Black Swan Farming(paulgraham.com)
paulgraham.com
Black Swan Farming
http://paulgraham.com/swan.html
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Great essay. Enlightening, actually. A few somewhat provocative questions:
If you could theoretically "randomize" start up ideas, founders, business models, and every other primary ingredient in current "start-up theory", like a giant multivariate test... would we not see similar results to now?
Or similarly, if you closed your eyes and invested "blindly" how would you expect your results to differ (ROI-wise)?
It seems like investing results more closely resemble a lottery than a predictive model, based on your description.
Sort of a scary thought: what if current investment criteria (and therefore start-up goals) are largely irrelevant?
For example, IQ is distributed in the same way as winners and losers in start-ups. What if that is a key factor,(purely hypothetically, of course)?
In theory, shouldn't "good criteria" for investing generate progressively better results within smaller and smaller samples?
If you could theoretically "randomize" start up ideas, founders, business models, and every other primary ingredient in current "start-up theory", like a giant multivariate test... would we not see similar results to now?
Or similarly, if you closed your eyes and invested "blindly" how would you expect your results to differ (ROI-wise)?
It seems like investing results more closely resemble a lottery than a predictive model, based on your description.
Sort of a scary thought: what if current investment criteria (and therefore start-up goals) are largely irrelevant?
For example, IQ is distributed in the same way as winners and losers in start-ups. What if that is a key factor,(purely hypothetically, of course)?
In theory, shouldn't "good criteria" for investing generate progressively better results within smaller and smaller samples?
Reading this, I wonder if pg & co. have done an experiment where they do two sets of interviews for applicants: One to assess anything at all about their business, and another which is more or less a normal technical (or marketing) interview _without informing the interviewer about the applicant's potential business idea_.
This would basically be a test of the notion that "ideas don't matter", and it would allow you to correlate how even knowing a founder's idea might bias you towards believing they might succeed.
This would basically be a test of the notion that "ideas don't matter", and it would allow you to correlate how even knowing a founder's idea might bias you towards believing they might succeed.
Hi, I'm with Atlantic.Net cloud so I speak with startups quite frequently.
In terms of dialing up risk, I think you're looking @ it backwards. You have a finite life, which means you are slowly eroding to zero. You have nothing to lose by taking risk because you are already eroding towards zero.
Even worse, the remaining days you have left are a greater percentage of the remaining days in totality of your existence, so therefore each day is eroding FASTER than the previous one.
So, relatively speaking, you should be increasing risk over time in any case because the rate at which you are eroding is accelerating.
Basically, rather than looking @ risk as what you have to lose, really its about what you have to gain. There isn't any true risk because the end game is the same.
In terms of dialing up risk, I think you're looking @ it backwards. You have a finite life, which means you are slowly eroding to zero. You have nothing to lose by taking risk because you are already eroding towards zero.
Even worse, the remaining days you have left are a greater percentage of the remaining days in totality of your existence, so therefore each day is eroding FASTER than the previous one.
So, relatively speaking, you should be increasing risk over time in any case because the rate at which you are eroding is accelerating.
Basically, rather than looking @ risk as what you have to lose, really its about what you have to gain. There isn't any true risk because the end game is the same.
Excellent article, but this little section misses the mark slightly.
YC would be a pretty lonely place if we only had one company per batch. And yet it's true.
The point is that not only would it be lonely, it would also be impossible to pick that one perfect company per batch. (Well, not impossible, but vanishingly unlikely.)
And I think pg understands this well, as shown by the rest of the article - a person or investment team can't possibly pick that 1000-bagger without it being a complete lottery. So you invest in a large number, knowing that most of them won't do too much, a few will tank, and one in a hundred will be a grand slam that pays for all the others.
YC would be a pretty lonely place if we only had one company per batch. And yet it's true.
The point is that not only would it be lonely, it would also be impossible to pick that one perfect company per batch. (Well, not impossible, but vanishingly unlikely.)
And I think pg understands this well, as shown by the rest of the article - a person or investment team can't possibly pick that 1000-bagger without it being a complete lottery. So you invest in a large number, knowing that most of them won't do too much, a few will tank, and one in a hundred will be a grand slam that pays for all the others.
We think we have a good idea that seems like a bad idea:
http://hometract.blogspot.com/2012/09/connectwithcontractors...
Paul has described the problem very well and he also made a habit of insisting a startup needs to solve a real problem.
Now, I wonder whether the understanding of both aspects is enough to put him in a position to recognize founders on the other side of the table capable to provide a solution to random black swan farming?
Eventually more interesting is the question what would be his best guess from which field of science he expects useful outcome enhancing the criteria to make more educated decisions on founders?
Am I alone with the impression the essay sounds stucked?
Now, I wonder whether the understanding of both aspects is enough to put him in a position to recognize founders on the other side of the table capable to provide a solution to random black swan farming?
Eventually more interesting is the question what would be his best guess from which field of science he expects useful outcome enhancing the criteria to make more educated decisions on founders?
Am I alone with the impression the essay sounds stucked?
The important question is, can this be changed? Several processes involving randomness generates power law but with appropriate understanding and interference, these processes can yield either less drastic function or a bigger constant. The challenge is to understand exactly where, how and why our intuition fails and correct for that.
My takeaway seems to be don't apply to YC unless my startup has the potential to become a billion dollar company.
I can't think of any reasons why Dropbox would have 'seemed like a bad idea'.
OTOH I can't understand why it's so valuable either because 1)it seems pretty vulnerable to being replaced by something smarter.
2)I think there must be a lot of people like me who keep their storage below the free 2GB limit.
Now the question seems to be, based on this, will you alter the application process for YC? It currently seems to me to be more reliant on "have you often have you got on base," than, "are you swinging for the bleachers?" criteria. I hope you experiment a bit and share the results!
Investing in startups has become a giant ponzy scheme where the idea that can be transformed in a giant hype machine can bring more results as more people invest in the hype before the bubble bursts.
Facebook is useless, Airbnb will be gone in five years when more horror stories surface, as well as dropbox, today storage is so cheap anybody can have 20GB for free when buying a cheapo hosting plan. Even GAE gives you 10GB free, all you need is a piece of software.
So, etsy will last forever, facebook won't, amazon will, dropbox won't, godaddy will, airbnb won't.
Sometimes I think, investing a billion dollars in instagram is running a freight train loaded with money over a cliff.
That money would have been better invested in a new eBay (without auctions) that would last forever, empowering small merchants and providing a complete experience for ecommerce, from payment to delivery.
We already had enough with social, but the hype machine won't die just yet, so fuck investors, I hope they lose all their money and then blame the economy.
Facebook is useless, Airbnb will be gone in five years when more horror stories surface, as well as dropbox, today storage is so cheap anybody can have 20GB for free when buying a cheapo hosting plan. Even GAE gives you 10GB free, all you need is a piece of software.
So, etsy will last forever, facebook won't, amazon will, dropbox won't, godaddy will, airbnb won't.
Sometimes I think, investing a billion dollars in instagram is running a freight train loaded with money over a cliff.
That money would have been better invested in a new eBay (without auctions) that would last forever, empowering small merchants and providing a complete experience for ecommerce, from payment to delivery.
We already had enough with social, but the hype machine won't die just yet, so fuck investors, I hope they lose all their money and then blame the economy.
perhaps paul's intuition is right - there is something wrong here. certainly real world business success is not so binary as this.
if there is a 500 pound supposition in the room it's liquidity. if the only way an investor can achieve it is through a massive "event" such as an ipo or sell out then any otherwise successful company is a non-entity for investors.
if y combinator were holding securities with some liquidity it needn't devolve into a 20th century vc. there are many ways to achieve this, all disruptive yet also quite well suited for this institution and its community.
if there is a 500 pound supposition in the room it's liquidity. if the only way an investor can achieve it is through a massive "event" such as an ipo or sell out then any otherwise successful company is a non-entity for investors.
if y combinator were holding securities with some liquidity it needn't devolve into a 20th century vc. there are many ways to achieve this, all disruptive yet also quite well suited for this institution and its community.
The secret
of creating wealth
is identifying a solution
that will improve the world
and is not evident
before it does.
(http://on.fb.me/Pb3DeP)
(http://on.fb.me/Pb3DeP)
I heard Taleb actually run a portfolio called 'the Black Swan fund.' I didn't really think of it before but that pretty much what YC is.
I wrote the following email to PG some time ago, which I hope have helped inform the present essay.
----------------------------------------------------
1.
You know, I came across:
" I think they're not so much dense as bitter. There's a subset of HN readers who regard startups as a whole as a sort of con game, and are angry that the participants get so much attention. There may not be that many of them, but their anger makes them disproportionately active as commenters and voters. "
I want to tell you that I don't like the fact that you and ycombinator only look at immediate sales vehicles and hardly any big ideas, like Google or Skype. Mine is a Big Idea - it's not a sales vehicle. You almost have negative things to say about $100B market aspirations. And your results speak for themselves - smaller companies with no big vision.
That's what I don't like.
----------------------------------------------------
2. this was after leaving him this comment which I hope he also saw
(PG here on HN): Financially, as if you were an investor. They're the people whose job it is to evaluate startups' prospects, and they care above all about two things: the founders and the market. The founders should be relentlessly effective, and the market should ideally be of a size that can only be obtained by riding on trends beyond the startup's control (but visible to few besides the founders, or the market would already be full). Joining the young Microsoft, for example was a bet on Bill Gates and microcomputers, both of which turned out to be very good bets.
As a hacker you may be able to judge market bets as well as or better than many investors. E.g. I think HN readers knew Dropbox was onto something before most investors did. So if you go wrong it will be in judging founders. For many hackers, especially the unwordly sort, it's hard to distinguish true Bill Gateses from mere good talkers.
I wish I could offer some advice about distinguishing, but that would take a whole essay. The best simple hack I can think of is completely self-serving, but I'll offer it anyway: piggback on our filter. YC specializes in distinguishing between genuine Gateses and good talkers. We're occasionally fooled, but far less often than a typical hacker looking for a job would be.
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1 point by its_so_on 0 minutes ago | link | edit | delete
where's your Microsoft?
My only problem with your filter is that it filters out companies that genuinely have a plan to grow to revenues in the billions or tens of billions annually. This doesn't happen by chance alone, but through planning and commitment. That very commitment is a red flag for you and reason enough for you to say "no".
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3.
To drive the point home: it's almost impossible to adjust to investors like YC with a big idea. You can't sell what you have, however cheaply - which I think is ridiculous.
If you are holding a winning lottery ticket that is worth $20 billion and you need $500,000 to go and cash it, you would think that selling 7% of your company for the 500k amount is a no-brainer. Yeah, it's expensive, but so is taxes. You can live with 93% of the $20Billion. Expensive for you, not for the investor.
The ticket in this example is worth $1,400,000,000 (7% of the $20b) minus a bit of net-present-value calculation, and you are selling it for $500,000. This means the built-in return is 2800x or 280000%. Selling this share is very expensive for you, the owner of the company/holder of the winning ticket.
But would an investor like YC jump on this? No. An investor like YC will go ahead and take the step of applying a "0.000..% chance of successfully cashing" to the winning lottery ticket you hold. (If you are honest with them about what you will do and what you need to do it.)
NOT 1%, leaving an expected 28x or 2800% return (2800x built-in * 1%) from the 2800x or even 0.1% which would leave a 2.8x or 280% expected return (2800x * 0.1%) out of the built-in 2800x. But, exactly 0.000..% with unlimited precision. And then, obviously, in their estimation "it doesn't make sense to invest." (Even though in reality they have a built in 2800x return from the terms you are offering them. A cool 1.4 billion dollars basically for free.)
Then they will go ahead and say "no".
What is interesting is that you can show that the "0.00..%" they go ahead and apply to you really does have unlimited significant figures. If you were to hypotehtically need only $50,000 instead of $500,000 in this round you have to lie if you want their money.* The above calculation still produces a "no".
Yet another way to show significant figures in the 0.000%: if your winning ticket has 200b written on it (mine doesn't, mine has 20b written on it) it does not increase your chances of funding or interest in it. The 0.0000 that YC and several other "investors" apply really has that many sig figs.
So now you understand why I would never like to be associated with an outfit like YC. If I need money to cash my check, why would I ever want to associate with someone whose only M.O. implies they will go and apply a 0.000000000000% (infinite zeros) factor to it? I don't need that kind of tarnish. Where is YC's "Google"? Nowhere. They wouldn't touch a $200B or even $20B seed-stage company with a 200-foot pole.
* how can you build a $50b company from $50,000? Maybe you're an Indian-American entrepreneur and an able CTO and single founder, and you can get nearly unlimited high-quality output for peanuts, while personally overseeing it, from your Indian network. Then $50,000 is easily as much as $800,000 in the hands of a non-tech MBA who must first of all find a CTO and then insists on expensive labor.
----------------------------------------------------
1.
You know, I came across:
" I think they're not so much dense as bitter. There's a subset of HN readers who regard startups as a whole as a sort of con game, and are angry that the participants get so much attention. There may not be that many of them, but their anger makes them disproportionately active as commenters and voters. "
I want to tell you that I don't like the fact that you and ycombinator only look at immediate sales vehicles and hardly any big ideas, like Google or Skype. Mine is a Big Idea - it's not a sales vehicle. You almost have negative things to say about $100B market aspirations. And your results speak for themselves - smaller companies with no big vision.
That's what I don't like.
----------------------------------------------------
2. this was after leaving him this comment which I hope he also saw
(PG here on HN): Financially, as if you were an investor. They're the people whose job it is to evaluate startups' prospects, and they care above all about two things: the founders and the market. The founders should be relentlessly effective, and the market should ideally be of a size that can only be obtained by riding on trends beyond the startup's control (but visible to few besides the founders, or the market would already be full). Joining the young Microsoft, for example was a bet on Bill Gates and microcomputers, both of which turned out to be very good bets.
As a hacker you may be able to judge market bets as well as or better than many investors. E.g. I think HN readers knew Dropbox was onto something before most investors did. So if you go wrong it will be in judging founders. For many hackers, especially the unwordly sort, it's hard to distinguish true Bill Gateses from mere good talkers.
I wish I could offer some advice about distinguishing, but that would take a whole essay. The best simple hack I can think of is completely self-serving, but I'll offer it anyway: piggback on our filter. YC specializes in distinguishing between genuine Gateses and good talkers. We're occasionally fooled, but far less often than a typical hacker looking for a job would be.
reply
*
1 point by its_so_on 0 minutes ago | link | edit | delete
where's your Microsoft?
My only problem with your filter is that it filters out companies that genuinely have a plan to grow to revenues in the billions or tens of billions annually. This doesn't happen by chance alone, but through planning and commitment. That very commitment is a red flag for you and reason enough for you to say "no".
reply
----------------------------------------------------
3.
To drive the point home: it's almost impossible to adjust to investors like YC with a big idea. You can't sell what you have, however cheaply - which I think is ridiculous.
If you are holding a winning lottery ticket that is worth $20 billion and you need $500,000 to go and cash it, you would think that selling 7% of your company for the 500k amount is a no-brainer. Yeah, it's expensive, but so is taxes. You can live with 93% of the $20Billion. Expensive for you, not for the investor.
The ticket in this example is worth $1,400,000,000 (7% of the $20b) minus a bit of net-present-value calculation, and you are selling it for $500,000. This means the built-in return is 2800x or 280000%. Selling this share is very expensive for you, the owner of the company/holder of the winning ticket.
But would an investor like YC jump on this? No. An investor like YC will go ahead and take the step of applying a "0.000..% chance of successfully cashing" to the winning lottery ticket you hold. (If you are honest with them about what you will do and what you need to do it.)
NOT 1%, leaving an expected 28x or 2800% return (2800x built-in * 1%) from the 2800x or even 0.1% which would leave a 2.8x or 280% expected return (2800x * 0.1%) out of the built-in 2800x. But, exactly 0.000..% with unlimited precision. And then, obviously, in their estimation "it doesn't make sense to invest." (Even though in reality they have a built in 2800x return from the terms you are offering them. A cool 1.4 billion dollars basically for free.)
Then they will go ahead and say "no".
What is interesting is that you can show that the "0.00..%" they go ahead and apply to you really does have unlimited significant figures. If you were to hypotehtically need only $50,000 instead of $500,000 in this round you have to lie if you want their money.* The above calculation still produces a "no".
Yet another way to show significant figures in the 0.000%: if your winning ticket has 200b written on it (mine doesn't, mine has 20b written on it) it does not increase your chances of funding or interest in it. The 0.0000 that YC and several other "investors" apply really has that many sig figs.
So now you understand why I would never like to be associated with an outfit like YC. If I need money to cash my check, why would I ever want to associate with someone whose only M.O. implies they will go and apply a 0.000000000000% (infinite zeros) factor to it? I don't need that kind of tarnish. Where is YC's "Google"? Nowhere. They wouldn't touch a $200B or even $20B seed-stage company with a 200-foot pole.
* how can you build a $50b company from $50,000? Maybe you're an Indian-American entrepreneur and an able CTO and single founder, and you can get nearly unlimited high-quality output for peanuts, while personally overseeing it, from your Indian network. Then $50,000 is easily as much as $800,000 in the hands of a non-tech MBA who must first of all find a CTO and then insists on expensive labor.
I disagree with some of the meta-cognition.
Take the "seems like a bad idea" bit. Many of the big hits are really well-worn ideas done with better marketing, better timing, and a user experience which makes it available to new markets.
Dropbox? File sharing. Facebook? Geocities. Both are interesting in that they take something that was a giant pain in the neck but useful enough to put up with anyway, and then they make it usable enough that virtually anyone can do that stuff routinely.
But the meta-cognition isn't all that important. What's important is that they're getting out there and helping new companies learn and grow. They can be wrong all day (or not) about the why because they've developed a process which provably works, and which they can measure and improve upon.
Take the "seems like a bad idea" bit. Many of the big hits are really well-worn ideas done with better marketing, better timing, and a user experience which makes it available to new markets.
Dropbox? File sharing. Facebook? Geocities. Both are interesting in that they take something that was a giant pain in the neck but useful enough to put up with anyway, and then they make it usable enough that virtually anyone can do that stuff routinely.
But the meta-cognition isn't all that important. What's important is that they're getting out there and helping new companies learn and grow. They can be wrong all day (or not) about the why because they've developed a process which provably works, and which they can measure and improve upon.
History tends to get rewritten by big successes, so that in retrospect it seems obvious they were going to make it big. For that reason one of my most valuable memories is how lame Facebook sounded to me when I first heard about it.
As a thought experiment, I would love to hear what pg and team would have thought about the following companies, had they applied to YC before they grew in popularity (assuming YC existed when they were starting out):
PayPal, Twitter, Pandora, SalesForce, Instagram, FourSquare, and Pinterest. And perhaps a few others as well.
As a thought experiment, I would love to hear what pg and team would have thought about the following companies, had they applied to YC before they grew in popularity (assuming YC existed when they were starting out):
PayPal, Twitter, Pandora, SalesForce, Instagram, FourSquare, and Pinterest. And perhaps a few others as well.
There will be several self professed disagreements posted here citing very specific situations.
I still shake my head with AirBnB, a total ripoff of couch surfing. For it to be comparable in any way, shape or form to the innovative and beautifully executed Dropbox boggles the mind.
Is it possible that this is simply just the effect of a Bell Curve (i.e, the normal (Gaussian) distribution of a field)?
There is going to be nothing that will "explain" why or which companies could be the big winners. Trying to is falling into the narrative fallacy trap Taleb writes about.
Best strategy is to "win" in other ways, and let the cards fall where they may.
Best strategy is to "win" in other ways, and let the cards fall where they may.
The counter-intuitive nature of startup investing is a big part of what makes it so interesting to me. In most aspects of life, we are trained to avoid risk and only pursue "good ideas" (e.g. try to be a lawyer, not a rock star). With startups, I get to focus on things that are probably bad ideas, but possibly great ideas. It's not for everyone, but for those of us who love chasing dreams, it can be a great adventure.
Quoth pg: It would hurt YC's brand (at least among the innumerate) if we invested in huge numbers of risky startups that flamed out.
Paul, you're sounding like a venture capitalist who is worried about whether he can find investors for his next fund.
I would posit that the people whose opinions you should care about are potential founders; and that their primary concern is themselves, not the performance of a fund (oops, I mean class) as a whole. You're damn right that it would hurt YC's brand if 70% of each class didn't survive past Demo Day -- because for an individual founder, success is pretty much binary, and having a 50% chance of becoming a millionaire is more attractive than having a 5% chance of becoming a billionaire, despite the 100-fold reduction in mean wealth.
You may be in in the business of farming black swans, but if they're all you worry about you'll find that all the swans end up laying their eggs elsewhere.
Paul, you're sounding like a venture capitalist who is worried about whether he can find investors for his next fund.
I would posit that the people whose opinions you should care about are potential founders; and that their primary concern is themselves, not the performance of a fund (oops, I mean class) as a whole. You're damn right that it would hurt YC's brand if 70% of each class didn't survive past Demo Day -- because for an individual founder, success is pretty much binary, and having a 50% chance of becoming a millionaire is more attractive than having a 5% chance of becoming a billionaire, despite the 100-fold reduction in mean wealth.
You may be in in the business of farming black swans, but if they're all you worry about you'll find that all the swans end up laying their eggs elsewhere.
There's a pretty interesting lesson for potential YC candidates, particularly the ones that get turned down, here.
When you interview a startup and think "they seem likely to succeed," it's hard not to fund them. And yet, financially at least, there is only one kind of success: they're either going to be one of the really big winners or not, and if not it doesn't matter whether you fund them, because even if they succeed the effect on your returns will be insignificant.
What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in.
But you and your startup are in a different business: Your measure of success isn't the same as Ycombinators. If your startup ends up making you a million dollars a year you will probably be very happy and rightfully call yourself a success. But as the post points out that won't be enough for YC since they need to fund a lot of other startups that will inevitably fail out of their minority share. Thus they need a much bigger success.
If you get turned down for YC it might well be that your idea is just a sound business idea that YC doesn't consider just crazy enough that it might make them a billion dollars. But that doesn't mean that it won't make you a million.
When you interview a startup and think "they seem likely to succeed," it's hard not to fund them. And yet, financially at least, there is only one kind of success: they're either going to be one of the really big winners or not, and if not it doesn't matter whether you fund them, because even if they succeed the effect on your returns will be insignificant.
What this means is that YC is not looking for sustainable businesses, but homeruns. Which is entirely fair, that's the business they're in.
But you and your startup are in a different business: Your measure of success isn't the same as Ycombinators. If your startup ends up making you a million dollars a year you will probably be very happy and rightfully call yourself a success. But as the post points out that won't be enough for YC since they need to fund a lot of other startups that will inevitably fail out of their minority share. Thus they need a much bigger success.
If you get turned down for YC it might well be that your idea is just a sound business idea that YC doesn't consider just crazy enough that it might make them a billion dollars. But that doesn't mean that it won't make you a million.
"A Demo Day where only 30% of the startups were fundable would be a shambles. Everyone would agree that YC had jumped the shark."
The reason that angels and VCs show up is because YC is providing a service for them, so from their perspective you would have jumped the shark. Each angel only has so much money to invest, and VCs feel it's necessary to provide value-add in other ways, so because their ends don't scale I'm having trouble seeing this purely mathematical strategy benefitting anyone besides YC. If there were a way for follow-on investors to benefit in a way that helps improve the overall startup ecosystem then it makes a lot of sense, but I think that's a case that needs to be made that this essay didn't touch on.
The reason that angels and VCs show up is because YC is providing a service for them, so from their perspective you would have jumped the shark. Each angel only has so much money to invest, and VCs feel it's necessary to provide value-add in other ways, so because their ends don't scale I'm having trouble seeing this purely mathematical strategy benefitting anyone besides YC. If there were a way for follow-on investors to benefit in a way that helps improve the overall startup ecosystem then it makes a lot of sense, but I think that's a case that needs to be made that this essay didn't touch on.
Does it matter?
I remember hearing PG comment that as a founder you need just a few million from a startup. That's as true today.
Perhaps the relationship between exit valuation and wealth created is elastic. If the goal is to make wealth, perhaps lots of 10-100M startups has a bigger impact on society than a couple of billion-dollar startups.
I remember hearing PG comment that as a founder you need just a few million from a startup. That's as true today.
Perhaps the relationship between exit valuation and wealth created is elastic. If the goal is to make wealth, perhaps lots of 10-100M startups has a bigger impact on society than a couple of billion-dollar startups.
So is there value in increasing the class size every time around?
If there's only one winner in a class, at best, does it matter if the class is 10 or 50? 50 isn't going to give 5 winners, is it?
Is the idea that 50 gives a 5 times higher chance of finding the 1? Is that really true, though?
Would focusing on a smaller number of potentials actually be better for finding the 1? Thinking through the scenarios more thoroughly?
If there's only one winner in a class, at best, does it matter if the class is 10 or 50? 50 isn't going to give 5 winners, is it?
Is the idea that 50 gives a 5 times higher chance of finding the 1? Is that really true, though?
Would focusing on a smaller number of potentials actually be better for finding the 1? Thinking through the scenarios more thoroughly?
What strikes me about Dropbox and Airbnb more than anything is that they had incredibly strong growth strategies.
* Dropbox used rewards for more storage, as well as its fundamental file-sharing tools, to encourage users to sign up their friends and family.
* Airbnb gamed Craigslist [1] to encourage property owners to signup on Airbnb. With a strong supply of rental properties, Airbnb was able to build a true case for its value in the minds of travelers.
[1] http://venturebeat.com/2011/06/02/airbnb-admits-gaming-craig...
* Dropbox used rewards for more storage, as well as its fundamental file-sharing tools, to encourage users to sign up their friends and family.
* Airbnb gamed Craigslist [1] to encourage property owners to signup on Airbnb. With a strong supply of rental properties, Airbnb was able to build a true case for its value in the minds of travelers.
[1] http://venturebeat.com/2011/06/02/airbnb-admits-gaming-craig...
I wanted all of those services before they existed, which to me says that they never seemed to be bad ideas, unless you were unduly afraid of implementation/regulatory difficulties. It may not have been obvious which competitor was going to win, but it seemed likely without the benefit of hindsight that somebody would.
Facebook and Twitter seemed like fundamentally bad ideas to me at the time (in fact, they still do, but the world appears to disagree), and I just don't get instagram, but those are the exceptions that prove the rule.