David Siegel is a serial entrepreneur from Silicon Valley. He gives talks and workshops on angel investing and start-ups. See his introduction to angel investing and startups. David busts many myths of start-ups, the most important one is the myth of cause and effect. So many successful start-up founders believe that most of their success is due to their own actions, rather than luck and circumstance. And they are the ones who write advice books and give speeches at conferences. Yet confirmation and selection bias prevents us from understanding reality:
Success in business is largely driven by luck, and success in start-ups is predominantly driven by luck.
David believes it’s all about making the sale. Here are some key points for investors and entrepreneurs:
The number one cause of death in business is failure to make the sale. It’s never about the product, quality, management, or even the team or the strategy. It’s about selling. Look at any successful company - they started by selling a not-so-great product that may have had some differentiation but not much. People think AirBNB invented the room/flat-sharing category, but in fact the day they started two other such companies had already gone public! Their product wasn’t a lot better, but they just happened to catch on when dozens of other competitors didn’t. You can believe the story about selling cereal and starving it out, but it’s not a recipe for success. Those who make the sale get to move on to the next round.
The number two cause of death is simply running out of money. Too many companies spend too much time on engineering without engaging customers in the market. David explains how a sales-driven culture allows for pretotyping, rather than building full-scale prototypes, thereby saving money and failing faster toward customer success.
The number three cause of death is premature scaling, adding too much risk for investors and entrepreneurs. Too many entrepreneurs fail to take small positive steps - they prefer to shoot the moon and go for the big prize. David shows a matrix that helps understand the issue (right).
As Eric Van der Kleij says, “Nothing happens until somebody sells something.” David believes in building a marketing/sales culture first and an engineering culture second. Sure, there are companies that are crazy about design and engineering, but the market allows them to be that way. Most start-ups that don’t have traction don’t have that luxury. Reduce risk by learning to sell your competitor’s product and develop the market first, before developing your own product. The better you know your customers, the better chance you have to survive.