My previous article, Startup Myths Debunked, seemed to attract quite a bit of attention in the developer community. In particular, people who left comments seemed to agree with “Myth#3: I need a partner”. Paul Graham who is one of the more influential voices in the startup community recently wrote an article titled “The 18 Mistakes That Kill Startups” and apparently thinks otherwise. Weighing in at mistake #1 on his list is “Single Founder”.
I hope that Paul reads what I have to say and rethinks his stance, or at the very least clarifies that what he means does not apply to all startups. Let’s take a look at this.
Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more. It seems unlikely this is a coincidence.
To recap where the Oracle reference comes from, in my article I had pointed to Oracle as having one founder, and one of the first comments on my blog was a correction. Paul Graham alluded to the same correction, having probably read the article himself. I did some further research, and it turns out that I was incorrect. Larry Ellison did indeed have a partner named Bob Minor. In fact, my research showed that Oracle had four co-founders: Larry Ellison, Bob Minor, Ed Oates, and Bruce Scott. My apologies.
After finding that I had been incorrect, I delved deeper to make sure that my other examples of Michael Dell and Thomas Siebel still held true. Thus far, they have held up to additional scrutiny. If anyone else has corrections to these examples, please let me know via comments or the contact page.
In any case, I agree with Paul that given the statistics, it seems unlikely that this is a coincidence. So why are so few successful startups founded by just one person? My examples seem to indicate that it is possible to succeed, but why is the figure so lopsided with multi-founder companies holding the lion’s share of the success stories?
One Word: Funding
I believe the answer lies with where these companies get their funding. Paul Graham’s Angel Investor group called Y Combinator refuses to work with individuals. I suspect that most VCs probably feel the same way and refuse to fund a company with only one founder. Neglecting their reasons for operating this way, the most popular way to fund a startup, historically, is through Angel Investors and VCs. If Angels and VCs requirements for funding a company also require co-founders, then it stands to reason that the majority of startups will have more than one founder. This only perpetuates the myth that it cannot be done, or is excessively rare.
It’s not an absolute fact that angels and VC’s refuse to fund single founder companies, but is generally accepted as such. I’m sure there are exceptions to the rule in other angel groups, but Y Combinator flat out refuses to work with individuals and they are arguably more well known to developers than any other angel investor group. Paul has such a wide reach with his writing, that it’s difficult to believe that he has less market share than anyone else. So on one hand, Paul asks the question as to why so few successful startups are founded by one person and on the other, he and his Angel group refuse to fund single founder companies. I would think that the reason there aren’t more single founder companies would be self evident.
A contributing factor to this phenomenon is the fact that single founder companies are forced to find alternative forms of funding. Thomas Siebel was lucky enough to be on the sales team at Oracle from 1984 to 1990. After that, he was the CEO of Gain Technology and after only 3 years, the company was sold for $30 million. I’m told by a serial startup executive that CEOs of startups take in around 5% of the sale price when a company is sold. That means Siebel made somewhere around $1.5 million when Gain was purchased. Even after taxes, that’s plenty of cash to fund your own company and fast track it in the early stages with employees rather than co-founders.
Most single founder companies are not quite so fortunate. They have to fund their company using much more creative means. Without hundreds of thousands of dollars in the bank, they must watch their spending far more than well-funded startups do and can’t hire on a whim. Having started three different companies myself and worked for three more “conventional” startups (startups with Angel or VC funding), let me clue you in on the difference. Conventional startups have money to burn and are willing to burn it, trading dollars for fast growth. As Paul Graham points out in Mistake #13, VCs want their money to go to work, and that means spending it. On the other hand, self funded companies have all of their eggs in one basket and cannot afford to burn money indiscriminately because they need to be sure the steps they are taking are going to pay off, both short and long term. This means that unless the founder had money to begin with, the self funded company is forced to grow in a much slower, much more controlled fashion unless they’re willing to take substantial risks.
Contrast a startup company that hires dozens of people within the first few months with a self funded company that adds employees only when the current business can support that growth. The result is another condition that contributes to the seemingly skewed statistics whch appears to indicate that single founder startups can’t make it or are far less often successful than multi-founder companies. Angel and VC funded startups are given X dollars to get the company going, ramp it up as quickly as possible and sell it (or have an IPO). Self funded companies don’t have wads of cash in the bank to trade for the ability to build the business faster without accepting the significant risks that operating at a loss every quarter entails.
Guess who else noticed this fundamental difference between highly funded companies and self funded startups? Joel Spolsky. He wrote a fairly detailed analysis of this phenomenon back in 2000 with his articled titled “Ben and Jerry’s vs Amazon“. (If you haven’t read it, I encourage you to do so. It’s a very good read.)
Reasons You Might Wind Up Doing It Yourself
Let’s dig further into what Paul says about single founder companies.
What’s wrong with having one founder? To start with, it’s a vote of no confidence. It probably means the founder couldn’t talk any of his friends into starting the company with him. That’s pretty alarming, because his friends are the ones who know him best.”
Hmmm… Perhaps sometimes this is the case, but certainly not always. I can think of half a dozen other reasons why a company might have only one founder. All of them are plausible and I don’t see any reason why they would be uncommon for single founder startups.
1) The founder already had enough money in the early stages, thus enabling him to hire employees instead of trading equity for co-founders.
2) The founder might have had a bad experience in the past with a partner, or seen someone who did.
3) The business is making enough money to support the founder (and thus his family) but not enough to support another founder.
4) The founder has no interest in taking on partners because his aspirations are not to build a huge company.
5) None of the founders’ friends or former co-workers are qualified to be a part of the company.
6) The founder is contractually bound to not solicit former co-workers.
In fact, with the exception of the first reason, every one of these reasons applies to myself and Moon River Software. It has absolutely nothing to do with having friends I couldn’t talk into joining my company. I’ve considered hiring two different developers who I knew on a personal basis and declined to hire both of them, for different reasons. I have a friend who has an MBA, was best man at my wedding and I was best man at his, yet I would not hire him at this time because he doesn’t have experience in the software field.
Number 1 is beyond the control of most people unless they inherited wealth to begin with or managed to sell off a previous company, as in the case of Thomas Siebel. I would imagine that numbers 2 and 3 are probably very big issues for many single founders and are probably more common than some of the others. Number 4 is not as atypical as it might sound. Look no further than Thomas Warfield for someone who is extremely successful, has only one employee who basically helps with support and order processing, and who has publicly stated he has no intentions of growing bigger. I read somewhere that during the Super Bowl one year, he didn’t get an order for 15 minutes, which was the worst he did all year. Let’s see, $25 X 4 copies/hour X 24 hours/day X 365 days/year = $876,000/year. Not bad for a single founder if you ask me.
Number 5 is a sticky point, and can be a bit subjective. Are these friends not qualified because the founder is too arrogant to think they can do a good job, or are they really not qualified? For me, an additional wrench is thrown into the equation. Because of my somewhat older age, even if I knew someone who I thought was qualified it would be difficult for me to convince my friends, who are of a similar age, to move their families to Massachusetts. In addition, having only moved to Massachusetts in 2003, I have virtually no friends in the state outside of the acquaintances of my wife, former co-workers, and fraternity alumni (most of whom already own their own businesses, I might add).
Number 6 is an issue for any founders who worked in startups recently, including myself. Sure I’ve lived in Massachusetts for the past several years, but during that time I only worked at Pedestal Software, since acquired by Altiris and with whom I’m contract bound to not solicit for employees.
Going it Alone
But even if the founder’s friends were all wrong and the company is a good bet, he’s still at a disadvantage. Starting a startup is too hard for one person. Even if you could do all the work yourself, you need colleagues to brainstorm with, to talk you out of stupid decisions, and to cheer you up when things go wrong.
I’m not going to be too hard on Paul for this one. I believe he has good intentions and is doing his best to talk some good developers out of trying to make a go of it alone because it really is hard to do everything yourself. That’s important to remember – it’s really hard to do it yourself. But for Paul to say “Starting a startup is too hard for one person.” is incorrect and misleading. I’m doing it now. Is it hard? You betcha. In fact, you could say that I’ve failed twice in the past both with and without a partner. But I learned a lot during those failures and learned a lot as part of the success of Pedestal Software. Having been in the situation before, I’d prefer to have no partner and have to do all of the work than have a partner who isn’t pulling his weight.
Paul acknowledges that even if you could do all the work yourself, there are other reasons for needing co-founders. Some of the things he mentions may be true, but do you need a co-founder to provide them for you? You can brainstorm with friends without forking over equity in your company. You can hire salaried or contract employees to work for your company, thus providing you with brainstorming partners. If you talk to friends and take time to gather information before making decisions, you can help prevent stupid decisions. Just remeber that having more people involved in no way prevents people from making stupid decisions. I’ll refrain from pointing to any number of failed companies *cough* Webvan *cough* as examples where an entire executive team blew spectacular amounts of money.
Staying cheerful when things go wrong is incredibly important in any startup company and is arguably where Paul has his most valid point. But again, thinking that the only place you can find this positive reinforcement is in co-founders is also inaccurate. As developers it is in our nature to solve problems, and treating your morale as a problem to be solved is no different, whether you’re a single co-founder or whether you’re a multi-founder company. In either case, you will find it helpful to know in advance what sorts of things affect your morale and how.
Personally, I do a couple different things to keep my morale up. Due to the fact that my business is doing well enough financially, I keep track of my financials every single week in Quicken. It shows that the things I’ve done that week have made an impact on my corporate bottom line, and I can quickly see how much of an impact. Every time I’m able to show my cash on hand increasing, it’s a morale booster. And when things get tough or don’t seem to be going my way, I’ll treat myself to a few video games which are challenging, but winnable. One of my favorites is to play Command & Conquer: Generals on an 8 player map playing 3 vs 5 with myself on the lean end. It turns out to be challenging enough that a victory shows that I’m not a strategic moron and should get back to work. After reviewing my failures to help me avoid them in the future, I focus on my victories, no matter how small and the things that I’ve learned from the experiences.
Not letting people down is definitely a significant motivating factor, but it is easy to replace a co-founder with someone else to obtain that motivation. As a married man, not letting my wife down would be more important to me than not letting down the co-founders that I don’t have. By staying in business I stay happy, and my wife is happy that I have a career I enjoy.
The one person that drives me to succeed more than anyone else is me. I’m more afraid of disappointing myself and not reaching my goals than anyone else. And guess what? My goals keep changing and increasing. Eventually I’m going to have to lower my sights because I keep raising the goal, which drives me even harder. My wife describes me as the most driven lazy person she knows.
With my business I’m driven to the ends of the earth to succeed. If Moon River Software fails, it will be because I’m dead. On the other hand, I’m too lazy to mow the lawn, clean the house, do laundry, fix things around the house, etc. I pay people to do that stuff so that I can work on my business instead. And you know what? It’s well worth the money. The value of my lawn will not increase nearly as much as the value of my business over any period of time. This principle is described in the book “The Millionaire Mind”. It’s a matter of priority and being able to get ahead. It’s not a matter of laziness.
On another weblog, I debated the topic of single founder companies with someone who claimed that you couldn’t run a company alone. After arguing a little bit, we realized that what the author had really meant was that you can’t truly run a company alone without delegating any of the tasks or hiring employees. While I don’t discount the difficulty of running a business without delegating anything, I don’t believe it would be impossible. It would just be far, far more difficult and time-intensive to do so. This is entirely different than being a single founder.
I hope that you’re now convinced that it is not only possible, but reasonable to become a single founder of a startup and be successful at it. If not, I invite you to leave feedback and comments.
Special thanks to Rob Walling for reading drafts of this article.
Update: One of my readers contacted me and pointed out that Siebel Systems had another cofounder named Pat House and cited not one, but two references to back that up. Direct from the first link to InformationWeek.com:
“The company, funded entirely by its employees, launched its first application suite in 1993. By 1997, revenue was $206 million, and many of its original competitors–companies such as Brock Control Systems and Sales Technologies–had disappeared.”
It would seem that they were entirely self funded, which fits with the first of my six reasons for starting a company without a partner. Still, labelling Pat House as the cofounder of Siebel Systems bothers me. If she was really a cofounder, why is the company named after only Siebel? It would seem that it wasn’t an equal division of ownership, which doesn’t particularly surprise me. My best guess would be that Siebel had the money and asked Pat House to leave Oracle and take a chance with him so that Siebel could keep up on what had been going on at Oracle the previous three years.
In my eyes, this begs the question of what exactly constitutes a cofounder? If a cofounder defaults to your first employee, then by definition, no company of more than one employee can have a single cofounder. What if the “cofounder” owns less than X% of the company, where X is a number between 0.000001% and 49.999999%? Where is the line of being a cofounder drawn? Using that as a basis for the argument, one could say that I was a cofounder of Pedestal Software, since I was granted stock options and thus held some ownership of the company. To me that doesn’t make sense.
Similarly, if we base it on time with the company, if you hired an administrative assistant on day one, that hardly qualifies as a cofounder of the company.
Unfortunately, this starts to take us down the path of defining what a cofounder is and is not, which is not the path I wish to explore. I still maintain that it is possible with a lot of hard work to be a single founder and be successful. Perhaps not with Angel/VC funding due to their requirements for cofounders, but it is still possible.