The myth of courageous founders
In terms of risk taking, they're more "average" that you might think
We usually think people like Bill Gates, Larry Page and Sergey Brin are brave visionaries who take a really big risk and have massive conviction to follow their dream.
But you might surprise how wrong this assumption is.
In his books, “Originals”, Adam Grant shed a light on this matter. Big tech moguls and successful people that we know aren't someone who always takes risks head on. Surprisingly, they also behave more like us: they tend to make a safe bet, risk averse, and work hard to avoid the risk of ruin.
Bill Gates doesn’t drop out from Harvard instantly while building Microsoft. Instead, he takes a leave of absence (twice) to make sure he still has an option just in case Microsoft doesn’t work out. Steve Wozniak still works at Hewlett Packard while building Apple with Steve Jobs. Larry Page and Sergey Brin still enrolled in their Ph.D. while they built Google, citing that they “were too worried about dropping out of our Ph.D. program”.
This isn’t the behavior of someone who has high conviction for their “revolutionary” ideas.
Logical explanation for this phenomena is quite fascinating: the people that we mentioned above treat their ideas like a portfolio. Instead of doubling down on one or two idea, they have many and see which one who worth their attention (multi-armed bandit, so to speak).
Having different ideas as options allows they to tinker and experiment without afraid of the consequences of this failure. They can go full creativity mode on one area but completely conservative on the other. “Antifragile” comes to mind.
In simple terms, this creates a “room for error” for founders. A place to fall into while engaging in unlimited upside of their ideas. If they lose, they still have another option. But if they win, the idea can become the next Microsoft.
Interestingly, it seems this behavior (creating a room of error) also translates to their action after they build the business.
Warren Buffet famously said that in order to create “margin of safety” (fancy financial terms for room of error), he “have pledged – to you, the rating agencies, and myself – to always run Berkshire with more than ample cash…. When forced to choose, I will not trade even a night's sleep for the chance of extra profits”.
Bill Gates also does similar things. When Microsoft was still a young company, he said that he “came up with this incredibly conservative approach that I wanted to have enough in the bank to pay a year’s worth of payroll even if we didn’t get any payments coming in”.
Both examples above, like Morgan Housel mentioned in his book “Psychology of Money”, are reflecting how we should approach risk. It’s, to quote Taleb, “You can be risk loving and get completely averse to ruin”. Learning the “true” behavior of founders (not the advertised one) I believe will yield greater result for everyone.
Thanks to Andri Oktavianto for reading the draft of this article.
Few thoughts that linger around:
Regarding survivorship bias: it’s reasonable to argue that the sample that I mentioned above are too few, and only from “success” population. But if we define “success” as “survive as long as you can”, there is numerous evidence that investors/founders that have a margin of safety survive longer than those who don't. I believe Antifragile by Nassim Taleb is the right book to dive more about this.
I’ve also seen someone give interesting arguments that founders might be more “moderate” in terms of politics, something that also contrary to people's initial belief. For example: Elon Musk and Marc Andreessen is center left, and so does Paul Graham. Paul also said in one of his essays that “someone who works with ideas has to be independent-minded to do it well”.