How 'Break the Rules' kills 60% of YC startups
When breaking rules becomes breaking your startup.
Here's what happens to 60% of all YC startups: The founder, let's call her Ann, founded ClassroomOS after YC W23. Reid Hoffman's 'Blitzscaling' was her bible. "Let fires burn," he'd written. "Break the rules." So when Stanford University called about their undergrad platform needs—big money, big prestige—Ann knew what to do.
"Yes, we focus on K-12, but this is Stanford..."
Six months later, ClassroomOS was dead. Her team had burned four months building university features while her K-12 competitors ate her lunch. Ann had followed Hoffman's advice perfectly—or so she thought.
The same week Ann got that Stanford call, another founder faced the same choice. MIT wanted their K-8 math app. They ran what I call The Reid Test. They asked three questions. They passed.
Today they’re worth $400M.
If you only have 5 minutes: here are the key points
Founders misapply "break the rules" advice without understanding its context
Charlie Munger's philosophy: avoid big mistakes rather than chase bold moves
The Reid Test: three questions to distinguish real learning from rationalized excuses
Every exception you make creates a new rule—that exceptions are okay
Focus and consistency compound faster than reactive agility
The most misquoted advice in Silicon Valley
Here's what Reid Hoffman actually wrote in Blitzscaling: Make smart decisions based on your estimate of the probabilities. But founders only remember the sexy parts: "Let fires burn." "Break the rules." "Do things that don't scale."
The problem? Hoffman's advice is about strategic rule-breaking in pursuit of speed. But founders hear "ignore all discipline" and run with it.
Charlie Munger built Berkshire Hathaway on the opposite principle: "It's amazing how far you can go by simply not making major mistakes."
Here's the insight that kills startups: The first time you make an exception to a rule, you've created a new rule—that exceptions are okay.
Exceptions compound. They crowd out judgment, reduce learning velocity, and burn resources until you're dead. The difference between Ann and her competitor wasn't intelligence or market timing. It was discipline.
The Reid Test
When you catch yourself saying "Yes, but this is different...", you're facing one of three situations:
You've genuinely learned something that invalidates your rule
You're making an excuse to avoid discipline
You don't have enough data to know which it is
Most founders guess. Smart founders ask three questions:
Question 1: What exactly did I learn that my original rule didn't account for?
Specific, not general
Data, not feelings
Pattern, not anecdote
Question 2: If my best competitor faced this same situation, what would I advise them?
Removes ego from the equation
Forces objectivity
Question 3: Will I be proud of this decision in 6 months regardless of outcome?
Tests process vs results
Reveals excuse-making
Ann would have failed all three questions. Stanford wasn't new learning—it was ego. She would have advised her competitor to stay focused. And deep down, she knew she was rationalizing.
The other founder passed all three. MIT represented genuine market expansion data, they would have advised taking it, and they were proud of their disciplined decision process.
The compound effect
Here's Munger's deep insight: Decision-making is a skill that compounds. Every time you:
Ignore real learning → you get worse at recognizing insights
Indulge excuses → you get worse at discipline
Skip the analysis → you get worse at learning
If you bleed 5% of your resources on "exceptions" every quarter, you're not just losing 20% annually. You're compounding mistakes. Your team learns that focus is optional. Your decision-making muscle atrophies.
The founders who survive? They look boring to TechCrunch. While "agile" startups pivot into oblivion, they're compounding focus.
The Reid Test isn't about never breaking rules. It's about breaking them for the right reasons, with full awareness of the cost. Sometimes the answer is yes, break the rule. But most of the time—like Charlie Munger knew—it's about simply not making the major mistake.