Chapter 1: The Perils of Being Average

Mediocrity is rarely a cause for celebration; in most cases, it doesn't lead to disaster. For example, a subpar accountant may still manage to keep their job, even during challenging times when companies may consider laying off the bottom 10-25% of employees. However, defining one’s identity solely by a job is misguided. If being an average employee allows for more time to excel in areas such as travel, parenting, sports, or friendships, then perhaps it’s a fair trade-off.

Yet, this perspective changes dramatically for founders. In their world, an average company is destined to fail.

The founder's journey is distinct, often characterized by the pursuit of asymmetric outcomes. An average performance typically signifies failure. I categorize positive asymmetric outcomes as having three key traits:

1. A low likelihood of success paired with disproportionately high rewards.
2. A measurable and limited downside risk.
3. An overall positive expected outcome.

Still, I find it concerning to observe the behaviors of founders, including my own, on a daily basis.

If we apply a simple formula where output = f(input, process), it follows that average inputs yield average outputs. For instance, if an "average founder" rises at 9 AM, socializes twice weekly, and tweets three times a day, mirroring this routine is unlikely to lead to anything but average results — meaning the company's eventual demise.

Conversely, if a founder works excessively, putting in 18-hour days fueled by instant noodles, the typical outcome for that demographic may lead to severe physical and mental health issues.

Successful founders must diverge from the average in their inputs to achieve extraordinary outputs. However, this deviation is often easier said than done, especially in a community where individuals find comfort in familiarity. It’s common to hear things like, “Oh, that founder also feels guilty about taking a Saturday afternoon off. Me too!” Instead, non-average inputs should provoke reactions like, “Wow, I don’t operate that way.”

While I do acknowledge that reinventing the wheel in established practices isn’t necessary — an average founder can utilize platforms like Clerky or StripeAtlas to set up a Delaware company without needing to innovate — the inputs I’m referring to mainly concern how founders allocate their time and energy in typical ways. For instance, relying solely on Google Ads and cold emails for customer acquisition, like countless other founders, is likely problematic.

Why Do Founders Fall into Mediocrity?

I believe there are two main reasons founders often succumb to mediocrity.

1. Overestimating the Average

Founders frequently misjudge the outcomes of an average startup. This phenomenon, known as availability bias, was articulated by Amos Tversky and Daniel Kahneman, who are often regarded as the pioneers of behavioral economics. Availability bias refers to the tendency to assess the frequency or likelihood of events based on how recent or memorable specific information is. In simpler terms, it’s a mental shortcut.

For example, we are bombarded with news about shark attacks more than mosquito-related deaths, leading us to overestimate the danger posed by sharks. Similarly, TechCrunch consistently showcases new companies raising substantial funding, achieving impressive monthly recurring revenue, or becoming unicorns, all in a mere 3-5 years. While most founders recognize that TechCrunch doesn’t reflect the full reality, they often underestimate the extent of this selection bias.

Many startup founders are similarly influenced. We consume news about successful startups while rarely hearing about failed fundraising efforts or companies that folded due to founder disputes. When discussing the demise of companies, fundraising challenges often come to mind, overshadowing the more prevalent reason: founders giving up.

Founders must grasp the reality: an average company is inherently at risk of failure, and remaining average guarantees its demise.

2. Overestimating Oneself

During a recent episode of the All In Podcast, David Sacks and Chamath Palihapitiya discussed founder behavior amidst the recent valuation downturn in tech companies. They pointed out that while founders may intellectually grasp the approaching recession, they still believe they can outpace competitors.

As founders, it’s easy to adopt this mindset. We have often defied the odds, successfully built products, generated revenue, secured funding, and expanded teams without faltering. This is something to be proud of.

However, there are two reasons founders may overrate their abilities:

• Founders must recognize that their competitors are also excelling as “the exception.” These rivals likely possess similar talents and resources, constituting a peer group. If a founder achieves a new milestone, it’s quite possible they fall short of the new average among their peers. What was once perceived as extraordinary may now require reevaluation.
• Additionally, people generally perceive themselves as above average. This cognitive bias, illustrated by Professor Paul Bloom at Yale through the "Lake Wobegon Effect," suggests that people believe they are better than most. For instance, a survey found that 93% of Americans think their driving skills exceed the average.

In the absence of objective benchmarks, my default assumption should be that I am merely average among my peers. These benchmarks must be current, reflecting the present rather than past performance.

Final Thoughts

Astute readers might find the two issues mentioned above contradictory. The first concerns overestimating the average, while the second deals with overestimating oneself, or underestimating the average.

Both issues can coexist when individuals overlook cause-and-effect relationships and rely on intuition. However, reasoning through every decision is laborious, and finding objective benchmarks is challenging for founders.

To tackle both challenges, founders should establish habits and systems that enable them to select the right inputs without needing to analyze every choice in the moment. Unlike other professionals, founders lack external feedback mechanisms like regular performance reviews or promotions. The link between inputs and outcomes is often not immediate; it’s typically the cumulative effect of inputs over time that influences results.

One of the few reliable strategies is to ensure we’re consistently engaged in productive activities and committed to daily growth. Y Combinator advocates for a 10% growth target each week, while authors like James Clear emphasize improving by 1% daily. Both approaches focus on the power of small, incremental changes that can lead to significant outcomes over time.

We have the ability to achieve this.

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Video Insights

The first video, "Why Do We Fear Being Average?" discusses the psychological aspects surrounding the fear of mediocrity and its implications for personal and professional growth.

The second video, "Why Founders Should Stop Worrying About Valuation," explores how founders can shift their focus from valuation anxiety to building sustainable businesses.