Why the next tech boom will be led by a different type of founder

The tech boom of the 1990s was largely driven by “business guys” with MBAs or career experience as well as entrepreneurs that crossed over to tech from unrelated industries such as real estate and consumer packaged goods. As the tech boom euphoria rose, venture capital and angel investors showered these business types with capital based on their pedigrees and beautifully-designed business proposals rather than the merit of their innovations in meeting customers’ needs.

During this time, Silicon Valley and the investor community lost their way by funneling capital away from visionary engineers such as Leonard Bosack and Sandy Lerner who started Cisco Systems and Nolan Bushnell who founded Atari and toward business types that knew little about building technology companies and even less about making products that customers wanted. Some of the business types did create successful tech companies, but many others were more adept at creating fictitious growth models and convincing their business school friends to invest in their startups than actually making something valuable. It did not take long for these Icarian startups to fall back to the ground when the world figured out there was little substance there.

After the dot-com bubble burst, many in the industry sought to make sense of the madness, which led to vast amounts of capital being poured into now-defunct tech startups like Pets.com and Webvan. One insight that became clear is that many of the dot-com startups simply did not build products that customers wanted or needed. In fact, Pets.com is often cited as the classic example of failing to assess customer needs and the market opportunity before pouring vast resources into building a product.

Sensing an imbalance in the force, Paul Graham observed in a 2005 essay titled, “Why Smart People Have Bad Ideas,” that non-business folks or “hackers” could create things that people want and build successful companies around those innovations. Graham further argued that hackers—a term he used to describe computer programmers—could probably be as successful if not more so than business types. He also noticed that while hackers were obviously gifted in building technology, they often lacked knowledge about the business side of running a startup including raising capital, incorporating their company, marketing to customers, and hiring. In hindsight, it is clear that there was a large, untapped pool of potential tech founders—the hackers. But how to unleash this group of entrepreneurs?

The answer came in the form of Y Combinator, largely recognized to be the first startup accelerator. Along with Jessica Livingston, Trevor Blackwell, and Robert Tappan Morris, Paul Graham founded Y Combinator (now affectionally called “YC”) to hack the investment and startup economy of that era. Graham wrote:

There are thousands of smart people who could start companies and don’t, and with a relatively small amount of force applied at just the right place, we can spring on the world a stream of new startups that might otherwise not have existed…. [What] motivates us is the… desire that would motivate any hacker who looked at some complex device and realized that with a tiny tweak he could make it run more efficiently. In this case, the device is the world’s economy, which fortunately happens to be open source.

Paul Graham, “Why YC

No one could have anticipated how successful giving a large population of underserved innovators knowledge and access to capital could be. Graham himself wrote, “[We] have no idea what our average returns might be, and won’t know for years.” Only now with nearly a decade and a half of hindsight, we can see that not only was YC wildly successful, but so has been the accelerator movement that it kicked off. YC alone has produced scores of successful tech companies that are now household names such as Reddit, Airbnb, Dropbox, and Stripe to name just a few.

What if I were to tell you that there is an even greater untapped pool of tech entrepreneurs that has been largely overlooked?

Beyond business types and hackers

Amanda DoAmaral, Founder of Fiveable, right

Meet Amanda DoAmaral (pictured above – right). Amanda joined the faculty at Skyline High School in Oakland, California in 2012 through the Teach for America program, which places promising young teachers at the Nation’s most under-resourced high schools. When Amanda joined Skyline High School, she took over teaching two Advanced Placement (AP) courses: AP Human Geography and AP World History. Before she started, hardly any students passed their AP exams. In less than five years, Amanda not only helped more than 70% of her students pass their AP exams, but she was also elected to serve as the History Department Chair.

Amanda knows everything thing there is to know about helping students, particularly those from underprivileged backgrounds, pass their AP exams. She is an outlier expert in her field—a specialist.

The herculean effort that Amanda put into teaching her classes, often spending long hours after school to offer extra help and reviews, left her burnt out and needing a break from the classroom. However, it was not long until she felt compelled to return to teaching—her true passion. Only this time Amanda created her own platform that would allow her to teach students wherever they were. She asked herself, ‘how can I scale what I’m doing outside of a classroom settings?’ Using this platform, she started doing weekly online reviews for AP U.S. History and AP World History at a cost that even resource-constrained students could afford.

Through her passion and a bit of fortune, Amanda found a way to scale her outlier-level expertise to hundreds and even thousands of high school students by offering fun, interactive AP reviews online. Amanda created a technology-enabled way to solve a pervasive issue for nearly 3 million high school students taking AP exams every year even though she was not an engineer and had never worked at a tech company.

What is most impressive is how effective the tech startup that Amanda founded, Fiveable, has been in helping high school students pass their AP exams. In Fiveable’s first year of operation, it helped over 90% of students pass their AP exams compared to a national average pass rate of just over 50%. Fiveable nearly doubled the pass rate of their students!

Amanda is the perfect archetype of the next wave of tech entrepreneurs—experts that have an outlier-level knowledge of their customers and problem space, and she’s not alone. One of the most successful and well-known specialist-founders is Melanie Perkins, who along with Cliff Obrecht and Cameron Adams, founded Canva. Before Canva, Melanie taught students how to use design applications such as Adobe inDesign and Photoshop while at university in Australia and later created a platform allowing people to create professionally-designed yearbooks even if they had no design knowledge. Melanie and her partner Cliff were gurus at making design accessible to non-designers, and this expertise led directly to the founding of Canva.

Consider also Alma Ohene-Opare and Celeste Jensen. Alma’s son, Kalyan, was born with twelve life-threatening food allergies, and Celeste has three children and a husband that all have life-threatening food allergies. Celeste is a food allergy educator who frequently teaches other parents how to manage their kids’ food allergies. Celeste also serves on the board of a food allergy nonprofit. Both Alma and Celeste know first-hand how challenging it can be managing food allergies in their families. From complicated logistics and social complexities of birthday parties to preparing four different dinners each evening, they are masters of managing food allergies.

Together with their spouses, Alma and Celeste teamed up to solve one of their biggest challenges: finding safe meals and snacks. They created an AI food discovery platform named after Alma’s son, Kalyan, to help the more than 32 million people suffering from food allergies in the United States alone. Who better to help families plan their meals than this team of food allergy experts that are living the problem?

Specialist-founders are not hackers or business types but have a master-level knowledge of their customers and problem space. In Malcolm Gladwell‘s book, Outliers, the author describes the 10,000 rule, which dictates that it roughly take people 10,000 hours of practice to become exceptional in a given skill or role. Specialist-founders have this profound level of expertise but are not star athletes or world-class musicians; they are doctors, mechanics, parents, dentists, accountants, managers, case workers, etc. They are people that have lived their specific problem for years. Who better than these outlier experts to build tech companies that can provide solutions to their problems at scale?

A tsunami of outlier experts

There are about 3.6 million software engineers (hackers) and just over 2 million businesspeople with MBA degrees (business types) in the United States. Roughly speaking, the total available population of the first two waves of tech entrepreneurs is a little north of 5 million people. Taking into account managers and executives that do not have an MBA degree, likely pushes the figure closer to 10 million potential founders. The total working age population in the United States is about 210 million. Subtracting hackers and business types, that leave close to 200 million potential specialist-founders like Amanda.

Think about that for a second. Even if we say that only half of the working population has guru-level expertise in their field, we are talking about an untapped pool of potential founders that could be an order of magnitude larger than the first two waves of tech entrepreneurs combined.

Unlocking the next wave of tech entrepreneurs

Every type of tech entrepreneur brings advantages as well as gaps to the table. Business types are very adept at raising capital and marketing their startups but lack knowledge and experience related to running effective engineering teams as well as how to build products that people want. Hackers are outstanding at creating technology-driven solutions but are not as knowledgeable about building companies. Likewise, gurus have both strengths and weakness, and the key to unlocking this vast wealth of innovation is to promote their expertise while providing the right kinds of resources to overcome their weaknesses.

The main asset that outlier experts bring is a profound knowledge of their customers, the problem, constraints, and available solutions. Moreover, they bring an unparalleled passion for solving the problem that they have had to personally overcome throughout the years. As MacArthur Genius Award-winning psychologist and author Angela Duckworth wrote in her groundbreaking book, Grit: The Power of Passion and Perseverance, passion makes up half of grit (along with perseverance), and grit is a much greater predictor of outlier achievement than talent alone. Neither grit nor outlier-level expertise can be easily substituted or trained, and it is these qualities that are critical to building successful solutions and tech companies.

While specialists have passion and expertise, few are hackers or have worked in tech companies. Therefore, they often lack connections to investors as well as practical knowledge and experience about building technology products, running engineering teams, finding product-market fit, effectively marketing their products, raising capital, and the operational tasks needed to start and run a high-growth company. The beautiful thing is that all of these gaps can be filled with the right human capital, coaching, and experience. We can unlock the next wave (tsunami)—of tech entrepreneurs by adopting a new investing model that meets outlier experts’ unique needs.

Starting a new pattern

Not only is this next wave of founders different in terms of education, experience, and expertise, they are also more diverse and impact-oriented. It makes sense that a population of potential founders that is more than a hundred million strong includes people from a greater variety of socio-economic, religious, ethnic, racial, gender and ideological backgrounds than a population of 3 million. Because specialist-founders come from much more diverse backgrounds, they innovate for a greater variety of people—many of whom have been underserved by the first two tech booms. Unfortunately, this group of tech entrepreneurs does not fit the typical founder patter that venture capital and angel investors have traditionally found appealing.

The tech industry is once again in a period of self reflection. Innovations that promised to connect people and liberate their voice have failed to deliver on those promises. Startups that produce $700 door locks that only the wealthy can afford and fancy juice machines that are outperformed by the human hand have been showered with capital. The industry continues to struggle with recruiting and retaining a more diverse workforce. It might seem that the tech industry has fallen back to the ground again, but I see this as an opportunity that presents itself once every decade and a half. It’s time to innovate the venture capital and tech industry by investing in a new pattern of founders. In doing so, I believe that we can spur a new tech boom that will be more impactful than the those of the past.

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