Startup Class Notes, Sam Altman and Dustin Moskovitz

Ideas, Products, Teams and Execution. Why start a startup

Here are notes i took while listening to the first lesson of the Startup Class, taught by Sam Altman and Dustin Moskovitz.

Y Combinator has funded 720 startups. 30% of advice is general, the rest is specific. This class aims to teach the 30%.

Four areas of a startup: Idea, Product, Team, Execution

Outcome =Idea x Product x Teams x Execution x Luck(random # between 0 and 10,000)

Why Start a startup? Never start a startup for the sake of doing so. There are much easier ways to get rich. You should only start a startup if you feel compelled by a particular problem, and that starting a company is the best way to solve that problem. Passion for the problem comes first, a startup comes second.

1. A Great Idea

Recent conventional thinking is that the idea doesn’t matter. Almost like its uncool to think of an idea for a startup. Execution is usually 10x more important and harder than the idea, but execution is built ontop of a great idea. Great execution towards a terrible idea will get you nowhere. Most great companies start with a great idea, not a pivot. Most successful pivots are pivots towards something the founders themselves wanted. Airbnb happened cause Brian Chesky couldnt pay his rent, but he had some extra space.

If your idea works out, your going to be working on this for a very long time. So it is worth some upfront time to think of the size and growth of the market, the defensability of the idea, and so on. Even though plans are worthless, the exercise of planning is very valuable and missing in most startups today. Long term thinking is a huge advantage in startups. The idea will expand and become more ambitious as you go. You want a nice kernel to start with. An important part of a good idea is that you need to build a business that is hard to replicate.

The idea should come first, startup second. Wait till you come up with an idea you feel compelled to explore. The best comapnies are almost always mission oriented. To get everyone to work with a sense of purpose and work very hard, everyone has to feel like its an important mission. A great founding idea gives that mission. Takes 10 years to build a great startup. You have to believe that the mission matters.

People outside the company will help you if its an important idea. Derivative companies, ones that build on top of existing ideas, aren’t mission driven, and don’t excite the people to work on it.

The best ideas are often terrible at the beginning. The 13th search engine with no portal was, at the time, a bad idea. Portals were where the value was it. The 10th social network that was geared towards college students was a bad idea, especially when your competing with myspace and other sites with 100 million+ users. Most great companies start with a seemingly bad idea. If they were good ideas, most people would have already thought of it and done it.

You want an idea that turns into a monopoly. An idea in a big market wont be a monopoly. You want an idea in a small market so you can quickly become a monopoly, and then expand. Bezos monopolized online book selling before selling everything else. If you come up with a crazy idea, most people will think its weird and bad. This is usually good. Another reason why its not really dangerous to tell people your idea, they think its crazy anyways.

Most great companies take over small markets. Take the time to think about how markets will evolve. You want a market that is too small now for any big players to take a look at, but will be big in 10 years. This is one of the big systemic mistakes in investing. They think about the growth of the startup itself, not the growth of the market.

One of the big advantages of the small but rapidly growing markets is that customers are usually desperate for a solution, and they will put up with an imperfect but rapidly growing product. Students generally have better intuition about which markets will grow rapidly than older people do. Students don’t really understand that you cannot create a market that doesn’t exist. This requires a lot of thinking to make sure the market will be there and will grow.

Sequoia’s famous question. Why now? Why is now the best time to start this company. Why couldn’t it be done two years ago? Or why is starting it a few years from now too late? All great companies had great answers to this question. In general, its best to build something you yourself need. You understand the problem better than anyone and can build a first version quickly, without having to talk to customers. If you yourself don’t have the problem, your at a big disadvantage, so try to be as close to your customers.

Good startup ideas are generally easy to explain and understand. More than a sentence or two is too complicated. Great ideas have to differ from existing companies in a distinct way. Googles search engine differed because it really worked, or new companies like SpaceX. Ideas that are derivatives of others, like the X for wine, or the Y for pets, usually fail.

While you are as student, think about new ideas and meet potential cofounders. Quote by 50 cent: “Most people think first of what they want to express or make, then find the audience for their idea. You must work the opposite angle, thinking first of the public. You need to keep your focus on their changing needs, the trends that are washing through them. Beginning with their demand, you create the appropriate supply.” Think of the market first.

2. Building a Great Product

Broad definition: Anything involved in your customers interaction with what you build for them. Great Ideas turn to great product. One of the most important tasks of the founder is to make sure you build a really great product. When founders talk of their early days, they usually say sitting in front of a computer working on the product and talking to their customers. Nothing else. All other aspects, raising money, PR, hiring business development, etc, all become easier when you have a great product.

Build something users love. Talk to users. Its better to build something that a small number of users love, than to build something that a large number of users like. Its much easier to expand from something that a small number of people love, than to expand on something that a lot of people just like. When starting a startup, this is the only thing you should care about, till its working. Then worry about other things. Its very easy to expand on a product that a few love. Very hard to expand on a product that many people like. There is so much on the internet, and so many products, that having users for simply “liking” the product will not cause it to achieve success.

Find a small group of users, and get them to really love what your doing. When people really love something, they tell their friends about it. You get organic, word of mouth, growth when you have a small number of users love your product. Great companies always have a great product that spreads through word of mouth. Very few startups die because of competition. They die cause they fail to make their users love their product, and spend their time on other things. Start simple. Its hard to make a great product. Simple is good because it forces you to do one thing extremely well. Google had one web page with a text box and 2 buttons, and it return the best result.

Founders are usually fanatical about their product. They get emails sent to their pagers so they wake up in the middle of the night to respond. They don’t ship crap. They feel physical pain when users complain about their product. You don’t need many users, you need to get users physically by hand and get them to give you feedback. Pinterest founder would go into apple stores and put the Pinterest homepage on the website so that way apple customers would see the site. He walked into coffee shops and begged people to sign on to his site. These things don’t scale. Thats exactly why it worked. Do things that don’t scale. Read Paul Grahams essay on it.

Get your users manually. The goal is to get a small group of them to love your product. Understand that group extremely well, get extremely close to them, listen to them, and you'll find out they are more than willing to give you feedback. Listen to outside users, and they will tell you what kind of product they will pay for.

Great founders don’t put anyone between them and their users. The foudners do the sales and customer support. Keep metrics. Focus on ones that make the product better, and drive growth.

Dustin Moskovits

Why you should start a startup.

Common reasons are money, flexibility, you be your own boss, its glamorous, bigger impact, etc.

Fallacies of being a tech entrepreneur.

There is an ugly side to being an entrepreneur. The reality is different than the media says. Its very stressful.

Why is it so stressful? You have a lot of responsibility. The fear of failure is not just for yourself, but for other people who have devoted the best years of their life and their livelihood to following you. You are responsible for them, and for the opportunity cost of their time. Your always on call. If something comes up, you are going to deal with it.

You are also a lot more committed. Being an employee of a company or a startup, you can just leave if things go bad. If you are founder, you are committed, even if things go sour.

You’ll be the boss.

“People have this vision of being the CEO of a company they started and being on top of the pyramid… What it’s really like: everyone else is your boss – all of your employees, customers, partners, users, media are your boss. I’ve never had more bosses and needed to account for more people today. The life of most CEOs is reporting to everyone else… if you want to exercise power and authority over people, join the military or go into politics. Don’t be an entrepreneur.” -Phil Libin, CEO of Evernote

Most of the time CEOs spend their energy on problems other people bring to them, and its usually conflicts between people or conflicts in terms of where the company is heading, customers wanting different things, or a bad version of the product. CEOs decides “who do I disappoint the lease”

Flexibility

“If you’re going to be entrepreneur, you will actually get some flex time to be honest. You’ll be able to work any 24 hours a day you want!” — Phil Libin

Your always on call, no matter what time of the day. You are the role model of the company, you have to always be your best. If you pull your foot off the breaks, so does everyone else. You’re always working.

More equity, more impact, more money.

Many times its better to join an existing company that you have analyzed to be a great company with a great idea and a great product. Employee #100 at dropbox now has $10M. Employee #100 at facebook is worth $200M, and even Employee #1000, joining Facebook in 2009, would be worth $10M today. These employees had both a big impact and a big financial reward.

When it comes to maximizing impact, adding a late stage feature to an established company means you get a force multiplier. A company with a massive user base, an existing infrastructure, and working with an established team means that what you build will impact many many people.

Brett Taylor came into google as Employee ~#1500, and created Google Maps. He got a big financial reward and made a huge impact. Justin Rosenstein, prototyped a chat integrated into gmail as a side project. Built the Like button on Facebook, which probably would’ve been very hard to build independently of Facebook. It is important to keep in mind the context for what kind of company you are trying to start and what kind of impact you will have, and if it is better to join an existing company to have a greater impact.

What is the best reason?

You can’t not do it. You are super passionate about the idea and you know the problem very well. Not only is it an incredible idea, but you can build a great product around it that solves the problem for your small set of users and can monopolize a small market. You need that passion to get through the hard part. You need it to recruit, because candidates can tell if you don’t have passion. The world needs it, or perhaps the world needs you to work on something else. You know you have the right idea and the right passion when you leave work and spend all of your free time working on the project, its consuming all of your thoughts, and feel like you have to beat it out of your chest and give it to the world.