Might as well ask a pachinko ball how it won

People study entrepreneurship by talking to successful founders. This is about as useful as asking a pachinko ball how it won.

Let’s look at a (highly simplified) pachinko game and see. In this case, the ball is trying to get to one catcher at the bottom.

Our intrepid ball would say, “Well I started fast, I bounced up once to get a better angle, then I decided to wait a bit to watch, and then I dropped right onto the catcher!” They might write a book called ‘Lean Up’ and go on a speaking tour.

This would all be useless.

By only talking to the winner, you have a clear case of selection bias. If you talked to the other balls they might tell you the same thing. Maybe it was nothing the balls did at all, maybe it was just luck. There’s no useful information contained in the life story of that little steel ball.

This is not to say that there’s no logic at all, but by just talking to the one winning ball you ignore the system that it’s bouncing around in. You could do the math and supercompute all the interactions, or you could just do what actual VCs do and drop a shit-ton of balls.

How VCs Play

No VC firm, no matter how good their analysis, invests in just one company. Yes they say they’re good at spotting founders, and yes you shouldn’t put a potato in a pachinko machine, but in reality, they just take a lot of bets. This is what’s called deal-flow. It’s literally their job.

Every venture firm makes 10 bets hoping that one will play out. Some firms make multiple bets within the same industry. They may even have two bets directly competing with each other. Hence it’s not about the story of any particular ball, it’s about how many balls you have in the air.

This isn’t just VCs, anyone that manages money puts a lot of balls in the financial pachinko machine. Hedge funds, pension funds, mutual funds — these are all diversified investment vehicles. They play the machine, they don’t play the ball.

How Founders Play

You could say, what about serial entrepreneurs? Well, look at them. Most serial entrepreneurs also have a lot of failures, often more than successes. They also play the machine, they try again and again.

Playing The Machine

Most startup advice spends a lot of time talking about being the best little steel ball you can. Wake up early and polish your shine, hang out with other winning balls, explore magnetism. What you should be looking at, in fact, is the machine.

For one thing, the machine only really accepts white balls with balls. In America, 99% of VC funding goes to whites and Asians and 98% of funds go to men (kauffman.org).

For another, there are only three states where the pachinko machines offer jackpots at all. 78% of VC funding goes to just three states — California, New York, and Massachusetts.

For everyone else, you may as well be polishing a potato. The machine is rigged.

The whole ‘hustle harder’ ethos is, in this way, the lie that stops people from fixing the machine and keeps them polishing potatoes, rocks, bananas and all sorts of things the machine is designed to reject.

The best startup advice is simple. Start rich. Start privileged. Have enough money to fail and try again. It’s the same as any casino, you need money to even play the game.

Barring that we need to stop doing exit interviews with winning pachinko balls and build a better machine. Japan gets a stunning 4% of its GDP from pachinko, more than startups contribute to most economies. If we had a startup machine that accepted more balls, ovaries and allowed more people more chances to play, then we could get more jackpots.

But that doesn’t mean being a better founder. And it doesn’t mean self-improvement. It means being a better citizen and improving your society.

Don’t change the player. Change the game.