Investment Insights: Putting the Market First, Founder Second
In the world of investing, it is common to hear the important trait of successful businesses are its founders. But, I beg to differ. I believe the market in which a founder operates is the most critical factor in determining the company's growth velocity. In this blog post, I would like to share my view on why I believe market is more important than founder in investing.
Firstly, let us define what we mean by 'market.' Markets, in this case, refer to segments of customers who are adopting and finding value in the founder's product. In other words, it's the size and growth of this segment of customers that determines a startup's fate. Often, investing in a startup with a great founder does not guarantee investment returns. The problem with using the founder as the litmus test of a successful business is that only successful founders have been able to provide returns to investors. We must also note that most founders are first-timers, and the idea of 'good founders' is subjective. Therefore, good founders fail all the time.
Secondly, historical success proves that a market is sustainable. A company with a track record of growth has a higher chance of maintaining that growth rate in the future, provided the market remains sustainable. This history of growth is far more interesting to me than the pedigree of the founder or the depth of the product. Therefore, as an investor, I put my faith in the market and the future potential of the company to grow further.
Thirdly, investing in an accelerator company is challenging. There are several reasons why a company might not be growing - it could be a product issue, market issue, execution issue, among others. Unfortunately, investors often find this out only after investing in the startup. Thus, as an investor, I prefer to invest in a company that is already growing, which provides tangible evidence that there is a market that is willing to buy its product/service. The next question is, why are they buying, and how long will this growth continue?
Lastly, the market itself has a higher potential for growth than just the founder. A great founder can take a business only so far, whereas a great market can help the business grow exponentially, even if the founder is not exceptional. Growing markets hide operational sins. For instance, the Airbnb founder, Brian Chesky, admits to learning about entrepreneurship while running his company. He explains how the market that Airbnb operates in is what has made the company successful.
Conclusion: In conclusion, as an investor, my belief is that a great market holds more potential than an exceptional founder. Investing in a startup that operates in a growing market provides higher potential for returns than investing in a startup because of its founder. Startups that have a track-record of growing in sustainable markets are always more interesting to me than exceptional founders. My advice to investors is that they should assess the market in which a founder operates in before investing in the startup.