by • October 20, 2011 • Best of, FoundersComments (5)590

The coffeeshop fallacy

Lots of people think they want to start a coffeeshop. They likely don’t. That’s like buying a minimum wage job for two hundred grand. What they want is to be a customer and sit in a cafe, drink coffee, be nice to people, and possibly curate an art gallery.

We’re good at recognising when we receive pleasure from consuming a certain good or service. But then we extrapolate incorrectly to the conclusion that owning said business will deliver even more pleasure.

Max Levchin (paypal, slide) said something to the effect of:

You you can’t be in love with a particular idea or business. You have to be in love with the idea of running a business.

It’s one of those quotes that has haunted me, in no small part because Max has been so successful in such a wide range of pursuits and because I both understand his reasoning and [somewhat] disagree with his conclusion. I still think that matching your business model to your values is a competitive advantage and that doing otherwise is, for most people, a shortcut to disasterville.

Here’s a working definition of the coffeeshop fallacy:

The coffeeshop fallacy is a mismatch between the work one imagines to be involved in a pursuit and the actual day-to-day labour.

It is most common in industries with a strong survival bias which create a fun or desirable product.

It preys on actors, artists, founders, and more

For example, the founders of a game company are more likely to fall victim to the coffeeshop fallacy than the founders of a new CRM. The former are liable to believe that since what they are building is fun, the construction process will share that virtue.

Beautiful young people covet the observed lifestyle of successful actors or models without recognising that their own career path will mostly involve schlepping coffee and talking to jerks. The founders of a film studio will spend most of their time managing a pipeline. The founder of a cafe becomes a mopper and accountant.

A stoic solution

I think I can see where Max is coming from. I would unpack through his train of thought like this:

Building a fun product still involves lots of painful and boring work.

Enjoying the product is the luxury of the customer, not the producer.

If I’m not going to enjoy building it either way, then choosing what I build based on what I would enjoy consuming is a fool’s errand.

Therefore, I can chase the very best opportunity, whether it be fraud detection or glitter widgets, since in either case I’m still spending my time running a company.

His framing basically solves the coffeeshop fallacy. Instead of saying “I want to start a cafe” you say “I want to spend my days mopping while risking $200k on a low margin retail/service business with a 10% success rate.” And then you go: “Hmmmmmm…”

Constraints and wiggle room

However, not everyone is quite so mercenary as Max. I don’t know him, but based on what I’ve read and watched, I get the impression that he follows the market, full stop. If he saw a big opening he could exploit, he’d be there regardless of whether it was drilling for oil or starting a babysitting empire.

Most founders have some additional constraints on the type of business they want to run and it’s important to recognise that. Not because you’re required to follow your passions, but rather because it’s helpful to avoid your workday nightmares.

Some founders care about the market or the customer or the value proposition or the impact or the scale.

Caring about the product seems to be the most dangerous. It’s how the coffeeshop fallacy pops up and it’s how people end up spending years building stuff nobody wants to buy.

Caring about a certain customer group still gives you a lot of wiggle room. Caring only about the market (like Max) provides infinite wiggle room, but I don’t think many people can honestly claim that value set.

I’ve made this mistake

The first time, we ended up converting our creativity tools for kids into a straight-up brand advertising play. Although building the former was no more fun than building the latter (it’s code and metrics either way), I valued enabling creativity for kids in a way that I did not care about reinventing advertising. Advertising was the better market, undoubtedly, but our team was less able and willing to deliver something remarkable.

The situation arose again at Nvana when we were building tools to teach entrepreneurship. We couldn’t scale the business by focusing only on universities, and we had some decent leads in re-applying the product to corporate use cases. Instead, we shut it down.

[Image] from dielis

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