June 29, 2010
Micah Rosenbloom and I had an endless debate at Brontes about whether Blink or Moneyball was more relevant to the founder’s skill set. Blink argues that instincts are incredibly powerful and would suggest a more gut driven entrepreneurial style. Moneyball chronicles how Billy Beane outflanked all other major league General Managers by largely ignoring instinctual decision-making (scouting), instead using data to make decisions. We thought of this as a spectrum where Micah leaned toward the Blink side and I leaned in the Moneyball direction – probably a good combination. I’d argue that I’d “Blink” to form a hypothesis, but use Moneyball analytics to decide whether to execute that hypothesis and how much to invest in testing the hypothesis.
As a seed stage investor, I think about this debate frequently. I think there are early stage startups that are designed as more “Blink” style startups that are hugely successful. I don’t know the true story of the founding of Facebook, but my guess is that Mark Zuckerberg didn’t start by getting his thoughts into a PowerPoint, doing market research or creating a financial model. It almost seems laughable to suggest such a thing. He was coding in his dorm room, had conviction about something users might want and built a minimum viable product to see how they reacted. This was the furthest thing from a designed business. 100% on the Blink side of the spectrum.
Not to put the companies even in the same stratosphere, but at Brontes we were largely a designed business. We used our instincts to figure out where to look and then did a ton of market research and put together a detailed plan in mid 2003. If you look at that plan today, the business greatly resembles the plan. We made pivots along the way, based on customer data, and became much more sophisticated in our assumptions and implementation, but fundamentally we’re still in the business we set out to build in 2003. Certainly some businesses lend themselves to more instinctual management than others, as iteration cycles can vary.
Which is better? I really can’t say. If you compare these two companies, I’d rather be Mark Zuckerberg and the valuation math is about 1 to 250 in Facebook’s favor thus far. However, I think it is dangerous to look at extreme outliers to draw conclusions, and despite not being Facebook, I’m not sure I’d change my approach the next time.
My feeling as an investor hasn’t changed much from my time as an entrepreneur. I’m a big fan of the “designed” startup Moneyball approach. While I value instincts, I think our instincts can greatly bias us and that the fly-by-the-seat-of-your-pants approach to entrepreneurship statistically results in failure at an overwhelming rate over the Moneyball approach. It suggests to me that the founder may not listen to user data and pivot quickly based on facts, but solely on instinct. Even in a highly iterative lean startup methodology (which I deeply support), I view the analysis of the data to make quick iteration decisions as a Moneyball skill.
I’ve invested in businesses that are examples of both of these approaches, but find the Moneyball model a much easier bet. The Blink model requires me to either absolutely share the instinctual conviction of the founder, which is rare, or ask the founder to create evidence not in market analysis, but in actual user traction metrics. Imagine investing in Mark Zuckerberg when he had the first prototype for TheFacebook.com and no user traction, it would have been very improbable as an investor to share his instincts about what would work in social networking. Peter Thiel was a genius for making the first investment in Facebook, but consider that the investment was made after Zuckerberg amassed evidence of hundreds of thoustands users with a astoundingly viral trend line. It was still a big and early bet, but it wasn’t made solely on shared instincts. Arguably, at that point, an investor could take a Moneyball approach to analyzing whether the user traction would continue.