Start-up 'monomyths'

Book review of The Unicorn's Shadow: Combating the Dangerous Myths That Hold Back Start-Ups, Founders And Investors

Wharton professor Ethan Mollick covers a lot of ground in this slim monograph. He cites 150-odd studies of the start-up space to debunk myths, or “monomyths” as he describes them, that have built up around unicorns.

Monomyths (a term coined by the late Joseph Campbell) are myths that perpetrate across cultures. It is usually applied to the study of similar themes in creation stories, fairytales and the like but it is apposite in this context. The book’s thesis is that founders look at famously successful start-ups —Facebook, Uber, Google, Twitter, even Microsoft and Apple from a bygone era —and attempt to abstract and emulate the common elements.

They probably shouldn’t. The long shadow cast by successful unicorns masks the fact that many start-ups have wildly different models. Wannabe founders and investors often lose out by trying to force-fit everything into the same moulds. The debunking of monomyths leads organically into examining the counterfactuals, which is how the book delivers insightful advice on several aspects of the start-up ecosystem.

One myth is ageism. It is canonical for venture capitalists (VCs) to seek young founders. But a monumental study led by Wharton colleague Daniel Kim, discovered the average American founder of a new business is 42, and the most successful founders (Netflix, Huffpost, General Motors are some examples) have tended to be aged somewhere between 45 and 59!  Messrs Gates, Jobs and Zuckerberg are outliers. 

Data also indicates that, contrary to popular belief, you don’t need a co-founder. VCs prefer to fund businesses with co-founders (think Hewlett-Packard, Jobs-Wozniak, Gates-Allen, Brin-Page) but the research suggests two out of three start-up failures occur due to conflicts between founders.

The world over, what works best is either a lone wolf, or a team composed of family and extended family. That’s an insight to warm the hearts of desi business clans. Founder agreements also tend to flounder when they look at past contributions rather than being geared to cope with an uncertain future filled with change.

The Unicorn’s Shadow:  Combating the Dangerous Myths That Hold Back 

Start-Ups, Founders And Investors

Author: Ethan Mollick

Publisher: Wharton School Press

Price: Rs 1,278

Where do good ideas come from? A good night’s sleep, plenty of downtime and working smart rather than slogging mindlessly, according to the book. There are other concrete suggestions. For example, start group brainstorming sessions alone because people thinking solo generate more ideas. Spend the first third of a group session sitting silently and listing your thoughts. Silently pass on ideas to other members who modify and pass them on as silently — this is “brainwriting”. Coffee is good as a lubricant; so is tea; booze in moderation can result in creativity but it also contributes to toxic corporate cultures and has a high correlation with corporate fraud.

There are some other fascinating approaches to ideation. One is the effectual reasoning technique articulated by Dr Saras Sarasvathy. Start with three questions: “Who are you, what do you know and who do you know?” Work on ideas that can be implemented now, based on the answers.

Another approach is “framing”, which involves imaginatively thinking about business opportunities. For example, how would an astronaut shave? How much would a rich individual pay for continuous secure back up of personal data? Conversely, how much would an average smartphone user pay for this service?

In addition, interview potential customers, ideally people who are not part of your circuit. Also read widely, and follow “thought leaders” on social media. Check out university technology transfer programmes and patents available for licensing. 

Take notes obsessively.

Test your ideas and hypotheses systematically and scientifically, using methods copied from science labs. Quantify hypotheses to see if they are true or false. Look for gaps, flaws and areas of uncertainty. Use cheat sheets like the Harvard Business Model Questionnaire where Thomas Eisenmann suggests questions the entrepreneur must answer.

There’s also good stuff about cultivating VCs and the known biases (gender, colour) in the social game of fund-raising. A start-up game designed by the author, indicated that 1 per cent more in the way of female VCs would result in 272 per cent more funding for women entrepreneurs.

There’s some thoughts on crowd-funding too. Crowd-funding has surpassed government endowments of the arts and, according to Professor Ramana Nanda (Harvard Business School) crowd-funders tend to be at least as good VCs in their judgement calls. Interestingly, crowd-funded projects fail far less often than VC-funded businesses, according to the research.  

Pitching for funding is another area where behavioural science can contribute to effectiveness. There are some nice structures described in this chapter, starting from blitz elevator pitches and moving into multi-slide-deck territory. The last section focusses on growth, how to manage it and how to hire for it. But it starts with a disclaimer that it’s perfectly okay not to want to grow. There are also caveats about the wrong kind of growth.

This is a consistently interesting book that shines a laser deep into the guts of the start-up ecosystem. It also starts by exhorting readers to treat everything referenced and all opinions expressed with scepticism. As such, it could be fantastically useful to anybody who’s looking to invent a better mousetrap or an app that finds better mousetraps. The studies cited are linked in the end-notes and the author has also created a website, https://www.unicorns-shadow.com/ with further resources.