Are serial entrepreneurs any better than first time entrepreneurs?

Until this morning my answer to this question would have ‘Yes, absolutely’, but new research reported today in the Financial Times casts doubt on that assumption:

In the UK, the evidence is that novices are neither more nor less likely to have a business that either grows or survives than experienced founders. In Germany, where much more extensive statistical work has been undertaken, it is clear that those whose business had failed had worse-performing businesses if they restarted than did novices.

They postulate that the reason experience doesn’t seem to make a difference is that luck plays a huge part:

One reason for this is the role of chance in determining whether a business prospers. In spite of volumes of airport lounge books identifying simple recipes for success, the reality is that starting a business is risky. The outcome depends heavily on luck – whether parking is suddenly banned outside your hairdressing shop, whether you or a member of your family become ill, or whether your Great Aunt Mabel dies and leaves you an unexpected legacy. This unpredictability means that it is difficult for entrepreneurs to learn. The best analogy is with a lottery: it is not possible to learn to win a lottery.

When I read this I started thinking about the serial entrepreneurs I know and who I’m working with and quickly came up with a bank of anecdotal evidence that seemed to run counter to this research. Then I remembered a blog post from Dick Costollo, founder of Feedburner where he was lauding Marc Andreessen, saying that Ning was looking like it would become his third billion dollar business, and that nobody could be that lucky.

So I started to doubt the research. Specifically I wondered if the same conclusions would hold if the sample of companies was limited to the sorts of businesses we invest in. They are (in general) less exposed to the sorts of risks outlined in the paragraph above (not least because the money we invest gives them the ability to survive a bit of bad luck).

But then I started to hear the voice of Taleb in my ear. Of Andreessen’s success he would doubtless say ‘given the number of people starting businesses these days an someone was bound to build three billion dollar businesses eventually, based on luck alone’. Then I realised I was falling for what he would describe as the Platonic Fallacy – i.e. looking for order, structure and predictability in the world (experience makes an entrepreneur better) where the available evidence points to the fact that randomness prevails.

It is also worth repeating a fact that my Californian colleagues at DFJ like to point out – many of the most successful tech businesses have been built by young, first time entrepreneurs – e.g. Bill Gates at Microsoft, Larry and Sergey at Google, Larry Ellison at Oracle, and Yang and Filo at Yahoo!

To wrap up, I guess I’m not ready to ditch the belief that experience helps, but it feels uncomfortable going against the research, even with the concerns I mention. It would be great to see the research done again to answer the more specific question “do serial entrepreneurs outperform first time entrepreneurs in venture backed companies?”

Finally – this is also a reminder on the importance of judging people on process rather than results. It is better to back the second time entrepreneur who did everything right in her first business but narrowly failed because she was unlucky than the guy who hit a home run solely because he was fortunate. Not that it is easy to tell.