bi-weekly column with timely,
relevant and possibly irreverent
insight into the BC technology
October 5th, 2007
Greenstone Venture Partners
“My beloved lets get down to business,
Mental self defensive fitness,
(Yo) bum rush the show,
You gotta go for what you
Make everybody see, in order to fight the powers that
Lemme hear you say...Fight
– Public Enemy, Fight The Power
Conventional Wisdom can be a dangerous thing.
By definition, if you follow it, you are with the
crowd and not against it, which in society might be
good. But in business, particularly in entrepreneurial
businesses, being with the crowd is definitely bad.
As an investor in early stage businesses, it is
always bad. Let me explain.
think of conventional wisdom in its simplest form as
“they”. You know the conversations…
they start in childhood. “They” say
that eating too much fatty food is bad for you.
“They” say that living under high voltage lines
causes cancer. “They” say that the
US economy is headed
for a recession. Who are “they”
anyway? “They” are not a person, but
a collection of evidence, anecdotes and persuasion that
offer a conclusion. A conclusion
that is unassailable because “they” are the crowd or the
majority. “They” are a conventional
Some of you will have read James
Suroweicki’s book titled The Wisdom Of
Crowds. It was a fascinating
read in which the authour
shows that statistical sampling (a diverse crowd) can
lead to a correct answer. From this
nicely written pretence, we got Web 2.0 theory,
crowdsourcing and all sorts
of new ways Don Tapscott can
look cutting edge and remove money from your wallet with
yet another book and speaking tour about how the
Internet will change your life. This
is NOT what I am talking about. I am
talking about the danger of crowds as it relates to
Suroweicki does address this
in his book quite well. He talks
about how disastrous answers come from poorly designed
“crowds”. Specifically, the hidden
danger is conformity in the crowd.
One theme starts to dominate, more and more people see
it as the “safe” bet and it becomes…
ta-da… conventional wisdom.
I want to talk about how conventional wisdom
created by the crowds can cloud your individual judgment
and make you miss an opportunity.
Sometimes conventional wisdom moves to more solid ground
and becomes dogma. If conventional
wisdom is defensible, dogma is inscrutable.
Gosh, I hope dogma isn’t wrong…
are the entrepreneurs. You are
looking for opportunity constantly.
Like some sort of hyper ADD kid, you think of or hear
about new ideas or new ways to sell, build or ship your
existing products every day and you have to filter those
down to the ones that you think will work.
You know that conventional wisdom sucks.
Conventional wisdom said that the Internet was a
fad for geeks. Conventional wisdom
said that Internet advertising would never be serious
money. Conventional wisdom said that
there was no way the stock market could keep going up in
1997… and 1998… and 1999…
Conventional wisdom said that no one would want a camera
in their cell phone. I could write
four pages of what conventional wisdom said about market
opportunities that turned out to be wrong.
The trick is to look at what conventional wisdom
is saying right now that might be wrong… and place your
Today conventional wisdom says that the
US is going into a
recession because the consumer is tapped out and cannot
save the economy like they did in 2001/2002.
Conventional wisdom today says that there are no
more opportunities to create a giant technology company
because the glut of private equity and the market
dominance of the established gorillas will always lead
to you selling out before you can dominate.
Conventional wisdom says that finding early stage
venture money in
will be harder in the next two years than in the last
I said, the entrepreneurs get it. Or
rather, they don’t conform and don’t look for
opportunities where the crowd thinks they are.
It’s the investors who have a lot of trouble with
conventional wisdom. Let’s look at
some examples locally:
Conventional wisdom prevented all local investors,
except a handful of angels, to believe that Stewart
Butterfield’s idea for an on-line social game was worth
investing in. There was no revenue
model proven for gaming at that point… When he turned it
into a photo sharing site with clever tagging
technology, the revenue model still didn’t make sense
and then he sold Flickr to
Yahoo. While it wasn’t an enormous
amount of money… it was (and still is) a leader in the
new Web 2.0 space.
conformity of the investor crowd is also known as the
herd mentality… it is a cancer on the investment
community that they accept conventional wisdom.
Another example: Conventional wisdom is that
digital entertainment is a graveyard for investors.
Yet a steady stream of companies with only
friends and family money have exited well for their
founders in BC in the past 5 years: Radical, Relic,
Black Box and some little kids entertainment thingy
called Club Penguin. Now try and get
investors to go into that space still… not on your life.
The herd rides on!
What about the investors that go
against the grain? Reject the
conformity? Sequoia is arguably the
most successful VC fund in history.
Cisco, Yahoo, Google and YouTube.
Each of these was against conventional wisdom.
Cisco was rejected by most in the earliest days
because conventional wisdom was that packet based
networks were for niche applications.
Yahoo was rejected because conventional wisdom
was that anyone could duplicate a directory of the
Internet. Google was missed by most
because it was the 33rd search engine into
the market and conventional wisdom was that you needed
to be a market leader (remember first mover advantage?).
YouTube was spurned
by most because it had a significant cost disadvantage
from bandwidth costs with the way it was structured.
Sequoia placed bets against the grain and won
can be safe and go with conventional wisdom… because
most of the time, at least for some period of time, it
is right. But the real opportunities
to make money are not with the conventional wisdom, but
against it. Clearly risk capital and
risky entrepreneurs need to place bets outside of the
conventional thinking in order to hit it big.
What Do You Think? Talk Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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