Starting Greatness

Lessons of Greatness: You Need a Breakthrough Insight

Episode Summary

Learn why great startups have unique insights that defy conventional wisdom.

Episode Transcription

Andy Rachleff:     

I believe entrepreneurship can be described with a two-by-two matrix. On one dimension, you can be right or wrong, and on the other dimension you can be consensus or non-consensus. Obviously if you're wrong, you don't make money. But what most people don't realize is, if you're right in consensus, you don't make money because the returns get arbitraged away. The only way to make outsized returns as an investor or an entrepreneur is to be right and non-consensus.

 

Mike Maples:       

This wisdom from Andy Rachleff in our interview is totally on point for a key lesson from startup super performers. If you're going to have greatness, you need a breakthrough insight that defies conventional wisdom. Let's find out why.

 

Mike Maples:       

If you aspire to create a great startup, consider one simple fact. Great breakthroughs come from insights that defy conventional wisdom. 

Andy Rachleff referred to this as being non-consensus and right. At Floodgate, we call it insight development, but the high order bit is the same. 

Let's examine each perspective, starting with Andy. Andy pointed out that startup ideas have two dimensions. Are you right or are you wrong? Are you consensus or are you non-consensus? Since we're doing this as a podcast, it might be easier if you visualize a two-by-two matrix with four squares. On one dimension, you have consensus or non-consensus, and on the other dimension you have right or wrong.

So two of these squares are just wrong. It doesn't matter if people agree with you or they disagree with you. If your insight is wrong, you're out of luck because you'll fail. But it turns out that just being right is not enough.

There's one square you want to be in. If you're going to be great, and that is the square that is non-consensus and right. Most people don't see that if you're in the right and consensus square, you will usually not achieve greatness. Your startup might have a good idea, but if it's too obvious, multiple me too competitors will get funded by me too VCs and as competition floods the market, prices erode, sales cycles lengthen and exit options become less compelling. 

The path to greatness is to be non-consensus and right. As soon as a business opportunity becomes apparent to even a small number of people, the odds begin to work against the startup. 

I call this effect the startup law of the jungle. If you've ever watched the Nature Channel and seen a baby wildebeest born on the Serengeti Plains of East Africa, you can get a visceral feel for what the typical startup faces in its early days.

The baby wildebeest is dropped out of its mother's womb onto the ground at a wet sack. It could barely stand up, and if the baby animal takes more than five minutes to get moving, it will find itself surrounded by hyenas, jackals, and Nubian vultures. In the startup law of the jungle, startups are initially very vulnerable to the various predators and hazards that surround them. Being non-consensus and right affords the startup the time to survive, adapt and succeed after trial and error without fatal consequences. No one prays upon them because no one believes their idea's important. This gives the startup time to master differentiable and specific skills and build strengths for the inevitable competitive battles that will come in the future. 

At Floodgate, we emphasize that insight development should happen before customer development. This flows directly from Andy Rachleff's reasoning.

Many of you have heard of customer development, Andy mentioned it in our discussion. It was defined by Steve Blank and applies the scientific method to getting product market fit. Many subsequent works have been built on Steve's theory. 

Insight development happens even before customer development. It helps you figure out if your idea is big enough before you even get started. One of the most valuable lessons that Andy teaches us, is that insight is not the same as analysis. 

You can analyze customer pain when you start your startup and the pain might be real, but that does not prove that your idea is unique. You can analyze a market for gaps or white space, but that doesn't mean you've discovered something that no one else has yet seen. 

Insight is about knowing things that others don't know yet. Insights are what help a startup, get an unfair advantage when they have very few other advantages.

Insight development is a method we have learned from the super performing founders. When you develop insights, you ask different types of questions that go beyond basic analysis. 

What is my earned secret? What work have I done to find something out that others don't know? How did I uncover the secret? Why is it a secret? What work did I do to develop conviction that my secret is real? 

What is my why now? Almost every startup idea has been tried, shouldn't I assume that my idea has been tried? Who's tried something similar? Why did they not succeed? Has there been any major technology change event that makes something possible only now? Is there increasing adoption of a technology that makes something possible only now? Why is now the time for your idea to happen? 

In future episodes, we will talk lots about insight development, but speaking of now, what does this all mean for you?

You must commit yourself to having a real insight if you want to be truly great. All of the greatest breakthroughs came from unconventional insights, the theory of gravity, Euclidean geometry, the solar system. All of these ideas were put forward by heretics in their time. 

So my own quote I will leave you with is…

“There's a right kind of crazy.”