FWD: Outlook — October 15, 2015
The top two stories in tech from around the web
Editor’s note: This is just crazy. The articles I’ve had to put in the Recommended section today would lead any other day of the week. Be sure to save some links to Pocket or Instapaper for later. Tonight, we have a huge FWD: Outlook.
This is Paul Graham’s standard question about money — assuming you lock in the same burn and growth rate, will your startup become profitable?
Paul asks, “By default do they live or die?”
If the startup is default alive, the conversation is about growth; if it’s default dead, it’s about survival.
“The fatal pinch is default dead + slow growth + not enough time to fix it.”
His advice hinges on two principles — don’t hire too fast; watch your burn.
Sam Altman didn’t think Paul was making the point strongly enough in his first draft.
“I think you should make the hiring point more strongly. I think it’s roughly correct to say that YC’s most successful companies have never been the fastest to hire, and one of the marks of a great founder is being able to resist this urge.”
Paul Buchheit, creator of Gmail, adds:
“A related problem that I see a lot is premature scaling — founders take a small business that isn’t really working (bad unit economics, typically) and then scale it up because they want impressive growth numbers. This is similar to over-hiring in that it makes the business much harder to fix once it’s big, plus they are bleeding cash really fast.”
(Isn’t it nice to have Sam Altman and Paul Buchheit proofread your work?)
Now we have two sides of the same table repeating the same message: Mitchell Harper, CEO of Capital H Labs and former founder/CEO of Bigcommerce, declares that he won’t raise money until he finds product-market fit because “raising money can create expectations that you just don’t need when you’re finding your feet.”
Timing matters. In the next section, Eric Schmidt will describe how he knew when a product was going to be a success — it boils down to adoption. Don’t throw money at it until it has significant traction.
You know where’s a really good place to iterate into product-market fit? Y Combinator. And today, Sam Altman announced the YC Continuity fund. With Ali Rowghani at the helm of the growth fund, YC pledges to exercise its “pro rata investment for every YC company in every round with a valuation below $300 million.” To eliminate insider bias, they’re investing in every company. Still, I’m sure the blogo-twittersphere will erupt with strong opinions tomorrow.
Regarding the health of the VC industry as a whole, are we nearing The Great Consolidation, as I’ve suggested in the past?
M&A activity jumped 30% from Q2 to Q3 of 2015. More companies are listening to their investors sound the gong of impending collapse. Case in point — while M&A rose, the number of VC deals dropped.
According to Exitround, Q3 “VC investment deal flow dropped, even while overall dollars invested rose. U.S. companies raised $19 billion through 931 deals in Q3 2015, an 11% decrease in number of deals and a 3% increase in dollars invested — companied to the prior quarter, Q2 2015. On a year over year basis, the number of deals dropped 5%, while dollars invested jumped 68%.”
Read more in Tomio Geron of Exitround’s piece, “VC-Backed M&A Jumps in Q3 2015, VC Investing Deals Drop”
I love this lecture series. One day, somebody’s going to compile the class notes into a small blue book and sell it as “Zero to One: 2.0.” I’ll let tonight’s quotes from Eric Schmidt stand on their own.
On building great products:
“The way you build great products is small teams with strong leaders who make tradeoffs and work all night to build a product that just barely works. Look at the iPod. Look at the iPhone. No apps. But now it’s 70% of the revenue of the world’s most valuable company.”
On the role of the CEO:
“My role was to manage the chaos. You need to have someone to run fast and have a good product sense. That was Larry and Sergey. My job was to organize the world around them.”
“The people that you hire make your culture. We’d hire people who were special in some way. You don’t hire generic people — you hire people who have had stress and achievement. The best people to hire are CFOs who’ve gone bankrupt, because they’ve been through the wars.”
“Infrastructure” by Seth Godin of Squidoo
“Is the Imposter Symptom Generational?” by Joanne Wilson of Gotham Gal Ventures
“The HACKcelerator Story: From Hackathon Project to Startup in 12 Weeks” by Sahar AbdulRasoul of HACKcelerator