Early focus and full commitment to a single project is passionate, but is it reasonable? One important thing we learned is: don’t bet on one horse and don’t limit yourself by an early focus on a single topic. Predictions are hard. Compensating this uncertainty with even more focus on one thing doesn’t eliminate the risk. We go for many bets!
Considering the hard numbers, this seems obvious. The failure rate of startups was 90% in 2019. If your ship sinks you should have a safety boat. But there are these tales floating around about founders sinking with their ships.
So, why does it seem to be more acceptable to take a single bet as a builder? Let’s investigate why people think single focus is a good thing.
Work hard is not enough
Big parts of society are still in the mindset that success mostly depends on hard work. Probably everyone has heard this advice: “Hard work pays off!” Public perception often encourages on effort rather than the subject of the work. The contrary belief: working smart outweighs working hard.
Disclaimer: Both are still required. Building successful things is hard even if you do it smartly. Remember 90% failure rate. We are sure that they worked hard and smart. There is always the risk of failure.
VCs only want the one thing
In the past decade, a very desirable way was to build something to raise VC funding. The goal is to scale quickly to Unicorn status. It is more likely to fail along the way and you only keep the experience. If it works out: Congratulations! Scaling something to success is very unlikely, but when it is rewarded accordingly.
Lady’s and Gentleman that’s the point. Introducing the “the power law”. The VC’s business model is to invest in various businesses in the hope to find the golden nugget. These few flagship investments compensate all the failed investments. The VCs want to increase the chance to provide a greater than 10X return. That’s why they expect a single focus from the founders no matter the sacrifices. Every percent counts. Exaggeratedly speaking they don’t care if you fill insolvency or bring 2x return. Everything below 10x are water drops in the ocean. For them, it is compensable. For you, it’s not.
- Most bets fail!
- Society fuels a misconception!
- VCs seek the few unicorns, but most investments fail.
What’s different when taking many bets:
Transferability and the role of luck
Often methods and insights you learn in one project can be of great use in another one. There is a very famous example: Elon Musk. He transfers his gained knowledge in his different projects. Challenges repeat! Think about the newest tech stack and current hot distribution channels. Hard facts and skills are always relevant, but there is a thing you can’t transfer: Luck. Sometimes the success of a project depends on coincidences. For example, getting the right client intro at the right time. Having many bets makes it more likely to happen.
Skin in the game makes you irrational
People keep investing money, time, and effort into endeavors that they have already invested in. This is a dangerous cycle. Talking about sunk costs fallacy. The more you invest, the more you feel obliged to continue the project. It’s harder to escape this trap, when it is about your single focus. Having less skin in the game makes it easier to keep up the objectivity. It enables wiser decision-making.
Multiple focuses create larger iteration times. Often things that are hard to influence take time. For example getting replies, scheduling meetings, negotiate contracts. If it’s your sole focus you want to speed things up no matter what. You invest time in dozens of follow-ups that barely speed up the replies of your prospects etc. This creates diminishing returns for your time spent. So if you accept longer iteration times in favor of more efficiency, you can take more bets.
So how should builders gamble:
Even if a bet fails, you need a way to generate at least some positive outcome. Experience cannot always be the sole excuse for wasted time. You have another choice next to taking the red or blue pill. An example from the financial perspective. If you have two options with the same expected return, which one would you pick?
- A save 1M based on many bets
- A 10% chance that your single bet gives you 10M?
After reading this article, you know what we go for. Also, from an impact perspective. It’s maybe better to have some positive effect on the world rather than hit or miss. Put effort into building a fleet with outcomes.
That’s the thing! Build a fleet instead of a single ship. When one sinks you can improve the others. While building products you are figuring out a lot of things that work. You can transfer these learnings directly to other bets. Challenges repeat. Legal stuff, the newest tech stack, and current hot distribution channels apply to many bets. Last but not least, it is still possible, that one of your bets becomes a flagship.