The lies we tell ourselves. “I’ve learned more from my failures than my successes”

One of the things I’m fascinated by are the small lies we tell ourselves. They usually take the form of aphorisms that seem to be true. Or more to the point, they have an important subtle message, but they’re perceived as whole truths. And, often they’re so ubiquitous we don’t even give them a second thought. But, these small lies end up having a pretty distorting effect on our behavior or our perceptions.

One example of this is the statement “life is short.” I hear it all the time. I understand why people say it. What they mean is “live life to the fullest.” But we don’t say that. We instead say “life is short.”

Of course, life is not actually short. For most Americans life is actually long (knock on wood). Average male lifespan in the US is 75 and average female lifespan is 80. But, when you internalize, literally, “life is short”, you can lure yourself into behavior that is harmful (especially financially) where you play for the short term when you need to play for the long term. Einstein is famously thought to have said that the most powerful force in the universe is compound interest. I believe that our dual misunderstanding of “life is short” and our inability to appreciate the value of compounding combine to lure people to make very bad investing decisions.

In the world of entrepreneurship I think the most dangerous lie we tell ourselves is “I’ve learned more from my failures than my successes.” It’s simply not true and I want to talk about why.

What I believe IS true is the statement “I’ve developed more CHARACTER from my failures than my successes.” But, I firmly believe we LEARN more from our successes by far.

Let’s look at the data first. In the paper “Performance persistence in entrepreneurship” (PDF), Josh Lerner and his collaborators at Harvard University demonstrate that the success rate of a first-time venture-backed entrepreneur is about 18%. If that entrepreneur fails and tries again with another company, their success rate only improves to 20%. Not much. BUT, if that entrepreneur succeeds in their first company, their success rate for their second venture goes up to 30% — over a 65% improvement in expected outcome.

Why might this be? In my opinion it has to do with how large the information space that gets explored by a company over its lifetime. Let’s imagine an entrepreneur makes 5 decisions per day (some big, many small, and involving all sorts of things from partnerships, product features, marketing, hiring/firing, and how to allocate everyone’s time). Over the course of 3 years, that’s a HUGE decision tree with a massive number of potential paths (roughly 5^750 unique paths assuming a 50 week year and a 5 day workweek). 5^750 is this number, fwiw.

168850850305727091395186825713912447112441058150046927050324723890449107812858660398554055697372954299116776644433651870505231901712461662116793144847950712000881086630220426140201590160287572958546330981647561466586019225296753645395632352672757468805020446337326822341458269676821758973637253679519824654862828260183804589283422795141880659376822043675041721215149214186959669079228162626416267478638199550182946764747764607788135575613004500768632174606656508945368003981851086369760095440284430878818966448307037353515625

If you fail, all you know is that the particular path you took through that decision space didn’t work. But, it really doesn’t tell you much about which of the other paths might work.

But, if you succeed, you’ve created a pattern for success; a guide through that huge information space that can give you a sense of where to go next time. It helps you understand, at an intuitive level, what feels right and what feels wrong. In essence, it gives you what everyone calls a “gut feel” for success. And, it’s why venture capitalists hone in on past successes much more than past failures.

One of the things I tell folks who are early in their careers and who are thinking about joining a startup is “don’t go to a raw startup of 3-4 people. Go to a place that has perhaps 30-50 people and where there is a sense of momentum in the business.” The reason I say this is that I think it’s immensely valuable for people to participate in a pattern of success. That will shape the way you think and make you immensely more valuable to the next startup you go to or start yourself. The most important thing you can develop early in your career is a gut for what success feels like. The only way to do that is to be part of something successful.

So, please don’t tell yourself that you’ve learned more from your failures. We all get character from our scars, but we learn far more from our successes.

I’m writing again. Shhh don’t tell anyone…

Inertia is a powerful thing. You think you’re just taking a little break from writing and then 7 years go by. But, I’m giving it another whirl. In general, I’ll be writing about entrepreneurship and the ideas or tips that I’ve found useful along the way. And, while I’m no longer an active entrepreneur, my companies sometimes refer to me as the “reluctant VC” because I still think of myself as founder first and foremost.

As I was moving over my old posts from “Bnoopy” to this new blog, I realized just how dated some of my old posts felt (yes, they are 7 years old at this point). They are definitely from a certain time and a different startup environment. And while I thought about not including them, I couldn’t bring myself to eliminate stories like meeting Bill Gates at a urinal or how I learned firsthand that persistence is the #1 skill in entrepreneurship.

So, here goes. Bear with me as the rust comes off.

It’s a great time to be an entrepreneur

There’s never been a better time to be an entrepreneur because it’s never been cheaper to be one. Here’s one example.

Excite.com took $3,000,000 to get from idea to launch. JotSpot took $100,000.

Why on earth is there a 30X difference? There’s probably a lot of reasons, but here are my top four. I’m interested in hearing about what other people think are factors as well.

Hardware is 100X cheaper
In the 10 years between Excite and JotSpot, hardware has literally become 100X cheaper. It’s two factors – Moore’s law and the rise of Linux as an operating system designed to run on generic hardware. Back in the Excite days, we had to buy proprietary Sun hardware and Sun hard drive arrays. Believe me, none of it was cheap.

Today, we buy generic Intel boxes provided by one of a million different suppliers.

Infrastructure software is free
Back in 1993 we had to buy and continue to pay for maintenance on everything we needed just to build our service — operating systems, compilers, web servers, application servers, databases. You name it. If it was infrastructure, we paid for it. And, not only was it costly, the need to negotiate licenses took time and energy. I remember having a deadline at Excite that required me to buy a Sun compiler through their Japanese office because it was the only office open at the time (probably midnight) and we needed that compiler NOW.

Compare that to today. Free, open source infrastructure is the norm. Get it anytime and anywhere. At JotSpot, and startups everywhere you see Linux, Tomcat, Apache, MySQL, etc. No license cost, no maintenance.

Access to Global Labor Markets
Startups today have unprecedented access to global labor markets. Back in 1993, IBM had access to technical people in India, but little Excite.com did not. Today, with rent-a-coder, elance.com and just plain email, we have access to a world-wide talent pool of experts on a temporary or permanent basis.

SEM changes everything
Ten years ago to reach the market, we had to do expensive distribution deals. We advertised on television and radio and print. We spent a crap-load of money. There’s an old adage in television advertising “I know half my money is wasted. Trouble is, I don’t know what half”.  That was us.

It’s an obvious statement to say that search engine marketing changes everything. But the real revolution is the ability to affordably reach small markets. You can know what works and what doesn’t. And, search not only allows niche marketing, it’s global popularity allows mass marketing as well (if you can buy enough keywords).

So What?
It’s nice that it’s cheaper, but what does it mean to entrepreneuring?

More people can and will be entrepreneurs than ever before
A lot more people can raise $100,000 than raise $3,000,000.

Funding sources explode which enables more entrepreneurs
The sources of funding capable of writing $100,000 checks are a lot more plentiful than those capable of writing $3,000,000 checks. It’s a great time to be an angel investor because there are real possibilities of substantial company progress on so little money.

More bootstrapping to profitability
With costs so low, I think you’ll see many more companies raise angel money and take it all the way to profitability.

Higher valuations for VCs.
And, for those that do raise venture capital, I think it means better valuations because you can get far more mature on your $100,000 before you go for the bigger round.

All in all, it’s a great time to be an entrepreneur.

Personal – Joining the EFF Board

Well, normally this isn’t a forum for personal announcements, but I thought this one worth making an exception for.

I’ve joined the board of the Electronic Frontier Foundation (EFF).

For those of you not familiar with the EFF, they are a non-profit digital civil liberties group. Put simply, if you like the internet and the freedoms you currently enjoy to create content and new technologies without having to ask permission, this is a group you should know about and support.

I’ve been passionate about digital copyright reform for a long period of time and even started DigitalConsumer.org, which was a 50,000 member strong non-profit lobbying group in Washington to fight for consumer technology rights.

Now, I’m honored to be a part of an organization that is making a huge difference in this debate. Thanks for inviting me, EFF!