On Business Madness
I am not intentionally a business person.
Over the course of my career to date I’ve worked at companies of various sizes, and have been situated at commensurately varying distances from the concerns of running a business: funding, sales, forecasting and planning, marketing, payroll, legal matters, and so forth. In that time, I’ve developed an interest in the mechanics of business. It seemed prudent to know where my paycheck was coming from. Still, I got to keep my distance from the “business stuff”.
Being now a co-founder of a startup has made it difficult to stay impartial when considering how businesses work, how they succeed, and how they fail. I’ve made a couple of angel investments, and I advise a couple of other startups. It’s hard to spend one’s time and money this way and not develop an opinion about what is a “good business” or a “bad business” and the practices and decisions that support such outcomes.
But, as I observe discussions of business matters in the startup community, I can’t help but think that none of us – for all the blustering blog posts, crowing keynotes, self-published manifestos, and chest-beating sound bites fed to hungry reporters – have little more than the slightest idea what we’re doing.
We mistake dumb luck for a machine that produces success. We rely on induction when we should rely on deduction, and then, having realized our mistake, we lean on “data-driven decisions” in lieu of common sense. We chase patterns that aren’t there and miss eager markets right in front of us. All this while projecting the confidence, real or manufactured, that’s necessary to play the game.
This madness takes many forms.
There is a term that venture capitalists use: pattern matching. My ears perked up the first time I heard this from a VC, because in the world of computer science, pattern matching is a well-defined concept and a feature of more interesting programming languages.
To a programmer, pattern matching is a slick way of looking for a needle in a haystack of data. The haystack must be a known quantity: a thing, or maybe a collection of things. The needle, too, we must be able to describe: a particular value, a type of thing, a collection of things grouped in a particular way. Once we have our haystack and describe our needle, the computer does the rest. But pattern matching is not fuzzy logic. It is clean-shaven logic. Logical logic, of the sort programmers tend to like.
For venture capitalists, pattern matching is a way of saying: “I’ve seen this result in people making money, but I haven’t seen that result in people making money, so you should probably do this and not that if you want to make money.” I have to admit, I was somewhat disappointed when I realized how the term was being employed at the negotiating table. I thought maybe VCs had access to some brilliant new software that evaluated prospective investments in startups. But no. What we’re talking about is good old fashioned experience, which is what you get to call induction when you’re making money and what you say you earned instead of cash when you were losing money.
Many firms make their venture capital investments with a “shotgun” approach: fire chunks of money at a bunch of companies and hope that a couple of them make it big. That is to say, the VCs who operate this way make their money from anomalies. Talking to some such investors, though, you wouldn’t know it. If they haven’t seen it before, they’re not interested. They want something new from something known. They rely on exceptional outcomes from circumstances that align with their experience.
Apparently, experience hasn’t worked particularly well for the last decade.
Location, Location, Location
Startup founders love to obsess about location. Worrying about where in the world to start your company is a wonderful way to defer the terrifying prospect of working really hard on it and potentially failing.
To wit: as I type, one of the top articles on Hacker News is a guide to where you should locate your startup in the Bay Area, down to the neighborhood level. Read now, lest you lease an office on a block that hasn’t been visited by the talent acquisition faerie!
People outside of the Great Silicon Valley-San Francisco Startup Sprawl also love to talk about location, but defensively. “Hey, we matter too!” they shout from Boston, London, Seattle, Iowa, Berlin, and most anywhere else that a person with a laptop and the eagerness to fill out incorporation paperwork can live. Certainly, a fair amount of agonizing about local startup viability goes on in my adopted home of Portland, Oregon.
A cursory look at the data shows that location pretty much doesn’t relate to the long-term success of a startup. Which, if you think about it for even a second, makes perfect sense. How many of our corporate behemoths have their home offices in unlikely towns and cities? How many of those towns and cities have grown up around companies, and not the other way around?
There are good reasons to start a company in a particular place, or to move your company from one place to another. “Because everyone else has” is not one of them.
Running a business means making many, many decisions. Decisions can be hard to make. Having a framework in which to make decisions greases the wheels, but coming up with said framework is even harder than making decisions. Thus, the wide world of business books.
No, I’m not going after business books as a whole. What interests me is a particular form of Business Madness that often ends up in book form: the Process Cult.
Process Cults form around a set of business practices that, when judiciously applied, are supposed to yield a profitable, successful business run by shiny, happy people. The startup segment of the business book market has its favorites:
- Eric Reis’s lean startup and associated book.
- Steve Blank’s customer development and associated book.
- 37signals’ methodology, as expressed in the books Getting Real and REWORK.
I have read all of the above. I don’t necessarily agree or disagree with their contents. What I disagree with is the notion that anyone should start or operate a business in the explicit mold of someone else’s experience, as reduced to a couple hundred pages padded with illustrations and diagrams. It’s a bit like starting a fad diet without considering the particulars of your health and lifestyle. It may be hard to subsist on kumquat juice when your neighborhood grocer doesn’t sell kumquats.
The ultimate use of such books is not so much for the advice they contain, but for the social signaling that comes from adopting one as scripture. Lean Startup people go to Lean Startup meetups to find co-founders. The term “customer development” is dropped in pitches to knowing nods from investors who believe in the approach. Those who have Gotten Real leave supportive comments on blog posts by their brethren, railing against the inanity of whatever venture-funded company is this afternoon’s big story. Bonds are formed and reinforced. Process Cults emerge, putting more faith in ritual than in ideas.
When I look around the world, the businesses that dominate don’t seem to be the ones that formed around process as a rallying cry. Rather, they adapted processes to bolster world-changing, market-creating ideas. The world doesn’t need a lean startup, or a developed customer, or a REWORK’d business; it needs solutions to problems, magic where previously there was darkness. How that magic happens is interesting and maybe even useful as a basis for other people running businesses to compare to, but it’s not a recipe for success.
Given some preparation and calibration, you can bake the same cake from the same recipe the same way every time. But a business is not a cake – not even a cake-making business. You can retrofit “success factors” to businesses that made it big, but you can’t then reapply those factors to another business and expect the same results. Every new business is an experiment with too many variables to possibly control for: the concept, the execution, the stability of the people working on it, market forces, political turmoil, the weather, and on and on.
The factors that appear to make a business successful change from week to week, article to article, tweet to tweet, blog post to blog post. This week, everyone is trying to figure out how to replicate Facebook’s “hacker way” because that’s where the money is going. But eventually, the money moves on, and with it goes our idea of how to manufacture success. It was Taylorism in the 1880s. It was Japanese management theory in the 1980s. A few weeks ago, before our collective attention shifted to the Facebook IPO, it was whatever Steve Jobs had done, from hallucinogens to yelling at your employees. Next week, it will be the philosophy of whoever seems likely to make the most money right then.
How can we be like the successful ones and not like we are: tired, confused, scared, not-rich? Just tell us the secret. There is a secret, right? There must be. They make it look so easy.
I am not a business person. I don’t know what makes a good business. It seems like it helps to have a good idea, great people, the willingness to work hard, and an absolute shit-ton of luck. Being certain about much beyond that seems, well, a bit crazy to me.