Day 16

How and where do you begin? If you’re justing getting started, the very beginning of the entrepreneurial journey seems the hardest. Those who have success have revenue numbers which seem out of reach, a follower count you can only dream of, and they seem to be everywhere.

The way I like to look at this is by acknowledging that Power Law is all around us. Probably 99/100 people reading this already heard it all before, but basically a power law describes a relationship between two quantities y and x such that y(x) = x ^ some power. When you plot a power law distribution it looks like this:

Another example of a power law relationship is the Pareto principle, or 80/20 rule, where 80% of the result is caused by 20% of cases. That’s the head of the graph. All the rest is in the long tail. You could put it even more bluntly and call it “winner takes all”.

It’s everywhere, in nature, life and business. From the distribution of crater sizes, the amount of food animals of a certain size need, the distribution of wealth across a society, pandemics.

Although you might want to call it the 99/1 rule instead. Inflation, a sign of the times.

So back to the beginning. What does this have to do with starting a business? Because so much in business follows this power law, looking at it in terms of power laws makes it simpler to understand why it seems difficult to start, and why success is in fact possible, and why certain routes are harder.

Audience, followers and marketing

For example, when looking at an existing large audience an established company has, it seems impossible to get there. You start out with 0 followers. Then finally you get your first follower or signup for your newsletter. Then finally another one, maybe 4 more. This will take forever! You’re at the end of the tail, and everything looks flat from here.

But. Power law! We see the same relationship in network effects, such as building communities, an audience or a following [1]. The value of a network goes up with the number of participants squared. So next time you send something to your followers, some in the network might notice it. Before you know it, people start sharing your content with some of their followers or friends. Slow at first, but the pace of new followers will pick up.

The important lesson here is to keep going. You shouldn’t look at the slow growth as it not working out, rather you are in the tail. This is the part where you shout in the void, and need to trust that it’s working. The network effect and power law are real. Similarly, you shouldn’t look at some other products following of 100K as unattainable, but rather see it as doubling only 16 times (of course it takes work, but that’s not impossible at all).

Content and thought leadership

The same applies to writing content and sharing ideas.

• 99% of all content is created by 1% of people
• 99% of the public debate is determined by 1% of the people (because they publish).

It looks like there is a lot of content out there, but related to the enormous size of the internet, there is almost none. That makes it way easier to have an impact on opinions, debates and establish yourself as a brand in a field you’re interested in.

• 99% of all traffic will come from 1% of your posts
• only 1% of all total views for your content will occur at the beginning

Almost nobody reads any of your content at the beginning, and that’s normal and expected. It’s important to keep publishing because you need the numbers to get to that 1% post which will do well (and make the rest of the content work you did compound).

Launches, internet points and product-market fit

Just to name some well-known examples to many startup founders: 1% of launches on ProductHunt will get 99% of votes, only 1% posts of Hacker News will get any traction at all. When a submission to one of those sites gets traction, the long tail of upvotes will just be a handful. You need to get to the 20/80 inflection point of the graph where suddenly it takes off and starts collecting all the other votes.

Having a great post or product is completely necessary to do that, of course. But the difference between 1000 upvotes and 1 upvote is not 1000x. It’s a few votes at the beginning, after which you’ll get the 99% of other votes. Again, good to realize this and not get discouraged and take one launch of a feature or product which failed to get traction as evidence that the entire concept is flawed.

The same goes for product-market fit. It’s a lot of long tail small changes which can suddenly bring you to the 80/20 inflection point where things really take off. Once things grow really quickly, you haven’t put in 1000x times the work, but a few doublings in the tail (which are just small numbers) brought you to this moment. From there on, everything goes quickly (feedback, revenue, press, and so on).

Competition

You will only have heard of a few big players (1%) in the market. They seem to be everywhere, but in fact there’s an entire long tail of businesses which have customers! Depending on the market, that long tail can be very lucrative. If you want to build a nice lifestyle business, don’t overlook big markets because there are a few large players. Build in the niches of the long tail.

Looking to become a big player in the field yourself, but see a lot of players? Only 1% of those will become really big, so if you’re willing to go for it, there’s less competition than you think.

Customers, support, reviews and pricing

Let’s end with a few more:

• 1% of your customers will be your biggest fans and spread the word. That’s why your MVP needs to focus on getting those!
• 99% of support is going to come from 1% customers. Don’t be afraid to “fire” them if it becomes unreasonable.
• Likewise, most revenue is going to come from a few customers and few price plans. Make sure your pricing plans follow the power law, and allow customers who see a lot of value to subscribe to a high pricing plan!
• There will be features which are only used by 1% of customers. Likewise, the vast majority of customers will only use a few core features. The long tail of customers which those extra features bring in will be relevant over time, but no need to launch with those.

The perfectionist needs to be told to ship faster. Because not shipping or having exhausted yourself by the time you launch is fatal. There is a critical difference between polish and wasteful perfectionism. Polished is an app that looks good and works well. Perfectionism is refusing to launch until every single bug is fixed, rewriting and refactoring backend and frontend code just to make it look nicer or cleaner. It’s wasteful work because large parts of your app and infrastructure will get rewritten anyway. Why seek perfection in something you’ll inevitably tear down?

The hustler needs to be told that making a really good product takes time so just sit down and do the work. Because you can’t grow a product startup if you don’t have a good product[1]. The engineer needs to accept that if nobody knows your product exists you won’t have any customers. If nobody knows what you’re building you won’t get any feedback. Having to face zero signups after spending a year on your beta is so demoralizing you’ll likely give up.

The spendthrift needs to stop squandering money. It’s the runway[2] you spend. Everything takes longer than you think and many startups fail simply because they run out of money. The miser should try to be less cheap. Sometimes you have to spend money to push your startup forward[3].

These are just some examples, but I think you get the idea.

In order to survive you want to embrace conventional and boring choices in some areas, because conventional choices aren’t terminal mistakes by definition. That leaves you with unconventional bold choices in those areas where you want your startup to stand out. Founders tend to be unconventional people, but it’s hard to be only moderately and selectively contrarian. That’s a problem because being contrarian and wrong can easily kill your startup.

People who are at one extreme need to shoot for the other extreme in order adjust their behavior enough and end up somewhere in the middle. 10% adjustments don’t cut it when your initial position is completely wrong. Your position is wrong because you are predisposed to believe facts that reaffirm your beliefs. To counteract your blind spots try to overshoot your goal and you’ll end up closer to the middle, where you want to be. This is counter-intuitive!

When you already have a reasonable middle position on any of these issues the advice you read and act on doesn’t affect you much. After all, it’s the big mistakes in startups that kill you. If you can survive until you reach product/market fit (= awesome product and accelerating growth) you’ll be fine even if you get all the small stuff wrong. You just need to avoid the terminal mistakes. Tautological, I know, but still easy to forget.

That’s the paradox of course correction[4]: when you at the one extreme aim for the opposite extreme to end up in a moderate position. If you’re an engineer with an inclination to do zero marketing, try to overdo your marketing and maybe you’ll do barely enough.

[1] You can build a different kind of business, e.g. where you provide some kind of B2B service manually that you’ll automate later, after establishing a market need.

[2] Your runway is the time you have before you run out of money. The sooner you can cover your living expenses the better.

[3] We’re pretty bad at this, admittedly, and have a tendency to reinvent the wheel..

[4] If this is a known concept I don’t what it’s called.