Entrepreneurial Science Perspective On Luck & Value Propositions
Because Covid-19 And Human (Ir)Rationality — Part2 is a complex essay, it’ll take a little while.
We’ll be analyzing hoarding, price gouging, and market (in)efficiency through the lens of different economic perspectives. Read Part 1 here.
In the meantime, instead of leaving y’all with nothing, here’s a short riff one two important topics.
i. How luck works in entrepreneurship and startups
ii. Value propositions (i.e. or how to sell your stuff)
THE ENTREPRENEURIAL SCIENCE PERSPECTIVE ON LUCK
Those of you that follow How I Built This, a podcast with founders of the biggest fortune 1000 companies, know that Guy Raz always asks his guests the following question: How much of your success was due to luck and how much due to hard work?
The fact that he still asks this question might tell us a few things:
- We don’t know a lot about luck in business, hence we’re still asking questions about it. (No one is asking questions about two-dimensional motion, we’ve figured it out.)
- And or, it’s a poorly worded question.
- And or, luck is ill-defined.
I actually think it’s not necessary to ask all founders that question. I think we DO understand the role of luck but the problem lies in the accidental amalgamation of confliction situations within one label, luck.
YF’s view is that we need to make a clear distinction between pure luck and forced luck. Sitting at home and accidentally winning $10M dollars because you got a free lottery ticket with a magazine you bought, is pure luck.
Working diligently over a long period of time until you succeed is a kind of forced luck.
Now, situations, where it gets a bit tricky, are the ones where whether they’re pure luck or forced luck depends on the perspective you take.
We talked about this yesterday in Covid-19 And Human (Ir)Rationality — PART 1 in terms of systemic v. individual risk, and we talked about this in Physics Envy with ergodicity, the ensemble v. time perspective.
A person that tries 87 startup ideas over the course of 20 years before finally succeeding big is one such situation.
The strategy of saying: ‘I’m going to launch a new idea every month or if something isn’t working well enough until I find something that has a very high product/market fit (PMF)’, is forced luck.
The individual startup idea that eventually hits PMF is pure luck. In entrepreneurial science, YF calls this archeology, the first pillar of our Pragmatic Behavioral Psychology / Dutch School of Marketing thesis.
One final insight on separating the two. You can use probability to get a rough feel. The probability that I hit a hole-in-one if I hit 10 balls a day, every day, for 10 years. That’s 36.525 attempts. P(Hole in One) is roughly 8*10^(-5), so we’d expect around 3 hole-in-ones. If we hit a hole-in-one during those 10 years, that’s forced luck. The individual attempt where it occurs is pure luck.
THE ENTREPRENEURIAL SCIENCE PERSPECTIVE ON VALUE PROPOSITIONS
This can be covered quickly. In general, have one clear offer for one clear audience. The temptation entrepreneurs make is to offer everything to everyone. The problem is that i. you don’t know who to reach out to, ii. you don’t know what to say or how to say it, iii. you don’t have the budget to reach out to the world.
I’ve written a painstakingly detailed essay series on how to create sales messaging that actually sells: Alchemy: Turning Words Into Money. So if you’re interested in created better ads and copy to drastically increase your bottom line, I’d recommend it.
So in general, you make your life a lot easier if you can position your value proposition in a clear, concise way for a very specific audience. Once that’s done, you can grow into adjacent markets by ‘rinse-and-repeat’.
Being a Snapchat-only agency that works with fortune 500 companies to build campaigns that increase brand awareness by 237%, is better than being a marketing agency.
Niche first, scale later. Find 10 people that LOVE what you do.
YF doesn’t think there’s a difference between founders and entrepreneurs here. A founder (by definition) is searching for a repeatable, scalable business model. So there’s a good chance the value proposition needs to be found.
However, an entrepreneur copies an existing business model, but in a highly competitive market will need a way to get market share. That’s done by positioning yourself differently. Which means it’s likely you’ll need to mess with the value proposition as well.