How and Why to Start A Startup — Sam Altman & Dustin Moskovitz

Note: This was created using Gifted’s Podcast to Blog generator. There are human revisions where the class audio was low quality (mostly in student questions asked further from the mic).

Sam Altman
Welcome this is C-s 193 F. Thank you all for coming. We’ll hope to make it a really great class. So we’re going to try to teach you the what you need to know for the first hundred days of a startup. Basically how do you go from a very raw idea to a company and we’ve… I’m the president of Y Combinator Sam Altman I have been teaching this people for a while. And so hopefully we’ll be able to make this make a lot of sense. Today, our guest speaker besides me is Dustin Moskovitz, Dustin was the CTO was the co-founder of Facebook and CTO of engineering I just learned and is now the co-founder and CEO of Asana , Dustin gave a talk at the first version of this class that is still the one I refer other people to the most. And it’s about why to start a startup which is actually a really important question and one that people don’t think about enough. And so he was kind enough to come back and do that again.

Dustin Moskovitz
So if you’re here today you’re watching the video later you’re probably planning to start a company, its why you’re taking the course most of the class is going to be about like how to go about doing that and achieving success. But before you dive into the how of being an entrepreneur I’m here to help you think about the why. So it’s important to know which reason is yours so that you think through this decision correctly. So I hear a variety of common motivators from potential entrepreneurs. But I found that once they fully considered the trade off they often decide that starting a company the company isn’t actually the best way to achieve their goals so hope you make sure you’re choosing the best solution. And also explain the reason I like to hear back from people about why they want to start a company what I hear when I think someone’s really set up for success. So I’ve given this talk
before
Sam said and a bunch of people have come up to me after and said it really helped them with their decision. And in few cases they decided that they shouldn’t start a company and really join an established one. But I know a lot of your resolve and what you’re doing. If that’s true no problem. I think this will still be useful for you because you’ll get a better sense of the reality of what you’re about to go through. So it’s not a long talk just about 10 slides and I’ve left some time for questions at the end. Great. So let’s call a spade a spade. A lot of people become entrepreneurs specifically as a way to try to become extremely wealthy. So they see themselves starting the next Facebook or Google. However the odds of being successful are actually incredibly small. So only a handful an entire generation of companies actually end up getting to that scale. So here’s a funnel from CB Insights Actually it shows how many seed funded tech companies get through each round of funding.

So even if we reduce our ambitions a bit to becoming unicorn’s or a company with a billion dollar valuation you still have like incredibly long odds. So only 1 percent of seed fund companies get all the way through this funnel now getting to 6 rounds of funding. It’s not exactly the same as becoming a unicorn but it’s pretty well correlated most unicorn’s I know had to have at least that many rounds of funding. So to get there you have to have a truly great idea. It’s got to be unique defensible going after a large market. You have to execute extremely well. So that means you have to work hard. You have to attract right people and you have to have a better strategy than your competitors. And you also just have to be really really lucky because there’s a lot of things that can get in your way and a lot of them aren’t even in your control. So I’ve talked to a bunch of investors entrepreneurs and the sense is that it’s actually getting harder over time to get through this funnel. So not only are more people starting companies when you have more people to compete with but they’re becoming more expensive to operate for a lot of reasons particularly here in the Bay Area. And investors have higher expectations too. So you’ve seen valuation multiples start to decline particularly on the public market and perhaps most importantly it’s becoming harder to disrupt incumbents so they’re not the slow moving giants that they were 10 or 20 years ago. They know how to take advantage of their market position. So some of you are thinking. Sure it’s hard but you get so much more equity as a founder. That’s clearly the only way to make a lot of money. So let’s talk about two different ways that you might get to a great financial outcome. So Story one. You’re the founder. You started a company that does Uber for pet sitting. So in this picture this is the customer not the founder. It’s a great idea and you executed well. So you sell the company at some point for a hundred million dollars. And if you’ve been really successful limiting dilution your equity might be as high as 10 percent of the company at that point but time becomes liquid. You’re walking away with 10 million dollars. Pretty great outcome. However I just showed you only a small portion of startups make it that far. So this is the lucky guess. $100 million little easier than a billion dollars but it’s still extremely rare and it’s actually most likely that you end up with nothing on this path because you just end up shutting down the company for whatever reason. And oftentimes you see a company you know sell to and acquire this kind of range of valuation and a lot of those cases. The founders still ends up with nothing because investor liquidity preference. So it depends a lot on how much money you’ve raised to get there. So this is definitely the high risk path.

But another way to make a similar amount of money. Join a later stage company and help them scale from say 500 million and valuation to 20 billion. So even straight out of college you can do really well financially by joining a company at that stage but especially if you have a few years of experience you’re going to get really good options package and are going to have a fairly high salary too. So I just sort of swagged five basis points here if you join a little earlier might be more than that if you have more experience it might be more than that but this is sort of a a good sort of benchmark and you probably know the market for experienced tech workers the markets are extremely competitive right now particularly for product roles. So if you choose well you can also walk away with $10 million by taking this path. And if you choose really well and you do find that next Facebook or Google will it’s still not yet a unicorn you can do extremely well. So the 100 the engineer at Facebook had a way better financial outcome than the vast majority of entrepreneurs. So of course it’s still possible you’ll choose the wrong company won’t grow enough for this kind of outcome. This is actually 40 x growth which is pretty impressive. But the key is you get to join it much later in its life cycles. You have a lot more information. You can see the performance so far you can meet some of the team. You can understand the competitive landscape and even if you don’t find the company that’s going to grow this much you’ve got a good chance of picking one that’s going to grow some. In fact your equity values probably are already non-zero. So you’ve got a pretty good chance of having a positive outcome in that situation and maybe a really great outcome. And then finally if you found a company you have a long term commitment there’s a good chance going to be putting 10 years or more into making it scale and you still may fail in the end. Whereas if you join the established company you can work there for a couple of years and get a sense of whether it’s growing. If not you can you can easily leave and try again. You can actually work for several different ones in that same 10 year period. And that really increases your chances of a home run. So the ultimate takeaway here is there are multiple ways to get a great financial outcome but it’s a lot lower risk to join an established company. Don’t worry not all of these will be arguments about why you should join an established companies.

So similarly a lot of people want to start a company in order to maximize their impact. So usually financial comes pretty well correlated with that. So a lot of the arguments I just made apply here as well. But when you join a company that’s already established you get some big advantages. So you could access their existing user base might be hundreds of millions of times a billion people you get the ability to work on top of infrastructure that’s already been built out and scaled and you’re collaborating with an established team. So they’re going to help you succeed. So I want to give you some concrete examples of massive impact that people achieved as an employee. So Bret Taylor who’s the head of Quip before he became an entrepreneur he joined Google after it already had over a thousand employees and there he was able to spearhead the creation of Google Maps was used by hundreds of millions of people including me on my way here today.

Similarly my co-founder to Asana Justin Rosenstein. He joined Google at a similar time and there he prototyped G-chat and said emails this was over 10 years ago still used by a ton of people. And then shortly after that he went to Facebook after it had a few hundred employees and he led the hackathon project that created the like button. So of you have probably used it once or twice so you can still join teams at Facebook and Google today and work on something that literally might reach a billion people. That’s a lot of impact even if you’re a part even if your contribution is relatively small portion of the product surface area. So if you want to become an entrepreneur to maximize impact these are the types of stories that I think you should be comparing the opportunity to. So next there’s lifestyle.

So everyone’s got their own story about what it means to be an entrepreneur. So in general the media likes to make it seem glamorous emphasizing launches and finding milestones. They tend to talk about success cases and ignore failures and the entrepreneurs themselves are like ducks. They’re calm on the surface but they’re paddling like hell underneath. But you only get to see them you know on that surface looking passionate and focused. So the first image here is from the social network which is a fictional movie about the founding of Facebook. Looks pretty fun. And the last image is an actual photo from the founding of Facebook. They’re a little different. So reality is a lot of heads down time doing hard work. We hardly had any time to bust open champagne and spray it all over our laptops. All right. So in practice Tech is a little less like the social network and more like Silicon Valley actually really stressful. So why is that. Well a few reasons. One your team is relying on you. They’re betting some of their best years on the story you’ve told them and their recruiters pinging them constantly like many times a week. So you’re always worried you are goingvto lose them. Each round of fundraising feels a little like life and death and your competitors are actually trying to kill you. And you always feel stretched then because it’s hard to make time for the company your staff and other your family and yourself. So of course my title here is a reference to Ben Horowitz’s book The Hard Thing About Hard Things. You want to go like way deep on this subject. I definitely recommend giving that aread. So relatedly people also think being a founder will give you control over how you spend your time. Here’s a great quote from Phil Libin here. Can you read it. So Phil and I both learned this the hard way but you don’t actually have control in practice. So I spend most of my time working on the problems I just couldn’t delegate reacting to issues that are popping up or resolving conflicts and you’re always on call. So it makes it hard. Like really unplug during a vacation or on the weekends and you’re a role model too. So if you take the foot out if you take your foot off the gas then so will your team. So that said this one really doesn’t apply if you want to have a lifestyle business or be like a small business entrepreneur. If you do that then you actually do have a lot of control over your lifestyle. But the financial impact outcomes are going to be smaller. So this is a recap of those first four topics.

So these are the top reasons I usually hear from people. So the success funnel that I showed you in practice suggests that startups are clearly the best way to maximize financial impact or sorry financial reward or impact you might do better by joining an established company and then similarly the reality of entrepreneurship doesn’t usually match what you see in the media. So if you want to aim for a homerun you shouldn’t you should feel committed to putting in the many years of effort and discipline that it takes to become a professional athlete. And you still may fail. So now that I’ve given you a bunch of bad news let’s talk about what I see as the best reason for starting the company. So basically you can’t not do it. So this has two roots. First is passion. So passion is is really important since we just talk about how hard it is to start a company. So you’re going to need that passion to power through. And you also needed to recruit great people to follow you as a leader. And then second part of this is that you’re the right person to make this happen by starting your company. So if you fail to do it you’re actually going to be depriving the world of something great. So this implies that the idea itself is really valuable and it also implies that you’re the best person to bring that idea into the world. You’re not the best person the best person is out there and they’re probably going to outcompete you and create something even more valuable. So one twist on this is maybe you’re the best person but you should do it within the context of an existing company. So I often feel this way when I hear someone describe something to me that really sounds like a feature of an existing product. So if you want to have like the next twist on photo sharing I’d definitely recommend considering Instagram or snap chat and helping them build into their products so you can be entrepreneurial inside the context of an existing company. So I’ve twice chosen to become an entrepeneur myself and both of the times are motivated by this reason exactly so for Facebook. We’re actually we actually continue to be students at Harvard until the site had over 100000 monthly active users. So we had cognitive dissonance for kind of an embarrassing long period of time that we could just like be students and have this little side project on the side but eventually pulled us out because we couldn’t bear the idea of it not living up to its full potential. And then similarly at a Asana. Justin and I were both reluctant entrepreneurs but we thought the problem for tracking was really important and that the other people working on it. We’re going to develop incremental solutions and leave a lot of value on the table. We couldn’t stop working on it. Eventually we decided to leave Facebook and focus on it full time. So when I meet entrepeneurs that really seemed set up for success this is usually the reason I’m hearing from them. They’re starting a company because it felt like really the only thing that they could do next. So that’s it. Short and sweet have time for questions. I don’t know what my cutoff time is in a few minutes. Cool. So feel free to raise your hands and I’ll call on you. Pete the question from the mike. So one always has to break the bubble.

Question 1: Sam Altman
How do you decide if it’s like or how do you advise people to decide if if it’s the best way is to go do this at some other company or do it themselves like it’s using the photo sharing example. But in the real world most of the time it’s a little bit murkier. So with the framework you think through about.

Answer 1:
Yeah. So two things like one is just the sort of like you know feature not company distinction like Marc Andreessen has talked about. So I don’t know how to like make that concrete. But it’s just sort of like thinking about the idea is this like a separate product that it feels like somebody is going to sign up for can and have its own monetization model. Are people really going to invest and like learning a new system or does it really feel like the add on on top of some existing model. And very related to that I think are just going to be the competitive nature. So if you’re if you have to introduce like a whole new photo sharing operate and then you have to compete with the distribution of network effects of the existing ones. That’s a huge barrier to entry and there’s sort of similar metaphors and other other products that make sense.

Question 2:
I was wondering like what‘s your thought on when you started a company vs starting a company today.

Answer 2:
Yeah. So I sort of briefly outline them when I was talking about the funnel. So yeah sorry the question was about the difference in challenges between sort of the company basically in 2004 first starting a company today or the second time in 2009. So I sort of outlined what I was talking about the funnel but I definitely think it’s just a lot more competitive in terms of the other businesses out there. There’s just like most of the valuable markets like have interesting players already. It’s also very competitive in the recruiting market. So it’s really hard to get a big enough team of sufficiently talented people and those people are going to be more expensive. That’s one of the ways that costs have gone up. There’s also a bunch of other ways including just like real estate in the Bay Area is really expensive right now. Some other costs have come down like that and data center costs but in general it just feels higher friction and harder to get going.

Question 3:

What’s the difference between being a sort of late stage or a later employee at a established company versus being like an early employee?

Answer 3:
So the original question is what’s the difference between being a sort of late stage or a later employee at a established company versus being like an early employee. Is that the question. So I think of it as just a spectrum on the risk scale between like founder and like 1000 employees. So if you’re in the first 10 you have a little more bit more information you know who the founders are you know the leaders are you can meet some of the investors hopefully they’ve already done a seed round or an A round but usually still don’t have evidence yet about like the revenue or the monetization. And probably a product that isn’t scaling yet. So it’s just it’s just sort of a continuous spectrum and the earlier you are you know the lower your salary is going to be the lower the sort of probability of a positive outcome is going to be. But you also have a possibility of a really big outcome because you might have you know 50 basis points or 100 basis points if you’re one of the first employees to make sense.

Question 4:
Isn’t the probability of success basically equal?

Answer 4:
On it. Again it’s on the spectrum right. So maybe the second employee. So the question was isn’t the probability of success basically equal for the second employee. Yes for the tenth employee no they’ve got a lot more information and like the 20th employee they’ve got even more information. So it’s just going to be a continuous spectrum.

Question 5:
How did you go about finding the core team at Facebook?

Answer 5:
Case. Sure. How did you go about finding the core team at Facebook. Pretty organic. So really a lot of people were just like the people in our network at Harvard that we moved out of Palo Alto with them and then very early on we heard Matt Choler and he sort of took over recruiting and helped us get into network into Stanford actually and a lot of people we hired were recent graduates here and we really focused on the product team first. But yeah a lot of it was very path dependent and organic working networks. Things are little different now. As a small company you can work with you know contractor recruiters and even with some of the services that that help connect people and I think those are pretty good.

Question 6:
Go call something to show us the passion passion dimension. What are your thoughts. Well one of the lines from interest to pathological obsession.

Answer 6:
The question is when I talked about passion and my talking just about an interest in the subject or pathological obsession you know again it’s a spectrum but probably more towards the pathological obsession. Like when I say like you can’t not do it it’s like one of these things where you all look back 20 years from now and be like. And I really should have gone after that idea it was really important to me. Whereas like interests I have a lot of interest in the world are not all necessarily important and they’re not all they’re all going to keep my attention for like 10 or 20 years that you need to focus on how we do on time when we’re OK here.

Question 7:
Should you always have a co-founder?

Answer 7:
So the question is about should you always have a co-founder. And if so how should you look for that co-founder. This is a really tough one and I have a pretty strong opinion that like co-founders are super important again because like this is really hard and that’s like your buddy that you get to lean on and they’re kind of like in the trenches with you. But if you don’t have someone who’s sort of like the obvious person you want to work with I don’t have good advice on how to do that. And both of my cases like we are starting a company together and like discussing it together the whole time to sort of like founder dating thing doesn’t make as much sense to me. I actually think starting a company is like an even more important relationship than like getting married or something because like financial issues into the conversation even more often. And founder break ups are really bad. So I highly recommend you know working with someone that you’ve known a long time and like really just discussing many of the details as possible to make sure you’re on the same page because those conversations get a lot harder later. All right time to wrap up.

Sam Altman
That was great.

All right. So I wanted to use today to sort of summarize other things that we touch on the class. And since it’s mostly guest lectures this is my chance to say the things that I believe. And I wanted to start off by talking about what makes Silicon Valley special. There are 100 people in the room and the class here at Stanford. There will be hundreds of thousands or millions low millions of people that watch this online for around the world. And as I travel around the world talking about startups the most common question I get is why Silicon Valley. What happens there that’s different than everywhere else. Why can’t we do this where I’m from. And I think it’s an instructive question even for people living here. Because you want to find out what this is and surround yourself with the most concentrated version of it. The thing that I think is most important of all is there there is a relentless belief in the future here. There are people here who will take your wild ideas seriously instead of mocking you. And that’s because they’ve learned it’s very expensive to just pass and say every idea is stupid. So if you have someone that’s like I’m going to start an electric car company and they don’t know much about batteries even less about cars it would be very easy to write that off. And yesterday Tesla passed Ford in market cap. And so people have learned that these wild ideas about the future. You don’t you don’t want to write them off too quickly you want to give them a real chance you want to think about them. And in most of the world and in most other contexts people will just mock you behind your back to your face whatever it is you really want to find the small number of people in your life that will support your ambitions not belittle your ambitions.

And this is hard to find. This is not this is not the default state. We don’t realize how rare it is that we’re in an environment where most people are like there’s no tall poppy syndrome in many other countries many other cultures. There’s a word for what it is when if a person gets too tall too ambitious thinking too big you cut them down. There’s not even really a word a phrase like in America but there is one in most other cultures. There’s also a very high density of people working on startups here and there’s culture of paying it forward. People help me on my startup I’m going help them on theirs. And so you want to surround yourself with this no matter where you are in the world. You may find that you have to go online to find that community. You still want to do it. Oh this is my old version of slides. Do I send you in on we’re just going to go with this.

So one of the things that startups really have to get right is the idea there there’s become this myth in Silicon Valley that the idea doesn’t matter and that you should start a startup and just sort of pivot your way on this random walk and hope you’ve got something big. But as Dustin said all of the best startups that we have started we have funded at Y Combinator. It was an idea first and a start up second. I was not a bunch of pivots the very few pivots that were successful. Well when the founders discovered along the way that there was some other idea they were more passionate about than their first one or they just learned some new problem. Original thought is is really hard to get good at but really important. The most successful startups are not derivatives. They are not a copy of something else that was working pretty well. Most people try to start a copy of whatever worked last year. I don’t know how many people started a Facebook clone in the year after Facebook had to be a lot a lot and none of those went on to really matter. The next Facebook never looks like facebook it looks like something totally different. And you the way to get good at this is to start noticing problems in your own life. And the great advantage that you have as students is that students young people in general tend to be on the forefront of technology. You can predict the great wave before it happens. And this idea of a great wave. I think this is the most important concept to find good ideas out there. People wonder why startups cluster in small periods of time. Why were there a bunch of startups that were companies that started in the late 90s early 2000s that were really successful. Why were there a bunch of startups between sort of 2009-2011 that started that were really successful and the reason is that there are these great waves the Internet and mobile and those two cases smartphones that all of a sudden new things are possible that were never possible before. And when that happens because startups can move so quickly you can do things that that otherwise would never happen or that otherwise a big company would win on. And you want to think about what the next great wave is my personal best guess is that it will be machine learning and just applied to every vertical. I think thats the easiest lay up right now if I were going to start a company but you all probably know what that is much better than I do.

Whatever your peers are doing whatever your peers are excited about even if it looks like a toy today especially if it looks like a toy today thats probably the next great wave but you want to identify this what is the big technological tectonic shift thats going to happen in the next couple of years and do something thats enabled by that and built on that platform. It’s also easier to start a hard company than an easy company. Most people especially young people want to pick something that doesn’t sound too ambitious doesn’t sound too hard because they’re like well some companies startups starting a company sounds really hard. I better pick the easiest possible company but actually starting a company is always hard and it’s about equally hard no matter what you do. If you start a hard company though if you inspire passion and people if you are building you know like general AI or supersonic airplanes or nuclear power you’ll have a lot more people that are excited about that than another derivative idea. You know Facebook. Nineteen hundred and fifty two. So this idea that it’s easier to start a hard company than Easy Company I think is a big secret in startups still but it’s one that I’ve seen again and again play out.

As Dustin mentioned in an answer and a question co-founders are really good but a bad co-founder is way worse than co-founder because so many people say you need a co-founder. There are a lot of people that will pull some random person off the street and make her their co-founder. This is really bad. In fact we did a little analysis of our data at Y Combinator on this once and these glommed on random co-founders a 100 percent failure rate 100 percent. You really need a shared history you want someone you know is good you know you can work with and that you have an obligation to. There are many times in the course of a startup where the expected value dips below the x axis just temporarily. And its not rational to keep going. And if you have a shared history and a bond with someone you keep going anyway because you don’t want to let your friend down. This is really important. You want to select determination. Determination is the most important value in a co-founder I’ve ever been able to identify and its not the thing people look for the most startups really really hard determined people are the ones that make it work. Startups are about not giving up. When we talk to our best founders the things that they say are things like I always figure it out. I never give up. And these are the traits that actually works. Its not that picture that Dustin showed from the movie of like a beautiful mind style writing equations on the window.

It’s just dogged persistence and you keep going and eventually it works and that comes. It’s co-founders that need to have that. So when I think about co-founders I tell people to think values first aptitude second and specific skills. Third I think most people go in the opposite order. They are like I need a co-founder who knows javascript and x and y. And really like you want to find someone that matches your values especially this value determination. You want someone that has a lot of potential and aptitude and then and then finally you can think about specific skills. And finally you want someone that is humble and not entitled. When someone asked Dustin the question about what has changed in startups from 2004 2017. My answer to that question is that there are more people than ever before that want to get into startups for the wrong reasons. They want to do it because its the cool thing to do. These are the people that would have gone into investment banking in 2004. And you want people that are humble that are not entitled that are willing to do whatever it takes. And they’re doing this because they want to create this thing they have this idea that they can’t let go.

We have five lectures in this course devoted to the product because a great product is the single most important thing that you do. The one thing I want to mention for now as you’re thinking about the product you build is that it is more important to have a small number of users that love you than a lot of users that like you and almost all startups get this wrong. Eventually what you want of course is a lot of users that really love your product. That’s almost impossible to do. In practice you have two choices you can go deep and narrow. You can have a small number of users that really love you and then you can find out how to find more and more of those users and broaden the appeal of the product or you can have a lot of people that kind of use the product once or twice. Kind of like it and try to figure out to get them more engaged over time. With high confidence I can say you want to start with a small number of users that really love you. Almost all great companies have products that start this way. Think about the ones in your own life the products that are so good that you spontaneous to tell your friends about them the products that are so good that if they went away you would like right the company in protest. That’s what it means to really love a product. A good indicator of that is retention and frequency of use. So if you have it and in fact I think this is so important that you actually shouldn’t track absolute growth and number of users in the early days of a startup. You should just track how often they’re using it. And we’ll have a session on metrics later but you really want to like get good at analyzing your metrics and saying Is this a user that I’m retaining and that’s using it frequently how do I compare to other products in my space. And that’s a good early indicator of users that love you. Better still is them spontaneously telling their friends to buy your product. But but the important point here is this. Nothing but a great product will save you. We’re going to talk about a lot of other things in this course and they all kind of matter. But if you don’t get this one right if you don’t make a great product the thing is still not going to work. So you need to get some users to build a great product. You can’t do it in a vacuum you need people to talk to and to interact with.

And so you need to find a small number of users that will help you build this great product. And one of the most common clichés in all of startup advice is to talk to your users. One thing I’ve learned is that most people don’t know what that actually means. Most people will say oh I talked to my users so they call up my user and say hey it’s Sam. Do you like my product and the user says yeah I do it. It’s fine. People kind of generally don’t want to disappoint you. And so you say Oh great thanks. You hang up the phone. And this is this is what most founders do when you say talk to your users. This is not what it means. Emmett Shear was one of our lecturers later is really good at doing user interviews and he’ll talk about this in more detail
but you really need to drill in and remember people are going to be too nice to you. So you need to find out exactly what they like about it you need to watch them use it. You need to try to figure out where they’re doing things that seem weird to you because they’re trying to accomplish something else. You should ask them Have you recommended this to anyone else. If not why not. Have you paid me yet. If not why not. What would that take. You really have to dig in and talk about specific features things they used to use in stead times and they start using your product and use some other product. The top level questions here don’t help you in terms of getting those users. Everyone thinks that there is going to like put up this Web site. How one person is going to take off like wildfire. That’s not what usually happens. So there are four common strategies to get your first 100 users. I’m going to go through them in order of roughly best best to worst. You can e-mail people you already know and you can ask them to be your customers. You can call in all the favors from anyone you can think of someone you took a random class with someone you are friends with in high school. You should actually if it’s a paid product you should actually charge. This is important remember people are going to be inclined to do you favors. They’re going to be too nice in what they tell you. So if it’s a paid product charge then another strategy is to research people that you think might use your product and then e-mail them or whatever and ask them to try it. Conversion rates here are low maybe 2, 3 percent so you have to do this to more but you can send targeted emails and say Hey I just made this new product. I’d really appreciate if you would try it out. Most people want to be helpful. They probably will. You can do social media Hacker News forums press whatever. If this is going to be a growth strategy you need to figure out a way for it to be ongoing. Not not a one big pop and then go away. Most people who do this find that it works once. Then they call it the journalist and say well you write about me again and the Journal says anything changed. No but I really need users will you please write the journalist says no AirBnB is an example of a company that made this work as an ongoing process. And you know they would do the craziest things. They just kept coming up with press clip after press clip. They would like mail journalists giant like boxes of cereal so they got on their desk and they were able to get it to keep going. But that’s hard. And finally the laziest and least impressive thing you can do is to just buy ads on Facebook or Google and point people to your Web site. This is not what I recommend. I don’t know of any startup that’s gotten big starting this way. I include it because it’s the idea that most people try.

I want to wrap this up before I take a few questions by talking about building a great company. We talked about this earlier getting to know your users really well as important. The best founders. They do customer support themselves. They go visit their users they sit in their office if they can. In the case of AirBnB they go live with them. You want to get to know your users really really well. They have a short cycle time. The cycle here is basically like talk to a customer understand pain point build product to address that. Get that in front of a user ask them see what they do and then repeat the cycle. You know and this cycle is how you iterate and improve the lot of compound growth beyond what it is if you can get 2 percent better every iteration cycle and you have a chance of having an iteration cycle be every four hours every four weeks and you come from that over the course of a few years you get in very very different places. So make it one of your top goals to build the fastest iterating company. The world has ever seen. You want to take a long term commitment. Most companies don’t do this. Most companies especially if they’re trying to start the easy company I’m thinking of two or three year timeframe. These things always just take a lot longer. It’s always somehow almost a 10 year project if it’s going to work. And if you think about that way from the very beginning you will make very different and much better decisions. I think this is the only arbitrage opportunity left in the market. Almost no one makes a very long term commitment to a new project. And if you do that you will think in a different way you will hire different people and that will work really well. Speaking of hiring stay lean until everything is working really well I think this is somewhat bimodal in the early days when you’re experimenting and zigzagging and you want to be like a fast little speedboat and you want to be able to turn the whole company on a dime and you can’t do that if you have a big company. Cash burn aside which is another problem the flexibility of a company basically decreases with the square of the number of employees. So you want to stay really small until you’re sure things are working. Once things are working then you can get really big. And in fact then you need to. And so once you switch into hyperscale mode you want to just get as big as fast as you can with great people because then you don’t want to be a speedboat. You want to be an aircraft carrier, a battleship and you don’t care about the fact that you can’t turn as fast. You want to steamroll everything. But you really want to be in one mode or the other. And you know like once once like users are just like begging for your product and you’ll be convinced you have great product market fit. That is when you can really start to scale the company even when you get there though resist the urge to hire mediocre people. Vinod Khosla who’s speaking later in the course has a saying that I love which is the team you build is the company you build. And this is really true. I didn’t appreciate how true this was for a long time but if you build a team of great people and you have a product that people love you have a ninety something percent chance of success. Those are both really hard to do and they’re independent variables but don’t ignore the team point. The best CEOs I know spend huge amounts of their time recruiting and retaining their talent. How much of your time would you say you spent on this 40 /50 percent like this is Dustin Moskovitz doesn’t need to be in there and doesn’t need to do anything he doesn’t want to do. You know and he chooses to spend half his time recruiting and retaining employees. So if Dustin can do that you all probably should really be doing that as well. Every CEO I’ve met has an excuse for why they only spend 5 percent of their time on building their team and it always sounds really good and then they always want to feel really really invest in this.

Relentless execution. So this is a theme we’ll talk about a lot but you have to keep going and keep going and keep going and you have to do things perfectly and you have to get all the details right. You have to care too much about every experience that a customer has with your company. There’s this book the sport take care of itself. The score will take care of itself something like that. Read it. It’s really good but it’s about how important it is to get all the details right and just move forward relentlessly and as quickly as you can. Startups are about not giving up to a degree that most people don’t have a good intuitive understanding for.

One of the very best companies in the last YC batch, he applied seven times before he got in. You know most people you reject him seven to six times they’re not going to apply on the seventh. And this is just a version of what happens in startups all of the time. Where do you get beat down again and again and again and it’s like that last time when you get pushed down and you don’t think you have enough energy to get back up. That’s why it finally works. And this is what you sign up for if you’re going to start a startup. Remember it this is like a 10 year marathon you have a fiduciary duty to your shareholders take care of yourself. So some people treat a startup as an all nighter. They don’t do a good job taking care of their health. They don’t sleep they don’t maintain their personal relationships. It is true that startups are a bad choice for work life balance. There are always these post about how I change the world my startup only working two hours a day and you know kitesurfing the rest of the time. Some of these people though are never the ones that actually make a big impact. They just talk a lot. So startups are really hard but you have a duty to yourself your team your investors to take care of yourself and to notbneglect your health your well-being the rest of your life your personal relationships. And then finally a clear mission have to figure this out on day one. But all of the most successful startups I’ve been fortunate enough to be a part of pretty quickly. First year two years at the outside they figure out a really important mission and it is this mission that gets people to join them that drives them the drives the founders that gets the media to write about them. And even if you start off building a project that’s just interesting to you and solves a problem in your own life which is how you should start. Remember too at some point have a clear mission. You have to become a great evangelist for this mission. One other skill that didn’t make it into this version of the deck is being a great communicator but you need to clearly communicate. And like clearly think clearly communicate this clear mission and that is what will convince people to come help you. And that is how you will build this idea into this giant set of you know this huge company and all these people that really love your product. I talked a little longer than I was hoping to. I’ve got about two minutes left for questions if anyone has one.

Question 1:
I was wondering if there are two people that you can hire one person is very passionate about what you’re building but lack of skill for what you need and the other person is the lacking skill needed.

Answer 1:
Passionate about like your idea like which one of when you cover to suit the choice to hire people one is passionate and value aligned but not a good skills match the other ones are great skills match but not passionate and values first aptitude second specific skills third. If you can get a really smart person who really shares your values and your mission and believes in what you’re doing they can learn the skills. I think this is this is a framework that does not let me down many times. Sure.

Question 2:
How do you get good at getting good ideas?

Answer 2:
One thing is just to practice a lot and tell people your ideas and be willing for them to tell you why it’s terrible. But I think good ideas are not a solo endeavor and you want to find a group of smart people that you can start bouncing things off of and say Hey I noticed this thing and it kind of sucked. What can we do about it. And you don’t just sit in the room and write on the window with the white board pen and have the good ideas come to you. Good ideas come because you talk to people you have smart friends you have colleagues and you you spitball ideas around. So I would say like notice problems in your life even if you don’t have a solution. Still talk just about the problem and see if you can come up with something.

This is. One more thing on that ideas are very fragile. So when you find the set of people to start talking about ideas with you want people that don’t immediately shoot a bad half baked half formed idea down don’t you want people who will say well yes you know what if we did this our thing you don’t people are like you know that sounds stupid. You want people who will say Well that sounds crazy and unlikely to work but think how big it could be if it did work like that. That’s the spirit of the kind of person. And then how can we figure out and make it work that you want. But I’d say notice problems have people to talk with anything good at to. All right. To one more question. Yes.

Question 3:
Also on fundraising when do you know to start fundraising?

Answer 3:
But in general if you can raise money on Easy It’s Easy. So if people are like desperate to give you money on good terms that might be a good time to take it. And the other one of course is if you need the money and then you kind of need to do it no matter what the terms are in general. You want to have progress to warrant the funding you need. And so it’s kind of when you have enough progress that you’re able to fairly easily raise money and you need it. That’s the best of all possible times. But again that’s a complicated question. We’ll do a full lecture on those.

Question 4:
So how do you decide to turn from searching mode to going mode?

Answer 4:
Well it’s two of the three is getting both sides switched from when you’re kind of like tacking around trying to get good product market fit and when to really scale up the company. You know everyone wonders how they know when it’s time for that. And it’s like you know when you are running around the office 80 hours a week pulling your hair out. And people love your products so much you just can’t build it fast enough. That’s when I I have never seen someone not been able to figure out when this moment is all right. On Thursday we will have a session on startup mechanics. And thank you very much.

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