« Will knowledge change a decision you make?
» Y Combinator News
Biz: Chicago, entrepreneurship, science, startups, VC
I really liked Adrian Holovaty’s suggestion that Chicago stop trying to be the Bay Area and focus on bootstrapping. Chicago will always be an also-ran as long as it’s running someone else’s race.
The other night I was at an entrepreneurship mixer anchored by a panel discussion with five successful entrepreneurs. They were going on about how Chicago most startups fail for lack of capital (not, uh, “profit”), that Chicago is getting better all the time for funding, that employees are much “more loyal” than the Bay Area (that is, lower cost), and still — in the Valley they have so much more ambition.
As I was sitting there, it occurred to me to think of the difference between Chicago and the Bay Area in scientific terms. Phrased this way, we’re choosing different classes of errors.
In Chicago’s bootstrapping we’re avoiding false positives: businesses that sound amazing, but fail. In
the Bay Area’s funded startups they’re avoiding false negatives: businesses that wouldn’t get started because they sound ridiculous or only figure out how to make money 6-18 months down the line.
Bootstrappers fear false positives because they want to own one sustainable business. A couple hundred thousand dollars a year is a wonderful success for a small team. You don’t need to take huge risks, to get out in front of the market, or to take funding to get to that level. You can find a need and fulfill it by carefully researching an audience and steadily delivering more value at a reasonable price.
Venture capitalists don’t care about small, reliable successes. Their returns are the sum of their portfolio, not the median, let alone one business. They want “growth”, pronounced “variance. Capital is rocket fuel and it doesn’t matter if half the businesses explode on the launchpad (“undergo rapid unscheduled disassembly“) as long as a few make it into orbit and one makes it to the moon.
Both camps know they won’t be perfect, but prefer different errors because they have such different ambitions. I’m speculating, but I think Bay Area VC culture dominates because a billion-dollar unicorn is such an exciting story compared to a dozen five-person consultancies or solo-founder products. There’s a drama in “and then the team had to grind day and night to close our series C in four days to make payroll before our growth would hockey-stick!” compared to “after the three of us served a dozen clients on hourly contracts we productized that and bought houses in good school districts”.
When I’m feeling more cynically conspiracy-minded I say the entrepreneurship zeitgeist skews towards VC because they spend on PR to get more labor into their system. A venture capitalist is a stable owner and the entrepreneurs are not the jockeys, they’re the horses. The VC want a steady supply of fresh foals because these purebred race horses are delicate and when the stress of the race breaks their legs they get put down so their next contender with a goofy name can take a shot at the crown. But I try to be kind, and I think this view is the reverse of the Bay Area thinking Chicago lacks ambition: our culture and goals are so different that we can’t make sense of the other, we’re evaluating each other by the wrong criterea.
Maybe these different error classes can help with that understanding, maybe they’re more fuel on the fire. Either way, good luck with your business. (But I still think it’s a better idea to make a good life for yourself than gamble big for someone else.)