Good Judgment Comes with Experience, But Experience Comes from Bad Judgment

Posted on Nov 5, 2009 | 65 comments


This is part of my Startup Advice series of posts.

drunkI heard Bruce Dunlevie of Benchmark Capital say these words at a conference in London nearly 10 years ago.  I jotted the words down (I normally pay little attention to anything said at conferences.  Most of it is BS) and thought about them much over the years.  I later learned that the quote was taken from somewhere else (perhaps as early as the 13th century!) but whoever is responsible I just want to help spread it.

There is a folklore in Silicon Valley that you should fund first-time entrepreneurs.  When you see the successes of Mark Zuckerberg, Bill Gates, Steve Jobs, Larry & Sergey, Marc Andreessen and Marc Benioff it is easy to see the allure (either that or invest in people named Mark ;-)

But it’s not my strategy.  I definitely don’t rule out first timers – I just invested in one to be announced soon who I am really excited about – but I greatly prefer experience. It’s easy to say you’d back a great team that has previously been successful – home runthat’s a no brainer.  Fred Wilson outlines why in his piece “Swinging For the Fences.” He outlines that Union Square has overwhelmingly had success with either first-timers or serial succeeders.

I can’t argue with Fred.  He has a great track record and I’m a newbie.  But I was asked recently whether I would prefer to back a first-time team or a team that had failed once before.  Obviously it depends on the team and the idea but holding all else constant I would personally back the team that had previously failed.

I’m fond of saying that I F’d up everything as a first time entrepreneur.  Actually, we got much right, too.  We corrected mid flight.  I believe great entrepreneurs do that.  They do what VC’s like to call “pivot.”  Boy did I pivot.  I went from 92 staff members + 30 contractors (e.g. 122 in total) to 38 people in one day and then down to 33 immediately after that.  I went from managing a team to “flipping burgers.”

So in my case, I believe that I acquired good judgment from my previous bad judgment. We eventually got a successful exit but I can’t say it was a Google like exit!  I believe that it helped me succeed in my second company.

Seeing how entrepreneurs handled adversity and difficult decisions tells me a lot about who I’m going to be working with if I invest.  I learn much from hearing whether they have humility, understanding what they learned from their failure (or success), gauging the speed of decision-making and willingness to admit when they were wrong.  I also look to see whether they can make the really difficult decisions (like firing all of your friends – this is no fun.)

The way I like to make my point about the quote is with something that all of us know innately.  When your parents told you at 15 not to feel so heart-broken when your girlfriend or boyfriend broke up with you because you’d meet many more people in life you probably remember feeling like the only special person you’d ever meet just got away.  They couldn’t tell you this – you had to learn it.

For many of us we had warnings about not drinking too much and yet we still found ourselves “praying to the porcelin G-d” on prom night or at a frat party.  Instructing people can’t create wisdon, experience will.

Which is why I recently wrote a post called, “Is it Time to Earn or to Learn” asking people to think about what they hope to attain from their current job or from the job for which they’re currently interviewing.  I wasn’t trying to encourage everybody to become a CEO tomorrow – I was encouraging them to learn.

Every day I talk with entrepreneurs in my office.  I’ve been a VC for 2.5 years now (an entrepreneur for nearly a decade before that) and as a result I’ve gotten to see many first-timers progress over time.  It amazes me the pattern spotting you can pick up from all these meetings.  I had so many discussions with people when they launched their companies about what each of us thought would happen and now it’s enlightening to have those conversations 18 months later.

Some of these people are people I wasn’t ready to back but I said, “I’d love to find a way to work with you on your next company.”  I think this quote would resonate with most of them.

I prefer second time (or more) entrepreneurs.  Sure, I would love to work with people who have had multiple successes.  But I’m not afraid of entrepreneurs that didn’t succeed the first time.  I want to work with talented people with good judgment.  And so I’m out to spread the word, “Good Judgment Comes from Experience, but Experience Comes from Bad Judgment.”  Go out and learn.

  • Lancelot_dL

    I'm not sure you're reading the quote correctly Mark. Are you saying that you prefer to back someone you know made bad judgments over someone on whose judgment there are only some clues? There are definitely reasons to choose second (or more) time entrepreneurs, but knowing they made bad judgments doesn't seem to me to be one of them.
    (In general, I will agree you thus minimize your risk, but perhaps also, somewhat, your potential for gain.)

  • http://www.facesforce.com rokhayakebe

    This makes absolute sense. At the end of the day, this is business and not the lottery. VCs take risks. Fine. But you had better make sure those risks are calculated. You have to maximize your chances at turning a profit by funding companies that “seem” to have The DNA.

    I think entrepreneurs should easily understand this one. If you had just raised an angel round, would you go out and hire the best developer you could, or would you place your bet on a guy who has never built something, although he knows all the fundamentals? Although the second guy could be a great candidate, you have to make a smart move.

    Now that being said I am a still a big believer of “passion + curiosity > IQ”.

  • http://www.r4-ds.com.ar/ r4ds

    Nice post… very inspirational indeed…. keep posting. Will be visiting back soon.

  • http://arnoldwaldstein.com awaldstein

    Mark, thnx.

    So, this is a combo of:

    'nobody gets it right every time or usually not the first time'
    and
    'smart people learn from their mistakes'

    can't argue with either of them ;)

  • Lancelot_dL

    I'm not sure you're reading the quote correctly Mark. Are you saying that you prefer to back someone you know made bad judgments over someone on whose judgment there are only some clues? There are definitely many reasons to choose second (or more) time entrepreneurs, but knowing they made bad judgments doesn't seem to me to be one of them.
    (In general, I will agree you thus minimize your risk, but perhaps also, somewhat, your potential for gain.)

  • Roko

    This makes absolute sense. At the end of the day, this is business and not the lottery. VCs take risks. Fine. But you had better make sure those risks are calculated. They have to maximize their chances at turning a profit by funding companies that “seem” to have The DNA.

    I think entrepreneurs should easily understand this one. If you had just raised an angel round, would you go out and hire the best developer you could, or would you place your bet on a guy who has never built something, although he knows all the fundamentals? Although the second guy could be a great candidate, you have to make a smart move. I know I would pick the first one.

    Now that being said I am a still a big believer of “passion + curiosity > IQ”.

  • http://www.twitter.com/socialmedia411 Jeff Pester

    I caught this quote on your appearance on Twist with Jason recently and actually rewinded the video so I could write it down. As a serial entrepreneur I agree with your thesis – mostly because of the mistakes that I made with my first startup. It's also my experience that the majority of first-time entrepreneurs tend to make the same kinds of mistakes.

    “When one has finished building one's house, one suddenly realizes that in the process one has learned something that one really needed to know in the worst way – before one began.” Friedrich Nietzsche

    BTW, enjoy the posts – keep 'em coming.

  • http://www.r4-ds.com.ar/ r4ds

    Nice post… very inspirational indeed…. keep posting. Will be visiting back soon.

  • JT

    Great quote and I must commend you on the picture choice!

  • http://arnoldwaldstein.com awaldstein

    Mark, thnx.

    So, this is a combo of:

    'nobody gets it right every time or usually not the first time'
    and
    'smart people learn from their mistakes'

    can't argue with either of them ;)

  • http://bothsidesofthetable.com msuster

    I guess my point is that some mistakes are almost unavoidable even when wise people tell you not to make them. For some reason we all have to make similar mistakes in life. At startups sometimes this includes:
    - raising too much money
    - hiring too quickly
    - firing too slowly
    - getting sucked into conferences
    - focusing too much on the competition
    - etc., etc. (all mistakes I made)

    My main point is that first time entrepreneurs get sucked more easily into the “hype curve” (a concept I plan to elaborate on more in the future) and second time entrepreneurs don't.

    I'm not looking for colossal failure – don't get me wrong – but I'm not scared off by people who made the obvious first-time mistakes.

  • http://bothsidesofthetable.com msuster

    I agree with your passion + curiosity > IQ formula. That's why I'm not opposed to first timers. I'm more defending second-timers who weren't wildly successful in their first gig.

  • http://bothsidesofthetable.com msuster

    Well said. Now I should try having posts that are that cogent!

  • http://bothsidesofthetable.com msuster

    Thanks, Jeff. And your house analogy is brilliant (maybe better than my drunk analogy but I liked the picture better ;-) But ask anyone who's built a home before and they'll tell you that the second time they know exactly what they'd do better the next time.

  • http://bothsidesofthetable.com msuster

    Ha. Just had to first make sure it wasn't me ;-)

  • http://www.ecoelectrons.com/ Rahul

    I am going to change my first name to Mark. The odds are way better!

  • http://arnoldwaldstein.com awaldstein

    I show up to read your posts daily Mark. I'm a fan!

  • Rokhayakebe

    Thanks,

    By the way I picked that up from Thomas Friedman's The World is Flat, I think (either that one or one of his other books, but cannot recall which one). I made sure to add the quotation mark :) .

  • http://www.separatepiece.com phineasb

    Mark-
    Agree that investors should not be afraid of investing in teams that have experienced failure. I believe judgment is context dependent and the key is to distinguish between the process and the outcome (good or bad, success or failure). As I talk to entrepreneurs, I am more impressed with the ability to reflect on decisions and to learn from experience than with big exits.

  • http://www.davidblerner.com davidblerner

    keep it coming Mark- great stuff. (the pattern recognition thing has been stunning to me as well in my own life as an investor). basically, i think it boils down to this: you were a lot better at entrepreneurship your second time around as compared to the first. kind of a no-brainer….

  • http://uniquevisitor.net Jeff Pester

    I caught this quote on your appearance on Twist with Jason recently and actually rewinded the video so I could write it down. As a serial entrepreneur I agree with your thesis – mostly because of the mistakes that I made with my first startup. It's also my experience that the majority of first-time entrepreneurs tend to make the same kinds of mistakes.

    “When one has finished building one's house, one suddenly realizes that in the process one has learned something that one really needed to know in the worst way – before one began.” Friedrich Nietzsche

    BTW, enjoy the posts – keep 'em coming.

  • JT

    Great quote and I must commend you on the picture choice!

  • http://www.linkedin.com/in/danielneukomm Daniel.

    As a now MBA equipped entrepreneur with two Angel back start-ups under my belt looking to sit on the other side of the table for a change, I certainly agree on the value of mistakes. It is not the existence of the mistake that is judged, rather how the mistake was corrected and mitigated in the future.

    I like the phrase: “Its not what you don't know that hurts you, it's what you know that isn't so”. Someone who considers themselves incapable of making mistakes rarely seeks the experience, expertise and wisdom of others and will surely make colossal and devastating mistakes.

    Excellent point Mark, one which should be more widely practiced.

  • http://bothsidesofthetable.com msuster

    I guess my point is that some mistakes are almost unavoidable even when wise people tell you not to make them. For some reason we all have to make similar mistakes in life. At startups sometimes this includes:
    - raising too much money
    - hiring too quickly
    - firing too slowly
    - getting sucked into conferences
    - focusing too much on the competition
    - etc., etc. (all mistakes I made)

    My main point is that first time entrepreneurs get sucked more easily into the “hype curve” (a concept I plan to elaborate on more in the future) and second time entrepreneurs don't.

    I'm not looking for colossal failure – don't get me wrong – but I'm not scared off by people who made the obvious first-time mistakes.

  • http://bothsidesofthetable.com msuster

    I agree with your passion + curiosity > IQ formula. That's why I'm not opposed to first timers. I'm more defending second-timers who weren't wildly successful in their first gig.

  • http://bothsidesofthetable.com msuster

    Well said. Now I should try having posts that are that cogent!

  • http://bothsidesofthetable.com msuster

    Thanks, Jeff. And your house analogy is brilliant (maybe better than my drunk analogy but I liked the picture better ;-) But ask anyone who's built a home before and they'll tell you that the second time they know exactly what they'd do better the next time.

  • http://bothsidesofthetable.com msuster

    Ha. Just had to first make sure it wasn't me ;-)

  • http://www.vumedi.com Roman Giverts

    It seems like a lot of the mistakes you made were during the dot com bubble and I can think of literally a dozens “serial entrepreneurs” off the top of my head that made the same mistakes. I'm not sure it's first time versus second time that's the determining factor here. Rather it's personality, self awareness, and a certain amount of intelligence that determines how an entrepreneur runs his company. I think 1st time, 2nd time is a confounding factor — not the real cause.

    Here is my story for why I think this: I'm a young, first time entrepreneur. When I was graduating college and starting my company, another group of guys in school were starting theirs. They knew so much more than me about how to start companies, they had built so many more products, had met so many more VCs, had such better advisors, etc. They raised a bunch of money, hired a bunch of guys, built some product that did something no one really understood, got written about in all the blogs, raised more money, hired more people, etc. They were “really hot” in our circles.

    On the other hand, my co-founder and I built a product with no funding, hired one person, went out and got traction, found customers, eventually raised a small round from our own users. Doesn't sound as sexy huh? Very different path than the story above.

    It's been a couple years now and it's pretty obvious my company is a lot more successful. Those other guys had to reinvent their product twice because it got no traction, the founders have split, there's no momentum, etc.

    The point is, we were both first time entrepreneurs. For me, it was common sense that you should NOT raise money you don't need, hire a bunch of people you don't need, and think you have a good product because techcrunch says so. For those guys it wasn't, and I think it had nothing to do with their inexperience.

    There are certain fundamentals to starting a high-growth company, and I don't think you need to be an “experienced” entrepreneur to understand and follow these fundamentals.

  • http://www.ecoelectrons.com/ Rahul

    I am going to change my first name to Mark. The odds are way better!

  • http://arnoldwaldstein.com awaldstein

    I show up to read your posts daily Mark. I'm a fan!

  • Rokhayakebe

    Thanks,

    By the way I picked that up from Thomas Friedman's The World is Flat, I think (either that one or one of his other books, but cannot recall which one). I made sure to add the quotation mark :) .

  • http://www.sneakerheadVC.com/ phineasb

    Mark-
    Agree that investors should not be afraid of investing in teams that have experienced failure. I believe judgment is context dependent and the key is to distinguish between the process and the outcome (good or bad, success or failure). As I talk to entrepreneurs, I am more impressed with the ability to reflect on decisions and to learn from experience than with big exits.

  • http://www.davidblerner.com davidblerner

    keep it coming Mark- great stuff. (the pattern recognition thing has been stunning to me as well in my own life as an investor). basically, i think it boils down to this: you were a lot better at entrepreneurship your second time around as compared to the first. kind of a no-brainer….

  • http://www.linkedin.com/in/danielneukomm Daniel.

    As a now MBA equipped entrepreneur with two Angel back start-ups under my belt looking to sit on the other side of the table for a change, I certainly agree on the value of mistakes. It is not the existence of the mistake that is judged, rather how the mistake was corrected and mitigated in the future.

    I like the phrase: “Its not what you don't know that hurts you, it's what you know that isn't so”. Someone who considers themselves incapable of making mistakes rarely seeks the experience, expertise and wisdom of others and will surely make colossal and devastating mistakes.

    Excellent point Mark, one which should be more widely practiced.

  • Roman Giverts

    It seems like a lot of the mistakes you made were during the dot com bubble and I can think of literally a dozens “serial entrepreneurs” off the top of my head that made the same mistakes. I'm not sure it's first time versus second time that's the determining factor here. Rather it's personality, self awareness, and a certain amount of intelligence that determines how an entrepreneur runs his company. I think 1st time, 2nd time is a confounding factor — not the real cause.

    Here is my story for why I think this: I'm a young, first time entrepreneur. When I was graduating college and starting my company, another group of guys in school were starting theirs. They knew so much more than me about how to start companies, they had built so many more products, had met so many more VCs, had such better advisors, etc. They raised a bunch of money, hired a bunch of guys, built some product that did something no one really understood, got written about in all the blogs, raised more money, hired more people, etc. They were “really hot” in our circles.

    On the other hand, my co-founder and I built a product with no funding, hired one person, went out and got traction, found customers, eventually raised a small round from our own users. Doesn't sound as sexy huh? Very different path than the story above.

    It's been a couple years now and it's pretty obvious my company is a lot more successful. Those other guys had to reinvent their product twice because it got no traction, the founders have split, there's no momentum, etc.

    The point is, we were both first time entrepreneurs. For me, it was common sense that you should NOT raise money you don't need, hire a bunch of people you don't need, and think you have a good product because techcrunch says so. For those guys it wasn't, and I think it had nothing to do with their inexperience.

    There are certain fundamentals to starting a high-growth company, and I don't think you need to be an “experienced” entrepreneur to understand and follow these fundamentals.

  • http://www.linkedin.com/in/rajatsuri rajatsuri

    I agree with you Roman. I'm on my second company now, but my first is still running. Zimride initially competed on basically $15K against a very successful serial entrepreneur who raised $ 1M based on their name alone. We were all a bunch of naive but enthusiastic guys just out of undergrad, and the competitor team were seasoned winning executives with lots of money, connections, etc.

    Within a year, we had 100x their users. Now they are out of business, whereas Zimride is profitable, partnered with Zipcar and funded by Facebook.

    I think we achieved that because we had the feeling that anything was possible, and were very very motivated to prove ourselves. A successful serial entrepreneur might not have that same drive and flexibility with a win or two under their belt. (“This seemed to work last time, so I'll just try it again…”)

  • http://www.linkedin.com/in/rajatsuri rajatsuri

    I agree with you Roman. I'm on my second company now, but my first is still running. Zimride initially competed on basically $15K against a very successful serial entrepreneur who raised $ 1M based on their name alone. We were all a bunch of naive but enthusiastic guys just out of undergrad, and the competitor team were seasoned winning executives with lots of money, connections, etc.

    Within a year, we had 100x their users. Now they are out of business, whereas Zimride is profitable, partnered with Zipcar and funded by Facebook.

    I think we achieved that because we had the feeling that anything was possible, and were very very motivated to prove ourselves. A successful serial entrepreneur might not have that same drive and flexibility with a win or two under their belt. (“This seemed to work last time, so I'll just try it again…”)

  • http://www.vumedi.com Roman Giverts

    Yeah same story here. One of our top competitors was founded by a guy who had a huge exit during the 1999 bubble. Their exec management team is bunch of gray haired suits with MBAs. They have 30 employees. We crush them in every single key metric by about 5x…. with a team of 3 lol

    You would be a fool to fund those guys, but a lot of VCs would in a heart beat under the logic used in this post. That's why I don't like the type casting of first time and 2nd time entrepreneurs.

  • Roman Giverts

    Yeah same story here. One of our top competitors was founded by a guy who had a huge exit during the 1999 bubble. Their exec management team is bunch of gray haired suits with MBAs. They have 30 employees. We crush them in every single key metric by about 5x…. with a team of 3 lol

    You would be a fool to fund those guys, but a lot of VCs would in a heart beat under the logic used in this post. That's why I don't like the type casting of first time and 2nd time entrepreneurs.

  • http://twitter.com/piplzchoice Gregory Yankelovich

    Here is another contribution to the library of relevant quotes: “Experience is what you get, when you didn't get what you wanted”.

  • http://bothsidesofthetable.com msuster

    ;-)

  • http://bothsidesofthetable.com msuster

    Agree 100% on listening to what they've learned. I also don't mind meeting people who had big exits ;-)

  • http://bothsidesofthetable.com msuster

    Roman, you make great points and I agree with your sentiment. It is why I don't rule out first time entrepreneurs. My bigger point isn't that first-time entrepreneurs can't be successful, it's that most make predictable mistakes. So when I meet somebody who raised too much money or wasn't hugely successful in their first company I'm not so quick to write them off if I feel they're a high-potential individual.

  • http://bothsidesofthetable.com msuster

    Rajat, as I said to Roman – I agree with you guys. I'd love to meet young entrepreneurs who haven't made the predictable mistakes or even better – second time entrepreneurs who haven't made mistakes. My larger arguments are that:
    - many first timers make predictable mistakes and;
    - I won't write second-time entrepreneurs off just because they made these mistakes.

  • http://bothsidesofthetable.com msuster

    Touche.

  • http://twitter.com/piplzchoice Gregory Yankelovich

    Here is another contribution to the library of relevant quotes: “Experience is what you get, when you didn't get what you wanted”.

  • http://bothsidesofthetable.com msuster

    ;-)

  • http://bothsidesofthetable.com msuster

    Agree 100% on listening to what they've learned. I also don't mind meeting people who had big exits ;-)

  • http://bothsidesofthetable.com msuster

    Roman, you make great points and I agree with your sentiment. It is why I don't rule out first time entrepreneurs. My bigger point isn't that first-time entrepreneurs can't be successful, it's that most make predictable mistakes. So when I meet somebody who raised too much money or wasn't hugely successful in their first company I'm not so quick to write them off if I feel they're a high-potential individual.