I've worked with many entrepreneurs and VCs, and we've often discussed, "How can we predict which companies and services are going to be the biggest successes?" Some believe that, to be a great success, a company's value proposition must be misunderstood by the general public. For example, Fred Wilson (Managing Partner, Union Square Ventures) recently offered his intuition:
... Look for the companies and services that are mocked and misunderstood... that correlates highly with the biggest breakout successes. ... When your company and services gets mocked and is misunderstood by most everyone, particularly the mainstream press and media, just smile and keep doing what you are doing. You are on to something big. (1)
Wilson cited Twitter commenting:
"For years, every post, column, or article written about Twitter would have comment after comment making fun of [the] service... "(1)
I thought this hypothesis worth analyzing, so I did a little back-testing about Google and Twitter (as proxies for startups that were breakout successes). I searched for first mention of these companies in the NYTimes (as a proxy for the mainstream media). I assumed if Twitter and Google were "mocked and misunderstood," it would likely be the first time the public heard about them. Please note: I'm not claiming my analysis is statistically rigorous, but the results were interesting.
• Google: First mentioned Sept. 30, 1999 (2) with a very positive article. It describes search as an important business, without any mockery or misunderstanding, and recommends Google (it also provides a good layman's overview of Google's approach to search).
• Twitter: First mentioned April 22, 2007 (3) also with a respectful and thoughtful article, describes Twitter's rapid growth and awards received. The author is "skeptical" about Twitter's business, but did not belittle the company or its concept.
I'm sure these companies received their share of negative commentary (who doesn't?), but my quick survey of the NYT archives showed that most early media feedback was positive (at least at NYT). It's not clear the authors of these early articles understood just how big Google and Twitter would become, but that's a long way from "mocking and misunderstanding."
My point (and I do have one) is less about this particular claim, and more about the dangers of relying on our intuition and memory, particularly with a hypothesis that can be validated. The question discussed above could be answered decisively by: 1) selecting 10ish breakout successes, and 2) evaluating first year publicity -- as opposed to reliance on intuition and memory.
Daniel Kahneman (DK), winner of the 2002 Nobel Prize in Economics, distrusts intuition because it:
"Favors uncritical acceptance of suggestions and exaggeration of the likelihood of extreme and improbable events." (4)
And, a business succeeding (when it's "mocked and misunderstood by most everyone") probably qualifies as an "extreme and improbable event."
DK also remarks that:
"... When people believe a conclusion is true, they are also very likely to believe arguments that appear to support it, even when these arguments are unsound. If [intuition] is involved, the conclusion comes first and the arguments follow." (4)
Both comments by DK are not based on his intuition, but are the results of experiments done with a statistically significant population group. The experiments are described in DK's book (which is a really great read).
The dramatic story of the "mocked and misunderstood" entrepreneur supported by the heroic VC appeals to our collective taste for stories and has become intuition. But any start-up mocked and misunderstood by nearly everyone, yet ultimately successful, was likely the exception -- not the rule.
My advice to an entrepreneur is:
A. Intuition, for reasons explained by DK, is good at some questions. It is bad at questions that involve "statistics" and memory. When you can quickly test something, do the test - don't just rely on intuition.
B. If your product or service is "mocked and misunderstood" by the media and investors -- but you have an enthusiastic, growing and profitable customer base -- ask how you can improve your message. But, in my experience, you are really onto something. Congratulations!
C. If your product or service is "mocked and misunderstood" by media and VCs -- but more importantly, is not attracting passionate users/customers -- something is probably wrong. You need to find out if it's messaging or substance.
Please let me know your thoughts!
BTW If someone at a VC/Ibank firm would like to work with me on a more rigorous analysis about the "mocked and misunderstood" hypothesis, drop me a note and we will publish the results (however it turns out!).
In any event, I recommend DK's book -- it will improve your decision-making!
About the author: Steven Strauss was founding managing director of the Center for Economic Transformation at the New York City Economic Development Corporation (NYCEDC). He is an Advanced Leadership Fellow at Harvard University for 2012. He has a Ph.D. in management from Yale University. Follow him on Twitter @steven_strauss.
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