My motivation behind this post stems from Aumann's agreement theorem. It seems that my opinions on startups differ from most of the rationality community, so I want to share my thoughts, and hear your thoughts, so we could reach a better conclusion.
I think that if you're smart and hard working, there's a pretty good chance that you achieve financial independence within a decade of the beginning of your journey to start a startup. And that's my conservative estimate.
"Achieve financial independence" only scratches the surface of the benefits of succeeding with a startup. If you're an altruist, you'll get to help a lot of other people too. And making millions of dollars will also allow you the leverage you need to make riskier investments with much higher expected values, allowing you to grow your money quickly so you could do more good.
A lot of this is predicated on my belief that you have a good chance at succeeding if you're smart and hardworking, so let me explain why I think this.
Along the lines of reductionism, "success with a startup" is an outcome (I guess we could define success as a $5-10M exit in under 10 years). And outcomes consist of their components. My argument consists of breaking the main outcome into it's components, and then arguing that the components are all likely enough for the main outcome to be likely.
I think that the 4 components are:
- Devise an idea for a product that creates demand.
- Build it.
- Market and sell it.
- Things run smoothly (some might call this luck).
The Idea
Your idea has to be for a product or service (I'll just say product to keep things simple) that creates demand, and can be met profitably. In other words, make something people want (this article spells it out pretty well).
What could go wrong?
- Failure to think specifically about benefits. These articles explain what I mean by this better than I could.
- Failure to understand customers. To put yourself in their minds and understand what it is that they do and don't want. This is distinct from the first bullet point. You could have a specific benefit in mind, but be wrong about whether it's something your customer really wants (or about how badly they want it).
- Failure to research competitors. Maybe you came up with a great idea, but it turns out that it exists already.
The big issue here is the first bullet point. As spelled out by Eliezer's article, people are horrible at thinking specifically about the benefits that their idea will bring customers. They're horrible at moving down the ladder of abstraction. They think more along the lines of "we connect people" instead of "we let you talk to your friends". Even YC applicants (probably the best startup accelerator in the world) suffer from this problem immensely. I think that this problem is the single biggest cause of failure for startups. (They say that 90% of startups fail? Well >99% of people can't think concretely.) However, I think that it's something that could be avoided with willpower, reading the LessWrong sequences, and taking some time to practice your new habit.
The second bullet point shouldn't be too hard, once your thinking becomes specific. And the third one is mostly a matter of taking a few days to do some research.
Build It
What I mean by 'build it' is pretty straightforward: take that idea you had, and make it real.
What could go wrong?
- Our society doesn't have the technological or scientific progress necessary to build the product. For example, I have an idea for a machine that teleports you from one place to another. Unfortunately, we as a society aren't at a point where someone could build that.
- You personally don't have the skills to build it.
- You don't work hard enough. Maybe you try, and find that you don't have the willpower. Maybe you try, find that you do have the willpower, but realize that the amount of work it take isn't worth it to you.
- You can't find people with the skills to work on it with you (cofounders).
- You can't raise money from investors to hire people to help you build it.
- The people you work with/hire aren't good enough to build the product you envisioned.
There's probably other things that could go wrong that I can't think of, but I think this is enough to work with for now.
First bullet point: you really just have to avoid unfeasible ideas. Doesn't sound too hard. I guess this could be a problem for someone at the forefront of their field, trying to push the boundaries, but who makes an error in judging what's buildable. However, I think that there's plenty of ideas that don't run you this risk.
Second bullet point: if you don't have the skills, then get them. There's plenty of resources available to learn. For one, it only takes a couple months to get the skills you'll need to build a decent website. Or you could invest more time to study something like engineering or design, which will increase your options of what ideas you could build.
Third bullet point: if you don't have willpower, it'll be pretty tough to succeed. Possible, but pretty tough. I don't recommend trying.
Fourth bullet point: thats just another thing that limits the ideas you could build successfully. Some ideas you can't build without a cofounder/cofounders, and some you can. Finding a cofounder shouldn't be too difficult though.
Fifth bullet point: this is actually a tough one. A lot of ideas will require at least seed funding (tens/hundreds of thousands of dollars) to build. There are definitely a bunch of ideas that you could build without any investment, but they're the minority. So let's say you have an idea that does require investment, but you're having trouble raising money (which I think would be understandable). Basically, I'd say that you should focus on peeling away the layers of risk. By following doing that, reading up on fundraising and using Angel List, I think you'd have a pretty good shot at raising the money you need. Still though, I think not being able to find an investor is a legitimate risk.
Sixth bullet point: I've never hired anyone before, but it doesn't seem that hard. Doing a good job optimizing your hires seems like something you'd have to be skilled at, but satisficing to the point that they could do a sufficient job building the product you envision seems to be something that any reasonable person can do.
Market and Sell It
Once you think up your product and build it, you then have to sell it to your customers. This means reaching them, convincing them, and distributing to them.
What could go wrong?
- You're unable to communicate clearly to your customers what benefits they'll be receiving if they use your product.
- You're unable to persuade them. (There are other elements to persuasion aside from clear communication).
- You didn't reach enough people. Maybe you didn't advertise enough. Maybe you thought word would spread, and it didn't.
- You're having distribution problems (delivering the product to your customer).
- PR problems. Something goes wrong and you obtain a bad reputation.
First bullet point: see The Idea.
Second bullet point: First of all, read that book (Influence by Robert Cialdini). I'm no expert on persuasion, but I think taking a little time to read a few books would make you sufficiently good at it. And it's not that hard to persuade people when you've got a product that they love.
Third bullet point: I'm no expert on this either. However, I do hear that internet ads nowadays make it pretty easy and affordable to reach a targeted and good sized audience. Also, as always for things you don't know too much about, read up on it and educate yourself. I don't know enough about this to argue it well, and I don't feel too strongly about it, but I get the sense that this is unlikely to prevent success. Doing this stuff seems like it'd be sufficient.
Fourth bullet point: I don't know much about distribution. It seems that distribution is really only a problem for certain types of businesses. For them, I guess that's something you have to take into account before you go forth with an idea. Otherwise, it doesn't seem like to big a deal.
Fifth bullet point: I guess this is something that could kill a business. To a reasonable person though, it doesn't seem like too big a risk.
Things Running Smoothly
Obviously, crazy things could happen. However, they don't seem too likely.
What could go wrong?
- Legal issues (current). Maybe you did something illegal and didn't realize it (ex. copyright infringement), and sanctions or a lawsuit killed your startup.
- Legal issues (future). Maybe new laws were enacted that killed your startup.
- Something in your personal life goes wrong that requires you to quit.
- Your competitors innovate and beat you out. Or a big company decides to enter the market, and crushes you.
- Scientific findings lead to your product being obsolete.
- Macroeconomic conditions change, which somehow leads to people not wanting your product.
- Political/social conditions lead to people not wanting your product.
Most of these seem like they have pretty low probabilities of happening. Low enough where they don't influence the overall likelihood of success too much. Especially if you're doing something that genuinely helps people (if so, it's less likely that things like legal/economic/political/social changes will end up hurting you).
Regarding competitors beating you out, that's something that sounds like a big risk, but actually doesn't happen as often as you'd think. You'd think that if a startup comes across an innovative idea, that big companies that are hundreds or thousands of times the size of that startup would just copy the idea and execute it themselves, given that the big company has so many resources. Somehow that doesn't happen too often. Big companies just seem slow to adapt. By the time they react, the startup usually has momentum, which often times causes the big company to acquire the startup, or lose market share. So just based off of my understanding of what actually tends to happen, this risk seems to be something to note, but not something to really worry about (see lesson #4).
Conclusion
Given all of this, I think that if you're smart and hard working, you should have *at least* an 80-90% chance at succeeding at a startup. Again... you have to think about what specific benefits your idea provides... you have to map out how it'll be built, and work hard at doing so... and you have to read up on marketing, and work hard at it. As I argue above, the components all seem very doable, and thus the parent outcome seems very achievable.
I really mean for this article to be a starting point for discussion. I think that if we outline the components and discuss each one, we'll make a lot of progress in coming to an agreement. So let me know which components you think I omitted, and which components you think I'm mistaken about.
PS: A lot of people seem to disregard startups as something they don't know much about, and aren't too interested in. Why? Success = millions of dollars. Aren't you curious as to how likely that success is? If there's an outcome you desire, shouldn't you be interested in how achievable it is?
Before we get into more details, here are some higher-level thoughts on the business overall: how will people get to your site and how will you make money from them?
One strategy is to pay for ads. People doing this already are easy to find: search in an incognito window with questions like "college information", "choose college", or "college for me" (be imaginative). Click on the ads that don't look like they're for particular colleges. This drops me on a few landing pages:
You don't know very much about these businesses, but you know they're all making enough money on an ad click for it to be worth it for them to advertise here. (Looking in the AdWords keyword planner suggests they're paying $5-$20 per visitor (CPC).) If one of these sites is doing something that seems weird to you, don't write it off as dumb: they're making money or they wouldn't be able to afford to show up when you did the search. Maybe they have some low-hanging fruit in improving their layout, and they certainly don't all look the same, but if in doubt they probably know something you don't.
It's also possible for people to come to you via searches. Do some searches yourself; see who shows up. This business model is harder to replicate because it's much less clear how they got onto the front page for a search. SEO advice tends to be terrible, and for good reason: it's an adversarial game where success is very lucrative and people are constantly pushing limits to see how scummy/profitable they can get without stepping over the line and getting banned (recent example: rapgenius).
Word of mouth and viral/social are also possible, but even less predictable. But then my bias here is for paying for traffic because I used to work in advertising and it all feels very natural to me. But however people get to your site, you want a good sized flow so you can experiment and test things and see what works. Iterating with no one watching is hard to get to go anywhere. (One nice thing about the non-ads flow is that focusing on making your users happy and have a good experience lines up with your incentives. If you go the ads flow every visitor is to a first approximation someone you'll never see again and so you don't care about their experience just how much money you can get from them. It's like businesses that cater to regulars vs tourists.)
Once people get on your site, how do you get money from them? The simple strategy is to put up ads, like adsense. These pay very little, like $0.01 to $1 per thousand visits. Maybe somewhat higher because you're in a vertical (education) where there are advertisers with a bunch of money to spend (colleges). There's no way you can pay for ads at $5 per click and make your money back at $0.001/visit. So what are those sites like educationmatch doing? They're collecting information from people and selling it to colleges. This is called "lead-gen" advertising. The most obvious form is when you land on a page and it immediately asks you for information about yourself. If you're going to place search ads, you basically have to do lead-gen; nothing else is profitable enough per-visit. (When you start off you'll sell leads to a lead-aggregator who sells them to the colleges. When you get big you negotiate deals directly with the colleges and get a bit more per lead.) If instead you want to make money by putting ads on your pages you need to go with cheaper but higher-volume sources of traffic, like being awesome, getting people to link to you and talk about you, and getting high up on search results pages.
Back to specific design notes:
To actually answer this question you need data from your site and competitors to compare bounce rates. You're not going to get that, so the best you can do is calibrate retrospectively: when you do get a designer and redo your site you should A/B test the redesign so you can see it's impact. This only works if you have enough traffic by then to get meaningful results.
My guess is that the appearance will make some people leave with "this looks unprofessional/fake" but this isn't something I'm good at estimating. You should at least fix the aspect ratio on the main image; I found the vertical squishing very distracting. Cropping it instead of scaling it in the browser would work, as would using only one of height= and width=.
unigo looks more professional to me, though still not as polished as something could be. But polish isn't everything; many of the sites I linked to above aren't going to win any design awards. Many of them look kind of tacky and overly slick. They're all making money, though.
Sit down with someone and watch what they do with your site. Then sit down with someone else. Look at your competitors and take the best ideas from many sources, then mock up a new front page design and sit down with another person. Repeat until you run out of fresh victims/friends. You're too small for fully-automated a/b testing, so substitute quality for quantity and watch real users in person.
Many colleges have a contiguous IP range. For example, everyone browsing from on-campus at Swarthmore will be 130.58.something.something. Make guesses from looking at the IP of the college webserver, and if various departments that do their own webhosting (cs, math) all are in the same IP range you're probably good. You can also look through your server logs to see the visits from people you know are at certain schools. It's also possible that this can be looked up somewhere.
It's a balance. Trying to channel "teenage girl" I have the impression that "how hot are the girls" would be something I would find off-putting. But my mental model is pretty bad here, having never been one.
A final note: this all sounds kind of mercenary. My perspective is that's what you have to do if you want to make money in such a tightly competitive market. That's part of why I'm glad I don't work in this industry anymore.
That's the plan.