Sole Survivors: Solo Ventures Versus Founding Teams (2018)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3107898

187 33 7 years ago

papers.ssrn.com

jacknews• 7 years ago

Startup teams need to earn more revenue to pay for everyone, compared to individuals, and they are probably less willing to live in their cars during any periods of hardship.

hughstephens• 7 years ago

While interesting and worthy of debate, the title makes it feel a lot more general than reality (this is a study of Kickstarter companies, so goes with the huge sample bias of “stuff that gets put on Kickstarter”).

As a solo founder, I think people always love the idea but don’t acknowledge how lonely it is compared to having at least one other founder (not to mention complementary skills etc).

Most high growth businesses go to zero as time continues, so while there are outliers the majority (in number) case still remains a zero outcome, not more or less revenue (let alone exit $).

kristiandupont• 7 years ago

Agreed. I copied a sentence from the abstract and cut it down until it fit the HN character limit. I hope it doesn't come off as too click-baity..

bhouston• 7 years ago

I think that individual founders are more likely to move fast and take more risks. A second founder will be a mitigating factor no matter what. It may mean that individual founders have wider distributions in terms of their potential for success. And we notice mostly the positive tail of the distribution because the negative tail is cut off (once you fail, it is hard to fail more, where as success is nearly unlimited in comparison.)

BIair• 7 years ago

If you want to go fast, go alone. If you want to go far, go together.

Abishek_Muthian6• 7 years ago

Being single founder is of high risk venture, as anything with high risk it has potential gains as well.

I ran my company successfully as a single founder for 5 years, till one day I was told I would become a quadriplegic & I had to close my company as there's no other executive to take care of it.

I had Facebook Fb Start accelerated product with 2,50,000 customers , any company expressing interest in acquiring my product wanted me to work for them; which wasn't possible as I was recovering from surgery.

Being single founder has it's merit, but when things go south with your health or anything personal; you'll loose your company.

louisswiss• 7 years ago

Hope you're as well as can be expected given the circumstances.

Being single founder has it's merit, but when things go south with your health or anything personal; you'll loose your company.

I've been a solo and co-founder before.

Yes, in the early days you can't afford to hire staff. It's all on you as a solo founder and the risk (incl. burnout) is high.

But, as soon as the company is doing ok, you can and should hire an employee to shoulder some of the responsibilities a cofounder would otherwise take on.

Just because their compensation is weighted more towards cash than equity doesn't mean they can't be just as effective.

Abishek_Muthian6• 7 years ago

I'm getting better, thanks.

as soon as the company is doing ok, you can and should hire an employee to shoulder some of the responsibilities a cofounder

I agree, it's hard to pull off once we get accustomed to being a single founder (survivorship bias?).

I built my company ground up from a former village in India with limited funds. I hired freshers and trained them personally to be developers. They all became good developers, but didn't become good managers (as I didn't train them for it) in-order to form a team which can shoulder responsibility.

Once I got the hang of my company with current set up, I tried to focus more on building better product than to mitigate the risk of loosing company incase something happens to me; Unfortunately it did.

Edit: pull of -> pull off

lazyjones• 7 years ago

OT: I read your story on your personal web page and we have some eerie similarities there. I was a solo founder for 14 years when I sold most of my company (not out of obvious necessity, I had grown tired of it somewhat and a good offer was on the table). During the last few months I had developed some tingling / pressure sensations in my fingers and legs, which I first attributed to bad posture, discs etc.

It turned out that I had a tumor growing in the spinal cavity between C2 and C4 - luckily benign, but still causing stenosis effects and eventually leading to me becoming quadriplegic unless removed. I also had severe Vitamin D and Calcium deficiency (and nothing else) and was discharged after 10 days from hospital when I had surgery. My scar is naturally very similar to yours and I have 20 Titanium screws and 6 plates implanted. My day-to-day challenges are not flexibility issues though, it's chronic pain in the hands and much worse typing skills than before surgery.

Fortunately, I found an obvious successor (the most self-motivated and responsible one, not a trained manager) in my company when I left (we had 57 employees then) and he's doing great. Good luck with your company!

Abishek_Muthian6• 7 years ago

The problem with Tingling sensations are that it can occur for any number of reasons, in the order of occurrence - Anxiety, Spinal issues, Issues with the nerves in the hand; unfortunately I had reasons to believe, I had all of them.

Apart from treating spinal stenosis, the tingling sensations were not treated specifically as the none of the tests isolated the reason for it. But, after spine surgery tingling sensations haven't occurred much which seems to suggest whether spinal stenosis was the reason for it.

I will link[1] the article you read just for the context of others. I haven't updated it, since then my neck movements have improved.

As you say, I'm facing severe hand numbness & pain after surgeries. Medical tests didn't help with it. I have isolated the issue to pressure on the nerves in hands while sleeping on that side. I bought wrist splint to avoid flexing my wrists while sleeping & have generally avoided sleeping on that side; it seems to have helped. This physio therapy video[1] talks about the techniques I follow. I hope it helps you too.

I'm glad that you didn't have to close your company, you took correct steps to prevent it. I helped my developers get good offers from other companies and I have closed my company.

[1] https://abishekmuthian.com/i-was-told-i-would-become-quadrip...

[2] https://www.youtube.com/watch?v=rRCnRYOupCo

ptah• 7 years ago

how does health affect this? is it to do with healthcare

Abishek_Muthian6• 7 years ago

I meant being a single executive in a company means handling all major responsibilities, so when health deteriorates we will be forced to take care of health or the company.

More over being single executive, the burnouts are much common & so is other health hazards associated with it.

mi100hael• 7 years ago

Being single founder has it's merit, but when things go south with your health or anything personal; you'll loose your company.

That sounds more like a risk of being a sole proprietor or one-person business. Lack of other executives is not the same as lack of other founders or even lack of partners.

Presumably you would not have found yourself in such a situation if you had someone you trusted who could assume day-to-day leadership in your place.

Abishek_Muthian6• 7 years ago

Lack of other executives is not the same as lack of other founders or even lack of partners.

I didn't explicitly mean, every co-founder would become an executive in the company; but chances are that if I had a co-founder they might have been an executive & my situation might have been better.

Presumably you would not have found yourself in such a situation if you had someone you trusted who could assume day-to-day leadership in your place.

I don't deny it & have discussed my reasoning in the earlier comment.

owens99• 7 years ago

Earning more revenue =/= maximizing company value

The benefit of cofounders has a doing more with fewer resources and having more diversity of opinion (making fewer long-term mistakes).

tim333• 7 years ago

A lot must depend on the type of business. For example the solo founders could be launching KFC franchises while the teams are trying to reinvent air travel or some such.

jacquesm• 7 years ago

This is mostly limited to Kickstarter, which is not exactly the dataset that I would go looking for if I wanted to make definitive statements about 'organizations' or start-ups in general.

A better description of the findings would be 'kickstarters started by individuals rather than by pairs of people have a higher chance of success, but not much different than from larger teams'.

syntheticnature• 7 years ago

It's even worse than that: this is limited to successful Kickstarters. Turns out individuals who can pull off a solo Kickstarter might be a bit more successful overall.

sagebird• 7 years ago

The effects may be due to irrelevant artifacts:

1.) Pairs or more of people working on a task may declare themselves to be an organization and call themselves founders earlier than an individual. An individual may be more likely to wait until they have a customer, are near profitability, etc to make that declaration.

2.) The summary says that "investors rarely, if ever, fund startups founded by a solo entrepreneur".

So the observations are confounded with solo founders overcoming this prejudice. This quote also points to a survivor bias in play. IE, solo founders must have higher performance than teams before getting funded, and less of the weak solo founders survive to be observed by the study.

I wouldn't be surprised if the article had a correct conclusion. Though it would be very hard to convincingly show causality short of convincing entrepreneurs to take part in a decades long experiment where they are randomly divided into solo founders and teams (which would be nearly impossible to get a representative sample of founders to agree to).

modi15• 7 years ago

3.) Solo founders might slap on an unemployed friend with marginal utility to overcome the bias of investors not funding solo entrepreneurs.

4.) Solo founders might hire an 'employee' and give him the label of a 'co-founder' as a performance appraisal.

HeyLaughingBoy• 7 years ago

"investors rarely, if ever, fund startups founded by a solo entrepreneur"

I'll add another anecdote/datapoint to this: I was the stereotypical one-guy-in-the-basement when I got my first Fortune 500 customer. In order to be paid, I needed to be registered as a vendor with them and they needed an EIN (Employer ID Number).

I was concerned that I would lose their business if they found out I was a Sole Proprietor, so I created an LLC and gave them that number the next day.

I wouldn't be surprised to find out that there are many single-member LLC's and S-Corps who only have that business organization for similar reasons.

tlb• 7 years ago

Agreed. In fact, I think it's impossible to get useful evidence for any causal relationships between the founding team and success of a company, because there are feedback loops and confounds everywhere.

Here's an example of feedback loops. Suppose investors are biased against young founders. When you look at outcomes, you'll see a higher success rate from the young founders that do get funded because they had a higher bar to overcome the bias. And, of course, investor biases are (mostly) the result of historical outcomes. So eventually investors will become biased in favor of young founders, and the bar for funding will be lower, and you'll have a lower success rate. The system creates a time-delayed (by a decade or so) negative feedback loop that maintains a rough homeostasis of success rate for every kind of company.

Economists realized long ago that you can't predict stock market movements by looking at fundamentals, because all the other investors are looking at the same fundamentals, so the consensus is already priced in. This seems study has the same problem, in addition to a data set several orders of magnitude smaller. Don't change your plan based on any such study.

ltbarcly3• 7 years ago

Sigh. This study is useless.

They have two sources of data, publicly available data (which they say has major censoring problems) and kickstarter projects.

People will incorporate at the point that they believe it is worthwhile to incorporate. This is basically a tautology, but just think about it. When would a solo founder incorporate? When the benefit of incorporation makes it worth the time to do it. This might be when they are taking investment, when they have customers and need to limit their liability, or when they are making profits and want tax benefits. What about pair founders? In many cases on the first day, but often very early on because it is necessary to legally establish their ownership stake in the company. So you are selecting solo founders who have a functioning business and pair founders at every stage. I think most ventures probably fail with zero revenue and virtually zero customers and/or users.

Kickstarter won't be representative of anything, even in their wildest dreams.

rgrieselhuber• 7 years ago

This is basically a religious argument. Just figure out what works for you and, if a company is something you want to build, go build it.

eruci• 7 years ago

I've been a single founder since 2005 and I can relate to these findings.

Some parts of my business are on a complete auto-pilot and will continue to function even if I'm not around. The main part of it though, won't. That's the problem I see with my solo ventures.

I'm currently looking to automate what's left of the business processes so that I don't lose the company due to unforeseen circumstances. Not sure if I'll succeed.

idlewords• 7 years ago

Pretty nice to see actual research on this, especially in the teeth of the selection effects that make it harder for people working on their own to get funding.

jandrewrogers• 7 years ago

Having experienced it both ways a few times, I would argue this result is a manifestation of a tradeoff. The best way in any single case is circumstantial but there is a natural selection bias toward different average outcomes.

Having multiple founders creates a drag on execution efficiency because it requires active maintenance of a consistent vision across the founders and diffuses the "moral authority" role that uniquely falls on founders. I've never seen this implicit coordination overhead be trivial at any startup. However, the major upside of having multiple founders is that learning how to effectively execute every aspect of a startup also has an incredibly high overhead that lends itself nicely to divide and conquer. The ability to scale the learning part can offset the overhead of coordinating vision.

Solo founders work best if they are experienced at startup execution. They've already learned how to do it, so there is much less learning to distribute across founders and the clarity of vision streamlines execution. Confidence of the founders in their own abilities plays a role in choosing to be solo.

My general observation is that people who choose to be solo founders tend to have prior experience that gives them confidence in their ability to execute the current startup well, require less learning to be successful, while gaining the execution efficiency that comes with having a Benevolent Dictator. This begets more execution efficiency and fewer mistakes, which increases probability of success. Having multiple founders can make a lot of sense if they have little prior experience i.e. they need to scale learning at the same time they are trying to scale the business.

tl;dr: The structural benefits of solo mostly accrue to founders that also have substantial startup execution experience, and choosing to be solo often reflects confidence in their ability to execute based on prior experience.

_hyn3• 7 years ago

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.

There's obviously selection bias if only teams get funded. That skews the data that VCs evaluate, because what's worked in the past is colored by what was funded in the past. (Similar to what we see with seemingly ageist or sexist VCs that are simply following a pattern of what has worked.)

So, the reason why little empirical evidence has been used to evaluate these biases is because there's a paucity of data that doesn't already have inherent conflicts.

If we look at the larger software companies, most of them (Gates & Ballmer, Jobs and Woz, Larry Ellison at Oracle, who was the third richest man in the world for a while, Marc Benioff at Salesforce, etc), they were all launched with a single dominant founder who opportunistically attracted people as they went. Jobs would have found someone else to do the work he didn't want to do, for example, or he would have figured out how to do it himself. (He did know quite a lot about motherboards and circuits, and definitely enough to see the potential in microcomputing's future, although he lacked Woz's technical genius.)

None of them started out with a plan to build a huge company, although they clearly had a strong desire.

According to The Facebook Effect, Zuckerberg was so unsure about The Facebook that he was working on Wirehog with DeAngelo almost full time even while the Facebook had millions of users.

According to numerous Jobs bios, Woz tried to stay at HP and even offered the Apple I to HP.

According to his autobio Softwar, Oracle founder Ellison just wanted to hire people to do his consulting for him so he could surf more. He had no intention of building a huge company until he realized that he could build software and it would be less work than consulting.

According to Hard Drive, Gates originally flew to Albuquerque to write programs for the Altair, which was the definition of a tiny, niche industry, and Ballmer really was no help at all.

In many cases, the co-founders/teammates may have actually slowed down the dominant founders.

It's pretty clear that Zuckerberg would probably have been successful whether he had access to a team (his dorm room roommates) or not.

So, this idea that teams will automatically and rapidly coalesce around a charismatic founder is another bit of selection bias.

Speaking as a solo founder: the obvious selection bias, and the fact that I was in my late 30's and far from a startup hub where I might find equally qualified co-founders, forced me to launch on my own.

We've now achieved product-market fit and are growing,and I'm now attracting people who want to join my startup. But, they all want to be paid. Not in equity. Outside of the valley and startup hubs, people haven't seen that stock can bring huge success, so they want at least meager salaries, but they're still attracted to join a startup that's clearly happening and to work with a founder who is becoming successful. (On the plus side, this means that I retain control and board seats, which are more important to me right now, so sharing profits is just fine with me!)

Any founder who has tasted success without VC will tend to be more wary of accepting VC, especially because one benefit of starting a company and growing it to be successful is that you are succeeding on your own terms, and not because you "pass" some arbitrary checklist set forth by a VC that may have never even been an operator themselves. Why put that much trust in another person if they weren't there for you at the beginning?

So, you could plausibly argue that founders end up engaging in their own selection bias. What's clear is that founders who seek out funding at that stage generally prefer to wait until they can control their own destiny; they don't want to negotiate out a loss of control (over the board, restricted shares, etc) since they didn't start that way. So, any later successful rounds will have to be on the founder's terms:

1. big enough to be worthwhile

2. no significant loss of control (unless they're naive, but they're probably not if they got this far)

3. doesn't involve moving their growing company (and lives) somewhere else.

There's a whole 'nother world there of companies that eschew funding because they started out having to and later realized that they might as well keep going.

The companies grow slower because they don't have those continuous cash infusions.

But, then, magically, overnight they hit the Inc 5000 in some out of the way geographic location, but most VC's will never even know they exist. There's some irony in all of this!

angel_j• 7 years ago

It seems silly that a technical founder with obvious entrepreneurial verve needs to go out and find some other person, it's not clear whom, to get a fair look.

t2riRXawYxLGGYb• 7 years ago

I've long felt that the "common wisdom" that teams are better is wrong. I can list as many solo-founder companies as I can team-founder companies off the top of my head and even the team companies are usually mostly one person doing more of the work.

Personally I know a lot of very successful solo founders but I can only think of a few team founders that I know. The solo founders all have much stronger willpower than the team founders too.

Just my anecdotal evidence.

leepowers• 7 years ago

Just from the abstract I can't tell if the study differentiates between sole proprietorship and solo founders. The former is a business built around a person's individual skill set. The latter is built around an idea, a product, or a service that just happened to be started by a single person. The death test can differentiate: a sole proprietorship goes out of business if the founder dies. A company created by a solo entrepreneur will continue to operate and serve customers even if the founder passes away.

Investors may favor partnerships over solo ventures due to the proprietorship effect. A skills-based solo founder is usually too idiomatic to be an investable business. The catch here is when starting out a solo founder must be a sole proprietor; it's his particular skillset and drive that creates the company. The trap is it's natural for the business to evolve and grow around that particular skillset.

Sole Survivors: Solo Ventures Versus Founding Teams (2018)

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