Analogous Paralysis

Analogies are one of the most powerful heuristic tools humans have to learn complicated concepts. This is especially important for early stage investors, as we usually see a lot of deal flow, and time pressure often forces us to fit complicated companies into patterns we’ve come across before. Analogies can short circuit this process, which, like anything powerful, can be good and bad.

As an investor, trying to draw the right analogy is great only after you fully understand all the complexities of the business. There’s a big risk of being intellectually lazy and just connecting the dots because you think they are close. I’ve found myself fall into this trap a few times over the past year, and breaking this habit has been phenomenally rewarding.

Things are harder for the entrepreneur (big surprise). As a contrarian and skeptic of just about everything, when someone pitches their idea to me as the “X for Y” my immediate reaction is to try really hard to figure out why they are not “X for Y”. This is bad for me and bad for the entrepreneur. What I should focus on are the fundamentals of the business: what’s the real competitive advantage, what are the nuances of the tech and product, who on the team is really impressive?

The explicit message here is purely about presentation. It’s great if you are the “Uber/Pinterest/AWS for Cats/Dogs/Burritos”. If your idea really is as simple (note: simple does not mean easy to build) as mapping an existing model to a new market, the investor you’re pitching will likely figure it out, and letting the investor figure it out by themselves puts you in a strong position. If your idea is fundamentally novel, explaining yourself from the ground up allows the investor to evaluate the business for what it truly is. Most won’t get it, but the ones that do are the ones you want on your team.