The Levers of Innovation

A Shortage of Founders, Funding, Foundations, or Guts?

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What makes anything happen? Increasingly, there are no simple answers to that question.

My wife and I enjoyed watching a TV show called The Good Place a while back. One unique aspect of the book is its use of a number of frameworks from moral philosophy and ethics. Over the course of the show, the main characters discover that the afterlife isn't all that fair after all. They find out they're subject to a points system, positive points for good actions and negative points for bad ones. You get enough points, you go to The Good Place. Not enough? It's The Bad Place for you.

The problem in this theoretical ethical construct is that the point system hasn't been updated since early civilization. As one of the non-human characters explains, "life now is so complicated. It's impossible for anyone to be good enough for The Good Place." For example?

"Just buying a tomato at a grocery store means that you are unwittingly supporting toxic pesticides, exploiting labor, contributing to global warming. Humans think that they're making one choice, but they're actually making dozens of choices they don't even know they're making."

As life has become increasingly complex, interwoven, and messy, it becomes so much more difficult to understand what really drives any particular outcome. Chris Power, the CEO of Hadrian, recommended a book called The Fourth Turning to me. I bought it in a bookstore recently and haven't finished it yet, but just within skimming the first few pages I already found this quote that stuck with me:

"We perceive our civic challenge as some vast, insoluble Rubik's Cube. Behind each problem lies another problem that must be solved first, and behind that lies yet another, and another, ad infinitum. To fix crime we have to fix the family, but before we do that we have to fix welfare, and that means fixing our budget, and that means fixing our civic spirit, but we can't do that without fixing moral standards, and that means fixing schools and churches, and that means fixing the inner cities, and that's impossible unless we fix crime. There's no fulcrum on which to rest a policy lever. People of all ages sense that something huge will have to sweep across America before the gloom can be lifted—but that's an awareness we suppress. As a nation, we're in deep denial."

I feel this way all the time. Everything is so intermingled and complicated that I struggle to know what to do to improve anything without unraveling anything else.

That same feeling of inquisitive frustration was peaked by something I tweeted this week. An exceptional question that Tyler Hogge asked Marc Andreessen. A similar complicated multi-variate problem is "which part of the startup value chain is the constraint preventing us from 10x'ing the number of exceptional startups?"

In posting the question I got both a lot of interesting responses, additional data, and requests for what my perspective is. So that's what I've been chewing on this week and what I wanted to write about.

What's The Bottleneck?

In Tyler's question to Pmarca, he lays out a few possible options to what stops up from having 10x as many exceptional startups:

1. Not enough exceptional founders?

2. Not enough capital?

3. Not enough great ideas?

4. Something else?

As I think about answering the question, there was a sequence of things that I thought were worth unpacking.

First, what is an exceptional startup? At one point, Theranos, WeWork, Hopin, and FTX would have been considered exceptional startups. Do we want more of those? I think there is a mix of outcomes we want. We want more small business, even if they're lifestyle businesses. But we especially want more large outcomes that push human progress forward.

Second, what are we trying to unlock? Why do we want 10x the number of great startups? There is so much animosity against ambition, progress, technology as an industry. But the reality is that the protests of people who hate Elon Musk or hate technology is a privilege that, in large part, is enabled by (1) democratic freedoms that America affords, and (2) privilege engendered by the progress of the same technology those people now hate. But despite those protests, progress is good. And I desperately want more of it.

Finally, third, what is the bottleneck? What is the constraint that, if addressed, could unlock 10x more of what we're trying to unlock from question 2? So let's dive in.

What Is The Bottleneck?

Going back to Tyler's original question, he posited a few potential options. Some of them included a shortage of capital or a shortage of ideas.

Is it a shortage of capital?

If there's one thing I've written about over and over and over and over and over and over again, its the dynamics that invite more and more capital into the world of startups and venture capital. And, after having written probably 100K+ words on the idea of the business model, I can tell you there is no shortage of capital.

Several of the people in the replies to my tweet thought it might be, but I feel like the only people who think there is a shortage of capital are the people who are struggling to raise capital for themselves. Many of those are people with bad ideas, bad businesses, or who come across as bad founders. But there are also many who have bias that works against them, making it harder to get capital, despite their potential to be a great founder building a great business.

If anything, the only shortage of capital is a shortcoming of allocation as opposed to amount. It's not that we don't have enough capital but that we don't have a good enough framework for what a good founder looks like, so capital gets concentrated to a very specific archetype. And that should most certainly be addressed, but it isn't a shortage of capital. It's a bad allocation of capital.

Is it a shortage of ideas?

One of Tyler's other possibilities was the shortage of great ideas. One concept I've written about before is what I call opportunity canvassing. Back then, I explained the idea this way:

"The age-old mission of any entrepreneur is to identify opportunities and take advantage of them. One of the biggest opportunities seems to be in-line with a time-tested recipe. Looking for dinosaur incumbents that are far from dynamic, but who represent massive pools of revenue ripe for the taking. Understanding why a category has remained under-innovated is more critical than ever because if it was easy, it would have been reinvented already."

One response to my tweet pointed out that it feels like there aren't enough opportunities for a large enough market. "If you 10x the number of exceptional founders you’d mostly get more competition for the same TAM." While that is certainly true, and you see a lot of this play out where some great companies and great founders are competing for the same TAM, I'll make two observations. First, competition is good. It forces companies to be better. Second, the best markets are created, not found.

I think often about quotes attributed to the likes of Thomas Watson at IBM in the 50s, "I think there is a world market for maybe five computers." Or Ken Olsen who said in 1977, "There is no reason anyone would want a computer in their home."

From ecommerce to digital payments to short form media to space exploration -- there were always opportunities for people to say "Oh, I don't think the market is very big." But the role of an exceptional founder is to find a market where there is an opportunity, or coax a market into life. That's not to say they can shape human behavior, but they can ride it. Observe it, and capture value from where it's headed. Classic "if you ask them what they want, they would say a faster horse."

Another key aspect comes, as one person framed it and then my brain paraphrased it, the ideas that we solve represent an element of culture. The problems we feel called to solved are a function of our lived experience and observed reality. So many people are motivated by making money or being popular, rather than solving legitimately massive and genuine problems. The future gets built more and more slowly as more people give into status quo over revolution.

But I think the reality is that there is enough capital, enough ideas, enough big markets. The reality is that Pmarca is probably right in his thinking. It's a shortage of exceptional founders.

A Shortage of Exceptional Founders

When I look at the vast majority of other people's thoughts and responses to my tweet, many of them could be summed up as symptoms of the overall problem, which is a shortage of exceptional founders. In my perspective if you have an adequate supply of capable AND resourced people tackling important problems, then many of the other barriers get broken down. Maybe not all, but a lot.

So, what makes an exceptional founder? And why is there a shortage of them? First, I'll start with the answer Pmarca gave 1.5 years after the tweet I shared. Then I'll summarize what other insights I've seen. First, Marc's answer to the question, "what makes a great founder?"

"Intelligence, passion and courage. The first two are traits and the third one is a choice. I think courage is a choice. Courage is a question of pain tolerance, right? So how many times are you willing to get punched in the face before you quit? And here's maybe the biggest thing people don't understand about what it's like to be a startup founder is it gets very romanticized, right? And even when it, even when they fail, it still gets romanticized about like what a great adventure it was. But the reality of it is most of what happens is people telling you no and then they usually follow that with 'you're stupid,' right. No, I will not come to work for you. I will not leave my cushy job at Google to come work for you. No, I'm not gonna buy your product, you know, no, I'm not gonna run a story about your company. No, I'm not this, that, the other thing. And so a huge amount of what people have to do is just get used to just getting punched and the reason people don't understand this is because when you're a founder, you cannot let on that this is happening 'cause it will cause people to think that you're weak and they'll lose faith in you. So you have to pretend that you're having a great time when you're dying inside, right? You're just in misery. It is a level, this is actually one of the conclusions I think is that I think it's actually for most of these people on a risk adjusted basis, it's probably an irrational act. They could probably be more financially successful on average if they just got like a real job in at a big company. But there's, you know, some people just have an irrational need to do something new and build something for themselves."

Risk Appetite

A lot of people pointed to the need for more people who are willing to stomach the risk of tackling a startup. As KP puts it: "Genuine fearless ambition is missing, talent is fairly common."

Others frame the need for more risk appetite as a question of financial luxury. The less financial resources you have, the less comfortable you feel taking big risks. There is a fertile conversation around helping founders get some cash out at a certain point so they can comfortably swing for the fences vs. risking losing everything.

My friend Eric Anderson asked the question of "I wonder how much immigration policy plays a role here. Lots of talented people trying to satisfy visa requirements that would prefer to be building." Another important point that I think is related to risk. If you're too worried about your immigration status, and that status is tied to a specific employer, then you're trapped.

Trauma & Suffering

Another common response was not enough trauma and suffering. "Hard times create exceptional founders." I've written before about a comment that Josh Wolfe has made on the subject:

"He's famous for the saying, 'chips on shoulders put chips in pockets.' He believes that for people to build something truly great, they have to have an intense dissatisfaction or disaffection. He takes this to the logical conclusion that, while mindfulness and meditation may be good for individuals they are 'TERRIBLE for society.'"

When I wrote about this last time I said that "mindfulness, or self-satisfaction, can co-exist with dissatisfaction." You can be happy with yourself AND dissatisfied with the state of the world to the point of wanting to change it. So I don't know that we should want to traumatize our kids to help them be better founders.

But trauma and suffering are different. I most certainly agree that doing hard, painful things is an important pre-requisite to being an exceptional founder. As Jensen Huang has said:

“If you want to build something great, it’s not easy. You have to suffer, you have to struggle, you have to endeavor. And there are no such things that are great, that are easy to do.”

Courage

Peter Thiel talks about entrepreneurship, by definition, needing to be the act of doing something "new, different, that's not precisely been done before." And that act of going against the status quo requires courage. And, as Thiel explains:

"Courage is in much shorter supply than genius."

I think this is related to being willing to endure risk and suffering because that takes courage. Like Pmarca said, "how many times are you willing to get punched in the face before you give up?"

Theil's quote is a really interesting juxtaposition between willing to be different and, by extension, having courage. Because it takes courage to be different. I've written over and over and over and over again about an exceptional talk by Visakan Veerasamy, where he talks about deviance:

"Most human creativity is spent suppressing human creativity. Deviance is punished by social regulation. That's why we don't have 1000x the greatness that we could have every year."

I think this idea is one of the absolute most critical, so I'll repeat it again! We spend so much of our creative effort not in creating, but in constraining. We leverage social regulation to punish deviance when, in reality, the ONLY way progress occurs is when deviance is unleashed. And I agree with Visa. If we could unlock deviance, and empower people to pursue their uniqueness, we would have "1000x the greatness."

Customer Focus

People like Dan Scheinman described it as a shortage of founders who are "customer focused." In other words, are we building the right things that enable us to build an exceptional business? Look no further than Bezos' "Customer Obsession" leadership principle for evidence that this is true.

Top-of-Funnel For Founders

I really loved this response saying that there are people who could be exceptional founders but they just haven't been exposed to building a company well enough to know they could do it. "If you didn’t have someone of influence show you at formative age (childhood or college) that this was a viable career path, you may never know."

I've written before about this idea in The Rising Generation and believe that it certainly contributes to the problem:

"Kids absorb what they get exposed to. Especially before kids get into their teenage years, ego and paranoia haven't set in yet, and so they are able to be uninhibited sponges soaking up everything they see, hear, and experience."

If people don't know the path into the role then they can't get there, and that's the shortage.

Final Thought: A Complex Web

So how do we 10x the number of exceptional founders? Which of these bullet points should we reinforce most aggressively. The unfortunate answer to end brings us back to the beginning. I started with things like The Good Place describing the complex choices we have to make and The Fourth Turning explaining the interconnected complexity of any issue because it best represents how I feel. It's all connected and difficult to parse what levers are most important to pull.

One of the responses to my tweet was quite thorough, and I loved the synthesis of what I had already seen from a bunch of other people in parts. Sparsh Saxena explained it like this (I'll paraphrase):

"Lack of exceptional founders lies in a particular mindset that the cultural fabric of society allows to pervade. The characteristics of that mindset include:

(1) Freedom To Be vs. Freedom to Do: Entrepreneurship thrives on human eccentricity; the freedom to think independently, and not have thoughts borrowed from the collective opinions of the people around you (e.g. deviance). This is different from political freedom to do things. Modern thinkers confuse equality with standardization.

(2) Normalization of Adversity: People aren’t fundamentally scared of adversity, which is a key ingredient for greatness. People are scared of other people’s reactions to their adversity. If we have a culture where people going through struggles to live their dreams are respected, that culture will produce great founders. Today, social media glamorizes a perfect life and reduces tolerance for adversity. We need a culture that respects the number of times someone got up after falling. Not the number of people who are watching someone pretend to never fall.

(3) Community-Driven: You want to go fast, go alone. You want to go far, go together. The west is an extremely individualistic society, but look closely at the greatest entrepreneurs and you will find a little piece of the “East”. People who struggled abut found greatness want to help others achieve greatness. The people who are struggling should feel safe and supported by the community.

(4) Prosperity: Great founders always start with “thinking beyond”. This is only possible when they aren’t thinking about their physical safety, next meal etc. If a society is thinking about survival, they cannot think about innovation.

(5) Fulfillment & Spirituality: This need not be about god, it can be family or being charitable or love etc. But if a culture is purely moving towards material things and selfish desires, one cannot build greatness.

And I agree with the gist of all that. It's not one unlock. It's not a founder bootcamp. It's not abolishing therapy. It's a complex web of things that we should want to unlock. We should want more innovation. And the only way we can do it is by helping more people become exceptional, and then help more of those exceptional people be able to start companies.

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Note: I’ve mentioned this before, but I’m on paternity leave right now so my writing is less than great. Not only did I not re-read this after I wrote it (so I’m sure there are plenty of mistakes and typos), I also didn’t have time to use all the resources I had lined up. For example:

• This interesting thread on how often people are "thrice-exceptional": Smart, stable, and exceptionally hard-working.

• A video about why divergent thinkers beat specialists

• A podcast I did a year ago but I couldn’t remember what I said and I didn’t have time to listen to it again to remind myself what I said lol.

Enjoy!

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