There’s this old joke that I really like:
One night a police officer sees an economist looking around a park bench near a light.
“What happened?” asks the police officer.
“I lost my keys but I’m having a really hard time finding them” replies the economist.
“Here, let me help” and they look for the keys awhile.
After not getting anywhere, the police officer asks, “where did you drop them?”
“Oh, replies the economist, way over there” and he gestures vaguely towards a nearby park, drenched in darkness.
“Well, then why on earth are we looking here?” asks the police officer.
“Because this is where the light is”
A powerful lesson. Sometimes we are so desperate for an answer we look for it in a very unlikely place and try to extrapolate back to the thing we want. Sometimes this works, but it can be devilishly hard. And it can also be stupidly useless.
Meanwhile, the one thing you can measure is dangerously misleading. The one thing we can track precisely is how well the startups in each batch do at fundraising after Demo Day. But we know that’s the wrong metric. There’s no correlation between the percentage of startups that raise money and the metric that does matter financially, whether that batch of startups contains a big winner or not.
…I don’t know what fraction of them currently raise more after Demo Day. I deliberately avoid calculating that number, because if you start measuring something you start optimizing it, and I know it’s the wrong thing to optimize.
That’s the inestimable Paul Graham. Perhaps economists should spend more time thinking about what they should and should not be measuring.
The counter-intuitive nature of startup investing is a big part of what makes it so interesting to me. In most aspects of life, we are trained to avoid risk and only pursue “good ideas” (e.g. try to be a lawyer, not a rock star). With startups, I get to focus on things that are probably bad ideas, but possibly great ideas. It’s not for everyone, but for those of us who love chasing dreams, it can be a great adventure.
And we also get this interesting tidbit:
thaumaturgy: Off-topic, but something I’ve been chewing on lately: what’s it like to have your every written (or spoken!) word analyzed by a bunch of people? Esp. people that you end up having some form of contact with. It seems like it would be difficult to just have a public conversation about a topic. Do you think about that much when you write?
PG: It’s pretty grim. I think that’s one of the reasons I write fewer essays now. After I wrote this one, I had to go back and armor it by pre-empting anything I could imagine anyone willfully misunderstanding to use as a weapon in comment threads. The whole of footnote 1 is such armor for example. I essentially anticipated all the “No, what I said was” type comments I’d have had to make on HN and just included them in the essay. It’s a uniquely bad combination to both write essays and run a forum. It’s like having comments enabled on your blog whether you want them or not.