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.
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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.
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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 go lucky instead of people who have been truly tested, and arrogance is a bad thing in entrepreneurs.
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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."
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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.
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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.
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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."
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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.
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