Startups as an r-strategist species
Most successful startups had near-death experiences. When listening to them, we should keep in mind that luck played a role in their success.
Read about any successful startup, and chances are you'll find that moment when the company was days from bankruptcy but was saved in the nick of time by courageous management and employees. I recently read a particularly egregious example of this in The Hard Thing About Hard Things, from Ben Horowitz, where he speaks about one of his companies, Opsware:
“A few quarters into Opsware, we received very bad news from our largest customer, EDS. […] EDS wanted to cancel the deployment, end the contract, and get their money back. […] We were doomed again.”
But we know we're talking about a successful company, so we know how the story is going to end: management will make hard decisions, work extra hard, be extra smart, and survive the crisis. Indeed, that's what happens:
“In the end, I did find the answer, we completed the deal with EDS, and the company did not go bankrupt. I was not mad at Bill. To this day, I sincerely appreciate his telling me the truth about hte odds. But I don’t believe in statistics. I believe in calculus.”
Survivorship bias
Why are these stories so common? It should come as no surprise that survivorship bias plays a big role: successful companies are worth talking about, and a successful company that was close to failure makes for a great story. On the other hand, there is little interest in hearing about what caused the failure of Dozis Inc. Is Dozis a real company? You don’t know, and that’s the point.
So we take the successful companies, consider the path they went through on their way to success, and ascribe their success to decisions from their management — be it the true cause of success or not.
A classic example of survivorship bias in World War 2
This leads to whole books, such as The Hard Thing About Hard Things, where the author explains that any single thing they did was the best because they were ultimately successful¹.
What if, instead of looking at successful companies, we look at the entire ecosystem and think of startups as an r-strategist species?
r/K selection theory
The r/K selection theory divides species into two broad categories, r-strategists and K-strategists, depending on how they make sure the best genes find their way into the next generation.
K-strategists make few offspring and dedicate a lot of energy to raise them. K-strategists include humans, as well as many large mammals. Even in traditional societies, women have on average around 5 children, with child mortality reaching up to 50% (source), thus leaving them with family sizes not much different from what is typical today.
These numbers are very, very different for r-strategists. These species create lots of offspring and dedicate basically no effort to ensuring their survival. Think about a dandelion flower scattering thousands of seeds, turtles laying hundreds of eggs, or a bluefin tuna producing 10 million eggs a year — orders of magnitude above even the most fervent human.
The r-strategy makes sense in particular cases. As per Wikipedia:
“In unstable or unpredictable environments, r-selection predominates due to the ability to reproduce rapidly. There is little advantage in adaptations that permit successful competition with other organisms, because the environment is likely to change again. Among the traits that are thought to characterize r-selection are high fecundity, small body size, early maturity onset, short generation time, and the ability to disperse offspring widely.”
Small, quickly maturing individuals, evolving in rapidly changing and unstable environments. Doesn’t that sound familiar?
Startups as an r-strategist species
Thousands of entrepreneurs are thinking up startup ideas as we speak. In tech, in particular, the entry barriers are low: anyone with a broadband connection can start a business today, so it's fair to assume that most of what can be imagined will be created at some point, in a sort of corollary of Rule 34 of the Internet.
Startups, like bacteria in colonizing every nutrient-rich part of their growth medium, will emerge in every cash-rich niche in the economy.
What it means
When thinking about bacteria in a petri dish, you will think of the population as a whole: where they grow depends on where they started and which parts of the dish contain the nutrients they need. You aren’t going to be thinking about why an individual bacterium is thriving or not in its particular spot.
This is how we should be thinking at startups, as a whole, too. The success or failure of an individual company may be due to talent, circumstances, or blind luck. Like a dandelion seed landing on concrete, some conditions will kill even the most dedicated team. But as a whole, the ecosystem is going to populate every area that can sustain it.
In the early oughts, social media started being a thing, and hundreds of companies appeared in the field, only to be annihilated by Facebook. Why did Facebook survive? Could MySpace have pivoted and taken the top spot? Didn’t Friendster have a first-mover advantage? I don’t know. Maybe Facebook had the best team, the best execution, the best idea. Or maybe they got lucky. The only thing that’s for sure is that this niche was valuable: it was a nutrient-rich spot in the petri dish of the economy.
Why it matters
Let’s get back to The Hard Thing About Hard Things and Ben Horowitz’s story of near death. He concludes that their genius — actually, his genius — allowed them to survive those dire straits and come out ahead.
Maybe that’s true. But I’m also certain that hundreds of other companies in their field died along the way, and I’m also certain that Opsware could have died too. Did they survive only on the strength of their team and ideas? It’s possible, but I think we shouldn’t disregard the impact of luck in that equation.
So next time you hear a story of a company’s success, failure, or near-death experience, keep in mind that factors outside of the founders’ control greatly impact the outcome. A great team may fail due to bad luck or survive a tough spot thanks to it. The actions of the founders may or may not be the determining element in their ultimate success.
Keep also in mind that chutzpah and hard work cannot overcome all near-death situations. Sometimes, near-death leads to success and writing self-congratulatory books. Sometimes, though, it just leads to death.
1 In The Hard Thing About Hard Things, Ben Horowitz describes in detail the process that got them out of that pickle with EDS, which was chock-full of lucky breaks - the client hated their product but wanted another one, a cheap, public company made the other product, they were able to acquire that company and bundle that other product with theirs.
