On Startups, Contrarian Ideas, and Miracles

January 22, 2017

A good startup notices something about the world that everybody else got wrong and exploits it for profit. To put it another way, a good startup is built on at least one “contrarian idea” about the world that turns out to be true.

Unsurprisingly, it’s rare to have a contrarian idea and actually be right. So I refer to this – the act of having a contrarian idea that turns out to be right – as a “miracle.”

For example, Netflix (in its original form) had the contrarian idea that you could safely mail DVDs in flimsy paper envelopes via the United States Postal Service without the disk shattering into a million tiny pieces or otherwise becoming unplayable. And, unbelievably, they were right. That was a miracle.

When I analyze a startup, I count how many contrarian ideas exist in the startup’s plan. Each contrarian idea requires a miracle, and miracles are rare. Based on experience, I’d estimate that each miracle lowers a startup’s chance of success by a factor of 5. So if you were 10% likely to succeed with one miracle, you are 2% likely to succeed with 2 miracles.

A common mistake of new startup founders is to build their startups on top of more than one miracle. This is unfortunate – each extra miracle adds a huge amount of risk but typically doesn’t add a proportional increase in reward.

What complicates things is that sometimes miracles are hidden, and sometimes miracles are inherited. I hope to write more about this in the future.

Examples of miracles in well-known startups:





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