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November 14, 2007

In Search of Inexperience

hpgarage.jpg TechCrunch published a great guest post by Glenn Kelman, the CEO of Redfin, called “Entrepreneur 2.0.” It inspired me to piggyback on his idea that investing in “serial entrepeneurs” who have already been successful might not be all that it’s cracked up to be and write this post.

Both our posts run counter to the theory that many entrepreneurs, wealthy from their previous smashing success but restless and too young to die (or become venture capitalists, which is roughly the same thing) are the best bets for the next big thing.

Superficially, it’s hard to fault this ”back the proven entrepreneur“ theory. For one thing, from a venture capitalist’s point of view, if you fund a serial entrepreneur and she succeeds, you “knew” that she was proven. If she fails, at least you backed someone for a good reason—that is, she was proven—so your limited partners shouldn’t get too bent out of shape.

That’s a lot better than backing a first-time entrepreneur who fails—then you are just stupid. (Also, if you back a first-time entrepeneur, and she’s successful, you take the credit: “It’s because of my hands-on coaching and guidance.”) But, just as Glenn wrote, if you think about it, great, world-changing companies such as Hewlett-Packard, Apple, eBay, Microsoft, Google, Yahoo!, and YouTube were zero for three according to the official venture-capitalist spec sheet: Proven team, proven technology, and proven business model.

Hence, I would like to declare my support for Glenn’s perspective and help him make the case that second-time entrepreneurs are not necessarily the be-alls and end-alls.

  • Serial entrepreneurs try to prove that their first success wasn’t a fluke. Rather than starting from the basis of technology (“isn’t this cool?”) or customers (“there must be a better way”), the reason for existence is “I’m going to prove that I’m talented.” This is a bull shiitake reason for starting company compared to solving people’s problems or changing the world.

  • Serial entrepreneurs cannot distinguish between causation and correlation. The root cause of earlier success may have simply been blind, dumb luck, but few people realize this and even fewer will admit. Thus, they have the hollow arrogance of people who just got lucky instead of people who have been truly tested, and arrogance is a bad thing in entrepreneurs.

  • Serial entrepreneurs are likely to use the same methods again. How can you fault them for using the same methods that made the successful the first time? For example, if they built a high-end computer the first time, they build a high-end computer the NeXt time. If they used dealers the first time, they use dealers the second time. If they gave everything away to get eyeballs and sold the company to a bigger, dumber, richer company, they try try that “business model again.”

  • Serial entrepreneurs don’t (or can’t) work as hard. When you have a 5,000 square foot house, a second house in Montana, a car made by a company whose name ends in “i,” a spouse, and kids, attitudes change. Indeed, attitudes should change or people never grow up. However, it’s one thing to work to survive and another to work for fulfillment. They can say they’re just as hungry this time, but the point is that no one had to ask if they were hungry the first time.

  • Serial entrepreneurs don’t get smacked around enough. Life is good as a serial entrepreneur: they walk in, tell people that their last company was sold for a bazillion dollars, and now they’re starting another one, and it’s a privilege and honor to invest. Who’s going to poke holes in their strategy when Sequioia, Kleiner Perkins, et al are issuing term sheets and ever lesser venture capitalist is sucking up? No one. And that’s too bad because they won’t get anyone checking their sanity.

  • Serial entrepreneurs fill new, unfamiliar roles in their next companies. For example, in the first company the person was an engineer who became the vice-president of engineering who became the CTO. Just because you were good at writing designing chips doesn’t mean you’re CEO material in your next fabulous fabless chip company. As Glenn says in his post, “This means that what I used to be really good at — designing software — I don’t do as much of anymore, and what I never had to learn how to do — manage people – I now do all the time.”

  • Serial entrepreneurs hire their buddies who were with them the first time. Thus, the entire founding team suffers from all the problems listed above. People who don’t know what they don’t know are few and far between, but a startup needs this kind of people to push the boundaries of what’s possible in what ways. Ignorance is not only bliss; it’s also empowering.

I once heard Mike Moritz of Sequoia explain what kind of entrepreneurs he wanted to invest in. I’m paraphrasing: “Guys under thirty who are building a product that they themselves want to use.” Amen, baby! I vote for two guys or gals in a garage who are an unproven team, unproven technology, and unproven market.

Comments

a car made by a company whose name ends in “i,”

mitsubishi?

The serial entrepreneur going into the unknown and creating new is always inexperienced, yes?
The smart entrepreneur is not afraid of hiring others who have also not done 'it' before...as long as the competencies are there.
Fun post!

Re Sequoia Capital: To bad I am already 37 - I'll start crying when I can take a break from changing the world (the first time) with my own money ;-). More in February 08.

Boris - if you are really confident why would you only "probably" put yourself into that category? Hmmm?

Two points - one, this is a rather large generalization - I had no idea that all entrepreneurs fit exactly the same mold...must be a California thing.

Two - whoever said it's a young man's game is really setting the bar low - men don't even hit their stride in their 30's much less 20's, mentally speaking. So while there are a great number of intelligent young men I encourage men and WOMEN of ALL ages to take the risk and become entrepreneurs - this country (USA for those unaware) doesn't limit starting a business to any one, narrow demographic.

And by the way, guy - unless you're under 30 you should just retire and take Truemors off the market.

I can't resist pointing out that 'Hyundai' ends in "i."

**************

And Porsche ends in "e." :-)

Guy - you clearly have to find an excuse for the disappointing performance of venture capital.
I call it "The decadence of venture capital"
see my post at http://xeequa.blogspot.com/2007/11/downfall-of-venture-capital.html

Axel

Thank you for your post Guy. I'm a first time entrepreneur but I'm not new to start-ups because I have worked at startup companies and I have learned alot from my experience. I have plenty of ideas and I have to start looking ways of getting my ideas into reality.

A really great and useful post!

Thank you Guy for all your work!

Pierluigi Rotundo

Guy - I like your post and I like the original article over at TechCrunch as well...However I'm not sure if I agree. I'm what you would consider an unsuccessful serial entrepreneur - I've been folding out idea after idea since I was a young teenager. Each approach brings new skill, money, etc. and I think someday soon I'll make it. But, in the meantime its interesting to ask why I do what I do - and its not for money, its for passion already. And won't it be for passion the next time? What I mean is, you need enough money to survive, but at least for me my interest is in money to survive so I can make what I want to help myself and others. I won't be happy making products next time around that are just blaise. As someone who isn't a successful entrepreneur, I don't have the insight into the topic that you do, but I just figured I'd throw this thought out there.
p.s. you need the ability to subscribe to comments. i don't check back, so i'll never see if you followed up unless you email me.

Thanks for the great post - I really enjoyed it. So much is true its frightening. Can you somehow get all these guys who pretend to support new businesses to understand?

We fit your model - well almost.

You wouldn't believe the problems we've had explaining the new way to make money out of software is to give it away. Even with all the great examples you've quoted, people still think it's about the "business plan".

We have great fun watching the faces of people when we tell them we're not writing a business plan - it has to be about strategy when there isn't any revenue.

BBL

Steve

Mister Kawasaki, please consider investing in our development, we are a team of two programmers (29 and 30), we are building a mobile voip softwre which we are using for our own and wish everyone to use :-). Thanks.

Full feeds again! Thank you Sir!

http://www.safedinnerware.com

I'm a first time entrepreneur, so it was nice to see in the recent articles by Glenn Kelman and your follow, Guy, that our efforts are not underestimated. But, let me ask you this - what percentage of the companies in the Garage portfolio is run by first time entrepreneurs? My guess is that this is still a very low number. I hope to be corrected.

Serial entrepreneur do it serial because of challenge and adrenaline rush. Business model is based basically on entrepreneur because that can be very similar in similar situation.
I succeeded in second attempt, and now have small company with good revenue. Still I'm searching for new opportunities, basically I need new adrenaline rush, 'cos now I'm bored. My team do the job done....

I like the focus you put on motivation. What makes the entrepreneur go? If it is his own pride, not seeking to better someone or something for the good of society. I think he is going to have a rough time of it.

I am launching my second go round. The first continues to flourish.

I look forward to reading more!

I think there's one other key point here: a serial entrepreneur who has failed in the past might actually be a good bet - he or she has learned something (one might hope) from failure, and the person is still hungry and motivated to succeed. I speak with a bit of bias, though. My brother-in-law failed miserably in his first business venture, and was wildly successful in his second. He's since moved on to additional ventures, some of which have been successful, and some not. But he's learned a lot along the way, and his success rate has certainly improved.

“Guys under thirty who are building a product that they themselves want to use.” Amen, baby! I vote for two guys or gals in a garage who are an unproven team, unproven technology, and unproven market. "

I'm definitely inspired...

I'm considerably over 30... I've built a product in my study... there's only one of me but I work like two or more, I/we're an unproven team, with an unproven technology, and in an unproven market, (Web 2.0), and I, myself, definitely wanted to be able to use it...

With a little grace, it'll help myself and others learn "How to change the world!" (...just in time for the holidays and the Elections!)

Greg White
Social Buzz Master
11/22/07

I've encountered the Executive/entrepreneur-type mentioned in this blog. I've heard them say, "we've done it before" and "it was just like this/that at my last thing." I wouldn't call it arrogance, maybe uncertainty (maybe fear) wrapped in confidence about their newest pursuit. Assumptions can flow like wine, because they recall too much history. This could be a good thing or potentially a bad thing, if I were an investor I would look for assumptions and statements about their past. As an investor, I would want to know where are they going in THIS venture and what are they doing to make the future successful.

I am a first timer . Would you vote for me?

Interesting comments from a serial entrepreneur. You always seem to take the devil's advocate position - and offer up intriguing info at the same time.

Thanks, Jason

Interesting observations. As a "one-time" software entrepreneur who sold his company in the mid 90s I was initially anxious to back it up immediately with another home run. Maybe because of the fact I was in my mid 40s at the time, I decided to lie low a few months and think about it. I realized a lot of the things you listed above may come in to play in my next attempt plus I also realized I wasn't getting any younger and I did enjoy the downtime.
But guess what happened? The more stand-offish I was, the more VCs pursued me. I finally did something and it failed miserably but fortunately I had no skin on the line-maybe that was the problem because before I was in so deep that failure would have meant bankruptcy.

So I got out completely and did other things I had always wanted to do but had much less income attached and when someone asks me to look at a biz plan I just smile and say "been there done that."

Yeah, it's a young man's game now and I wish all of them well.

I'm a first time entrepreneur, so it was nice to see in the recent articles by Glenn Kelman and your follow, Guy, that our efforts are not underestimated. But, let me ask you this - what percentage of the companies in the Garage portfolio is run by first time entrepreneurs? My guess is that this is still a very low number. I hope to be corrected.

Ha-ha-ha. A great read Mr. Kawasaki. I like how you stepped on Steve Jobs' toes.

I really enjoyed this post. I also think Glenn proves a different point just by writing this article. He proves that by being self-aware and admitting as a second-timer you don't have all the answers, you have huge potential for success.

Our company founder is also a second time entrepreneur. He made some interesting comments on our blog: www.smartsheet.com/blog

~Maria

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