How can you tell if you're cut out for entrepreneurship? (with Matt Clifford)
Spencer Greenberg speaks with Matt Clifford about variance amplifying institutions, traits of successful entrepreneurs, and ambition. Matt, having worked with over a thousand entrepreneurs, shares insights on leveraging technology for impact.
Deep Dive Analysis
21 Topic Outline
Introduction to Matt Clifford and Entrepreneur First
Defining Variance Amplifying Institutions and Their Impact
How Amplified Variance Changes Societal Incentives
Comparing Elon Musk's and JP Morgan's Public Behavior
Understanding Variance Dampening Institutions and Their Historical Role
The Evolution of Traditional Prestigious Career Paths
The 'Precarity Trap' for Ambitious Individuals
The Ideal Percentage of Entrepreneurs in Society
Academic Evidence on High-Skilled Individuals Becoming Founders
Key Entrepreneurial Trait: Applied Problem Solving (Smartness)
Key Entrepreneurial Trait: Resilience and Determination
Key Entrepreneurial Trait: Exceptional Functional Skill (Having an Edge)
Key Entrepreneurial Trait: Comfort Challenging the Status Quo
Testing Entrepreneurial Aptitude in a Structured Environment
Entrepreneurship as Navigating an Uncharted Path
Balancing Long-Term Determination with Tactical Flexibility
Key Entrepreneurial Trait: Attracting Talent and Followership
Historical Evolution of Ambition and Leverage Technologies
Future Technologies of Ambition: AI and Distribution Networks
Understanding Counterfactual Impact for Founders and Investors
Navigating 'Tar Pit Ideas' and the 'Idea Maze'
9 Key Concepts
Variance Amplifying Institutions
These are institutions that select for and amplify unusual or 'tail' behavior, thereby increasing the payoff for extreme actions. The internet is a prime example, leading to a 'weirder' world by broadcasting anomalies and incentivizing extreme behavior for maximum impact and attention.
Variance Dampening Institutions
These institutions make things more predictable for all stakeholders, reducing variance in outcomes. Examples include constitutional democracy, traditional career paths, central banks, and multilateral institutions, which historically promoted conformity and stability.
Ambition Shock Absorbers
This describes traditional prestigious careers (e.g., investment banking, consulting, big tech) that offer talented, ambitious people a structured, predictable path to convert their talent into influence, wealth, and prestige, thereby dampening extreme competitive behavior.
Precarity Trap
A social-economic phenomenon where ambitious individuals feel compelled to earn increasingly more money to afford positional status goods (like prestigious private schools) due to the widening gap between well-paid and extraordinarily well-paid professions. This leads to narrow, often unfulfilling, career paths.
Edge (in Entrepreneurship)
Refers to a founder's personal competitive advantage or exceptional functional skill, which should be central to their ideation process. Leveraging one's unique edge significantly increases the odds of success in a startup by providing a 'right to win' in a specific domain.
Technologies of Ambition
These are historical mechanisms that allow ambitious people to maximize their impact and leverage. Examples include literacy (allowing influence beyond physical proximity), military command (projecting power globally), finance (allocating resources worldwide), and technology entrepreneurship (reaching billions permissionlessly).
Counterfactual Impact
The actual difference one makes in the world by their actions, specifically whether a company or innovation would have existed or succeeded in the same way without that individual's involvement. It questions if one is truly changing the world or merely accelerating an inevitable outcome.
Definite Optimism
A proactive belief that the world will get better in specific ways because of one's own actions or the actions of a group, contrasting with indefinite optimism, which is a complacent belief that things will improve without specific effort. This mindset is crucial for founders to believe they are making a unique difference.
Idea Maze
A framework for understanding ideas that have been tried many times, where founders face a number of key decision points. Successfully navigating an idea maze requires deep understanding of past decisions made by others in the space and a genuinely distinctive approach to those core questions.
10 Questions Answered
The world feels weirder because variance-amplifying institutions, particularly the internet, select for and broadcast unusual or extreme behaviors, creating a feedback loop that incentivizes people to act in more extreme ways for maximum impact and attention.
They strongly encourage taking more risk by offering uncapped upside, leading ambitious individuals to seek extreme outcomes rather than structured, predictable career paths.
Traditional careers act as 'ambition shock absorbers,' offering structured, predictable paths to influence and wealth, whereas entrepreneurship offers uncapped upside and requires navigating an unstructured, unpredictable path.
While more people should be entrepreneurs than currently are, it is unethical to encourage the general population, as employment is a better path for the median person. However, for the top few percent of exceptionally talented and ambitious individuals, entrepreneurship may be a much better path in expectation.
Yes, academic evidence suggests that high-skilled individuals who might otherwise pursue careers in banking or consulting often perform better as founders than those who voluntarily choose entrepreneurship in non-recession years, indicating that skill is a strong predictor of entrepreneurial success.
Successful entrepreneurs generally possess a high generalized ability to solve complex problems (smart), extreme determination and resilience, exceptional functional skill or a 'personal competitive advantage' (edge), and comfort challenging the status quo by succeeding outside structured environments.
Programs like Entrepreneur First allow individuals to join pre-company, receive funding, and work in a semi-structured environment for three months to find a co-founder and develop an idea, providing a low-commitment way to assess their suitability for entrepreneurship.
Ambitious people have always sought leverage, but the 'technologies of ambition' have changed over time, from literacy in the medieval era to military command in the 19th century, finance in the 20th century, and now technology entrepreneurship, which offers unprecedented scale and permissionless impact.
Counterfactual impact is achieved when a company or idea would not have existed or succeeded in the same way without the specific founder(s). It's important for founders to believe their unique character, values, and 'definite optimism' are crucial to bringing their important ideas into being, rather than assuming it would happen anyway.
While a simple heuristic is to avoid them, if a founder is deeply drawn to such an idea, they must thoroughly understand the 'idea maze'—the key decisions previous founders made and why they failed—and have a genuinely distinctive approach or 'edge' to navigate it differently.
16 Actionable Insights
1. Foster Extreme Resilience
Cultivate extreme determination and resilience, as starting a company involves numerous points where giving up is the easier option. Persisting through near-death experiences is crucial for a founder’s survival and success.
2. Cultivate Problem-Solving Skills
Entrepreneurs need a generalized ability to solve complex problems, often referred to as ‘smartness’ or high IQ. This foundational skill is a key filter for successful entrepreneurship.
3. Leverage Your Unique Edge
Identify a specific functional skill or personal competitive advantage (’edge’) at which you are exceptional. Then, choose an idea and work in a space where you can exploit this edge to significantly increase your odds of success.
4. Challenge Status Quo
Test your comfort with challenging the status quo and succeeding outside structured environments. Seek opportunities to have impact in self-directed ways, as this indicates a crucial entrepreneurial mindset.
5. High-Skilled: Consider Entrepreneurship
If you possess exceptional talents (top few percent in ability), consider entrepreneurship as a potentially much better path than traditional employment. Academic evidence suggests high-skilled individuals who become founders often perform better.
6. Seek Uncapped Upside
Actively pursue opportunities with uncapped upside, like entrepreneurship, rather than structured, variance-dampened careers, as variance amplifying institutions reward taking more risk. This approach can maximize impact and potential rewards.
7. Embrace Ambiguous Decisions
Cultivate comfort with ambiguity, as entrepreneurs constantly face crucial decision-making without sufficient information. Being willing to put yourself in ambiguous situations is key for success.
8. Goal Stubborn, Tactic Flexible
Be incredibly stubborn about your long-term goals, never giving up, but remain incredibly flexible about how you achieve them. Constantly adjust your plans and tactics based on what is working and what is not.
9. Detect Signal from Noise
Develop the skill of distinguishing high-signal feedback from noise, especially from customers, to adapt your direction effectively. While much feedback is noise, critical signals can indicate when a pivot is necessary.
10. Attract Talent and Attention
Cultivate the ability to attract talent, investors, advisors, and customers, a trait called ‘followership.’ Look for past examples where talented or senior people paid attention to your efforts as a proxy for this skill.
11. Ideate From Your Edge
When generating ideas, do not discount your unique personal competitive advantage (’edge’). Instead, let your edge be core to your ideation process, rather than starting from a blank slate or following general trends.
12. Master the Idea Maze
For ideas that have been tried and failed many times (’tar pit ideas’), deeply understand the ‘idea maze’ by analyzing past founders’ decisions and their outcomes. This helps you find a genuinely distinctive way to navigate the challenges.
13. Test Entrepreneurship Early
Before fully committing to entrepreneurship, seek out semi-structured environments or communities (like Entrepreneur First) to test if it’s the right path for you. This allows self-assessment before long-term commitments.
14. Cultivate Definite Optimism
Embrace ‘definite optimism,’ believing that the world will improve in specific ways because of your direct actions and efforts. This mindset is crucial for achieving real counterfactual impact and driving significant change.
15. Solve Producer-Felt Problems
When seeking ideas, focus on problems you experience deeply and painfully as a ‘producer’ (someone creating or working in a field), rather than those you only experience mildly as a ‘consumer.’ This leads to more distinctive and potentially successful ideas.
16. Avoid Removing Core Features
Be cautious about removing features from existing solutions that, while disliked, are core to their business viability. Such changes can make a product less compelling or unsustainable in the long term.
10 Key Quotes
What the internet does is it takes that behavior and gives it a much bigger platform. And as a result, you know, people that are sort of seeking maximum impact, seeking maximum stage time, if you like, are incentivized to act in an ever more extreme way in order to be picked up and amplified in this way.
Matt Clifford
I think one consequence of the rise of variance amplifying institutions is that taking more risk is actually strongly encouraged by variance amplifying institutions because, you know, you get this sort of idea of uncapped upside, um, that comes through the internet.
Matt Clifford
I think it's unethical to, to encourage the general population to be entrepreneurs. I think all the evidence in the academic literature, but also in my experience is the, for the median person, employment is a much better path than entrepreneurship.
Matt Clifford
I cannot emphasize enough how true that is. And I think one of the reasons it's such an important message, particularly if there are any prospective founders listening, is that I think one false inference that some founders make is if they encounter one of these like near-death experiences for the company in the first six to 12 months, I think it's very easy to take that as a signal that either you are not good enough or the idea is not good enough or the company is not good enough in one of these ways. And actually it's just like definitely not true.
Matt Clifford
Entrepreneurship is one of the career paths, if you like, that is really hard to test without doing.
Matt Clifford
I think it's really about whether you are attuned to signal and what the relevant signal will be for you as, you know, in your journey. Another way to describe the same phenomenon that you just described is, you're going to be absolutely pelted with with noise as a founder, there are going to be these events that you have to interpret every day. And most of it is noise.
Matt Clifford
I really believe that we're entering an era where technology entrepreneurship is going to become more and more the default career path for the most ambitious people.
Matt Clifford
I think it's a really good thing for the world that, you know, Demis Asabis started DeepMind, which I still think is probably the company organization most likely to develop general AI. I think it's really good that it was him and not some pure, you know, power maximizing sort of psychopath that started DeepMind, because I think that AI is going to be a, you know, generationally or more important technology.
Matt Clifford
The fact that there's this big pile of value, and hundreds of dead companies, like, it really points to this idea that like, oh, wait, there must be something really tricky about getting that value.
Spencer Greenberg
It's not don't do it. But absolutely don't do it thinking that you that you're just smarter than those other people and that, you know, they didn't see the skeletons like they, they probably did.
Matt Clifford