Second Time Founders — The Sophomore Slump
Investors love the idea of backing second-time founders, especially if they have had success in their last company. The reasons are fairly obvious: It’s easy to reference them and understand their track record; they’ve made a ton of mistakes already that they have hopefully learned from and are unlikely to make again; they are probably more adept at raising and managing capital, which reduces financing risk down the road, etc. etc…
In addition, first-time founders I speak to often talk about how much they have learned and how they resolve to do things differently and better the next time. They know that starting companies is always really hard, but the second time around should be more straightforward.
However, I find that this isn’t always the case and entrepreneurs face especially tough challenges in the very beginning of their process of finding that second company to start.
In the past few years, I’ve known a bunch of experienced founders that have been EIRs or gone on their own journeys to start their next company. The surprising thing is how few of them have actually done it, or how long it has taken for them to find the right business and get early traction. This is a bit puzzling and counterintuitive, but it’s something we see all the time. There seems to be sort of a sophomore slump for founders that are trying to start their second significant company.
I think there are a few reasons for this:
#1: Loss of authenticity.
The first company a founder starts is typically born out of very authentic experiences and passions that led an entrepreneur to sacrifice a huge amount of time, money, and energy to will that new company into existence. The founder may not have been as experienced as they are today, but they have some unique insights about a problem and unique connection to the opportunity that propelled them as a first-time founder.
The second time around, it’s much harder to recapture this authenticity. Many second-time founders take a more deliberate, academic approach to searching for a problem. In some cases, this approach can work, but in every case, it’s a different process that defies a predictable timeline.
#2: Fleeing from the familiar.
Complicating #1 is that some repeat founders tend to flee from what’s most familiar to them. This is driven by either boredom or fatigue around the areas where they’ve built a business in the past, or else the founder knows too much about the market they are coming from.
Founding a company requires some level of ignorant optimism. I’ve heard multiple founders say that if they knew everything they know now about the business they are building, they probably would have tried to tackle a different problem. Knowing all the challenges and warts of a market or problem makes it hard to dive back in that second time. Conversely, some of the most successful serial entrepreneurs realize they have unfair advantages in markets they know and just keep coming back (e.g., Evan Williams with Blogger, Twitter, and now Medium).
#3: Re-calibrating to a new stage and time.
Repeat founders have become successful because they were able to evolve from someone who created something out of nothing and into a leader of a real scaling business. The last time they were starting a company at the raw, pre-product/market fit stage may have been quite a few years ago. The context of starting business may have changed, and some of the tools and practices (especially around early product development and go-to-market) might look very different.
Great founders can all evolve to new situations, but I think it’s a bit jarring for some to be stepping backwards to a different time, with a much smaller team, with much less definition around a product. A lot of the muscles that have been honed over the last several years are not going to be as important at first, and a lot of the muscles that are important at this point may be a bit sluggish from lack of use.
So, what are some ways to overcome this?
A couple suggestions:
#1: Try solving other people’s problems.
A few years ago, a friend of mine who was coming off an EIR gig at a well-known venture fund ended up joining one of my portfolio companies part-time as a technical advisor / interim CTO. We were glad to have him, but I was a little surprised that he wanted to take on this role. He made a remark that stuck with me:
“I think at this point, the best way for me to find a problem I can build a company around is to start solving other people’s problems.”
Often, the most interesting problems (and solutions) lie well beneath the surface. You might only uncover it by trying to solve an adjacent problem or by going through the process of solving a completely different problem. In either case, sometimes solving other people’s problems (as a team member, advisor, angel investor, etc.) ends up being way more illuminating than whiteboarding and doing cursory research into different sectors. Slack, for example, came out of solving another problem. It had nothing to do with the original product the team was working on, but was born out of the team’s desire to communicate and collaborate better.
#2: Pursue side projects.
I think a lot of founders do this already. Instead of thinking about THE Next Company, they set a much lower bar to try to build and launch something that they want to see in the world. My advice here is to get comfortable thinking of that next business as a side project and have a few of these going simultaneously. You can do this while you are solving other people’s problems or just to scratch an itch for yourself or someone you know.
This mentality is good for keeping the raw, early-stage muscles in shape, and sometimes these side projects actually lead to something much more substantial. In fact, one of our recent investments (not yet announced) came out of a founder’s side project that just became more and more interesting as the service got more traction. I don’t think the founder necessarily thought that this was going to be his next business when he started it, but he knew that he’d identified an interesting problem and had an idea of how to start solving it.
#3: Keep teams small and find an authentic co-founder.
Repeat founders are often excited to “get the band back together” or aggregate talent. They assemble what looks like a dream team — but one that ends up moving surprisingly slowly in the early stages. The reason is that the problem facing one repeat founder is multiplied with a larger group of folks who all have ideas, preferences, and baggage around their last company. I generally think that repeat founders have more luck finding their next company when they work by themselves or with one other person to experiment with ideas.
Along the way, if you are going to augment the team, it might make sense to go out of your way to bring on a co-founder that has a completely different background, but ideally one with very deep domain or personal experience within the industry you are honing in on. It may be tough for a repeat founder to have the same level of authenticity about their second business as they did about the first, but they might be in a much better position to bring on someone amazing in the field they are targeting that does have that authentic background. As the company progresses and you have figured out what you are building, it then makes more sense to expand to the broader dream team. But I find it definitely hurts to do it too early.
What’s consistent with all of these ideas is that you can’t force yourself to start a new company.
Most repeat founders know this, but they unconsciously put themselves into a situation that is contrary to this fact. EIR programs are a weird version of this (and I believe they’re broken). Some firms do EIRs really well, but generally, they create a strange moral obligation and timeline to start a business that fits into a particular mold (that of the VC-fundable company). That may be what a founder ultimately wants to do, but I don’t think it’s particularly helpful to constrain yourself at the outset or to feel like there is an artificial deadline looming.
Companies are all different, and founding stories are a strange alchemy of timing, insight, opportunity, and luck — all things that are hard to force into any sort of mold.