SERIAL ENTREPRENEURS: THE DELUSION OF A HIGH PROBABILITY OF REPETITIVE SUCCESS?
Photo by Andrea PiacquadioI happen to have worked closely with a serial entrepreneur who founded three technology ventures that became public in the U.S, from the mid-1970s to the mid-1990s, all of which were in hard technology, with a long development cycle. Though most of repeat entrepreneurs of the last thirty years have founded businesses in the IT industry, some have gained fame in biotechnology, deeptech and other hard tech fields. These are the ones I focus upon.
Are There Unique Traits That Characterize Serial Entrepreneurs?
Academics have attempted to extract the distinct features defining a serial entrepreneur compared to a one-time entrepreneur. Not surprisingly, all of them found that the same heterogeneity maps each category.
Some recurrent patterns in the motivations of serial entrepreneurs however explain their starting a second or third venture. One of them is the irresistible challenge to create a new venture irrespective of the value created in the previous business. Faced with developing further an existing business reaching a level of maturity, with a bigger team, they would rather cash their chips and move on to start again from scratch and create something completely new, either in the same space or in a different space. The pace of startups, the selection of the founding team appeal to them. A second pattern is the belief that, this time around, they are going to create more value, in a space expected to become bigger than the one they navigated in before. Most likely they trust the opportunity is bigger at ground level in startup #2 than it is at phase n in startup # 1.
Typology of Serial Entrepreneurs
I view four different types of serial entrepreneurs:
- The sempiternal starter: this is the entrepreneur full of ideas who is keen at igniting businesses, setting up the team to start the business, then moves to another idea. Such entrepreneur is not interested in scaling the business, sometimes because the venture they create has limited scope, some other times because they become bored with developing a bigger business as they lack the essential sense of detail required. The value created through their business is limited at best. Though no statistics can be found on the matter, I would estimate that the vast majority of repeat entrepreneurs belong to this category. They are obviously the least talked of. However, we all know several “starters” who excel at transforming an idea into a business up to a certain point when their mind becomes excited by a new idea. I remember meeting as adjunct faculty member in a business school another adjunct faculty who, by way of introduction, handed me his busines card where his title read “serial entrepreneur”. Instead of naming his last business and the capacity in which he was dealing within this business, commonly founder and CEO, or CTO etc. he had thought to distinct himself by his ability to start businesses. It reminded me of John Ford who used to say, to introduce himself: “I am John Ford. I make western movies.” Unlike with John Ford, I could not name any of the creations of that fellow.
- The entrepreneur who was kicked out by the Board of directors and non-founding shareholders. The most famous example is Steve Jobs, confined by the board of Apple in 1985 to almost no responsibility, triggering his resignation. Jobs went on to found Next and then Pixar, before being recalled to lead Apple. Most kicked-out entrepreneurs go out and create a new business to prove their value. They are highly motivated to become successful.
- The growing entrepreneur: Elon Musk is the epitome of the growing entrepreneur. From Zip2, a software company sold to Compaq, he founded X.com which merged with Confinity to become PayPal, then he bought himself the CEO job as an investor in Tesla, a company that had launched commercially an electric convertible sportscar, then he finally founded SpaceX. At each turn, the ambition of the venture has become bigger.
- The exceptional ones: The outstanding serial entrepreneurs, the likes of Richard Branson, Elon Musk, Jeff Bezos, Andy Bechtolsheim, Kevin Ness, are creators and builders of lasting value They all share these strengths:
- Hyper focus, to a point they can ignore anything happening that is not directly related to their focus. Everything else becomes temporarily irrelevant.
- They pick their team among people they trust.
- They are extremely detail oriented.
- They appear completely disinterested by what people think of them.
- They have a long-term goal, that they rarely share, for fear to destabilize the project, or creating unwanted rumors.
- They can shock by telling things as they see it: it is not arrogance, but pure clear vision and understanding of the value they create.
Of course, these traits are also found among first-time exceptional entrepreneurs.
Value Created by Serial Entrepreneurs vs. Value Created by One-Time Entrepreneurs
Apart from type 1 as defined above, types 2, 3 and 4, which are a minority of serial entrepreneurs, are expected to create more value the second time than they created the first time, but also more value than the average first-time entrepreneur. Many studies from 1986 to 2017, at least, have been devoted to this topic. Unfortunately, the samples selected, and the methodologies employed were not perfect. This is understandable as it is almost impossible to get a homogenous representative sample of entrepreneurs, first-time and serial ones, and to obtain the relevant data as to the real value metrics across the sample. Hence the conflicting results the authors of the studies reached.
What can be ascertained is that serial entrepreneurs have acquired skills in their initial startup that they use to achieve at least the same success as in their prior venture. Even the type 2 whose potential success could not be demonstrated yet, learn from their failures. There are some cases, nevertheless when some of these entrepreneurs have suffered such distress that they are unable to apply the lessons from their previous experience.
It is always wise to keep in mind that first-time entrepreneurs who hit a home run and build their company are the ones who build the highest value: Bill Gates, Larry Page and Sergey Brin, Robert Noyce and Gordon Moore, Mark Zuckerberg, Jack Ma, Jensen Huang, Morris Chang, Earl Bakken, Larry Ellison, all spend or have spent their whole working life growing their startup into a mega corporation, dominating its field worldwide. I am tempted to include Steve Jobs who, I am convinced, would have stayed at Apple, had he not been encouraged to seek greener pastures. They all possess(ed) the rare quality to recreate at each growth phase of their company a new business and expand it continuously.
Serial Entrepreneurs as Viewed by Investors
Some venture capital firms jump at the idea of funding the second or third startup of an entrepreneur they backed in the past and from whom their fund made a high return. Because the entrepreneur has acquired reflexes in the startup process, and because the relationship does not need to be tested, it is assumed that much time is gained in reaching revenue stage. They are often lured by the bigger potential the second venture aspires to.
There are however reasons for investors to be cautious:
- Repeat entrepreneurs learnt how to negotiate a better deal for themselves, making the terms of the investment potentially less lucrative.
- There is non-trivial risks that the entrepreneur may not repeat the first performance. If the venture is in the same space than the first startup, the entrepreneur will be tempted to replicate the same path of actions even though the environment may have changed.
- Being in a comfort zone with recurring habits in the relationship entrepreneur/investor is not desirable. It is hardly conducive to optimizing the performance.
- The entrepreneur is less hungry the second time around. He/she will not bootstrap the business as well as the first time.
In the same token, serial entrepreneurs may be better off seeking funding from different investors and recreate the startup atmosphere with its challenges. There is always something more to learn by dealing with other investors.
Wrapping Up Comments
There is no reason to attribute a special status to serial entrepreneurs. Praising serial entrepreneurs with a succession of exits, who built their own wealth with no real value to show for society, is plain wrong. Circumstances lead some entrepreneurs to start again a second or a third entreprise. Setting aside the handful of remarkable exceptions whose repetitive successes are over-documented, serial entrepreneurs are no different than first-time entrepreneurs. Some will fail, some will be successful, whether fresh out of college or with twenty years of experience in their belt.
Looking back at forty-five years of technology startups data, it is apparent that first-timers hold the best record in creating new markets and breeding worldwide leaders in these markets. It is no surprise as first-time entrepreneurs have nothing to lose, so they can apply the boldest action. Young entrepreneurs making their pitch in front of investors inevitably face the skepticism from investors as “they have never done that before”. Cliff Oxford, serial entrepreneur from Atlanta once wrote, “I now understand that not having done it before was one of my biggest advantages.” Entrepreneurs should take pride in having the right spirit, and the lack of ‘baggage” that hampers the action of many experienced entrepreneurs. I cannot resist to repeat here my favorite quote, from Walt Disney to would-be entrepreneurs: “The way to get started is to quit talking and begin doing”.