“In the South Seas there is a cargo cult of people. During the war they saw airplanes with lots of good materials, and they want the same thing to happen now. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head to headphones and bars of bamboo sticking out like antennas — he’s the controller — and they wait for the airplanes to land. They’re doing everything right. The form is perfect. It looks exactly the way it looked before. But it doesn’t work. No airplanes land. So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land.”
In past articles, we’ve described VC investments as “controlled experiments.” We don’t build new businesses through random trial and error; we develop them through a process of deductive tinkering. We try things out and perform tests against market realities, the way that scientists set up experiments to test hypotheses – and iterate and adapt along the way.
Unfortunately, almost three hundred years into the scientific revolution most people still don’t get it. Perhaps this should not be a surprise. From a genetic perspective, humans beings are still pretty much identical to neanderthals who honed their instincts roaming the Earth for more than two million years.
Using Feynman’s analogy, many people practice a form of business which I call “cargo cult capitalism.” Delusions in the business world have been covered in books such as “Fooled by Randomness,” “Hard Facts” and “The Halo Effect” so I’ll focus on a special form of cargo cult capitalism practiced in Silicon Valley.
In our neck of the woods, the planes revolve around “top tier” venture capitalists who have become mini celebrities…sort of like in college sports, where coaches tend to be the stars (in the big leagues players are the stars). If entrepreneurs are fortunate enough to get funding from a Silicon Valley celebrity, their company might gain instant credibility and become branded as the next hot thing.
There are service providers who market the fact that they have “access” to the top VCs. There are later stage funds who raise money based on claims that they can access deals of the top firms. There are also angels and “feeder funds” who hope to co-invest with top VCs by courting them from the other side. They cultivate relationships with powerful deal makers and give them first looks at deals so that they might invest once key “milestones” are met.
The cargo cult capital wheel keeps spinning around and around…as the crowds scramble to “get in” to what is hot (or what they speculate might get hot). Once funded, some entrepreneurs might feel like they are playing with the big boys. They retain the top law firms, the best PR agencies, and the most exclusive recruiters.
Armed with prestigious backing and exclusive relationships of kingmakers, the hottest companies hire the best talent that money can buy. The hired guns then create more frenzy…attracting even more capital to support ballooning headcounts and lofty salaries.
There are definite patterns followed by the cargo cult crowd. The form is perfect – the top deal makers, “world class” talent, a hot sector and business model du jour. Yet, ironically, I’d bet the next Bill Gates, Michael Dell, Phil Knight, Chuck Schwab, and Sam Walton are quietly going about doing their own thing…building companies based on business fundamentals.
Real entrepreneurs cut through the hype – they know what is essential. Their sense of pride doesn’t come from who they know or what others think – it comes from making a contribution and creating value. They will do it their own way – which won’t include wads of cash from outsiders. They figure out how to do more with less by using their brains, guts, and sweat.
Disruptive new entrants that topple giants belong to determined, frugal and independent minded entrepreneurs – and in their minds, the true stars are the customers they serve and their tireless co-workers who help turn dreams into realities.