Commentary

What Do Skype And Drug Dealers Have In Common?

Won't you join me in raising a glass in congratulations to Tony Bates, Skype's CEO, along with Andreessen Horowitz and Silver Lake, the newly bought company's two major shareholders? While we're at it, I think Ahti Heinla, Priit Kasesalu, and Jaan Tallinn, the original Estonian developers, deserve a hand, as do Niklas Zennstr"m and Janus Friis, who founded Skype as a company in 2003.

I am not being facetious or sarcastic. Skype already earned their props back in 2005, when they sold to eBay, and closing a deal the size of the one they've just done with Microsoft is worthy of some serious respect.

It's also the apocryphal Holy Grail of every start-up business: to create something with hundreds of millions of users, something that changes the landscape forever and creates a totally new way of working and engaging in our society. It's that rare business for whom the words in the press release -- words like "revolutionary," "disruptive," and "game-changing" -- are actually true.

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Of course, the chance at a big payday doesn't hurt, despite the fact that it's about as likely as making it to the NBA or, as Steven Levitt pointed out in the brilliant "Freakonomics" back in 2005, about as likely as becoming a millionaire drug dealer:

...[T]he answer to the original question -- if drug dealers make so much money, why are they still living with their mothers? -- is that, except for the top cats, they don't make much money... The top 120 men in the Black Disciples gang represented just 2.2 percent of the full-fledged gang membership but took home well more than half the money.

Levitt goes on to point out that, to make it worth it to give your all to an endeavor with a statistically unlikely possibility of success, the payoff has to be huge. Remember Economics 101? Expected value? The less likely an outcome, the bigger that outcome has to be to make the effort worthwhile.

So here we are in Cambridge: ten teams, a perfect VC portfolio. And, from a VC perspective, only one of us is likely to make it big -- and, by "big," I mean a 10-30x return on any investment we get, not even a many-hundred-times return mega-home run like a Skype or a Google. But these stories keep us going.

It's not just about the money, either. The money is a symbol. It represents how much you've changed the world. When Mark Zuckerberg finally offered his opinion on the movie "The Social Network", the thing he homed in on was the movie's failure to understand the entrepreneurial motivation:

The thing that I think is actually most thematically interesting that they got wrong is - the whole framing of the movie... basically to frame it as if the whole reason for making Facebook and building something was because I wanted to get girls or wanted to get into some sort of social institution... I think it's such a big disconnect from the way people who make movies think about what we do in Silicon Valley - building stuff. They just can't wrap their head around the idea that someone might build something because they like building things.

As I said last week, at the core of the entrepreneur there is a creative impulse that cannot be silenced, and the opportunity to change the world -- no matter how unlikely -- is simply too compelling to ignore.

Looking forward to hearing about your own start-up experiences or opinions on the Skype sale. Feel free to connect with me on Twitter or share in the comments below.

4 comments about "What Do Skype And Drug Dealers Have In Common?".
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  1. Jerry Gibbons from Gibbons Advice, May 13, 2011 at 2:40 p.m.

    I'd add Don Albert to the list of those to be congratulated on the Skype deal. Worked long and hard to keep it viable so a good deal could be made.

  2. Ian Hough from TicketLiquidator, May 13, 2011 at 4:06 p.m.

    Stephen Levitt is "brilliant"??! Freakonomics is the most overrated book I have ever read. He takes totally inane ponderings and, with the help of Stephen Dubner who is a journalist, creates a completely false persona that Dubner continually chimes in to cheer on. He had quotes from Dubner's brown-nosing accounts of how "brilliant" he was before every chapter.

    It was a mock up job. If I want to read something properly original I'll pick up James Howard Kunstler's "Geography of Nowhere" or Brian Greene's "The Elegant Universe".

    Levitt is a con man. His ideas are other peoples' and his research is truncated, typifying his overestimation of self and underestimation of his readership. He's worse than that other idea thief, Malcolm Gladwell, and THAT'S saying something!

  3. Paula Lynn from Who Else Unlimited, May 13, 2011 at 7:29 p.m.

    So 97.8% of drug dealers are being used and are fools. Doesn't sound so good.

  4. Kaila Colbin from Boma Global, May 14, 2011 at 5:46 a.m.

    Thanks for the comments, guys! @Paula, would you say the same about entrepreneurs? ;-)

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