• Founder, Investor, Advisor

Unicorns And Peacocks

You Gotta Pay The Cost To Be The Boss

December 28, 2021
Charles Darwin, in On The Origin Of Species recognized that animals evolve thanks to the pressures of natural selection.  The animals that survive are the ones with traits that are well adapted for the purpose.  A bird with a more agile beak can catch food better, a rhinoceros (unicorn) with a stronger horn can defend itself better from predators, etc.

A unicorn by any other name would still smell as sweet.

This kind of thing happens in any environment where there are significant selection pressures on survival.  Take startups, for example.  The ones that survive tend to be the ones that are well adapted to make something people want.

So far, so straightforward.  But, Darwin pointed out another source of pressure that governs how species develop.  Take the peacock, for example.  The male peacock's tail isn't well-adapted for survival, per se.  The tail is long, makes the peacock slower and less agile, etc.  But the peacock's tail also makes the male peacock attractive to other peacocks.

So hot right now.

The peacock's tail is a costly signal.  It is costly both in the sense that if a male peacock survives even though he's dragging that tail around, he must be reasonably good at surviving, and because a tail like that is hard to grow without good genes.  Put another way, it's very hard to fake having a good looking peacock tail.  You either have it, or you don't.

The main difference between these two kinds of selection pressures, is the audience.  Natural selection is a first order issue, in the sense that a beak, horn, or what have you either succeeds or fails at changing the facts on the ground.  You either catch the food, or you don't.  You either defend yourself against predators, or you don't.  Your success or failure at these tasks has little or nothing to do with your audience.

The other kind of selection, by contrast, is a second order issue in that traits which are selected for in this way are primarily good at convincing someone else that you are or will be successful.  The key issue here isn't so much the facts on the ground, but rather the change in someone else's beliefs about you.  In other words, the success or failure of a peacock's tail has everything to do with influencing what your audience thinks.

If this seems a little strange, remember that the peacock's tail makes the peacock less likely to survive, because of the hassle of dragging it around.  The peacock takes a loss in terms of the facts on the ground, but gets a win in terms of the effect on his audience.

Ultimately, this is because talk is cheap.  Anyone can say that they're the peacock you've been looking for.  But, like the peacock's tail, what is most convincing are signals that are costly, and therefore not cheap.

The point here is that because effective signals have a cost to them, there can be times when you need to make a choice between effective signals and changing the facts on the ground.  For example, let's say you have a choice of two people for your VP of product.  One of them worked at one of the FAANG companies, Stanford CS grad, Harvard MBA, has all the credentials you could want but is new to your space.  The other one never graduated from high school, but has been obsessed with your space for years, and has built a number of well-thought out but little known open source tools that are highly relevant.  You know that bringing the credentialed person on board will immediately signal to others that you've got momentum.  Bringing the one obsessed with your space on would give your development efforts a significant boost.

In an ideal world, of course, you can get both.  In the real world startups do have to navigate this kind of tradeoff all the time.  It would be easy to say that you should just optimize on one of these pressures, or the other.  But, I don't think we can say that.  Costly signaling can be a powerful force multiplier, especially in a world where investments get made quickly and companies with momentum find it significantly easier to raise capital.  At the same time, you need to build a real business to succeed.

The best you can do here is to recognize the tradeoff and be intentional and deliberate in your choices.  There's no one right answer, but if you understand the challenge, that's a good start.

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