Don't get me wrong, I always love VC-istan bashing, but I think the OP has some critical misses in it and, ultimately, comes out with some bad advice.
If you want to come up with awesome, fundable ideas, go work for large companies with deep pockets that have old and archaic processes and few highly-technical and dynamic problem solvers. Identify the inefficiencies, make friends with decision makers, and then leave, build your solution, and sell it back to them.
That doesn't work. The theory is that these deep-pocketed dinosaurs are just waiting to get some top-1% talent to tackle their hardest problems. It's like they're sitting on their hands just waiting for smart, energetic people to solve their problems.
There are a few issues there. First, the captains of those behemoths think they already have top talent, because they can't recognize it, and therefore end up giving their ears to salesmen. Saying, "you should listen to me instead of that idiot, even though I'm 23, because I am an actual 3-sigma talent" doesn't just work that way. Trust me. I've tried it. In an ideal world it would work, but that's not where we live.
You know how people hate "politicians" in the abstract (recognizing the incompetence of the class) but tend to be favorable toward their local representatives, on account of interpersonal charm? That's why investors and owners get robbed blind by idiots and scumbags. We think they just can't find people like us; in fact, those owners and investors think they already have people like us (even if they share our skepticism of management/executives in the abstract).
"Make friends with decision makers"? As if it were that easy. Smart people love to think that the people in power are just waiting for top talent to come and help them; in reality, the people in power think (usually incorrectly, but good luck convincing them of that) that they have more enough access to top talent as it is.
Genuine smart people have a hard enough time getting along in the Googles of world, which are still more tolerant of true top talent's idiosyncrasies than a typical MegaCorp. Just being smarter than the competition doesn't mean you automatically get put on some magical protege track and "make friends with the decision makers" and will be able to "better yet, get the company to invest in your new startup". Ha! If only it were that easy.
What built Silicon Valley back when it was great was a tolerance of people (true top talent, with the career-disrupting idiosyncrasy that implies) whom the current crop of VCs wouldn't give the time of day. Silicon Valley was built by people too talented and creative to survive a single year in the corporate culture that now dominates.
Okay... so that's the critical miss of the OP.
Now, onto why shitty ideas get funding, it comes down to this...
The clear good ideas (such as nutrition planning for bodybuilders) have two issues. First, they aren't that good. They're things that obviously add value; that doesn't mean they're worthwhile businesses. They might not add value in a way that can make sufficient money to cover the costs. Many great ideas don't; that's why philanthropy and non-profits exist. Second and more importantly, they require some domain expertise (the "golden child" protege of some chicken-hawking VC can't run it; you actually need to know something to run the business-- one of the appeals of social media is that, because any idiot can run it, VC funding as a personal favor works in that space, whereas it wouldn't in biotech). This also means that those businesses have a well-defined domain, which VCs would denigrate as a "sandbox". In other words, lifestyle businesses. It will never be a billion-dollar concern, so why fund it? VCs aren't really trying to maximize their portfolio returns but their career returns which are tied to visible tokens of social access. Those career-making extreme black swans come once in a decade. It's not making a return for investors. It's about getting "in on" those once-in-ten-years deals. That's why the disgusting culture of co-funding and (almost certainly illegal, and clearly unethical) collusive note-sharing exists.
Consequently, VC-istan ends up funding the "who knows?" projects-- not the obvious good ideas (whose maximum yields are usually below beeelll-i-ons) and not the obvious bad ones-- but those that are so vague as to have no obvious maximum. This means they end up funding based on personality cults and "track record" (read: how well someone as peddled influence and credibility in the past) because no one under the sun is capable of assessing these red-ocean gambits.
It's not that VCs are drawn to terrible startup ideas. It's that they're drawn for variance for variance's sake because the only thing that actually matters to a VC's career (i.e. making Partner, then lateral hops all the way to Sequoia) is getting in on those extreme black swans (as I call them, black albatrosses). Funding a good idea that will reliably 5x is useless from a VC's career perspective.
It's easy to refute someone's post by inventing arguments that the post didn't make and then knocking them down. I think there's even a name for that technique.
Two arguments that this post didn't make:
(a) That the correct path for starting any company is to convince venture capitalists to fund it. In fact, this post seems downright derisive of that idea.
(b) That the way to take advantage of on-the-job experience at BigCo's is to convince them to do things differently while you're on staff there. No, that's not why you make friends with decision makers; you make friends with decision makers to learn what it is they need. Then you leave, and go build a product.
I'm almost positive that was dry humor, but in case it wasn't, and for other peoples' benefit (namely the parent), it's called building a strawman argument[1].
(a) That the correct path for starting any company is to convince venture capitalists to fund it. In fact, this post seems downright derisive of that idea.
Sure. My notes on the problems with VC (specifically, the career incentives on VC-istan that make it suck) were to explain why bad ideas get funded. I didn't think he was arguing that, since he was clearly going out against the VC-istan mentality.
(b) That the way to take advantage of on-the-job experience at BigCo's is to convince them to do things differently while you're on staff there. No, that's not why you make friends with decision makers; you make friends with decision makers to learn what it is they need. Then you leave, and go build a product.
He's still carrying the assumption that the dynamic, highly intelligent people who often end up in VC-istan (by default, because traditional corporate environments can't accommodate them) will be so far above the competition in these stodgy dinosaur companies that they get magically put on a protege track and get to "make friends with decision makers" and acquire the trust (in that company, or later on, as you alluded) to solve their problems. I argue that it's not that simple.
That's not the assumption he made; that's a third argument you may have (accidentally?†) made up just to knock down. It's not the case that the only way to find problems that BigCos will pay you to solve is to be smarter than everyone at the BigCo. You will almost certainly have a different tolerance for risk than any senior BigCo employee. It's likely you'll enjoy product development more than they will. It's almost certain that you'll enjoy the trappings of "brand new company" more than they will; Matasano's "brand new company" trappings were "desk at a library", followed by "attic of a print shop with no air conditioning accessible only by a freight elevator".
You also don't need to acquire the trust of BigCo decision makers to sell them products. You can learn about problems BigCo's have just by having routine conversations with the right people, and you can sell anybody a product if the product solves a problem for them at the right price.
Scott Wensing solves the White House Situation Room's "tracking devastating storms" problem. How much do you think Barack Obama trusts Scott Wensing? He has an account in StormPulse.
How much do you think Barack Obama trusts Scott Wensing?
Barack Obama cited Matt Wensing by name as an American innovator solving American problems in a public speech, but to your point, several years ago the decision to use StormPulse in the White House was made by a GS-whatever with a nondescript .gov email address, and it was certainly not made due to StormPulse's superior access to the Valley in-crowd. (Disclaimer: I invested in them.)
I'd argue that you can start smaller than that if you want to get in with decision makers.
Let me give an example. Typically, when people need a software solution and they are not executives, they go to whoever is in charge of such things and ask for a budget to acquire that service. The Human Resources and Accounts Payable departments deal with it, but an employee initiates the prompt. This is the underpinnings of SaaS models, and how they market to a lot of companies.
Let's say I was a waiter in a very inefficient restaurant, or better yet, I had experience for a few years in different restaurants. Let's say our waiter also happens to be a talented software engineer doing market research. He's well within a degree of separation from his boss, presumably, even if the restaurant he works at is part of a huge chain.
If he can justify solving a very important problem that's hemorrhaging money to his immediate superior, his immediate superior can go one step above himself and make a case for the software.
Not only is this possible, I have literally done this, which is why I have such a detailed example. You can go up the chain link by link without having to wait until you've physically climbed to the top.
Now, that said, I also don't agree with the premise of even needing to get in touch with decision makers. As long as you can verify there is an existing problem, and you can verify that it exists for a legitimate group of people who'd throw cash at you to solve it for their own business, you have a business model. Granted, that is not easy, but it's certainly an alternative to needing connections.
I think the author understands this and realizes that he's not suggesting startup ideas require people with extreme levels of experience. He didn't mean that you need to get in with the C level executives of a corporate culture just to be relevant to them - the entire argument about how easy it is, how blind they are to talent, etc. is irrelevant. He's not recommending that. He just wants people to have practical field experience so they understand their problems from the perspective of the domain - whether they are in the top, middle or bottom of that domain is not necessarily important.
Of note, the company I most recently founded absolutely fits into the "finding a problem that large companies have, build a solution, and sell it to them". I can also name a bunch of highly-profitable B2B companies in the insurance and lending spaces that fit into those same categories (Global DMS, Guidewire, and Eagleview, to name three).
So it's definitely not true that those opportunities don't exist.
OP:
If you want to come up with awesome, fundable ideas, go work for large companies with deep pockets that have old and archaic processes and few highly-technical and dynamic problem solvers. Identify the inefficiencies, make friends with decision makers, and then leave, build your solution, and sell it back to them.
Parent:
"That doesn't work. The theory is that these deep-pocketed dinosaurs are just waiting to get some top-1% talent to tackle their hardest problems. It's like they're sitting on their hands just waiting for smart, energetic people to solve their problems."
From what I've heard, this happens in (e.g.) pharma all the time. But, as you clarify in the rest of your comment, probably not at the "billion-dollar concern" level and not (from what I've heard) with massive VC funding/interest.
I think that part of the OP's point might be that every would-be founder shouldn't set his or her goals as "the next AirBnB" or "the next Facebook," because the path to "the next GNC" might look a lot different.
If you want to come up with awesome, fundable ideas, go work for large companies with deep pockets that have old and archaic processes and few highly-technical and dynamic problem solvers. Identify the inefficiencies, make friends with decision makers, and then leave, build your solution, and sell it back to them.
That doesn't work. The theory is that these deep-pocketed dinosaurs are just waiting to get some top-1% talent to tackle their hardest problems. It's like they're sitting on their hands just waiting for smart, energetic people to solve their problems.
There are a few issues there. First, the captains of those behemoths think they already have top talent, because they can't recognize it, and therefore end up giving their ears to salesmen. Saying, "you should listen to me instead of that idiot, even though I'm 23, because I am an actual 3-sigma talent" doesn't just work that way. Trust me. I've tried it. In an ideal world it would work, but that's not where we live.
You know how people hate "politicians" in the abstract (recognizing the incompetence of the class) but tend to be favorable toward their local representatives, on account of interpersonal charm? That's why investors and owners get robbed blind by idiots and scumbags. We think they just can't find people like us; in fact, those owners and investors think they already have people like us (even if they share our skepticism of management/executives in the abstract).
"Make friends with decision makers"? As if it were that easy. Smart people love to think that the people in power are just waiting for top talent to come and help them; in reality, the people in power think (usually incorrectly, but good luck convincing them of that) that they have more enough access to top talent as it is.
Genuine smart people have a hard enough time getting along in the Googles of world, which are still more tolerant of true top talent's idiosyncrasies than a typical MegaCorp. Just being smarter than the competition doesn't mean you automatically get put on some magical protege track and "make friends with the decision makers" and will be able to "better yet, get the company to invest in your new startup". Ha! If only it were that easy.
What built Silicon Valley back when it was great was a tolerance of people (true top talent, with the career-disrupting idiosyncrasy that implies) whom the current crop of VCs wouldn't give the time of day. Silicon Valley was built by people too talented and creative to survive a single year in the corporate culture that now dominates.
Okay... so that's the critical miss of the OP.
Now, onto why shitty ideas get funding, it comes down to this...
The clear good ideas (such as nutrition planning for bodybuilders) have two issues. First, they aren't that good. They're things that obviously add value; that doesn't mean they're worthwhile businesses. They might not add value in a way that can make sufficient money to cover the costs. Many great ideas don't; that's why philanthropy and non-profits exist. Second and more importantly, they require some domain expertise (the "golden child" protege of some chicken-hawking VC can't run it; you actually need to know something to run the business-- one of the appeals of social media is that, because any idiot can run it, VC funding as a personal favor works in that space, whereas it wouldn't in biotech). This also means that those businesses have a well-defined domain, which VCs would denigrate as a "sandbox". In other words, lifestyle businesses. It will never be a billion-dollar concern, so why fund it? VCs aren't really trying to maximize their portfolio returns but their career returns which are tied to visible tokens of social access. Those career-making extreme black swans come once in a decade. It's not making a return for investors. It's about getting "in on" those once-in-ten-years deals. That's why the disgusting culture of co-funding and (almost certainly illegal, and clearly unethical) collusive note-sharing exists.
Consequently, VC-istan ends up funding the "who knows?" projects-- not the obvious good ideas (whose maximum yields are usually below beeelll-i-ons) and not the obvious bad ones-- but those that are so vague as to have no obvious maximum. This means they end up funding based on personality cults and "track record" (read: how well someone as peddled influence and credibility in the past) because no one under the sun is capable of assessing these red-ocean gambits.
It's not that VCs are drawn to terrible startup ideas. It's that they're drawn for variance for variance's sake because the only thing that actually matters to a VC's career (i.e. making Partner, then lateral hops all the way to Sequoia) is getting in on those extreme black swans (as I call them, black albatrosses). Funding a good idea that will reliably 5x is useless from a VC's career perspective.