Tech Startups: Are Most CEOs Delusional?

In general, technology CEOs require a certain level of delusion, aka vision or the famous “reality distortion field”.

Talking about the origins of Snapchat, Evan Spiegel reflected “…All the VCs and people who came through were like ‘[Snapchat] is the dumbest thing ever,’”. Despite constant negative feedback, Evan stuck to ‘delusion’. Today, Snapchat is a huge company just a fraction of the size of it’s potential.

Airbnb CEO Brian Chesky wrote a whole medium.com post showcasing 7 rejections from VCs back when Airbnb was trying to raise USD 150 k at a 1.5 million valuation (!!).
7-rejections

Salesforce’s Marc Benniof ran his company out of a garage – but always talked to his friends about his global company (read Behind the Cloud by Marc Benioff)
salesforce behindthecloud

Speaking about hiring his first management team, Alex Karp cofounder of Palantir said “[MBA students] were asking questions about our diagnostic of the total available market – We were talking about building the most important company in the world.” Delusional words from a non-technical, inexperienced philosopher with no CEO experience.

Anecdotes aside, there is much evidence to support the importance of CEO reality distortion to a technology startup’s success.

First, look at the amount of equity founders keep. Founders run and have decision making power over some of the largest companies in SV (FB, Google, Oracle, etc…) They do this so that they can continue to make the ‘delusional’ decisions that helped them win markets in the first place. One example of this was Mark Zuckerberg’s single-minded decision to acquire Instagram at what seemed a prepostorous price (USD 1 billion)and notify the board afterwards (they held a vote but it was only a formality). Today by some estimates, IG is worth some USD 35 billion (Picture this: Instagram could be worth $35 billion).
instagram-could-be-worth-35-billion

Another example is Thumbtack’s radical change in business model, from taking a commission on transactions made through their marketplace to a lead-generation business model (Thumbtack’s Lead Generation). Given the amount of revenue they were making without the change, it seemed delusional to many.
lead-generation

This leads to the second point – look at the acquisitions taking place in the tech sphere. Large companies are acquiring upstarts for hundreds of millions of USDs. Would spending investor money (or precious revenues/profits) on acquisitions be a sane decision in the traditional sense? Unlikely -yet it remains a core strategy for a lot of tech companies, the fruits of which take months even years to bear. For example, Marc Benniof acquired RelateIQ for USD 390 million almost immediately after a trusted advisor told him it was the right thing to do. Delusional on many levels – yet probably an excellent decision on the LR.

The final point I will make is on the level of R&D founders invest in their companies. For example, Mark Zuckerberg recently announced his ‘telepathy’ plans for the future of Facebook. A lot of scientists are skeptical (Mark Zuckerberg’s ‘Facebook Telepathy': Experts Respond : DNews). The science just doesn’t exist they say – but that hasn’t stopped Mark and facebook from plunging millions into making this ‘delusional’ idea a reality. I, for one, look forward to telepathy on facebook.
mark-zuckerbergs-facebook

Historically, the world labels people who think different as ‘delusional’. Progress, by definition, is building upon consesus – or breaking it . This requires a lot of conviction and steadfastness in the face of adversity, which people like Mark Zuckerburg, Evan Spiegal, Marc Benioff, Alex Karp and Brian Chesky clearly possess. As Peter Thiel put it:

initially posted here.

“Brilliant thinking is rare, but courage is in even shorter supply than genius.”