or Un-entangling Solo-Founders From The Shibboleths of Capital
After seven years of working in and around the startup world, watching scores of teams succeed or fail for various reasons, I'm convinced (like 85%) that the stigma that much of the startup world feels towards solo founders, a constant subject of conversation, is bullshit. With great people and an ever-expanding set of incredible business tools (visit tooltip.com if you need help navigating this complexity) more accessible than ever (this is also well-captured in this trends.vc piece on solo founders), the penalty imposed by investors on solo founders has never been as harmful or as wrong-headed as it is today.
After talking to dozens of founders and reading a lot about the subject here are the competitive advantages I see for solo founders:
- strong ear to the ground to customers' needs -> high product conviction
- lower risk of team blowups interfering with the mission
- larger professional networks on which to leverage themselves/seek answers
All in all, these three points suggest benefits to solo founders that seem well-aligned with startup goals: solve an important problem for customers while growing really, really fast. So why is it that investors and funds advertise the fact that they invest in teams vs. solo founders at a 9:1 ratio?
Solo-Founder / Potential Takeaways
Keep doing what you're doing. If you don't feel like you need a cofounder and are, in most cases, willing to suffer some speed-for-control tradeoffs, you're not crazy. It is more challenging for you to find investors that are willing to trust you with money because of long-standing myths about what it takes to run a startup.
There are plenty of successful solo founders, and the future has never been brighter in launching a successful and scalable solo-founded startup. Better people, better information, and better tools are the crux to making things succeed once you've found product-market fit.
There's a once-in-a-lifetime opportunity for solo-founder-focused startup funds.
Key-man provisions and premature concerns about corporate governance and control are likely seeing tons of solo-founders who, given some funding, could've found product-market fit fall by the wayside. The right fund with the proper infrastructure could help improve survival rates and maybe even exit outcomes.
This post is mostly a review of the literature based on a handful of surveys and anecdotal conversations, and readings online. Since they form the meat of it, here are the surveys:
- The first survey is from Noam Wasserman's well-titled paper, "The Kingdom and the Throne," which discusses tradeoffs in founder control and company value.
- The second is a 2018 survey of Kickstarter companies by Greenberg and Mollick 2017 that comes to almost the opposite conclusion and finds that solo founders are more resilient, generate more revenue, and show no notable performance gaps between solos and teams.
- Another survey, the version called the 2012 Startup Genome Project, arrive at solo-founders are more successful and are likely under-invested in. An out-of-business startup published it with a business model not dissimilar to ours
- 2020 survey of fintechs worldwide from Luisa Herck Giaquinto & Adriana Bruscato Bortoluzzo (2020) with "a sample of 2,524 companies across 76 countries over 2008–2018"
-Aleksander Giga in 2018 discusses why contributed capital by multiple cofounders is a predictor of startup success via a survey of 616 companies looking to fundraise from angel investors on EquityNet.
If you're starting a startup, you're going to need good people to work with you. You need to trust them, and they need to be well-incentivized to take risks with you and work hard. So, the story goes, if you have a friend interested in this type of stuff who likes money, you should convince them to help. But convincing people, if your friends don't have disposable income or risk preferences that require them to focus on priorities like childcare, rent, or having a high savings rate, can be fraught. Indeed, a significant body of research suggests that working for big companies and adjusting/tuning scale is a more stable and profitable career move.
The advice to find a cofounder can also seem misplaced unless you fit into a particular set of conventions about what investing in startups should look like. Some of the bias against the group emerges from risk-mitigation formulas that aim to reduce key-man risk and protect investors. But it's silly to think that most of what drives this decision-making isn't a false tradeoff imposed by venture capitalists in an attempt to minimize the chances that an investment implodes and leaves them empty-handed.
Accepted wisdom on solo-founders
Although this was rare among the sources this great Reddit thread, that trod much of the same ground as this post, and provided several good perspectives and the link to the Greenberg & Mollick Kickstarter survey.
Lets' start with a look at Paul Graham YC's perspective on solo-founders:
"*Persistence is Key* [...] 'I've been surprised again and again by just how much more important persistence is than raw intelligence.' This applies not just to intelligence but to ability in general, and that's why so many people said character was more important in choosing cofounders."
**Founders of successful startups talked less about choosing cofounders and more about how hard they worked to maintain their relationship. One thing that surprised me is how the relationship of startup founders goes from a friendship to a marriage. My relationship with my cofounder went from just being friends to seeing each other all the time, fretting over the finances and cleaning up shit. And the startup was our baby. I summed it up once like this: "It's like we're married, but we're not fucking."**
"*Be Careful with Cofounders*
This was the surprise mentioned by the most founders. There were two types of responses: that you have to be careful who you pick as a cofounder, and that you have to work hard to maintain your relationship. What people wished they'd paid more attention to when choosing cofounders was character and commitment, not ability. This was particularly true with startups that failed. **The lesson: don't pick cofounders who will flake."**
**Empirically it seems to be hard to start a startup with just one founder.** Most of the big successes have two or three. And the relationship between the founders has to be strong. They must genuinely like one another, and work well together. Startups do to the relationship between the founders what a dog does to a sock: if it can be pulled apart, it will be.
When I asked PG where I should find a cofounder I was expecting a mind blowing answer that would change the way I thought about startups. Instead he told me, "Think about your friends from college. Start a company with someone that you know and trust. But more importantly, someone you want to work with."
"It's not because startups require multiple different skills that it's a good idea to have cofounders. **The main reason you need cofounders is to share the weight of doing something so hard."**
"Cofounders will often talk each other into being bolder than either would have been alone.
This principle is way broader, and way older, than startups. This is hunting mammoths."
And, of course, in Startup Mistakes
1. Single Founder
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.
**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.
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.**
The last one might be the most important. The low points in a startup are so low that few could bear them alone. When you have multiple founders, esprit de corps binds them together in a way that seems to violate conservation laws. Each thinks "I can't let my friends down." This is one of the most powerful forces in human nature, and it's missing when there's just one founder.
YC's official communications echo this sentiment, albeit less directly, with the note that they choose to fund 1/10 teams of solo-founders.
Common Wisdom Summarized
At a glance, all of this seems sensible. People like their friends, startups are indeed tricky, and, fuck me, all of this is pretty humane advice. From my experiences flaming out, these case studies and surveys have a ring of truth that feels difficult to dispute. Other startup thought leaders also agree (and I owe you a citation for this, but trust me on it for now).
Much of the support provided by communities like Indieworldwide or high signal will go some of the ways to offer the esprit de corps and camaraderie that Graham alludes to as so essential for startups. Additionally, they also provide an extended network for knowledge access and swapping in a way that can be far easier to fish for information and access than the broader ocean of the internet.
One founder who reviewed this essay commented that they were skeptical of a more diffuse community's ability to replace a cofounder. To some extent, I agree with them. There are some things about the mystical-marriage nature of the cofounder relationship that aren't fully reproducible via other mediums. Still, much of the proof will be in the pudding as we see more and more successful companies emerge from online-first startup/solo communities where they will often find enough to help them find product-market fit.
Onto the surveys
An oft-cited statistic and the first footnote from Noam Wasserman's book The Founder's Dilemma says that 65% of startups fail because of cofounder disagreements, and would seem to be an argument in favor of solo-founding. Unfortunately, the statistic is based on a very small survey that appears to be an essential article in the business literature on venture capital. However, there are a CB Insights report on the top reasons startups go out of business listed four reasons for failure that would suggest that solo founders might be a strategic choice for many startups "disharmony among team/investors" (7%), "pivot gone bad" (6%), "burned out/lacked passion (5%). Gut says this research also understates the case against co-founders since so many of the post-mortems on which it's based are public and many of the other problems, with the exception of those that are related to listening to customers, are in a class of "money problems" that could be solved if the willpower was there.
There's several cool bits in Wasserman's book if you're interested in entrepreneurship as a categorization effort and process, and a few moments when I wish I were just looking at charts. The most romantic bit about cofounders is:
When God considers the ideal relationship between Adam, whom He has just created, and the spouse He is about to create, the phrase in the original Hebrew is Eizer K'negdo, "a helper against him." 16 While this seems self-contradictory, it captures a crucial aspect [...] of cofounding a startup: the development of a cohesive working relationship that includes opposition and the tension that arises from partners with different skills, experiences, responsibilities, and motivations
The anec-data above seems to agree with a lot of investor experience too. I'm still not actually convinced about this, but a 2012 report with a broader survey called The Startup Genome Project suggests that solo-founders are over-invested in, pivot less, and take longer to scale. Their set of surveyed companies seemed to match the group of online business interest here:
Total number of startups: 663
- Startups that were consistent with the Marmer stages: 334
- Startups that raised $50k+ funding (with specific amount disclosed): 104
- Startups that had funding but not disclose the amount: 108
- All startups were web startups
they also report in their takeaways that
11. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
12. Startups that haven't raised money over-estimate their market size by 100x and often misinterpret their market as new.
5. Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot. pg 49 for chart
Wasserman's larger survey of 6000+ private companies agrees that the firms have to entertain a tradeoff between rapid success and no success at all. Some interesting bits aren't worth going into here, you should read the whole paper if you're interested, but the conclusion about the hypothesis that the detrimental effects of founder control on valuation would increase over a startup's lifetime is right in the abstract:
On average, each additional level of founder control (i.e., controlling the board and/or the CEO position) reduces the pre-money valuation of the startup by 17.1–22.0 percent.
and in a survey of fintechs worldwide from Luisa Herck Giaquinto & Adriana Bruscato Bortoluzzo (2020) with "a sample of 2,524 companies across 76 countries over 2008–2018"
Our results do not reject the third hypothesis of the single founder negative influence on PE/VC funding. Team founders contribute to networking, skills, and industry knowledge, thus attracting investor attention (Stam and Schutjens 2005; Spiegel et al. 2013). Having a single founder, FinTechs are 40% less likely to receive PE/VC compared to team founders. Although the interaction term between the single founder and an emerging country is not statistically significant, it has a positive coefficient suggesting a weaker influence in emerging countries compared to developed economies as shown in Figure 3. charts on pg 15
One more on the high signaling value of having multiple cofounders, and why it might benefit teams over solo founders from Aleksander Giga in 2018.
By studying companies raising funds on one of the largest US equity crowdfunding platforms, this study finds that companies with multiple founders with prior personal financial commitment ("Skin in the Game" (SITG)) raise more funds, suggesting a signaling mechanism to investors of founders' cross-validation of the project's prospects. Single founders lack such mechanism. The study uncovers a link between the team structure, a key organizational aspect, and signaling to future stakeholders.
Many of these investor-focused studies understate, or entirely gloss over, recent developments that can mitigate some of the problems caused by the lack of a cofounder. E.g., having someone in it with you, community support, dividing chores effectively, optimizing, and managing a complex set of processes with the right tools.
Here's the last survey, from Greenberg and Mollick, that suggests that this vein of thinking is correct:
A stratified sample of 65,326 Kickstarter project creators was surveyed via email.2 Of those projects, 10,493 completed part of the survey (16%) and 7,788 (12%) completed the entire survey. These response rates are comparable with other web-based surveys in non-traditional industries within the management literature (Kriauciunas, Parmigiani, & Rivera-Santos, 2011). Additionally, many of the email accounts were set up for completed projects and were no longer actively used, artificially lowering response rates
and the abstract:
A widespread scholarly and popular consensus suggests that new ventures perform better when launched by teams, rather than individuals. This view has become so pervasive that many of the foremost investors rarely, if ever, fund startups founded by a solo entrepreneur. Despite this belief in the superiority of teams in the startup process, little empirical evidence has been used to examine this key question. In this paper, we examine the implications of founding alone versus as a group by using a unique dataset of crowdfunded companies that together generated approximately $358 million in total revenue. We show that companies started by solo founders survive longer than those started by teams. Further, organizations started by solo founders generate more revenue than organizations started by founder pairs, and do not perform significantly different than larger teams.
Are all, or any, of these surveys correct in their conclusions?
IMO Greenberg and Mollick provide the most convincing data. It's an extensive, recent-ish survey, and the paper reports more granularly on the respondents and the process than in many other reviewed sources. It also arrives at the conclusion that best fits my priors on the issue and something I was not surprised to find after some more time searching. Yes, kickstarter projects do not match up 1:1 with startups.
For most people having a cofounder will still be an appropriate time-sanity-capital-option. It's hard to do a startup, and having someone to lighten the load or find a new idea can often be a game-changing positive. As many of the pull quotes highlight, people who are good, trustworthy, co-workers are invaluable. Add this to investors' preferences for multi-founder teams as easier assets to manage/invest in with less key-person risk, and the calculus seems clear if you have the luxury of finding someone. Hopefully, this bias will fade as capital of different sorts becomes more generally accessible to startup founders.
That said, solo-founding is a great, and possibly strategically optimal, gig if you can keep your wits about you. As mentioned earlier, online communities and friends for support are a key to solving loneliness and brainstorming/ideation hurdles. A community will never replace a cofounder, but having close friends in analogous situations is the next best thing. The best community spaces have good regular chatter and support for founders, and some are worth paying for as an investment in making friends who understand the hurdles of starting a business alone or in small teams. It seems that if solo founders were allowed better access to institutional funds the comparative strengths and returns outlined in Greenberg and Mollick could shine even more than they already do.
Solo founding has never been a more viable choice and offers a set of trade-offs that are becoming more and more attractive to folks with good ideas and a desire to start a startup.
The bias against solo-founders in funding is more about preferences for governance patterns that investors expect in exchange for access to capital. In the same vein, having a friend who is willing to take risks with you on a startup is a luxury that is not available to everyone, even if they aren't the monstrous personalities that the framing suggests. **Investors should take more risks on solo-founders and change their risk parameters if the solo status is the only thing preventing them from doing so**
It's also clear that there's an under-investment in community support and services for solos and that some small teams suffer as a result. I'd guess this is a downstream result of the investor choices discussed above. Solo founding [not withstanding still significant capital barriers to entry] has never been more accessible thanks to abundant resources and information via the internet, communities, and cross-platform movements like build in public.
I still need to read about solo-founder-focused, or at least friendly, funds and gather data on how they perform relative to benchmarks. Other under-developed topics are how some of the other survey-pulled highlights about solo-founders and lower speed and success rates could be caused by investor prejudice. Figuring out a convincing way to math this out and maybe even test it experimentally would be cool. I also look forward to learning more about alternative financing options for solo startups, so contact me if that's a subject of interest.
Till then, onward to a world with even more happy and successful solo founders.
- Lee & Lee 2014 who report that hard work is the best predictor of solo founder success