Mental Shortcuts

Dismissing entire sectors with unexamined generalizations

A frustrating pattern I’ve consistently observed in conversations with investors is the tendency to dismiss entire sectors or industries with sweeping, unexamined generalizations. This mental shortcut is prevalent in early-stage VC, and I’ve begun to notice it amongst investors focused on search-fund/ETA investing. I believe it reflects a kind of mental complacency that masquerades as insight.

Before HBS, I spent nearly four years in early-stage VC focused on commerce infrastructure, primarily B2B SaaS within retail and commerce. In the post-COVID cycle, after a surge of capital had rushed into the space, the prevailing narrative became depressingly reductive: “commerce is dead,” or “that market is completely saturated.” Simply mentioning “commerce” in a conversation with fellow investors was enough to prompt disengagement; attention would drift, and I’d often be cut off with a quick, dismissive, “too crowded, too competitive.”

What made this so disheartening was the disregard for nuance or originality. It didn’t matter how compelling the founder, how differentiated the product, or how real the underlying problem, the idea was dismissed by guilt through association. The opportunity to explore what made a business distinct, what insight it was built upon, or how it planned to attack the market differently was lost to an automatic reflex.

Unfortunately, I’m now seeing the same intellectual shortcut-taking in the search fund world. Entire industries are waved away with blanket statements like, “margins are too thin,” “there’s no differentiation,” or “it’s too competitive.” These declarations, often made with surprising confidence, are typically based on surface-level impressions rather than rigorous analysis.

To be fair, some of these macro-level judgments have a basis in truth. There are industries for which it is undeniable that they have attracted a surge of capital, and that high-quality assets may be harder to find. But, what may be true from a 30,000-foot view doesn’t always hold true on the ground. Industry dynamics are rarely monolithic. Hidden within the generalizations, there may exist overlooked pockets of opportunity, underserved geographies, niche buyer segments, and business models that don’t scale nationally but thrive locally.

I’ve seen companies succeed by leaning into exactly these micro-markets, even in sectors broadly deemed “uninvestable.” And often, the most successful founders are those who ignore consensus and see potential where others only see saturation. They’re building in spaces that have been written off - not in spite of that fact, but because fewer serious, thoughtful competitors are willing to look there. The same may be true in SMB.

As investors, we do ourselves, and the entrepreneurs we hope to support, a disservice when we allow shallow pattern recognition to replace real thinking. The best opportunities often live in the blind spots created by lazy generalizations. If we want to find them, we have to stay curious, resist reflexive rejections, and cultivate the discipline to explore the nuances others overlook.