EntrepreneursVenture Capital

More thoughts on the advantages of being a serial entrepreneur

By June 30, 2008 6 Comments

Before I went on holiday I asked Are serial entrepreneurs any better than first time entrepreneurs? and got an avalanche of comments which raised some further points of interest that I have been meaning to share with you for the past week or so (or should I say re-share – and as ever a big thank you for your participation, it is a big part of what makes blogging worthwhile).

In the comments there was an extensive discussion about the difference that experience makes and some questions about the quality of data on the topic. I have condensed it into three areas here.

Firstly – musing on when experience is helpful it has become clearer that the value of experience depends on the pace of the revolution that you seek to participate in. This is a point made by James Penman in the comments to the original post, and encapsulated brilliantly by Clay Shirky in the following quote:

Those of us with considerable real-world experience are often at an advantage relative to young people, who are comparative novices in the way the world works. The mistakes that novices make come from lack of experience. They overestimate mere fads, seeing revolution everywhere, and they make this kind of mistake a thousand times before they learn better. But in times of revolution, the experienced among us make the opposite mistake. When a real once-in-a-lifetime change comes along, we are at risk or regarding it as a fad.

Additionally, as VC-turned-entrepreneur Bill Kilmer said in his comment, experience is also valuable in every day business:

Every day, there are a thousand sub-routines in our business that we execute the right way simply because we’ve done it before and we how it should be done. Each is a potential stumbling block for a new entrepreneur who hasn’t been down that road before and learned from their previous good or bad decisions.

If the vision is right it is generally possible to fix execution errors, but if you have the vision wrong that is pretty hard to come back from. As a result I would expect, as per Clay Shirky’s comment, that experience is less helpful in genuinely new areas, and that serial entrepreneurs would be at less of an advantage.

Secondly – there were a bunch of comments around the theme that first time entrepreneurs often don’t understand what they are letting themselves in for and as a result shoot for over-ambitious goals and perhaps sign themselves up for a world of stress they might otherwise have chosen to avoid. By this argument experienced entrepreneurs will often either avoid doing another startup altogether, target a lower but more achievable exit (say in the $50-100m range), or adopt a portfolio approach by working with more than one company so that they don’t have all their eggs in one basket.

The logic of this is undeniable, but it is not great news for me as a VC. We are seeking to work with people who want to build world beating companies, and that usually means that their goals will look over-ambitious in the early days. Some experienced entrepreneurs go down this route – particularly ones that made a good amount of money from their first startup and want to become seriously rich from the second one – Brent Hoberman and the founders of Skype spring to mind here in Europe – but I think as a result of this factor first time entrepreneurs will continue to often be the first to come to us with compelling business plans in new hot areas.

Finally – there were a number of well made comments about the problems with the FT research that I quoted in the original article. Matthew Banks was kind enough to dig out some more work on the topic that points to a similar, if not identical conclusion. This can be found in a paper published by the National Bureau of Economic Research titled “Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs”. According to the summary on Sanjay Parekh’s blog the research showed that previously successful entrepreneurs are marginally more successful than first time entrepreneurs (30.6% success rate compared with 20.9%) and that previously unsuccessful entrepreneurs have a very similar chance of success to first timers (22.1% versus 20.9%). The original paper costs $5 to download – so I didn’t, paywalls are too annoying.