonder if money is not spoiling and troubling the IT sector. So in fact a startup might think it failed because it doesn't have enough money or because investors don't want to raise funds, but the reality is that software is so cheap to make, I really don't understand the world of investing in IT.

nickstefan12 8y ago

"How I won The Lottery" (joke tech talk) https://www.youtube.com/watch?v=l_F9jxsfGCw https://www.youtube.com/watch?v=l_F9jxsfGCw

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