Version 14: Hit-Driven Businesses

What does being a "good founder" mean and how do I get to there?

Nov 16, 2022

Welcome back to Threshold! This week I talk about entreprenurship bias and reflect on what investors are looking for in both founders and VR startups.

The Good Founder

Building a technology startup is a daily lesson in bias. When building products, founders usually defer to optimistic outcomes for their companies. Our ideas must be the right ones, or else why bother going through all the work of building them from scratch? We are encouraged to stay "mission-driven" and in defiance of the questionable odds. But how to best do so without ignoring valuable external signals?

Y Combinator (YC), a popular startup accelerator program, passed on our VR startup for a second time last week. In their rejection, they explained that “VR games are hit-driven businesses, so showing that you are able to grow is critical.” This is a helpful signal. Our VR sports game Derby currently only has a dozen users. I can suspend my own bias easily enough to know that we need more evidence to show this can become a good business.

It's also true that video games, like most media entertainment, can be hit-driven with difficult to predict success. High budgets don't negate flops, and viral indie hits like Stardew Valley show that hits can arrive in surprising ways. When you narrow it to virtual reality, the pool of overall gamers is smaller and more niche, making growth or "network effects" even more difficult.

But part of a Pre-Seed or Seed investment offering is that they invest in you pre-hit, and look to signals other than growth. YC’s own founder Paul Graham talks about mainly wanting "good founders" and how even without traction, YC wants to see startup leaders that are "relentlessly resourceful."

Paul Graham @paulg

YC prefers good founders without traction to bad founders with. So if you're a good founder, just apply.

During our most recent YC interview, 10 minutes of rapid-fire Q&A, our interviewer asked us two or three times what we would do if our idea didn't work. I'm guessing this was meant to sus out how relentlessly resourceful we were.

I like to think of myself as a pretty resourceful person. I can survive in the woods, code switch in any social setting, and love acquiring new skills or knowledge. But in technology entrepreneurship, being relentless seems dangerous. It often involves ignoring external signals and digging in on a personal bias. Zuckerberg is being relentless resourceful with spending billions on virtual reality and a metaverse, is he a good founder for it? Or look at the recent collapse of the crytpo firm FTX, as one could say that its founder Sam Bankman-Fried was relentlessly resourceful with customer funds.

Venture capital, including YC, is a system designed to return more money than it started with. It does so by reducing risk, taking big bets on founders, and structuring incentives via equity. Thus, entrepreneurship in general is a "hit-driven business," one where most companies shutter and few become hits. How best to ensure a hit, though?

The counter-intuitive truth, is that most startups succeed not on the basis of merit or idea, but on timing. It’s hard to admit this: that ideas mean nothing, founders mean something, and timing means everything. Like Goldilocks coming across the right bowl of soup, you have to kinda get lucky. But that ruins the myth of the gritty and intentional entrepreneur. Of the good founder.

With no successful exits or equity that has manifested any large capital return, I hardly feel like a good founder. As someone that lives comfortably and doesn't care much for money, I’m more motivated about the growing "digital divide" than the viability of cryptocurrency. But as a creative person, I also know that the products and visions in my head wouldn’t exist if I didn’t create them. So, am I a good or bad founder?

Maybe our game Derby becomes a hit, maybe it doesn't. What do I do if the idea fails, if I'm being "relentlessly resourceful?" I'll keep doing what creatively fulfills me, growing my own definition of resourcefulness in the process. When it comes to entreprenurship though, I’ll let the odds be ever in my favor.

Derby Park, awating its literal hits (baseballs)

Hullabaloo

Amidst layoff announcements, Zuckerberg employs his misunderstood boi rhetoric and calls Meta "deeply underestimated as a company." Since investors are still skeptical, should the company spin off its Reality Labs business? LINK, SPINOFF

Meta has spent more money on its investments that the US spent on the Manhattan Project, and it's still an empty wasteland. The Verge also says of their new headset, "get me out of here." LINK, GET ME OUT

Apple might incorporate a "3D mixed-reality world" into its upcoming headset, according to job postings. Hopefully more populated than Meta's? LINK

Speaking of Apple, they're quietly acquihiring more AR/VR developers like Playdeo, who built a cutsey AR game where you guide an avocado. Can we get a Marcel the Shell version, next please? LINK

PlayStation VR2 ships in February 2023 and will cost $550. I'd pay that much if it meant a bundle with an actual PS5 as a slightly lower price, is that Sony's intention? LINK

Now that the Meta Quest supports hand tracking, finger support was added to VR Chat. ASL is a great use case, I hope it overshadows other spicy finger gestures. LINK

I've loved watching Amazon's The Peripheral (especially the home movie scene), which was originally pitched by Westworld creators as “Friday Night Lights” with a time machine." LINK

Among Us, Stranger Things and Wallace and Gromit are all receiving VR adaptations. Those are three cultural powerhouses, hopefully a good sign? AMONG, STRANGER, WALLACE

In the 19th century, virtual reality came in the form of "paper peepshows." Another piece of evidence that VR isn't a headset, it's a threshold! LINK