Why Studying Successful Founders Is Pointless
People study entrepreneurship by talking to successful founders. This is about as useful as asking a pachinko ball how it won.
Let’s look at a (highly simplified) pachinko game and see. In this case, the ball is trying to get to one catcher at the bottom.
Our intrepid ball would say, “Well I started fast, I bounced up once to get a better angle, then I decided to wait a bit to watch, and then I dropped right onto the catcher!” They might write a book called ‘Lean Up’ and go on a speaking tour.
This would all be useless.
By only talking to the winner, you have a clear case of selection bias. If you talked to the other balls they might tell you the same thing. Maybe it was nothing the balls did at all, maybe it was just luck. There’s no useful information contained in the life story of that little steel ball.
This is not to say that there’s no logic at all, but by just talking to the one winning ball you ignore the system that it’s bouncing around in. You could do the math and supercompute all the interactions, or you could just do what actual VCs do and drop a shit-ton of balls.
How VCs Play
No VC firm, no matter how good their analysis, invests in just one company. Yes they say they’re good at spotting founders, and yes you shouldn’t put a potato in a pachinko machine, but in reality, they just take a lot of bets. This is what’s called deal-flow. It’s literally their job.
Every venture firm makes 10 bets hoping that one will play out. Some firms make multiple bets within the same industry. They may even have two bets directly competing with each other. Hence it’s not about the story of any particular ball, it’s about how many balls you have in the air.
This isn’t just VCs, anyone that manages money puts a lot of balls in the financial pachinko machine. Hedge funds, pension funds, mutual funds — these are all diversified investment vehicles. They play the machine, they…
