Over the past year I’ve been doing an enormous amount of reading and thinking about startups and investing. I’ve always been interested in this (I’ve read the business section of the paper daily since I was 11 or 12 years old), but now I have a dog in this hunt, so to speak.
Approver.com and Platform Associates aren’t the first companies I’ve started (before my time at eBay and Yahoo! I started a consulting firm in 1999 and ran it for two years; we had a payroll of 20 people at one point). But Approver is the first business I’ve run that’s purely based on a product rather than a service. Consequently, I get into conversations with prospective investors about it. Most common question: Are you actively looking for investor money? (Answer: Not actively, but I’m open to having investor-related conversations and I’ve had quite a few of them to date — my strategy today is to build out the feature set over time while bootstrapping the business with a modest chunk of our savings, which will be sufficient to keep things going for at least several years even if it generates very little revenue.)
The second question is: who else are you working on with this? The answer there is more complicated — Approver.com isn’t just me, but I don’t have any co-founders or employees yet. I am lucky enough to have a crack ninja team of advisors and helpers located around the globe, and their advice and encouragement has been invaluable.
There is a lot more information out there on how to interact with prospective investors today than during my first go-round in the ’90s, which is terrific. A lot of this information takes the form of lists of commandments or guidelines, some of which, I’ve noticed, contradict each other.
One of the guidelines I’ve seen repeated again and again is that a startup has to have more than one founder. I obsess over this point because, while I’ve been lucky enough to have a terrific band of helpful volunteers to pitch in with Approver.com, there’s only one founder — me. Does this mean that Approver.com could never attract investor dough? Dunno, but it would be interesting to delve into the rationale for the two-founder rule to get it figured out.
I have never heard a VC explain in a believable way why the two-founder rule exists. So I’m going to try to pick it apart with a thought experiment:
Let’s say you’re an investor and you’re looking to drop anywhere from $100,000 to a million bucks on some untested idea. Why might you insist on a minimum of two founders?
1) In case one of the founders gets hit by a bus, the other could (hypothetically) carry on? This seems straightforward.
2) The notion that different people need different kinds of skills to run a company. One person needs to be in charge of the business, maybe, while the other needs to be in charge of the engineering. This may hold water, but I’m not sure it applies to me personally (since I’ve held jobs on both the technical, business, product management and marketing organizations of big and small companies). But more importantly, look at two of the four horsemen of the internet: Google and Yahoo!. Two founders each. Both geeks. So much for that rationale.
3) Not being able to attract another founder means that your idea isn’t any good. This premise irks me, a lot. It assumes that your co-founder is clairvoyant (more so than the investor, at the very least). But it further assumes (I guess) a bunch of other stuff about your ability (or inability) to motivate people and lead a team of people who will quit their jobs to come work for you for free. This seems like hooey to me; I suspect it really only reflects your ability to hang out with people who don’t have jobs that they like.
4) A prospective acquirer won’t be buying the business, they’d be buying the team, and if you’re only one person, there isn’t as much to buy (particularly if you use the valuation of $X per engineer for a startup that hasn’t yet achieved profitability or even revenue). This makes sense in some cases, I guess. But I started my business with the idea that it would solve a real problem, attract lots of users and generate revenue. I didn’t start it to see how many people we could hire or how much money we could spend.
There’s something else I find fishy with the multi-founder rule: I’ve seen other investor commandments that state that the biggest impediment to success isn’t having a good idea or being able to wrangle the technology, but your ability to form and manage a team. (This rule is often stated conversely: “the biggest threat to an early-stage start up is when the founders have interpersonal conflicts”.) This commandment seems, to me, to be in conflict with the multi-founder rule. I happen to get along great with myself, and I know I will never screw myself out of stock options or get on my own nerves while working to get a feature out the door on deadline.
Bottom line is that investors who require multiple founders are putting entrepreneurs into a chicken/egg scenario — you can’t attract funding without multiple founders, but you can’t hire a second or third founder without attracting funding. At least it seems this way to me — am I missing something here?
This morning while I was searching for something else I ran across an old Dave Winer blog post that stated that Evan Williams was the sole founder of Pyra and he flipped Blogger to Google for $50M. It would be handy to identify other examples of single-founder companies reaching exits like this, I think.
Update: Doug mentions in comments that Dave Winer’s post isn’t entirely accurate; Evan wasn’t the sole founder of Pyra but he was the only founder on board when they were acquired. Mark Fletcher (ONElist, Bloglines, Startupping) also chimed in to say that he was the sole founder at his three startups, which are even better examples.
Update: I note with excitement that Twhirl, a one-person startup, was acquired this week.
Related posts:
I’ve never bought into the two-founder thing either. I’ve been the sole founder of all my startups, ONElist, Bloglines and Startupping, and I’ve done ok.
Thanks! :)
Actually, Evan Williams wasn’t the only founder of Pyra, but the company went through a couple of lean years, so the other founders – most notably Meg Hourihan – left.
All this was recounted in Rebecca Mead’s New Yorker article “You’ve Got Blog” (http://www.rebeccamead.com/2000_11_13_art_blog.htm)
As for multiple founders, maybe it shows that you’re not a total Tourette’s poster boy, and that you can actually play well enough with others to actually get a business growing?
Also, from the vulture capitalist perspective, maybe having multiple founders means that you could find potential splits within the founders over important things like valuation? I’m not sayin’, I’m just sayin’…
I’ve heard the two-founder thing before. I think the rationale for it goes something like, “look at the companies that go really big (Microsoft, Apple, Google, etc) — they always have two founders.” I dunno if that’s objectively true, but I think that’s the rationale.
I’ve had a co-founder for both of the companies I’ve started (Popular Power and now Wesabe), so I haven’t had a chance to be confronted with someone complaining about the lack of one. I’ve seen successful lone founders and even successful seven-founder teams; I just see those less often than two- or three-founder teams. (In my entrepreneuring tutorials, which I usually give at ETech and OSCon every year, I tell people, “three is fine, two divine.”)
I think you should choose the number and type of founders that will make you happiest and most successful. Anyone who tells you there is one formula for success is wrong. There are many roads to heaven, and you need to choose the one that’s right for you.
I generally caution people against starting something on their own because it’s hard to get a company formed and moving no matter what, and having someone else at your side can be helpful. I also caution people against having more than three founders, since I think the ability to make decisions and move forward quickly is perhaps the most important test for a founding team.
With those cautions in mind, if you have the motivation to do it yourself, one founder is fine, and certainly makes decision-making smoother than getting two or more people to agree. If you have a larger group that already has lots of experience making tough decisions together, that can work, too.
So, I would say there’s no rule, there are just cautions. No investor will care how many founders there are if the company is showing good signs of success.
Hope this helps.
Great to hear, thanks Mark. (I should mention that I read Startupping every day and I’m enjoying it.)
Ah…interesting, thanks for clarifying. Seems like Dave Winer oversimplified things in his post. (I like Mark’s data points better anyway.)
“But more importantly, look at two of the four horsemen of the internet: Google and Yahoo!. Two founders each. Both geeks. So much for that rationale.”
What about the other two: eBay and Amazon. One founder each.
Well, Jeff joined Pierre pretty early on, I guess, and then Meg arrived around employee 40. I don’t know the Amazon backstory.
Yoiks, I hope that’s not the reason. If so…that means we’re in a cargo cult.
Yeah, Jeff Skoll was employee #1 of eBay, but I wouldn’t use eBay as an example, because while they did accept venture dough, they (famously) never spent any of it.
It does look like Jeff Bezos was the sole founder of Amazon; his wikipedia article says he still owns 25% of the company. Wow.
I believe two founders keep each other honest, balanced, motivated through the tough times and humble through the good times. Last but not least, since a startup is a long and hard process, co-founders keep each from getting lonely.
For those of us who don’t program, it’s not much of a choice, is it? That said, I’ve just picked up my first programming book (Ruby on Rails, of course). :)
Working with a co-founder can have many benefits, including complementory skill sets and the fact that it’s easier to build up startup momentum with more than one person. However, working that closely with another person obviously carries a huge risk. It’s incredibly difficult to find someone who is super intelligent (preferrably brilliant), has integrity and actually shares your philosphy towards life and business.