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My idle thoughts on tech startups

The anti-hockey stick

Lee Hower
September 11, 2006 · 2  min.

Reading Time: 2 minutes

I recently heard a great presentation by Scott Kirsner on the adoption of new technology in the movie industry. He included a quote from Thomas Edison, inventor of the first movie projection device, in which Edison pessimistically predicted that there would be at most ten movie screens in the entire country. While Edison was driven in part by the potential competition of film projectors to his Kinetoscope invention, the quote struck me for its similarity to Thomas Watson’s famous and ironic (as IBM’s Chairman) line “I think there is a world market for maybe five computers.”

It’s obviously easy to poke fun at bad predictions about technology with the benefit of hindsight and history. All predictions about the adoption of new technology are inevitibly wrong… it’s just a matter of how wrong and in which direction you are at the time you make it. Hopefully you’re directionally correct and not off by too many orders of magnitude.

I find that entrepreneurs today often overshoot in the opposite direction from Watson and Edison. I know that forecasting adoption curves is tricky, and layering entrepreneurial optimism on to this process sometimes produces those hockey-stick Powerpoint charts (believe me, I’ve been guilty of this before). And it’s worth recognizing that some products or services do in fact experience periods of exponential growth. But as often as not, new technologies have less dramatic adoption curves or only go thru very brief phases of super-linear growth.

… and that’s ok. It’s entirely possible to build large, interesting businesses with solid but steady adoption curves. It’s more important to show realistic growth rates, have rational explanations of assumptions, and point to adoption of analogous technologies where possible. An entirely unrealistic projection is far more of a red flag to potential investors than a well-thought out, but perhaps less shoot-the-moon forecast. So set your goals high, but don’t be afraid to knock back the slope of that hockey stick by a few degrees.


Lee Hower
Partner
Lee is a co-founder and Partner at NextView Ventures. He has spent his entire career as an entrepreneur and investor in early-stage software and internet startups.