Sillywood, Part 2: Perceived Success Breeds Success
Hollywood star power exists in Silicon Valley too
In a previous article on similarities between the hit-driven nature of Hollywood and Silicon Valley, I discussed the tendency of perception to become reality (see Believing Makes It So). Projects that manage to convince each necessary participant that the others believe it will work (customers, financiers, talent, etc.) will get the chance to succeed. Those that fail in one of those will never get off the ground, no matter how good the core idea.
This leads to the situation that frustrates so many starting out in the business: everybody wants somebody else to validate an idea. When everybody is looking to each other, the market tends to reduce evaluation down to the lowest common denominator. When people are trying to predict how others will judge a project's success, they cannot be overly sophisticated in their evaluation methods. Instead, they use very simple, visible cues.
Perceived Success Breeds SuccessThe simplest, most visible cue is evidence of past success. Admittedly, this is odd in an industry where success is as much (if not more) luck than skill, and is actually a confluence of many factors rather than one person's contribution. Beyond that, success helps even if the past success has nothing to do with the new venture.
Past success is one of the few ways to overcome the chicken-and-egg problem of how to start the virtuous circle of belief when all the players are looking to each other for cues. To be concrete, Sergey Brin and Larry Page (Google's founders) will have no trouble starting their next venture. The press will write about it, investors will be lining up behind them, and they will get good employees. People will try out their product. They are in the enviable position of being able to actually look for a good idea to commit themselves to, rather than having to generate interest.
Marc Andreesen followed this path after Netscape when he started a company called LoudCloud. It was not a terribly original idea (better outsourced web hosting, which they eventually sold to EDS to focus on the Opsware software they created). However, he attracted a crack team, investors, and enough press to get a reasonable number of customers. It worked not because the idea was brilliant, but because of Marc's past track record.
But Marc's track record was built on having the best technical execution of an original idea (Mosaic was the best graphical browser). There's nothing in his capabilities or background that would make him better at the business side of starting a company than anybody reading this now. The business side of Netscape was handled by Jim Clark and Jim Barksdale. All of us know of Marc's past success, though, and will invest even if it had nothing to do with remarkable business savvy on his part. We invest because we know the other pieces are also more likely to come into place.
Again, it's just like Hollywood. Anything Tom Hanks makes will get funding, a wide release, massive publicity, and top talent working on it. It's not because he's a better actor than anybody out there. It's because Hollywood believes his pictures will be a success. Tom Hanks will be the lightning rod that attracts all the necessary factors to make the production happen because of his success with past pictures.
Getting to that point is a matter of associating yourself with those who have already made it over that hump, much as new acts open for established stars in concerts. Working with an entrepreneur with a track record of success will give you an opportunity to be associated with a successful project yourself. That gets some of the success mystique to work for you, rather than against you. Seeking out those people to work with helps perpetuate the phenomenon, which is one of the reasons why the effect is so strong.
Star power isn't only for Hollywood - the star system is here in Silicon Valley too.
Coming Soon: All The Money Is In Sequels
Kevin,
This is FANTASTIC stuff. Great thinking, and very insightful. I also can't stop myself from laughing when I think about your title - Silicon Valley crossed with Hollywood - Sillywood. ;-)
Dave
Agree with your comments - and Marc Andreesen is perhaps the best example you site in your piece. Loudcloud was junk, and Opsware, while being an interesting small software company, trades at an incredibly inflated valuation due, I think, to his involvement. Certainly there is little to support the company's current stock price except the constant press releases from the company's headquarters.
I disagree.
This may be what is currently happening but that does not make it a good thing. For the VC or the new entrepreneur.
The Andreesen example proves that the entire approach is wrong-headed.
The Netscape investor's probably made waaaay more money than the LoudCloud investor's.
Take a look at the top software or hardware companies. Oracle (Larry Ellison), Microsoft (Bill Gates), Dell (Michael Dell) and you'll learn that a VC only gets ONE shot at the true stars of tech and that is when they are not stars as yet!
Or in Wayne Gretzky's immortal words - skate to where the puck will be - not where it is!
In movies the real stars have many hits. In tech they have just one massive hit!
Shiraz Kanga
Kevin, great thoughts.
For the anatomy of Buzz 2.0, check this out...
Very interesting that Malik's comments were incorporated in the product design. What if companies were able to incorporate this type of open source feedback as they built there products?
http://www.guardian.co.uk/online/story/0,3605,1260983,00.html
I think this is based upon a common tendency for people to use branding in high-risk/low-information decisions.
VC funding is a classic high-risk/low-information decision as is investing in movies, and investing in lines of clothing.
On the personal level this is the case with housing contractors, automobiles, and, at one time, computers.
In all these cases people tend to rely on brand name as a promise of future success. In cases like Silicon Valley, this creates a self-fulfilling prophecy that makes this a smart decision. The brand name you invest in will gather the best resources and have the highest chance of success.
It just goes to say that VC's are generally weak themselves and the only thing they can go with is track record of a proven person, not technical merit or potential to really make it big.