Encord Blog
Why Running a Startup is Like Playing in Squid Game
This article comes from my experiences co-founding Encord. Spoilers ahead for the most-watched Netflix series of last year. Although if you are getting spoilers from this article, you probably don’t care about spoilers.
It sounds odd, but there might not be a better approximation of what it’s like running a new technology company than the hit 2021 Netflix series Squid Game. The trials and tribulations faced by the contestants of the show are strangely analogous to those faced by the typical startup, albeit in a very different context. Both face exceedingly small chances of survival, with less than 1/100 VC-backed startups making it to IPO and only 1/456 contestants making it to the end of the season. Also, not unlike the show’s characters, startups often have great difficulty making money in the real world.
We will go through the various challenges of Squid Game and show how these relate to practical problems facing every startup. Unlike in Squid Game, in the startup world, these challenges are not dealt with sequentially, but concurrently. This makes them that much more difficult to navigate.
Red Light/Green Light (Fundraising)
Going through the fundraising gauntlet can be brutal. One key reason is that investors are mostly looking for a reason to say no to your startup rather than yes. Seeing so many opportunities every day, investors have to come up with heuristics they can use to pass and quickly move on from deal to deal. The questions they ask thus act as a type of gating mechanism, where even a single answer can filter out a company for consideration.
The net effect of this dynamic is that as a founder pitching, you hope you don’t say even one wrong thing to disqualify your company. It’s like playing Red Light/Green Light in Squid Game and making one tiny move after hearing “Red Light.”
Didn’t give a good answer to the market size question
Even after getting meetings and passing through pitches, investors will make holistic evaluations of companies before deciding to invest. Failure can happen at any point in the process(including after getting a term sheet, although this is rare). It may surprise you how many startups fail. You have not completed the challenge until the money has actually cleared into the company account. And even then, this is only the beginning of bringing your startup to success.
Cookie Cutting(Product Development)
There are only two fundamental requirements a product needs to fulfill for viability: it needs to do something valuable, and it needs to work. Often these requirements are in tension with each other. A natural temptation is to pepper a product with more and more features to increase its value and hopes that more people will use it. This, however, introduces development and maintenance burdens and bug potential at a faster rate than the increase in feature number.
This point is demonstrated beautifully in the cookie-cutting challenge in Squid Game. The simpler the shape, the easier the challenge. The simpler the product, the easier it is to build and maintain. Simpler products break less. If you want to build an umbrella, you are opening yourself up to many more failure modes than if you build a circle. Thus, build circles, not umbrellas.
When going through Y Combinator, I heard the importance of focus reiterated many times. It is critical to focus as a startup. I interpreted that this focus was for the sake of simplifying and optimizing a go-to-market motion where you can tailor your messaging and target a narrower set of companies to find initial product market fit. This is true, but I neglected the product component to the point.
The less targeted and focused a product is, i.e., the more features and use cases it accommodates, the more complex the maintenance surface is and the more resources it requires to get right. Complexity makes it very easy to get lost in the morass of the product development cycle and can distract from solving other problems. For both Squid Game and startups, simplicity is key; simplicity gets you to the next round.
Tug of War(Building a Team)
The most important component of a company is the team, and there are two (not mutually exclusive!) strategies for making an effective team. You can hire the best and greatest, and/or you can put together a team where everyone is pulling in sync in the same direction.
Again, this is demonstrated with metaphorical clarity in Squid Game with Tug of War. Our hero, Gi-Hun, finds himself in a suboptimal team playing in a game where the sum of raw strength seems the only relevant factor for success. They face up against what looks like a massively stronger team on the other side and seem doomed to failure. The one advantage, however, is that they come equipped with a strategy that they all commit to following.
Dev team deploying to production.
This metaphor works on two levels. Their initial strategy keeps them alive for the first burst of activity and gives them the confidence they can compete against the other ostensibly stronger team. Later, when they start waning, they also come up with an ingenious tactic to step forward and throw the other team off balance. This shows great teams don’t just follow one static plan, but also communicate and improvise in unison. As a startup navigating uncertain environments, the ability to adapt and adjust across the organization is crucial. To do this, communication channels must be open. If a team can’t communicate and coordinate, an accumulation of talent will not amount to much.
Marbles(Making Difficult Choices)
The most emotionally wrenching challenge from the show was the marble game. This section saw the characters make difficult sacrifices and dubious choices with respect to other characters. Although not as dramatic, this does reflect the sometimes difficult personal choices that you have to make running a startup. Social calendars get wiped out, working hours extended, and tough choices must be made. These types of trade-offs are not for everyone and really shouldn’t be.
While glamourized in a current bonanza fundraising environment, startup founders often do not live healthy, well-rounded lives. I have heard no shortage of stories of founders maxing out their credit cards, moving back in with their parents, or firing their best friends. This is not to say that these choices or sacrifices are necessary(certainly, they are not preferable), but they are the simple reality for many. Squid Game captures this regrettable reality.
Crossing the Bridge(Taking Risks)
While effective dramatically, the least personally satisfying game of the show was bridge crossing. It was a game of pure luck, requiring no mental or physical skill. Unfortunately, this, too has an analog within the startup world. Sometimes, no matter what you do, how well you execute, and how strong your team is, you can just get unlucky.
The startup world is inherently risky and comes loaded with a stack of implicit bets that you must make. Is this market going to grow? Is this solution the right one? Are you too early, or are you too late? You are not guarded against force majeure as you would be in a large robust, and established institution. There are just too many factors that are out of your control. You simply have to jump from platform to platform and hope.
Squid Game(Competition)
The most individually competitive game in the series is the final challenge, the eponymous squid game. With a startup, competition will, of course, be a factor, If you don’t have any competition, that is most likely a sign that you have chosen the wrong problem to solve. As Paul Graham has written:
If you make anything good, you’re going to have competitors, so you may as well face that. You can only avoid competition by avoiding good ideas.
All of the major tech giants that we know today started in massively competitive markets. It would have been easy to dismiss Google in the late 90s as just another search engine in an ocean of many.
The iSmell, a device that could emit odors from your PC, had no competitors.
But like with Squid Game, overcoming competition is only a small element of success. Based on elimination numbers, getting through Squid Game was far less about competing against others and much more about individual skill and luck.
This aligns with the opinion that competition is greatly over-emphasized in the startup world as a failure mode. A startup is more likely to die from self-inflicted wounds than it is from the competition. The emphasis should always be on solving a real problem, not beating competitors.
One final point is that nowhere in the Squid Game rules did it list the game as being winner-take-all. There may have been an alternative configuration where multiple contestants won the final prize and split it amongst themselves. This is how most markets actually operate. With a big enough pie, winnings can be shared.
Conclusion
While being a hugely entertaining show, Squid Game also offers many lessons for entrepreneurs embarking on the dangerous journey of starting a company. Perhaps with the next season, we can continue the learning and also find out more about the shadowy puppet master behind the entire operation.
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