Entrepreneurs Need “Modern Medicine”
Intuition-led practices have run their course. Now is the time for science.
In 1964, Supreme Court Justice Potter Stevens wrote an opinion that included an often repeated one-liner: “I know it when I see it.” Troublingly, this is an apt description of how we fund and support entrepreneurs today.
In full context, Stevens was admitting he was incapable of defining the specific evaluation criteria for films too obscene to be protected by the First Amendment. Absent a concrete test, he was forced to ask the American people to rely on his intuition. Effectively he said, “Trust me. I know what I’m doing and that’s all you have to go on.”
“I know it when I see it,” worked fine for one case before nine of the country’s top legal minds. However, it is not an effective way to make funding decisions on and to provide support to the 414,000 businesses that start each year in the U.S.¹
Over the years, the folks supporting startups with advice and capital have been called a lot of things: advisors, coaches, mentors, angels, investors, and even sages. I prefer calling them “Witch Doctors” because:
- They have no formal training.
- They take no board exams.
- They use no third-party-vetted devices or tools.
- They have only their wisdom informed by their experiences and lessons passed down through story-telling.
- There is little to no consistency between two witch doctors plucked from different areas of the country and/or different career backgrounds.
- There are no malpractice suits and there is generally little accountability.
- There are only ad hoc feedback loops based on tiny datasets to improve a witch doctor’s individual performance.
This is not a pejorative dig at those who support entrepreneurs. The best witch doctors offer incredibly valuable feedback and advice. They are typically volunteers, so we’re lucky to have them in the first place. One shudders to think where entrepreneurs would be without the benefit of this medicine, primitive though it may be.
Historically, entrepreneurs have struggled to find high-quality witch doctor advice and investors with open checkbooks.
In 2005, the entrepreneurial world changed. Paul Graham and his Y Combinator co-founders were the first to solve the mentor and investor search cost problem.²
Their successful convening model has been copied globally, and new accelerators continue to proliferate today.
It is time for the next step. For all their success, Paul and his team still aren’t close to a western-medicine-style approach, where interventions and decisions are science-driven and consistently applied.
Beyond the rarefied air of Y Combinator, we have pinned our communities’ hopes to our local accelerator programs, where a messy, chaotic blend of multiple witch doctors ask questions and hose-down companies with feedback. Reveling in this approach, some even sell “Mentor Whiplash” as a feature; it is plainly a bug.
A pre-publication academic study by Prof. Sandy Yu says that startups treated with accelerator programs are not more successful than peer companies. Odd isn’t it? Throwing more unscientific, untested and often conflicting advice at newcomer entrepreneurs does not result in measurably better outcomes ;-)
Why is this the case? Let’s look at a bit more of what Justice Stevens wrote:
I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description [“hard-core pornography”], and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.³
I’ll paraphrase and reframe for those who aim to help entrepreneurs:
“As your witch doctor, defining the measurable aspects of a business’s strategy is so difficult I could never succeed in intelligibly doing so. Although I cannot specify one, I know a successful strategy when I see it. Therefore, I will punt and ask you to bravely trust my intuition.”
Until now, all of us have been stuck in this situation. As for trusting a witch doctor’s intuition — this is the rub. If it’s Paul Graham we’re talking about, yes, please! That kinda creepy, underemployed fella who critiques pitches at the local angel investment club in flyover country? Not so much.
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Which doctors’ quality flows from their empirical experiences: The number of business successes and failures they’ve observed and treated. This is no way to support a burgeoning sector of the economy.
…in 1847, physicians formed the American Medical Association, in an effort to differentiate between the “true science” of medicine and “the assumptions of ignorance and empiricism”…⁴
The Valid Eval began seven years ago as an effort to scalably move entrepreneurship away from “the assumptions of ignorance and empiricism,” just as the founders of the AMA did 160 years earlier.
Successfully defining and measuring strategy’s component pieces: The central barrier to creating a scalable, casual entrepreneurial intervention
Some might scoff at anyone attempting to solve this puzzle. It is the first and most challenging step beyond witch doctor interventions.
This is incredibly difficult work.⁵ It is a lot like defining hardcore pornography in the abstract. For business strategy, one must be specific and direct, yet elevated to a sufficient level of abstraction to tackle lots of different types of businesses in different situations. It is a tricky needle to thread.
Our initial definition of startup strategy was pounded on by two dozen ridiculously smart and experienced experts. From deep thinking Stanford business school professors to no-nonsense serial founders.
Valid Eval’s approach: Apply best practice for the assessment of complex performances to startup pitches. This was informed by our Ph.D. co-founder from Northwestern’s Learning Sciences program. (Indeed, Assessment is a scientific field of its own. Our core innovation applying this science to entrepreneurship.)
In 2011, we built and started using our new tools. Since then, we have flown below the “witch doctor industrial complex” radar. A new approach from a bootstrap-funded startup in Colorado? A product that implies homeopathic- and botanical-based remedies are not optimal treatments? Absent some serious proof, we were not poised to go viral with witch doctor buyers!
We have been working quietly with loyal, forward-thinking customers, building our dataset, making enough money to get by and waiting for proof we had changed the world.
How would we know if we’ve invented Modern Medicine for entrepreneurs?
Ideally, we would have an impeccably credentialed academic look at years of longitudinal data and see if Valid Eval’s mixed-method evidence-based assessments had any predictive power on later successes or failure for the treated entrepreneurs.
Box checked!
I’m proud to report that this initial Kauffman Foundation-funded work bore out beautiful linear correlations with five startup success metrics, generally with p-values < 0.01.⁶
“Economic development” increasingly means “entrepreneurial development.” Tomorrow’s economy hangs in the balance, so we cannot continue to let tens of thousands of inconsistent, untrained witch doctors drive the bus. It is time for a standard of care to emerge.
Valid Eval’s tools have already been scientifically proven to be predictive of startup success. Our new software architecture has been explicitly designed to facilitate machine learning and to surface hidden relationships in the data. As we scale, the feedback loops examining our predictive power will virtuously inform increasingly refined startup evaluation criteria, which in turn will help light the path of success for more and more entrepreneurs.
As the evidence of improved “patient outcomes” mounts, more and more witch doctors will stop prescribing their unique potions. Instead, they’ll adopt a rigorous, scientific approach to investing in and supporting entrepreneurs.
The scientific method revolutionized the practice of medicine. Science didn’t replace the doctors, it made them more effective. So, witch doctors of the world, let’s do better for entrepreneurs everywhere!
I think we’ll look back in a few years and recognize that where we are today is the most important inflection point in entrepreneurship since 2005.
Endnotes:
¹ 2015 data from the SBA: https://www.sba.gov/sites/default/files/advocacy/Frequently-Asked-Questions-Small-Business-2018.pdf
² Search costs fell. But, barriers to participation increased. Acceptance rates for Tech Stars Boulder and Y Combinator are < 1%. Geographic and economic barriers pile on to discourage most from even applying to a top program in the first place… The central accelerator innovations: (1) concentrate mentor feedback by bounding programs in time and location, then aggressively recruit top witch doctors, (2) produce an appealing entertainment product (demo day) to fill a room with investors, (3) demand roughly 6% of the participating teams’ equity.
³ https://en.wikipedia.org/wiki/I_know_it_when_I_see_it
⁴ https://en.wikipedia.org/wiki/Body_snatching
⁵ The effort was led by the author of this post, someone with a top MBA’s academic training; someone with startup investing experience, but not enough years doing it to be trapped by the paradox of expertise; someone who is a serial entrepreneur with more failures than successes on their resume. Thus, I was the right leader to bridge the gap between newcomer and expert.
⁶ We’re happy to provide a link to Prof. Sabrina Howell’s paper and a PDF summarizing our (admittedly cherry-picked) results.
