
Why Silicon Valley Tech Wunderkinds Overestimate Their Own Smarts and Abilities - petesoder
http://www.forbes.com/sites/ericjackson/2012/06/18/why-silicon-valley-tech-wunderkinds-overestimate-their-own-smarts-and-abilities/
======
sriramk
Consumer vs enterprise makes a big difference here - there are a lot of
successful repeat entrepreneurs in the enterprise world.

the success of consumer startups, especially one that relies on network
effects, are often random. That's why so many of the 'How did X get traction'
stories on Quora boil down to "It suddenly took off with group foo, we weren't
sure why". That's why a lot of these consumer startup founders doing repeat
companies fail - they can't replicate the same conditions again.

Enterprise startups are a different story. Since the variables (who the
customers are, how much they can pay, how they buy, what they want) are better
known and existing relationships counting for a lot, repeat entrepreneurs have
a better chance of having a success. Of course, enterprise startups have their
own separate issues to deal with.

~~~
chrischen
The difference isn't technically with consumer vs enterprise, but with how big
in scope something is.

For example, it's likely that something as big and successful as facebook is
due to a once-in-a-lifetime opportunity and idea, but a neighborhood pizza
shop can be more likely to be successful due to experience, skill, and non-
luck factors.

Consumer startups just happen to usually need to be big in scope in order to
succeed.

So outliers like Facebook, apple, etc may actually depend on luck to become as
big as they are, but smaller scope enterprises may be more formulaic and
repeatable.

~~~
nzealand
He is talking about enterprise software startups e.g. Workaday.

------
dmbaggett
I've helped create two companies with successful exits (Naughty Dog and ITA).
When founders with successful exits tell me it was all skill and they didn't
get lucky, I ask them if they'll give all their money away and start over,
because, of course, it's all repeatable. No takers so far.

Being smart, technically good, etc. is all (usually) necessary, but not
sufficient. Anyone who thinks otherwise exists in a profound state of self-
aggrandizing delusion.

~~~
mseebach
A bit OT, but your methodology is flawed. That something is repeatable does
not imply that repeating it is desirable. Creating a startup is lots and lots
of hard work - assuming we're talking about proper FU money, they'd be crazy
to give up financial freedom to prove a point.

Or a simpler example: you discover that you're out of milk, drive to the
store, pick up a carton, stand in line, pay and drive back. You're tired and
your favorite TV show is on in five minutes. If I ask you to throw away the
milk and go back to the store for another, does that prove that getting milk
isn't a repeatable process?

~~~
dllthomas
> Or a simpler example: you discover that you're out of milk, drive to the
> store, pick up a carton, stand in line, pay and drive back. You're tired and
> your favorite TV show is on in five minutes. If I ask you to throw away the
> milk and go back to the store for another, does that prove that getting milk
> isn't a repeatable process?

This is glorious.

------
droithomme
I love it when Venture Capitalists write articles with this claim since they
prefer the idea that support from Venture Capitalists is the key to any
successful business, not skills, talent, genius, a product, customers or a
business plan.

A quick search and replace provides the basis for an alternative article
called "Why Sand Hill Venture Capitalists Overestimate Their Own Smarts and
Abilities":

> Venture Capitalists believe that they can recreate their successes again and
> again, start-up after start-up.

> In some ways, Sand Hill is set up to support this way of thinking. If you’re
> successful financing one company and you were the venture capitalist, you
> deserve all the money from all the engineers running other businesses in
> Silicon Valley to go start your next capital firm. After all, who are the
> engineers going to support? Some failed venture capitalists instead?

Makes as much sense.

~~~
gringomorcego
Hey man, don't question the established order.

Remember, it's a luxury to pander to a VC.

Bootstrapping is only for those dirty proles.

~~~
calinet6
I know it's popular to hate on VC's, but after watching a couple bootstrapped
companies suffocate themselves with lack of growth when it was needed most,
well, just don't forget the alternative. Capital is very important.

------
AndrewWarner
I've found this in my interviews on Mixergy. If I ask a founder to tell me why
he made it, he often exaggerates his abilities and his answers are more B&W.
If I ask him to tell me the story of how he did it, the lessons are more
nuanced.

~~~
petesoder
Great point. Wonder if there's an analog here with the building of technical
platforms. Hind-sight is 20/20 and explaining how one feels he/she made tech
decisions could come out similarly subjective. But asking about the story
behind the platform might tease out more color.

~~~
AndrewWarner
I think so. In my interview with Emmett of twitch.tv, he mentioned that if he
asks customers, "what should I build for you?" the responses are pretty
useless.

So instead he teases out what their motivation is (personal expression or
making money by broadcasting or something else) and what's keeping them from
achieving it (lack of clear stats, or difficulty publishing, etc). That helps
him figure out what to build.

------
justin
"I agree with Mark Zuckerberg that most of us will only have one really good
business idea in our lives."

I think the founders of Microsoft, Dropbox, Zynga, and many, many others would
disagree. Even if we do on average only have one good business idea in our
lives, it probably won't be the first one you work on.

The author uses Twitter as an example, which was actually a spinoff of Evan
Williams' _second_ company.. he'd already had one great idea, Blogger, which
was sold to Google.

~~~
smalter
This reminds me of my logic professor in college. He would often tell us
stories about Kurt Godel, who he'd worked with at the IAS.

My prof blew me away one day when he said that Godel had 3 good ideas -- Godel
numbering, and two more that I can't remember.

He didn't say it in a way that was meant to put down Godel at all. I took it
as an homage to original thought and what it really meant to have a good idea.

~~~
cb18
_Godel numbering, and two more that I can't remember._

hmm... That list seems incomplete.

~~~
dllthomas
Better than inconsistent.

------
EGreg
I mostly disagree with this article. Disclaimer: I live in NYC and not the
valley, but I think this just makes my point stronger.

Ideas are a dime a dozen. Many can be great. Execution is what separates the
wheat from the chaff. And most of the time, the Minimum Viable Product has
become cheaper to produce and iterate, than ever. So the startup costs are
minimal.

I would actually say the opposite. People live lives, companies create
products. You will have MANY ideas in your life. Make sure to maximize your
chances of succeeding in your first venture. If you do, and then you exit, you
will have connections, a reputation, a track record, lots of money, and you
will be able to own the crap out of your next companies and do whatever you
want.

That probably means your first venture shouldn't be the next Google or
Facebook, so that you can bear giving away equity in it to people and give
them responsibilities. Investors, mentors, coders, designers, marketers, etc.
People who do things better than you in their respective fields. If you are
reluctant to give up equity, your first startup will be hobbled in its
resources, you will have to wear many hats and wear yourself thin. Why do it?

Companies create products. People live lives. Enjoy yours while you are young.
Create a group around you that is passionate. What was that Aesop's fable? Oh
yes:

<http://mythfolklore.net/aesopica/milowinter/13.htm>

I think that the individualistic culture in the USA has produced some amazing
things, but the power of groups is just beginning. The open source movement is
a great example, but as people get better tools to organize themselves, groups
will become more and more efficient.

The nice thing about groups is that they can do more. An individual is just a
group with one person. If set up right, larger groups are also not as fragile,
if one member leaves or decides to take a break. They have more connections,
they have more resources to grow.

In short: you will have plenty of ideas. Don't make your first one into
something that you will take responsibility for and take on the risk all by
yourself. Rather than letting it consume your life, land your first success.
You will always be able to own and enjoy your next ideas, and have more
OPTIONS to execute them how you want.

~~~
calinet6
"Ideas are a dime a dozen."

After working in an incubator for about 3 months and learning all about the
ideas several companies were founded on, I have to disagree with this. I would
say I had to hold back laughter for half of them, and not because the idea
initially struck me as poor, but because of many, many details within the idea
that were not thought through completely, or a company that was put together
to solve the wrong problem, or had a better competitor already in the market
that they _weren't aware of._ And these were companies that had _made it into
an incubator._ Supposedly the cream of the crop.

Ideas are valuable and it's difficult to get them right in their entirety. You
can't build a company on just any old idea, you have to build it on the whole
idea and its extension into the market. A holistic idea.

And _those_ , well, those are _hard._

------
danmaz74
The funny thing is that the author himself talks about having "your brightest
idea", as if success only depended on you - and your idea - and not on the
right timing, the right team, and all the planets aligning for you.

The fundamental attribution error is so ingrained in our thinking, that it's
really difficult to obviate it even when you're writing an article about it.

------
jmduke
I'd argue this is more about survivorship bias than fundamental attribution
error.

The tech world buzzes for days and weeks about Instagram being acquired by $1
billion, about securing higher and higher amounts of funding. Often, its
deceptively rare that you hear about great people with great ideas that just
don't make it off the runway.

So when your venture fails, you're tempted to think its a fluke that can be
overcome with a large enough sample size.

------
jfoutz
Funny to mention Ev and not blogger.

Also, when you can get Morgan Stanley to eat 2.3 billion to keep launch day
stock at the number you want, you're not overestimating your own smarts.
You're doing something far more profitable, you're duplicating the mythic
reality distortion field.

------
ImprovedSilence
Perhaps people who are financially set want to just try out new things. The
author here rips on the facebook CTO, because whatever else he is doing will
not be as successful? If he's the CTO of facebook, I'm sure money almost
doesn't even enter the picture here, he's set for life, and wants to see if he
can create his own baby. No problem with that.

~~~
eshvk
Yeah, I noticed that: Sometimes success is not the only aim for starting a
startup. There is also the sheer joy of working on something that you
conceptualized and thought about. Irrespective of whether it succeeds or not,
that feeling is probably one of the factors that motivate people to leave high
paying jobs to do stuff like this.

------
blader
Maybe entrepreneurial success is driven by luck in the same way that home runs
in baseball are: Barry Bonds can swing 100 times and not hit a home run, but
he's still a way better home run hitter than I am, in that he can hit home
runs at all.

This article is kind of like saying that some baseball players overestimate
their own skills and underestimate the effects of luck when they hit a home
run. But you don't see people writing articles like that because hitting a
home run is more obviously difficult than starting a successful company, and
you have a lot more data with home runs than you do with companies.

Whenever there's an article like this, it can be tempting to conclude either:
1) "it's just a crapshoot, what's the point of playing the lottery?" 2) "it's
just a crapshoot, anyone could have done Facebook." But the fact is luck is
involved in everything - so perhaps a better takeaway is: 1) I need more
practice and 2) I need more at bats.

~~~
andyjsong
3) I need more steroids.

------
tthomas48
Why are they singling out Tech people? You ever met a salesperson or a CEO?

~~~
rhizome
Because there's a hiring crunch with technical people, and because it's
Forbes, who is never going to imply money people could be incompetent.

~~~
adventureful
I disagree. Forbes takes plenty of shots at Wall Street, the bailouts, Bank of
America, Jamie Dimon, Ben Bernanke, The Fed, Fannie & Freddie, and so on. They
spent years ripping on Lehman and Bear Stearns.

Besides, tech is worth more than finance, there's a lot more profit there than
in banking. The next Google or Facebook will probably be worth more than our
largest banks.

Apple + Microsoft in 2012 ($70b in profit) = Goldman + Bank of America + Citi
+ Wells Fargo + JP Morgan + PNC + BB&T + Morgan Stanley + Blackrock etc.

~~~
dxbydt
>Apple + Microsoft in 2012 ($70b in profit) = Goldman + Bank of America + Citi
+ Wells Fargo + JP Morgan + PNC + BB&T + Morgan Stanley + Blackrock etc.

Heh heh. You are conflating investment banks with commercial banks and mutual
fund managers. The goal of deposit taking institutions isn't to make $70b in
profit...its to safeguard deposits, make some modest profit ( if any ) by
lending out to sound borrowers with collateral. Similarly, if the mutual fund
guys take outsize risks by investing in high beta stocks & they end up on the
wrong side of the trade, the funds would be unable to attract any investor
interest in the future. Even a tiny 1% return over S&P is huge for mutual
funds.

Here's a more apples to apples comparison: a. $125 million hedge fund, run out
of a 2-room office, with 3 PhDs in Finance from MIT,MIT & Chicago. All the
software is VB macros on MS Excel + 3 Bloomberg terminals. Profit $7m in first
year. Each guy takes home $2m b. 5 person startup in the Valley gets bought
out for $20m. Each co-founder takes home $2m, after the VCs get their share.

a == b. But which would you rather be ? I interviewed with both at one point
in time...

~~~
adventureful
I intentionally mixed the financial companies, because they are all run by
'money people.' That's the whole point. Did you actually think that was a
mistake?

The goal of banks is to make money by doing all sorts of things, from trading
government paper, to providing liquidity to businesses (credit), to issuing
standard loans, to issuing mortgages, to taking standard deposits, to issuing
more complex CDs, to issuing credit cards, and on and on. There's no inherent
definition limitation, it's up to the banks and the regulators to decide.

The goal of all of those entities I listed is to make money. They're all
publicly traded corporations.

A more apples to apples comparison? What are you talking about? The point is
to note the fact that there's A LOT more profit in big tech than in big
finance.

~~~
dxbydt
>The goal of all of those entities I listed is to make money.

No its not.You obviously know enough about this topic, yet you make this
dubious claim. The goal is to be in the black to not go in the red. That's a
very specific accounting goal, look it up.

> The point is to note the fact that there's A LOT more profit in big tech
> than in big finance.

Please dude. Apple isn't taking that "LOT more profit" and subdividing it
among its employees, yeah ? Whereas when you run a tiny hedge fund and take in
a tiny $7m, that turns into a tiny $2m windfall for you personally. Lot easier
to do if you have the skills, and certainly a lot more lucrative.

------
yesimahuman
Whats a "good" startup idea anyways? One where the VC rocket doesn't crash
straight into the ground? This article seems to hint that the only good idea
you'll have is one that investors pour money into and it turns into a big hit
like Facebook. I see way too many successful companies that didn't take that
approach to believe in that.

Maybe the problem is too many people believe in that.

------
biot

      > I know nothing about Bret Taylor and his new company. However, I do
      > know that he used to be the CTO of Facebook and he threw it out the
      > window. Chances are his new venture will never give him the opportunity
      > he would have had if he’d stayed at Facebook for the next 5 years.
    

Would the same be said for an executive who cashed out of VA Linux? Or
Pets.com? Maybe this journalist has some crystal ball showing Facebook's stock
price five years down the road.

<http://imgs.sfgate.com/c/pictures/2001/01/18/bu_valinux2.jpg>

ChuckMcM's previous comment summed it up perfectly:
<http://news.ycombinator.com/item?id=4118949>

------
calinet6
This article is remarkably astute. Not necessarily for the details, but just
for its _statistical_ instead of _individual_ view into the startup ecosystem.

In this highly complex system of companies and customers and ideas, nothing is
constant, and very little is predictable. You can't look at individual points
and see the trend, or be able to predict anything from that point. You have to
look at the ecosystem statistically, and that's effectively what this article
is talking about.

Everyone should understand statistics. Not Stat-10 intro-to-statistics, but
the beauty of statistical understanding in the real world, as it applies to
you. This article is a great example. If you think systematically, you'll
understand your market better, your company better, your employees better, and
yourself better, and you won't fall into the fallacies this article points
out.

Because that's what they are. Fallacies. Falsehoods. If you believe you fully
control your destiny and your outcome, you are necessarily at least partially
incorrect.

Even if you consider yourself and your own success and what you believe leads
to it, you are _still_ part of a complex system you don't fully understand.
However, you can get a much better grasp of it if you don't use yourself as a
single-point anecdote. Spot on.

------
dgreensp
The author leaves no room for any concept of "skill" in entrepreneurship, and
this is the big flaw in his article. He doesn't so much argue this view as
assume it, except to say that person X succeeded only to fail later, and
person Y thought they would succeed, but didn't.

VCs know more about start-ups than he thinks. They do "care" about whether the
ventures they fund succeed (obviously, ha) and even so they fund founders who
have failed in the past all the time. The pretty low stigma on failure in the
Valley is part of what makes the culture so great and why we get so many
successes and, dare I say it, skilled entrepreneurs.

As we all know, team and execution are just as important as idea or more so.
Once we acknowledge the importance of ability, and the existence of many great
successes, successful serial entrepreneurs, and, of course, failures and
failed entrepreneurs, it seems like he's just trying to take everyone down a
peg.

Surprisingly, his first three takeaways are pretty agreeable, basically just
be grateful for your successes and acknowledge there was probably a healthy
dose of luck in there. I'm pretty sure his fourth point about investing in
people despite past failures is already incorporated into Valley thinking.

~~~
incongruity
_"The author leaves no room for any concept of "skill" in entrepreneurship,
and this is the big flaw in his article."_

From the article:

 _"And you certainly can’t go through life as an entrepreneur without becoming
smarter. You learn from your mistakes, you make great contacts within an
industry, you understand better what other competitors are doing."_

If that isn't a round about way of talking about entrepreneurship skill
building, I'm not sure what is.

The skill you reference has to be developed somewhere – even if that's just
watching others and learning from the litany of mistakes out there...
otherwise it's an innate ability and that's exactly what the author is arguing
against in this piece.

If anything, I feel as though the author still falls into the trap of
believing in the mythical "great idea". There are plenty of really good ideas
out there – they just need to match up with the right environmental factors
(time, money, competitors, etc. etc.) and the right people at the right point
in their lives. Good ideas don't execute (and thus succeed or fail) in a
vacuum – and so, just like the fundamental attribution error the author
mentions early on, as it applies to people, the same thing goes for ideas.

------
tomasien
"When Jack Dorsey left to found Square, he made the biggest miste.... wait no,
when Dave Morin left Facebook to start Path he made the biggest mist.....
shit"

------
chris123
RE "Zuckerberg's" Facebook idea: When I was at Georgetown University back in
the '90s, at the beginning of each year a printed directory of the students
came out. In that book, was a photograph of each student and their profile,
including name, where from, where went to undergrad, and a few other things.
That book was called "the Facebook." So the idea to take the physical facebook
and bring it online, with the same name and same initial content, was just
lying there on the ground for years, waiting for someone to notice it, bend
over, and pick it up. As the concept of social networks speard through the
populaton, the ease of noticing the opportunity grew more obvious. Finally, a
few years after online social network pioneers launched (Friendster and then
MySpace), someone noticed. I'm surprised it took as long as it did. How many
other opportunities are hiding in plain sight. Many :) PS: Yes, ideas are
"nothing" without execution.

------
zacharyvoase
This article could have done with dropping the 'Why' from the title; it was
more an exposition of a belief (and an observation from the field of
psychology), than an explanation of the root cause of this overestimation.

Which, incidentally, everyone is susceptible to. It just makes people bitter
when millions of dollars change hands because of it.

------
larrys
"But my point is that I agree with Mark Zuckerberg that most of us will only
have one really good business idea in our lives."

Not just ideas.

You need not only the idea but everything coming together at the right time
including being able to team up with the right people, get money, and not to
sound like a broken record, luck and the right timing.

At one point things get to the tipping point. With twitter it may have been
the arab spring let's say. That might have been the point where non-techies
and your aunt heard about it and it jumped some shark.

------
petesoder
Curious to hear thoughts on the '4 takeaways' ...

For instance, do you think investors are 'at least as likely to succeed by
investing in “failed” entrepreneurs as “successful” ones'?

------
tlrobinson
I don't doubt the psychology described in the article, but there are other
reasons to start a company than believing it will be massively success. These
two recent posts come to mind:

"Getting Final Cut": <http://log.scifihifi.com/post/25094818476/getting-final-
cut>

"Why you need your own company": <http://sivers.org/laboratory>

------
tomkit
I think the attribution to overestimating one's smarts, citing "fundamental
attribution error" is a little misguided; most entrepreneurs aren't
disillusioned about the success rate of startups. Rather, in the Valley, we
call it being optimistic/head-strong/determined and it's a key attribute in
entrepreneurs -- one that allows them to continue forward when everyone else
is saying "no."

------
grandalf
Let's all kneel and psychoanalyze Mark Zuckerberg on a site dedicated to
people who love hacking and building things. What a garbage article.

------
trg2
Surprisingly modest comment from Mark Zuckerberg in this article about Viacom,
especially at such a young age. Really interesting.

------
namenotrequired
I think when you say "Silicon Valley Tech Wunderkinds Will Only Ever Have 1
Good Business Idea During Their Entire Lives", it seems you mean they'll only
have 1 successful business idea. That's what you seem to be getting at, and
you argue yourself that a good idea isn't always a successful idea.

------
powerslave12r
This reminds me of the book I just started reading that talks about randomness
in our lives.

The Drunkard's Walk: How Randomness Rules Our Lives :
[http://www.amazon.com/The-Drunkards-Walk-Randomness-
Rules/dp...](http://www.amazon.com/The-Drunkards-Walk-Randomness-
Rules/dp/0307275175/)

------
larrys
"The VCs and media don’t care who wins and loses because they’ll still have
jobs watching from the sidelines. "

Of course why not spread the bets over multiple companies and encourage risky
ideas. We are all watching the football game but not suffering the
concussions.

------
wilfra
Fundamental Attribution Error is a very real thing that definitely applies to
SV startup culture.

To put it in simpler terms, luck is a far more important factor than skill in
determining whether any given entrepreneur or startup succeeds.

Unfortunately he had to add a bunch of nonsense commentary like the Bret
Taylor stuff, but his main premise is certainly accurate.

It also applies to VC's and Angels. They are praised when they get in early on
companies that end up making a fortune. Some of them are surely great
investors - others are just blindly throwing darts and end up getting insanely
lucky. Good luck trying to explain to that TechCrunch.

------
mjwalshe
Everyone (at least 99.9%) Overestimates how good they are.

