Why Journalists Shouldn’t Try to Think Like Investors
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done it,” Graham explains. “So the most successful founders tend to work on ideas that few beside them realize are good.”)
The important point is that for YC, it’s all a numbers game. “The big winners could generate 10,000x returns,” Graham writes. “That means for each big winner we could pick a thousand companies that returned nothing and still end up 10x ahead.”
Now, if you’re a tech journalist with an investor mindset, you’re not angling for a huge financial return. It’s more about looking prescient. You want to be the writer who discovers the next Steve Jobs or Mark Zuckerberg. You’re willing to slog through interviews with a thousand mildly promising startups—and ignore a thousand less flashy ones—in order to find the gem. All along, you’re hoping that the products these companies are developing will be as game-changing as they seem to think. But you’re secretly wondering whether they’re wasting their time, and yours.
Here’s my main point: This is an insidious and destructive way for a writer to think. It makes perfect sense for an investor like Paul Graham, but it has nothing to do with journalism, which is supposed to be about helping people understand the truth of things. And the truth, in the innovation ecosystem, is that startups fizzle all the time, for all sorts of interesting reasons.
This isn’t tragic; it’s inevitable, given the small percentage of ideas that really are world-changing. And it may even be necessary, if you look at failure as a training exercise for entrepreneurs who will go on to create more value later. In other words, it’s just as important to understand the causes of failure at the thousand companies that returned nothing as it is to understand the causes of success at the one company that won big.
If I were to check back on all the startups I’ve profiled for Xconomy over the last five years and tally up my own “investment” record, I think it would be pretty mixed. In “Black Swan Farming,” Graham takes himself to task for being too cautious; he thinks YC should admit even more frogs with improbable-seeming, potentially unfundable ideas, reasoning that the outsized returns from the rare prince would justify the risk. But caution has never been my problem. I’ve been running a virtual affirmative action program for frogs. And if they never turn into royalty, I’m not upset.
No offense intended to any of the smart entrepreneurs I’ve covered—many of whom have hit the big time. I’m just saying that I try to base my coverage decisions on how interesting a company is, not whether I think they’ll succeed. And when I say “interesting,” I mean: likely to reveal some kind of lesson about technology or entrepreneurship that might be useful to readers.
In this sense, I think I’m a lot more like 500 Startups founder Dave McClure, who penned an entertaining piece this week called “Screw the Black Swans.” It’s a direct response to Graham’s essay. McClure writes of his own accelerator: “We’re happy to discover we have a few black swans, but our mission is to groom ugly ducklings.” He says the goal at 500 Startups is to teach promising entrepreneurs how to hustle, rather than to find great entrepreneurs and win them big investments.
That’s pretty similar to the way I feel. Thank goodness that my job here at Xconomy isn’t to pick winners or balance risk and reward. Rather, it’s to report on how entrepreneurs think, how the process of getting new technologies to market is changing, and how entrepreneurship contributes to overall economic growth. If I get to do that often enough, then hopefully my readers are the big winners.