Posts Tagged ‘design thinking : Investment : paul graham : principles : startup : startup principles : venture capital : vision : vision driven reasoning : Y Combinator : ycombinator’

How to find Principle of Big success for your Business?

I am very much interested in studying great entrepreneurs and learning from them; especially, how they make big decisions. Lately I have been studying Elon Musk and trying to find out his principle of BIG success. He doesnt blog much or write essays :), so I have been watching his interviews and getting more details from it.

So the question we are asking here is, How vision drives the crucial decisions (getting funding or hiring key people) on the ground? or what is the Big Principle of success for a business.Ideas in this article were triggered afte reading about Principle of Big success here*.

I would like to discover the factors which will drive design of entrepreneur’s principle of success. I think, three factors drive this design:

1. Why Factor –

Entrepreneur’s conviction of WHY he is doing the venture? What is the prime motivation? This determines the success criteria of the Vision.

Paul Grahm says; “we’re not doing YC mainly for financial reasons, the big winners aren’t all that matters to us” YC want to make a “a big effect on the world” and hence he justifies his investment in Reddit. He goes on to say that, “Reddit, introduced us to Steve Huffman and Alexis Ohanian, both of whom have become good friends.” So in essence, YC is in startup investing for making a big impact on the world and in process they want to get associated with great minds! I think this is what drives most of their critical decisions. That’s why they invested in Airbnb, even though they were reluctant. Once you have clear WHY then comes finding out how to grow your business to become successful. Why will define the strategy.

In Elon Musk‘s case**, as he says; He thought that, 3 things which are important for humanity’s progress are – internet, inter planetary space travel and having economy which is based on renewable sources of energy (source). He decided to do something in those areas and went on to create PayPalSpaceXTesla and SolarCity(partially). For him starting SpaceX was a failure mission, his success criteria for starting it was getting everyone excited about to go to the Mars! His focus was on achieving something important rather than the idea of making money.

That’s a great tactic, once you identify what’s the most important thing to you is and decide to do something about it, then success/failure doesn’t matter to you; as for you success is inherent in your decision of pursuing it. How you will pursue it, will be affected by your passion of Why you want to do it.

2. Key facts

Key Facts of your business will determine how you can achieve the Why. As Paul says: “The two most important things to understand about startup investing, as a business, are (1) that effectively all the returns are concentrated in a few big winners, and (2) that the best ideas look initially like bad ideas.”

Now once the fact #1 is known; as in Paul’s case its “all the returns are concentrated in a few big winners”; then that will drive the how part of the principle. He says “… the huge scale of the successes means we can afford to spread our net very widely. The big winners could generate 10,000x returns. …We can afford to take at least 10x as much risk as Demo Day investors. And since risk is usually proportionate to reward, if you can afford to take more risk you should.” All this is based on key fact #1 and how to identify Big winners has its roots in fact #2 “the best ideas look initially like bad ideas.” Which by the will help us understand if our idea is Big or not 🙂

3. Growth Factor

Once you know the Key facts then you need pick up your growth rate. I think another great article ( by Paul Grahm about growth of a startup will help us understand this. This growth rate will in turn determine the large number of decision you take i.e how much risk you are willing to take, what should be your team size. So deciding growth rate will determine if Paul can afford to take at least 10x risk or 30x risk as compared to Demo day investors. By the way, he doesn’t talk about this in his article where he is discussing his success principle. But I think growth rate (strategy) chosen by him is driving the tactic of choosing to take 10x risk. Does that makes sense?

I hope this article help us understand how we can come up with our principle Big success. Do let me know your thoughts on the same.


*  Thanks to Santosh for triggering my chain of thoughts which became this article.

** By the way Elon Musk is a great guy and he is onto something BIG called hyperloop, calling it the 5th mode of transport!