- Was your first startup a small outcome? Your next startup is much more likely to become a unicorn!
The founders of Clubhouse, Spotify, Uber, Airtable, Stripe, and 42% of billion-dollar startups had one thing in common.
Just now·6 min read
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 that provided tiny images to be displayed, hyperlinked to their website. This is before “Display Ads” was a big thing. In four months’ time, word of the page had gone viral and advertisers had taken all the pixels. At one point, the website had so much traffic that its Alexa ranking came as low as 137. Tew had achieved success and a one-million-dollar outcome. This wasn’t by any means a massive success in the world of venture capital where hundred million dollar and even billion-dollar acquisitions are frequent and what VCs care about.
Fast-forward six years later, Tew started a company called Calm. Calm slowly met success and became the #1 meditation and sleep app. The company was last valued at over $2 billion. Tew’s itch for building companies finally got 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. Let’s take Paul Davison and Rohan Seth, the co-founders of Clubhouse as another example. Started in 2020, the audio-only social network has got millions of users and a valuation of $4 billion. It looks like an overnight success, or two founders getting lucky coming up 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 themselves 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, and in return, they would pay back the original invested capital by the investors (or some ratio of) and carve out some incentives and an equity package for the employees and founders of the acquired startup.
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 and why some become billion-dollar outcomes and most others don’t and collected 30,000 data points. I also interviewed founders of Zoom, Instacart, GitHub, and 15 other unicorns plus VCs like Alfred Lin, Keith Rabois, and Peter Thiel. I published the results, many of which are counter-intuitive and shocking, in my upcoming book “Super Founders: What Data Reveals about Billion-Dollar Startups”. One of the elements I had studied was the prior entrepreneurial endeavors a founder has had.
Among the founders of billion-dollar startups, almost 60% were not first-time founders. In the random group, which is a randomly selected group of startups that had raised a minimum of $3 million in venture capital funding but didn’t become a unicorn, and is aimed to represent what a typical startup that gets seed-funded looks like, 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 by 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.
I also analyzed another data point relevant to this topic. Of the repeat founders of billion-dollar companies, 70%+ had founded a previous company (42% in absolute numbers) that was acquired for $10m or had similar levels of revenue — compared to 24 percent in the random group, a statistically staggering difference. Those with one small exit or prior company with a small outcome were much more likely to end up building billion-dollar companies.
Repeat founders who have previously scaled a company, even to a modest size, bring a track record that makes things easier for them the next time they start a company. It also helps that they have already established a connection with investors, have talented people in their network or those they have worked with before to hire, and are generally well-connected in the startup ecosystem.
While a $10 million exit is a very modest outcome in the world of mega acquisitions, it’s a great preparation for the founder’s next endeavor, which seems much more likely to become a multibillion-dollar outcome. The $10 million benchmark should not be taken as an absolute, but rather as more of a conceptual threshold that could change over time and in different geographies of what could be counted as a meaningful even if small exit.
Some had as many as four previously successful but modest exits before starting their billion-dollar company
There are so many examples of exceptional founders going through this path. Even those who may be very young and may seem like first-time founders had often created projects and side hustles before. We often don’t hear about the years of entrepreneurial hustle that many successful founders had gone through before finally landing on their best one. In my book, I talk about the Collison brothers and their auction-management startup that they had founded and sold before founding Stripe at the age of 19. I talk about Howie Liu who had founded and sold his previous startup to Salesforce for $25 million before starting Airtable. Brian Armstrong had 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 had a bug for building projects, creating side-hustles, and seeing them through were 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 without a bug for building and creating.
The path to a billion-dollar startup often begins with a bug for creating. 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 may get to your billion-dollar outcome on your first try, but it’s more likely to happen on your second, third, or tenth. What is important, though, is that these founders kept building until their luck came through.
Forget all the myths. Keep on building. Ideate, build, sell, repeat— and you will be on your way to becoming the next Super Founder.
- Date of publication:
- Tue, 05/04/2021 - 16:24
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