Accepting Risk and Choosing Startup Ideas: Lessons from Ali Partovi (CEO of Neo and Co-Founder of Code.org) | Remote Students
How to steer towards risk, choosing the right startup ideas, finding the best founding team, and getting into startups as a college student
Members of the Remote Students Community had the opportunity to meet Ali Partovi this week and ask him questions about his experience as a founder and investor in high-growth startups. Apply here to join our invite-only community and meet our amazing lineup of guest speakers, including people like Ali!
Ali Partovi tries to make a career of investing in people smarter than himself. He has backed Airbnb, Dropbox, Facebook, & Uber. He co-founded Code.org to bring Computer Science to classrooms. Ali grew up in Tehran during the Iran-Iraq war, attended Harvard, and sold his first startup, LinkExchange, in 1998. He’s passionate about sustainable food and loves climbing, guitar, puzzles, and family.
What if I don’t want to take the risk of doing a startup?
1) My first piece of advice is: don’t avoid risk, steer towards it.
Risk is uncertainty and uncertainty is terrifying, but it is also rewarding. Usually, the greater the uncertainty and risk involved, the greater the success.
When considering the risks, as Elon Musk said, “If something is important enough, you should try even when the probable outcome is failure.”
2) “What if I fail?”
Young founders often ask this question. First, let’s amend that to “What if I succeed?” Before analyzing the possible risks of a project, think about if the possible successes. Is this a success big enough for you to invest your time in it? Think about if the project succeeds in the long run; how high will the opportunity cost be (time, resources spent)? If it’s only a moderate success, will it be worth 5–7 years of life?
In retrospect, with my second startup, after 7 or 8 years I sold it for only about $24 million dollars. This turned out to be way too high of an opportunity cost vs. profit I made after returning my investors’ money. It was nowhere near the things I could have done with that time for only a moderate success.
3) How do I deal with uncertainty?
Uncertainty is rewarding. Often times, it can come between failure and success, but the more you try and reduce your uncertainty, the more you are reducing your chances for a greater reward and success. What you end up with looks more like survival. For a startup founder, one of the worst outcomes is to create a startup that stays alive for a long time without ever becoming a big success; it ends up wasting time and resources for low reward, and ruins the potential for even bigger projects and opportunities.
How do I know when to go all in on a side project?
1) I have this formula/chart that I made, which basically allows you to see the expected value of a company. It goes:
When multiplying the expected size of the reward and the probability of success, you get this rectangle that describes its expected value. The size of the rectangle should show how “worth it” the company might be.
2) In my experience, young people very often dwell only on the probability of success, and are so focused on trying to reduce risk that they don’t spend enough time looking at the size of the reward. My tip for figuring out whether or not to continue a project is to look at it from both angles to see whether that combined product is enough to continue a project.
3) On top of all that, it’s important to know that the best outcomes of any startup will have either a spectacular success, or failure. Either way, it’s better to have a huge outcome, versus having a long, drawn out outcome that may come with too much opportunity cost. When deciding, try and place your company somewhere within the square above, and decide based on that if it’s worth continuing for extended periods of time.
How do I come up with a startup idea?
Most people usually ask themselves, “What cool tech do I know?” and “how can I apply it to a startup?” This is essentially having a solution seeking a need, and is a prime example of what not to do. Instead, ask the question:
“Whats a big problem worthy of tackling?”
Ideally, this is an issue you personally have felt and experienced, in which case you know how to go about creating a solution and what it should be based around.
Trying to build a solution based off of only what you know, extremely narrows the possibilities for your company. Instead, think of the larger space of problems that can be built and form a strong team to help solve it.
How do I know if the problem I am solving is big enough?
Most VC’s will say this in terms of money, like if it is a $5 billion dollar market or so on. This is very irrelevant in determining the size of the market.
A more intuitive way, is figuring out how big the market is in terms of how many people would be affected, and how greatly.
The area made by the rectangle essentially shows how big the market is, and it can also be a proxy for how much money the market represents. On top of that, a good question to be asking is, “How much pain is it that we might remove by solving this problem?”
How do I create funding for my startup in its early stages?
Very often, young founders are thinking, “How do I persuade investors to invest in me?” and then use that to modify the startup a little. Instead, create what you believe in, and then think of raising money as a search task. You’re not trying to convince the person you’re talking to to invest in the company. It’s more that there are thousands of investors out there and that some subset of them would instantly love what you have, because they see the world the way you do. And it’s a search task for you to find them.
After that, its like “love at first sight” for investors. It’s an emotional decision for VCs to invest in a company, and you can’t persuade someone to fall in love. And so, the best way to raise money is to create something that aligns with your heart that you yourself truly deeply believe the world needs, and then treat it as a search for others who who see it the same way.
Who should I start my startup with?
1) Spend as much energy in brainstorming ideas as you do in brainstorming and writing down who you would build them with. Hiring is actually one of the hardest tasks to do in any company, and the first 5 employees will most likely be the largest predictive factor for if the company succeeds or not.
2) To get the best team, as you go through school, make lists of who are the best, or smartest people you know, and then sustain relationships with them. Don’t stick around just to use them in the future, but actually care about them and figure out what they care about.
3) To try and create lasting relationships, try to figure out how to help them and lift them up. The best way to network without high-level connections is to find people who need help and help them, which elevates yourself, but also creates a network around you of people you can depend on.
What made you fall in love with coding?
I’ve been coding since I was around 10 years old, and I was actually pretty good at it, but I never considered it as a future career or job opportunity. Up until my senior year in college, I was in the pre-med track, just taking computer science courses on the side for fun.
When I was a junior in college, I was fortunate enough that I had a friend who had started a company, who essentially recruited me to run it with him and then actually allowed me to become his successor. This was all through an organization at Harvard (Harvard Student Agencies) that was designed to give students opportunities to run a company, and was one of the most impactful experiences in my college years. It’s what made me fall in love with starting companies.
Any advice on getting started in entrepreneurship?
To all students, my biggest takeaway from college is to use it as an invaluable resource to get started on running a company, such as through a school-led organization like the one I went through. All huge successful founders had experience running companies before their big hit, and creating them as early as possible when you have resources provided by being in college, is really valuable to being a successful founder.
On the other hand, if you can’t start one, work at one. This gives a 360-view on what the internals of a startup look like, and can help you gain insight on different positions within the company.
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