Ideas, Products, Teams and Execution Part II

Startup Class Notes, Lecture 2, by Sam Altman.

Here are notes I took for the Startup Class taught at Stanford by the Y Combinator folks.

Last lecture covered ideas and products, this one covers teams and execution.

The cofounder

The cofounder relationship is one of the most important pieces in building a company. If there are tensions, they must be solved immediately! Cofounder blowups is one of the major causes for startup failure. Starting your startup with the right cofounder is one of the most important decisions you make early on and lives with you for the lifetime of the startup.

Don’t just pick someone randomly. “I want to start a business, and you want to start a business…so lets do a startup!” Thats a recipe for disaster. Your cofounder should be someone you have a solid existing relationship with. Either a long time friend who you can bank on or someone who has worked with you and has shown they can deliver.

No cofounder is better than a bad cofounder. 2–3 cofounders are ideal.

What quality do you look for in a good cofounder? Relentlessly resourceful. This is a trait you want in yourself and your cofounder. Think James Bond. Thats the kind of cofounder you want. You want a tough and calm cofounder. A smart cofounder is a given. You should be technical, but if you aren’t, you have to have a technical cofounder. You can’t be a bunch of non-techincal cofounders and expect to hire technical employees, it doesn’t work out.

Who to hire?

Try not to hire. Few employees at the start is better. A lot of employees create a slow decision making process, a higher burn rate, and complexity. At the beginning, you should only hire when you desperately need to. Later, you should learn to hire fast and scale up the company. The early days, your goal should be not to hire.

The cost of getting a bad early hire is really high. A lot of companies die off because a wrong early hire decision killed the company. Airbnb spent five months interviewing their first employee. The first hires go on to define the company. You need people who believe in it as much as you do and are as dedicated as you. When a crisis hits, these are the same people that will live in the office and ship till the crisis is over. If you talk to anyone in the first forty or so employees at Airbnb, they will tell you they felt like part of the founding team.

When you are in hiring mode, it should be your #1 priority. Just like when your in product mode, that is your #1 priorty. When your in fundraising mode, thats your #1 priority. When your in hiring mode, you should spend 25% of your time on it.

Its very hard to recruit. You think you have this great idea and everyone will join. Thats not how it works. The best people can see quickly whether an idea is good or not. Another reason why its really important to get the product right before anything else. You need to have an incredible product to attract incredible people. The best people know when a startup is on the rise.

Don’t compromise and hire mediocre people. You will regret it. In large companies, they can handle it, but in startups, it kills the company. A single mediocre hire in the first five will most often kill a startup. Ask yourself, “Am I willing to bet the future of this company on this person I am about to hire?”

Where do you get good candidates from? People you have worked with or people your employees have worked with. If you keep a high bar for who you hire, this will translate into getting the best referrals.

Experience doesn’t really matter as much as aptitude and belief in what you’re doing. The best people are the people who learn the quickest.

Things to look for in a hire: Are they smart? Do they get things done? Do I want to spend a lot of time around them? If you can get yes on all 3, you wont regret the hire. You can learn about these during the interview, but its better to have them spend a day with you to see how they work. Work on a project together instead of an interview. Call references and grill them about how the person was in their previous jobs.

Good communication skills correlate with hires that work out. If someone is difficult to talk to, if someone cannot communicate clearly, it’s a real problem in terms of their likelihood to work out. Also, for early employees you want someone that has somewhat of a risk-taking attitude. You also want people who are maniacally determined and that is slightly different than having a risk tolerant attitude. So you really should be looking for both.

The famous Paul Graham test. Is this person an animal? The idea here is that you should be able to describe any employee as an animal at what they do.

Mark Zuckerberg once said that he tries to hire people that A) he’d be comfortable hanging with socially and B) he’d be comfortable reporting to if the roles were reversed.

For whatever reason founders are usually very stingy with equity to employees and very generous with equity for investors. I think this is totally backwards. I think this is one of the things founders screw up the most often. Employees will only add more value over time. Investors will usually write the check and then, despite a lot of promises, don’t usually do that much. Sometimes they do, but your employees are really the ones that build the company over years and years.

The startup life are difficult, so you need to make sure your employees feel valued and are happy. Praise your team. Give them all the credit, and you take all the blame. Dan Pink talks of what motivates people: autonomy, mastery, and purpose. Give your employees these.

If you do have a really bad employee, then fire fast. This is the employee that has no desire to improve and keeps getting everything wrong, one after the other, for a very long time. This is toxic to the startup and you need to fire fast. They create office politics and are persistently negative. You know it when you see it.

Execution

Execution is the most critical part of running a company. When you become a cofounder, it means your signing up for years of grinding for many hours on execution and you cant outsource it. A good company that executes is based on a founder that executes. Everything starts from the founder/ceo.

So if you want a culture where people work hard, pay attention to detail, manage the customers, are frugal, you have to do it yourself. There is no other way. You cannot hire a COO to do that while you go off to conferences. The company just needs to see you as this maniacal execution machine

There’s at least a hundred times more people with great ideas than people who are willing to put in the effort to execute them well. Ideas alone are not worth anything, only executing well is what adds and creates value.

There are five jobs of the ceo. The first four everyone thinks of as CEO jobs: set the vision, raise money, evangelize the mission to people you’re trying to recruit (executives, partners, press, everybody), hire and manage the team. But the fifth one is setting the execution bar and this is not the one that most founders get excited about or envision themselves doing but I think it is actually one of the critical CEO roles and no one but the CEO can do this.

Execution is divided into two key questions: what to do and can you get it done. Lets assume you have figured out what to do. Can you get it done requires focus and intensity. Focus is critical because if you focus on the wrong things, it will kill your company.

There are a hundred things competing for your attention as a founder. You need to block them out and focus on the most important ones. Identify the top 3 things and block or delegate the rest.

This is really hard for founders. Founders get excited about starting new things. Unfortunately the trick to great execution is to say no a lot. You’re saying no ninety-seven times out of a hundred, and most founders find they have to make a very conscious effort to do this. Most startups are nowhere near focused enough. They work really hard-maybe-but they don’t work really hard at the right things, so they’ll still fail. One of the great and terrible things about starting a start up is that you get no credit for trying. You only get points when you make something the market wants. So if you work really hard on the wrong things, no one will care.

Most good founders have a small set of overarching goals. They use metrics and dates to determine when product get shipped, how their growth rate is week over week, their engagement rates, etc. Keep metrics! Have company wide discussions of metrics, it will keep everyone focused on the priorities.

The key to good focus is excellent communication. Poor communication leads to people working on the wrong stuff. This is why you need a cofounder who you know very well, you guys already know how to communicate well.

Growth and momentum should be your top areas of focus. Startups live and die by these.

Intensity is another key piece of execution along with focus. Startups work at a fairly high level of intensity. The small amount of work done right has huge implications. “One example that I like to give is thinking about the viral coefficient for a consumer web product. How many new users each existing user brings in. If it’s .99 the company will eventually flatline and die. And if it’s 1.01 you’ll be in this happy place of exponential growth forever.”

This intensity comes from the founder/ceo. Startups have the advantage of execution speed, so you need to have this relentless operating rhythm.

Speed is this huge premium. The best founders get things done quickly, always making progress, respond quickest to email, make decisions quickly, and are quick in a lot of things.

You need to keep your momentum and growth high. It boosts moral when its growing, and hurts moral when its slowing down. Board members are good when they keep you focused on growth and momentum.

A good way to keep momentum is to establish an operating rhythm at the company early. Where you ship product and launch new features on a regular basis. You’re reviewing metrics weekly with the entire company.

Don’t listen to your competitors. They make you lose focus. PR is easier to write than code. Don’t worry about your competitor at all until they’re actually beating you with a real shipped product.

Henry Ford once said: “The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.”

Check out my blog at SeekingIntellect.com, where I write about a wide range of interesting topics.