Summary: Super Founders: What Data Reveals About Billion-Dollar Startups by Ali Tamaseb

Super Founders (2021) offers an in-depth analysis behind the success of billion-dollar startups. After crunching over 30,000 data points, it unravels the multitude of false notions surrounding tech unicorns and reveals what it really takes to make it in Silicon Valley.

What’s inside?

Ali Tamaseb’s data-based report offers an in-depth look at the founders of billion-dollar companies.

Who is it for?

• Investors seeking to sharpen their eye for opportunities
• Entrepreneurs looking for actionable advice
• Startup veterans hoping to learn from their mistakes

Recommendation

Mark Zuckerberg, who was a Harvard student when he started Facebook in his college dorm, is a famous outlier among founders of $1 billion companies. On average, says venture capitalist Ali Tamaseb’s data-based report, those who launched billion-dollar firms from 2005 to 2018 had 11 years of experience as executives or entrepreneurs. However, fewer than half had prior experience in the industries where their giant companies compete, and they’re as likely to have a background in business management as in technology. Tamaseb reports that most of these billion-dollar start-ups began in Silicon Valley, and they upended existing markets rather than inventing new ones.

Find out what really matters for a startup’s success.

There are a lot of common assumptions about what it takes to build a successful billion-dollar startup – frequently known as “unicorns.”

One myth is that a founder has to be an Ivy League dropout, like Mark Zuckerberg. Another is that, like Apple, a unicorn has to have cofounders handling the technical and the visionary aspects of the work.

However, 30,000 data points collected since 2017 say that, actually, there were more founders with PhDs than dropouts; that contrary to popular wisdom, only 15 percent of unicorns participated in an accelerator program. And, rather than being first-to-market, many billion-dollar projects were built on ideas that failed in the past.

In these summaries, you’ll also learn about the benefits of bootstrapping; why venture capitalists prefer risk; and the best predictor of startup success. So let’s dive deep into these summaries, and learn which factors really drive a startup’s astronomical rise.

Don’t let preconceptions and myths hold you back from your dreams.

For most people, the idea of a successful startup is synonymous with the rise of Mark Zuckerberg, who started Facebook from his college dorm room. Or with Steve Jobs, who started Apple out of his garage. But these kinds of stories can also be discouraging to aspiring entrepreneurs – who might think that maybe they’re not smart enough because they didn’t go to Harvard or that they’re already over-the-hill by age 25.

So let’s clear up some misconceptions.

First off, Tamaseb’s data shows that age does not matter. The median age for billion-dollar founders was actually thirty-four. And there are countless success stories of unicorns run by older founders – Eric Yuan, for example, was forty-one when he founded Zoom.

A second myth that needs busting is the superstition around the number of cofounders. In Silicon Valley, this notion has become so deep-seated that some venture capital firms will avoid investing in solo founders. The rationale being that having two minds is better than one and it helps divide the workload. But, according to Tamaseb, 20 percent of unicorns were founded by solo founders. And here’s another nugget: power struggles and arguments about vision are two common pitfalls of many startups – problems that don’t exist when there’s only one founder.

Lastly, even though the founders of Facebook, Dell, WordPress, Snapchat, and WhatsApp are all college dropouts, they’re actually in the minority. Among unicorn founders, 36 percent held a bachelor’s degree, 22 percent an MBA, and about 33 percent held some other advanced degree. Similarly, while many founders went to top notch schools – like Stanford, Harvard, and MIT – just as many graduated from schools that weren’t nationally ranked in the top 100.

So, ultimately, age, education, and number of cofounders are not predictors of a startup’s success.

But one significant predictor of success that Tamaseb did find was that roughly 60 percent of unicorn founders had previously launched startups. Some of the reasons they were able to eventually achieve success is because their previous experience left them with industry contacts from which to find employees and investors to help get their startups off the ground. And, most importantly, they were more likely to have learned from their mistakes.

Finally, a majority of unicorn founders were natural born builders. Even before college, they were already tinkering. For instance, back in high school, Mark Zuckerberg got together with his classmate Adam D’Angelo to build Synapse, a desktop music player. While they passed up an opportunity to sell the app, both men went on to great success – D’Angelo founded the billion dollar company Quora and Zuckerberg, as you know, launched Facebook.

A successful idea needs to be backed by need and by passion.

Now that we’ve learned that previous success in founding a company is a predictor of future success, let’s take a look at what’s important when it comes to starting a company.

Contrary to popular belief (and wishful thinking), most good startup ideas don’t come as eureka moments. Instead, they’re the result of a painstaking process of ideation. Many successful unicorn founders deliberately pick a market or a trend and then look to solve a problem in that space.

VC investor Erik Torenberg offered a few simple ways to hunt for good ideas: Solve a problem that people really care about, like Tinder did for single people. Unlock a new asset, like YouTube did with content, or Airbnb did for travelers. Or find something so boring that no one wants to touch it – like Flexport did in the freight shipping space.

What’s more, success stems not just from the idea itself – the real key is to combine opportunity with a sense of purpose. Founding a startup is hard work and the years ahead are definitely going to be tough, which is why many investors like ideas that are mission-driven: If a founder is driven by passion, they’ll better be able to withstand the various pitfalls down the line.

Another important aspect for success is having the flexibility to pivot – and many eventual unicorns often started out as something else.

Stewart Butterfield, one of the founders of Slack, is a master of pivoting. Years earlier, Butterfield had started Neverending – another gaming company that never found any traction. But its photo sharing service did. They rebranded as Flickr and were eventually sold to Yahoo for $35 million.

In the tech industry, pivots are important, because they show which founders are flexible and dedicated to finding opportunities. Rather than being emotionally attached to their ideas, they were willing to humble themselves and recognize when an idea was failing, and then adapt before the company ran out of money.

Despite all these successful pivots, it’s important to keep in mind that doing so is a last ditch attempt to save the company. By pivoting, founders not only throw away years of work, but also gamble with the confidence of their team and investors. Still, sometimes this is a better option than quitting.

The thing to remember is that customers are ultimately more important than the idea. If something isn’t working, know how to listen to the market and when to move along.

But speaking of teams and investors . . . Very few founders find success without a team. And most VCs like to thoroughly vet a company’s team before investing. In fact, in a study conducted by the Stanford Graduate School of Business, 53 percent of investors said that a company’s team was the most important factor when deciding where to put their money. Which is why smart founders tend to assemble star teams by offering job titles and strong salaries to entice the best talent.

Understand the market and understand why your idea is different.

Back in 2012, cryptocurrency wasn’t really a thing. Bitcoin was only four years old and trading at under five dollars. It was a concept most people had never even heard of. But Brian Armstrong and Fred Ehrsam, the founders of Coinbase, saw an opportunity. At the time, Bitcoin was accepted by only a few sites and trading with it required a high level of technical know-how. Hackers loved it! And, eventually, everyday users would need a safe place to store and trade their coins.

Over time, Coinbase flourished because of their strong efforts to keep up with government regulations, making it safe and effortless for anyone to buy Bitcoin. And their success stems from identifying a market with huge growth potential – but not yet demand – and understanding exactly how Coinbase’s product would differentiate them from others.

Interestingly, however, over 60 percent of unicorns actually go in the other direction – choosing to compete in markets that already have strong demand. Amazon is a great example of this. Books were not a novelty like Bitcoin, but Amazon innovated in this old market place with new technology.

So which is more profitable – creating a new market or going after an established one? Typically, investors seem to favor market-creation, but according to Tamaseb’s data, unicorns competing in an established market were valued slightly higher than those in new markets – $4.9 billion to $4.5 to put some numbers to it. And although more unicorns compete for market share than create new markets, the startups in Tamaseb’s random sample set showed similar numbers. Which is all to say: there’s no advantage either way.

What does make a big difference, however, is when a company differentiates itself from competitors. Airbnb and Snapchat both offer drastically different customer experiences than other startups in the same space. Notably, Tamaseb found that in his random group of startups, only 40 percent were highly differentiated, while among unicorns that number was closer to 70 percent. Not only does a highly differentiated idea grab attention and interest, it’s also the substantial difference that helps convince customers to make a change and try a new product.

Another big market advantage is to make painkillers rather than vitamin pills. What’s the difference? Simple. Painkillers aim to relieve a customer’s painful need – like Tinder did for single people. Vitamin pills, on the other hand, aim to give a customer more value or entertainment – BuzzFeed, Snapchat, and TikTok are all great examples.

Here’s where the data reveals something interesting. In his unicorn data set, Tamaseb found that around a third made vitamin pills; and in the random set, the number of vitamin pills was over 50 percent. What this means is vitamin pills are less likely to succeed reaching a billion dollar valuation.

What’s important to note here is that while there’s nothing wrong with building vitamin pills – after all, who wouldn’t want a little more joy – sustaining them over time is more challenging. While users seeking painkillers tend to seek out a product – after all, they have an aching need – vitamin pills are much more susceptible to competitors breathing down their necks. While they do succeed with fun, sticky products, too often the novelty wears off. Just look at BuzzFeed, which had massive layoffs when revenues fell off.

Sometimes the counterintuitive move pays off.

Everyone loves a new idea. There’s something magical about seeing something that hasn’t been done before. VC investors, however, think differently. For them, it’s not the novelty of seeing something new, but rather, they don’t like investing in ideas that have been tried before because those ideas have already failed.

But sometimes, those ideas failed simply because the timing was wrong.

Enter, General Magic. Back in 1995, they built the smartphone. Yeah, I know! No one had ever seen anything like it before. But unfortunately, its touch screen was inadequate and its battery life was poor. Also, at the time, most people weren’t yet hooked into email. Twelve years later, however, when Apple launched the iPhone, the timing couldn’t have been more perfect. Similarly, Google was not the first search engine and Facebook was not the first social media platform – they were both recycled ideas that had finally found their moment.

Looking at the data, it’s no surprise that Tamaseb found that there was no clear advantage between being first to market with an idea, versus trying to do something that had been done before. Which only goes to show how difficult it is to get the timing right. So instead of worrying whether something’s been done before, perhaps it’s better to ask “Why now?” Is the necessary technology there? Is there a potential customer base to tap into? And also, what can be learned from other companies’ previous failures?

Warby Parker’s answer to “Why now?” was simple: there’s no reason glasses should cost as much as a new iPhone.

When Warby Parker started, they were a little fish competing with two giants: Luxottica and Essilor, which collectively controlled tons of major brands, including Ray-Ban, Oakley, LensCrafters and held roughly 30 percent of the global eyewear market.

Warby Parker’s founders realized that this market was ripe for disruption. The giants that dominated the industry had unreasonably high prices and were bogged down with cost structures that included retail outlets and hefty licensing fees. Warby Parker designed in-house, sold straight-to-consumer, and had a nimble business strategy, allowing them to charge a fourth of what their competitors did.

Tamaseb’s data backs up a David vs. Goliath strategy, showing that more than 50 percent of unicorns faced off against giant competitors. Rather than being an obstacle, these competitors are a sign that there’s a large and thriving market, and startups not being tied down to decades old legacy systems are perfectly positioned to disrupt and succeed.

But whether a startup is competing against legacy companies or other newcomers, it’s vitally important that they defend their product. VC investors are especially sensitive to this, because they want to make sure other companies will have a hard time copying their investment.

If your product is good enough, you don’t necessarily have to worry about funding.

According to Tamaseb, 90 percent of the unicorns in his study were VC-backed. That’s because VC investment and startups are a marriage made in heaven, with both aiming to move quickly toward their goal of a billion dollar payday. And to get there, most VCs would rather back a risky but potentially massive startup over one with low risk and steady growth.

Honestly, the math is a bit tedious to unpack, but in short it comes down to this: If a VC invests in a startup and fails, they lose all their money – a fixed sum. If the startup skyrockets, the potential gain is unlimited. For instance, Facebook’s IPO valuation of $100 billion earned their VC backer, Accel Partners, 300X their initial investment. While this kind of return is the outlier, it also exemplifies the kind of game VCs are playing.

But here’s the thing – getting tons of investment capital isn’t necessarily the key to success. Why? Well, because venture capital isn’t for everyone. Some ideas, like Tesla, require tons of capital investment because they’re both risky and costly. Others, like video content platform, Quibi, raised over $1 billion before launch only to shut down six months later.

Which is to say, depending on the idea, sometimes it’s better to bootstrap for a couple of years to find out the company’s market viability. For instance, Sara Blakely, who launched Spanx with $5000 of her own savings and never took a single investment. For the first couple of years, she did all her own marketing, PR, and customer service. By the time Spanx reached its billion dollar valuation, Blakely still owned 100 percent of the company.

While Spanx achieved profitability early on, there’s great lessons to be learned in running a company on limited funds. That’s because a capital-efficient business model is actually better for both founders and investors. By achieving a high return with less investment, the company avoids dilution and there’s more profit for the stakeholders.

But running a capital-efficient company requires ingenuity. Take Stitch Fix for example. While still studying at the Harvard Business School, Katrina Lake got the idea for a personal shopper startup, which would assess a customer’s style and sell clothes specifically for them. While Stitch Fix was able to get seed money, it had trouble raising more cash in subsequent growth rounds. So Lake learned to be efficient. She ran the business using GoogleDocs and Excel, she worked with interns who manually entered credit card numbers to process orders, and restructured its cash cycle to move product quickly. At the same time, Lake focused on hiring the best possible data scientists, turning the company into a hub for talent.
Lake recounts how having low cash reserves forced the company to work toward early profitability, and in turn, gaining a strong understanding of the economics underlying their business. When Stitch Fix went public at $1.6 billion, Lake became the youngest woman to ever do so.

Final Summary

The meteoric rise of companies like Facebook and Apple has perhaps set a model for what success looks like. But, there have been countless other startups that have followed their own path to the top. While there are many myths floating around Silicon Valley, the data shows that true predictors of unicorn success are dreaming big, have a solid understanding of the market, and have had previous startup experience.

About the author

Ali Tamaseb is a Silicon Valley VC veteran. His firm, DCVC, holds investments in more than ten startups valued at over a billion dollars. Tamaseb sits on multiple corporate boards and his work has appeared on BBC, TED, the Guardian, and Forbes.

Genres

Business, Money, Finance, Data Processing, Venture Capital, Starting a Business, Startup, Economics, Management, Accounting, Corporate Finance, Technology, Entrepreneurship, Science

Table of Contents

Introduction
Correlation Is Not Causation: A Note on Methods and Statistics
Part 1 The Founders
1 Myths Around Founders’ Backgrounds
Founding a Billion-Dollar Startup at Age Twenty-One: Interview With Henrique Dubugras of Brex
2 Myths Around Founders’ Education
A Professor Who Built Multiple Billion-Dollar Startups: Interview With Arie Belldegrun of Kite Pharma and Allogene
3 Myths Around Founders’ Work Experience
Founders Who Built a $2 Billion Cancer Company Without Any Medical Background: Interview With Nat Turner of Flatiron Health
4 The Super Founder
A Founder Who Met Success on the Second Try: Interview With Max Mullen of Instacart 70
Part 2 The Company
5 The Origin Story
A Billion-Dollar Startup That Originated at a Large Tech Company: Interview With Neha Narkhede of Confluent
6 Pivots
7 What and Where?
A Billion-Dollar Move Out of Silicon Valley into Denver: Interview With Rachel Carlson Of Guild Education
8 Product
A Founder Who Always Built Highly Differentiated Products: Interview With Tony Fadell of Nest and Apple
9 Market
A Founder Who Did Both Market Creation and Expansion: Interview With Max Levchin of PayPal and Affirm
10 Market Timing
A Billion-Dollar Startup with Perfect Market Timing: Interview With Mario Schlosser Of Oscar Health
11 Competition
Competing Against Strong Incumbents: Interview With Eric Yuan of Zoom
12 The Defensibility Factor
Part 3 The Fundraising
13 Venture Capital Versus Bootstrapping
A $7.5 Billion Company That Was Bootstrapped for the First Five Years: Interview With Tom Preston-Werner OF GitHub
14 Bull Market Versus Bear Market
A Billion-Dollar Company That Started in the Depth of the Recession: Interview With Michelle Zatlyn of Cloudflare
15 Capital Efficiency
16 Angels and Accelerators
A Prolific Angel Investor Turned VC: Interview With Keith Rabois of Founders Fund
17 VC Investors
An Investor in Airbnb, DoorDash, Houzz, Zipline, and More: Interview With Alfred Lin of Sequoia Capital
18 Fundraising
An Investor in Facebook, SpaceX, Stripe, and More: Interview With Peter Thiel
What to Remember
Acknowledgments
Notes
Index

Review

The book is a data-driven exploration of what makes a startup successful, based on a comparison of over 200 billion-dollar startups with thousands of failed ones. The author, Ali Tamaseb, is a partner at a venture capital firm and has collected 30,000 data points on various factors that could influence the outcome of a startup, such as the founder’s background, the market size, the competition, the fundraising, and the product. He then uses statistical analysis and storytelling to reveal the surprising patterns and insights that emerge from the data.

The book is divided into four parts: The Idea, The Founder, The Execution, and The Money. In each part, the author debunks some common myths and misconceptions about startups, such as the need to have a unique idea, a technical co-founder, a first-mover advantage, or a prestigious education. He also shares the stories and interviews of some of the most successful founders and investors in the tech industry, such as Eric Yuan of Zoom, Michelle Zatlyn of Cloudflare, Keith Rabois of Founders Fund, and Elad Gil of Coinbase. The book is full of practical advice and actionable insights for entrepreneurs, investors, and anyone interested in learning how startups work.

I enjoyed reading this book and found it very informative and engaging. The author has done a remarkable job of collecting and analyzing a large amount of data on startups and presenting it in an accessible and compelling way. The book is well-written, well-structured, and well-designed, with clear charts, graphs, tables, and illustrations to support the arguments. The book also balances the data with the human stories behind the startups, which makes it more relatable and inspiring. The book is not only based on facts but also on wisdom from some of the most influential people in the tech world.

The book is not a formula or a recipe for success, but rather a guide to understanding the patterns and principles that underlie successful startups. The book does not claim to have all the answers or to predict the future, but rather to challenge some of the assumptions and biases that we may have about startups. The book also acknowledges the limitations and caveats of the data and encourages the reader to think critically and creatively about their own ideas and ventures.

The book is suitable for anyone who wants to learn more about how startups work, what makes them succeed or fail, and what it takes to be a founder or an investor. The book is also relevant for anyone who wants to understand the trends and opportunities in the tech industry and how they can leverage them for their own benefit. The book is not only informative but also entertaining and motivating. It is a must-read for anyone who is interested in startups or innovation.