tl;dr: When you try to do it all again, don’t fall for your own hype.
No one doubts the importance of practice, but does practice make perfect when it comes to startups?
It’s not so clear. Recent studies show that serial entrepreneurs’ second startups underperform their first ones. This 2013 study showed “entrepreneurs, despite their experience, may actually perform worse in subsequent ventures because of conditions that prevent learning from occurring from one venture to the next.”
The founders of Google, Amazon, Facebook, Apple, Snapchat, Airbnb, Pinterest, Dropbox, DraftKings, Coupang, BuzzFeed, and Warby Parker were all first-timers.
Despite it clearly being possible to build massive businesses with no prior experience, investors proactively recruit previously successful founders, sometimes with offers of ‘blank checks.’ There are countless other examples that further validate the belief in the value of repeat founders.
However, while much does get easier the second time around there are clearly a few things to consider before becoming, or backing, a second-time founder.
There Are Benefits To Being A Serial Entrepreneur
Both of us have started three venture backed companies and can point to the many ways that it’s easier after you’ve done it once, or twice. You have a wider network and it’s easier to get capital and recruit a team around you. You’re more comfortable around the logistics and mechanics of company building — you know which lawyers to use, how to make your board decks, and when you need to make the hard decision to let someone go.
Some of the details you may have sweat the first time around – such as how to distribute titles or equity fairly – become more muscle memory than lengthy analyses. However, for all of the similarities, there seem to be more ways in which starting a business gets harder the second time around.
You Go From “Nothing To Lose” To Being A Potential One-Hit Wonder
In the first venture, you felt like you had nothing to lose. You were most likely young. Your parents, friends, and everyone you knew thought you were crazy. You were likely in debt and buying computers on your credit cards, but you had your whole future in front of you. There was little downside.
After some success, people around you are convinced that you will succeed, despite the still long odds. Everyone wants to back you. As a result, founders may put a considerable amount of their own personal capital in the business. There’s a tremendous risk of embarrassing yourself and losing money. This can hamper your ability to take the risks that are required to make a startup successful.
Overconfidence Can Be A Killer
Second time founders have more confidence. Often, you’ve made some money so now you’re motivated to build something bigger than the last time. When it comes to the old adage of wanting to be rich or king, entrepreneurs may be more focused on being king the second time around.
Despite exuding confidence outwardly, you know how fragile ventures can be and, in a very natural way, begin to have some amount of self-doubt. Many repeat founders ask, “What if I got lucky last time?” You may second guess your own decisions. In psychology this is called “Loss Aversion,” basically people are much more afraid of losing what they have than they are excited about what they have to gain.
You’ll Be More Distracted
You’ll also be distracted. Second and third time entrepreneurs often spend a lot of time on the speaking circuit and mentor other startup founders. People want to hear about the lessons you’ve learned along the way. Yet the desire to be more public can be in conflict with the need to focus on the business. Blinders and naiveté were assets the first time around.
It’s also very likely you’ll have a family and more responsibilities outside of your company. Ramen noodles and code binges might have powered your first startup, but now you have to balance productivity with picking kids up from school.
It’s Easy To Get Biased By Limited Data Points
Entrepreneurship is business with very few data points and it is hard for VCs to pattern-match with so many variables and so little data. This is compounded for entrepreneurs. A successful VC will see dozens of companies succeed or fail, but successful founders usually have experience with one team, a specific industry, and a certain point in time. Inevitably these conditions change.
Eli started out building a company in the HR space, followed by an AdTech company, and is now focused on the internet of things. He’s made incredibly smart (and less smart) decisions in all three companies, but the problem is it is hard to distinguish between the two because most outcomes include a healthy dose of chance. A disastrous outcome may have been the right call nine of of ten times.
Similarly, there were many cases where decisions worked out perfectly, but only because of the unique characteristics of that industry or time period. Wise founders try not to draw overly broad conclusions from isolated incidents that could be heavily dependent on luck or industry dynamics.
Remember, Not All Industries Are The Same
Micah started a consumer web startup in the late 90s and migrated to med-tech in the 2000s. In 2011 he was the founding CEO of an MIT biotech spin-out. Having done a university spin out previously, he had a strong view that academic researchers needed a commercially focused executive who would push to develop and ship a product as fast as possible.
This may be true in software, and even hardware, but was not the case in biotech. In fact, the opposite was true. Rewards in biotech are not linear—the proverbial “cure for cancer” is worth billions while making incremental improvements are worth much less. The best biotech entrepreneurs need to build an environment where these billion dollar breakthroughs can happen. The hard lesson Micah learned was that the lean startup approach for rapid timelines and clear deliverables didn’t work as well in that environment.
Your Thinking Doesn’t Get Enough Pushback
During the fundraising for Eli’s first company, he had to pitch 63 times before raising a seed round. This meant hearing the 500 different ways the company wouldn’t work and every possible objection to every idea. This was painful, but incredibly helpful in stress testing and refining his thinking.
For his next company, investors gave him more benefit of the doubt, making it easier to raise money and focus on the company (the round was oversubscribed). This phenomenon isn’t just true of investors, but also of the team, customers, and everyone surrounding the business. It’s nice for everyone to believe in you, but it also robs you of some benefits of honest feedback.
So What Can You Do?
The point isn’t to claim that building a company gets harder the more you do it, it doesn’t. It’s just different.
However, building a startup is an incredibly nuanced and fragile proposition, and experience brings with it many traps that are potentially destructive. Our experience with our second and third companies has taught us that it is important to identify these traps and work around them, in which case you get all of the benefits of having it done it before and avoid the pitfalls.
A few key tips to remember:
1. Don’t rush to take money: Just because you’re a repeat entrepreneur and investors or friends or family are clamoring to give you capital, the proverbial ‘blank check,’ don’t feel rushed to take it. Remember to incubate your idea. Take time to vet your concept, even multiple ones and don’t be afraid to walk away from ideas that just don’t feel right.
2. Don’t go it alone — get the band back together: It’s easy to forget how crucial the team was in your first venture. The reality is that it takes a village to build a business, no matter how much experience you have. If you had a rockstar engineer or COO or whatever—try to recruit her again. There’s no substitute for shared experience and implicit trust.
3. Step back, think, and write: We have found that some of the most therapeutic and helpful ways to frame one’s previous experience is to write about it. Whether for personal or general consumption, try to write down key learnings and experiences so you don’t forget them. What were the factors that led you to certain decisions and what did you learn from them. Write your own business school case studies. You never know when you’ll need to pull them out again.
In the end, we’re startup junkies—but as any good financier will tell you, past results are no guarantee of future returns.