CHAPTER 3

Recognition of the Incongruous

To see things in the seed, that is Genius.

—Lao Tzu

When everyone else seeks the same diminishing rewards by following the same formulas in the same way, the real prizes are inevitably elsewhere. There are other veins yet to be mined, and these require a different approach. Different markets. Different values. Different networks. Different mind-sets, informed by different life experiences. As a wise friend of mine put it, “Different isn’t always better, but better is always different.”

Grow Where You’re Planted

Brian Scudamore never got his high school diploma. On the day of his graduation, he actually thought that he had, but when he walked up to collect his diploma, where his certificate should have been was a notice informing him that he had missed too many of his algebra classes and that he would need to retake the class over the summer to get his diploma.

Instead of taking the class, however, he decided to apply directly to Dawson College, a two-year program in Montreal, his hometown. He wrote them a letter imploring them to let him in, explaining that he admittedly wasn’t as focused in the twelfth grade as he should have been and that he hadn’t applied himself, but that he was now ready. It worked.

Later, he would end up talking his way into Concordia University, a four-year institution in Montreal (leaving there after only two years), and following that, the University of British Columbia, only to drop out once more. Turns out, college wasn’t for him (even though talking his way into college was, apparently). But by then he had already started a junk-removal company, inspired by a beat-up old truck he saw advertising a trash-hauling service while passing a McDonald’s drive-through. He thought, “I can do better than that.” He formed a company, originally named the Rubbish Boys, that eventually evolved into his current company, 1-800-GOT-JUNK?, which brings in more than $200 million in yearly revenue.

Though his path to success seems straightforward, and the lack of a high school diploma seems like a distant memory, it remains relevant for Scudamore. In fact, he told me that there hasn’t been a single month since 1998—the year he started the Rubbish Boys—that someone hasn’t brought up the phrase “high school dropout” or “college dropout.”

When he first founded the Rubbish Boys, would-be investors, from banks to friends and family, refused to loan him money, asking, “What are you doing? Where is this going? How can you get this to go somewhere when you weren’t even able to get college to work out for you?”

So Scudamore made sure never to allow others to take over the conversation and assign him the label of “dropout.” “I decided that I had to use it to my advantage and embrace it,” he said. “No one is ever going to let me forget it, so I had to embrace it as one of my assets, just like someone else would embrace their strong quantitative skills or their communication skills.” He proudly brought up his own educational history, declaring, “I was someone who learned by doing, so every move I made wasn’t about dropping out. It was about clearing the way to continue doing.”

The label persisted. Even five years later, as his company hit half a million dollars in revenue, he faced criticism. People would say to him, “You’re a high school dropout, and now you’re in the trash business. Do you really want to be in the trash business your entire life?”

Scudamore continued to own it, even doubled down on it. That bias, he said, would always be a part of how people saw him, but everyone has their own skills and talents. Now he calls his dropout status his “badge of honor.” “Grow where you’re planted,” he said. “And now I steer people in the direction of me as a dropout—not away from it. People underestimate me because of it, and I use that to my full advantage. I plant some beautiful things out of what others think is trash.”

Your history and your story are part of your basic goods. Don’t underestimate where you’ve been planted—grow there. Or grow where the soil is less jammed with other plants and you’re less likely to get crowded out.

The Longest Lines Are Not Always for the Best Rides

When I was little, I remember going to Chinatown with my parents. It was in the days before Yelp; you couldn’t browse online reviews and within minutes know which four-and-a-half-star restaurants with more than two hundred reviews would most suit your taste buds.

What we did in those days when we showed up in Chinatown, unsure which restaurant to frequent, was look at the lines. My parents would find the two restaurants with the most respectable-looking (read: longest) lines and then split up, each waiting in a separate line. I would go with my father to one line, my brother would go with my mother to another, and my brother and I would serve as “runners” between the restaurants, keeping each parent informed about how quickly the line was moving. When we were close to the door of the restaurant, we were finally able to give the host or hostess our name and the number of people in our party (that was how Chinatown in New York City worked, at least in the 1980s), and the decision would be made over which restaurant we would be dining at.

“The best restaurants have the longest lines,” my mother still says. For decades, that was my heuristic as well. Each year, I go back to Taiwan; the restaurant scene in central Taipei is not unlike New York City Chinatown in the eighties. And the longest line? Always Din Tai Fung, a small, understated restaurant that specializes in steamed soup dumplings called xiao long bao, and other Huaiyang cuisine. Din Tai Fung now has branches in Australia, China, Hong Kong, Indonesia, Japan, Macao, Malaysia, the Philippines, Singapore, South Korea, Thailand, the United States, the UK, and the UAE, but its original location on Xinyi Road in the Da’an District of Taipei remains the most popular and most frequented. No matter what time it is, you’ll always see a line outside the dumpling house—and multiple times a year, you’d have seen me waiting in that line.

Until one day, when my husband told me that he had found another small, nondescript dumpling restaurant. I was barely listening. There are dumpling restaurants all over Taipei, I told him. We’ve eaten in dozens of them, and they’re all fine. Fine for a normal meal, but nothing special. When we want special, we go to Din Tai Fung. Unshaken, he continued to explain, “This one is special. Their dumplings are actually . . . better than Din Tai Fung.” The horror, I thought. The sacrilege of him suggesting that it was better than Din Tai Fung. I immediately set out for this mystical restaurant.

The restaurant was extremely small; if completely full (it wasn’t), it might have been able to seat ten to twelve people, uncomfortably. The “menu” had just ten to twelve items . . . but they were my go-tos, the ones that I would have ordered were I at Din Tai Fung.

And the food . . . it was better. Much better. The best soup dumplings that I have ever had, to this day. They not only tasted better, but they were also the most beautiful dumplings I have ever seen.

This nondescript restaurant,* run by a husband and wife, with no line, was better than the world-renowned Din Tai Fung. Turns out, the husband was once an apprentice at Din Tai Fung. After trying to innovate on a batch of crabmeat soup dumplings one day, he was fired and could not find work anywhere else. So he steamed a basket of six dumplings in his kitchen, set up a card table outside, and sold his first basket.

I learned three things. First, trust my husband when it comes to food. (This first one, admittedly, was the most difficult to learn.) Second, the same can be said of lines in an amusement park—the best rides are not always those with the longest lines. (Can I get an amen from all the other parents who have spent hours waiting in the line for Dumbo at Disney?) And third, crowds are generally wise, but the wisdom of crowds has its limits.

We tend to look where things are crowded because crowds go to the shiniest thing around. This type of herd mentality can be useful in many situations, such as when you’re trying to decide what kind of phone to buy, but it can also drive an entire industry down the wrong path, like what we witnessed in the spring of 2000 during the technology stock market bubble, when the entire stock market crashed, or what ensued during the mortgage crisis just a few years ago.

But getting through a crowd is sometimes really, really hard. Sometimes developing your basic goods and making the most effective use of them is best accomplished when you can go beyond the crowd and identify something distinctive on your own—that’s when really special things can happen.

Angel investors adopt the exact same premise. In my research, and in my interviews with these investors, they concede that if you look at all the same investment opportunities that every other investor has looked at, and invest in all the start-ups that everyone agrees will be a success, you will achieve some level of success. But when trying to spot that diamond in the rough—that extraordinary start-up that will perhaps provide you with outsize returns—you need to go where others are not: to opportunities that others have discounted and overlooked.

Don’t Underestimate the Laggards

In 1981, a revolutionary new product—the world’s first laptop computer*—was developed. This laptop, named the Osborne I, had a screen that was about the size of a normal index card, weighed about twenty-five pounds, and required a battery pack. The lid swiveled open, revealing a keyboard. It cost $1,795. Despite its gargantuan size and weight, it was revolutionary because it offered something that no other computer could: portability. It was portable in the sense that it could be carried on a commercial aircraft.

But despite early success, the Osborne I struggled under heavy competition. Because of the market expectations and increasing demand, competitors, such as Andrew Kay, the inventor of the digital voltmeter, and Steve Jobs, Steve Wozniak, and Ronald Wayne, who together founded Apple, all rushed to offer their own portable laptop computers. The technical minds behind these companies continued to push the product forward, and the technology behind the laptop quickly developed. Laptops became smaller and more lightweight, while their memory and processing power increased exponentially. And more players jumped on the opportunity bandwagon.

By 1986, we saw the introduction of the IBM PC* convertible, which was originally designed and built under the code name Acorn by twelve engineers led by William C. Lowe. It was the first commercially viable laptop, weighing only twelve pounds, less than half of what the Osborne I weighed. It cost thirty-five hundred dollars and featured 256 kilobytes of memory, two floppy drives, an LCD screen, space for an internal modem, and the clamshell design used in today’s laptops—and it made a killing. Less than four months after IBM introduced the PC, Time magazine named the computer “Man of the Year.”

The technology continued to progress, with folks at companies like Hewlett-Packard, Compaq, and Microsoft all wanting a piece of the action. Engineers developed more advancements and improvements: room for a palm rest, the inclusion of a pointing device (a trackball), and things like touch pads, optional color displays, and built-in audio. These companies sought to tap into what marketers call the “early majority” and “late majority” customer markets. And it made sense: there was the potential for more and more money to be made as laptops became more and more mainstream.

But by the early 2000s, most of the technology companies were beginning to move on, uninterested in the laggard consumers who hadn’t yet bought laptops. While they would continue to serve the customers who were interested in higher-end laptops, they saw customer interest moving elsewhere—they saw the proverbial long lines moving from laptops to tablets, supposedly the next big thing.

And yes, tablets like the iPad and Samsung tablet did become big, and the crowds were indeed moving in that direction. In the meantime, however, a relatively unknown, nondescript group of individuals at an even more unknown, unfamiliar company named Asus decided that they were interested in entering the less crowded laptop market. Asus didn’t even manufacture computers; it was a supplier to established companies like IBM. But these engineers recognized something that the incumbents didn’t. Going into the industry with a mind-set of “more”—more advancements, more features, and more improvements—wasn’t going to be effective. The existing big players were continuing to try to improve usability and performance with better battery technology, power-saving processors, improved display screens, storage technology advancements, better connectivity, and the addition of peripherals like integrated video cameras and fingerprint sensors, to name a few.

The team at Asus decided that they could go for less. What they realized was that the people who were “still in line” were not people who wanted bigger and better—but they were nevertheless an important market opportunity. The people left were the laggards, those who were only now getting introduced to laptops. People such as elderly parents or grandparents who didn’t need all the bells and whistles, but started to want a device that could just check email, surf the web, and maybe allow them to play a few games like Solitaire,* Minesweeper, or FreeCell. So in June 2007, Asus launched its version of a laptop. It was small and lightweight and could perform those basic goods really well. Priced at around three hundred dollars, it was much cheaper than other laptops on the market (which averaged around twenty-three hundred dollars), and it was a spectacular, smashing success. Asus continues to manufacture low-cost, low-power laptops, and industry pundits have said that if one product line can be credited with nearly single-handedly creating the entire netbook category—arguably the biggest paradigm shift in mobile computing—it was the Eee PC netbook from Asus.

A secondary benefit of going where it’s less crowded first is that you can practice employing your basic goods where it’s less competitive before going for the more populous markets. Starting somewhere less crowded enables you to hone your core competencies before expanding your circle of competence. It also helps you avoid the human tendency to equate popularity with excellence.

The brilliant management scholar Ryan Raffaelli captures this point precisely in his painstaking depiction of how the Swiss watch industry reemerged after being battered by low-cost competitors from Asia and the rising availability of smartphones and other devices that tell time. Raffaelli argues that watches were originally prized as complex machines created through astonishing, sophisticated Swiss engineering. Rather than trying to compete with smartphones and cheap watches for the biggest piece of the market, as many watchmakers had begun to do, Swiss watchmakers doubled down on their basic goods. They reemphasized their watches’ style, deep meaning, and tradition of advanced engineering to distinguish their products from those “things we wear on our wrists.” Global Swiss watch sales are now stronger than they’ve ever been. Though watches typically retail between one thousand and five thousand dollars, sales are actually strongest at the very top of the price pyramid; watches priced five thousand dollars and up account for nearly half the sales of the entire watch market.

Knowing your basic goods helps you spot opportunities the crowds don’t see, so you can distinguish yourself from crowded fields. But it also helps you spot problems with the flashy ideas the crowds are besotted with.

A Critical Eye for Incongruity

Elizabeth Holmes, founder of a company called Theranos, was the “it girl” of Silicon Valley: attractive, well-connected, Stanford School of Engineering student. The story of the rise of Theranos, the company she founded in 2003, is perhaps already familiar; it was the basis of a bestselling 2018 book called Bad Blood. Holmes’s company solved an incredible pain point and quickly became the darling of the entrepreneurship ecosystem. She had developed technology that could use a single drop of blood obtained from a finger prick to accurately run dozens of common tests. The only alternative was to invasively draw several vials of blood from veins.

Put simply, this technology was a huge opportunity, one that gave Holmes access to hordes of prominent investors, including venture-capital firm Draper Fisher Jurvetson and the founder of Oracle, Larry Ellison, from whom she raised more than $400 million. At its peak, Theranos was valued at $9 billion. Among those included on its board were such high-flying individuals as former secretary of state Henry Kissinger, venture capitalist Pete Thomas of ATA Ventures, and former chairman of Pharmacia Corp. Robert Shapiro. Investors, the media, and even industry players such as the Cleveland Clinic and Walgreens were smitten with Holmes and her vision for the future of blood testing.

Up until this point, the story may be hackneyed and well known. But what is not as well known is the story of a group of scientists who tried to prevent Theranos from ever coming to be.

See, in the early days, before all this was unfolding, there was a cadre of medical experts who had heard an early pitch from Holmes and couldn’t get past a feeling that it just didn’t make sense. What these medical experts couldn’t figure out was how Holmes was able to conduct such a wide range of tests with her device by relying entirely on a drop of blood from a finger; it just didn’t seem to add up. And furthermore, they couldn’t determine how each of these varied tests was still within the accuracy of FDA-approved medical tests.

What these scientists knew—what was squarely within their circle of competence—was basic human physiology. A droplet of blood from a finger just isn’t the same as blood that comes from a vein, they thought. That blood from a fingertip needs to have traveled through fat cells, through compartments in the human body, and into the small capillaries closest to the surface of the skin. Small molecules such as glucose can travel that path and be measured accurately enough in a blood sugar test. But other, bigger molecules, like the proteins that comprise hormones and lipids that comprise cholesterol, just couldn’t be uniformly identified from blood that comes from the tip of your finger in the same way that it would be from blood taken from a vein.

Years later, these scientists had long forgotten about Theranos. But once they saw the press coverage—glowing, at first, then more skeptical as questions about the technology surfaced—their memories were refreshed. A series of articles in the Wall Street Journal reported that Theranos was falsifying data, reporting results from traditional machines rather than its own blood-testing devices. Federal regulators banned Holmes from working in the blood-testing industry for at least two years, and Theranos faced a criminal investigation for misleading investors.

Why was Holmes able to get as far as she did? How was it that famous, widely respected people believed in Theranos when a group of scientists knew to steer clear from the beginning? For one, Holmes was a charismatic young founder with the ability to enthrall. She was also a token female entrepreneur, to whom investors could point as an example of a successful female founder. Holmes was able to maintain a secrecy around her technology in an environment that readily permits companies to operate in “stealth mode” because of intellectual property issues. But the biggest reason? The opportunity. Millions of dollars of investor money, years of development time—all of it because of this incredible opportunity, which shrouded the incongruity.

Those who have a keen eye for the perils of innovation and are able to spot mis-opportunity may sometimes hold an even greater edge than those who are celebrated for being innovators. An eye for incongruity helps you recognize flaws that no one else sees. The ability to identify such mis-opportunities is about pattern recognition, or being able to “connect the dots” between all the changes in technology, demographics, social forces, markets, government policies, and other factors at play in our lives. Knowing how to recognize patterns, or pattern-match, is really about knowing how to make sure the important pieces fit together.

Pattern-matching doesn’t even always necessarily require a specific field of expertise or any particular specialized knowledge. Not long ago, I was approached by an inventor who had figured out a really elegant solution to the ordinary umbrella. Think about it: umbrellas are simply an annoyance. Yes, they are useful, keeping us dry when it is wet outside. But they are also a pain. Giving it three seconds of thought, I can name several annoyances that I have with umbrellas. Walking into a building after putting your umbrella down, and you’re left carrying a big soppy mess that gets everything else wet. We try to use those plastic sleeves, but really, no one wants to use them (and some of us only do when people are watching anyway). Opening umbrellas, closing umbrellas. Getting into a car on a rainy day, trying to close your umbrella while opening the door and getting in and still trying to stay somewhat dry. And let’s not forget those windy days, looking like an utter fool when the umbrella blows inside out.

So when this young inventor named Sam approached me with a solution that would solve all these problems, I listened. He handed me a cool-looking prototype. Picture the handle of a Star Wars lightsaber. When you pushed a button, a high-powered stream of air would shoot out and create this pocket of air above you, shaped just like the dome of an umbrella. Water would hit this air cover and slowly trickle down the sides. Super cool, right? He had even thought of a safety mechanism, so that this air couldn’t be directed into someone’s eye, for example. When you were done, you’d just push the button again and the stream of air would retract. No more soppy mess. Something we can all agree we would want. And indeed, Sam had conducted dozens of focus groups, each with a resounding chorus of people saying they wanted his new-age umbrella.

Sam asked if I would invest in his company. I passed, despite how sleek it was and despite all the positive acclaim from focus group participants. A number of friends of mine who also invest in early-stage start-ups, however, did invest. A few months after the initial stock of umbrellas was manufactured and put out to market, Sam quickly realized that no one was buying.

Before I tell you why no one was buying the umbrellas, let me tell you why I didn’t invest. What was it that I realized from the very beginning, that I was able to connect the dots on but that my fellow angel investors were not? Well, sometimes crappy products are meant to be crappy for a purpose. We don’t need an elegant solution for everything. I was able to think beyond the normal annoyances of an umbrella—beyond the opportunity presented to me.

Because you know what’s also a pain? It’s also a pain that nine times out of ten, when it starts to rain, I don’t have my umbrella with me. So I like to be able to roll into a local CVS and pick up a $5.99 umbrella. And I lose my umbrellas. All the time. It’s not nearly as painful for me to lose a crappy, $5.99 umbrella as it is to lose a $199 lightsaber.

Yup, that’s what the umbrella was priced at, $199. That was why no one was buying.

It was not an issue in focus groups when people were asked, “How much would you pay for this? Would you be willing to pay two hundred dollars?”

In those focus groups, people were thinking about the opportunity—the sleekness of the high-powered stream of air, the innovation of the solution, the problems it would address. They were not thinking about losing a two-hundred-dollar umbrella.

Those who have an unusual perspective and are able to identify incongruity and fundamental flaws provide an edge time and time again, saving entire programs and organizations, not to mention themselves, huge amounts of money and embarrassment.

It’s not often that we hear alternative perspectives that drastically differ from our own. We tend to hang out with people who are like us, who share our beliefs, values, and habits. We associate within the bounds of where we belong. So simply being the atypical voice allows you to enrich.

After his product failed in the marketplace, Sam reached out to me again, prepared to pivot on product design. I explained why I hadn’t invested and why my reasons went beyond just the design of the umbrella. Based on my feedback, Sam used his talents to venture into other markets, and he now runs a successful lifestyle business that brings in more than $2 million in revenue each year selling functional and cleverly designed baby carriers, strollers, bikes, and other baby gear, all designed with a hood that offers not only UV and wind protection but also—you guessed it—rain protection.

Hand-Squeezed Juice

The health-conscious elite agree on all the same things: eat lots of fruits and vegetables, buy only organic and free-range, and stay away from “bad” carbohydrates and gluten. You know the type—you might be the type. I’m not, as much as I try.

Juicero, founded in 2013 by Doug Evans, offered a product that resonated within this health-conscious circle: a Wi-Fi-connected juicer that would allow anyone to have freshly squeezed fruit and vegetable juice in the comfort of their own homes, with the push of a button while still in bed, or anytime. With the sleek Juicero, consumers would insert a prepackaged single-serve sleeve of chopped fruits and vegetables, and out would come a delicious, nutritious, ready-to-drink beverage (think Keurig, but for juice, and controlled from any mobile device).

Evans received $120 million in funding from prominent players like Kleiner Perkins and Google Ventures. The product was priced at $699, with fruit and vegetable produce packs at around six dollars each. Who wouldn’t want this in the comfort of their own home?

Evans was not a Silicon Valley veteran, but he spoke like one and began to consider himself one, grandiosely and ecstatically gushing about his product at every opportunity. “Not all juice is equal,” he once said. “How do you measure life force? How do you measure chi?”

As you are probably beginning to anticipate, a $199 umbrella is uncomfortable; a $699 juicer is unnerving. But not to those at Kleiner Perkins or Google—to them, a Wi-Fi-connected juicer was a novel opportunity. Evans enamored these investors with his miniaturized industrial-strength juicer that he maintained would one day be in millions of households, helping to liquefy fruits and veggies—raw, plant-based nutrition, as he called it. This group could not get inside the mind of those who might not want one.

But more important, they were so far removed that they had not even fathomed a key weakness—until two reporters published a story suggesting that the Juicero’s produce packs could be squeezed by hand, rendering the $699 juicer completely irrelevant.

These packs of fruits and vegetables could be easily squeezed to produce juice that looked and tasted just like the juice from a $699 Juicero press. The complexity and technical engineering of Juicero’s press was completely unnecessary, arising from what venture capitalist Ben Einstein called a complete “lack of cost constraints during the design process.” Basically, rich-people problems. Rich people think everyone else needs the gadgets they have. They don’t try to squeeze something by hand when there is a fancy machine that will do it for them.

It took someone who wasn’t in the inner circle to make this connection. Someone who was able to see differently and use and embrace these differences to think beyond the norm. The optimal solution is not always obvious.

So how do we use our basic goods to enrich?

Recognize that you can start where it’s less crowded, and take your time going from inexperienced to pro. Take the time to master the basics—your own, not those of everyone around you.

Acknowledge that it takes time to get good at anything. Enjoy the process of getting better and better each day, and then you can start to enjoy the result without getting hammered down where it’s crowded.

And finally, take comfort in knowing that your basic goods and your perspective matter. Whether you have unique, specialized talents and skills like the doctors who didn’t invest in Theranos, or a seemingly unremarkable vantage point like the Bloomberg reporters who saw through Juicero, you can create an edge.