Both Sides of the Algorithm

By Larry Chiang

I love algorithms. They explain and make less mysterious how things really work. I’m the guy who cracked the credit score algorithm for college students getting to a FICO credit score in the 90th percentile.

Entrepreneurs, you actively read “both sides of the table” by Mark Suster. I will preview both sides of the (entrepreneur) algorithm.

Here is what I have pattern recognized. Big data as it applies to ‘underwriting’ entrepreneur likelihood of success. Christina Farr wrote about big data and Nate Silver’s use of data to correctly predict all 50 states in the presidential race. Farr’s articlehttps://venturebeat.com/2012/11/09/startup-algorithm/ hinted at an entrepreneur algorithm that VCs could use in funding decisions.

Since I study the concept of algorithms, let’s look at this MoneyBall concept in the statistical evaluation of entrepreneur talent. (NOTE: MoneyBall’s parallel in farm system development will not be addressed)

-1- YouNoodle’s Co-Founder Team Algorithm

In studying what makes teams successful, youNoodle presented at a Stanford engineering entrepreneurship class called ENGR 145. The conclusion is you want teams of 3-5 people from one really good school with ONE outlier. This outlier would be one co-founder from a public school mixed into the Stanford co-founder team.

The concept and pattern that YouNoodle’s research recognized is that a homogenous team is good but needs some BIG TIME yang to go with the ying. Having a co-founder that has a stark background contrast helped in YouNoodle’s research of over 1,100 startup entities.

-2- How co-founders fight and make-up

Jessica Alter, co-founder of Founder Dating, published a report on how founders fight and recover from disagreements. This metric is part of the algorithm.

-3- “Chip”

Victor Chiang cites having a chip as tantamount in whether an entrepreneur drives forward and aggressively attacks milestones.

-4- Able to take direction

Mentorship and accepting direction is critical. Listen to successful founders during media interviews and track their MMPPI (mentor mentions per press interview).

The odds of entrepreneur success are high enough. Getting a great mentor decreases your likelihood of “premature startup mortality”.

-5- Intrinsically smart.

Goodness, let’s hope you are smarter than the VC you’re pitching.

If I do not learn something new during the pitch, I am worried for all y’all because VCs are kinda relying on you and your co-founders for domain expertise.

-6- CEO Worthy

We don’t want to fire you as CEO. Some of my colleagues do it because their TVPI ratio is abysmal. TVPI of course is “total value: paid in”

Are you CEO worthy. I’m watching you and how you do Board of Director meetings.

-7- Execute minutiae / street smart

Strategy people are useless to a startup. How do you execute tactical details of blocking and tackling?! Being street smart helps.

-8- Engineering AND Sales Skills

Being an engineer is a given. Having sales skills makes your likelihood to succeed much higher. From clawing for your first few users (before you ‘go viral’ lol) to “selling” an early employee to join you, sales skills are important for you co-founders in the algorithm VCs use.

Good luck. And know that while you’re gaming the algorithm, you’re actually increasing your likelihood of startup success.

ENGR145’s Anchor Concept: Lemonade and Gua Gua Guacamole

It moves you to the right on the entrepreneur bell curve

CEO of Duck9 Founding Stanford University EIR (Entrepreneur in Residence) Emeritus

Duck9 = “Deep Underground Credit Knowledge” 9 125 University Avenue/ 100 Palo Alto CA 94301 https://www.duck9.com/ass 650-566-9600 650-566-9696 (direct) 650-283-8008 (cell)

**************** Editor of the BusinessWeek Channel “What They Don’t Teach at Business School” https://whattheydontteachyouatstanfordbusinessschool.com/blog CNN Video Channel:https://ireport.cnn.com/people/larrychiang

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Author, NY Times Bestseller https://whattheydontteachyouatstanfordbusinessschool.com/blog/?s=Ny+times+bestseller

“What They Will NEVER Teach You at Stanford Business School” comes out 11-11-14

https://www.fastcompany.com/embed/c0d4562ea2049

52 Cards. Two Jokers. What They DO Teach You at Stanford Engineering

Emergency swings and cutting deals as an 9 year old

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