Domain experience is key | #6

Contrary to the popular belief, most founders don’t have any directly relevant work experience in the industry they are disrupting.

Friends,

There's a prevailing belief about the role of work experience of founders: Having gained proper work experience in the industry, in which you are now building your company is seen as highly advantageous.

It’s based on the idea that you can navigate the intricacies of the domain more successfully when you’ve seen it from the inside and you’ve had first-hand experience with the problems. Ultimately, leading to what some investors would call founder/market fit.

I agree that this is an important lens for understanding your Right to Win as founders for the challenging journey ahead of you. However, I disagree with the notion of taking the relevant work experience of founders as the main proxy for founder/market fit.

What the data says

Founders ought to have direct work experience in the industries they’re “disrupting” is a misconception. It turns out that a lot of billion-dollar startup founders have very limited or completely lack any work experience in the industry they are disrupting.

Bill Gates (Microsoft), Mark Zuckerberg (Meta), Steve Jobs (Apple) Brian Chesky (AirBnB), Tesla (Elon Musk) all built companies in an industry they had previously not been part of.

Am I suffering from selection bias because I’ve picked the most prominent examples to support my claim? Let’s go beyond anecdotal evidence.

For his book Super Founders, Ali Tamaseb has spent four years analysing almost 300 unicorns which he compared with startups having raised at least USD3M. His research made him look at 30,000 data points across founder, company and market characteristics. He also interviewed a long list of high-profile founders – entrepreneurs who started companies such as Zoom, Instacart or Nest.

Among billion-dollar companies, fewer than 50% of founding CEOs and fewer than 30% of founding CxOs had much, if any, work experience that directly related to their startups.1  

In terms of directly relevant work experience, there was no significant difference between the billion-dollar group and the random group, meaning the existence or lack of that domain experience did not affect the success rate, so overall it is neither an advantage nor a disadvantage.

It is noteworthy though, that most billion-dollar companies get started by people without much, if any, directly relevant experience.

However, there is a stark difference when you break it down into the buckets of enterprise, consumer and healthcare/biotech.

Founding CEOs of unicorns: relevant work experience vs. no relevant work experience

On average, 75 % of founders in healthcare, life sciences and biotech had directly relevant experience, while in enterprise tech only 40% and in consumer only 30%. A higher product complexity as well as heavy industry regulation might favor founders with the right set of experiences.

The data shows furthermore, that founding CEOs with no directly relevant experience were more likely to have paired up with founding CxOs who also had no or low directly relevant experience. The stereotype about an “ideal” team where one founder must be from the industry and the other cofounder is the tech-savvy innovator is not necessarily true.

Let’s not forget that the Super Founders analysis is merely about correlation, it’s not about causation. What if the high share of unicorn founders with no / very little relevant work experience can be explained by these founders embodying an impatience to build. The best founders feel a sense of urgency to build. They don’t spend years in a corporate career before taking the plunge.

To include another perspective: Lenny Rachitsky analysed how today’s most successful B2B software companies in the US were created. He was surprised that only 40% of companies were created by founders identifying a previous pain at their previous company. Then building a solution for it.

A double-edged sword

In previous newsletter posts, I have reasoned why a deep understanding of your customers’s problems constitutes the critical path for successful company building. Furthermore, I argued that startup ideas need to be developed from profound insights by looking at the whole chain of effects, impacts, and outcomes.

No doubt that relevant work experience is a great basis for this. It helps you to quickly get from Mount Stupid. If domain experience is utilised by someone who qualifies as an exceptional founder formidable outcomes can be achieved.2

“Domain experience” means that the founders have worked in the industry before. It isn’t a “must” for me but it’s certainly a huge positive when entrepreneurs have it. When you’re researching a market you can spend a year putting your hypotheses on paper but you somehow never really have a handle on the minute details of the industry until you’ve lived in it. It’s not an absolute requirement for me that you have domain experience but if you do it’s a HUGE plus.

Mark Suster

Furthermore, a pre-existing strong network in your industry is without any doubt a very valuable asset. It requires “high agency behaviour”, time and excellent social skills to build your equivalent social capital as an outsider.

However, one easily overlooks the potential of fresh eyes. Outsiders, unencumbered by industry norms and conventional wisdom, can challenge the status quo and bring about disruptive solutions. There are merits of being an outsider.

Outsiders are often free from the assumptions that insiders might have. This naïveté is not a weakness but a strength. It enables founders to ask fundamental questions that insiders might overlook, leading to innovative solutions that redefine the market. The history of startups is replete with examples where a fresh perspective has led to groundbreaking innovations.

While domain expertise can be advantageous, the rapid pace of change in technology and markets often makes specific knowledge quickly obsolete. In contrast, learning agility - the ability to quickly learn, unlearn, and relearn - is a more crucial skill.

Sometimes, the most groundbreaking ideas come from founders who did not fit neatly into their market’s traditional mould. These 'misfits' often see opportunities that insiders miss and approach problems in ways that defy conventional wisdom. Embracing this misfit mentality can be the key to unlocking innovative potential.

Some closing thoughts

Founding a company and finding product-market fit is hard – not every founding team has what it takes to succeed. Therefore, it makes sense that there is a lot of attention on the question “Why You”.

Founder/Market fit is a helpful lens to look at the Why You. Simply equating it with years of work experience is short-sighted though.

There’s no evidence that founders with years of relevant work experience have it easier to succeed in building billion-dollar outcomes. What you make out of your experience (maybe only a student project or an internship) is more important than the tenure.

1 This should not be confused with other dimensions such as i. the number of years of work experience (regardless if defined as relevant), ii. having been a (successful) founder before and ii. the age of the founder.

2 There is no ultimate truth. I personally think that exceptional founders rank very high in these five dimensions: i. Agency (resourceful + scepticism vs. best practices + internal locus of control), ii. Personal Exceptionalism (holding the belief that you are different and can achieve what others can't), iii. Followership, iv. Ambition and v. Cognitive Abilities.

Founder’s view: Florian Huber

Florian Huber is a serial entrepreneur based in Berlin. Ever since he graduated from university he has started building and scaling companies – interestingly in very different industries. Nowadays, his focus is on EWOR. A place where exceptional people find the education, network, and capital to solve the world’s biggest problems. EWOR’s leadership team has successfully built and exited 7 fast-growing tech companies - including a €1.2BN exit (Adjust), a €500 million exit (ProGlove), the largest global entrepreneurship society for those under 26 (Sigma Squared).

Furthermore, he’s one of Germany’s most prolific angel investors, incl. investments in Foodora (pre-seed), Magic.dev (pre-seed) or Parcellab (seed).

Florian is the founder of united-domains (sold to 1&1 Group in 2015), neubau kompass (Germany’s leading real estate marketplace for residential constructions) & is an angel investor in 50+ tech startups. Since 2022 he's a Co-founder & Chief Investment Officer of EWOR.

Could you walk us through the work experience you gained before you founded the companies?

Before founding my first tech company at the end of the 90s (united-domains, later sold to 1&1 Group). I didn’t have any real “working experience” and started the company right after my college degree (law and business) with some of my friends. Back then the commercial internet was still nascent in Europe. No one had any real working experience in this new industry. We had to figure out pretty everything on our own and build everything from scratch. But so had all our competitors. On the other hand the internet was booming and the growth in adoption was insane. Often the right timing is often more important than having the perfect previous work experience.

How has the work experience, respectively the lack thereof impacted your company?

I was raised in a lower-middle-class family and had no prior work experience. However, my parents operated a small freelance business. Our dinner table conversations often revolved around acquiring new customers, managing cash flow challenges due to delayed client payments, and navigating interactions with tax authorities. From a young age, I absorbed an entrepreneurial mindset, which later proved to be immensely beneficial when I started my own companies. Even now, as an investor, I find it highly advantageous when a founder mentions having grown up in an “entrepreneurial family”.

After the exit of united-domains to 1&1 group I started my second company. This time in the real estate space: neubau kompass - a marketplace for new residential developments. This time the initial start was much easier as I avoided all the typical mistakes of a first time founder and I knew the basic playbook. However, it was a new industry und I have no experience in real estate whatsoever (e.g. I was still wearing jeans and sneakers when visiting clients but quickly learned this is not the typical industry dress code). On the other hand I was seeing things with fresh eyes. I didn't care much about decade old industry standards which oftentimes helped us to be more innovative than our established competitors.

What’s one piece of advice you wish you had known earlier?

Entrepreneurship is hard. During the initial years, it involves a daily battle for your company's survival. As a founder, your role is to act as the crisis manager and your main job is ensuring that your company doesn’t die.

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