Early Investing

The Inside Scoop on “Outside” Founders

The Inside Scoop on “Outside” Founders
By Andy Gordon
Date July 21, 2021

Ali Tamaseb has written an interesting book called Super Founders. Super founders are the founders of unicorns — aka startups valued at $1 billion or more. 

These days, $1 billion is the price of entry to what used to be a very small and exclusive club of enviable startups. It’s not so small anymore. But a $1 billion valuation continues to be the mark of success every founder aims for. 

The great thing about Tamaseb’s research is that it doesn’t always jibe with conventional wisdom. He says, for example, that age doesn’t matter. Founders of unicorn companies come in all ages. But more eye-opening is this finding…

Only 40% of unicorn founders had worked in the same industry they were disrupting. 60% came from outside the industry.

That defies conventional wisdom. It also contradicts one of my long-held views that the exceptionally deep knowledge founders acquire from their own experience in an industry gives them an edge. 

A founder who understands not only the strengths but also the flaws, drawbacks and weaknesses of a commonly used technology or business model can also identify a better solution. These founders still have to bring the technology and/or business model to life. And they need to make good decisions. But their industry expertise puts them in a strong position. It’s no guarantee they’ll win. But it’s much better to be operating from a strong position than a weak one. 

Yet, if Tamaseb’s data is right, I’m missing something big. One explanation the data brings to light is that a strong network is more important than domain expertise. Networks take time and effort to develop. But outside super founders can always hire domain expertise. 

I have another theory. 

Outside Advantages

In my startup investing research over the years, I’ve looked at hundreds of companies led by outsiders. They are customers, patients and frustrated consumers who know there has to be a better way. They can indeed be professional entrepreneurs who may or may not be familiar with the industry they’re disrupting. But they can also be moms, bright-eyed students, artists and entertainers. Anybody can start a company. 

I’ve also examined hundreds of startups led by industry insiders and de facto domain experts. Some of them have a great deal of business experience. And some of them have none. Doctors, for example, are well-represented in biotech and medtech startups. Most know absolutely nothing about operating or growing a business.

One thing I’ve learned is that before they start a company, founders often grapple with problems that are outside their professional expertise. And that outside perspective often helps them come up with a solution that someone from inside the industry might have missed. 

Smart Founders, Period

Tamaseb’s finding that domain expertise isn’t as important as many of us thought is hard to verify, though. For now, we simply lack the data and detailed context to come to any definitive conclusion. In fact, using Tamaseb’s own ratios, you can come to different conclusions based on how you set up the universe of founders. 

But the good news is that data is coming. KingsCrowd (Early Investing is part of the KingsCrowd family) has built a massive data collection that tracks this kind of information on founders (plus more than a hundred other startup data points). It tracks companies from their first raise onward. And it’s gathering more data all the time.  

For now, I won’t abandon my stance on knowledgeable founders entirely. I really like smart founders with deep knowledge of their industry. But I also value smart founders, period. 

Every founder comes with their own unique set of strengths and weaknesses. I try not to prejudge them. I’ve learned that an outsider perspective can be as refreshing and insightful as an insider one. Tamaseb has done us a big favor in adding to what we know about successful founders. 

He has certainly given me food for thought. And I suspect we’ll learn a lot more about what it takes to be a great founder as more data becomes available.

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