Are You a Superfounder? What We Look For When We Partner With Founders
“It’s very risky.”
“It’s the ultimate test of our founder thesis.”
“Yes. Let’s do it.”
It was early spring 2020, right before COVID-19 shut down travel, and we had just decided to invest in Jakob, Christopher, and Adam. Following the team from the sidelines, we had watched them launch a service for sharing highlights from e-sport-events. As they struggled to find sufficient traction, they shut down the project. But as we saw potential in the team we decided to invite them to spend a week with us in a house in Spain to get to know each other better and brainstorm ideas.
After many hours of intense whiteboarding of methodologies and business concepts, late-night vino-accelerated chats about life, the universe and everything, and — not least — a shared struggle to digest countless Iberian hams, our confidence in the team’s structured startup approach was fortified, and we concluded that we simply had to invest in the team now, even if they still hadn’t chosen a new idea to work on.
After our deployment, the team built and tested three different concepts before giving birth to the most enjoyable service in existence for virtual workshops: Butter.us. Soon, they raised another round from international investors and continue to show large double-digit monthly growth rates, validating that our pre-idea high-risk investment in the team was a good bet.
The above is an example of our early stage founder focus. It’s clear to us that having a stellar team is the highest priority, because a stellar team has a high probability of figuring out everything else. In this article, we will outline the parameters that are important to us when we talk to new founders and, if they have them yet, evaluate their ideas and markets. We’ve used data on the characteristics of successful and failed startups as the most important input, especially drawing on Ali Tamaseb’s book Superfounders as well as other sources.
In Tamaseb’s book, success is defined as becoming a unicorn, but other sources have other definitions. The effect sizes are calculated as the share of companies with the discussed parameter among successful companies compared to among unsuccessful companies. We do not control for confounding effects and the results must therefore be interpreted carefully.
In addition, our approach is spiced with our own intuition and experiences. As Jeff Bezos would say:
“When the anecdotes and the data disagree, the anecdotes are usually right. There is something wrong with the way that you are measuring it. You do need the data, but then you need to check that data with your intuition and your instincts.”
The Best Founders
The best founder teams have:
Ideal team size, good chemistry, and compatible values
The available data disagrees on whether having one or more founders is better. Being two or more means having more support during tough periods and it means covering a larger skillset with highly dedicated work. On the other hand, being a solo founder means you avoid potential hair-pulling founder conflicts.
From experience, we prefer investing in teams with complementary skills. To mitigate the risk of founder conflicts, it’s best if you have already worked together for two or more years on this or another demanding project.
There must also be an alignment between the founders and us at Morph, because we intend to spend a lot of time working with you and having fun together. It’s best if you don’t think our three cardinal values are completely insane, and hopefully we enjoy each other’s company. :-)
Proof-of-Work
Proof-of-Work algorithms are used, for instance, in cryptocurrencies to prevent Sybil attacks. But for us, proof-of-work means that you must have worked hard and with high dedication in a previous project. Whether that means you have previously succeeded — or just created something really cool — in a previous startup, whether you’ve had a fast-tracked career at a prestigious firm, or whether you’ve excelled at a tier one educational institution, or something else, doesn’t matter. But your past must show that you can invest a lot in your work. Among the standard five personality traits, conscientiousness, which is associated with hard work, is the strongest predictor of job performance with a correlation of 0.22 (page 65).
In the available data, we found a 129% increased chance of success for founders with a previous startup success, a 100% effect for founders having attended prestigious universities or worked at prestigious companies, and a 20% positive effect for founders that had previously failed with a company compared to founders with no startup experience.
Great mental ability
Mental ability means your capacity to reason with complex information and to learn and adapt your skillset. It is especially important in startups where you don’t know which challenges you face tomorrow. It can be assessed with direct testing, but can also be indicated by previous work.
While we don’t know of any data for mental ability and startups specifically, a meta-study of 100 years of research into general job performance found mental ability to correlate 0.65 with job performance across different job types, which was the highest of any of the 31 factors investigated (page 65). For professional and managerial positions specifically, the correlation found was even higher at 0.74 (page 13).
The best products and markets
The best products and markets have:
Good defensibility
Defensibility means being able to protect your market share against competitors. Companies with strong defensibility become the most valuable. In our dataset, it’s the largest effect with a 563% higher chance of becoming a unicorn if you have defensibility.
The different types of defensibility include economies of scale (Amazon), network effects (LinkedIN), integration (Oracle), and technical moat (Novo Nordisk). The first two are hard at first, but you can build your strategy around achieving them. The latter two are more directly attainable at the early stages.
In any case, if you want to build a very valuable company, the data indicates that defensibility should be a very high priority.
The right competitors
Most successful companies (65%) engage markets that are already big and there is already proven demand. However, some of the largest companies like Facebook or Google created entirely new markets or expanded existing ones. In both cases, for your company to grow a lot, there must, obviously, be a large existing or latent demand.
The data suggests that engaging markets that are already being addressed by better funded startups than yourself decreases your chance of success, while engaging a large market with large legacy incumbents will instead increase your chance of success. In our data, we see an effect of no less than 326% when opting for the latter approach.
Continental scalability
Many Scandinavian startups claim to have international ambitions, but they are added as afterthoughts and not thought into the product from the beginning. Selling to local customers first indicates that you can build a sustainable cash-cow, but selling to international customers in large markets first indicates that you are building a VC-friendly company and that you have a shot at growing it to a billion dollars.
We don’t have a swath of structured data to back this one up, but building on our personal experiences, five customers in Germany, UK, USA, or other large markets tell us more about your ambitions and potential than 50 customers in Denmark or Sweden.
Other product and market parameters
Some other noticeable effects in the dataset included deep/medium-tech performing 46% better than integrations, differentiated products 43% better than products that were similar to existing offerings, and pain-killer products 33% better than vitamin-pill products (need-to-haves versus nice-to-haves).
Conclusion: The Perfect Founders
… have already worked hard together on complex, mentally demanding problems with — ideally — a successful outcome, are aligned on values, and are now solving a pain not already being attacked by other highly funded startups with a solution that is highly defensible and born at least continentally scalable.
But perhaps most importantly, we think one 99.9% percentile parameter means a couple of mediocre ones are tolerable. One extreme strength is better than a simple lack of weakness. So don’t worry if you can’t check everything on the list — few of the biggest successes ever did.
