You’ve Only Got One Shot At Building A Consumer Unicorn
Imagine if the founder of a very successful consumer technology company knocked on your door and offered to get you in on the ground floor of their new enterprise. Almost any VC would jump at the chance, as would most engineers and designers. But I wonder if they’re most often making a mistake?
I can point to a number of founders who have had repeat success in B2B markets. Founders who have repeatedly built and sold companies for hundreds of millions, even billions, of dollars. It’s really hard to think of any on the consumer side of the market.
When I’m talking about consumer products, I don’t mean anything for which a customer pays. In the scope of this piece, “consumer” startups are ones where a company’s value comes from the “large network of engaged users” who drive the platform. Facebook, Twitter, Pinterest — even Tinder.
Serial Entrepreneurs In Consumer
Below is a list of entrepreneurs that most people think of when it comes to serial entrepreneurship in the consumer space. But as I found through my research, only one of them has been able to galvanize a large network of engaged users over and over again: Evan Williams.
Evan Williams: He sold Blogger to Google before going on to found Twitter. If he was to start another publishing-focused platform, it would be wise to team up.
Jack Dorsey: Twitter is a massive consumer business, but Square isn’t a pure consumer play. Sure, they sell their card readers and customers use the app, but it’s as much a B2B tool as a consumer-facing app.
Elon Musk: PayPal and Tesla are both well-known consumer brands, and SpaceX is probably the best-known space industry outside of NASA. However, Musk’s genius has less to do with galvanizing large numbers of users and is more a result of his talent and willingness to contend with industries that feature insane levels of regulation.
Jeff Raider: Raider co-founded Warby Parker, and subsequently founded razor upstart Harry’s. This is a rare example of the skill set working, in this case identifying a market distorted by cartel-like pricing and attacking it with a solid brand and cost-effective customer acquisition. But again, the company has no network effects. I wouldn’t be surprised if there were founders with several e-commerce wins under their belts.
But What About The PayPal Mafia?
PayPal is often talked about as one of the most impressive companies in tech, both out of its impact financially and the bevy of talented operators who got their start there. Many have gone on to shape tech in ways large and small, but out of 26 people in the so-called mafia, only three vaguely consumer companies have emerged — YouTube, Yelp and LinkedIn. And none of them were started by founders of PayPal. Most of the names we associate with the mafia gained notoriety in leadership positions in B2B or financial organizations.
Facebook Mafia, Facebook Curse?
The best thought experiment I could devise to test my thesis was considering the paths of Mark Zuckerberg’s Facebook co-founders. Dustin Moskovitz is the only Facebook founder that has started another large-scale, successful startup, Asana, which is not a consumer company.
Serial Entrepreneurship In B2B Markets
Contrast the short list of founders who have had successful back-to-back consumer startups with entrepreneurs who have founded multiple successful B2B companies:
Lew Cirne sold his first startup, Wily Technology, in 2006 for $375 million. Two years later he was back building a new business called New Relic that currently trades on the NYSE with a market cap of $1.5 billion.
Desh Deshpande sold his first company, Coral Networks, in 1987 for a modest $15 million. He followed that up a decade later by selling his next company, Cascade Communications, in 2007 for $3.7 billion. The next year he started Sycamore Systems, which IPO’d with a peak market cap of $44.8 billion.
David Duffield founded PeopleSoft in 1987 and ultimately sold it to Oracle in 2005 for $10.3 billion. After that sale, and at age 64, he quickly started another company, Workday, which IPO’d in 2012 and currently has an ~$13 billion market cap.
Josh James built and sold the web analytics firm Omniture to Adobe for $1.8 billion and has raised more than $450 million to build a business intelligence tool called Domo. Raising money doesn’t necessarily equal creating value, but it’s an indication that there is something to the business.
Andy Bechtolsheim co-founded Sun Microsystems, which at its peak was worth $220 billion dollars. He later went on to found Granite Systems, which he sold for a comparatively disappointing $220 million. The fact that he owned 60 percent of the latter company probably helped take the edge off such a “disappointing” exit 🙂
Now, this is far from scientific accounting, but it is interesting to note that there are multiple founders of B2B software who have had repeated, outsized success compared to consumer leaders. If you can think of B2C entrepreneurs who have built multiple $500 million+ startups, please let me know!
Why Is This The Case?
The best consumer startups catch lightning in a bottle. Like any startup, you need to have a great team, a compelling product and a credible market. But there’s also a fourth variable that’s hard to recognize, and almost impossible to distill. Call it the zeitgeist, ether, or whatever, but the greatest consumer companies have it and it has proven remarkably difficult to capture twice, even for the most talented founders.
B2B tech is different in a lot of ways. Corporations have clearly articulated needs, long-term plans and budgets. Many larger organizations even have budgets for experiments and teams dedicated to finding the latest and greatest efficiency tools. Learning to navigate these organizations isn’t easy, but once the skill is mastered, it’s more repeatable.
Once you understand corporate buying patterns, how to build an SaaS product and sales team and uncover a latent need at a big company, the route to success becomes a bit more formulaic. Founding B2B companies will usually net fewer magazine covers, but it has a way of repeatedly filling bank accounts.
What This Means For You
If you want to start a consumer business, just start. Facebook, Snapchat and myriad other companies were started by first-time entrepreneurs who barely had jobs before starting industry defining Internet companies. If you know how to code and design, it’s not clear that a decade spent at a B2C giant will give you any greater insights than just getting busy. However, it may expose you to interesting co-founders, which is worth the cost of admission.
If you’re weighing job offers, one from a well-funded repeat founder and the other from a scrappy crew with little credibility but crazy growth, you should definitely opt for the latter.
On the flip side, if you’re interest is in B2B technology and you don’t have a credible insight into what you might want to build, join a fast-growing B2B startup to learn the ropes. Unlike the world of consumer tech, there seem to be a fair number of transferable skills to be learned.
As a VC, I’ve become slightly more skeptical about prior success in consumer spaces. Even with founders who have had a “base hit” in the past, I’m more likely to want to see metrics or other early measures of success.
Building large communities of users for consumer-facing companies is a rare skill, and one that hasn’t proven to be especially repeatable. It’s actually most astonishing that most of the big consumer companies we can think of have emerged from dorms and people with no impressive credentials to their credit.
If your business model is to be built around status updates, be prepared to update VCs on your status!
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