I approached a number of "successful" people. Most of them are CEOs or run organizations that they started. What are their definitions of success?
What happens to fast growing startups tends to surprise even the founders. Small variations in growth rate produce qualitatively different outcomes.
That's why there's a separate word for startups, and why startups do things that ordinary companies don't, like raising money and getting acquired.
And, strangely enough, it's also why they fail so frequently. Considering how valuable a successful startup can become, anyone familiar with the concept of expected value would be surprised if the failure rate weren't high.
For the right people — e. So it's not surprising that so many want to take a shot at it. In an efficient market, the number of failed startups should be proportionate to the size of the successes.
And since the latter is huge the former should be too. It's the same with other high-beta vocations, like being an actor or a novelist. I've long since gotten used to it. But it seems to bother a lot of people, particularly those who've started ordinary businesses.
Many are annoyed that these so-called startups get all the attention, when hardly any of them will amount to anything. If they stepped back and looked at the whole picture they might be less indignant. The mistake they're making is that by basing their opinions on anecdotal evidence they're implicitly judging by the median rather than the average.
If you judge by the median startup, the whole concept of a startup seems like a fraud.
You have to invent a bubble to explain why founders want to start them or investors want to fund them. But it's a mistake to use the median in a domain with so much variation. If you look at the average outcome rather than the median, you can understand why investors like them, and why, if they aren't median people, it's a rational choice for founders to start them.
Deals Why do investors like startups so much? Why are they so hot to invest in photo-sharing apps, rather than solid money-making businesses? Not only for the obvious reason. The test of any investment is the ratio of return to risk. Startups pass that test because although they're appallingly risky, the returns when they do succeed are so high.
But that's not the only reason investors like startups. An ordinary slower-growing business might have just as good a ratio of return to risk, if both were lower. So why are VCs interested only in high-growth companies?
The reason is that they get paid by getting their capital back, ideally after the startup IPOs, or failing that when it's acquired. The other way to get returns from an investment is in the form of dividends. Why isn't there a parallel VC industry that invests in ordinary companies in return for a percentage of their profits?
Because it's too easy for people who control a private company to funnel its revenues to themselves e. Anyone who invested in private companies in return for dividends would have to pay close attention to their books.
The reason VCs like to invest in startups is not simply the returns, but also because such investments are so easy to oversee. The founders can't enrich themselves without also enriching the investors. The constraint between good ideas and growth operates in both directions. It's not merely that you need a scalable idea to grow.
If you have such an idea and don't grow fast enough, competitors will.
Growing too slowly is particularly dangerous in a business with network effects, which the best startups usually have to some degree. Almost every company needs some amount of funding to get started.Do you agree or disagree with the following statement: Only people who earn a lot of money are successful.
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