Demystifying the College Dropout CEO Myth
The graveyard is filled with startups that looked promising at one point but then plummeted to their death. Launching your own startup has turned into a fad nowadays. Whether it’s because there’s a lot of motivational content on Youtube telling you to quit your job and follow your passion or because kids nowadays do not want to be stuck in any type of 8 to 5 job, the reasons may vary, but the result is the same; many youth nowadays want to update their Facebook status to reflect, “CEO of so-and-so.”
I am not here to crush the ambitions of young people as the Kenyan economy does need you to be more self-starters thanks to the unemployment problem. My message is for you to understand that startups are not just fancy ideas set up to attract fund money. Startups are serious businesses that solve problems in the market and must become profitable at some point. Sometimes startups become so obsessed with their solutions, they don’t really understand the problem they’re trying to solve so they easily topple when someone shows up with a better solution to the problem.
As mentioned before, this means startup CEO’s need to understand who their customers are, what their business models are like, what their sales funnel looks like, and most importantly, as Kevin O’leary would always ask on Shark Tank, “How do I make money?”
When you judge a startup, understand what your unit economics look like, which would require you to answer the following questions among others[1]:
- What’s the cost to acquire one user?
- What’s the lifetime value of that user?
- How are you defining your unit?
According to this report[2], 50 % of startups in the US fail because of some of these reasons:
- Lack of focus, motivation, commitment and passion
- Too much pride, resulting in an unwillingness to see or listen
- Lacking good mentorship
- Lack of general and domain-specific business knowledge: finance, operations, and marketing
- Raising too much money too soon
Unfortunately, we don’t have similar studies done in Kenya to corroborate or contradict those studies. Having built 6 business ventures myself, however, I’ve personally learned the following lessons: there are many marketers out there but not enough salespeople. Sales, sales, sales is the engine of any business and our youth don’t know how to sell.
You’ll see people build startups mostly as a good conversation starter; start a company that’s not even registered, call yourself a CEO, make business cards and look for funding, without having a single paying customer.
Unfortunately, you’ll hear stories of CEO’s who dropped out of college to start their ventures, but then they don’t have the skills it takes to run a company. The college dropout ceo who made it is an outlier. Aileen Lee published an extensive overview in TechCrunch of U.S.-based software ‘Unicorns’ (startups with a market value of more than $1 billion) and one of her findings was that Inexperienced twenty-something founders are outliers. Companies with well-educated thirty-something co-founders who have history together tend to be most successful[3].
Another research published in Harvard Business Review recently showed that the average age of people who founded the highest-growth startups is 45. So why is it that our kids drop out of college and think they’re going to be the next Mark Zuckerburg?
We can’t blame them, to be honest. There’s a cognitive bias called the survivorship bias where we are more likely to systematically overestimate our chances of success because the news is filled with success stories more than failure stories.
In 2013, The Atlantic published a post on how despite the sensational stories about college dropouts, 71 % of the 34 million Americans with no diploma are more likely to be unemployed and poor[4].
The graveyard is filled with startups that looked promising at one point but then plummeted to their death. Shield yourself from the survivorship bias by frequently visiting the graves of once-promising startups. Despite its morbid nature, such a walk should help defog your judgment.
Co-written with Amina Islam
References:
[1]https://www.cleverism.com/ultimate-guide-unit-economics/
[2] https://www.entrepreneur.com/article/288769
[3]https://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/
[4]https://www.theatlantic.com/business/archive/2013/03/the-myth-of-the-successful-college-dropout-why-it-could-make-millions-of-young-americans-poorer/273628/