Startup Cargo Cults: What They Are and How to Avoid Them
"In the South Seas there is a Cargo Cult of people. During the war they saw airplanes land 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 like 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."
- Richard Feynman, 1974 Caltech Commencement Address
The passage above may as well be describing the world of startups. While Silicon Valley is a magical place that brims with ambition and innovation, it's also full of Cargo Cult behaviors. Famous founders and investors are idolized and mimicked by their colleagues, who put on wooden headphones and are surprised when that doesn't lead to success.
Cargo Cult Causes
Everyone in the startup ecosystem, from investors to founders to employees, is prone to Cargo Cult thinking. People try to extract lessons from the successes of others, but fall prey to numerous biases and fallacies:
- Survival bias -- attributing causality to common attributes of successes without determining if those attributes were different among failures. Example: "The most successful CEOs are incredibly hardworking." (It turns out that many unsuccessful CEOs are incredibly hardworking, too, so working 100-hour weeks may not be a good predictor of success.)
- Recency bias -- overweighting recent events. Example: "E-commerce is an amazing sector to invest in. Just check out Jet.com and Dollar Shave Club!" (Three months ago: "E-commerce is an awful sector to invest in. Just check out One Kings Lane and Fab.com".")
- Confirmation bias -- only noticing data points that support preexisting beliefs. Example: "FB ads are a great channel. Just last week we were able to acquire 3 great customers through FB." (But what about the 9,997 potential customers who didn't click on your FB ad because they mostly hang out on LinkedIn? Or what if it turns out you could've acquired the same 3 customers for 1/2 the cost by going to an industry conference?)
- Observational selection bias -- noticing a lot of examples of something once we become aware of it. Example: "Sometimes there's so much work that I end up sleeping at the office. Last week, two of my friends couldn't meet up with me because they had to stay overnight at work. Working overnight must be a really common behavior!" (But what about your 500 other friends who didn't work overnight last week?)
- ... and so on ...
Our brains are wired to take examples of success and extract "lessons" from them, but these lessons often range between innocuously wrong and dangerously wrong.
The remainder of this post covers Cargo Cult examples, warning signs, and potential remedies.
Cargo Cult Examples
The common thread in all of the examples below is not that these behaviors are always wrong. (They're not.) It's that these behaviors are often wrong because they're blindly copied from others without critical examination. There are many great reasons to use MongoDB or hire 10x engineers or start a VC blog, but "because that's what everyone else is doing" is not one of them.
Investor Cargo Cult examples:
- Investing time into content marketing or social media. If you have something interesting to say, great! But don't start blogging just because your peers did.
- Demanding a specific ownership level for each investment. A lot of VCs have specific ownership targets, like 10% or 20%. Why 20%? Why not 21% or 18%? If you try to buy 20% of Pinterest but can only get 18%, is it really better to walk away?
- Having a policy of requiring warm intros and not replying to cold emails. This is a reasonable system for very busy investors, but many investors are not that busy. And some cold emails are pretty damn good.
- Co-investing blindly whenever a top VC is investing. While top VC firms have a lot of hits, they have a lot of misses, too. Trying to co-invest with them on every deal is a mistake.
- Trying to be contrarian. Being contrarian is overrated. A lot of the most successful companies, like Google and Airbnb, looked like crazy investments at first. But other great companies looked very sane and likely to succeed, even in their early days. An investor can accumulate a great portfolio without being contrarian.
- Being intolerant of tech outsourcing and only investing in companies with technical cofounders. Companies like Slack and Github outsourced pieces of their initial products. Other companies, including Pinterest and Whisper, didn't have engineering cofounders. Depending on the product, a startup that uses outsourcing thoughtfully can become successful without having engineers on the founding team. (Hat tip to Phil Martie for this Cargo Cult example.)
Founder Cargo Cult examples:
- Joining accelerators. YC is awesome, but you don't have to go through YC to build a good company. I've actually seen companies that have gone through 3-4 consecutive accelerator programs. (Spoiler: that will not make your company 3x-4x more likely to succeed.) Some accelerators are great, but others take equity and don't provide any true value. Don't go through a program just to have a logo for your pitch deck or because that's what you think you're supposed to do.
- Raising money. Raising money is a strategic tool, not a prerequisite for building a successful company. Too many founders assume that they can't start working toward their vision until they've raised outside capital.
- Optimizing for valuation. Raising at too high (or too low) of a valuation can have severe downsides, but founders often try to match or beat the valuations that they've seen their peers receive.
- Limiting hiring to 10x engineers. Why 10x? Because that's who everyone else is trying to hire. The truth is that a lot of companies can be built with 4x or 2x engineers, and sometimes even 1x engineers.
- Offering trendy employee benefits. Kind bars. An office in South Park. Yoga classes. Martini Mondays. If you explicitly want to build a culture around these things that's fine, but you don't have to offer these perks just because other startups do. Plenty of employees love doing meaningful work even if it doesn't come with fancy granola bars.
- Getting advisors. Many startup pitch decks list advisors who are either unrelated to a startup's business, or are high profile people that are so busy that they're not going to be involved. Not having advisors is better than having advisors just for the sake of having an Advisory Board slide.
- Only reaching out to investors via intros. This is a second order Cargo Cult behavior. Because investors strongly prefer warm intros, some founders assume that any intro is better than a cold email. Not true. An intro has to be warm. That is, the introducer should know both the founder and the investor well. Otherwise, the intro is worthless because either the introducer can't truly vouch for the founder, or they can vouch for the founder but their testimonial carries no weight with the investor.
- Copying the strategies of successful competitors. Every startup has to write its own playbook. Content marketing or speaking at conferences or recruiting at meetups might work for another company, but that doesn't mean those things will work for you. Blindly copying other companies usually leads to failure.
- Working harder when things aren't going well. People work 80- or 100-hour weeks to save a dying company because they think that's what they're expected to do. Sometimes the problem is in what you're working on or in your approach, not in how hard you work.
- Mimicking big company processes, like code reviews or performance reviews. A process that works well at Salesforce or Facebook is often inappropriate or dangerous when implemented at a startup. Having formal performance reviews at a 5-person company is just as bad as not having them at a 5,000-person company.
Cargo Cult Warning Signs
- People inquire about why you're doing something, and your immediate response is 1) it's what everyone else does, 2) it's what your role model does, or 3) it's what you think is expected of you.
- You're afraid to start/stop doing something because that would be different from what most people do.
- You invest a lot of your time and resources into an activity, but you've never carefully considered whether the effort is worthwhile.
Tips for Diagnosing and Stopping Cargo Cult Behaviors
Cargo cult thinking is fiendishly hard to diagnose. Imagine you're the tribe describe in Richard Feynman's example: how would you figure out that building wooden headphones is not a good use of time? Here are some tips and ideas:
- Question your assumptions -- especially for large decisions. Why did you decide to spend your entire marketing budget on Facebook ads? Why do you shy away from investing in solo founders? Why do you want to work at a seed stage startup? If you have personal reasons for doing these things, that's great. If your reasons are based on what you've seen others doing, that's a red flag.
- Get feedback from a diverse group of unbiased observers. It might be hard to realize that wearing wooden headphones has no effect, but if you ask enough people for feedback, eventually someone will point out that you're wasting your time.
- Actively seek out opinions of people who are willing to be honest and critical to your face. It's very useful to have a few people you can turn to who like to play Devil's advocate and question everything. Devil's advocates are a vaccine against Cargo Cult behaviors. These people could be employees, friends, or even members of online communities like HackerNews and Twitter.
- Listen to critical questions. Sometimes people around you will question you about why you're doing what you're doing. It's tempting to get defensive or to give a canned response, but if you repeatedly hear the same questions, that's a cue to become introspective about your behavior.
Once you identify something as a potential Cargo Cult behavior, analyze your assumptions and reasoning in depth to decide whether you need to make a change.
Finally, here's a useful exercise: list out 10-20 areas where you spend the most time, money, or effort. For each item on the list, determine why you allocate so many resources to it, and whether your reasons are well-founded or if you're just acting on autopilot.
TL;DR: just because "everyone is doing it" doesn't mean you should.
If you have Cargo Cult examples or tips that you'd like to share, please let me know on Twitter and I will update this post accordingly.