Entrepreneurs Are More Ideological Than Politicians

Posted on August 27, 2011
Filed Under Entrepreneurship |

There is a contingent to the Republican Party that believes there should never be any tax increases under any conditions for any person. There is a contingent to the Democratic Party that believes rich people never pay their fair share of taxes no matter how much they are taxed. They are absolutists, and don’t think about the complex nature of the political and economic landscape in which these decisions really have to be made.

I’ve lived in Boston for a year now and after meeting dozens of entrepreneurs, and hundreds of startup types, I must unfortunately say that most of them fall in the same category - absolutists. I constantly hear philosophies about how you can only win as a startup if you have a perfect product. Or how you can only win if you are quick to market and don’t worry about a perfect product. I hear about how you have to charge from Day 1 and never give anything away for free. I hear about how you have to give everything away for free at first and not squelch your traction by prematurely optimizing for monetization. I hear about how you have to rule with an iron fist as a CEO to be successful, and how you have to be a laid back CEO who stays out of people’s way to be successful. The people who espouse these beliefs rarely qualify, equivocate, or second guess them. They are absolutes. They are ideologies held as strongly as those in politics. But I think they are wrong.

Let’s consider a few examples. First of all, look at Apple. Designers in particular love to point out that Apple is the second most valuable company in the world and attribute that to their design culture and the pursuit of perfection. But it misses the point that Microsoft ate their lunch for the first 25 years of Apple’s existence, and it took Apple 34 years to pass Microsoft in market cap. What really happened is not that Microsoft or Apple had the right philosophy, but that they had the right philosophy to match the market at the right time. Apple beat Microsoft not because Apple or Microsoft changed, but because the PC market changed. Those of you over 30 probably remember a time when you did only buy a PC on specs because they all looked the same, and you remember that you wouldn’t have paid more for a sexy looking PC because they were already too expensive. It wasn’t until the price fell, and average performance far outstripped what the average user needed before people decided they wanted an iMac.

Dropbox is another company whose success has perpetuated the perfect product myth. Some people seem to think that Dropbox created the sync market, but the truth is, there were already a lot of players. The Dropbox team was smart enough to realize that sync products were clunky, and there was an opportunity for a perfect product to come in and take center stage. See a pattern yet? Perfect product strategies (and their cousins, beautiful design, easy to use, etc) work best in markets that already have some decent adoption and multiple players. The early players have clunky legacy technology that came from building the initial market before it was ready, so the market is ripe for a new and better player.

Free vs. paid is another area where people have strong beliefs. The mantra goes something like… “no one ever went out of business charging for their product.” Um… yes, some people did. Some of these entrepreneurs would never have built Google or Facebook because they would have charged for search or social networking from day one, and would never have gotten traction.

The flip side of course is that some companies hide behind their “free” ideology to disguise the fact that they have no business model whatsoever. They have a weak product that can’t be monetized through ads, and that no one would really pay for.

The truth is, the better way to think about companies is to use evolutionary models. Companies are organisms that are successful in various ecosystems, and the strategies that lead to success vary by the ecosystem. In fact, multiple companies can sometimes be successful in the same ecosystem using different, complementary strategies. Whether or not you get disrupted by a newcomer depends on how your ecosystem changes over time, and how you respond to that change.

In some ecosystems, first to market wins. In others, perfect product wins. In some ecosystems, market share matters. In others, it’s all about early profitability. Many entrepreneurs lose because they adopt the wrong strategy for their ecosystem and they refuse to change because they only believe in one way. And of course, luck and timing play a role as well.

My advice to anyone starting a company is this - cozy up to an industry where there is already lots of money, and that is undergoing some kind of interesting change. Figure out how to leverage that change to your advantage. The figure out what type of strategy you need to be successful. Think broadly, not ideologically, and you will have a much better chance of success. There are many paths to success, and they fall all over the map. Adopt the one that is right for your situation, and ignore the ideologues who say it can only be done one way.

Comments

3 Responses to “Entrepreneurs Are More Ideological Than Politicians”

  1. Don Johnson on August 29th, 2011 9:08 pm

    P.S. (prescript :-) Don’t reply to my email just yet or check my website because we still don’t have power in our section of Dedham, MA waaaahh!)

    Could these same principle of ecosystems apply to economies, social systems, countries etc.? Maybe sometimes its good to be Sparta and other times Athens, Brazil/Germany, GM/Google, China/US, Clint Eastwood/Woody Allen. In chaotic systems, there are attractors. Is there something similar in the human psyche? Are we doomed to polar, ideological thinking? Do we always have to choose between some version of Michele Bachmann and Barak Obama whether it be for C.E.Os or presidents?

  2. laurence haughton on August 31st, 2011 12:12 pm

    Sounds to me like you need to get out more (out of the high tech bubble and echo chamber).
    There are serious people who’ve been doing serious study and have come up with actual roadmaps for avoiding failure and improving the odds of success in organizations. There are some in high tech but many more are in other parts of the country and in other industries. You need to meet them before you settle on your path.
    No one has all the answers but collectively there’s a lot of value in their findings. Some even did their best thinking before we were born. Luckily they left us a record. It’s just not on today’s best sellers lists.

  3. laurence haughton on August 31st, 2011 2:03 pm

    Correction: I didn’t mean “you” as in you Rob. I know that you’ve gotten out and read more than most.

  • About Rob

    Rob is co-founder of Backupify.com. He likes value investing, the Rolling Stones, college basketball, artificial intelligence, economic history and people who think independently.