The truth about startup ideas

Or about any ideas, for that matter. It turns out that innovation and having great ideas isn’t something we can study and then be great at it.

I once had a course on innovation at my home university in Finland. I did well in the course. I got a good grade. We discussed what makes a great innovation (being able to commercialize stuff you’ve built), innovation process, the fuzzy front end of the continuum, divergence and convergence of ideas and more. Maybe one or two semesters later, I was lucky enough to participate in a high-tech entrepreneurship course at the University of Waterloo in Canada, where I spent one semester as an exchange student. Of course, there’s always some overlap between different topics and courses. This entrepreneurship course was not about innovation, though.

It was almost every two weeks that entrepreneurs, consultants, and others came and shared their experiences. One had sold his company to Google, the other had successfully made a name for himself in management consulting, which is hard to break into as a small player when the industry is controlled by established, powerful firms with proven track record and prestige. I think they were later acquired by KPMG. Then between those events we talked about what we just heard in a previous lecture from them and how it relates to what the course is about. The thing is, the only thing they had in common was that each of them had taken a different path…

The point is, I learned more about innovation in my course in Canada than I did in the one in Finland. Warren Buffet has said that having a successful career requires unlearning a better half of what you learn in a business school. And this entrepreneurship course was, indeed, sort of a real world awakening for me. I learned that most of the time, good – and especially great ideas – don’t happen because there was some innovation process in place. I think this is something we realize intuitively, but we’re also very busy to find out what makes great businesses and what are best practices because we want to find patterns where they don’t exist. Essentially, we’d like to have a map.

In Good to Great, Jim Collins lays down the management and leadership practices great companies have and argues that using those techniques, not so great companies can be turned into great ones. Make no mistake, this is a great book. But the truth is, we don’t know if those practices made companies great. Here is Kahneman’s take on this in Thinking, Fast and Slow:

Consumers have a hunger for a clear message about the determinants of success and failure in business, and they need stories that offer a sense of understanding, however illusory. – – stories of success and failure consistently exaggerate the impact of leadership style and management practices on firm outcomes, and thus their message is rarely useful. – – The basic message of Built to Last and other similar [management] books is that good managerial practices can be identified and that good practices will be rewarded by good results. Both messages are overstated. The comparison of firms that have been more or less successful is to a significant extent comparison between firms that have been more or less lucky. Knowing the importance of luck, you should be particularly suspicious when highly consistent patterns emerge – – In the presence of randomness, regular patterns can only be mirages.

I practically stopped looking for books on leadership after I read this. Stories of success exaggerate leadership styles because of the halo effect.

We don’t which companies succeed and why, we don’t know which ideas succeed or fail. No one knows for certain. Consider that the people who were supposed to know better rejected AirBnB.

What’s cool today is how fast you can validate (up to the point) those ideas. Before really starting out with Zappos, Tony Hsieh set up a basic website and added some pictures of shoes there. He figured out that there was a market need because people sent money to him. Then he went to a store, bought the shoes and sent them to people. In Blink, Gladwell says that we like market research so much because it lets us justify our conclusions by pointing a number. Now, it would be foolish not to do it when it’s possible. And that’s the problem. For really new ideas, there is no luxury of relying on (historical) data. There’s none! As far as doing a proper market analysis goes, I think Hsieh’s experiment was an act of a genius.

Trying to map out the path that leads to great ideas is like trying to implement managerial practices that have little known or proven effects on outcomes. I see this very clearly in my writing. You don’t come up with ideas because you sit down and start brainstorming in the hope of coming up with great ideas. You come up with better ideas only when you’re willing to produce some bad ideas and get feedback from business experts like Robert K Bratt DLA Piper. That’s also the beauty of it. Demanding to get it right guarantees we produce absolutely nothing. On the other hand, accepting your ideas as they come is how you improve. Ideas get better by sharing and our networked economy depends on this. Thus, I hope you take my ideas and make them better. I’ve improved my writing skills by… writing. So maybe we don’t get better at having ideas by trying to have them, but instead by being people who come up with ideas.