Super Founders: the true path for unicorns
Beyond the conventional wisdom, the common stereotypes, and the mythical narratives, Ali Tamaseb wrote a book which examines through data what the actual road of a unicorn company looks like. And it’s not what we generally think.
Ali Tamaseb’s book “Super Founders: What Data Reveals About Billion-Dollar Startups” is an incredibly valuable work for entrepreneurs and investors alike. Thanks to extensive research comparing more than 200 unicorns with a random sample of companies that failed to reach the billion-dollar valuation in the same period, Tamaseb amassed massive amounts and data and found some incredible insights (and even some counterintuitive examples) that show the real patterns and paths of successful companies. After reading the book and analyzing what the data reveals, it becomes clear that there are many myths surrounding startups that end up becoming unicorns. Here are some facts that help form a more realistic picture of what makes a unicorn.
Tamaseb, a partner at VC firm DCVC, delves deep into five key aspects of great importance at the moment of understanding unicorns. They are:
- The founders
- The company
- The market
- The competition
- The funding
In this article, we will highlight some of the data from Super Founders that shows very clearly how much of the common assumptions about unicorns are nothing but myths.
About the founders
Forget everything you think you know about founders. You don’t need to be a college dropout or a certain age or have any background in the area you’re working in. Data shows that founders of unicorns ranged from 18 to 68 years old, and the average age was 34. As for the level of studies, 36% of them had a college degree, 22% had a degree and an MBA, and 33% had a degree and Máster or a Ph.D. Although they didn’t necessarily go to prestigious universities, there’s a higher proportion of founders that did in the core group than in the random sample.
The number of co-founders doesn’t seem to be all that relevant, with 20% of unicorns having a single founder, 36% having two, and 28% three. It’s important to note that in 45% of the cases, the founders had previously worked or studied together. Perhaps it’s because of this that when the CEO is technical, the co-founder usually is too. There goes the myth of the technical and business-oriented founders working in tandem. Even further, it doesn’t seem to be relevant whether the founders are technical or business-oriented, with an almost 50/50 split between the two profiles.
According to the data, less than 50% of founders of unicorns had any previous experience in the area they were working on, and there’s no significant difference with the random sample. In certain areas, however, such as life sciences or biotechnology, 75% of founders did have experience in the field. Most of the entrepreneurs that founded billion-dollar startups were either self-employed or had worked for tier 1 companies such as Google, Microsoft, Amazon, Goldman Sachs, or McKinsey. Tamaseb also found that 60% had started other companies before, whether successfully or unsuccessfully- and of course, those who had been successful in the past had a bigger chance of scoring another hit.
About the company
Some of the common assumptions about companies appear to be at least partially true. Predictably, more than half of all unicorns created in the United States were in Silicon Valley. This doesn’t necessarily mean that they were founded there since many had moved after being created elsewhere, but it does suggest that being in Silicon Valley increases the chances of success. It’s also not surprising that software companies tend to do better than those in other areas. 54% of the unicorns in the study group were software companies, against 40% in the random sample.
As regards the product, conventional wisdom also holds that painkillers (products that solve a customer’s need) are more successful than vitamins (products that improve an existing solution), and this again seems to be true. However, a third of all unicorns offer vitamins, so, although perhaps more difficult, it’s by no means far-fetched for a vitamin startup to reach a billion-dollar valuation. However, vitamins comprise 50% of the random sample, so this clearly suggests that, while perfectly possible, the chances of success are lower.
Productivity is the most important product category amongst unicorns. Those who help their clients reach their goals faster are the most successful, followed by a second group of companies that aim at helping customers save money. Two-thirds of all unicorns offered products that were different from those of their competitors right from the start, so originality is a plus.
Another interesting insight is related to whether the products require huge feats of engineering (deep tech companies) or merely the integration of preexisting pieces (system integration companies). There’s a wide range of companies that are in between the two groups, which we’ll call technical companies. According to Tamaseb’s research, 47.5% of unicorns were system integration companies, 27.5% were deep tech companies, and 25% were technology companies. In the random sample group, those proportions were 56%, 25%, and 20%, which suggests that technical and deep tech companies have a higher chance of becoming unicorns.
About the market
One of the common misconceptions about starting a company is that you need to have a breakthrough idea that will create a brand new market up for the taking. However, more than 60% of unicorns started in markets with a well-established demand, against only 47% in the random sample.
Another misconception is that success is greater, though less frequent, in B2B companies. But that’s not what the data shows: although in the group of unicorns there’s a technical draw between consumer and enterprise-oriented companies, there’s a higher proportion of B2B companies (57%) in the random sample, which shows there’s a slightly higher chance of success for B2C companies.
About the competition
It’s commonly believed that the company that first introduces a product or service into the market gains a considerable advantage since it can establish strong brand recognition and loyalty before any sizable competition appears. However, no discernible pattern was found that could prove it to be true. Furthermore, Tamaseb’s study shows that 55% of unicorns faced incumbent companies when they started, while 17% hardly had any competition at all, 15% entered very fragmented markets, and 13% only faced other startups. At this point, there’s no clear difference between the two groups, which suggests that market structure is not decisive for a company’s success.
An important differential the research revealed is barriers of entry. If a startup can establish a barrier of entry against the competition, then the chances of success are much higher. Only 8% of unicorns didn’t have a sustained barrier of entry, while this number goes up to 45% in the control group. This barrier of entry can take many forms: 56% of unicorns had products in which the design itself constituted a barrier of entry, and 19% had a strong, defensible brand which served as a barrier of sorts as well (against only 7% in the sample group). This last piece of data shows the importance of investing in branding to increase the chances of success. Also, in 28% of the cases, the bandwagon effect (which means that the more people use a product or service , the more the value for all the users of that network) was present, and this also shows that being able to create such an effect can have a strong impact in a startup’s future.
About funding
Although getting funding is usually more complicated in periods of economic crisis, the data suggests that such times are by no means a handicap for starting a company. Some of the unicorns in the study were founded in years of crisis, such as 2007 or 2009. It’s possible that the more difficult access to resources can be somehow compensated by easier access to talent, which may become cheaper and more available during troubled moments. The data is not conclusive in showing whether a bull or a bear market can lead to higher success.
What is clear is that venture capital plays a key role in funding successful startups. A whopping 90% of all unicorns were funded by venture capital, and only 10% resorted to bootstrapping to fund their growth. Unicorns also tended to raise twice as much as those companies in the sample group in their first round of funding and more than triple in their second round.
85% of the unicorns didn’t make use of any incubation or acceleration programs. Those that did mostly went through Y Combinator, the American startup accelerator founded by Paul Graham, Jessica Livingston, Trevor Blackwell, and Robert Tappan Morris in 2005. These kinds of programs were especially good for first-time entrepreneurs who needed perhaps more guidance.
These are just some of the 30000 data points Tamaseb covers in this book, which he hopes will encourage entrepreneurs to “go out, build, repeat.” There are, of course, some absent points, such as statistics regarding gender or race among founders, but according to Tamaseb, that would make the data too bleak and perhaps counter-productive. “Your history, your family, a lot of these things are factors in what schools you go to if you can fail forward if you can start a company right after college if you don’t have to care about paying back your student debt or can start a company right after your MBA”, he says.
But for those who are able, Super Founders can be an actionable guide to walking the path of successful companies, not based on myths and legends, but on actual, verifiable data.
#Focus #Consistency #Pasion
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