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Skill or Luck: Can Serial Entrepreneurs Succeed?

Posted by Bob Warfield on November 15, 2007

More silly anecdotal hand waving from Techcrunch guest writer Glenn Kelman and Guy Kawasaki about serial entrepreneurs.  They seem to argue that it’s all luck and that serial entrepreneurs suffer from so much hubris that they can’t help but do worse the second time around.  The argument goes that Amazon, Apple, Dell, Ebay, Google, Microsoft, Oracle and Yahoo! were all founded by first timers under the age of 30.  If these guys are right, the VC’s should fire most of their partners and buy Ouija Boards because if past performance is no indicator of future results, it’s all luck for them too.  Limited Partners need to rely on random selection and place a lot less money in the hands of a lot more funds to gain a better portfolio effect.

But that doesn’t seem to be the case.  Returns for venture funds are correlated with prior results.  Likewise, serial entrepreneur success rates are better than first timers according to one Harvard Study.  There are certainly examples of serial entreprenuers that have done more than one successful thing.  Marc Andreesen is one such that I’ll throw out.  My old boss Philippe Kahn has had 3 large successes so far, 2 of them post Borland, and is hard at work on his fourth.  There are others. 

That the list of largest, most successful tech companies like Microsoft and Google is largely about first timers should come as no surprise.  Hitting the Uber Home Run is much more a matter of luck than skill.  You can’t set out planning to have the next Google sized success.  One of the Valley’s leading VC’s lamented to me recently that the VC business is turning in disappointing returns precisely because it got used to the idea that Google’s could be made, and it turned out they come along once a decade or worse.  Ignore those cases.  They are not reality.  They are are the exceptions.  Companies don’t have to create Google-sized results to be interesting.

There is something else to consider.  Luck was an essential ingredient in the Microsoft, Google, et al story, but there was another essential ingredient too.  To argue that these companies were all luck is a ridiculous insult to people like Bill Gates, Jeff Bezos, Michael Dell, Larry Ellison, and Steve Jobs.  It took enormous luck combined with enormous talent to bring about these lasting successes.  Consider Steve Jobs.  Do we really think he hasn’t proved himself more than once and that his career is all about luck and youthful enthusiasm?

Glenn Kelman in his Techcrunch article says a key thing, but his conclusion about what it means is all wrong:

But to be really great, I wonder if second-timers have to forget some of what it cost us so much to learn.

The conclusion is that once they learn what works, the second-timers will be prisoners to that formula. 

The mistake is in not realizing that real entrepreneurs never stop learning.  They don’t assume that there is one formula that can be applied over and over with success.  There isn’t.  You have to step out of formulas, get above it all, and figure out how to get inside the decision loop of the markets.  What does that mean?  It’s a topic worthy of a blog post unto itself, but to understand you need to learn the OODA theories pioneered by jet fighter pilot John Boyd.  Amazingly, they are exactly on target as effective business strategy.

What serially successful entrepreneurs do is understand the big trends much more quickly than the market at large.  They get there faster than the rest of the market and hang on to the valuable leadership they’ve staked out tenaciously.  This is not an endorsement of the first mover approach.  It is a recognition that business competition has a lot in common with an aerial dogfight:  the other guys have talent (and often more resources) and the stakes are frighteningly high.  If you can “get inside” your opponent’s decision cycle, you are in the driver’s seat.  They are responding to your initiatives and this is an advantage that’s hard to overcome.  When you are inside the decision loop of a competitor, it’s a huge tactical advantage.  Google got inside Facebook’s decision loop with Open Social.  Apple got inside the cell phone industry’s decision loop with the iPhone.  When you get inside the market’s decision loop, it is an enormous strategic advantage.  If you are lucky enough to be right, and lucky enough that a major market heads right to where your fighter plane’s guns are already aimed, you get the big success. 

Bill Gates got there with operating systems.  Was he lucky, yes, in the sense that Gary Kildall handed it to him, but he was also inside the decision cycle for a major market.  Gates saw personal computers as the wave of the future.  I can tell you from experience that dealing with IBM as a partner can be so painful as to appear pointless.  Yet Gates believe so strongly in his OODA conclusion and targets that he endured that pain where Kildall felt the world would beat a path to his door and it didn’t matter.  There are many of these critical OODA insights:

-  Jobs sees design as being the future versus raw technology.  Starting with the Apple II the has had a non-stop series of revolutionary design-leading products with just a few failures along the way.  He’s still at it today in a way that others are just not able to anticipate.  For digital industrial design, he has no peers.

-  Ellison saw the future of relational databases.

-  Bezos wanted to empower all retail to move online.  He would own the storefront, others would own the merchandise. 

-  Google owns the front door to the web in the form of search.

The list goes on, but these visions were important and enduring.  In some sense, these companies have understood their visions better than anyone else, and hence they dictated what the OODA loop would be and others had to follow.  Many of these guys are now a lot older, but they are no less entrepreneurs as their companies keep reinventing themselves through cycle after cycle.

Old age and treachery really can overcome youth and enthusiasm!

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12 Responses to “Skill or Luck: Can Serial Entrepreneurs Succeed?”

  1. [...] SmoothSpan Blog placed an interesting blog post on Skill or Luck: Can Serial Entrepreneurs Succeed?Here’s a brief overview [...]

  2. [...] Read the rest of this great post here [...]

  3. [...] smoothspan placed an observative post today on Skill or Luck: Can Serial Entrepreneurs Succeed?Here’s a quick excerpt [...]

  4. [...] read a great quote today by Bob Warfield regarding business [...]

  5. Hi Bob,

    Typos aren’t important in blogs, except where they change the meaning of the sentence. I think you meant to type ‘money’ here in the first paragraph: “lot less many in the hands”…

    Great article, but I think it is important to highlight the difference between people who do it a second time in the same domain, building on their previous successes vs. those who have the Midas Touch, (or think they do), whose new ventures are in different domains.

    Pleo is a follow-on to Furby and Philippe’s new efforts look like another interesting technology mash-up, vs. Ellison making hardware, for example.

    Thanx!
    steveh
    http://www.pervasivedatarush.com

  6. smoothspan said

    Steve, how much “domain drift” do you think is needed to call it a new domain? For example, within software, one could argue that tools, shrink wrapped software, enterprise, and consumer web software are all pretty different. Philippe did Borland which started out a tools company and then became a lot more. He went on to found Starfish, which was essentially a Palm competitor he sold to Motorola–it was devices though. Lightsurf was the camera phone. You can see quite a lot of variety there.

    I guess the biggest recent example will be Shai Agassi making electric cars after leaving SAP. Not clear he has been an entrepreneur to start with.

    Cheers!

    BW

  7. Good point about ‘domain drift’. So maybe using Philippe’s history was a bad example of someone staying in their known space, but I do think that there are differences in outcomes from those who move a small distance and those who jump to whole new arenas.

    Of course, sometimes things that look different really are similar when viewed from a different perspective. Consider Wayne Huizenga, going from Waste Management to Blockbuster looks totally different, but in fact, they were both roll-ups.

    A different issue came to mind over the weekend. We only call people ‘serial entrepreneurs’ if their first one was a success. If not, then they are just another loser trying, trying again. But the effort, skills, and other personality attributes are exactly the same in many cases, just not the outcome.

    I enjoy your writing, thanks!
    steveh

  8. smoothspan said

    Great point on serial entrepreneurs where the first one isn’t successful. Bill Gates had his traffic light control company, for example.

    We can also look at the opposite end of that telescope. Once a serial enterpreneur has a huge success, they seldom start over. Why do it if they can get what they need from a company that grows as large as a Microsoft or Oracle?

    Now here is a guy who is serial, built big companies, and started over: Jim Clark.

    Thanks for the comments, Steve!

    Cheers,

    BW

  9. [...] Robert wrote an interesting post today!.Here’s a quick excerptMore silly anecdotal hand waving from Techcrunch guest writer Glenn Kelman and Guy Kawasaki about serial entrepreneurs. They seem to argue that it’s all luck and that serial entrepreneurs suffer from so much hubris that they can’t help … [...]

  10. [...] (not OOPA as Atwood says at one point in the post) stands for Observe Orient Decide and Act.  I’ve written about OODA in the past and enjoyed Boyd’s writings on the subject, which are excellent strategy musings.  Given that [...]

  11. [...] (not OOPA as Atwood says at one point in the post) stands for Observe Orient Decide and Act.  I’ve written about OODA in the past and enjoyed Boyd’s writings on the subject, which are excellent strategy musings.  Given that it [...]

  12. [...] OODA strategy.   The acronym “OODA” stands for Observe Orient Decide and Act.  I’ve written about OODA in the past and enjoyed Boyd’s writings on the subject, which are excellent strategy musings.  Given that it [...]

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