21st February, 2021
This week, three things which are actually all about one thing ...
Image: @digitalmike on Unsplash
Q: When we consider the people that we recognise and respect, what do we base that on? How they identify? What they have done? Or what they could do?
I've been thinking a little about the labels we give ourselves and others.
To pick some random examples...
You are a cyclist. You have an expensive bike. Or, you ride regularly.
You are an entrepreneur. You call yourself an entrepreneur. Or, you started a business that makes $X of revenue, is growing Y% month-on-month with positive unit economics.
You are world class. You describe yourself as world class. Or, you compete with, and sometimes beat, the best in the world at what you do.
You run a social venture. You started a business that aspires to do something good in the world beyond just making a profit. Or, you have some evidence of the impact you're actually making (beyond just not making a profit).
You are environmentally conscious. You think somebody should do something about climate change. Or, you have calculated your own carbon footprint and taken significant steps to reduce it.
You are a leader. You're in a position of leadership. Or, people follow you.
You are a writer. You have a Substack (zing!) Or ... I dunno ... what is the non-pretender version of this? Perhaps it has something to do with having readers? Or is it enough just to publish something?
There are no doubt better examples. I'm interested in your suggestions?
To borrow an expression, many of these labels get "casually thrown around, like a frisbee at the beach", but the behaviours that should underpin them are far less common.
When I observe my teenage kids and compare their experience to mine, one of the things I think has become much more prominent is the role of identity. How they define themselves and how they define others has become much more granular and also, I think, much more important to them. Even fundamental things like gender (which expands to much more nuance than it used to), sexual preference, ethnicity etc etc. They seem to be in much more of a rush to define themselves in specific detail than I was at the same age1.
That's fine, and probably not something I could stop even if I wanted to. The beauty of identity, especially when you're still a teenager and so don't have much evidence to point at yet, is the rewards are immediate.
I've forgotten who it came from, but one of the best pieces of parenting advice I ever got was:
When you see kids doing something you like, say "you’re working hard" not "you're clever".
The former is using a "growth mindset" and is recognising and encouraging behaviour. As a result it is motivating over time. It teaches them they can improve, even if they can't do something yet. The latter is using a "fixed mindset" and is really just noting something you believe to be an intrinsic fact.
If you're interested in the science behind this, start with the research done by Carol Dweck:
Q: Why do we so often reach for labels we haven't earned, or more accurately, haven't earned yet?
Perhaps the answer to that is ...
The fight is won or lost far away from witnesses
— Muhammad Ali
It is a joy to be hidden, but a disaster not to be found.
— D.W. Winnicott
Why do those entrepreneurs who most often capture our attention predominantly come from the end of the spectrum that I'll politely describe as "Dodgy Real Estate Agent / Second-Hand Car Dealer"? And nearly always from the early-stage rather than growth-stage (using my earlier definitions)2.
These folks are easy to spot because they all have the same tell: the fake corporate persona.
They talk the way they think a serious business person should talk. And they dress the way they think a serious business person should dress. But there is always an uncanny valley. When they describe their business or their team it's always in terms that attempt to make it sound bigger and more impressive than it is. They love winning awards. And sharing news of how busy they are on social media.
The recognition that comes with all of that seems to be catnip for them.
It's tempting to just dismiss this reality, and think: it doesn't matter, let those folks be distracted by chasing media coverage, focus on the things you think are important, build a great business from a solid foundation, etc. To quote Steve Martin: "be so good they can't ignore you." I've been banging that drum for many years.
But, I worry that I'm wrong about this.
Maybe it does matter more who gets amplified (and vice versa who doesn't).
I've only recently put my finger on why: whether intended or not, the recognition we give these folks attaches credibility. Even if it’s not (yet) earned.
That crowds out others. If you don't have that recognition then you need to start from the very beginning in every new conversation you have - others are always thinking: who are you, why are you interesting, how come I've never heard of you, why should I even take the meeting? From experience, that's exhausting.
But, worse, this amplification can easily turn into a feedback loop that, in the end, creates a big gap between perception and reality.
A long, long time ago I did an Ignite talk that turned into this post, nominally about Father Christmas and Manuel Neuer and Bernie Maddof (younger readers can follow those links to catch up as needed) but was actually about start-up founders I’d observed:
Be aware that whenever you lie or cheat or spin, you allow a gap to develop between perception and reality. Sometimes the gap is small and doesn’t matter. Sometimes it starts small and grows bigger over time. Either way, this gap always closes eventually. It may happen quickly or it might take years. The bigger the gap and the longer you leave it open the more painful it’s going to be when it snaps shut.
I'm not sure we'll ever solve for this.
Those who are good at marketing themselves are always going to hog the headlines, because they make more interesting stories. And the temptation to “fake it until you make it” is huge. It’s easier to claim a label than earn it.
The link between attention and credibility feels like a strong chain to break too. Which means those who can are always going to be tempted to chase coverage and recognition.
But maybe we can collectively get better at stopping the feedback loops before they cause problems: by looking further through the façade to try and find the substance; by celebrating and rewarding achievement rather than identity; by applauding the pilot for landing the plane rather than for re-fuelling the plane; etc.
In the meantime, perhaps we could start by being a little less surprised each time gravity re-asserts its dominance.
Image: @jtylernix on Unsplash
One of the tropes that gets rolled out by investors whenever there is a high-profile start-up failure is:
"Most start-up investments fail".
Different numbers get wrapped around this - sometimes it's 80%, this week I even read 90%. But the intent is the same either way:
"Most start-up investments fail, but on average start-up investments succeed because the rare big successes more than cancel out the more common losses".
That logic works well in a spreadsheet.
Let's make up some numbers to demonstrate (and, yes, there is significant simplification in this example but hopefully it still makes sense)...
Imagine an angel investor who invests $20,000 each into ten different early-stage companies. Of those ten companies seven don't make it beyond the early-stages and return nothing, two are a moderate success and double the investor’s money, and one is a 🚀 that provides a 10x exit. So, overall, the $200,000 invested returns $280,000.
Not bad, right? Despite all of those "failures"!
Those might be the average conversion rates when you look at a very large pool of early-stage companies and ask how many of them go onto be a successful investment.
But there is a big flaw to this logic when it's applied to an individual investor... it completely ignores the importance of judgement.
Each of these ten companies is a discrete investment. If you don't have good judgement then it's much more likely that you will pick ten terrible companies which all fail for the same reasons, than that you will stumble across the big success that you need to make the maths work.
This is accentuated when you're not even trying - either investing in “hot” deals just because others have invested (on the nearly-always incorrect assumption that they have good judgement) or investing without ever asking for details of what you're putting your money into.
This is another drum I've been banging for years: if you blindfold yourself and then throw darts you can't really complain if none of them hits the bullseye!
I think that "Most start-up investments fail" is an unhelpful response, when considering an individual failure and trying to take lessons from it (that is the point, right - it's not about cutting down tall poppies, it's about trying to fall forward).
A much more interesting question to ask is:
Q: What were the characteristics of that particular company that caused it to fail?
Q: Do other companies like that sometimes succeed?
If the answer is 'no' then brushing off the failure with a statement that implies it's a component of a bigger success is deluded.
If the answer is 'yes' then it leads to an even more interesting question:
Q: What was different in this case?
Let's start there more often, rather than just assuming that we can somehow fail our way to success with a fixed mindset.
Top Three is a weekly collection of things I notice in 2021. I’m writing it for myself, and will include a lot of half-formed work-in-progress, but please feel free to follow along and share it if it’s interesting to you.
I think this reflects a trend in the world, and overall it's a huge net positive. We no longer expect everybody to confirm to a homogeneous "normal". There is room for people to be different, and that diversity makes us better.
But don't read that previous sentence as a "Mission Accomplished". There is still a lot more room to make. At the moment we still often pick fifteen loose forwards and I think it's going to surprise us how much better we play when we add some props, halfbacks and wingers to the mix.
Often the last we hear of an aspirant growth-stage company in the media is on the day they announce their capital raise. Sometimes with a follow-up when they crash and burn, but not always. But raising capital is literally the start of when things get interesting for a start-up. I'd love to see a journalist follow-up with every funding story 6-months or 12-months after it was announced and find out what actually happened. There is gold in them hills! I also realise this is probably impossible, since people are generally happy to tell their story in those moments where they have just raised new capital, when their potential is all ahead of them, than later when they would be judged much more on actuals.