What is the startup paradox?
We cannot turn back the clock on things that have been done or left undone, but we can learn from the past. An essential aspect of my recovery from my defunct start-up has been the intense attempt to analyze where exactly I went wrong. This experience has led me to identify what I call: the “start-up paradox”.
What is this start-up paradox?
Everyone knows that most businesses — especially tech start-ups — have a high probability of failure, but in order to succeed founders must believe that their idea and resulting business will be the exceptions that beat the odds.
As an upstart founder, you must convince yourself, as well as potential partners, employees, customers, investors, and other funders that your idea is a winner and that you have the expertise and hustle to launch and grow the business. To do this, you must suppress your knowledge of a very likely outcome and promote your exceptional ability to overcome the odds.
Three risks of the start-up paradox
Being caught in the start-up paradox – focused on the dream, tuning out reality – can be a precarious position for founders.
- Founders can take dangerous risks, deciding to “fake it until you make it” by overselling your stage of development or achievements, which can return to haunt you.
- Elizabeth Holmes and her company Theranos – the Silicon Valley-based blood analysis enterprise that has been the subject of books, articles, podcasts, documentaries, and an HBO series – is a cautionary tale. The company misrepresented the capabilities of its blood-testing technology to investors, distribution partners and the public. Particularly egregious were that claims about what tests were possible on its equipment using blood from a finger prick, resulting in many patients receiving incorrect health data. Ms. Holmes was found guilty of wire fraud relative to her dealings with investors earlier this year. She was not found guilty of the fraud charges relating to the treatment of patients. Theranos COO Sunny Balwani – also Ms. Holmes’ former boyfriend – was convicted of 12 counts of fraud, including the charges relating to patients, in July of 2022.
- Founders can become blind to the signs that it is time to pivot. The need for goal revision can be ignored if you can convince yourself that success is just around the corner as long as you persist in the current direction. It is hard to admit that perhaps you were wrong, or to see that a different approach might result in a better outcome.
- Imagine if Stewart Butterfield had missed seeing that the chat function his team had built to work on the massive multiplayer game (Game Neverending) that his company was developing was the better option for a business. The outcome of that pivot is the SaaS (software as a service) platform Slack.
- Founders can make bad decisions about spending more money to ensure the earlier investments are not lost, rather than being realistic about the likelihood of actual success. Thus, throwing good money after bad.
- Pets.com is a well-known example of a business that failed after spending large sums of money. The challenges with the business model related to the cost of shipping pet products should have been identified prior to the initial public offering (IPO) which raised over $80 million in 2000. The company filed for bankruptcy within a year of its IPO.
The start-up paradox is found in human nature
Two ancient stories from two different cultures show that the start-up paradox is consistent with observable human behaviour in a universal sense. What follows is something that I have learned from a professor friend that resonated with me. I then applied the insight to the start-up context.
The Bhagavad Gita – a part of the epic poem The Mahabharata – recounts a dialogue between Krishna, a god manifest, and Arunja a human member of a ruling family about to engage in a cataclysmic battle. According to Krishna, the mystery of human life is that all human beings know that they will die, yet they all behave as though they will live forever.
Turning next to the ancient Greek tradition, similar themes are apparent. It is widely thought that Prometheus was punished by the gods for bringing fire to the humans. In reality, the chief gift Prometheus gave our species – recounted in a single line in Aeschylus’s play Prometheus Bound – was liberating us from the knowledge of the day and hour of our death. This gift allowed us to live each day in freedom – a similar theme to that which is presented in the later Sanskrit text.
The start-up paradox creates possibilities
The start-up paradox leans into this ancient theme: that what is liberating and empowering to humans is our ability to live in the moment, as if there is no perceivable end – let alone the tragic ending which is the reality for most unsuccessful ventures.
As a founder, you must forget that most businesses fail, and act as if you are destined for great success. We may feel imposter syndrome. We may be faking it until we make it (without crossing the line to commit fraud). But if we are to have any hope of success, we must believe and evangelize that there is future beyond the disappointments of today. As soon as our ability to do this expires, the business is finished. While I continued to believe in my business’s potential and the underlying idea, I no longer had the stamina, confidence or courage to carry on. I had fallen out of the start-up paradox.
Without the start-up paradox, it would seem that innovation and experimentation would be limited. The start-up paradox taps into the part of our nature that enables us to take risks and be creative. The challenge for founders is to be aware of the start-up paradox so that you are able to avoid the pitfalls and reap the benefits.