Gilad Avidan just published a list of ten things he wished he known when he founded his company two years ago. Number nine is “Don’t study the outliers”. Studying outliers is a mistake I see made all the time. Hugely successful companies are by definition outliers, they get talked about a disproportionate amount of the time, and worse, the stories written about them are often inaccurate. History gets re-written (usually be accident rather than design) and third party commenters desperate to write a good story when they don’t have the inside scoop are prone to writing that success is down to one thing when it might be down to the another.
As Gilad says, it is much better to study companies which are similar to your own (he says ‘real companies’) and much better to study companies where you know you have an accurate picture of what they’ve been doing.
In a related point, I like investments that have got a good chance of achieving a relatively modest exit – say £30-50m – with a small chance of going on to do much more. Buy.at and Zeus (both $100m+ exits) and most of my other investments at DFJ followed that strategy and I expect us to do more of the same here at Forward Investment Partners. That way we will put ourselves in good position to get lucky and have a runaway hit fund whilst preserving our ability to make good returns if Lady Luck is looking the other way. I encourage founders to think the same way. It’s better to maximise the chances of a life changing but maybe not headline grabbing exit and hope to get lucky on the upside than to bet the farm on a huge outcome. That’s like putting all your chips on double zero with your first wager.