Super Founders - Book Summary

Unlock the secret recipe behind billion-dollar startups

Everywhere you look, you'll find popular myths about what it takes to create a startup that blossoms into a billion-dollar behemoth - the rare and wondrous "unicorn" in the business world.

You've probably heard the tale of the Ivy League dropout who achieves success, just like Mark Zuckerberg. Or perhaps you're familiar with the theory that suggests a unicorn requires the perfect balance of technical wizardry and visionary inspiration from its co-founders, much like Apple.

Yet, the surprising truths unveiled from a collection of over 30,000 data points gathered since 2017, paint a strikingly different picture. Instead of an army of college dropouts, it is the PhD holders who prevail in the founder category. Only a scant 15 percent of unicorns sprung from the seedbed of an accelerator program - a far cry from the conventional wisdom. And topping it all off, numerous billion-dollar ventures were born not as pioneering initiatives, but as refined iterations of ideas that previously flopped.

So, what's the real magic behind successful startups? You're about to find out. From the unsung advantages of bootstrapping, to the risk affinity of venture capitalists, and the most potent predictor of startup success — we're about to deep dive into a world that'll shatter your presumptions and enlighten you on what truly catapults a startup into the starry realm of billion-dollar valuations.

Debunk the startup myths and pave your path to success

When the term 'successful startup' is bandied about, images of Mark Zuckerberg birthed Facebook in a university dorm room or Steve Jobs crafting the blueprint for Apple in a nondescript garage, often flash in our minds. However, such narratives can potentially deter budding entrepreneurs who might question their intellect because they didn't attend a university as prestigious as Harvard or feel they've missed the entrepreneurial boat due to their age.

So, let's unravel some of these deep-seated myths.

Tamaseb's research indicates that age is irrelevant. The median age of billion-dollar company founders was thirty-four, not some precocious early twenties. Moreover, unicorns helmed by older founders, like Eric Yuan who was forty-one when he founded Zoom, are abundant.

Another commonly held belief that needs dismantling is the undue emphasis on having co-founders. This precept has rooted itself so firmly in the Silicon Valley ethos that some venture capitalists will shy away from investing in solo founders. The perceived logic suggests that two brains are superior to one and can split the workload. However, Tamaseb's data revealed that 20 percent of unicorns were birthed by lone founders. Consider this - power tussles and disputes over the company's vision, frequent pitfalls for startups, simply don't exist when there's a single helmsman steering the ship.

Anecdotes of university dropouts like the founders of Facebook, Dell, Wordpress, Snapchat, and WhatsApp achieving astronomical success, have painted a misleading image. In reality, they are the exception, not the rule. A whopping 36 percent of unicorn founders held a bachelor's degree, 22 percent had an MBA, and approximately 33 percent held other advanced qualifications. Similarly, the elitist belief that founders must come from Ivy League colleges like Stanford, Harvard, and MIT is erroneous. An equal number of unicorn founders graduated from institutions that didn't even crack the top 100 national rankings.

In essence, age, educational background, and the number of founders are poor predictors of a startup's triumphant trajectory.

Tamaseb, however, unearthed a potent predictor of success. About 60 percent of unicorn founders had previously embarked on startup journeys. Their past endeavors, whether successful or not, provided them with valuable industry contacts, from whom they could recruit employees and attract investment. More crucially, they likely learned invaluable lessons from their missteps.

Most unicorn founders were natural-born creators. Long before they set foot on a college campus, they were drawn towards invention. Case in point - while still high-schoolers, Mark Zuckerberg and his friend Adam D'Angelo collaborated to create Synapse, a desktop music player. Although they passed up an offer to sell their application, they both charted paths to great entrepreneurial success - D'Angelo founded the billion-dollar enterprise Quora, and Zuckerberg, as you're aware, catapulted Facebook to global prominence.

A brilliant idea thrives on need, passion, and adaptability.

Having recognized that previous entrepreneurial endeavors enhance the likelihood of future triumph, let's delve into the crucibles of setting up a successful company.

Contradicting popular perception and hopeful daydreams, brilliant startup concepts rarely manifest as sudden epiphanies. More commonly, they're the fruit of an arduous process of ideation. Many unicorn founders strategically select a market segment or trending niche, then focus on addressing a problem within that realm.

Venture capitalist Erik Torenberg offers straightforward strategies for idea generation: address a problem that profoundly concerns people, akin to what Tinder did for the singles community. Unleash a dormant asset, like YouTube did with user-generated content, or Airbnb did for wanderers. Alternatively, venture into a sector so mundane that it deters most others, much like Flexport did in the freight shipping industry.

However, a successful venture isn't merely the offspring of a brilliant idea. It's the offspring of blending an opportune idea with an indomitable sense of purpose. Launching a startup is a monumental task, and the journey ahead is laden with challenges. Therefore, investors often prefer mission-driven concepts. A founder fueled by passion is better equipped to weather the inevitable storms.

Another vital trait for entrepreneurial success is the ability to pivot - a good number of unicorns actually metamorphosed from an entirely different idea.

Stewart Butterfield, a co-founder of Slack, is a maestro of the pivot strategy. Years before Slack, Butterfield had initiated Neverending, a gaming company that failed to take off. However, its photo-sharing component did. They metamorphosed into Flickr, which was eventually acquired by Yahoo for a staggering thirty-five million dollars.

In the tech industry, the ability to pivot is valued, as it demonstrates the founder's flexibility and dedication to seizing opportunities. Rather than clinging emotionally to their initial vision, successful entrepreneurs swallow their pride, acknowledge when an idea is floundering, and adapt before their resources deplete.

Despite numerous success stories born from a pivot, it's crucial to understand that pivoting is a final resort to rescue a failing company. Pivoting implies discarding years of effort and gambling with the trust of the team and investors. However, in some instances, this gamble is more favorable than abandoning ship.

Remember that satisfying customer needs trumps adherence to the original idea. If a strategy isn't yielding results, be attuned to market signals and be willing to course correct.

As we transition towards teams and investors, it's worth noting that successful founders rarely fly solo. In fact, a majority of venture capitalists scrutinize a company's team thoroughly before injecting capital. In a survey conducted by Stanford Graduate School of Business, 53 percent of investors indicated that the team is the primary factor in their investment decisions. Consequently, wise founders construct stellar teams, luring top talent with appealing job titles and competitive remuneration.

Market comprehension and distinctiveness: the magic duo.

Rewind to 2012: cryptocurrency was hardly on anyone's radar. Bitcoin, a mere four years into existence and valued below five dollars, was a novel idea unfamiliar to most. Yet, Brian Armstrong and Fred Ehrsam, the masterminds behind Coinbase, spotted a potential goldmine. At the time, Bitcoin acceptance was limited, and transacting with it demanded substantial technical prowess — a hacker's paradise. Armstrong and Ehrsam predicted an eventual surge in everyday users needing a secure platform to store and trade their coins.

The growth trajectory of Coinbase can be attributed to their meticulous compliance with government regulations, simplifying Bitcoin transactions for everyone. Their triumph was the result of targeting a market with tremendous growth potential — albeit low present demand — and carving out a unique space for Coinbase.

Interestingly, however, over 60 percent of unicorns adopt the opposite strategy — vying for markets with existing robust demand. Amazon epitomizes this approach. While books weren't a groundbreaking concept like Bitcoin, Amazon redefined the age-old book market with innovative technology.

So, which strategy guarantees higher profits — pioneering a fresh market or wrestling in an established one? Though investors lean towards market-creators, data from Tamaseb indicates that unicorns operating in established markets commanded slightly higher valuations than the market-creators — $4.9 billion versus $4.5 billion, to throw in some figures. Despite a larger number of unicorns competing for market share rather than creating new markets, startups in Tamaseb’s randomized sample reflected similar trends. The verdict? Neither approach holds a definitive edge.

What unquestionably creates an impact is a company's ability to distinguish itself from the competition. Startups like Airbnb and Snapchat provide markedly distinct customer experiences compared to their counterparts in the same field. Fascinatingly, Tamaseb found that only 40 percent of startups in his random sample were highly differentiated, while among unicorns that number escalated to nearly 70 percent. A standout idea not only catches attention but is also instrumental in persuading customers to experiment with a new product.

Another competitive market advantage involves creating "painkillers" instead of "vitamin pills." While painkillers target and alleviate a customer's pressing need — like Tinder did for singles, vitamin pills seek to enhance customer value or amusement — typified by BuzzFeed, Snapchat, and TikTok.

Tamaseb’s data reveals an intriguing insight here. Among his unicorn sample set, around a third created "vitamin pills." In contrast, the random sample registered over 50 percent "vitamin pills." Hence, "vitamin pills" are less likely to reach a billion-dollar valuation.

This is not to say that "vitamin pills" are inherently flawed — who wouldn't appreciate a little extra joy? However, sustaining them over the long run presents challenges. Unlike customers seeking "painkillers" who actively search for a solution to their problem, "vitamin pills" face greater competition threats. Even if they initially succeed with entertaining, addictive products, the novelty often fades over time. BuzzFeed's recent struggles, marked by significant layoffs following dwindling revenues, underscore this reality.

Conventional wisdom isn't always the path to success.

The allure of innovation is hard to resist. There's a certain thrill to witnessing something unprecedented. Nevertheless, venture capital investors hold a contrasting perspective. It's not about the fascination of encountering something new, but rather the reluctance to back ideas that have previously fallen flat.

But what if those ideas flopped merely due to ill-timed implementation?

This brings us to General Magic. In 1995, they unveiled the first smartphone. A revolutionary concept at the time, but it flopped due to a subpar touchscreen and poor battery life. Furthermore, the world wasn't quite ready to be online all the time. Fast-forward to twelve years later: Apple launches the iPhone and the timing couldn't be more spot on. Similarly, Google wasn’t the inaugural search engine, and Facebook wasn't the pioneer of social media platforms. They merely revived old ideas when the timing was ripe.

Tamaseb's findings resonate with this story. He discovered no significant advantage between being a market trailblazer and repurposing previously attempted ideas. This underscores the daunting task of aligning with the perfect timing. Therefore, rather than fretting about the originality of an idea, it could be more fruitful to question, "Why now?" Are the technological prerequisites in place? Is there a ready customer base to engage? And crucially, what lessons can be learned from the failures of the past?

Warby Parker's response to "Why now?" was strikingly straightforward: glasses shouldn't be as pricey as a brand-new iPhone.

When Warby Parker emerged, they faced two imposing adversaries: Luxottica and Essilor, who collectively held sway over numerous major brands, including Ray-Ban and Oakley, and enjoyed a formidable 30 percent share of the global eyewear market.

The founders of Warby Parker discerned a golden disruption opportunity within this market. The dominant industry titans had inflated prices and were hindered by cost structures enveloping retail outlets and substantial licensing fees. Warby Parker, with their in-house design, direct-to-consumer sales approach, and agile business strategy, managed to undercut their competitors' prices by a whopping 75 percent.

Tamaseb's data affirms this David-versus-Goliath approach, revealing that over half of the unicorns dared to compete against industry giants. Instead of being impediments, these behemoths indicate a substantial and thriving market. And startups, unencumbered by antiquated legacy systems, are ideally positioned to disrupt and triumph.

Nonetheless, whether a startup is battling legacy corporations or fellow newcomers, it's imperative to safeguard their product. Venture capitalists are particularly alert to this aspect, as they wish to ensure that their investments aren't easily replicable by other companies.

Abundance of funding isn't a sure-fire ticket to success.

Tamaseb's research shows that 90 percent of the so-called unicorns were backed by venture capital. It's a seemingly perfect pairing: both VCs and startups are on a fast-paced race towards a billion-dollar valuation. Given the choice, most VCs would opt for a potentially colossal yet risky startup over a steadily growing yet low-risk alternative.

The logic behind this strategy is simple, although the math might be a tad intricate. Essentially, if a VC's investment in a startup tanks, they lose their capital — a predetermined amount. Conversely, if the startup soars, the possible earnings are infinite. For instance, when Facebook went public at a stunning $100 billion valuation, their VC benefactor, Accel Partners, made a whopping 300X return on their initial investment. While such returns are rare, they showcase the high-stakes game VCs are in.

However, securing heavy investment isn't necessarily the gateway to victory. Because, frankly, venture capital doesn't suit all businesses. Some ventures like Tesla need considerable funding due to their high-risk, capital-intensive nature. Others, like the video content platform Quibi, amassed over a billion dollars pre-launch only to close their doors six months later.

The crux is, based on the business model, it might be wiser to self-fund and verify the market viability of the company. For instance, consider Sara Blakely's brainchild, Spanx. Blakely started Spanx with a modest $5000 from her personal savings, never accepting any outside investment. For the initial years, she singlehandedly managed marketing, PR, and customer service. When Spanx achieved its billion-dollar valuation, Blakely still held complete ownership of the company.

Although Spanx turned profitable early, running a company on a lean budget offers invaluable lessons. A capital-efficient model is beneficial for both founders and investors. It helps attain substantial returns on minimal investment, averts dilution and consequently increases the profit for all stakeholders.

However, steering a capital-efficient venture demands creative solutions. Take Stitch Fix, for instance. Katrina Lake, while studying at Harvard Business School, conceived a personal shopping startup, meant to curate and sell clothing based on individual customer style. Despite successfully securing seed money, Stitch Fix struggled to raise funds in later growth rounds. This pushed Lake to adopt a frugal approach: running the business on Google Docs and Excel, processing orders manually through interns, and speeding up the product movement cycle. Concurrently, she prioritized hiring ace data scientists, thereby transforming Stitch Fix into a magnet for talent. This cash-crunch forced the company to strive for early profitability and subsequently led to a deep understanding of their business economics. When Stitch Fix went public at $1.6 billion, Lake etched her name in history as the youngest female entrepreneur to do so.

Summing it all up

That was a brief snapshot of Ali Tamaseb's Super Founders. So, what's the crux of this intriguing study?

The dazzling success of iconic companies like Apple and Facebook might suggest a universal blueprint for triumph. However, numerous other startups have carved their distinct routes to the pinnacle. Despite the myriad of Silicon Valley fables, Tamaseb's data-driven insights reveal the authentic precursors of a unicorn success story: lofty ambitions, a robust knowledge of the marketplace, and prior experience in startup ventures.