A TechCrunch article on Peter Thiel’s (investor in Facebook, PayPal, Slide) predictors for startup success got me on my Hidden Evidence high-horse. Peter claims that low CEO pay is a fantastic predictor of startup success. In TechCrunch’s words:
In Startupland, everybody should be working towards the same goal: that big juicy exit. That’s the only payday any CEO should be worried about (even though more than half of them will never get it).
To start with, this is a classic correlation / causation fallacy – simply because the correlation exists (if it does) doesn’t imply that low CEO pay causes (or predicts) startup success. Low CEO pay may also correlate to startup failure – we don’t have the data to play with, but it may simply be that low CEO pay is highly correlated with startups in general, thus could predict both success and failure.
It may be that ridiculous CEO pay packages correlate with (and cause) startups to fail. But there should be room between “ridiculous” and “low” pay for startup founders (including CEOs) to properly value their services towards the company. ”Predictors” such as Peter’s serve to continue the scenario where founders are required to undervalue their day-to-day contributions in order to prove to investors that they believe in their opportunity. One could argue that if you believe in the opportunity, then you believe in your ability to pay yourself to get there, otherwise the opportunity can’t be that great.
This is also the classic hidden evidence problem – again, because the majority of startups don’t pay founders (and CEOs) well, this is the only dataset we have to evaluate. And because successful startups that can pay their founders and CEOs well (by building profitable companies quickly) may never need investment dollars, then Peter will not have experienced this hidden set of companies.
When someone claims to be able to predict success, that tells me they are unaware of their own ability to predict more than it tells me they have some insider’s guide to success. Argh. :-)