Why Is Pinterest Successful? Black Swan Farming and the Secrets to Startup Investing

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Hatched by Glasp

Aug 02, 2023

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Why Is Pinterest Successful? Black Swan Farming and the Secrets to Startup Investing

In the world of startups, success is often elusive and difficult to predict. However, there are certain companies that manage to break through the noise and become massively successful. Pinterest is one such company that has captured the hearts and minds of millions of users worldwide. So, what is it about Pinterest that makes it so successful?

Humans are eager collectors, and are attracted to the idea of sentimentality and practicality in that collecting. This is one common point that connects Pinterest's success to the human psychology of collecting. Pinterest allows users to collect and curate images and ideas that resonate with them, creating a sense of sentimentality and personalization. Additionally, Pinterest offers practicality by serving as a platform for users to discover and save ideas for various aspects of their lives, such as home decor, fashion, recipes, and more.

But what does Pinterest's success have to do with startup investing? In his essay "Black Swan Farming," the co-founder of Y Combinator, Paul Graham, explains the counterintuitive nature of startup investing. He emphasizes two important points: the concentration of returns in a few big winners and the fact that the best ideas often seem like bad ideas initially.

Startup investing is a realm where the big winners have a disproportionate impact on overall returns. This 1000x variation in outcomes is something that goes against our expectations about variation. It means that out of a batch of startups, there is likely only one company that will significantly affect the investor's returns. This fact is essential to understand when venturing into startup investing.

Furthermore, the best startup ideas often appear as bad ideas at first glance. Peter Thiel, another influential figure in the startup world, illustrated this concept with a Venn diagram. He showed two intersecting circles: one labeled "seems like a bad idea" and the other "is a good idea." The intersection between the two circles represents the sweet spot for startups. History has shown that many successful companies, like Facebook, seemed like bad ideas initially.

So, what can we learn from both Pinterest's success and the insights on startup investing? Here are three actionable pieces of advice:

  • 1. Embrace the counterintuitive: To succeed in a domain that defies your intuitions, you must be willing to turn them off. Just like a pilot flying through clouds, you need to trust what you know intellectually to be right, even if it feels wrong. This applies to both investing in startups and building successful companies.
  • 2. Focus on the potential for massive success: When evaluating startups, it's crucial to look beyond their chances of merely succeeding. Instead, consider their chances of succeeding really big. The probability of a startup making it big is not directly proportional to the probability of its overall success. Look for those rare ideas that have the potential to disrupt industries and create significant value.
  • 3. Rethink metrics: Don't rely solely on traditional metrics, such as fundraising success, to gauge a startup's potential for greatness. While fundraising can be an important milestone, it doesn't necessarily correlate with long-term financial success. Instead, focus on the quality of the product or service being offered and the founders' ability to sell it effectively.

In conclusion, Pinterest's success can be attributed to its ability to tap into human psychology and offer a platform that combines sentimentality and practicality. When it comes to startup investing, understanding the counterintuitive nature of the industry is crucial. Embracing this counterintuitiveness, focusing on the potential for massive success, and rethinking traditional metrics can help investors and founders navigate the unpredictable world of startups. So, whether you're collecting ideas on Pinterest or investing in the next big startup, keep these lessons in mind.

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