Blue Boxes, Traf-O-Data, and Facemash: The Importance of Pre-Founding Experiences in Startups (Part I)

When reading the early histories of the entrepreneurs who started successful companies like Apple, Microsoft, and Facebook, an interesting pattern emerges.

All of these entrepreneurs had started small ventures before starting the company that scaled up and eventually went public.

Steve Jobs and Steve Wozniak had started producing “blue boxes” that produced a digital sound that would trick the phone company’s hardware into permitting long distance calls for free.  They built each device for $50, and sold them for $100.  They sold about 100 of them before one customer pulled a gun on Jobs in the parking lot where they were doing the deal and demanded the device without payment.

Bill Gates and Paul Allen embarked on a venture to collect and analyze traffic data with their first company called Traf-O-Data.  They were able to generate a few thousand dollars in revenues before the State of Washington started offering traffic data services for free, ending the demand for private contractors.  The three principles soon moved onto other projects.

And who could forget Facemash, the infamous female student comparison website launched by Mark Zuckerberg, which demonstrated the incredible pull of an on-line social experience based on real social connections – and almost got Mark kicked out of Harvard.

Even non-technology entrepreneurs, from Howard Schultz (Starbucks) to Richard Branson (Virgin), and even social entrepreneurs like Mohamed Unis (Grameen Bank), had similar “pre-founding” experiences that helped to shape their mental models of how their future ventures could be started and run.

These early experiences and later successes profoundly shape the ways in which experienced entrepreneurs search for and select new opportunities.  If the entrepreneur has a strong urge to follow what he knows from his past experience and is not open to the possibilities of alternative business models, this bias can actually inhibit an experienced entrepreneur from launching and growing successful new ventures.