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Founder, Don’t Be a Fruit Fly. Get an Investor Mindset.

Individual fruit flies are fragile and have short lifespans. And that is precisely why fruit fly populations/infestations are really persistent and hard to get rid of.

Due to their very fast reproduction and short generation length, individual fruit fly populations are also fast to adapt to conditions. This is why they are often used in experimental evolution research. An individual fruit fly’s capacity to learn is very limited. A fruit fly population’s capacity to “learn” is immensely efficient. Bad instincts or features die with the individual fruit flies. Good ones multiply and evolve further with the survivors.

(This same logic applies to e.g. why bacteria easily become resistant to antibiotics under prolonged exposure – unless you eradicate the whole population fast.)

Startups by their very nature are fragile and expendable. And they are meant to be. They are the fruit flies of the evolution process of our market economy.

From a societal perspective, companies are competing organizational forms representing certain kinds of products and services and ways of arranging their production. Individual companies can of course develop and learn as organizations – but what (a) forces them to do so and (b) allows also more “disruptive” paradigm shifts in our economy is the evolutionary selection process between different organizations. What we call “competition”. Customer, employees, and investors can shift to working with another organization that the think does things better. If you think you know a better way of doing things than an existing corporation, you can establish competing company doing things better. Even if you could not do things generally better, your company can better serve the needs of a niche customer segment, filling that “ecological niche”.

Startups are organizational forms specifically established for searching for a new kind of business model – often a model that has the potential to either disrupt on existing industry or create a completely new industry. Many startup ideas initially seem crazy. And most of them are either crazy or stupid. But sometimes even something stupid (1 out of >10,000 stupid ideas) ends up working or evolving into something really useful (or addictive). That is why the startup ecosystem has the potential to produce disruptive new services and ecosystems that change the way we arrange our lives and personal economies. Let me namedrop Google, Facebook, Amazon, and Uber as cliché examples.

But looking only at the success stories, it is easy to forget that this innovation process is very wasteful – almost as wasteful as biological evolution. Hundreds of failures are produced for every attempt that manages to produce anything useful. (It is made even more wasteful by all the realism-killing and exuberance-stirring hype around startup entrepreneurship, arguably present in e.g. the Helsinki ecosystem. Even very potential services concepts and business models can easily be f***ed up by incompetent teams, culture-/value-wise incoherent teams, neglect of metrics and iteration, stupid/arrogant investors, non-optimal ownership structures, or other “technical matters”. More about these pitfalls separately.)

Nassim Taleb, in his book Antifragile, defines three categories for things/systems:

  • fragile things: things that are harmed/weakened/threatened by uncertainty, risk, variance, and change.

  • robust things: things that are unharmed or minimally harmed by uncertainty, risk, variance, and change.

  • antifragile things: things that gain/benefit from uncertainty, risk, variance, and change.

More importantly, fragility at a lower level has the potential to make things antifragile on the higher level:

  • Individual animals are fragile. This makes species and ecosystems antifragile, constantly evolving.

  • Companies are fragile. This makes industries and the market economy antifragile, constantly evolving.

  • Startups are extremely fragile. This makes startup ecosystems antifragile. Faster changes in technology and the economy actually give them an even bigger competitive advantage versus incumbent companies and allow yet bigger success stories.

Investors are in a fairly robust position: They gather portfolios of tens of individual startups. This allows them to diversify their risks. Moreover, VCs (venture capitalists) often invest no/little of their personal money. Most of their funds are raised from LPs (limited partners), who each typically have <1 % of their wealth invested in an individual fund.

Now a startup entrepreneur on the other hand can either be fragile or antifragile. What decides? Her attitude and mental elasticity.

Yes, startup entrepreneur needs a certain level of conviction and stubbornness. Most successful founders would never have succeeded had they started doubting their quest and second-guessing their decisions at the first obstacle or setback. There will be hard times and getting through them requires grit.

BUT, chaining oneself to one business idea (worse yet, the first idea one comes up with) is stupid and self-destructive. Remember, only a fraction of ever attempted concepts and business models actually succeed. An overly idealist (stubborn, perseverant, whatnot) entrepreneur who has a tendency to go down with the ship becomes a fruit fly herself.

Even successful companies often pivot (change their concept significantly) multiple times before hitting the jackpot. Moreover, even if your business idea had potential, what are the chances that that is the best thing on which you specifically could be using your talents and energy? Pretty much zero.

Most startups fail and die. But the entrepreneur does not have to die with a failure. An entrepreneur can learn and move on stronger, wiser, and more resilient than before.

Also, before going all-in on a startup, it is important to investigate multiple different models on a lighter mode (e.g. gathering user feedback and use date with a proof of concept prototype), both to figure out whether there actually is potential and whether the business looks like something you really want to do. When you do find something that shows real traction and the potential for a sustainable business model, then it’s better to go all in. (Potential concepts can also be failed by half-hearted execution.)

Venture Capitalists and professional angel investors screen tens if not hundreds of business ideas and teams before even commencing discussions of an actual investment.

As a startup founder, you should, in principle, be even pickier! Why?

As said, investors invest in multiple companies and diversify their investments. You can only found one company (at a time), and you are expected to be ready to commit to it for years. Over full-time (closer to double time). So, you have almost all your nuts in the same basket. And those nuts include a big chunk of the best parts of your life. Many startup founders end up sacrificing their relationships and health for their company. You are selling your soul, and more.

One shouldn’t make such investment decision lightly. Wannabe Founder, you need an investor mindset in deciding which problems are really worth pursuing!

So, while you are being passionate about and dedicated towards your mission, it’s important to (1) be aware of these emotional biases and any social pressure that might be involved, and (2) to make sure you have, seriously, investigated alternatives objects of conviction. You should also (3) ask yourselves whether you (and your team) are the best people to solve these problems. Your potential investors will be asking themselves that question, even if they were too polite to ask you directly. This paradox of combining conviction and passion with a constantly questioning mindset is probably the biggest dilemma in startup entrepreneurship.

Then, when you have found a problem worth solving and have committed to it (until pivot/bankruptcy you depart), it is even more important not to get fixated on certain ways of solving that problem. More on that in the next post.

Helsinki, Finland

©2017 by Tuure Parkkinen