Secrets to STARTUP SUCCESS

THE REALITY DISTORTION FIELD

Andy Hertzfeld, a member of the first Macintosh computer software development team in the early 1980s, credits fellow team member Bud Tribble with coining the phrase “reality distortion field” to de­scribe the driving, charismatic influence that Apple co-founder Steve Jobs, carried over the team. “The reality distortion field was a con­founding mйlange of (Jobs’s) charismatic rhetorical style, an in­domitable will, and an eagerness to bend any fact to fit the purpose at hand,” he writes. Once they understood Jobs’s ability to bend re­ality, team members puzzled over how to respond to it. “We would often discuss potential techniques for grounding it,” Hertzfeld writes, “but after a while, most of us gave up, accepting it as a force of na - ture.”7

Steve Jobs is certainly a force of nature, and his confident, forceful style has driven Apple Computer to great heights over the years. The same quality drove him to leave Apple in order to launch NeXT Computer in 1985. Jobs believed that his NeXT cube system, aimed mostly at high-end academics, would change the world of computing. Jobs secured a high-profile investment partner in Texas billionaire

Ross Perot, who later called the investment “one of the worst mistakes I ever made,” then sprinted forward in pursuit of his big idea. After building a state-of-the-art manufacturing facility ready to crank out 150,000 units a year, NeXT sold only 50,000 computers over the life of the company. The product was critically acclaimed, even coveted, in technology circles, but it was much more expensive than competing systems and so advanced that the typical user found limited practical value. “He believed that the company couldn’t fail,” wrote technology columnist, Colin Barker, in October 2000. “In the end, the story of the NeXT cube became a study in failure. NeXT was a high-profile dis­aster, a computer system that the world admired but wouldn’t buy.”8

The NeXT example provides a cautionary tale for all entrepre­neurs because every founding team creates its own reality distortion field somewhere along the startup path. “Drinking the Kool-Aid” is a very common early-phase business activity. After building overly rosy plans, founders are swayed by psychological pressure to seek out data that validate their vision and to avoid or deny bad news. Unspoken group norms promote disdain, even hostility, toward people who raise concerns or point out contradictory data. These pressures combine to create a kind of psychological cocoon around the startup team and its founding premise. The business is assumed to be on a destiny - driven path.

Steve Jobs is only one of many successful entrepreneurs who have found that world-class intellect and leadership skills won’t protect them from the occasional dangers of reality distortion. J. C. Faulkner, the most talented entrepreneur I have ever worked with, temporarily lost touch with his own solid instincts when he attempted, two years after his tremendously successful launch of Decision One Mortgage (D1), to start a new telemarketing subsidiary in April of 1998. Despite concerns on the part of his original D1 leadership team, J. C. lured an intact management team from another company to set up and run the new business, to be called Home Free Mortgage, and hired sixty call center employees to occupy an entire floor of office space. He decided to oversee the new initiative himself, thinking that he wanted to keep his D1 leadership fully focused on growing the core business. But members of his D1 team grew increasingly worried about cracks in the Home Free model and the lack of experience in its management team. Uncharacteristically, J. C. brushed off these concerns.

When mortgage markets took a nosedive a few months later, J. C. and his original team spent most of a day debating Home Free’s de­teriorating financial situation. The conversation was skillful and bru­tally honest—so much so that the reality and gravity of the situation became abundantly clear. J. C. decided to shut down Home Free the next morning. It was an excruciating decision; he had worked tirelessly for more than six months to recruit the Home Free team and negotiate a deal to extract them from their previous company (a fact that prompted some dark humor from his banker, who told him that “he dated the company longer than he was married to it”).

Although J. C. had arranged for his original team members to have ownership stakes in Home Free, he decided to absorb the entire loss himself. Looking back, he jokes that he personally earned $8 million that year from D1 and lost $8 million on Home Free. But more painful than the financial loss was the experience of telling employees that he was closing the company after only four months, and then shortly thereafter meeting with his local D1 staff to explain his mistake.

The launch and demise of Home Free Mortgage serves as a kind of photographic negative for all that went right about the D1 launch. D1 is the positive case study and Home Free is the anti-case, occurring because a talented entrepreneur got swept up in passionate pursuit of a pet project that never would have withstood his usual level of scrutiny and analysis. “In a sense, I was in a hurry to prove that D1 wasn’t luck,” J. C. now says. “I had some ego confusion, so I was very quick to try to prove that I was smart. What I did—very quickly and very expen- sively—was prove just the opposite.” I once asked him what he would he have done differently, had his judgment not been fogged by over­confidence. “I would have dug into their financials,” he says. “I would have spent more time. I would set up a real clear structure, start out with a small amount of money, get profitable on a small scale, and then replicate it. I would have done the things I did when I started D1.”

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