Evolution vs. Intelligent Design

Notice that I filed this post under VC and Technology, not Politics.

That's because I am going to refrain from talking about the ridiculous notion that man was "designed intellgently" that many in this country seem to believe despite all the evidence to the contrary.

But this is really about startups and how they get built.

For years, I have been fascinated by the fact that many of the very best startup companies come out of "side projects". They are accidents really.  eBay, Google, and Yahoo! are all examples of this mode of starting companies.  Delicious was born this way.  One of my favorite web services, Sitemeter, started this way.  So did Vimeo.  I could go on and on, but like a Oscar speech, I need to stop. Sorry to all the "side project" startups I left off this list.

Brad and I have been seeing a lot of "one man bands" as well lately.  Companies that have been single handedly started by one person with some outsourced development.  These people see something they'd like to have and they build it.  And all of a sudden, they are in our office with a pitch deck and the need for money to turn the thing they've built into a company.

So I was at breakfast a couple weeks ago with Nick Denton and we got to talking about this phenomenon.  So Nick says, "it's the evolution vs intelligent design debate".  And I about choked on my really great full english breakfast (which is not dead and is alive and well at the Coffee Shop in Union Square in NYC).

Nick is right, there are two ways to build a company.

You can design it from scratch, figuring out exactly what you want to build, getting it all down on paper, raising some money, and then building it.  And there are plenty of success stories for that way of building a company.

Or you can just find yourself doing a startup because something you started as a hobby, or to serve your own needs, just took on a life of its own and you have no choice but to evolve it into a business.

We don't have a preference for one way or the other, but I will say that there is something particularly special about the companies that are created via the evolution approach.

They seem more "authentic", to borrow a word from David Beisel.

There is so much more that can be done with this line of thinking, but I am going to stop here. This may become a series of posts where I talk about various differences between building evolved companies versus designed companies.  Or maybe others in the VC/entrepreneur world will pick up on this "meme" and run with it, which would be awesome.

I want to thank Nick for putting this idea into my brain. I've enjoyed thinking about it.  I hope you do too.

Comments

[Igor Shmukler]

I think calling a notion of intellegent design of a man ridiculous is just that - ridiculous.

no offence though.

google's success is not an accident either. these folks were backed by very powerful players starting with Andy, then Sequoia and KP.

If any company was intellegently designed, it's google. They had research results from Stanford, partnership with yahoo brought by VCs and best mentoring team ever.

How's it an accident?

[Derek Scruggs]

How's it an accident?

The revenue part. They had no idea AdWords would be so successful. That's part of the reason they devote so much time to innovating new products. They don't know where their next billion dollar revenue source will come from, so they create as many services as possible in the hopes that one of them will catch fire.

The funny thing is, AdWords is the least innovative part of Google. Targetting ads based on search terms was around for years before Google did it. Their biggest innovation (and it was stolen from FuckedCompany.com, which evolved into AdBrite) was a self-service interface. They also didn't use an auction process initially - prices were fixed by Google. They stole that from Overture.

This is part of the reason I think Google is overvalued. They're a cash machine, but they get 98% of that revenue from a single source that they have no proprietary control over. Even AdSense is not a lock-in. In the web publishing community there is a lot of excitement over Yahoo's new service, which has higher payouts and more transparency.

Then again, my opinion is free and worth it. ;)

[Charlie Crystle]

Fred, there are clearly more than 2 ways to build a company. I've taken to saying "There are a million ways to do this; here are two of them." We don't fall into your two examples, and yet we love what we do and it's working.

Here's another point: innovation happens at the source of the problem. Sure, you can outsource your work to someone, but you won't get the benefit of insight into the problems solved along the way--insights and innovations that very well may create the differentiation that creates or catalyzes your ultimate value.

Finally, try this out Derek: free ads. So much for Google's model then. Free ads, no cost per click, only cost per conversion, which should really be a percentage of sales. The providers willing to do that will stick it to Google, but then of course Google will shift. But for vendors, it would be a hell of a lot better. Frankly, I'd like Google to take responsibility for creating landing pages for me that produced a better bounce rate. Become more of a partner in our success, rather than in the success of clicks.

[Ken Yarmosh]

Fred, it's one thing to disagree with a viewpoint. It's another to belittle it and then not back it up with anything except a brief wave of your hand.

The first three paragraphs added no value to this post and from my perspective, were no more than a cheap shot to the many who believe the "notion" of intelligent design.

[Zach Coelius]

Charlie, it is called an affiliate program. It works for some things not for others. The big problem is that people don't always buy a product on the first visit and if they don't the tracking does not work. So for cheap things like Cds its perfect, for cars it sucks.

Fred. You should add that the low costs of starting a company means that a guy like me can come up with an idea and get it to a reasonable velocity before I need to recruit other people to join full time. It used to be that starting a company with a new idea cost so much that you needed a team of people working full time to marshal all the resources to get it off the ground. With my company I was able to get things rolling fast enough that now it is much easier to recruit good people whose skills I was not able to find in my immediate network. That means that rather then having to bring in other people early when the fit of their skills to the eventual company is a guess, I can now bring in better people who skills are a better fit. It is still all about the team, but now we can make a better team.

I think your absolutely right. A lot of people are missing that the changes in the context mean changes not only for what kind of companies are formed but also how we form them. You and your brethren in the VC world are going to have to adapt as fast as we are on the other side.

[steve]

best advice i have ever received: "successful startups are the ones who figure out how to survive long enough to realize which idea is a winner."

so, fred, is VC investing itself "intelligent design" or "evolution"? ;)

[Rob]

Fred, I'm interested to hear how such one-man-shows are now perceived a) by you and your firm, and b) by the VC community in general. Historically, most advice for would-be startups is to ensure that they have a solid team together, and that solo acts are frowned upon. Is this changing? Was it true to start with?

[Markus]

I'm a one man show, in the last 2 years i've gone from a few users to over 8 million pageviews a day, one of the top 20 trafficed sites in canada and top 100 in the united states in terms of pageviews.

The cost of starting a internet business is falling by the day. To build websites is dead easy as you can just cut and paste code from other free projects out there to build something in a few hours that would have take you months and a million dollars to do only 4 years ago.

I think this web 2.0 talk is just a bunch of BS, in the next 2-5 years you are going to see a lot of individuals coming in and building major websites without the help of VC's or staff.

VC's have definately taken notice of this trend of smaller staffed companies. I have been offered between 10 and 40 million by VC's and banks for a part of the site.

Markus.

[just.a.guy]

in his books, harvard business school professor clayton christensen calls this deliberate (top-down, or intelligent design) versus emergent (bottom-up, or evolution) strategy.

his book the innovator's solution is a great read on the merits of both approaches and the types of situations in which each typically outperforms.

[Derek Scruggs]

Markus, you're definitely doing the right thing. I know quite a few who have built decent-sized Net empires without outside capital, and for most it never even occurred to them that they shold even consider it.

That said, there's still a place for private equity. Google needed it. Whoever kills Google (at least in the search space) will probably need it to.

[Charlie Crystle]

If small staffs are all you need, then VC need to make smaller investments. Turns the whole "stage" issue on its head.

But keep something in mind--as you grow an audience, architecture and scale start to really matter, and patching stuff together just won't work. Some examples: Typepad.com, Feedster, and Salesforce (piece of crap).

So then staff does start to matter. And your customer/user bases will staret to demand attention, or the market will push for features. At some point staying tiny or small will work against you unless you have a very forgiving audience with no place else to go.

But I'd love to see the micro-investment: enough to keep the core team rolling without financial distractions for a year.

[Markus]

You can patch things together and make it scale really big. The difference is that in many companies people don't know what they are doing or how to work well together.
For example I compete with americansingles with is slightly smaller then me, they have 200 employees, 30 some employees to keep their servers running, 200 servers and nearly 800,000 a month in technical costs. My entire budget for tech/hosting etc is $8,000/month. I've got 2 webservers, one does 10,000 pageviews a minute serving up the site, the other handels the real time instant messenger and servers up 40,000 pageviews a minute. Now that costs for hardware and software have fallen so much people with some programming talent can make a huge difference. I think that VC investments will in the future to go projects that are way more people intensive and applications that require large sales staff or a large marketing budget.

[sig]

Fred, spot on!
I love the parallel to business and startups, and I agree wholeheartedly.
Let the theorists quarrel, it does not matter. Evolution will happen before our eyes anyway.
That is if one keeps'em open :)

[Anita]

I loved your despite all the evidence to the contrary. I find that intelligent design very modern approach and I support the stream.

[RandomSample]

Short description of our knowledge:
Inteligent design-kindergarten level
Evolution-teenagers level
Randomness-master level

[Van]

There's only one problem with your illustration. A business can't just "evolve." There's always a mind (a person) behind it. You even wrote yourself that some of them started as "sideprojects." Who's sideproject was it? The business or a person? Obviously the business wasn't doing any work, a person was. Obviously the business wasn't doing any thinking, a person was. The illustration does not support your hypothesis, period.