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The San Francisco Fallacy: The Ten Fallacies That Make Founders Fail Paperback – March 24, 2017
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What makes this book different is that Siegel does exactly the opposite, he shares what he has learned about failure. Considering that most start-ups fail in the first few years, and much of the rest a little later, this might be one of the most important books you could read. Statistically, you are on the radar for failure – this could be of real help to avoid becoming another statistic.
When Siegel interviews people who are approaching him for investment, he always asks what they have thought about failing. “The ones who can explain how they’ll manage failure, as well as how they intend to avoid it, are the ones that convince me.” One needs a failure contingency plan.
I have heard so many say that thinking about failure is too negative – you can’t succeed thinking negatively.
Firstly, considering failure doesn’t make you any more likely to fail, than having safety drills makes commercial airlines more likely to crash. Since the odds of business failure are higher than business success, having a plan for how you will fail without hurting too many people, seems appropriate. Part of your failure contingency plan must be a way to identify when you will fail, so you can pull the plug early, and then get on with starting something new.
Siegel identifies ten fallacies, of which “Failure is not an option” is one. A fallacy is a commonly believed idea, usually so common that not believing it is considered ignorant. But it is wrong anyway; popularity doesn’t make a wrong idea right. Siegel’s ten fallacies are the beliefs that make founders fail.
“The Tech Fallacy” holds that it is all about the technology. If you get that right, the rest will follow. With ‘technology’, the context in which Seigel works, (hence the title The San Francisco Fallacy), it should be treated merely as an example. It is just as true for furniture, food or even a service. If you succeed at getting any of these right, your success is not guaranteed. In fact, an obsession with making your offering “the best”, is a common way of focusing your attention on the wrong thing.
“The raison d’être for any business is to give the customer what he wants. He doesn’t want the tech; he wants what the tech can deliver,” Siegel explains.
Having a “best” product is only one component of success – and rarely the most important one. Remember, you don’t go to the best restaurant very often, you go to your favourite restaurant as often as you can.
Along the same lines is the fallacy that investors should fund you, because you always come up with great ideas. The fallacy is that ideas make money, and great ideas make great amounts of money. They don’t. Great execution makes great businesses, and attracts funding. Your ability to prove to investors that you have an execution plan, and that you know how to make it happen, is what gets investors to open their wallets.
When people get together to start a business, especially if they are friends who like and respect each other, another fallacy creeps in – the “Democracy Fallacy”. In democracies, all have an equal vote. In a democratic company, the fallacy goes, all should have equal shares, and decisions should be made by all.
The reality is that businesses run in this way, are rarely successful. In a democratic company, decision-making most often devolves to the lowest common denominator, slowly.
Tied to this is the idea of equal shares for all. The reality is that someone must captain the boat and that should be the person whose decisions will make the greatest amount of money, not create the greatest product.
Who in your business is driving execution and sales? That is the leader. The easy check is what would happen if this person slowed their efforts, or even stopped completely? If you are that person, grasp the tiller and direct the boat, and get there fast. Great leaders of great companies never had any doubts about who should lead, and who should get paid the most.
Think of Larry Ellison, Michael Dell, Bill Gates, Steve Jobs, Mark Zuckerberg… “None of them ever found themselves agonizing over team conflict,” Siegel observed. And “you and your friends need to know where the buck stops.”
The fallacy we hear about so often, especially on TV shows about start-up investment, is that a good investment must be scalable. It must be “exponential” and distribution should be “viral”. While it might make for great TV and make the investor “Stars” look super-smart, it is just a fallacy.
This would preclude any business that offers a service. The reality is that a great deal of money can be and has been made from selling services. Of course, services will not make you a billionaire, but then very, very, very, few businesses on planet earth ever do.
More businesses succeed through steady, consistent effort, than succeed spectacularly through scaling.
And when you do succeed and you are ready to sell the business you value at tens of millions, it is useful to remember the “L’oreal Fallacy”. L’oreal flighted one of the finest adverts for a perfume ever, with the tagline – “Because I’m worth it!” Your business is not worth tens of millions because you think it is, it is only worth tens of millions because others who want to buy it, think it is. Take what the market says its worth, and a vacation, and then start your next venture.
This book should be compulsory at any business start-up boot camp!
Readability Light -+--- Serious
Insights High -+--- Low
Practical High -+--- Low
*Ian Mann of Gateways consults internationally on leadership and strategy, and is the author of the recently released ‘Executive Update.
The book is thoughtful and informative, and presents its knowledge through engaging examples of real experiences. There is some insight and wisdom (but no "road map" for success) here for people who want to join a start-up or a small, high-growth company but have little experience (or might have forgotten their experiences) with them. The book didn't tell me anything I hadn't learned (but might have pushed to the back of my memory) during my years of living/working in Silicon Valley; but validation of one's experience and knowledge can be a valuable thing. I live in San Francisco, and am currently working on starting a software company here with a friend; the book provided a few reminders/warnings about the actions/thoughts/attitudes/etc. that can cause problems as we continue, and hopefully make progress.
The book is a quick read. The author is pretty brief in describing his relevant experiences and the lessons to be gained from them. That's probably how this book should be. If you need some long, comprehensive (covering all foreseeable modes of failure), detailed, in-depth examination of this topic, and you can't internalize the lessons presented in this book and apply them to your situation, you might want to find some other calling than entrepreneurship (and there are a lot of other rewarding,less stressful callings out there, according to various successful "battle scarred" entrepreneurs who have spoken to me).
I don't know what to tell you about the "San Francisco specificity" of the title. I've spent most of my career living in Berkeley and San Francisco and working with tech and start-up companies located in places like Silicon Valley, Seattle, Boston, Chicago, Dallas, Washington D.C., etc. There is "group think" in this community (as there is in lots of communities). If you wanted to argue that I don't know what life is like outside this "bubble," I probably couldn't formulate a good case against that (actually, I probably could, but wouldn't take the time to do so, because you and I have better things to do with our time). In summary, I would have to believe that no matter where you are initiating your nascent company, be it Austin, Denver, Detroit, Cleveland, Raleigh-Durham, etc., this book contains some valuable insight for you.
I hope that helps.
I was intrigued by the choice to reveal his thriving consultancy business (the real protagonist of the story), late in the game, with the scale fallacy. That chapter put everything else in context. It reminds me of Moneyball in the way that one person's history and personal philosophy is so woven into the fabric of an organization that the same story can encompass both.
Also like Moneyball, Siegel makes statements that only make sense in the time and place that they describe. The L'Oreal fallacy in particular reminded me of Beane's proscription on high school players. The point was well taken (take the money!), but I felt like a caveat similar to the one he provided for the quality fallacy was necessary.
Like all good business books, the final takeaway for me was, of course, winners know how to sell. These fallacies can be read collectively as rules of thumb to make sure you’re hustling.