The Founders of Clubhouse, Spotify, Stripe, and 42% of Unicorns Have One Thing in Common | by Ali Tamaseb | May, 2021

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Founders with a small exit in their first company were much more likely to build a unicorn in their next, a new study of startups shows

Screenshot of “The Million Dollar Homepage”

Alex Tew isn’t your stereotypical Ivy League college dropout or software engineer at Google who founded a billion-dollar startup. Tew was a student at Nottingham University when he started his first project. His itch for building something and making some money had led him to create “The Million Dollar Homepage” in 2005. The website consisted of a million pixels arranged in a 1000 × 1000 pixel grid. The pixels were sold for $1 per pixel and the purchasers of these pixel blocks were advertisers. This is before “Display Ads” were a big thing. In four months’ time, word of the page had gone viral and advertisers had taken all the pixels. Tew had achieved success and a one-million-dollar outcome. This wasn’t by any means a massive success in the world where hundred-million-dollar and even billion-dollar outcomes are frequent and what venture capitalists care about.

Six years later, Tew started a company called Calm. Calm slowly grew to become the #1 meditation and sleep app. The company was last valued at over $2 billion. Tew’s itch for building companies led him to starting and leading a billion-dollar company.

Tew isn’t alone in the path he took to becoming a founder of a widely successful startup. Consider Paul Davison and Rohan Seth, the co-founders of Clubhouse, as another example. Launched in 2020, the audio-only social network already has millions of users and a valuation of $4 billion. It looks like an overnight success, or two founders getting lucky with the right idea at the right time, but Davison and Seth had launched various consumer and social apps and startups over the previous ten years and had nine failed ideas between them before finally cracking the code. Seth’s last company, Memry Labs, was a small acquisition by Opendoor, and Davison’s last company, Highlight, was acquired by Pinterest for a small amount.

In the startup ecosystem, it is very common for a seed or series-A funded startup whose product didn’t find product-market fit or was struggling to raise the next round of funding, to be acquihired by a larger company. Most commonly, these larger companies look at this as a way of hiring a group of very talented and entrepreneurial people.

While these may look like small outcomes or even failures in the world of venture capital (as in, they didn’t create a fund-returner or a 10X return for their investors), this is far from a failure, and going from a small entrepreneurial outcome to founding a billion-dollar startup is far from an isolated incident.

I spent the last four years conducting one of the most comprehensive studies on startups, with over 30,000 data points, examining why some turn into billion-dollar companies while most others don’t. I published the results, many of which are counter-intuitive and surprising, in my upcoming book Super Founders: What Data Reveals about Billion-Dollar Startups. One of the variables I studied was founders’ prior entrepreneurial endeavors .

Among the founders of billion-dollar startups, almost 60% were not first-time founders. In a randomly selected group of startups that had raised a minimum of $3 million in venture capital funding but didn’t reach unicorn status — the typical picture for a seed-funded startup — about 40% were not first-time founders. The statistic shows that repeat founders were more likely to start a billion-dollar company.

This is not to discourage first-time founders. It is on its own a great sign that 40% of billion-dollar startups were started by first-time founders. It is rather to encourage those with a failed or those with a small outcome in the first attempt to go at it again.

Another relevant data point: of the repeat founders of billion-dollar companies, more than 70 percent had founded a previous company (42% in absolute numbers) that was acquired for around $10 million or had similar levels of revenue — compared to 24 percent in the random group, a statistically staggering difference. In other words, founders with one small exit or prior company with a small outcome were much more likely to end up building billion-dollar companies.

We don’t often don’t hear about the years of entrepreneurial hustle that many successful founders went through before finally landing on their best startup. In my book, I narrate the stories of founders like the Collison brothers who founded and sold an auction-management startup before founding Stripe at the age of 19, and Airtable founder Howie Liu who had founded and sold his previous startup to Salesforce for $25 million. Brian Armstrong started a company called UniversityTutor with modest success before starting Coinbase, and Daniel Ek had started an online advertising company called Advertigo which was a very small acquisition before starting Spotify.

Even first-time founders like Mark Zuckerberg and Bill Gates were not really first-time builders. They had started various projects before starting their companies that we know them for. Zuckerberg had created a music app called Synapse, and Gates had built Traf-O-Data, a traffic surveying device, before starting Microsoft. People who have a bug for starting projects, creating side-hustles, and seeing them through, are much more likely to start massively successful companies than those with shiny resumes or experience of having worked in leadership roles at large companies but lack a bug for building.

It turns out that the best preparation for starting a wildly successful company is founding a startup. If you have never started a company, the best preparation for doing so is to start something, maybe a club, a side hustle, or simply selling something online. The Cloudflare CEO had started HoneyPot, a nonprofit community to report spam emails, and the Confluent founders had started Apache Kafka inside LinkedIn as an open-source project. You might get to your billion-dollar outcome on your first try, but the data show that it’s more likely to happen on your second, third, or tenth. What is important, though, is to keep building until your luck comes through.

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