More Portfolio Entrepreneurs

Portfolio entrepreneurship is, according to researchers, one of the most interesting types of entrepreneurship. Yet very few entrepreneurs realise it’s an option, and most are strongly encouraged not to entertain it.  

In my last article I discussed why I think portfolio entrepreneurship should be more prevalent. Below I have included some of the theory behind portfolio entrepreneurship and my views, or unanswered questions for those who expressed interest.

Embracing portfolio entrepreneurship: 

• Regardless of intention and the prevailing narrative, over 50% of founders are replaced as CEOs when their companies grow to any kind of size. Given a statistically disproportionate number of founders believe they will be successful, I’d also posit that ~90% of founders don’t believe they will be the ones replaced. (Read the excellent Founder’s Dilemma for more info on founder misbeliefs). What you are founding and why you are founding has a huge impact on whether you’re still the founder even a few years down the line. What if those entrepreneurs starting businesses recognised and planned for their natural life-cycle? How would that change the way startups work? I think many founders would actually be relieved. The relentlessness of entrepreneurship is one of the most daunting aspects for existing entrepreneurs. 

• Most startups fail and many projects within a startup get canned. Corona has wiped startups out in two weeks. Therefore most startups involve a HUGE amount of wasted time, effort and resource. If we can couple experienced entrepreneurs with those starting for the first time – which the literature claims results in a much higher probability of success – this could have a gargantuan knock-on effect within society. Anecdotally, most successful entrepreneurs I know have benefited significantly from the input of more experienced entrepreneurs. It is one of the reasons why I’m creating a fund, called Ventures Together, which uses scouts (experienced operators) as investors here in the EU. 

• The most successful entrepreneurs in the world have all been portfolio and/or serial entrepreneurs – Elon Musk, Peter Thiel, Steve Jobs, Richard Branson, Stelios Haji-ioannou, Evan Williams, Jack Dorsey, Oprah Winfrey. However, resources and brand go a long way to help create new, so perhaps everyone would be a multiple-time entrepreneur if they had access to the brand or money? 

• Even entrepreneurs who’ve stuck to one company tend to become portfolio entrepreneurs if that company becomes hugely successful – by producing multiple companies within their company – Jeff Bezos, Bill Gates, James Dyson, the Google founders. Again this might be due to resources and opportunity. 

• Therefore entrepreneurs tend to continue to be entrepreneurs throughout their career. Entrepreneurship is addictive, noted a few of the academic journals. Perhaps the biggest constraint to portfolio entrepreneurship is not desire, but the resources to do so and once you become successful then your entrepreneurial ambitions are easier to fund? 

• Where do portfolio entrepreneurs ‘get off’? If a business starts to work, do they step back or remain as an NED? If a business ends up in crisis, does it drag them in so that they can only focus on a single thing? It’s unclear where the journey starts or stops and how best to get the most out of a founder.

• As I talk about portfolio entrepreneurship with people, more founders come out of the woodwork as having started a business on the side, or been involved in the creation of, but not the running of, a business. As a friend noted recently – it’s part of just ‘being in business, hustle and opportunity’ that means that most people are portfolio entrepreneurs if they’re interested in business. Often this happened quietly, without others necessarily knowing about it. 

Why Portfolio Entrepreneurship is good:

• The academic literature claims there are significant advantages of portfolio entrepreneurship. On an individual level, these include: risk diversification, profit maximisation, not being beholden to a single outcome, seizing opportunity beyond the bounds of existing entities (lateral development), better mental health and satisfaction to name a few. On a macro level, businesses part-owned by portfolio entrepreneurs have: higher sales and employment growth rates & likelihood of success. This contradicts the standard narrative in the ecosystem. Could the economy and societal problems be helped by encouraging portfolio entrepreneurship? 

• I believe that much of the mental health crisis amongst founders is caused, and a huge amount of value and potential innovation in our society isn’t realised, because people aren’t doing what they’re best at. With operators trying to start businesses and entrepreneurs trying to operate them. I wonder how many new amazing businesses would be created if entrepreneurs focused on starting things and then handed them over to those best equipped to run them? The ‘build and run yourself’ narrative is one that is a) significantly skewed by survivorship bias and b) one that has likely been reinforced by venture capitalists and the media. 

What is Portfolio Entrepreneurship? 

• From my perspective, the 12-33% of entrepreneurs being ‘portfolio entrepreneurs’ – as claimed amongst academic papers is way, way off. I’ve found very few examples in the wild. Therefore are the conclusions of the benefits or drawbacks also misaligned?

• Portfolio entrepreneurship is not ‘doing the fun bit and then leaving the hard work to someone else’, as some believe. It’s not even necessarily easier than being a one-time founder that sticks with a business. It is harnessing the skills, drivers and desires that take an idea from concept into reality. It is focusing on the ‘cold start’ part of a business, creating something from nothing and giving it early momentum, and then moving to start something else. A select few people are good at it and often find it more fun and easier than later stages. Others find growing a business easier and more fun. Entrepreneurs often believe – because of the prevailing narrative that startups are hard – that the founding part it isn’t as valuable if they find it easier and more enjoyable and therefore assume they have only founded if they’ve gone through hardship at a later stage. 

• There are many incubators, startups studios and venture builders who are beginning to ’standardise’ the process of portfolio entrepreneurship – becoming institutional portfolio entrepreneurs, rather than ‘individual’ ones. Some of the best are here Entrepreneur First, Antler, Founders Factory, Blenheim Chalcot, Rocket Internet, eFounders, Zinc, Prehype, Betaworks, Atomic. They call themselves venture builders, startup studios or incubators. There’s a whole raft of exploration to be done looking at their learnings as a whole, although I imagine much of it is considered proprietary so won’t be revealed. 

How ‘to be’ a portfolio entrepreneur:

• There are many different ways a portfolio entrepreneur could help get things started – with capital, time, their network, advice and so on. It’s hard to know where founding begins and advising or mentorship stops. 

• Every business takes a HUGE amount of effort to get off the ground and get working. The narrative – that you have to be singularly dedicated to a startup – is useful and important because of the force that needs to get lift-off. It requires singular focus from someone. As such, I believe each business MUST have a full-time founder (or more) who are willing to commit fully to the project for a number of years. You need someone that is relentlessly resourceful within a company to make it work. A portfolio entrepreneur is like a part-time founder, who works with the company, but does not replace the need for a founding team. 

• It’s hard as a portfolio entrepreneur not to become too attached or over-exposed to your business. As such, if (or perhaps invariably when) the business struggles, it will need more capital or time. Therefore the portfolio entrepreneur must set limits. ‘Becoming’ a portfolio entrepreneur is hard because it’s likely that of the first few businesses started, one or more will require more time and effort that will suck an entrepreneur into that single entity. When coupled with a failure rate of say 66%, if you start 3, you’ll be left with one, meaning that you become a sole entrepreneur quite quickly. It takes discipline and/or significant capital to ride through the harder times and continue to start things if you become over exposed to a singular entity in terms, or if one really begins to work well and it draws the portfolio entrepreneur in. 

• As such, I see portfolio entrepreneurship as something that someone could do only after having worked singularly as a first-time founder. Perhaps there’s a lifecycle piece to this puzzle? Each person starts as a first-time founder and then can move to become a serial or portfolio entrepreneur once they’ve learned the ropes from within. Certainly, it’s impossible to be a serial founder first time round. Similarly it’d be hard to become a portfolio entrepreneur from the get-go as the value that a portfolio entrepreneur provides is helping increase the likelihood of success and experience helps significantly. As resources play a big role in the formation, those with experience and resources seem to become better portfolio entrepreneurs. 

Founder risk, reward and portfolio entrepreneurship:

• Portfolio entrepreneurship would be significantly more popular and many more founders would start more businesses if the founding stake was representative of the effort to risk ratio and the time it takes to achieve an outcome. The compensation packages for executives of successful companies is far less risky than those at the beginning and far, far higher. Join a successful company and your total remuneration to risk ratio is likely to be way more attractive than that of an average of founders. 

• A Founder’s stake should be representative of the risks, lack of remuneration and the irregularity of a successful outcome or exit at the time of founding. Subsequent managers, investors and shareholders often forget or overlook the uncertainty, effort, skills and resources it took to create a company – especially given founding may have occurred a significant time ago. As a result, later stakeholders often question, remove or undervalue that early founding contribution. 

• It is unusual that an entrepreneur is paid for their work at the ‘founding stage’. It normally requires an investment of their time, money and/or expenses. As such, the stake founders’ retain if a business goes on to be successful is their principal reward. Salary usually only compensates for the ongoing work. Currently, founders often stick with a company, merely to recoup early losses as things start to work in the form of salary, as their stakes are worthless at that stage. 

• In the case of a successful exit, it is easy to feel that a founder gets too much, especially if they have not been active for some time. However, if the risk to reward ratio was calculated accurately, including the probability of success and opportunity costs of founding a business, those large winner-takes-all outcomes would seem far less extreme. 

• Public policy has traditionally focused on creating new entrepreneurs as a way of stimulating startup growth. However, if all the above is true, perhaps giving more resources to existing entrepreneurs and encouraging them to be portfolio entrepreneurs is a quicker and more efficient method of stimulating startup growth than creating new ones. This has many practical consequences. 

• A lot of research is conducted on a company basis e.g. the startup is the unit of measurement. If the entrepreneur was the unit of measurement, would we see a very different business landscape? Would the statistics and resulting policy differ?

• Many (read most) books about entrepreneurship are about growing a business, rather than starting one. 

• The definition of entrepreneur in the literature, let alone portfolio entrepreneur isn’t consistent, making it very difficult to compare studies. I believe that an entrepreneur is someone who founds a business and would be called a founder by the founding team. This doesn’t mean they have to be full time, but does mean they played an integral part in the early years. Much of the academic literature suggests that people with a stake in multiple businesses are portfolio entrepreneurs – but that would include investors, some of who have never started a business or exhibited entrepreneurial tendencies. 

Conclusion

Whilst there are more questions than answers at this stage, I’ve enjoyed exploring and unearthing these issues. In addition to research, I have begun the process of becoming a portfolio entrepreneur myself. Working with other entrepreneurs, I’ve started 3 separate entities in the last 2 years and am working with talented individuals to found some more – a bit like a one-man incubator. 

Whereas in the past my focus on a single business at a time prevented me from getting involved elsewhere – the research has vindicated my drive to work across multiple startups simultaneously. As such, over the last couple of years I’ve been lucky enough to be able to advise, invest in and start entities with other talented founders. The more I see the patterns and the more startups I am involved with, the more I am able to provide symbiotic value. It’s a great joy to simply be able to help others. 
Any comments, thoughts, or further ideas about portfolio entrepreneurship, or your own experiences. Please don’t hesitate to comment, or get in touch. Thank you.