Entrepreneurs Can Learn A Lot From Magicians

Published in UT San Diego, August 4, 2014

“Follow the money” — the most famous words delivered by Deep Throat during Watergate.

I recently funded a biotech startup started by a UC San Diego genius who has developed a novel and inexpensive way to determine whether a drug is the real deal — in other words, whether it is counterfeit or genuine.

This appears to be innovative technology and solves a real problem, but in classic startup fashion, we could not solve the core business problem of “who cares” and its corollary. Who is going to pay for this? After our first foray into due diligence, we learned that in North America, consumers, hospitals and doctors weren’t interested.

Allow me now to digress and discuss magic and magicians, and I am going to draw on some research from Harvard Business School professor Stefan Thomke, who teaches innovation in partnership with Jason Randal, a famous magician/mentalist.

Magicians are constantly under pressure to reinvent themselves. If David Copperfield makes the Statue of Liberty disappear, then Franz Haray tops it by making the space shuttle vanish. The same is true of leaders in an innovative company. Everyone is looking for the “wow” factor. And Thomke argues that innovative companies can benefit from what magicians do.

Magicians spend a lot of time considering which illusion will bring the most bang for the buck. The corollary for startups is to discover the “real problem that you are solving for.” Walt Disney famously did not worry first about rides, parking or food. Walt worried only about giving his “customers a magical experience.”

Thomke continues, “The solution to a problem often comes from the most unlikely sources.” This, of course, argues for Rule No. 3 of our book that says, “You need to go to all the meetings and events, in particular the ones you are sure will be a total waste of time.” It is the intersection of low expectations and random chance when solutions or innovation most often appears.

The magician often uses distraction or misdirection in order to entertain and delight. You never see anyone at Disney World take out the trash. They do it through an underground series of tunnels.

Randal, the magician, says, “Sell the experience.” The masters in this area of “patter” are Penn and Teller. Their talking is as important as the illusion. And only Penn talks. Teller never says a word.

The innovation is not only the technology or the science. It is the ability to tap into people’s emotions and make the consumer feel good about the product. Think about packaging and then look at high-end vodka bottles. The stuff inside is still only vodka but the bottles are art.

And Thomke and Randal bring us to storytelling. There are hundreds of “pitch fests” in this town, and the key skill is how to tell the story. The great magicians embed the trick into the storytelling.

My partner and I see lots of deals, and often the innovation is intriguing, but the storyteller isn’t very good. So my suggestion to young entrepreneurs is to work on learning to “sell the sizzle, not the steak.” Practice in front of a mirror. Harry Houdini owned hundreds of locks, and he rehearsed picking them in front of a mirror — a reversed image to improve his skills.

How can I make it better? Thomke argues that MP3 was great technology, but it was Apple that took it to the next level and developed iTunes. Persistence and continuing to ask how can I dazzle the customer proved to be the winning hand.

Now let’s return to my new biotech. The solution to the problem appeared in a strange way. I went fishing with my son-in-law. On the boat was a man who turned out — just by chance — to know something about biotech and China. After two meetings, we engaged him to join the team.

It turned out that we had been looking in the wrong direction. The magic solution was not in North America, but in the rest of the world where counterfeiting is a problem. We followed the money, and it led to the insurance companies that pay the bill for a real drug when a counterfeit is used. We had the classic problem — interesting technology looking for a business model. We found it on a boat in the ocean along with eight lovely yellowtail.

Rule No. 365

Magicians will not tell you how they do the trick, but seeing is still believing.


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