Startups are an act of desperation
Startups are hard. For the first few years of a company, forward momentum is largely due to founders pushing every day. The weight of the company rests on their shoulders - including the financial well being and success of everyone they hired and the promises they made to their customers and investors. Founders often sacrifice aspects of their person life for this work. Given that startups have a high cost to doing them[1], most great startups tended to have been an act of desperation by the founder.
Usually there are a few forms of desperation. Each founder tends to have a mix of the below in different ratios.
1. Career desperation. Startups allow people early or stuck in their careers to jump a few steps ahead. Even if not successful, a startup may allow you to:
Hire and manage others if before you were an individual contributor. You can learn management skills as a founder. If the company scales you will learn to hire and manage managers and executives.
Learn valuable new skills you would not be exposed to otherwise - sales, finance, fundraising, budgeting, PR, marketing, etc
Build a network you would not have otherwise. You will broaden your industry network, meet customer or peer CEOs or executives, VCs, press, and others.
Get new opportunities. You may get opportunities to angel invest or advise other companies.
Acquired founders often come in at a higher level in an organization than if they had been hired out of their prior job. For example, a founder may come in as an engineering manager or product director, since they have now managed people via starting a company.
Many of the benefits of a startup in terms of learning are not as strong for people later in their career who are already running large organizations or teams. While startups often offer unique learnings to anyone who starts one, the value and extent of those learnings and opportunities may be less important for people later in a successful career.
2. Financial desperation
If successful, a startup will also leap frog you financially. To use round numbers - if you are making $200,000 a year and have a successful exit that makes you $5 million, you just collapsed ~25 years of work into 2 to 5 years (most companies that exit tend to do so in the first few years). If you make $20 million, you will have made 100 years of money. Obviously, your salary would have gone up over this time period, so this is imperfect but gives a sense of potential financial acceleration. Of course, through the lens of expected value, these numbers look worse as traditionally there has been a high failure rate to startups. An alternative is to join a promising mid-stage company instead, and take on less risk while still potentially earning a decade of salary in a shorter period of time if that company you join proves successful.
As an example of partial financial motivation-Airbnb, was in part started so the founders could make rent. Obviously Airbnb also had a larger, world changing vision of empowering hosts and travelers. But capitalism works because money is motivating.
3. Product or mission desperation
The other reason startups often exist is the founders are desperate for a product to exist in the world. They have either experienced the pain of the incumbents directly, or wish something existed in the world that they themselves would want to use. This form of product desperation sometimes drives amazing outcomes. Similarly, some founders may be true believers in a mission, and their desperation is to impact the world in one form or another. Bitcoin and Ethereum are good examples of both product and mission desperation leading to outsized products and impact.
4. Desperation to do something big or important, and to avoid wasted time
Some people want to “make a dent in the universe” and are motivated by doing something useful with their lives. They want to prove to themselves (or their families, or to someone who impacted them in their lives) that they can do something important and leave behind a legacy.
Being on universal basic income (UBI) at big tech may not feel like much of an actual accomplishment, particularly if all your launches get blocked due to internal risk-aversion. Impact-ambitious people want to focus on impactful things. Status-ambitious people want to move up the chain of command in a high status organization. This self sorting explains a lot of who works at what sorts of companies.
5. Revenge vs the Arena
A meme in tech circles right now is to back “revenge” founders. These are founders who had their startups taken from them in one form or another. According to this meme, the “revenge startup index” would include founders like Parker Conrad (Rippling), Palmer Luckey (Anduril), and Travis Kalanick (Cloud Kitchens) - who have seen successes in the past as well as had a public blow back, but still have a chip on their shoulders to do big things.
While I am happy to be a seed investor in two of the three (Anduril and Rippling), I think the “revenge” meme is overly simplistic (although quite pithy, hence the meme). These examples to me are about driven people who still want to do something big and impactful and have the will and tenacity to build despite having gone through a trial by fire before with lessons learned.
In general, desperate founders of the various types listed above in 1-5 remind me more of Theodor Roosevelt’s “Man in the Arena” quote than of revenge.
The situations are obviously not all comparable to above - but when you read the biographies of people who have pulled themselves up from poverty or despair, they often have this relentless “In the Arena” drive. See e.g. the background of Oprah Winfrey and her many entrepreneurial endeavors (impressive AF). In general, you need an “Arena” mindset to build something massive.
It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat. - Theodor Roosevelt
Serial entrepreneurs and desperation
Second time founders (particularly with middling to small exits) tend to have the highest hit rate amongst founders overall. They understand product/market and go-to-market matters, they know how to hire for a startup and drive a scrappy team forward. Startup basics are much easier the second time around.
Sometimes desperation can act against a second time founder. For example, if someone has started a successful startup in the past, they can be desperate to do something even bigger the second time around. Second time successful founders often second guess themselves and worry too much about starting something “big enough”. Serial founders sometimes may never try the small, weird ideas that often turn into the biggest companies.
Lack of desperation means lack of startup
One of the reasons you rarely see a MAMAA (Meta, Alphabet, Microsoft, Apple, Amazon) VP or above start a company is the lack of desperation. They have already “made it” career wise and financially, and there is less of a need to take risk. Indeed, there is enormous opportunity cost to starting a company, as well as stress, lack of leverage, and pain. It is irrational for VPs at big tech to startup a company. Why start a company when you have a large salary, lower risk job, high societal status, and the perception of impact? Why start a company when not desperate? It is irrational to do so.
If you do not have either form of desperation, a startup may become a vanity project, or lack the Darwinian function to force it into a useful for some customer. The last few years have seen desperation flee the startup ecosystem due to easy money, low perceived risk, and lots of secondary opportunities. As the macro environment changes, desperation is back rearing its ugly head, and causing great people to desperately accomplish great things again.
NOTES
[1] The last few years have been an aberration in the “startup as desperation” given how easily available secondary has been. Founders started taking money out of their companies by selling secondary stock as soon as the seed round or series A, which was uncommon prior to the COVID bubble era. This means even if a startup did not work people were cashing out millions of dollars in some cases. This early secondary has faded more recently for seeds with the changing macro environment, and pre-emptive rounds have decreased, stretching the time between rounds back out.
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