Revel in your Defects

I love the analogy of the pearl and the oyster when thinking about startups.

I am not sure whom to credit for this concept, and I am no biologist, but I understand that pearls come from oysters; the process of an oyster creating a pearl is actually the result of a defect.  Oftentimes that defect is because a foreign substance, like sand, that gets into the oysters body and causes a rare reaction: the creation of a pearl.  No defect, no pearl.

If you think about the truly great companies, they begin with a startup idea, and oftentimes founders and managers, that almost everyone thinks is fatally flawed.  A lot of VCs and end users and competitors laughed and laughed at Microsoft, Google, LinkedIn, Twitter, Facebook and Foursquare; they didn’t have a business model, they would personally never use it, the opportunity is a fad that will come and go, the founder is inexperienced or had a big ego or is goofy, etc etc etc.  The reality is that, sometimes, the bigger the defect or laugh, the bigger the opportunity.  I would venture to say that if not for the defect, the opportunity wouldn’t be there.

This is something I think about anytime I hear a pitch or talk about an opportunity: where is the flaw? It’s not a game of “gotcha”, but smart investors know that, just like the flawed oyster that produces the pearl, the bigger the flaw, the bigger the potential opportunity.

For instance, it could be a group of highly experienced founder that for 7 years straight never never gave up on an opportunity.  Some investors might look at that and say: my god, it’s been 7 years, give it up already.  A savvier one might ask: why is it different now than it was 2 or 4 or 7 years ago, that you will now be successful?  The answer might be technology or market acceptance that heretofore didn’t exist–until now.  So that flaw of taking so long then becomes an advantage of expertise in a sector that no one has focused on, hence a huge opportunity for the right entrepreneurs.

That describes the Truveris investment I led last year with New Atlantic Ventures and First Round Capital.  The company after 7 years of hard work figuring out how to save significant pharmaceutical costs, finally was able to automate that process through cloud computing; in the past it had been a highly manual process that yeilded only very partial and small cost savings, taking months and months of work.  The new technology tools enabled the opportunity which was difficult to address with prior technologies at a reasonable cost.  And in the meantime, the problem grew from a low level crisis of a $50B corporate problem to a $400B society threatening problem.

So revel in your flaws–just don’t let it kill you or your startup–and be sure to point out the benefits that flaw creates for you and your business to potential investors, strategic partners and recruits.  Don’t hide your flaws, show them off!