But it looks like startup founders did insignificantly better at this task, rather than doing worse at it. I may be misreading Table 1.
No, you are correct and I misread your statement. Entrepreneurs donât appear to have this sort of overconfidence (at least according to this studyâs results). They (we) appeared to have more self aggrandizing confidence.
But I think we would agree that there is no luck in this caseâit seems like exactly the kind of model you are trying to argue against.
Cool, I thought you might be making this point but I didnât want to put words in your mouth.
Itâs unquestionably true that part of the variance is explained by the fact that any jackass can call themselves an entrepreneur and therefore the set of âentrepreneursâ has a greater range of skills than e.g. the set of software developers. But Iâm skeptical that this is the entire reason; to cite a fact from above: an entrepreneur who has a successful exit only has a 30% chance of success in their next venture. It seems unlikely that entrepreneursâ skills decline rapidly after a successful exit.
whatever confounder produced that large negative effect, I expect it swamps a modest practice effect.
I would agree with this more generally: there are probably modest skill effects, but they are incredibly hard to define and are swamped by the nosiness of startups. Especially once you look at âqualifiedâ founders (e.g. those with venture backing), the skill differentiation explains a very small piece of the variance.
Quoth Gompers et al.:
âWhile it may be better to be lucky than smart, the evidence presented here indicates that being smart has value too.â
I expect the real world is somewhere in between perfect competition and no competition.
Hard to argue with that :-)
Iâm still not entirely sure what lesson you were drawing from the efficient market hypothesis, but perhaps it doesnât matter.
Thanks for engaging with objections, and sorry for being so critical!
Itâs possible we just have a quantitative disagreement.
For example, I agree that there are very few people who could start a successful startup with high reliability. But quantitatively, I donât know how much variation in skill there is and how important it is. I think the most compelling statistic here is the 30% IPO rate for second startup (given success) vs. 18% IPO rate for first startups. But that seems to me like a pretty big effect, so Iâm not sure quite what to make of it.
I think you could just as well argue âSubmitting an academic paper to a good conference is a lottery ticket.â (In fact, the numbers are comparable). In some sense this is true, but I still wouldnât say âThe idea that there are some excellent papers is just factually wrong.â
Thanks Paul for the feedback, and for the reminder that we are criticizing ideas and not people :-)
The thing with academic papers was really interesting, and gave me pause. I would point out two similarities:
The set of all papers submitted to a specific conference is a lot more homogeneous than the set of all papers period. Similarly, the set of all entrepreneurs who get VC funding is a lot more homogenous than the set of all people who think about starting companies. So the statement âperformance within some limited subset is mostly due to chanceâ isnât necessarily conflicting with the idea that there is such a thing as entrepreneurial skill/âpaper quality.
Instead of drawing a lesson that there is no such thing as skill we might conclude that acceptance to a conference or having an IPO is just not a very good indicator of skill.
I also agree that this is largely a quantitative disagreement. Iâve spent the last year being surrounded by people who believe that variance in startups is completely determined by the founderâs skill, and that gives me a framing for what I write.
No, you are correct and I misread your statement. Entrepreneurs donât appear to have this sort of overconfidence (at least according to this studyâs results). They (we) appeared to have more self aggrandizing confidence.
Cool, I thought you might be making this point but I didnât want to put words in your mouth.
Itâs unquestionably true that part of the variance is explained by the fact that any jackass can call themselves an entrepreneur and therefore the set of âentrepreneursâ has a greater range of skills than e.g. the set of software developers. But Iâm skeptical that this is the entire reason; to cite a fact from above: an entrepreneur who has a successful exit only has a 30% chance of success in their next venture. It seems unlikely that entrepreneursâ skills decline rapidly after a successful exit.
I would agree with this more generally: there are probably modest skill effects, but they are incredibly hard to define and are swamped by the nosiness of startups. Especially once you look at âqualifiedâ founders (e.g. those with venture backing), the skill differentiation explains a very small piece of the variance.
Quoth Gompers et al.:
âWhile it may be better to be lucky than smart, the evidence presented here indicates that being smart has value too.â
Hard to argue with that :-)
Iâm still not entirely sure what lesson you were drawing from the efficient market hypothesis, but perhaps it doesnât matter.
Thanks for engaging with objections, and sorry for being so critical!
Itâs possible we just have a quantitative disagreement.
For example, I agree that there are very few people who could start a successful startup with high reliability. But quantitatively, I donât know how much variation in skill there is and how important it is. I think the most compelling statistic here is the 30% IPO rate for second startup (given success) vs. 18% IPO rate for first startups. But that seems to me like a pretty big effect, so Iâm not sure quite what to make of it.
I think you could just as well argue âSubmitting an academic paper to a good conference is a lottery ticket.â (In fact, the numbers are comparable). In some sense this is true, but I still wouldnât say âThe idea that there are some excellent papers is just factually wrong.â
Thanks Paul for the feedback, and for the reminder that we are criticizing ideas and not people :-)
The thing with academic papers was really interesting, and gave me pause. I would point out two similarities:
The set of all papers submitted to a specific conference is a lot more homogeneous than the set of all papers period. Similarly, the set of all entrepreneurs who get VC funding is a lot more homogenous than the set of all people who think about starting companies. So the statement âperformance within some limited subset is mostly due to chanceâ isnât necessarily conflicting with the idea that there is such a thing as entrepreneurial skill/âpaper quality.
Instead of drawing a lesson that there is no such thing as skill we might conclude that acceptance to a conference or having an IPO is just not a very good indicator of skill.
I also agree that this is largely a quantitative disagreement. Iâve spent the last year being surrounded by people who believe that variance in startups is completely determined by the founderâs skill, and that gives me a framing for what I write.