Ben Horowitz: We Like Dropouts, Insane Ideas, Tiny Markets, No Way To Monetize(techcrunch.com)
techcrunch.com
Ben Horowitz: We Like Dropouts, Insane Ideas, Tiny Markets, No Way To Monetize
http://techcrunch.com/2013/01/20/ben-horowitz-at-dld/
26 comments
Flash Forward seven years - tsm is now the CEO of the world's largest machine-generated entertainment consortium, with their LISP generated performances routinely topping the charts across the planet.
Exactly - music in the future will be algorithms. (Edit: to clarify, I mean instead of something like an MP3, you could download an algorithm that creates music on the fly. Why bother with recordings when you can have the live composer?)
There's something about that last statement that blew my mind. your own personal composer, writing your own personal theme music, specifically designed to catch your current mood, or even modify it.
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That's the title, but in the text he says "an order of magnitude better". There's also a primary filter that the founder believes it has commercial potential.
I'd like to call this "Black Swan Hunting".
The idea seems similar to purchasing (wholesale) a crate full of swans (some of which might merely be dyed black) in the hopes that one of them will be a genuine black swan.
In many ways, this isn't a new idea. How many car collectors have dreamed about answering a classified ad for an "old car in the barn" only to have it turn out to be a Bugatti Type 57SC Atlantic? But the reality is that 99.99% of the time, it's a rusted out Buick.
It's true we need these "diamond in the rough" hunters out there, and I must admit that if I had many millions of dollars I would probably set up just such a "Black Swan Fund", but I've always imagined that I would style it after the various X-Prize-type competitions that became popular starting around the middle of the last decade. It seems to me that most such ideas can be funded "a step at a time".
The other way to do this would be to consider it as artistic patronage. That way you wouldn't expect a return on your investment other than the creation of something that might not have been there before. Of course you still keep a nice chunk of any potential earnings just in case you get lucky. :)
The idea seems similar to purchasing (wholesale) a crate full of swans (some of which might merely be dyed black) in the hopes that one of them will be a genuine black swan.
In many ways, this isn't a new idea. How many car collectors have dreamed about answering a classified ad for an "old car in the barn" only to have it turn out to be a Bugatti Type 57SC Atlantic? But the reality is that 99.99% of the time, it's a rusted out Buick.
It's true we need these "diamond in the rough" hunters out there, and I must admit that if I had many millions of dollars I would probably set up just such a "Black Swan Fund", but I've always imagined that I would style it after the various X-Prize-type competitions that became popular starting around the middle of the last decade. It seems to me that most such ideas can be funded "a step at a time".
The other way to do this would be to consider it as artistic patronage. That way you wouldn't expect a return on your investment other than the creation of something that might not have been there before. Of course you still keep a nice chunk of any potential earnings just in case you get lucky. :)
> I would probably set up just such a "Black Swan Fund"
I think that's what venture capitalists already do.
They place lots of "small" bets. They lose money on most of them. But a small percentage do very well, and those investments "make the fund" -- that is, they cover all the other losses and create an overall profit.
I remember when Andreessen Horowitz launched, to great fanfare.
What was their revolutionary plan? To focus on investing in companies that would turn them a profit.
And people were slapping their foreheads as if this were some great revelation. "Of course! VC has been run as a charity!"
It's like saying "I am going to start a horse racing fund. I will only bet on the winning horses".
That's not a statement of investment strategy. It's a statement of wishful thinking.
I think that's what venture capitalists already do.
They place lots of "small" bets. They lose money on most of them. But a small percentage do very well, and those investments "make the fund" -- that is, they cover all the other losses and create an overall profit.
I remember when Andreessen Horowitz launched, to great fanfare.
What was their revolutionary plan? To focus on investing in companies that would turn them a profit.
And people were slapping their foreheads as if this were some great revelation. "Of course! VC has been run as a charity!"
It's like saying "I am going to start a horse racing fund. I will only bet on the winning horses".
That's not a statement of investment strategy. It's a statement of wishful thinking.
The "Entrepreneurial Business Fundamentals" class I'm taking right now made an analogy of success as starting a fire, and described this type of startup as "waiting for lightning to strike." It's an extreme end of the venture capital risk/reward curve. The stated purpose of the class is to teach a more consistent way of starting a fire (making sure the business fundamentals line up).
I'm concerned about the ethical implications of glamorizing and advertising this style of venture capital, though -- it may entice young people who otherwise wouldn't do this type of thing to make incredibly risky life decisions for a really low chance at being the lightning that strikes. The investor might lose $20k or something on their angel investment, but the young person might screw up their life. It feels extremely exploitative to me. I understand that it would ultimately be the young person's decision to go through with it, but would they have done so if it wasn't glamorized by articles like this?
I'm concerned about the ethical implications of glamorizing and advertising this style of venture capital, though -- it may entice young people who otherwise wouldn't do this type of thing to make incredibly risky life decisions for a really low chance at being the lightning that strikes. The investor might lose $20k or something on their angel investment, but the young person might screw up their life. It feels extremely exploitative to me. I understand that it would ultimately be the young person's decision to go through with it, but would they have done so if it wasn't glamorized by articles like this?
Actually it was not argued early on by analysts that Amazon would have a hard time being profitable. It was argued that they would be a lot more profitable than traditional bricks & mortar because they didn't need the physical stores. That was supposedly one of their great competitive advantages. This was an almost universal claim during the early years of Amazon when the bubble was in full sway.
It was only years later, toward the end of the bubble and after it, that the claim began that Amazon could / would never make money.
Amusingly, both of these popular analyst points turned out to be false.
It was only years later, toward the end of the bubble and after it, that the claim began that Amazon could / would never make money.
Amusingly, both of these popular analyst points turned out to be false.
Sounds more like "We like to invest in college dropouts with insane ideas going after [currently] tiny markets [that have the potential of growing many orders of magnitude] with [currently] no way to monetize."
Isn't this basically another way of saying "we only care about home runs, not singles"?
Isn't this basically another way of saying "we only care about home runs, not singles"?
The interesting thing is how he says "Airbnb, for example, sounds like a crazy idea" - when I heard about it I did not think about it as a "crazy idea". It sounded as a great idea - but hard to execute (hotels, regulations, fraud control, etc.).
But they were not doing one more social network, so it had to sound as a "crazy idea" for any VC.
It seems definition of "crazy idea" for VCs is "not doing the same thing as other startups are doing".
But they were not doing one more social network, so it had to sound as a "crazy idea" for any VC.
It seems definition of "crazy idea" for VCs is "not doing the same thing as other startups are doing".
I don't get it even now - weren't there already b&b sites before AirB&B? So what's so crazy - the air part, which they threw out anyway?
The crazy part was renting out an airbed in your livingroom.
Which isn't really their business model now, or is it? That's all just a hype PR story.
Nope, but when they started their business model was literally "hey we can sell airbeds in livingroom as an alternative to regular Bed and Breakfasts, and hotels for sold out concerts, shows, and events".
They just pivoted to something more traditional after spending 1-2 years trying to make the original idea work.
They just pivoted to something more traditional after spending 1-2 years trying to make the original idea work.
Hate being a buzzkill, but that is precisely what couchsurfers was before AirBnB.
The three companies cited as having 'figured it out' in Q3/2012:
Amazon -$274m
Facebook -$59m
Twitter ?? (private, supposed not profitable)
Amazon is sort of an outlier- they could be profitable if they wanted to be, but they would rather eat the world.
That is some memorable phrasing.
Pretty sure Twitter is profitable, just not saying if officially.
What a horrible strategy. Proof that it is better to be lucky than smart.
All these guys do is make noise. It's been a long time since we can point to a shrewd investment they've made.
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For example, I'm currently writing a Lisp program that uses an LSTM neural network to compose Scottish fiddle music. As a Scottish fiddler (and composer) and AI enthusiast, this is an intensely interesting project to me. And it's certainly an insane idea with a tiny market and no way to monetize. And that's how it will remain. Scottish fiddling will always be an obscure niche, even within that community there will never be much demand for new music (and there's so many buried gems from the 18th century that this will virtually never change), and any existing demand can be easily fulfilled by the scores of people--including myself--who compose fiddle music the old-fashioned way.
Unlike Altair BASIC, this isn't a case of somebody creating a product in a growing industry people don't realize they need yet. Even I--the "founder"--don't see any potential and realize I'm providing free labor. I'm just in it because it's a great hack.
tl;dr - Distinguish between "anticipating public demand" and "doing something only for yourself".