It's a fallacy (though a very commonly held one) that if x% of people succeed at some task, the chances you will succeed are x%. That's only true for tasks where aptitude is not a factor.
While true, so, so much of your life is luck (or more accurately, good fortune through chance, only affected by positioning). While your chances may not exactly be 0.00006% that you'll succeed, I doubt that you can improve them to more than about 0.0001%.
Truly, we don't get where we get because of our capacity or our ability (in most cases). We get lucky, a lot, and we can't really change that.
For many people, that luck already happened based on who their parents are and what sort of upbringing they had. Someone born to middle-class American parents has a whole lot better shot at being a billionaire than someone born in the inner-city ghetto, or, for that matter, in rural China.
Much of the remaining "luck" comes from our choices. Think of it this way: how many people choose to work a steady job for all of their life. They will never be a billionaire, regardless of how lucky they get, and so their contribution to the average is zero. Actually, I suspect this invalidates your math: more than 1 in 2 people have probability zero of being a billionaire simply by virtue of not taking the chance of being one, and therefore of the people who take the chance, the odds are significantly better than 0.0001%.
Though it's still a bit early to say, it looks like the probability of a YC startup ending up worth a billion dollars is at least .5%. So the truth is somewhere on the continuum between (a) that you're off by a factor of 5000, and (b) that we improve people's chances by 5000x. And while it would be a great compliment if people chose extremum (b), I think it would be a stretch to claim we can improve the probability by even 10x.
You've just added information that will alter the probability. The prior can still be 0.00006% and the addition of new evidence (in the bayesian sense) of being admitted into YC could result in a posterior probability of 0.5%. (Sorta like using Series A as a filter.)
Yes, this is extremely simple, and I'm surprised to see intelligent people apparently confused over it. The percentage in the article is obviously referring to all companies, and more information will obviously alter the percentage. Are people genuinely confused by this, or are they just trying to discredit the article by feigning confusion?
This only adds (Bayesian) evidence to an abstract frame of knowledge that doesn't matter to anyone in real decision making processes: a frame in which the observer uniformly samples all startups.
People who actually care about these odds (in the sense of betting on them) are founders and investors. Neither, in their decision making process, gets to (or wants to!) uniformly sample all companies.
PG's numbers are thus much more useful to anyone actually trying to make a decision about a pool of investments: assuming the distribution of YC startups is fixed over time, and you are someone like Start Fund who will bet on the pool (i.e. equivalent to a repeated uniform sampling in expected value), the 0.5% is actionable information and the 0.00006% is not.
I don't disagree with you re:investors (or pg's numbers) who seek to obtain as much evidence as possible so as to maximize their ROI. But priors do matter.
For example, if the prior on "making a successful company" (defined however you want) were a vastly higher 40%, then I'd imagine a lot more laypeople would take the plunge. Reading sites like TechCrunch makes it seem to the layperson that building a successful company is much easier than it really is. So yes, knowing that "mega success" is a massive outlier (to the tune of 1:1,000,000) is indeed actionable information to a layperson thinking about starting a company without any additional evidence.
As the source article notes: The goal of the entrepreneur is to learn as much as they can, thereby increasing their own odds of success (or minimizing their odds of failure). Obviously, getting into YC massively improves your odds and would probably be a good decision! As a YC alum, my advise would jive with this observation. ;)
From another perspective, likelihoods like these depend on information. Every iota of market validation that is compatible with a $1B company improves the likelihood that you will create one.
If one factors in the 2-3% YC acceptance rate, and makes the assumption (that I admittedly haven't checked out) that no startups rejected by YC are now billion dollar companies, that closes the difference down to around 100x
If there are limited choices for resources and YC gets to choose the best options, then how much is actually attributed to being in YC vs. those startups having received mentorship? Out of the companies that will become or are billion dollar companies, how many already had their direction/focus and business model decided before joining YC? Correlation != causation, right?
We get lucky, a lot, and we can't really change that.
That depends on how, exactly, you define "luck". I posit that a lot of what people call "luck" can be manufactured, or at least cultivated through directed action.
Remember the article that showed up here a while back about "How to date a supermodel"? The premise was that if you want to date a supermodel, you have to move to a city where there are lots of supermodels, and hang out at the places where supermodels shop, work out, dine, etc., and you have to start conversations with supermodels, blah, blah..
So if one of you buddies shows up next year dating a supermodel, everybody is probably going to go "Dude, that's amazing, you are SO lucky!" And this will completely ignore the fact that he did a lot of things to create the opportunity.
It's SUCH a cliche, but I guess cliches exist for a reason, so I'll just come back to:
"The premise was that if you want to date a supermodel, you have to move to a city where there are lots of supermodels, and hang out at the places where supermodels shop, work out, dine, etc., and you have to start conversations with supermodels, blah, blah.."
Likewise, if you don't want to date anyone at all, you move to silicon valley and work on a startup!
You don't even need to move to Silicon Valley to do that! You can "date no one" in Raleigh/Durham, North Carolina, while working on a startup, quite effectively.
Supermodels are a special elite cohort of models. They are household names, people with instant recognition that can generate news articles simply by announcing that they are doing something involving your brand.
To date one you would need to be compatible with her lifestyle. That means highly successful or at least part of a similar industry like fashion or music. It means that you have to be somebody that can be announced in gossip columns as dating her. It has to be a good career move for her.
Naomi Cambel once walked past me while I was hanging out backstage at New York fashion week. Even if I had said hi there are still significant reasons why I am not now dating her.
And so it is with startups. Pedigree matters, the pedigree of your investors matters. Press matters and is heavily influenced by your position in the network. People in the game are deciding who the winners and losers are. Public perception is influenced by that.
Yes, this is like telling a newlywed that s/he has a 50% chance to eventually get divorced. True for the population, irrelevant for the individual. When one has a more direct knowledge of the relevant factors, it's crazy to make a decision based solely on into what demographics one falls.
> Yes, this is like telling a newlywed that s/he has a 50% chance to eventually get divorced.
FWIW, I really dislike it when people perpetuate the myth that 50% of marriages end in divorce. We actually have no idea what the true percentage is, and I think they myth got started because people compare the annual marriage rate with the annual divorce rage.
Also true! There's a small literature in philosophy that worries about paradoxes in this area. But regardless of how that turns out, it seems safe to say that you shouldn't avoid getting married because of divorce demography, and you further shouldn't think of your marriage's chance of success in purely demographic terms. You instead need to pay attention to features on the ground like how you handle disagreements, your sex life, etc.
Yes and no. The way the rate is calculated is relative, so the people getting married in a given year and divorced in a given year aren't necessarily the same people.
> True for the population, irrelevant for the individual.
Not necessarily, because people are notoriously bad at evaluating themselves, and often tend to assume that statistics (especially troubling ones) don't apply to them for whatever reason. For the divorce statistic (which I understand is not necessarily accurate, but let's pretend it really is 50%), how many of the divorced couples previously thought the statistic was irrelevant for them, because they're "truly in love" or some other reason?
You're right but you're speaking to the title of the article only which is unfortunate because the article is really good but the title itself isn't representative of it. Normally this wouldn't be an issue but with you being you it's the number one comment and now the entire conversation on hacker news is revolving around the title.
The article makes some really great points about solving meaningful problems vs starting a startup for it's own sake. It further makes great points about eliminating luck in the process and offers actionable advice on how to do that. I think that would be the subject of a much better conversation.
Agree and same as a statistic of chance of "getting hit by lighting" or any activities that doesn't take into account where someone is located or even whether an indoor or outdoor location.
For example are there any statistics on the chance of getting hit by lighting while playing golf outdoors with a storm within 50 miles? Vs. in general?
And what if you calculated the chance of starting a billion dollar company in Bentonville Ark (Walmart) which has a population of 38k (which no doubt was way less when Sam Walton decided to locate there). Not bad "odds".
No, it's true if you don't have more specific data regarding other factors like aptitude. It's no different than saying "if you live in the United States you have a life expectancy of 79 years." Obviously, with more information (are you obese? are you wealthy? do you have certain genetic predispositions to disease? etc.) each person can get a more specific life expectancy, but that doesn't change the life expectancy of the country.
Does 0.00006% factor in how many companies are started with goals that have no billion dollar potential? While any company may have an outlying chance of accidentally coming up with a billion dollar idea, most have business plans that would never scale to a billion dollar valuation no matter how well executed or lucky they are. I'm curious whether this statistic is only based on the success of those companies that are _trying_ to get there.
if i have 10 coins, 9 of which have 44.4% chance of heads and 1 has 100% chance, choosing a coin at random and flipping it has 50% chance of heads overall. sure, there is one outstanding coin.
the "fallacy" is true when you look at the whole rather than the individual factors, which include aptitude in some cases so i guess you're correct on the last point.
Color me dense, but I don't understand this point. The author clearly had aptitude to be successful, but if we were to randomly put a percentage on his aptitude that weighted him above the average, it would still probably be less than 0.00%
It means that statistics are useful until you try to apply them to an individual. While a statistic may hold true for an entire population, the converse does not logically follow for an individual. I think the fallacy may be "over generalization".
Correct. The value of statistics like these come in making generalizations, which require massive data sets to be applicable (hence generalization rather than specialization). It's akin to in baseball, an average of x% of pitches are hit for home runs. This will likely be fairly accurate over the course of the season across all players, but would not be a useful stat to look at in predicting what a pitcher would do at the plate (or an MVP level hitter for that matter).
Thank you very much for the breakdown! The connection to the article would be that we shouldn't overgeneralize a percentage of success for an individual?
One easy counter-example is "50% [well, technically a bit less, but ignore that for now] of humans are capable of getting pregnant. You are human. Therefore, there is a 50% chance that you are capable of getting pregnant." This ignores the fact that there is another very obvious discriminant - namely, sex - between people who are capable of getting pregnant and people who are not. If you are male, your chance is 0%, if you are female your chance is [close to] 100%, and it is fairly easy to tell without actually trying to get pregnant which one you are.
This also comes up all the time in data-science and A/B testing of products. Frequently you'll end up with results like "This change decreased revenue by 3%." Sounds bad, right? Except then you drill into your results and find out that there was a bug in the implementation of the change in IE6, which decreased revenue by 100% on that one browser which happens to be 5% of traffic, and find that your change actually increased revenue by a percent or two, but that one slice cost you all the benefit and more. You fix the bug and happily start making more money.
Always slice your population. Many times blanket probabilities tell you nothing unless you know what's causing them.
Right. An analogy would be saying "people who eat over 6000 calories a day are, as a rule, overweight". It's a logical fallacy to turn around and say "Michael eats over 6000 calories a day, therefore he is overweight". It's statistically very likely, but in this case Michael is a olympic swimmer with 10 gold medals. It's been a long time since my logic class in college, but the rule of 'statistics are great until you try to apply them to an individual' has always stuck in my mind. Probably because statistics are often one step removed from 'stereotypes'.
Your observation is only true if aptitude is an independently measurable quality. If the only way to measure aptitude is to say that those same x% of people must have it because they succeeded, then no, it is not a fallacy.
As someone in the business of measuring aptitude, I can tell you with some confidence that it is. (If it weren't, we could save ourselves weeks of effort each batch reading applications and doing interviews, and instead just choose randomly among the applicants.)
I certainly understand and respect your belief. But as far as I know, there is no objective proof that your filtering process is actually any better than choosing randomly. Consider a gardener who believes they can predict which seeds will bloom best. They select a few seed from a package, water and nurture them for weeks, then point triumphantly to the blooms and say, "See! They've done so much better than the ones I left in the package."
The competition factor is also very important: if the world population (and entrepreneurs) growth by 400% it is possible that the "same" few companies will reach the billion (adjusted by inflation)
Gompers et al published a paper in 2006 [1] which studied a database of "firms that have obtained venture capital financing" between 1976 and 2000.
Defining "'success' as going public or filing to go public by December 9 2003, "they find the overall success rate on first time ventures is 25.3%. Not surprisingly, serial entrepreneurs have an above-average success rate of 36.9% on their first ventures: venture capitalists are more likely to be more enthusiastic about financing a successful entrepreneur than one who has previously failed. It is more interesting that in their subsequent ventures they have a significantly higher success rate (29.0%) than do first time entrepreneurs (25.3%)."
Note that the 99th percentile of valuations in this data set was $131.5 million. Additionally, the data comes from a period of lower competition for "doing a startup". Finally, one must account for survivorship bias that would be present in a 1976-2000 data set of venture capital financing.
I would assume this headline is "of all companies for which founding papers are filed in America". That seems a poor statistic to use when 65% of Americans try to start a business at some point.
A more meaningful number might be % chance among companies who received venture funding. A funding event represents a concrete shift in probability of success.
Does anyone commenting here know the probability of, say, a $10M, $100M, and $1B exit after a Silicon Valley funding event (funding from recognized VC)?
13% of VC-backed startups exit for over $10M, 5% exit for over $50M, and 2% exit for over $100M, although there are many different studies with slightly different numbers:
They probably look less high if you compare them with the percentage of VC-backed companies valued at $10M, $50M and $100M in their last round of funding...
Couldn't agree more. Another factor that popped into my head: how many people start businesses with billion dollar aspirations? If you open a bike store, restaurant or mom-and0pop shop, chances are you aren't even trying to turn them into billion dollar companies.
In other news, meaningless statistics are up 17% in the past 24 hours...
A completely irrelevant headlines for such a nice article. Sad.
You lumped all start-ups together and struck a percentage. Did you consider that there are 1000s of people who are doing what they do not because they want a chance to build a billion-dollar company but rather a chance to providing real solutions to real problems?
People do what they do because they love what they do and as long as it is sustainable they want to be working on it without thinking about some mythical billion-dollar mark.
Almost all of these comments are about the headline, but the actual article is really good:
-Get rid of luck
“When you say you got lucky, you got lucky because you didn’t know what was going to happen. The corollary is, if you know what’s going to happen, then there is no luck. There’s also no uncertainty and no risk,” Friedberg says. “In this context, shouldn’t your objective be to always know what’s going to happen? To always remove the unknowns?”
You can see the world as one of superstition, luck, and magic, or you can see the world as one of logic and explainable order. Nassim Taleb had a few things to say about people using logic to explain random past events, and there is some truth to this as well (which incidentally is probably somewhat relevant to predicting nearly chaotic weather problems.) But, you can make manageable, hedged bets and discover truth to the reality today. The output will be a solved problem that makes customers happy.
There are more opportunities today than I have ever seen before. There are more tools for people to solve these problems than ever before. Look at waste, look for inefficiencies, and remove them even just a little bit at a time. You don't need to build a billion dollar company. But, if you do an excellent job at fixing that small problem, you might end up with a billion dollar company.
A lot of companies make money through introduction of waste, inefficiency, and confusion. They fatten their short term margins while erasing their companies long term viability.
You could just bottle water and add some government subsidized corn syrup to it.
Buy a billion bottles of water for a penny a bottle and sell it for $1.
Then instead of paying taxes, get checks from the government for pretending to hire people for decent jobs while keeping their wages so low that they have to use taxpayer funded food and medical assistance.
Not if you factor in opportunity cost, really. They could've spent that time making 6 figures at an already established company, instead they wasted their time on some bullshit for a tiny fractional chance of making any money
What you're neglecting is the psychology involved... for many of us, a combination of a simple desire to build something or even attempt to build something, is its own intrinsic award... and many of us simply cannot stand to have a "boss" in the traditional sense, and will take running a startup where we get to "call our own shots" to a greater degree, over working for $BIGCORP, even if the financial gains are smaller. Personally, I can say that I am absolutely miserable working as just another cog in the machine, as part of the typical big, bland, bureaucratic $BIGCORP. In fact, "miserable" doesn't even begin to go far enough. So if we can get this startup even to the point of being nothing more than a "lifestyle business" it's still a net win.
But really, you still do have a "boss" in the traditional sense, and don't get to "call your own shots" because you have investors and creditors. The whole startup scene is predicated on a narrative that is quite frankly bullshit
No, having "a boss" and having investors and creditors isn't the same thing. That's exactly my point. You can draw an analogy between the two, but that's all it is, an analogy.
A "boss" is one discrete individual who can show up, and say "do this" or "do that" and you have, effectively, no choice in the matter at all. You're under that person's thumb and if they micromanage you, you're fucked unless you quit.
With investors, there is less likely to be one person who has that kind of power, and depending on how much equity you've maintained, or how you've structured your board, there might not be anybody with that power. Having to be accountable to a group, in aggregate, is a different beast... and the point is, you're accountable for the outcome but you have a lot more say-so in the "how" and "what".
My probability theory is a bit weak so correct me if I'm wrong. Since each company you start is an "independent event" doesn't your probability still stay at 6e-5?
only if success (here defined as creating what becomes a billion dollar company) is iid. its probably not. if you've failed at starting 5 companies, the probability of succeeding at the next one is probably less than 0.00006%
Your conclusion does not follow from the premise. Couldn't the experience gained from starting the first 5 result in a greater chance of "success"? If failure is defined as anything less than 1 billion, it is particularly meaningless as an indicator of future success.
I imagine that many people on HN would wither in a six-figure corporate job, and virtually all are aware of the rarity of the $1B exit. I'd take a self-sustaining entrepreneurial situation over the day-to-day corporate grind any time. You're still a rare hero if your exit is $100M or "only" $10M. Even a $1M payout would put you ahead about twenty years compared to that corporate job, provided you don't live like it's your new salary.
I'm not sure that we can compare that to having a chance to win the lottery or get struck by lightening. There's a bit more than just luck in the whole equation, but luck is definitely a factor
"Just look at the numbers, he says: “There’s a 0.00006% chance of building a company that will grow to be worth more than a billion dollars. Even if you do raise money and sell a company or take it public, your median time to doing that is probably 49 months. Assuming there are three founders, your median expected payoff would be $300,000 each — that’s the equivalent of $73,000 a year. And the probability of making nothing is 67%. So if your motivation for doing a startup is financial reward, you’re better off going to Google, a hedge fund, choosing a career with stable income potential.”
I guess I'm curious how such an obvious typo could appear here. They mean 300m not 300k. But the rest of the paragraph is written in a "so what" way which seems to backup the "small" number.
That's what I figured when I read the article, but his math is still off. If there's a 0.00006% chance of success, that's roughly 1 in 2 million. So your average expected payoff would be $1B/2M = $500. Divide by 3, and it's $166/founder, or $40/year.
His math is very suspect in the first place, because 1 in 2 million is roughly what you'd get if you divide the number of billion-dollar exits by the population of the U.S. That's an odd way to slice it; if you want something more representative of an individual person's odds, you're better off dividing the number of billion dollar exits by the number of companies started that believe they have a shot at a billion dollars (which might be in the tens to hundreds of thousands, but certainly not 2 million), and then you end up with figures roughly equivalent to his AEPs, but that ignores that many of those founders are college or grad students and the outcome is getting that job at Google after all.
Yep, the math makes no sense if you assume the two options are 0 or 1B. I guessed that he was using the actual outcomes of the entire spread- considering that he references the 67% chance of $0 shortly thereafter, it is clear he doesn't think the other 99.999.... percent result in $0.
Even if my excuses for him are correct, I think you all have made a valid point that this is not a really productive way to measure :) Nonetheless, the lesson "don't start a company to get rich" is, I think, a good thing to say.
I don't see how to fit in the word "expected" into what he is saying.
He says:
"Even if you do raise money and sell a company or take it public"
Given that statement "sell a company or take it public" it would appear that we are definitely talking about people that have gotten to a particular point (where the group narrows quite a bit). Not the chance of getting to that point after starting a company.
For sure the probability is low for getting to the point of taking your company public (or selling) but once you take your company public in no way could he be arguing that the economic benefit is only $300k. Something doesn't make sense here.
It seems to me that the claim he makes re $73k per year is misinterpreting the study he is basing it on.
His claim: "Even if you do raise money and sell a company or take it public, your median time to doing that is probably 49 months. Assuming there are three founders, your median expected payoff would be $300,000 each — that’s the equivalent of $73,000 a year."
From Pg. 2 of the Hall/Woodward paper: "Our most important finding is that the reward to the entrepreneurs who provide the ideas and long hours of hard work in these startups is remarkably small, once risk is taken into consideration. The contract between venture investors and entrepreneurs imposes the burden of the idiosyncratic risk of a startup on its entrepreneurs. Far from shifting the risk toward the diversified investors, the contract exacerbates the risk the entrepreneurs face. Although the average ultimate cash reward to the entrepreneurs of a company that succeeds in landing venture capital is $9 million for the group, most of this expected value comes from the small probability of a great success. With a coefficient of relative risk aversion of 2, the entrepreneurs would sell their holding as of the time they receive venture funding for about $900,000 to avoid the undiversified risk of their claim on the company.
It seems to me that this $900k figure (which is the basis for the $73k per year figure) is based upon a scenario where the entrepreneurs sell "as of the time they receive venture funding" and not a scenario where "you do raise money and sell a company or take it public." Isn't the $900k figure referring to a risk-adjusted founder sale a much earlier stage in the process?
Also, from page Pg. 20 of the Hall/Woodward paper: "The median time from first venture funding to exit in our data is 49 months. We do not have data on the typical number of entrepreneur-founding shareholders, but we believe that three is probably representative. The return based on the $900,000 figure is a little over $6,000 per entrepreneur-month. The extreme idiosyncratic risk of venture-backed entrepreneurship and the inability of the venture contract to insure entrepreneurs against the risk result in a tiny incentive facing a prospective entrepreneur."
This article turned out to be a lot more than I expected. From the headline, I was expecting more of a "buzzkill" article, full of negativity and basically saying "don't bother trying". But it is actually more of "Yeah, the odds are very against you, but, nonetheless, here are some ways you can optimize things to favour you as much as possible".
The part about "The Grind" reminds me a bit of the classic pg essay: "How Not To Die".[1] (My personal favourite, out of all the pg essays I've read).
I love this pg quote, as it's full of inspiration and is about as motivating a quote as I know:
"If you can just avoid dying, you get rich. That sounds like a joke, but it's actually a pretty good description of what happens in a typical startup. It certainly describes what happened in Viaweb. We avoided dying till we got rich."
It seems silly to me that people spend money on spurious insurance. You're effectively betting in a Casino (you're not the house). Unless you think you have some sort of edge on their team of actuarials, or you think you're an outlier (w/ exceptionally bad circumstances), you're better off keeping the premium (along with its expected profit).
I suppose if you want to be super technical, you should weigh the risk/reward factor of the profit margin in the costs and the value that would be paid out. I'd argue few of us are capable of doing that math well, nor would it be profitable to spend our time doing it (because we have a business to run/build)
In my case, the only insurance I carry is that which is required by law, or offered for "free" (eg, employer paid insurances). I'd still prefer to have my money. I'm betting that Im quite normal.
The insurance isn't necessarily "spurious" if the adverse weather is an existential risk to the business, which it might be for farmers in particular. Sure, you might be better off saving to cover predictable small losses to one crop from a bad winter every few years, but it's probably practical to cover the one in 30 year drought that kills everything. You'll regret bankruptcy if the drought dries up your bank balance before you've saved enough to cover the risk so much more than the opportunity cost of paying out premiums for a drought free half-century.
Similarly, paying hefty premiums to insure cheap consumer goods like mobile phones that you could replace for the cost of 12 months premium plus excess isn't a smart move unless you're especially clumsy, forgetful or liable to be mugged. But a non-wealthy person not getting affordable insurance for lifesaving treatments[1] is crazy (even after factoring in the insurer's margin, and interest on savings you're still gambling on your lifetime treatment costs being not much above the average for a person like you and the bills not coming before you've saved enough - two things which your insurer doesn't care about at all if he's pooled risk well enough.) Not playing Russian Roulette also has a negative ROI...
[1]or living in a country with decent public healthcare
You would go uninsured rather than get catastrophe health insurance? You do realize that in America an uninsured trip to the emergency room with trauma means bankruptcy.
Farmers hedge risk for the same reason. A cash crunch could put them out of business. But now that I think about it I can't guess what this weather insurance offers farmers that the commodity futures markets don't.
I think you hit on the breaking point for me. The point is even if I went bankrupt I could come back. But if I cant afford the surgery that saves my life, there's no coming back (that I'm aware of). So yes, when I travel abroad I do buy health insurance. But I dont carry tenants insurance (for my possessions) or buy other insurances... I guess if I were so leveraged like a farmer I'd have more fear. But i have almost exactly $0 debt at any given time meaning even if I were to lose my job, I'd be fine.
If I had 4 kids and a mortgage and a tractor payment and... and.. debt and leverage, I guess I'd be a lot more worried.
More accurately, if you randomly select a company ex post from the sample used to make that headline, the probability of said company having been sold for 1B USD is 0.0000006.
With the same conditions, the probability of the sperm that made you getting to the egg, however, was in the interval [0.000000001, 0.00000002]. This, by the way, means the probability of this particular combination of unique human beings alive today is somewhere around 1e^(-1.28e^11) - that is a "0." followed by approximately 128 billion zeros before you hit another number. The probability is so small that writing it out at one digit per second, without sleeping, would take approximately 4000 years.
And yet here we all are.
Don't make the mistake of thinking that any of that actually means anything beyond what it literally says.
Great article, although it probably should be titled something like, "How to build a company solving hard problems".
Very inspirational for my side project, AutoMicroFarm (http://automicrofarm.com). One thing my co-founder and I will do this week is break down the problem we're solving into known unknowns, and figure out a way to get them into the "known" category quickly and efficiently, so we can "grind and innovate" faster/cheaper.
Elon Musk must be super lucky --> .00006^3 = 2.16e-13 (although this calculation assumes the chances are completely independent, which studies have show, they are not)
Right, that's just a prior. His probability is much higher given that he had two prior exits, is incredibly intelligent, his network is vast and resourceful, etc.
Very much off-topic, but he's an anomaly in many ways...eg, I was incredibly amazed to learn that he and his former wife had twins and triplets. Wonder what the chances of that are. :)
It is an interesting article and I agree with the subject matter (just wanting to do a startup is not reason enough), but I wanted to comment on the title: 0.00006% is a prior distribution. I wouldn't be surprised if the success rate posterior goes up an order of magnitude with something as minimal as a 4 year degree. Which is still a really small number...but it drastically changes your expected value.
There is a good analysis of this in Felix Dennis' book (How to Grow Rich). I don't remember what number he came up with, but after narrowing things down he clearly showed that the chances of success are actually far higher than the prior distribution.
Felix Dennis is such a refreshing and honest break from all the ditzy California "change the world" and "passion" fluff. If I recall correctly he opened up with the following quotation:
"Get place and wealth, if possible with grace; If not, by any means get wealth and place."
--Alexander Pope
Or something like the type of business. A local service-based business like a hair salon, diner or hot dog cart shouldn't even be considered as a business that has the possibility of being worth a billion dollars. If this is based on total number of registered businesses, removing the large number of established small businesses that have been in business for X years would help arrive at a better number.
"Saying you’re going to do a startup or you want to be a ‘serial entrepreneur’ has about as much meaning as saying ‘I’m going to jump off a plane.'"
I'd actually posit that saying you're going to jump off a plane has a lot more meaning than saying you're a serial entrepreneur. At least most folks have a grasp of what it means to literally jump off of an airplane.
This headline is just self-serving. The article is about a $1B company, and this headline is simply a strawman to tear down. The rhetorical "synopsis" here is that (1) sucess is impossible; but (2) oh wait, i just did that without breaking a sweat. Here is my 3 step solution to success {...}
Good point in the article about how people should not start a startup by saying they are going into startups. Many of my friends (including myself) made this mistake :P Problem, Solution, and then the rest ...
If you are a founder in a company that sells for a billion dollars, and you only come out of it with 300,000, that's an almost criminal level of incompetence.
That's .03%. Assuming you start from some whole number of percentage ownership, it's almost impossible to get diluted that low. You would need something like 10 rounds of 50% dilution.
