Great article, and a big improvement on the loud debate we've been hearing in recent comments. When you look at the basic points, pg and Ryan Carson and Mark Suster actually agree with each other. But a big debate gets fired up because of semantics (different views around meaning of "cofounder", extremist statements like possible/impossible). Perhaps the biggest source of friction is that most people don't write as carefully as pg.
In contrast, this write up is really balanced. He's acknowledging there's a grey scale of what's possible depending on your situation, and gives a lucid explanation of the benefits of cofounders and/or a strong initial team.
I don't know why "being an entrepreneur" is used interchangeably for "attracting venture capital" so much. Solo entrpreneurs might have more difficulties attracting VC, but it's generally much easier for them to sort out their issues in a growing company. How many startups have blown up because some co-founders left / changed their minds / caused conflicts?
This is an important point that's lost on a lot of people. Raising capital and building a great product are two separate actions -- and being good at one means nothing to the other.
It's especially important to note, because raising capital means fitting investors' checklists, which in some ways will always be arbitrary. They don't have a magic formula because there's no magic formula to have.
So that leaves a large number of "moneyball" companies, which like Jeremy Lin, weren't given a fair shot because they didn't have "the look" (sole founder, female founder, etc.). And if you fit in that group and haven't received funding, don't change yourself to fit the mold, show your greatness and leave the mold in pieces.
However, on the magic formula bit, I do highly reccomend beginning investors read Joel Greenblatt's book,"The Little Book that Beats the Market", in which he outlines the "magic formula". www.magicformulainvesting.com is the associated website with it. The magic formula basically sorts the US public investing universe by return on capital (EBIT / (net fixed assets + working capital)
), and earnings yield (EBIT/ EV).
I do believe following the formula will likely outperform the S&P500 if your time horizon exceeds 3-5 years. Same goes for most proven value strategies, such as buying baskets of low P/E, low P/B, high piotrosky f-score, or net-net baskets.
Agreed. Also understand VCs are marketing what works best for them and what they see working for them - mainly so they can attract those people making their job easier. They're creating a bit of a facade for themselves that risk will be less; It's true though that 2 people can get more than 2x the work done than 1 person can, though a single person managing other people well - it just happens at the smaller budget size of startups the cost of an added profit margin that gets added on (plus other difficulties that arise) to outsourced labour, can be substantial.
Agreed. And I'm also not sure why building a VC-fundable business is used interchangeably with building a business that rewards the founder(s). I've seen a lot of exits of VC-funded companies where founders received little more than a rich employment package.
But the largest return I've seen for a founder was a solo founder who raised no capital at all.
Has anyone run the numbers on tech company founder ROI across funding type and amount yet?
I like how the title claims to explain how to found a business solo and then does nothing but explain different ways to build your team, why investors care about the team, blah, blah, blah. You aren't explaining how to build a business, you're just taking about different ways to assemble a team.
I think that you hit it on the head and this is what took me eight years to realise. Growing the business is about building the team.
I always thought it was about great product, great design about moving mountains myself. It took me far, far too long to register that while you need all of those and you can certainly build a business solo, the key to growth is in creating a team. This is true on many, many different levels.
Growing and building are different things. You're conflating them. A lot of solo entrepreneurs want to build a small lifestyle business, not a team, they don't want to grow it. A lot developers would kill to have a successful app that's just big enough to replace the need to work for someone else, and small enough to not require anyone but him to run it.
You're right in that growth per-se does not of course need a team. What I should have said was high-scale growth.
It is of course possible that to some degree, even high-scale growth can happen without team but I think the most sure-fire route to it is by building an amazing team of talented people.
Sure, an amazing team is great if that's what you seek, but you're still assuming growth is the goal of building a business; I'm trying to say it isn't. Building a biz and growing one are different things, but I see you did edit your original statement to remove the inconsistency, so nevermind I guess.
and this article makes that point pretty well. It might not say it explicitly, but by the end of the article that's the message I got.
I've been guilty myself of looking for the "solo-founder how-to" guide. Like the person above, inevitably I was always disappointed because none of the answers said what I wanted them to say.
What's your point? There's a difference between co-founders and employees, and there's a difference between a company with co-founders and employees and a company with a single founder and employees.
My point is that the title suggests that the content of the article explains how to build a business as a solo founder. So I would expect that it talks about things you should do to get your business going overcoming challenges, etc. that are unique to a solo business owner. Just going on about why a team is important and how to build it seems almost the opposite of what the title suggests.
Conventional wisdom is that you have to have cofounders. I was interested in reading an article describing running a business solo. This article did not do that. It basically reads: Don't have cofounders? That's okay, you can hire them. But whatever you do you shouldn't try to run a business by yourself.
That does not explain how to start a business as a solo cofounder. It's basically like writing an article with the title "You can read with terrible vision" and then writing an article about why you shouldn't try to read without getting glasses to improve your terrible vision first.
No matter how independent you may be, consider this: optimize for personal gain vs risk. Sometimes that means letting go of control.
I know of a former public company CEO who, rather than being forced into taking an 8-figure cash golden parachute for stepping down yet retaining his stock, chose to buy his way up to a majority stake with his own capital. Macro forces soon took the company to bankruptcy.
In my experience, one driven, completely bought-in and trustworthy cofounder with a business and sales background instead of engineering can make all the difference in the world. To be in business, not just raise money and spend it, you need someone who thinks about revenue and sales the way you obsess on technology. To retain this kind of person, he/she is going to have to be a real owner the same way you are and live and die with the business.
A stock plan vesting over X years, allowing for the usual dilution and acceleration clauses, along with very substantial part ownership: somewhere between 1/3 and just under 1/2 of the original shares, is what "co-founder" means to me. An idea and even a MVP demo are useless without sales, marketing and operations if you actually plan to run a business.
However, if you get too many high stakeholders you will probably have enough negative attributes collectively that nothing will ever get full buy-in, and worse, you risk creating factions in leadership.
"Product and revenue can trump co-founders in the eyes of investors"
I think this is the shining star of the post for solopreneurs. I'm just getting started starting up, and I'm going solo. What gives me hope is that, if the product is good and people actually pay for it, then cash will still be king, and investors will come.
I'm building a project estimate and client approval app. It's in open beta right now. All feedback is super appreciated!
This was helpful. I'm in a solo position right now and I'm also not a developer. I have a great idea (according to potential customers), but I don't have the knowhow to make it right now.
This article was helpful in giving me hope that I can build something with the right people (which is what I expected, but you hear so many different stories).
Nice essay, a much more nuanced thought process about the single founder issue. I definitely agree the way to take on staff as a single founder is to start lightly and go deeper later - a 3 month contract is perfect, and makes hiring/firing much less crazy if there is a limited relationship in the beginning.
In initial days start as a solo entrepreneur that way it gives you freedom to work, better cash flow and it let you judge your dedication towards your venture.
In contrast, this write up is really balanced. He's acknowledging there's a grey scale of what's possible depending on your situation, and gives a lucid explanation of the benefits of cofounders and/or a strong initial team.
Nice work.