FIRST-TIME FOUNDERS

Being a Founder or Co-founder of a startup venture is an incredibly taxing journey. We would go so far as to say, if someone is positioning the launch of a new company as easy, their credibility immediately becomes suspect and it could be assumed that they do not have the real world business experience that’s critical to launching a successful company which survives in the market and accomplishes an exit. Launching a company is grueling, especially for first-time founders. Lured by social media announcements, exciting Crunchbase articles, possibly “educated” by Shark Tank pitches, and weaned on tales of startup success with huge exits, many first-time founders simply aren’t prepared for the journey or are even aware of the stigma associated with being a “First-Time Founder”.

As we explore the edges of being a first-time founder, we realize this stigma is mostly unbeknownst to first-time founders—a blindspot that has snowballed to become an entire stereotype. So we are borrowing concepts from Johari’s Window to shine a light on this topic. A blindspot, put simply, is what others know about us that is hidden from ourselves. Johari’s Window, a tool that enhances self-awareness and interpersonal relationships, can be directly applied to a founder’s journey. Founders can utilize the concepts from Johari’s Window to reveal blindspots known to prospective investors as well as better understand their unfair advantage of their domain experience–and to some extent, their naivety.

In this article, we tackle the uncomfortable conversation surrounding first-time founders head on. The challenges facing first-time founders include genuine and perceived obstacles as well as biases from others while undertaking their startup journey. Our goal is helping first-time founders avoid these pitfalls by first understanding them. How to address them from there lies within you, the person reading this article.

Adopting an Old Model for New Founders

Before we explore these pitfalls in detail, it is important to acknowledge the multi-faceted nature of being a founder. All founders are influenced by their personal and career experiences, aspirations, financial resources, leadership style, personality, etc. The list of influences become amplified as founders do not act alone, though a deep interweb of relationships–both internal and external to a company–has a profound impact on the future success of the company.

Adapting a model to better understand the complex nature of the dynamics between a founder and the ecosystem in which they engage would be beneficial. The journey of a founder is complicated, and increases in complexity due to various factors that can translate into risk to the individual and their goals for the company that they are building. The complex and dynamic relationship between the founder and these influences is understood more fully if we filter it through the panes of Johari’s Window.

Johari's Window is a tool developed in 1955 by two American psychologists, Joseph Luft and Harrington Ingham. The framework is used to help people better understand their interpersonal communication and relationships, structured as a four-paneled grid with each pane representing different parts of an individual's self based on what is known or not known to oneself and to others. It provides a profound framework for understanding the stigma often faced by first-time founders. We believe this four quadrant model can be adapted to analyze and address the unique challenges entrepreneurs encounter.

The first quadrant is the Open Area and represents traits that are known both to the individual and to others. For a first-time founder, this might include visible enthusiasm, passion for the mission and fresh perspectives for how to tackle problems with new ideas, otherwise known as innovation. However, this also includes the visible vulnerabilities such as scarce resources or lack of specific experience, which may be unfairly interpreted by others as incompetence or naivety.

The second quadrant is the Blind Spot, attributes that are known to others but unknown to oneself. This may include what a founder thinks of as decades of corporate experience or what others may see as inexperience building a company from “zero to one”. The blind spot is where a founder is the most vulnerable and where a feedback loop of learning is essential. The stigma of first-time founders is mainly here. We’ll get back to this point later.

The third quadrant is the Hidden Area or qualities that are known to the individual but kept hidden from others. Many founders may hide their insecurities or the full extent of the risks they perceive in order to maintain confidence among stakeholders. We believe grit, authenticity, fearlessness and the “x-factor” lives here, like a fire in the belly.

The last quadrant is the Unknown Area, aspects that are neither recognized by oneself nor by others. For first-time founders, these could be unforeseen strengths or weaknesses that emerge in response to new challenges. As Steve Jobs famously said, “It is impossible to connect the dots forward.”¹ The unknown areas include dots we cannot imagine yet, until they emerge.

For founders, navigating the unknown requires creativity, flexibility and the incredible skill of problem solving with few resources. Strategy is born from constraint and building a plan to beat the odds.

Why the Stigma Exists

More often than not, first-time founders possess a certain naiveté which cuts both ways. Through hard work and dedication, they can achieve the impossible because they are simply too naive to realize that what they are attempting is considered impossible by everyone else. On the other hand, it acts as a huge blindspot, cutting them off from the knowledge and skills required for success that they may inadvertently lack. Because of this, they can be prone to common and trivial mistakes which could prove costly in their startup journey, including their reputation.

This is particularly true when engaging with experienced investors who live and breathe in this space, stacking hundreds of daily interactions. Not only is it difficult for first-time founders to navigate the startup ecosystem, but unlocking the “black box of startup” is an undertaking on its own. It is only experience that will allow a first-time founder to spot predatory practices by bad actors monetizing this inexperience. There is no shortage of “help” in the startup ecosystem, and it comes in lots of forms, not limited to advisories, communities, Slack channels, private networks of coaches, pay-to-pitch, etc. It is at this point we will begin to unpack and what to expect on your epic adventure.

Why First-Time Founders Need to be Prepared

The startup journey is not for the weak. Jensen Huang, Nvidia’s CEO was recently quoted regarding building a company, “it’s a million times harder than I expected it to be” and “nobody in their right mind would do it”² if they were aware of the true personal toll. These are incredible words that strike at the heart of the matter, particularly for a company now larger than the size of Walmart and Exxon combined and started over cheap coffee at Denny’s. A founder story unfolds as it happens, like a quest.

As in any true quest, the cave one fears entering contains the treasures that one seeks, and it may not always be solely about money. As a founder, one must be prepared for the obstacles, setbacks, and sheer strain that needs to be overcome as they build out their strategy and offering. By understanding their business, industry vertical, metrics, investor expectations and possibilities for startup success, first-time founders can wield a deservingly unfair advantage over their competition. Ultimately, one must heed the words of Francois de La Rochefoucauld who wrote, “to establish yourself in the world, a person must do all they can to appear already established.“³ Acquiring knowledge from trusted resources is the single biggest advantage for a founder to become established, which filters directly into the company and its performance.

First-Time Founder Company Performance

Although first-time founders may lack experience or the right connections when starting a company, first-time founders have proven that they can be successful. A study by the Harvard Business Review found that first-time founders who have previous startup experience tend to perform just as well, if not better, than serial entrepreneurs.⁴ The study implies that success hinges not solely on experience in founding a company, but rather on familiarity with the startup ecosystem and their domain knowledge around the problem they seek to solve through their organization.

Another study from Harvard Business Review found that first-time CEOs can often outperform those with prior CEO experience.⁵ The study suggests that first-time founders are more likely to have a deep, intrinsic motivation that drives them to succeed. This "x" factor allows them to see stepping stones where others would see walls. In other words, they have something to prove and this drives them through even the toughest of times. And while first-time founders often struggle with market traction, it has been reported that first-time founders who focus on customer discovery and validation are able to gain market traction at a rate similar to experienced entrepreneurs.

What can we learn from these studies? First-time founders have the potential for success if they diverge with discernment from the conventional norms and biases that typically govern the startup ecosystem and common behaviors brandished in the culture of startup. This is where we think understanding blindspots is important as to avoid becoming entangled in the stereotypes associated with being a first-time founder.

Because investors do not assess early stage companies in any sophisticated way, their mechanism for understanding risk, their own, is based on a qualitative amalgamation of undocumented nuanced rules that help them understand, “is this a good bet?”. This is otherwise known as signals.

We have developed a list of misconceptions first-time founders are bound to encounter based on our direct research.

Misconceptions Facing First-Time Founders

The startup ecosystem is full of free knowledge–everything from communities to free blogs to videos offering insights that could be truly beneficial to those entering the no-man’s land of “startup”. While there are lots of people in this oasis, real knowledge is truly scarce. As a founder, you must ignore the mirage in this desert and seek the oasis daily. Avoiding common pitfalls begins with first getting real about fantasy versus reality. Here are a few prominent misconceptions that first-time founders often make:

Startups Are Fun

For those not in the startup ecosystem, or those with experience in venture capital fundraising, startups appear to be fun and rewarding. Rather than spending hours slaving away at an office in a career that you may hate, being your own boss and working on a passion project seems to be the better solution. Social media and business articles support this with stories of exited founders reaping vast sums of money at the end of their startup journey, but for most, this couldn’t be further from the truth. Startups are inherently risky.

Competition is fierce and most startups fail. In fact, even with significant investment, they often fail. Harvard Law on Corporate Governance estimates that 75% of VC-backed startups go belly up,⁶ a figure which they admit they could be underselling–a stunning confession. Generally in startups, resources are scarce, more scarce than every role they have had where the budget was cut and not doing the project or whatever was okay because they can do it next year. This is different. Founders need to wear multiple hats and juggle a variety of responsibilities across many job functions and possess the skill of extreme context switching as it is normal for founders to be fulfilling the work of multiple roles on their own. This often leads to founder burnout due⁷ to the extremely long hours and the fact that if they aren’t working 100 hours a week, their competitors could be gaining ground. Time is money. Getting to market is time sensitive.

Experienced Founders and VCs Have All the Answers

The famous screenwriter William Goldman once remarked that in Hollywood, “nobody knows anything... Not one person in the entire motion picture field knows for a certainty what's going to work. Every time out it's a guess and, if you're lucky, an educated one.”⁸

The same can be said of startups. Just like in the corporate world, in the startup world it is safe to say many people are out to make a name for themselves. Their social media is filled with titles like “go-to-market strategist“, “investment expert”, “thought leader”, or they “help startups start up”, or what have you. These people often appear impressive but lack substance.⁹ First-time founders, often unable to distinguish between actual industry knowledge and pure bravado, believe these so-called experts.

Rather than question, they conform. Instead of seeking to challenge, they accept the advice, even though it isn't tailored to their specific situation. Every startup is a unique phenomena and every startup founder has a unique background and skillset. First-time founders need to be able to understand which information should be accepted and which should be ignored. If you don’t know, keep talking to people and continue reading the TL;DR’s until the information you seek is clear.

It is critical that first-time founders discern between genuine individuals and those seeking to exploit their limited resources, often offering subpar services in exchange for cash and equity. Often these people have an ulterior motive for providing knowledge, whether it be to pad a resume, sell a course or sell a private retreat. And more often than not, first-time founders fall prey to them, wasting limited time and resources that could be better utilized on their own startup endeavors.

While we believe there has never been a better time to start-up considering AI is akin to a time machine, launching a company takes longer than you think it will. You cannot drag and drop your way through an app to launch a company. If this is what you are being sold, run.

The Market Is Ready For Their Solution

First-time founders often believe that merely gaining approval from their peers on their solution will automatically attract a large following from the masses and allow them to take a large percentage of their market. This simply isn’t the case. No business leader seeks to buy more software and add complexity to their tech stack. It must be nothing less than excellent and it must create a metric ton of business value. Understand that there is a difference between the people in one’s immediate circle offering their support and complete strangers offering their credit card. Analyzing the entire market requires in-depth research, something that if overlooked, will sink a startup. It is critical for first-time founders to seek out perfect strangers in their target market to consume their services for good old fashioned usability testing. Prior to this, we propose achieving Idea Market Fit¹⁰ before a dime is spent on building an MVP. Failing fast is not just good for pharma. Pivoting is startup code language for wasting time and money, because this has been acceptable historically.

Simply put, it isn’t enough to search Google for an hour and support one’s findings with ChatGPT. In fact, using ChatGPT or any other LLM for research is a very good way to get in trouble, and fast. If one's AI cannot cite facts and figures referenced to the original source, the academic research for the startup is flawed by design. First-time founders need to dive into the market, vet research and make sure there is room for scalable growth, otherwise they could face disaster. Credible research is critical in addition to talking to real people in the pursuit of achieving Idea Market Fit.¹⁰ It is an important prerequisite as a first-time founder in order to avoid getting caught flat footed in an investor meeting or discovering right-fit customers to buy an MVP.

Gaining Traction Will Be Simple

First-time founders frequently grapple with gaining market traction. They commonly fall into the trap of overestimating market size, underestimating competition, underestimating the need for digital marketing and encountering challenges in pinpointing their target audience. For example, first-time founders often believe their competitors are established incumbents. In reality, they are the other startups who operate in the same space and are most likely approaching the same investors for funding. In this fierce market, it is also common for a large company to solve the problem with a feature release and poof, the startup is out of business.

In another study by Startup Genome, it was discovered that 70% of startups failed as a result of premature scaling,¹¹ a prevalent error often committed by first-time founders. In their rush to become the next Amazon, first-time founders attempt to grow fast and burn through limited resources, making mistakes that they can’t afford and learning harsh lessons that can and should be avoided. It is a hard lesson when a founder realizes as the runway gets shorter, that their efforts early on should have been acquiring customers versus investors. Speaking of…

Investors Are Open to a Meeting

First-time founders may fall victim to the variety of VCs whose social media boasts that their inboxes are open for cold outreach, particularly on the platform formerly known as Twitter. But just because you can slide into the DMs doesn’t mean you can gain a meeting, let alone funding. First-time founders stand a greater chance of securing funding from venture capital if they possess prior experience in high-growth startups or come from a top tier university. This underscores the tendency of investors to seek strong signals of potential success in a founder's background when deliberating investment decisions.

It also helps to know who you are dealing with. First-time founders should understand the hierarchy of venture capital firms so they don’t waste their time pitching someone who isn’t in a position to invest in their company. While scouts and associates are a front door into a fund, they lack the power to actually make an investment decision. The amount of time spent fundraising and talking to the wrong people is similar to selling your product to the wrong buyer. Time is money. As a first-time founder, time is the most scarce resource.

The Fundraising Process is Fast and Easy

First-time founders sometimes believe the fundraising process will be quick, easy, and seamless, just like the startup solution they are pitching. They assume that the fundraising process involves a simple pitch deck and a meeting, which unlocks the millions that they need to scale and become the next Google. They often believe this entire process only takes a matter of days or weeks, which couldn’t be further from the truth.¹² It is a process that involves multiple meetings, investor due diligence, and of course, money hitting the bank.

Successfully completing this process depends on a variety of factors. It’s less about whether or not the deck looks pretty (it should, regardless) and more about the substance. If you are a first-time founder, your deck is a summary of a great deal of work and should have depth as well as a defensible financial model. It should be a concise representation of the facts you’ve uncovered. For example, is your startup operating in a hot market? What is your track record as a founder or business leader? Who is the team? What is your current traction? What is your story? Your roadmap? Your pipeline? What is your unfair advantage? Where is your risk?

First-time founders need to be prepared to invest in themselves as well. Many do as their exclusive source of capital and are called “Bootstrappers”, like Elon Musk and Mark Cuban. Research indicates that when it comes to fundraising, first-time founders often rely on personal savings, friends and family, and angel investors to secure initial funding. According to a study conducted by Clutch, a notable 57% of first-time founders relied on personal savings as their primary source of startup capital.¹³

There is also a significant opportunity cost when it comes to acquiring customers versus focusing on fundraising. A founder cannot give 100 percent effort to both and must choose, often making the poor decision to try and raise when their startup isn’t ready for an outside capital influx. First-time founders should focus on the business and obtaining customers rather than hoping that a VC investment will prepare the business to obtain them. It is here we must add, revenue is a science, and we will expand on this idea in another piece.

All You Need is a Good Idea

First-time founders are often under the impression that a good idea and a pitch is all you need. But experienced founders know that investors want to add fuel to a raging fire, they don’t provide capital to test whether AI for hot dog stands will become the next unicorn. Ideas are cheap, execution is very hard.

And yes, there are stories of founders raising millions at the idea stage, pre-product and pre-revenue. However, many founders often overlook the substance and details behind those stories. For example, it could be an exited founder or someone with significant experience and industry connections. If this is not you and you are a first-time founder, your execution plan is make or break.

Yes, you need a good idea, but you also need the skill and the tenacity to implement the idea in addition to the will to fundraise. Obtaining funding, whether from angels or investors, is difficult. Speaking of fundraising…

Iconic First-Time Founders Raised With Ease

First-time founders frequently encounter hurdles in fundraising, primarily stemming from their limited experience and network. Convincing investors of their capacity to execute their business plans becomes arduous, particularly without a demonstrated track record. Consequently, this predicament often extends the fundraising timeline and results in smaller funding rounds compared to their seasoned counterparts.

The titans of industry that are known to every founder had to face the same obstacles that every startup founder has to overcome. This is especially the case for raising funds.

Before Jeff Bezos was the richest man in the world, he was a 30 year old hedge fund manager and first-time founder struggling to get backers to fund his online bookstore. He held 60 meetings with friends and family to pitch them. Of the 60 people he approached, 22 were convinced to invest in his idea.¹⁴ They provided the $1 million he needed to launch Amazon.com. That investment is now valued at $15.9 billion based on Amazon's January market capitalization of approximately $1.59 trillion to $1.604 trillion. Talk about Power Law.

Steve Jobs was also a first-time founder. But unlike Bezos, who actually had some prior business experience, Jobs was a barefoot hippie who would cool his feet in public toilets and refused to shower. When Jobs approached his former boss and Atari founder Nolan Bushnell to invest in his nascent company called Apple, Bushnell turned him down. The terms were $50,000 in return for a third of Apple, which is now a trillion dollar company.¹⁵

Melanie Perkins was frustrated with design software, finding them clunky and difficult to use. She had a vision for a global design software that would let anyone be able to create beautiful designs regardless of skill level. Despite this vision, Melanie received 100+ investor rejections, citing the fact that her HQ was in Australia, she didn’t come from a top tier school, and that her product was overpriced.¹⁶ Despite this, she persevered and was able to raise $1.6 million in a seed round that allowed her to move forward. The company? Canva. It is currently valued at $26 billion.

Education and Self-Awareness: The Crucial Advantages for First-Time Founders

By embracing a mindset of continuous learning and fostering self-awareness, hence opening up the blindspot of Johari’s Window, first-time founders can gain an unfair advantage and avoid the stigma and misconceptions that stand in their way to success. Instead of projecting an image of amateurism and inexperience, first-time founders should present themselves as professionals who understand their domain, their specific market and the startup ecosystem. By knowing the game and how it is played, they can navigate common pitfalls, increasing the odds of startup success.

While all of this feels overwhelming and discouraging, this is not the intention. The first-time founders of today are educated, fearless and are the 99% underserved by existing programs and services. Many have significant business experience and are reinventing themselves to take control over their own destiny, but they are planners and thoughtful about how they go about taking their exit from the current state to a plan for a bigger exit in the future. It has never been a better time to be a founder launching a company–just know to go with eyes wide open. Measure twice, cut once and surround yourself with people whom you can trust. It’s a long journey into the unknown.

References

¹ MurphyWrites: “Navigating the Road To Success”, cited in April 2024 (Source)

² The New Yorker: “How Jensen Huang’s Nvidia Is Powering the A.I. Revolution” cited in April 2024 (Source)

³ Francois de La Rochefoucauld: “Maxims” cited in April 2024 (Source)

⁴ Harvard Business Review: “Research: Serial Entrepreneurs Aren’t Any More Likely to Succeed”, cited in April 2024 (Source)

⁵ Harvard Business Review: “Why Rookie CEOs Outperform”, cited in April 2024 (Source)

⁶ Harvard Law: “Startup Failure”, cited in April 2024 (Source)

⁷ Firstround Review: “The First-Time Founder’s Guide to Learning Everything the Hard Way”, cited in April 2024 (Source)

⁸ Goodreads: “Adventures in the Screen Trade Quotes”, cited in April 2024 (Source)

⁹ Medium: “Advice to First Time Founders (and Maybe All Founders)”, cited in April 2024 (Source)

¹⁰ StartStak: “How Idea Market Fit Shapes Startup Success”, cited in April 2024 (Source)

¹¹ Startup Genome: “A Deep Dive Into The Anatomy Of Premature Scaling” cited in April 2024 (Source)

¹² DQventures: “What do 2nd-time founders do that 1st-time founders don’t?", cited in April 2024 (Source)

¹³ Clutch: “Startup Funding: Sources and Challenges for New Businesses”, cited in April 2024 (Source)

¹⁴ Yahoo Finance: "Jeff Bezos Held 60 Meetings To Secure Amazon Investors But 38 Declined His Offer Of $50,000 For 1% Ownership — A Decision That Could Have Made Them Over $15 Billion Today", cited in April 2024 (Source)

¹⁵ The Sydney Morning Herald: “How Atari's Nolan Bushnell turned down Steve Jobs' offer of a third of Apple at $50,000”, cited in April 2024 (Source)

¹⁶ Heyday: “Melanie Perkins' Canva Origin Story”, cited in April 2024 (Source)