Chamber of Startup-Reflections, part I
This piece delves into the world of founders and startups. It reflects expert opinions against the backdrop of my own experience, aiming to distill key insights from the increasingly generic discourse
To start with a more common thesis: True innovation, disruption, or radical change - whatever term resonates with you - is unlikely to be done by large companies. One of the primary reasons is the risk of cannibalizing their own business through innovation. For instance, a Google engineer published the AI Transformer model in 2017, but no one at Google was willing to risk their primary revenue source - ads embedded in search results. Consequently, it was a new company called OpenAI that took the initiative to build and launch the transformer model with the now famous ChatGPT.
There are theories and models about ambidextrous organizations that can manage both the running business in one hand and transforming innovation in the other one, but these have not proven to become mainstream. The second reason why innovation is scarce in large organizations is that the founder mentality often clashes with authoritarian org structures, or even the "New Work" ones. Large organizations typically lack speed due to their organizational structure, overhead, and policies, among other factors. And speed is an attribute founders typically are keen on to make thing happening. It also becomes the key competitive advantage of startups vs. incumbents.
These are the two main reasons why founders, startups, and venture capital will always exist, at least as long as we live in the current state of the world.
The Allure and Reality of Startup Life
The idea of building something new and impactful is continuously promoted on all social media. It sounds like the fulfilling dream for younger, innovative individuals bored with corporate or consulting life, as well as mid to older folks who realize that their career has been rather uneventful so far and they still lack a compelling story to tell their grandchildren.
I am not here to condemn such intentions. This isn't a nihilistic piece about the end of all new things; quite the opposite. People should definitely take more initiative, step out of their comfort zones, embrace serendipity, and more. However, while it's necessary to motivate more people and capital to build new things, I would caution against the belief that quantity necessarily leads to quality. There is a specific type of personality suited for running startups, and the vast majority of people do not fit this mold (more about it below). The prevalence of average founders provides one of the answers to the rather low "1 out of 100 startup success-rate".
Of course, everyone is free to choose their path, will make the respective experiences, and only with them feel it to the bones (or still continue to make the outside responsible for the failure). I, however, would be more careful with the initial analysis when deciding for it. The startup-track is beyond what one can imagine when choosing to become a founder. More about it now with a good introduction to the pain part here:
“You have to feel quite compelled to do it and have a fairly high pain threshold. And as a friend of mine says, starting a company is like staring into the abyss and eating glass."
Let’s start from the outside world with two rational constraints you as a founder can’t manipulate:
Money isn't cheap anymore
The era of the "Zero-interest rate phenomena" (2008 - 2022) is over. The already high-risk bet of your startup (1 out of 100) against other investment vehicles (e.g., ETFs in S&P 500) becomes more questionable for people holding money. Dropping VC-investment rates since Q4 2022 have confirmed this. Money is being invested more consciously and risk-averse, while still riding hypes like the current AI one.The Startup Battlefield: Attention and Problem-Solving
Your startup will succeed by either solving a real problem or capturing people's attention. Both aspects are limited in themselves:
People's attention is scarce and you have to compete against addictive apps and social media, or the apps that help people improve their status. You have to build a more addictive app or status-app. This aspect of scarce attention is generally underestimated by the average person, but just try to observe your span of attention to understand the challenge of creating a valuable space better. PS: Even truly powerful things like the new Threads app by Zuck will probably not make it (more about here).
The play-field of creating something big is very narrow (solving real problems vs. selling vitamins only, or things improving the situation by a smaller magnitude only). It's not a new phenomenon, but the interpretation of "I am solving a real problem" varies widely. It’s naturally becoming part of a pitch and sales process and gets in owns perception as a “truth”, but while the number of problems people or companies have can be high, the number of top problems to be solved for them subjectively will be a maximum of 3 - others are low priority and will land outside of their attention. Plus, they will need to be ready to pay for them.
The Startup Personality: Traits for Success
To discover workable parts in this narrow playing field, the founder needs certain traits, not all of which are positively perceived in today's world. This is not a complete successful founder psychology graph, but the most apparent traits among them, without drawing correlations or even causation, include mild forms of Asperger's, early childhood traumas, closeness to the creative industry, and strongly opinionated leadership.
Successful founders need a strong conviction and opinion. This conviction is rooted in years of personal experience with the problem to be addressed, as well as overall personality traits like perfectionism and deeply founded worldviews, also known as contrarian points of view. On the other side of that scale, we see founders with just wage ideas relying on agile development, market research, data, proven business playbook-patterns only, having a weak standing of creating something new related to opinionated founders, working with their convictions to solve not yet discovered problems.
Two of the most valued companies, Apple and LVMH are or were lead by opinionated leaders, Steve Jobs and Bernard Arnauld. Here some extracts out of a podcast transcript talking about such leadership:
“The best founders are off.” is one of Katherine Boyle’s statement in a recent Moment of Zen-Episode. This pod discusses further personality traits of successful founders: About the fatherhood and adoption of three of the most famous founders (as of 5:00), being off and naturally disagreeable, contrarian types, much closer to the creative people (as of 26:00).
And here Peter Thiel about it:
One major point heard of VCs is the scarcity of such type of founders, and they haven’t yet found a way to better “source” or identify them.
One can conclude it with a very basic statement: Your success is much more predictable if you have a specific product in your hands, identifying that you are the right person to do it and then found a company, as if you you’d like to become an entrepreneur, start a company and then have a way to figure out some ideas. The likelihood that you get funded is much higher for the first too.
The Startup Journey: Learning and Enlightenment
Which brings us to the final point: The learning curve with a startup is tremendous and can’t be compared with any other career or learning path. It almost becomes an enlightenment, but one must imagine the suffering for such… “40 days in the desert” was another story by Matthew 4:1-11.
Great founders typically don’t need advice.
Places to dive deeper:
Zero to One, by Peter Thiel, Blake Master. Doing what someone else already knows how to do takes the world from 1 to n, adding more of something familiar. But when you do something new, you go from 0 to 1. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. Tomorrow’s champions will not win by competing ruthlessly in today’s marketplace. They will escape competition altogether, because their businesses will be unique.
The Hard Thing About Hard Things: Building a Business When There Are No Easy Ansers, by Ben Horowitz. While many people talk about how great it is to start a business, very few are honest about how difficult it is to run one. Ben Horowitz analyzes the problems that confront leaders every day, sharing the insights he’s gained developing, managing, selling, buying, investing in, and supervising technology companies.
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