I read Dave McClure’s ‘Screw The Black Swans‘ post which was in response to Paul Graham’s ‘Black Swan Farming‘ post a few weeks back when they were initially published. Lots of great thoughts in both but one idea/image has stuck with me ever since and that is the venn diagram of the sweet spot. Graham cites Peter Theil as the originator of this illustration to fully round out the West Coast name dropping here. The whole notion of the sweet spot is that when assessing early stage investments, what may seem like a bad idea might actually turn out to be a good idea. [Be sure to read Graham's recounting of this exact phenomenon when first meeting Mark Zuckerburg and assessing Facebook.]
If you were able to zoom in on this further, I’d insert a very small circle approximately the size of the “O” titled “Great Ideas” of which only a sliver would overlap the ‘seems like a bad idea’ circle. This little zone would be the ‘sweeter spot.’ Facebook belongs in this category as does Instagram given their exit valuation (say what you will about it).
Whether it’s a bad idea or just seems like a bad idea, the ability to discern between the two is something I believe can be learned. Just as my alma mater Babson professes that entrepreneurship can be learned, I suggest the same for this investment ability. Although it relates specifically to early stage businesses since its much easier to have a sense whether an idea is turning out to be a good one or bad one after some money has been spent in an attempt to grow. And for those who are bullish on entrepreneurship, with the increasingly smaller costs involved to prove out whether a business can gain traction, more bets can be placed on these companies that may seem like a bad idea but hopefully turn into good or even great ideas in the long run