How many entrepreneurs have experienced an embarrassing failure? All of them. How many talk about those failures? Basically, no one. Well, Jonathan Siegel is here to change that.
As the author of The San Francisco Fallacy, Jonathan shares his most devastating losses and the biggest mistakes he’s made over his long career as a serial entrepreneur. But he also outlines the 10 biggest fallacies that he uncovered through his many failures; fallacies that many in the startup community still believe in.
Jonathan believes that many startup founders set themselves up for failure, simply because of these mistaken beliefs.
So keep reading or tune in to learn about some of the most common fallacies that cause founders to fail and how you can avoid those traps.
Listen in to Jonathan Siegel to learn:
- How to recognize when you or your team may be falling prey to the “San Francisco fallacies”
- Why following your passion doesn’t always lead to startup success
- What to do when you’re feeling trapped between your own interests and those of your investors
If you had to pick the perfect meal or drink to go with your book, what would it be?
The perfect meal to go with my book is ramen. It’s inexpensive, it’s filling and it’s really tasty.
I actually found an incredible ramen shop in Las Vegas, it’s comparable to what I can get in Tokyo.
The making of a ramen starts the day before and it was originally a way to get rid of leftovers.
It’s a lot of leftover meat that is put into the soup, that’s what ramen is, it’s bone broth. And each ramen shop has their own recipe and take on it. Some are chicken based, some are pork based, some use more vegetables. There’s really an incredible variety to the soup.
Some shops even make their own noodles so you can imagine the number of different meals that you can get from just a bowl of ramen soup.
If you had to pick one song to capture the feeling behind your new book, The San Francisco Fallacy, what would it be?
I Want To Be Free by Queen.
When I was just starting out as an entrepreneur, I did things because they were a creative outlet for me.
I wanted to program. It was something I enjoyed, it was something I was good at and I actually got a huge amount of creative energy just from programming.
I never intended to create companies when I first started out, I really just enjoyed creating things.
But here’s the thing, the industry that has grown up around people that start companies for the purpose of making returns for investors. So, you have these two competing interests: the investors’ interests and the founder’s interests.
And I got stuck in between those two interests.
I was pulled into the world of an investor without intending to, and it was really difficult to keep my perspective. Only after 20 years of being a technology professional do I finally have the perspective to see what I want to focus on and what I’m being pushed to focus on by the venture community that startups live in.
But now I feel free. I have a better understanding of myself and what drives me personally. So I Want To Be Free by Queen makes a pretty good soundtrack to The San Francisco Fallacy.
What prompted you to write about “the San Franciso fallacies?”
It was around the year 2000. I had my own startup but it didn’t fare well.
I ended up in a position where my investors were really upset with me, yet here I was, someone who had always done well in school and who was committed to doing a good job in whatever I happened to be doing.
So finding out that I didn’t do a good job in the one thing that I wanted to be good at depressed me.
“I felt like I was alone, like I was the only entrepreneur that had ever failed.”
What happened was that I had started developing a 2D video game right when the industry switched to 3D.
Myself and my other teammates were faced with a choice: continue as planned and release a 2D game that was bound to flop in a 3D market, or pivot and work like hell to release our game in a 3D version.
We chose the later and burnt-out one of our teammates pretty quickly.
Finally, we accepted that we weren’t going to give our investors a return, but our investors were incredibly surprised to hear it because we had done such a poor job of communicating with them as we worked and worked on our game.
“When you don’t communicate, investors think things are going well.”
Because we had failed to disclose to them the problems we were facing, our ability to meet their expectations decreased rapidly.
Part of the problem was that when you start a company, no one really gives you basic advice, like when you take money from people, you need to communicate with those people.
There’s no requirement when you take investor money that you must attend any training session or any education on how do you communicate with your investors or how often should you call them.
So we had no idea when we should have communicated when things were going badly.
In fact, a lot of startup founders are encouraged to walk around with rose colored glasses and to communicate that everything is fantastic even if things are not going so well because you’re never going to be able to raise more money if you don’t present your company in a positive light.
“Even if you have no idea how you’re going to do it, your job as a startup founder is to create that optimistic perspective.”
That investment fallacy plagued me.
Why was I the only person that had to go through this experience, to have unhappy investors and not be able to meet their expectations?
I carried that question with me a long time. It wasn’t until years and years later that I started to come in contact with other founders much more regularly, and I saw that I wasn’t alone in my experience.
It’s not like my startup was a rare case.
“The percentage of startups that take VC money and then fail to meet their investors’ expectations, meaning they either liquidate or don’t go on to another round of financing, is 80%.”
I certainly wasn’t an outlier or the unlikely outcome. I was actually the expected outcome.
Seeing that problem go unaddressed for years and years made me motivated to capture that and put it into the book where it could be digested and shared with my peers.
Because here’s the truth, getting investment isn’t going to increase your likelihood of success, taking investment actually decreases your likelihood of success.
That was the first fallacy and it opened the door to all the other fallacies that I carried with me and that the startup community shares.
Through thinking about that one experience, I was able to gain a different perspective on a number of ideas that the tech community takes for granted, and in my experience, they’re often very wrong.
If you could pick only one fallacy to warn startup founders about, what would it be?
The passion fallacy.
The passion fallacy is the idea that passion is the key ingredient to success as an entrepreneur. It’s the fallacy that without passion you won’t be able to turn your idea into a product and that product won’t become the basis for a thriving and successful company.
Passion to me is a wonderful thing.
“Passion is a great driver and motivator, it can unleash creativity, but it can also be blinding and it often causes creators to avoid looking at the market and the realities of their industry early on.”
What startup founders need to do is ask themselves, “Am I doing something because I have a passion for it? Or am I doing something because I want it to be profitable and successful?”
Knowing your motivations early on will help you understand what your path should be.
“If you’re motivated entirely by passion, then raising a lot of venture financing from people who expect a profit probably isn’t a great idea.”
I found this out when I became a small-scale angel investor. I would see passionate startup founders pitch their idea or the progress on their idea, but after a while, all of their businesses started to look the same.
The truth was I almost didn’t need to know what the actual product was or what the service they were selling was because all the other numbers around their business gave me most of the insights I needed to make a financing decision.
The most unproductive conversations were when an entrepreneur would spend all of the time talking about how passionate they were about their idea. The problem for me was that my focus would always be, “Hey, have you talked to customers? Have you seen whether a customer would actually validate your idea? Would they give money for your service? Would they give money for your product?”
Passionate founders seem to repel this type of feedback because they don’t really care what the market thinks about their idea. It’s their passion after all.
If a founder is that excited about their service or product then they just assume that the market will be there for them. And that’s the passion fallacy.
Is there a way to prevent yourself from falling prey to the fallacies outlined in your book?
For some fallacies, it’s really easy because the words we use to describe our startups and our motivations give us clues to what fallacy we might hold as being truth.
For example, with the passion fallacy, I’ll often hear someone say “I’m very passionate about this or that.” Well that right there should be a warning sign. Either the founder is exaggerating his or her drive or they really do think that they’ve found their passion.
In that case, let’s make sure we sprinkle enough market validation in early so we avoid being driven by this passion only. It doesn’t have to be a bad thing either.
It doesn’t have to be a bad thing either. Maybe profit isn’t the only motivating force behind this business; well great, you’re going to need a lot of passion. But let’s make sure everyone is on the same page from day one.
Other fallacies are a little bit more subtle and it just takes more time to recognize when they might be at play.
Of course, the first step to recognizing any fallacy is to become aware that it exists.
What do you think the result would be if every startup founder read your book?
The biggest thing that would happen is that entrepreneurs would start to feel that it’s okay to fail because throughout most of my book I chronicle my own failures and how those failures led be to the fallacies I talk about.
We tend to only promote and hear about success stories within the entrepreneur community, but everyone from Elon Musk to Soichiro Honda credits their ability to fail quickly and to get back up for their ultimate success.
But when you find yourself in a period of failure, when you have to call up a family friend or an investor that you respect or a partner or teammate and tell them that you’ve failed, that your business is going under, that you cannot make payroll next month, those are all really tough emotional places to be.
If you feel like you are all alone and that you’ve done something wrong, well that’s just not the truth. And because I’ve been there, I feel like I can do something to get entrepreneurs past that pain point.
And because I’ve been there, I feel like I can do something to get entrepreneurs past that pain point.
So the biggest take away from my book would be knowing that as a startup founder, you are not alone and that failure is actually the majority outcome. There’s no reason to be delighted about failure, but you shouldn’t let it weigh on you as heavily as it often does.
I think the saying “failure is not an option” leads to terrible decision making.
“If you don’t accept that failure is an option, then you’re going to hold yourself to a standard that’s unrealistic and unhealthy.”
If you could print off only one copy of your book who would you give it to?
I actually have six boys and two girls and I will be amazed if my kids don’t end up at some point in their life looking for a startup to join or starting one themselves. So if I had only one copy of my book I would share it with them.
It warms my heart that I have the opportunity to share with them, not that I was successful, but that I tried so many dumb ideas and I had all these learning moments on my path to success.
What would Jonathan Siegel’s advice be for aspiring authors?
Well, the first thing is if writing is not your strength, and it was such a struggle for me, find a good partner to help you get your thoughts out and down on paper, that’s critical.
“You don’t have to write alone.”
For me, that partner happened to be Scribe Writing. I struggled with my book for seven years before I was able to work with Scribe Writing to get me across the finish line in a way that I just couldn’t do myself.
If you are like me, you may have incredible information to impart, but your days might be busy or maybe writing isn’t your strength, well then you might need that helping hand to guide you through those next steps.
If that’s your blocker, go find that partner and you’ll be amazed that the difference it makes, because it certainly did for me.