[User] Please transcribe this text

[Assistant] Then when someone releases an Android application, and this was something I saw with Instagram years and years ago. But when you release an Android application, people might have tried it on an iPhone and then traded their iPhone for an Android and no longer be able to access your service.


[User] Please transcribe this text

[Assistant] People might have tried your service on a friend's iPhone and then when you add Android they come back and use your service. So that's another thing that can, can drive you up again. And then the third thing that I've seen on these curves that drive these curves up again is adding categories. So think about Amazon.


[User] Please transcribe this text

[Assistant] There was a really good discussion about Stuart earlier or someone earlier in this talked about Amazon and how Amazon started with books because there was this large inventory available of books. But then they added in another category and then they added in another category over time.


[User] Please transcribe this text

[Assistant] But then two years down the line, Amazon suddenly had kitchenware. I don't know. Or fashion. And they came back and then they bought fashion and it brought them more use cases to come back more monthly active. This was true with eBay. We added motors.


[User] Please transcribe this text

[Assistant] Uh, I remember being at eBay like, and, and we had to do all of our reporting on gross merchandise volume with and without motors. And no one had ever believed that you could buy a car online and eBay did it and it created a whole new use case for people, many of whom were existing eBay customers who now had one more category they could shop in. So.


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[Assistant] You wanna curve the asymptotes to a line parallel to the x axis. You can do it with far more limited amounts of data than most people think you can by using the technique I outlined earlier and I'll show you a real world example in a few slides. And there are three types of curves that I've seen.


[User] Please transcribe this text

[Assistant] Curves that asymptote like this? Awesome. Your company will survive. Now how big will it get? We have another question.


[User] Please transcribe this text

[Assistant] Curves that go straight to zero, that's okay. You could be in games and your job is to produce one here after another after another. EA doesn't expect whatever, FIFA 2012, to still have lots of users now if they've released FIFA 27. So it's okay, there are businesses where hitting the X axis is okay, but you need to know you're in one of those businesses.


[User] Please transcribe this text

[Assistant] And then the third that I've seen is the curve going up. And that can be driven by network effects. That can be driven by being available on more platforms. That can be driven by adding categories to your marketplace or service.


[User] Please transcribe this text

[Assistant] From this falls out a brilliant way to look at growth. And this guy, Danny Ferrante, who was at Yahoo, who was one of the first members of the growth team, runs Core Data Science at Facebook. He's totally awesome. He's really the brains behind the operation and the mouth. Uhm, Danny came up or brought this to Facebook, and it's a simple way to look at growth.


[User] Please transcribe this text

[Assistant] We were looking at growth as how many users were we growing by, week on week. We looked at it on an absolute basis.


[User] Please transcribe this text

[Assistant] And looking at it like that, we were like, huh, okay, so we're signing up whatever it was, a million a week, and we're growing by whatever it was, 800,000 a week, I don't know.


[User] Please transcribe this text

[Assistant] Uhm, cool, we're churning 200,000 people. And we never actually looked at it in this way. When we change the way we look at things, to say, well okay, the net growth is 800,000 a week. The new users are 1 million a week. But what is churn and resurrection?


[User] Please transcribe this text

[Assistant] And what we actually found at the time, and I can't remember the absolute numbers, so I'll just make some up. But imagine you're churning 1.3 million. So not 200,000, 1.3 million. You're resurrecting 1.1 million. So plus 1, minus 1.3.


[User] Please transcribe this text

[Assistant] 800,000 in growth, but that 800,000 in growth is being driven, I think I did the math wrong, that 800,000 in growth is being driven by a different order of magnitude from churn and resurrection than you realized. And so that helps you focus on how do I stop people churning?


[User] Please transcribe this text

[Assistant] How do I get people to come back to my service who are coming, who are not coming back to my service right now? So once you have your retention curves, and once you start to have a business with retention, you need to look at your growth accounting, not just how many users are we acquiring. Make sense?


[User] Please transcribe this text

[Assistant] Overall, the number one thing I focus on for growth, the number one thing we focus on for growth is retention. So what gets you retained in any given service?


[User] Please transcribe this text

[Assistant] What is the moment when you used DoorDash, when you used Slack, when you used Facebook, LinkedIn, WhatsApp, whatever the product, what is that moment when you went, yes, I've got it?


[User] Please transcribe this text

[Assistant] On Facebook, it's friends. You see that first friend, that person who, uh, I've got completely the wrong crowd for this. The person from high school who you lost contact with as you grew over and moved away. Uhm, but you see that person and you go, wow, I haven't talked to them in years. Let's see what's going on with their life. And they've had a kid and lost their hair too and you feel better about yourself. Uhm,


[User] Please transcribe this text

[Assistant] That is a magic moment on Facebook. So how quickly can you drive the user to that magic moment?


[User] Please transcribe this text

[Assistant] You look at Airbnb, right? They've talked about, uh, like,


[User] Please transcribe this text

[Assistant] The delight that they give people. They've talked about these different screenshots of the stages in the user journey that they've created as a map of the user journey. Getting that first person reserve your house. Staying at that first property. Those are our magic moments. eBay. Buying your first item from a stranger online.


[User] Please transcribe this text

[Assistant] Nowadays that doesn't seem crazy, but back when I was working at eBay in the UK, that was revolutionary.


[User] Please transcribe this text

[Assistant] And people really, their eyes lit up when you talk to them about it. In Germany, they had this great ad, Drei zwei eins meins, that showed the build up of when you were waiting for the auction to finish and for you to make your first purchase. And that was such an adrenaline and dolphin moment, you know? That users loved it. Nowadays, it's, it seems a long time ago. But those magic moments are what you need to look for. So how do you find them?


[User] Please transcribe this text

[Assistant] Well you can find them in the non-scalable way, which is, don't they all just sound relatively obvious?


[User] Please transcribe this text

[Assistant] You can actually think through, what is the experience of my product? What do I want people to do? You can ask your first users.


[User] Please transcribe this text

[Assistant] Okay, you're keeping using my product. Why are you keeping using my product? What is the thing that makes you happy to use my product? What was that first moment?


[User] Please transcribe this text

[Assistant] It's non-scalable, but it generally works. When you ask people, what is the best thing about Facebook? The first thing they say is, connecting with friends and family. In all the research, why do you like Facebook? Oh, it helps me connect with my friends and family.


[User] Please transcribe this text

[Assistant] So you can do it the non-scalable way or you can do it the scalable way. Look for correlations.


[User] Please transcribe this text

[Assistant] So, Mark has talked at startup school himself and he said uhm, that we focused on getting people to 10 friends in 14 days.


[User] Please transcribe this text

[Assistant] It's a smooth curve, right? Number of friends on the x-axis and percent retained on the y-axis. It's not like there's a step change at ten, if you get nine you don't retain, if you get eleven you do and it all changes at ten. No, it's clearly a smooth curve and we picked a point on the curve, but there's a strong correlation between.


[User] Please transcribe this text

[Assistant] Number of friends you got in the first 14 days, and whether you retain or not. There's a correlation between number of friends in the first day, but there are correlations for any product. Like, did you place a bid? Did you do a buy it now? Or did you list an item on eBay? Was the thing that was completely correlated with?


[User] Please transcribe this text

[Assistant] Retention for eBay. You can imagine, I don't know, I mean DoorDash was founded at Stanford, right? Like, you can imagine for DoorDash, you've placed your first order, and that order arrives to your door.


[User] Please transcribe this text

[Assistant] So you need to look for the magic moment of your product by talking to users and then try and validate that with correlations. Does this make sense? Cool.


[User] Please transcribe this text

[Assistant] I love this. I put it in every presentation I do. Uhm, so I'm lucky enough to have been trained in physics, uh, at Cambridge in the UK. Uhm, and my favorite, uh, my favorite lecture series, not my favorite lecture, but my favorite lecture series was in this thing called Dimensional Reasoning.


[User] Please transcribe this text

[Assistant] And so, it's easy for me to stand up here and say, okay, so you need to get flat retention and then you have a viable business. That's not actually true. That's kind of a glib statement.


[User] Please transcribe this text

[Assistant] If you're producing a social network and you have 5% retention, you're not gonna long-term have a tremendous social network. Or a messaging app, like, what use would WhatsApp be if only 5% of your friends actually used WhatsApp who signed up for it? I mean, it'd be useless, right?


[User] Please transcribe this text

[Assistant] And there's no way we could release one billion plus numbers of active users if that was true for us. On the other hand, if you have a marketplace that is selling fashion,


[User] Please transcribe this text

[Assistant] And you have 5 or 10% retention, but those people spend a lot of money, you have a totally viable business.


[User] Please transcribe this text

[Assistant] And so the level of retention you need varies dramatically by the category that you're in. Obviously the higher the better is true in everything. Like if you can have an eBay type business model or Amazon type business model with 90% retention, you probably end up bigger than Amazon. I mean that would be incredible.


[User] Please transcribe this text

[Assistant] So I think the point I like to make is you can figure it out. And I love this as an inspirational story. So Jeffrey Taylor was this British physicist, uh, he was on the edge of the Manhattan Project, he wasn't in the core, he ended up winning a Nobel Prize later, uhm, for a different area. Uhm, and the US and Russian governments were releasing these images to say, this is how big our bomb is.


[User] Please transcribe this text

[Assistant] But they weren't releasing the actual power, because that was a closely guarded state secret.


[User] Please transcribe this text

[Assistant] And so what Jeffrey Taylor did is he used this technique called dimensional reasoning where you look at the units in the metric you are trying to achieve. So joules, right, for energy is joules. Kilograms times meters squared over seconds squared. That's what joules decomposes into.


[User] Please transcribe this text

[Assistant] In this case, kilograms, what are you going to use? The volume of the air times the density of the air, which handily is one. So you've now got meters cubed times meters squared over seconds squared.


[User] Please transcribe this text

[Assistant] And you end up getting 25 kilotons as the output. You get 10 to the 14 I think is what it works out as.


[User] Please transcribe this text

[Assistant] He could take one photo and figure out the most closely guarded state secret in the United States at the time.


[User] Please transcribe this text

[Assistant] So here's what I promised. This is an actual curve. I've presented it at a few different events. I've taken off the numbers because I'm worried, uh, they're state secrets. Uhm, but this is from 2007 to 2008. I joined the week we started our ads business at Facebook, uhm, our self-service ad business by us.


[User] Please transcribe this text

[Assistant] The, uh, the pink speaks to the right-hand axis, the blue speaks to the left-hand axis. What the blue is, is how many advertisers had been in the system at least one day, two days, three days, because the x-axis is number of days from acquisition. Makes sense?


[User] Please transcribe this text

[Assistant] So the thing has only been around 250 days, so zero people have been advertisers 251 days ago, and were on their 251st date, and all the people have been active at least on day zero.


[User] Please transcribe this text

[Assistant] And then each of those pink data points is the total revenue we achieved from every user who had registered.


[User] Please transcribe this text

[Assistant] Uh, who was using the service on their 30th day or their 31st day divided by how many users signed up 30 or 31 days ago.


[User] Please transcribe this text

[Assistant] Not how many were active, right? How many signed up? So total in the cohort, uhm, who signed up 30 or 31 days ago, uh, divided by, uh, you divide the revenue they made in the day by that number of users. And that gives you that shape of curve that's up there.


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[Assistant] I stumbled over my words a bit there. I promise you if you look over it again it makes perfect sense. I did this with Danny back in 2008.


[User] Please transcribe this text

[Assistant] The really important things I want you to take away from looking at this curve is look how flat the pink line is.


[User] Please transcribe this text

[Assistant] Like I've been talking about curves flattening out. This is an actual curve flattening out. And look how quickly it's flattened out. By 100 days you can pretty much predict what the line is going to be at 200 days.


[User] Please transcribe this text

[Assistant] I've seen this over and over. I've seen this with engagement. So if you divide time spent by the same denominator. I've seen it actually for sentiment. If you have a large enough sentiment survey and you divide it by that same denominator. I have seen it for posts. I have seen it for photos uploaded, messages sent.


[User] Please transcribe this text

[Assistant] Like, you can use the same techniques that I talked about for determining how much retention you have and whether your business is viable to figure out what is the lifetime value of one of your customers.


[User] Please transcribe this text

[Assistant] If I was to acquire the total addressable market for my business today,


[User] Please transcribe this text

[Assistant] What revenue will I be making in a hundred days? That's what this curve allows you to do.


[User] Please transcribe this text

[Assistant] You can predict it for posts, you can predict it for page views, time spent, whatever you want.


[User] Please transcribe this text

[Assistant] The same methodology works for engagement that works for retention.


[User] Please transcribe this text

[Assistant] And actually retention is often the biggest driver of this metric.


[User] Please transcribe this text

[Assistant] And we did this with very little data. Later on, there's a, there's a stat we are okay releasing, which was end of 2012, we had about 700,000 active advertisers. Beginning we had about 300,000 active advertisers. Uhm, and this was five years before that.


[User] Please transcribe this text

[Assistant] So you can imagine there was a very small data set that was behind calculating this. The last thing is I said things get noisy the further out you go. You can literally see that on this graph, right? The variance in the numbers the further to the right you go on the graph. So now how do you operate for growth?


[User] Please transcribe this text

[Assistant] Most important thing is have a clear goal. Brian, who is awesome on Growth Marketing Facebook, great guy, he always says, if you are a growth team, your product is a number.


[User] Please transcribe this text

[Assistant] One of the most brilliant things I think that Mark did in the early days of Facebook was he aligned the entire company on monthly active people as our goal. Now why does this matter?


[User] Please transcribe this text

[Assistant] It matters for a bunch of reasons. But the biggest and most important reason is I think it aligns everyone.


[User] Please transcribe this text

[Assistant] When you have a company of more than two or three people, or by the way, a team of more than two or three people, certainly when it gets to the hundreds, you can't control what anyone does. I mean, you could probably control what one person does, but then the other 199 would do whatever the hell they wanted.


[User] Please transcribe this text

[Assistant] So what do you want to do? You want to make sure everyone is pointing in the same direction and that direction is generally right. So let's think back to the early days of any company, whether it's Facebook, whether it's Airbnb, LinkedIn, whatever you want to look at.


[User] Please transcribe this text

[Assistant] It would be completely reasonable to have a goal of revenue. Right?


[User] Please transcribe this text

[Assistant] You want your company to stay alive. You want to make enough money that your company can still be viable, that you can employ people, that the valuation goes up. So a reasonable person could say, I think we need to drive towards revenue.


[User] Please transcribe this text

[Assistant] At the same time, you could have a metric that was like, if you're Airbnb, number of hosts. If you're Facebook, number of posts.


[User] Please transcribe this text

[Assistant] If you're DoorDash, number of orders. I don't even know what these companies metrics are beyond Facebook's. You could easily have a production metric or a consumption metric. You could have a time spent in our service metric. And every one of those metrics would be a completely reasonable metric to drive for. So, you've got ten reasonable people.


[User] Please transcribe this text

[Assistant] Maybe five of them think you should have monthly active people. One is really focused on revenue. Two are looking at time spent and two are looking at number of posts.


[User] Please transcribe this text

[Assistant] Everyone is pushing in a reasonable direction, that is vaguely aligned, but probably will have conflict. If you want to get an ad in front of a user as quickly as you possibly can, you may not necessarily want to put friends in front of them immediately.


[User] Please transcribe this text

[Assistant] If you want to get them to post, you may dial up the composer and push down the ads. I don't know, like these are trade-offs that you could be making. And if the whole team isn't clear what the goal is, they will be in conflict.


[User] Please transcribe this text

[Assistant] So having a clear goal that your company looks to drive is really, really important.


[User] Please transcribe this text

[Assistant] And having that goal be MAP in my opinion is the best metric that you can drive for because it is that once a month visitation, that base level you can drive off of if you're gonna do a consumer internet company. But fundamentally the most important thing is pick a goal, your team's product is a goal, focus on that goal, align the company around that goal, and then you're gonna operate correctly for growth. The other thing I always say is you don't need a growth team.


[User] Please transcribe this text

[Assistant] If you are like a small company, if you're even Series A, don't have a growth team, don't hire someone like me. The whole company's job should be growth. I'm very happy at Facebook, so I don't want a job offer. But the whole company's.


[User] Please transcribe this text

[Assistant] The whole company's goal should be growing. The purpose of a startup is to grow. So what is the number you want to grow and align the whole company against growing that number? Does that make sense?


[User] Please transcribe this text

[Assistant] Now Naomi is amazing, and Naomi is someone people don't know that well out of, out of Facebook, but she runs products and engineering for growth, she's brilliant. She's been on Facebook 12 years, uhm, so when...


[User] Please transcribe this text

[Assistant] You know, you say I'm original, I feel not original every day. She sits like three feet from me. She's amazing. Anyway, she has this approach that we use to iterate through our growth planning cycles, which I think works really well. Understand. First of all, understand what is going on.


[User] Please transcribe this text

[Assistant] Look at all the data you have Talk to your users Ask your users what they think


[User] Please transcribe this text

[Assistant] Understand everything that is going on with your product that you can possibly understand. What matters? Retention. Are you churning too many? Do you have the retention? Is the revenue going up on a per user basis? What are the acquisition channels you're getting? Which channel are people resurrecting through? Are they resurrecting through email? Is it push notifications? What's going on? Understand what's going on for your system. Have that all tracked.


[User] Please transcribe this text

[Assistant] Then identify, look through all of those different metrics, all of that different research you get in, and understand, and identify where are there opportunities? Where do you see big drop-offs? Do you have a lot of people with push notifications turned on who are not receiving push notifications?


[User] Please transcribe this text

[Assistant] Do you have a lot of people who are receiving push notifications who are not clicking on them?


[User] Please transcribe this text

[Assistant] Do you have loads and loads of social media traffic, but no search traffic?


[User] Please transcribe this text

[Assistant] Are your email viral invites working, but your SMS ones not? And what is the difference between those?


[User] Please transcribe this text

[Assistant] Like go and look at the data and identify where there are gaps and then try and double down on fixing those gaps in the execution phase. Now to this day, this is still how we run growth at Facebook and you can even see a talk Naomi and I gave online.


[User] Please transcribe this text

[Assistant] Nine years ago, I think, at FA, eight or nine years ago, where we talk about using this approach and we have kept it going. Understand what's going on, identify the opportunities in that data you've understood, and then execute against it. Another really interesting thing I think was said earlier is,


[User] Please transcribe this text

[Assistant] Data debt sucks and you're gonna regret it later and your intuition is going to run out at some point and then you're gonna want data.


[User] Please transcribe this text

[Assistant] In 2009, we actually shut down all of the work the growth team was doing during January. And we only spent the time logging and making sure every critical flow on Facebook, registration. At the time, we didn't log clicks on emails.


[User] Please transcribe this text

[Assistant] So, clicks on emails. I mean, seems obvious now, but we didn't have it. Clicks on emails. Did you then actually log in? Did you fail in the password entry? All of these different things.


[User] Please transcribe this text

[Assistant] We logged them so that we could understand what was going on and that was super critical because actually in March that year we had a massive growth slowdown and we were not able to, we would not have been able to understand what was going on if we hadn't done the logging in January because what went on was actually super nuanced. Uh, and without that logging in place we wouldn't have known.


[User] Please transcribe this text

[Assistant] I am very, very lucky at Facebook. I do growth marketing. I run the awesome, uh, internationalization team. But I also run the analytics team for the company and that's been a couple of years now.


[User] Please transcribe this text

[Assistant] When I talk about data to people internally, I like to say these three points.


[User] Please transcribe this text

[Assistant] There's a meme in the valley that you operate either for user experience or for metrics. And I really want to bust that meme.


[User] Please transcribe this text

[Assistant] Data, when used in the right way, gives you empathy about your users.


[User] Please transcribe this text

[Assistant] One example I've, I've talked about in the past is, uhm, we launched a product on Facebook that you may have seen on, on your big 42 inch monitors, uh, no one has a big 42 inch monitor in here, but I'm sure some of you do at home, uhm, that has on the right hand side all the friends you could chat with on Facebook, but at the top it has this list of stories that's ticking over called Ticker. Uhm,


[User] Please transcribe this text

[Assistant] When you're on a small screen, that product used to collapse into the right hand column of Facebook and push things down so that you could still see these stories ticking over.


[User] Please transcribe this text

[Assistant] That product worked great for all of us who had huge numbers of friends who were creating a lot of content on big screens. But if you went to the Philippines where there was huge usage in internet cafes and people were on narrow screens, the majority of them ended up having that in the right hand column.


[User] Please transcribe this text

[Assistant] And the majority of them were low engagement with Facebook and couldn't see people you may know below the fault.


[User] Please transcribe this text

[Assistant] And so we actually lost friending amongst users who are very different to ourselves and we only figured out what was happening by looking at the data and saying, huh, why is this bad on small screens and awesome on big screens? Why is it not so great for low engagement users and super for power users?


[User] Please transcribe this text

[Assistant] It was because we used the data to understand these users who are different to us here in Silicon Valley.


[User] Please transcribe this text

[Assistant] Now think about it. I presume, I don't know, I'm seeing a lot of Apple products here. I have a Lenovo at the moment. But most of you probably have iPhones. Who has an iPhone? Yeaah. Who has an Android? You're the best. Uhm, most people in the world are using Androids. But everyone in this room has an iPhone first and foremost.


[User] Please transcribe this text

[Assistant] You don't understand, I'm, I'm actually forgetting how to use iOS now, which is actually a problem in my job, but, like, I've got an Android because the major, like, huge, but maybe not the majority, a vast number of our users use Android, as Jan said in the last talk, and I need to understand what the Android operating system offers.


[User] Please transcribe this text

[Assistant] But I can't understand Android and iOS well as a user at the same time, so I use data to understand what's going on on iOS.


[User] Please transcribe this text

[Assistant] You need to gain empathy for your users and research is great and talking to your customers is great.


[User] Please transcribe this text

[Assistant] Talk to your users, then go away and build the product to serve them. And look at the data in my opinion would be the next thing to validate if you built the right thing, if you're doing the right thing, if your research actually ties up with what.


[User] Please transcribe this text

[Assistant] Your users have said to you. So data gives you empathy.


[User] Please transcribe this text

[Assistant] Data, it's not a tradeoff between metrics and users. If you build the right metrics, you are optimizing for the users. Two, data predicts the future.


[User] Please transcribe this text

[Assistant] Over and over and over again, I love this quote, it's a science fiction author I think, but like, the future is here, it's just not evenly distributed yet.


[User] Please transcribe this text

[Assistant] So, those curves that show you the retention. When I said you can look at your total addressable market and say if I signed them all up, how much revenue would I get? Or you just look at who you signed up today. Let's say back in those days we signed up a thousand advertisers in a day. I could tell you how much revenue they would contribute 100 days out because of that curve.


[User] Please transcribe this text

[Assistant] Now also your users are going to ramp up. So a user who shops in one category if you're eBay or if you're Amazon and then buys in a second category in a third category is clearly going to get more valuable, right? Shopping the shop, driving up same store sales is a common technique in e-commerce.


[User] Please transcribe this text

[Assistant] Okay, so how many of your users are increasing the number of categories they're shopping in? You see someone sign up.


[User] Please transcribe this text

[Assistant] What likelihood is it that they're going to add extra categories and what is your revenue going to be in the future? You can predict that with data.


[User] Please transcribe this text

[Assistant] See all these people walking in the science march, believing in, in science, and then when you apply the scientific method to their product and run an A-B test, they ship the thing that looked bad in the A-B test, because they didn't believe the A-B test. I see that with all kinds of startups I talk to.


[User] Please transcribe this text

[Assistant] A-B tests tell you what's going to happen when you ship them to 100%. Use them. It works.


[User] Please transcribe this text

[Assistant] Finally, and this is something Mark actually added recently for me, data helps you make decisions faster.


[User] Please transcribe this text

[Assistant] If you can not, as the CEO, have to have a conversation over something where you could just run a test,


[User] Please transcribe this text

[Assistant] Your company is going to be able to move quicker because every decision won't have to come to you. People in the team, if they're clear on what that goal is, that North Star metric is, they can run the test, see if they move the metric, and then only come to you when they know if they've moved the metric or not.


[User] Please transcribe this text

[Assistant] Decisions like that help you move faster. Knowing what your most important priority is because you've looked at the data, that helps you move faster.


[User] Please transcribe this text

[Assistant] You wanted me to push for as much of the time as possible, so I'm pushing for as much of the time as possible. So let's talk about tactics.


[User] Please transcribe this text

[Assistant] First 100 users. Uh, Sam talked about this brilliantly. If you actually listen, I thought Tracy in the previous conversations was just fantastic when she talked about getting 30 of her friends in the construction industry to try PlanGrid and then asking 20, asking them to pay and 29 of them kept paying. Like, ask your friends first for your first 100 customers.


[User] Please transcribe this text

[Assistant] Research and then reach out to who you'd like to have as your users.


[User] Please transcribe this text

[Assistant] Totally makes sense, right? Like you can do what, uhm, like how Oscar was discovered by the lob team, right? Just email a bunch of people. Don't get caught in a spam filter. Don't just auto-generate emails or you'll definitely get caught in a spam filter. But send personal emails. Get introductions. See which friend you have in common.


[User] Please transcribe this text

[Assistant] I emphasize, by the way, I have never started a startup, so I might be entirely the wrong person to tell you about first 100 users, but Sam asked me to. Uhm.


[User] Please transcribe this text

[Assistant] Third, social media and PR. PR is non-scalable but it can give you amazing bumps. Amazing bumps.


[User] Please transcribe this text

[Assistant] Uhm, and in the early days, I think PR is a good growth lever. Later on, I think companies don't realize when PR has stopped being a growth lever because they have these other metrics, but you can get these great one-time bumps. Just know you can't get them every single week, and sometimes they are a one-off.


[User] Please transcribe this text

[Assistant] And finally, buy ads. I am not as against ads as, as Sam is as a great method for growing users. I think that buying ads can be absolutely fantastic. I built my career buying ads. Two of the most valuable internet companies, Google and Facebook, make all their revenue from selling ads. Like ads are actually a good thing if you get the targeting right. And we're gonna talk about that in a second.


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[Assistant] If you are having a growth team, if you are focused on growth tactics, what people talk about is growth hacking, although I hate the term. If you pour fuel, this is a picture from a guy called Nick on my team, Nick Censeri, and uhm, I did not tell him to hold his hand into the flames, which you'll see in a second. If you pour lighter fluid onto dead coals with no spark, you get nothing.


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[Assistant] And if there's one thing to take away from this lecture, you need to have product market fit to drive growth, you need retention to drive growth, otherwise every growth tactic, every acquisition tactic you could possibly run doesn't matter. But.


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[Assistant] If you have a spark there, if you have a glowing ember, you can pour fuel on the fire of your product, and that is what Growth Tactics does.


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[Assistant] So I look at things based on channel, targeting, creative, and then conversion.


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[Assistant] So if you think about channel, I'm gonna try and do some greatest hits here. If you look at SEO, you think I have to think about keyword research. Which keywords do I want to show up for on Google on the other search engines? And make sure you have content targeted against those keywords.


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[Assistant] Moz, there are a bunch of websites out there you can read about SEO tactics.


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[Assistant] For paid search, the biggest thing I see people do wrong is they don't think about incrementality. They buy paid search and they don't necessarily say, well, would I have got those customers anyway? So look really hard. If you're gonna buy paid search as a startup, you should see a step change in your line.


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[Assistant] Your marketing team, if you've reached the stage where you have a marketing guy, should show you a line that is flat, and then they turn on paid search and it goes up.


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[Assistant] That's the same of any ads if you are a small startup. If you're a big company, incrementality analysis, there's this great Berkeley professor, Steve Tadellis, who's done a deep study in it with eBay that I love and I, I think he's really smart. Big companies, you have to be really, really smart about getting incrementality. You're a small startup, show me a step change.


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[Assistant] Do think about marginal, not absolute ROI. So people always look at like, I spent this much, I got this much, how valuable is it? That's not what you want to look at. You want to look at the last dollar you spent, how much did you get for that? Not overall. Does that make sense?


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[Assistant] Not as many nods. Uhm, I'm gonna blast through that. Look at, look at marginal ROI. Look at diminishing return curves in economics. And then again, you need to do your keyword research.


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[Assistant] So email SMS and push notifications. This is something every startup gets wrong. We always optimize for ourselves.


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[Assistant] Have you seen the Instagram thing on the internet where someone shows a phone of like an Instagram user with a million followers when they've posted something and they have push notifications on and the stream just goes brrrr and all the notifications are coming in at high speed? Like that's what we're like for our own products.


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[Assistant] For our products, we're the power users. And by nature, every startup I have gone and talked to has always optimized for themselves. Has always optimized for the power user.


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[Assistant] And so by optimizing for the power user, what do you do? Well, we shouldn't put that on by default because it's going to completely spam my home screen.


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[Assistant] Power users are smart. If you give them the options, they know how to turn off notifications. It's your marginal user you should care about with notifications.


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[Assistant] That person for whom they received their first like on Instagram.


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[Assistant] Or the host that gets their first notification on Airbnb or the seller that gets their first bid on eBay or the buyer who's just been outbid in their first item. That's the person that needs to get the notification and needs to respond to it and you need to optimize for in your head.


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[Assistant] Marginal user is the number one thing in email, SMS, push, notifications, and even offline mail, which Lob was talking about and is still very important for many companies. People get wrong, they optimize for themselves. Beyond that, you need to make sure it gets delivered, opened, clicked on, etc.


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[Assistant] There's so much more here and if I push through all of it, I'm not gonna, uh, get to any questions. Uh, do you want me to get to questions?


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[Assistant] Right? If you bought an ad on Facebook or Google or somewhere, you've bought that media. And then, uhm, if they're on your own website, you own that media.


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[Assistant] If you have a lot of traffic on your site, ask them to invite their friends. Ask them to complete that next action in your product. Think about your on-site merchandising as an extension of your product, but understand that on-site merchandising is a marketing problem.


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[Assistant] So, how can you trigger the right thing? Someone has just bought an item for you, immediately, like Amazon does, trigger for them a set of suggestions of like, why don't you buy this, this, and this, or customers who bought this also bought this. Works incredibly well. What about creative?


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[Assistant] Creative is really important. It should be personalized. Because they're on your site, you know their name.


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[Assistant] Hey Alex, why don't you buy these items that other similar customers have bought? Performs well, way better than buy these other items that similar customers have bought. That's one simple personalization. But instead of just saying this customer bought this item, you should do a prediction. This person


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[Assistant] All the items they've ever bought, let me predict for them, in a personalized way, what item they should buy. Look at Facebook and how often we say five of your friends have done X. Social context, that's personalization. Use people's own profile picture.


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[Assistant] We have a great, uh, personalization example where when you are on a Facebook page, we show you what your ad would look like if you bought it with a buy this button underneath it. It could not be more personalized. On-site merchandising gives you so many opportunities to deeply, deeply personalize the creative. And finally, paid and organic social.


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[Assistant] I would be crazy not to use our custom audiences and lookalike targeting. So I highly, highly encourage you, if you think about nothing else on Facebook ads, to look into those. It's a great way for you to say, these are my best customers.


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[Assistant] Upload the list to Facebook. How do I find more customers like those? It works incredibly well for a lot of companies.


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[Assistant] And the other thing across all social media is to a great extent you're dealing with interesting squared. Because the click through rate on your thing, the like rate or whatever in your thing will be related to how interesting it is. And also the distribution, whether it's being shared via a messaging apps, reshared on Twitter or on Facebook, will be driven by whether people found it interesting. Make sense? Cool. Okay.


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[Assistant] Targeting, behavioral is most important, so what you did is much more important than who you are.


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[Assistant] You know 50 year old, 60 year old parents and grandparents who need two friends to be active on Facebook and there are some who need 500 and there are teenagers who need 500 friends and some who need two and you're much better to figure out like what is the behavior that tells you that than say on a demographic basis I'm gonna do this versus this. You know, people who buy Nikes


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[Assistant] Men's Nike trainers typically are men, but sometimes people buy for their boyfriend, or their husband, or their dad, or whatever.


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[Assistant] And so if you just target women with women's trainers and men with men's trainers, you are making a mistake. What you should do is look at what signals you to show the right ad or the right content to the right person at the right time. Targeting matters.


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[Assistant] Creative is important, but it's nowhere near as important as the above two, unless you have a 10x creative. If you produce the Dollar Shave Club video,


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[Assistant] Probably it's very, very worth it, but most people don't produce a piece of creative that amazing, that changes the world. Typically I find targeting comes before creative.


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[Assistant] Uh, in every single way and channel comes before that. Does that make sense? So creative is awesome and really important and can give you a big uplift. But think about your channel first and your targeting second.


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[Assistant] If you have created those, you should put it in context, you should personalize it, you should give it a call to action. On call to action, this is a great example where on every ad back in the day on Facebook, we had a little link at the top that said advertise.


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[Assistant] We translated it wrong by mistake in French. We found this with the data and in French we translated it to create an ad. Create an ad.


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[Assistant] And we had significantly more, actually 40% more acquisition from that channel that was at the time our single most important channel for advertiser acquisition.


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[Assistant] We took the French translation and we reverse translated it and changed the whole world instead of saying the kind of passive advertise to the active create an ad and we achieved a 40% bump in that most important channel for us for advertiser acquisition.


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[Assistant] That is the call to action. Like what you say matters. So when I say creative doesn't matter as much as channel and targeting, it still matters a lot. And the words you use matter a lot.


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[Assistant] This is the example I said about In Context With Intent. If you are on your own page, this used to be the ad we would show to you that say, hey, this is what your ad would look like elsewhere on the site.


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[Assistant] And you can see that by hour, this was the hour that we doubled advertiser acquisition for Facebook with the push of the weekly push. Uh, if you want to see more about this, Brian Hale does a great talk about this at F8 and it's online. And then the last thing, yes, the last thing is conversion.


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[Assistant] Conversion is really, really important, but it's not important until you've thought about all the other things first. So things to think about with conversion.


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[Assistant] The landing page people land on will determine what your conversion rate is going to be.


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[Assistant] If you can, don't have one button on it that they then have to click to go to the registration form. Put the registration form in the landing page.


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[Assistant] It's important to know what your most important metric is though. Back at eBay, what we had was this original metric, confirmed registered users, and a new metric, activated confirmed registered users.


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[Assistant] And an activated confirmed registered user was someone who bought an item, bid on an item, listed an item. And a confirmed registered user was someone who registered and confirmed and that was it.


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[Assistant] To get confirmed registered users, we wanted to pump all of our search traffic. This was back in 2004. We were spending huge amounts on search. We wanted to pump all of our search traffic at the registration page.


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[Assistant] To get activated Confirmed Registered Users, we actually wanted to land it on the search term that you were looking for. So if you were looking for a trampoline, show you the trampolines you could buy on eBay.


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[Assistant] That change, and we changed all of our advertising to change the landing page, dropped confirmed registered users significantly that we were acquiring for eBay. But it increased


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[Assistant] Activated confirmed registered users. It increased revenue and lifetime value per registered user. And it increased total revenue per day from the people we were acquiring.


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[Assistant] So although I think you can focus on the registration form really hard, in e-commerce sometimes it's really, really important to land people on what they're searching for so that they will activate and they will buy on your service. So it's not as simple as just put the registration form online. But we did do that at Facebook.


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[Assistant] So the final thing I like to say is Facebook moves fast. And move fast is an absolute core value for us as a company. Like core, core, core value and we still do bold things like taking Messenger out of Facebook that was challenging at the time but I think now people have seen how valuable a decision that was. And that was a project that I was deeply involved with and ran.


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[Assistant] Uhm, we're willing to move fast, we're willing to be bold, because fundamentally a good plan, violently executed on today, is better than a perfect plan next week.


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[Assistant] Data helps you move fast. These growth tactics help you move fast. Bezos talks about making decisions with 70% of the data, not 90% of the data. And I deeply believe in that. So, move fast, focus on retention, and have one key metric that you care about for your company's growth. Thank you.


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[Assistant] So the question was, uh, for the magic moments you can kind of tell, uh, how you can figure out when they happen, but how can you create them?


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[Assistant] I mean, honestly if you look at LinkedIn, Facebook, Twitter, every social network in the known universe, what we do is we immediately ask you to import your contacts.


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[Assistant] So, once we know that friends is the thing that we need to do for you, we focus on what is the way to remove friction from getting you friends.


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[Assistant] You know, those are the kind of things. Once you identify it, I actually think the tactics fall out very logically. My boss, Javi, likes to say that common sense is the least common of all senses and I, I agree with him. But if you step back and you just look at, okay, if I want more people to buy an item on eBay, should I land them on the registration page or the search results page?


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[Assistant] You'd probably land them on the search results page and that would get them to that magic moment faster. Thank you. Thank you. Okay.


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[Assistant] I'm Steve. Yeah, I'm co-founder and CEO of Reddit. Uhm, I study computer science.


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[Assistant] I graduated from UVA in 2005. I was at Reddit for five years. I left for five years. I've been back for about a year and a half.


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[Assistant] I, I've, most of the advice I give today will have two perspectives, one at Reddit and one at Hipmunk. Uhm, cause the companies were completely different, uhm, and had different paths and I think,


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[Assistant] Kind of the ground rules for this discussion, the first piece of advice I would give is


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[Assistant] Every company is really different and there are lots of different paths you can take. Uhm, and what works in one place very likely won't work in another.


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[Assistant] So, at Reddit, I mean, there's, the, the product is talking to users, right? That was, that was built in.


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[Assistant] In the early days we didn't have comments and we didn't have communities. So actually uhm, we got a lot of emails was our for the first probably six months was the way we communicated to our users. But when we had the comment feature there was basically no option but to talk to our users. And the challenge then becomes


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[Assistant] Uh, which users do you want to listen to? And, and what are they actually saying? And what do they actually mean? Because they're often saying one thing and they mean something else. Uhm, at Hitmonk, uh,


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[Assistant] Because as, as, as we were selling plane tickets and hotel reservations, it was completely different. Uhm, we didn't really have a good forum for connecting with our users. We used a, a product called Olark, which was basically this embedded JavaScript chat thing, and that was indispensable. Uhm, we still use it. Uh, it was,


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[Assistant] Users, it, it, like if they got stuck, they could ask us for help. If they wanted to, like, give us compliments or criticisms, they could do that. Uhm, and we can also, often, uhm, both over email at Reddit and over Olark, uhm, at Hitmonk, turn.


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[Assistant] Like, emotional users, angry users often will become your most loyal users if you can flip them around. There's like this absolute value of emotion. Uhm, and so if you can find those angry users who are having a bad time and treat them well, they will likely turn into some of your most loyal supporters. So we found that whole cycle to be very valuable.


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[Assistant] It's easy to like run your company for years and then be like, oh, I should have fixed this like stupid, you know, one day fix. If you don't talk to your users.


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[Assistant] We started, I think I wrote my first line of code on June.


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[Assistant] I didn't even launch it, uh, Paul Graham linked to us from his blog without telling me.


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[Assistant] From then it was, from, you know, it was on. And the good thing about that...


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[Assistant] For us, in particular, is we didn't actually have a vision for Reddit. For better or for worse. Uhm, which would affect us in a lot of different ways going forward.


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[Assistant] Uhm, but as soon as we launched, that's when we started to like find a path and we just would kind of follow the users every day as what do we think is best for the users, what do we think is best for us, uhm, and just build towards that and we built a lot of loyalty through those actions and that would not have happened


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[Assistant] If we were sitting in our apartment, not launching.


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[Assistant] Because we launched and then for the next six months we just added a ton of new features, only about probably 25% of which actually lasted more than a day or two.


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[Assistant] But, you know, there was stuff we thought was like a great idea, like we had these categories. I remember in, in July at some point, uhm, I made Alexis, my co-founder, stay up all night one night categorizing every link that had ever been submitted to Reddit. And the next morning, I was like, eh, we launched, I was like, eh, it's not working.


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[Assistant] We again started in June, 2010, and I had given my co-founder basically this ultimatum of what our MVP was. We have to have legit data, because we could scrape anybody. We needed legit data, uhm, real data, and when a customer buys a flight, we get revenue.


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[Assistant] If we can do that in three months, we will continue with this business. And if we can't launch that in three months, we're calling it.


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[Assistant] And that for me, like MVP, that was like, that was that minimum useful thing. Like if, if we had a customer who was giving us money, that meant we did something right. Uhm, and, and unfortunately we actually achieved that in three months, so I worked on it for five years.


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[Assistant] Uh, but I think it's good sometimes to set yourself deadlines and specific milestones to keep you focused and keep you pointed in the right direction.


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[Assistant] Alright, I have two very different answers, so reality is somewhere in between. At Reddit we just didn't.


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[Assistant] We didn't know our traffic for years. We didn't measure anything. We've, the product development by intuition for a very long time. Uhm, company ended up working out. Uhm, I'm still not quite sure exactly how many users we have. Uhm, and it's a huge, huge pain in the ass now.


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[Assistant] It's probably somewhere between 250 and 320. Uhm, yeaah. Anyway.


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[Assistant] At Hitmunk we were actually really good about it from day one. Uh, and we were really, because we weren't, didn't have that kind of instant feedback with our users, we actually got really disciplined about testing and analytics and measuring and watching. Uhm, and that company lasted honestly quite a bit longer than I think it would have without doing that.


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[Assistant] Uhm, and so if I could do it again, there are a lot of corners you can cut when you're building your MVP. Like you can create all sorts of tech sins and corporate sins and, I don't know, be completely dysfunctional, your users don't care. Uhm, but data debt is


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[Assistant] Can, can haunt you. So, uh, cause you can't make up missing data. And eventually your intuition is going to fail you. So I would think very carefully about what's the minimum viable data. You don't even have to look at it. Just log it somewhere so it's there when you need it.


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[Assistant] This is one of those areas where if I could go back and give myself just advice for like 30 minutes that would like dramatically affect the trajectory of a company, it would be around this topic.


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[Assistant] And so, if I were in your shoes, I would just take a, take half a day and just read best practices for collecting events and storing them.


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[Assistant] That's a big one. Uhm, and I think you need to be clear whether you're talking about like tech or the product.


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[Assistant] Uh, I'll repeat what I said before is your users don't care about your tech. So if you can, if you can move forward.


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[Assistant] We'll leave that for another day. Uhm, when you're talking about redesigning your products,


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[Assistant] Probably in trouble because whatever habits led you to build a product your customers don't like.


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[Assistant] If you haven't addressed those habits, you're probably gonna build another product your customers don't like.


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[Assistant] So uhm, I, I would make sure that, cause I, I've been through lots of rewrites. We re, at Hipmunk we rewrote our flight and hotels probably half a dozen times each. Uhm, at Reddit we rewrote the tech a bunch of times and we're redoing the UI and UX now. Uhm,


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[Assistant] With better habits and better data, uhm.


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[Assistant] And so, you wanna make sure that you know something new, but honestly, I would, if you're in that situation, I would also go through another mental exercise of, okay, what's the new MVP?


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[Assistant] Like, it's, it comes up in tech a lot, right? The second system syndrome. The same thing happens in the product where you're like, alright, I've got this vision. I'm gonna fix all of the products, all of the mistakes at once, and it's gonna be perfect. That product never ships.


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[Assistant] It never ships. So can you iterate your way there? Can you just start from scratch with an MVP and build it back up? Those are much more likely to actually get you somewhere. But they're also harder to do, uhm, and it requires a little bit more discipline.


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[Assistant] Largely, I find the situation I'm in, I say one of two things a lot, which is uhm, I don't want to argue about it if we can just test it.


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[Assistant] Uhm, and I'm very willing to be surprised on this. I'm probably right, but...


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[Assistant] This isn't getting into my like top three important things to worry about today, so...


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[Assistant] Let's just see. Uhm, it's easy to do that when you have more resources to let's just see.


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[Assistant] Uhm, I think as Emma pointed out, we've very rarely had these philosophical differences over with the product. Sometimes it was timing.


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[Assistant] Like should we build this thing now? Like what's the prioritization of these things? Uhm, but we always agreed on general mechanics of what we were doing and why we were doing it.


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[Assistant] Uhm, and so the strategy might change, but the actual, the details were very rarely not emotional. So if those are getting emotional, I think there's probably something else structurally wrong. You might be swimming upstream, that happens a lot.


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[Assistant] Uhm, it just doesn't feel great. Uhm, it works, it works, and we like the numbers going up, but, uh, it's, it's not really with the user's best intention in mind all the time. Sometimes it drifts into the second, it's good for the company, but maybe not for the users. And when you're in those situations, that's usually when the disagreements come out.


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[Assistant] Uhm, and you're not really arguing about the future anymore. You're arguing about like short term or long term or best for the business or best for the users. And then when you beat at it and beat at it and beat at it, eventually you come to a solution that actually feels right.


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[Assistant] Right, that's, and when it meets your intuition you don't feel like you're fighting the technology, you're not fighting the users anymore. Those are usually situations I look out for.


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[Assistant] I see a lot of startups get too, they get too emotionally high when the numbers are going up.


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[Assistant] And they're not investing in this sort of process because growth masks all problems. And then at some point that kind of stops and you don't have any of these mannerisms. And I also see startups get a little too low when things are going right at first and they kind of talk, psych themselves out. So you want to live in that in between, right? If the data's really good, well, check the data, right? If the data's really bad, check the data.


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[Assistant] Uh, okay, so then in terms of the actual process, first of all it's gonna be different at every company and it's gonna change as you scale. Uhm, I think it's just most important to have a way of working. Uhm, uh, to have like,


[User] Please transcribe this text

[Assistant] If, if you just want to start out like really, really like specific of...


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[Assistant] The way I like to think about it is where do we want to be in a year? Okay, let's draw a straight line from that year.


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[Assistant] What do we need to be doing today to get there in a year? So that's like our hypothesis. Do we need to validate anything about that? Probably a few things here or there. Do that.


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[Assistant] Did it check out? Yes. And then it's just like, straight line. And I like to work on two week cycles, uh, check in every week on basically that kind of thing. Like, where do we want to be in a year? Are we still on track? Are we still doing the right thing? Does it still make sense? Are our assumptions still holding to be true? If not, you know, pop it up a stack. And then you give people, you know,


[User] Please transcribe this text

[Assistant] Whatever it is, uh, if you're early startup, you know, you give them 13 days to work, and if you're a more mature startup, you give them 9 days to work.


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[Assistant] Uhm, and then keep going at that. I found that that's worked really well for me.


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[Assistant] I think the classic advice that's very difficult to follow is you need to have like courage of your convictions.


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[Assistant] So, you decide what you're going to build. It might take six months to build it. And at Reddit, we just kind of do it in front of everybody and get flamed by our users the whole time. Uhm, which is fine, like I'm used to it, but I have to kind of tell our product people, like, just keep pushing, keep pushing, just ship a little bit every week. And then in six months, you know, they'll get it.


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[Assistant] Uhm, and at the same time, the completely contradictory advice is you have to know when you're wrong. You have to be able to identify when you're wrong. You have to be able to say, all of you people are wrong and I'm right, and then at some point you have to decide, oh wait, no, you're right.


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[Assistant] You need to have this like good combination of high ego and high humility and balance those. But I always try to just kind of run this process in my head. Wait, am I wrong?


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[Assistant] Uhm, I'll talk about one, one of my favorite ones. This is from the early days of Reddit. Uhm, so the early days of Reddit was just links. Everything was external. And eventually we added comments.


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[Assistant] Uhm, probably about six months in. The first comment was, this is the end of Reddit.


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[Assistant] The first of, that would be the first comment on every product we've ever released. Uhm.


[User] Please transcribe this text

[Assistant] And users started doing this curious thing where they would, so on any post you could go, you could click on the link or you could click on a comments page to go to the comments for that page. Uhm, our IDs for posts are just a counter, uhm, that's in the URL. So users would submit the URL.


[User] Please transcribe this text

[Assistant] Uh, and it was really cool, so we called those self-posts. And users were doing this, and I remember watching them do it and thinking this was really cool. I would have never thought to do this. Uhm, sometimes they'd guess wrong, right? And so, they'd submit a post to somebody else's comment page, uh, which was funny. And so,


[User] Please transcribe this text

[Assistant] Because, because our user base at the time was fairly technical, the way we made this work is when you're submitting a link, you would just type in the URL area, self. And it would automatically do that little circular thing for you. And that was the beginning of self posts on Reddit. Uhm, self posts are now 60% of our content. Uhm, I don't know, a few million a day. Uh, and we would have,


[User] Please transcribe this text

[Assistant] Never built that feature, if we hadn't been watching our users. Uhm, I don't think I, I mean, I'm explaining it now, but if I explain that feature without it existing, I don't know if it would make a ton of sense. Uh, and users, most of them didn't get it at first either. They were just like, comments are destroying the site, and there's not even a link here, it's just comments.


[User] Please transcribe this text

[Assistant] And it just kind of goes to show, I think, this is, the best product ideas are the ones where your users are doing it anyway and you just, you know, grease it a little bit. Uhm, when you're not, like, that's what I talked about before, where, like, you're either swimming upstream or it just, everything just feels right. Uhm, that was the classic example of it just felt right. Uhm, and it completely changed the site.


[User] Please transcribe this text

[Assistant] Despite not knowing anything about our business, knowing little about our users, uh, not really knowing how to run a business, not having a ton of product sense, being down a lot,


[User] Please transcribe this text

[Assistant] We were growing. So, that's the nice scenario. That's a good one. Uhm, at Hipmunk, our natural state was zero users. Uhm, I'm not sure we ever got product market fit.


[User] Please transcribe this text

[Assistant] Uhm, the users who came to Hitmonk liked it, but we had to fight for every single one of them. Uhm, it's possible to do that, but we were again, I think that entire company, we were swimming upstream.


[User] Please transcribe this text

[Assistant] And I remember the day we kind of realized that, we ran the survey of like, why do you use hipmunk? And,


[User] Please transcribe this text

[Assistant] We put a lot of effort into the product. We thought it was a really good product. Legitimately, you could find a flight a lot faster on us than our competitors. 35% of people said it's because of the logo.


[User] Please transcribe this text

[Assistant] You know, we made it, you know, the company ran for five years and ended up selling it, it's just fine, but uhm, yeah, I think we were really fighting that one.


[User] Please transcribe this text

[Assistant] Uhm, Reddit was easy. They were just like Alexis and I.


[User] Please transcribe this text

[Assistant] Like, we, we, Emmett was talking, kind of talking about the, the intuition phase of building products. We were in that for a long time. Like our users, they read the same Paul Graham blog that we did. Uhm, they were programmers like I was. Uhm, so it was really, really easy. Hitmonk, uhm, we were actually completely wrong about who our users were.


[User] Please transcribe this text

[Assistant] Uhm, and I don't know if we ever quite solved this problem. They solved it through acquisition, which is we built the product for ourselves.


[User] Please transcribe this text

[Assistant] Tech savvy people who travel, you know, a fair amount and, and, and buy their own travel.


[User] Please transcribe this text

[Assistant] But in reality, our customer, the only way to make money in travel is to sell to business travelers because they're the only one who travels multiple times a year. And business travelers don't get to use things like Hipmunk or Kayak, right? They use American Express and Concur. So, we, we, it took us actually a couple years to synthesize that and we're just like,


[User] Please transcribe this text

[Assistant] Your intuition is lying to you. Every time. Then you have to supplement it with data. Or talking to your users or whatever.


[User] Please transcribe this text

[Assistant] Very good. That's nearly everything on our list.


[User] Please transcribe this text

[Assistant] It's the pizza man. Who the heck do you think it is? Yes? Can I help you?


[User] Please transcribe this text

[Assistant] Yes, being sexual and sensual and, you know, being feminist. Sometimes they conflict. If you choose to be like, I'm gonna be like this, then people will say, oh, you've gone too far. But, you know, there's a lot of these things that are not true for men.


[User] Please transcribe this text

[Assistant] Just smile and wave, boys. Smile and wave. Kowalski, progress report.


[User] Please transcribe this text

[Assistant] We're only 500 feet from the main sewer line. And the bad news? We've broken our last shovel. Right. Rico, you're on litter patrol.


[User] Please transcribe this text

[Assistant] Ho ho, no one will know the magician is your daddy. You will introduce me as the amazing Mysterio.


[User] Please transcribe this text

[Assistant] You have to secretly choose one while my back is turned.


[User] Please transcribe this text

[Assistant] Abracadabra! You chose yellow.


[User] Please transcribe this text

[Assistant] Close your eyes. No looking. Say the magic words. Abracadabra.


[User] Please transcribe this text

[Assistant] Draw the shapes on a piece of paper and share it with a partner.


[User] Please transcribe this text

[Assistant] Grandpa, why do butterflies like flowers?


[User] Please transcribe this text

[Assistant] George, I'm the butterfly. You have to be something else.


[User] Please transcribe this text

[Assistant] Hmm, frogs are not as pretty as butterflies, or as wiggly as worms.


[User] Please transcribe this text

[Assistant] Gotcha, didn't I? Just kidding to all the people at five. They're on a slow lifeboat to China. Hey, I know you too.


[User] Please transcribe this text

[Assistant] You sent Melman to his grave. Are you happy? Ah, come on. This isn't the end. This is a whole new beginning. This could be the best thing that's ever happened to us. No, no, no, no, no, no, no, no, no, no, no. This is not the best thing that's ever happened to us.


[User] Please transcribe this text

[Assistant] Uhm, I know that, that uhm, you know, we're standing here in California at the moment, but a lot of this stuff will apply to any startups no matter where they are in the world. And I'll talk a little bit throughout the, the session about things that are US specific and things that are, that are specific to the rest of the world.


[User] Please transcribe this text

[Assistant] And this is definitely not the glamorous part of being a startup founder. Uhm, you know, you'll hear from all sorts of people throughout the rest of this course about all the glamorous things and all the other things. But these are the kind of nuts and bolts that


[User] Please transcribe this text

[Assistant] If you take care of in the early days, you stick with the simple, standard, basic processes, you don't try to reinvent new voting structures or anything like that, it will be enough.


[User] Please transcribe this text

[Assistant] On the flip side, if you don't do some of these basics, then the company down the road will come into some problems that will cause a lot of time, effort and money to get solved. And I'll bring up a few stories as we go through of situations where that's happened.


[User] Please transcribe this text

[Assistant] So these are the topics that we're going to cover today.


[User] Please transcribe this text

[Assistant] So we're going to kind of go through the, the, the life cycle of a company. So we're going to start in the early days of forming, going through, uhm, raising some money, hiring some people, giving out shares.


[User] Please transcribe this text

[Assistant] Okay, so the first step in this is the formation, uhm, of the company. And so,


[User] Please transcribe this text

[Assistant] Formation creates a separate legal entity. Uhm, and what that means is an entity that will pay its own taxes, be responsible for its own assets, for its own liabilities, sign its own contracts.


[User] Please transcribe this text

[Assistant] Sue and be sued, uhm, and it's all independent of the owners. So, so you as a founder would be independent of the company.


[User] Please transcribe this text

[Assistant] And in the US, this kind of company is called a C-Corp, a corporation. Uhm, there are other structures that are out there for, for, uhm, entities to form. But in the case of startups who are expecting to be successful,


[User] Please transcribe this text

[Assistant] And you may hear some advice from people who aren't necessarily in the startup world to start with a, uhm,


[User] Please transcribe this text

[Assistant] L.L.C. or something like that, which might work in the short term, but then as you become more successful, more, more uhm, in need of raising money, you will have to convert to a C Corp. So it probably makes sense if you are thinking about doing a startup in that situation to start with a C Corp.


[User] Please transcribe this text

[Assistant] Uhm, basically the words company, C-Corp, corporation, entity, startup, all mean the same thing. They all mean this, this separate legal entity that is a C-Corp.


[User] Please transcribe this text

[Assistant] The hardest part in formation though is deciding actually when to incorporate this company. Because obviously with, uhm, with a separate legal entity comes a lot of admin and various other processes that have to happen around that.


[User] Please transcribe this text

[Assistant] And it's one of those situations where you don't want to do it too soon, but you also don't want to do it too late.


[User] Please transcribe this text

[Assistant] So too soon would probably be, you know, if you're still throwing around ideas, you're still thinking about this as a side project, you're, uhm, not sure if you're going to be doing this for a long time, you don't know if you're going to be working with your co-founders, so all of those I would suggest that you don't.


[User] Please transcribe this text

[Assistant] Incorporate at this point. However, the flip side of that is if you're at the stage where you are, uhm,


[User] Please transcribe this text

[Assistant] Creating significant amounts of IP that you want to make sure is clearly owned, particularly if there's more than one of you creating the IP, then that would be a situation where you would want to incorporate. Another situation is if you've built a product that you're now ready to start charging for.


[User] Please transcribe this text

[Assistant] So that you can create a separate entity that takes the money in for the product that you're charging. You want a separate bank account, you want a company bank account and a personal account. You don't want to intermingle those, those, uh, dollars.


[User] Please transcribe this text

[Assistant] And actually, Stripe has a product called Stripe Atlas, which basically helps company, or helps founders to form a company to the point where they can get a bank account and they can start accepting payments through Stripe.


[User] Please transcribe this text

[Assistant] All of the liabilities and anything else that happens there would be on the company rather than you as an individual. So if you get into the situation where, where that might come, uhm, important, again, it's a good idea to incorporate.


[User] Please transcribe this text

[Assistant] Alright, so at YC, we strongly believe that the US is the best place to incorporate a company, regardless of the, uhm, where the founders come from or where they are when they're actually incorporating.


[User] Please transcribe this text

[Assistant] And the reason for this is that the vast majority of the capital that's available to startups is here in the U.S. And generally U.S. investors struggle to invest in non-U.S. companies. There are some exceptions and it is possible, but generally it causes problems.


[User] Please transcribe this text

[Assistant] Uhm, and even for, you know, when you are going through the process of incorporation, you don't actually have to be physically in the US whilst you are incorporating.


[User] Please transcribe this text

[Assistant] So then in the US, you can incorporate your company in any of the 50 states. Uhm, you don't have to again be physically located in that state. You don't have to be planning to do any business in that state.


[User] Please transcribe this text

[Assistant] And actually for startups, uhm, and for a lot of companies actually, the, the state that most startups will incorporate in is Delaware.


[User] Please transcribe this text

[Assistant] The reason being is that, uh, Delaware law is highly developed. Pretty much all lawyers who are working on corporate law in the U.S. know Delaware law.


[User] Please transcribe this text

[Assistant] Investors expect to see Delaware companies, uhm, Delaware law allows companies the most flexibility in terms of issuing shares and various other things and also has the best privacy protections for you as owners.


[User] Please transcribe this text

[Assistant] So, it makes a lot of sense to incorporate in Delaware because again, this is one of these situations where there's no point trying to do something different. Just go with the herd on this.


[User] Please transcribe this text

[Assistant] And again, you can incorporate in Delaware as non-U.S. citizens. Uh, you can incorporate in Delaware when you're not physically in the U.S. Uhm, there's, there's no problems there.


[User] Please transcribe this text

[Assistant] All right, so let's move on to actually how we incorporate. So, it's a two-step process. And so the first part is simply faxing a couple of forms into Delaware to say, I would like to create an entity. And that takes about 24 hours for them to process and to get the entity formed.


[User] Please transcribe this text

[Assistant] Uhm, once that entity has been formed, then the second step in the process is to adopt bylaws for the company, which govern how the company, which talk about how the company is going to be governed, uhm, create a board, appoint directors to that board, uh, appoint officers.


[User] Please transcribe this text

[Assistant] Uhm, to assign IP to the company, so you as individuals then start anything you start creating is owned by the company. And also to, uh, give out shares in the company, so to assign ownership in the company.


[User] Please transcribe this text

[Assistant] The final couple of those, so assigning IP and buying shares, I'm going to talk about in a little bit more detail. The other two, the other three are very legal and complex. So I won't go into those here. But suffice it to say, there is a couple of different options that you can use to do this.


[User] Please transcribe this text

[Assistant] The first one is to just use a lawyer. You know, a lot of companies will just hire a lawyer to do this. And that's a great option, um, assuming, especially if you want to do something a little bit non-standard in some way, or you need some kind of high touch, uh, service there.


[User] Please transcribe this text

[Assistant] Uhm, and it usually costs in the region of three to five thousand dollars plus filing fees to, to incorporate a company with a lawyer.


[User] Please transcribe this text

[Assistant] Uhm, there's loads of lawyers in here in the valley and most of those for startups will actually defer their fees until you raise money. So often those fees can be can be pushed back and you don't have to pay those immediately. However, what doesn't work with lawyers


[User] Please transcribe this text

[Assistant] Is if you have a friend or a cousin who lives in Alabama and is a real estate property lawyer and having them do the incorporation documents because they don't understand how startups work, they don't understand what the standard things are that startup documents include and so things can go wrong.


[User] Please transcribe this text

[Assistant] And so, when we said we were going to invest, they decided that they were going to convert this, at that point, to a Delaware C Corp. And they used their Connecticut lawyers to do this. Which is great. However,


[User] Please transcribe this text

[Assistant] Three funding rounds later, when the company was raising a huge amount of money,


[User] Please transcribe this text

[Assistant] A new law firm that they'd hired here in the valley actually discovered that that conversion had been done wrong by the Connecticut lawyers and therefore it was not valid. They'd made a very simple mistake but as a result it wasn't valid.


[User] Please transcribe this text

[Assistant] And so they had to put the funding round on hold and they had to sort this out before they could raise the money. It took them six months, it involved four different law firms and it cost them half a million dollars.


[User] Please transcribe this text

[Assistant] So, the moral of the story is use Valley Lawyers if you're going to do this, and start with the Delo SC Corp.


[User] Please transcribe this text

[Assistant] Another option that's really great, especially for young start-ups when they're forming, is Clerky.


[User] Please transcribe this text

[Assistant] Clerky is a YC company, uhm, and they, they have a platform that allows you to create all of these formation documents using a very simple interface where you just plug in a bunch of details and all the forms get populated with those information so everything's internally consistent.


[User] Please transcribe this text

[Assistant] Uhm, so this is a really great option if you're just going with the basics, uh, you just want to get it done. It costs a few hundred dollars, uh, again, plus filing fees, uhm, so it's, it's a much more straightforward process.


[User] Please transcribe this text

[Assistant] And when we have companies who come to us at YC, who we have agreed to fund, who haven't been incorporated yet, that's where we send them. We tell them to go and incorporate on Clerky.


[User] Please transcribe this text

[Assistant] This is, this is a really important process because one of the things that happens is it actually creates a conversation between the founders. Uhm, it's really important that you do have that discussion amongst the founders to understand


[User] Please transcribe this text

[Assistant] How this is going to work, you know, this, this can often ferret out issues early around, uhm, you know, is, is one founder expecting to work on this part-time? Is one founder expecting to work on this full-time? It can, it can just...


[User] Please transcribe this text

[Assistant] Fairness is a really important idea here because, you know, you're going to be working with your co-founders for a long time. You're going to be working in a very stressful environment.


[User] Please transcribe this text

[Assistant] And if you have an example, a situation where there's one founder who has 90% of the shares and another founder who has 10% of the shares but they're both pouring everything they have into this company to make it a success, resentment can build up.


[User] Please transcribe this text

[Assistant] And in a stressful situation, the resentment can bubble up and become worse and worse. And it's the number one reason that we find co-founders break up. Because they, they just can't get to the point where this makes sense to them anymore.


[User] Please transcribe this text

[Assistant] Uhm, and actually in a lot of these situations as well that when, when a co-founder dispute happens around this, so much effort and time is poured into it that actually the company struggles to survive, you know, it struggles to turn itself around after the founders have...


[User] Please transcribe this text

[Assistant] Figure this out, one of them's de- departed and it's all been somewhat acrimonious. So have those conversations up front, make sure you understand, make sure everybody feels it's fair.


[User] Please transcribe this text

[Assistant] And in general, we think that equity should be more or less split evenly amongst co-founders. And I'm talking about more or less, it doesn't have to be exact.


[User] Please transcribe this text

[Assistant] Uhm, but often founders will push back on us on this and some of the examples that they or some of the reasons that they will give to us for saying no, no, I should have 70% of the equity and my co-founder should have 30% of the equity is because I thought of the idea or I built the prototype or


[User] Please transcribe this text

[Assistant] I closed the first 20k in sales, or I started three months before my co-founder.


[User] Please transcribe this text

[Assistant] And our responses to this is, everything is ahead of you. This is the early days of the company, and if you've worked on it for three months,


[User] Please transcribe this text

[Assistant] You've probably got 5, 10, 15 years of this company ahead of you, if it's going to be a success. So think about forwards, not backwards. All the effort is in front of you.


[User] Please transcribe this text

[Assistant] You're going to be iterating on the product. The prototype is probably going to bear no resemblance to the, the final product that, that, you know, becomes successful. It's all ahead of you.


[User] Please transcribe this text

[Assistant] And the time commitment, again, it's, it's, you know, 10 years, 15 years. It's a long time, so three months is just a drop in the ocean.


[User] Please transcribe this text

[Assistant] The only one that maybe is somewhat more of an argument to have slightly more, I'm not talking about significantly more, is you might want to have one co-founder who has slightly more shares just to prevent founder deadlock in situations.


[User] Please transcribe this text

[Assistant] But to be honest, if you're at the point where the founders are having to vote their shares to make decisions, then there's probably something more fundamentally broken in the relationship that, you know, this is not going to solve that. So, in conclusion, when you're thinking about


[User] Please transcribe this text

[Assistant] So you've discussed it. You all decide it's fair. You've all got more or less even stock splits. You do actually have to do some paperwork to, to make this actually, uhm, happen.


[User] Please transcribe this text

[Assistant] And again, this is the kind of thing that, that can cause problems. Uhm, again, another, another company that, that we invested in, uh, came to us already incorporated. They already had all of their shares, uhm, and everything are all set up.


[User] Please transcribe this text

[Assistant] But for various reasons they actually had to incorporate a new company and merge the old company into the new company. And the shares that they got in, they basically swapped their shares in the new company for shares in the old company.


[User] Please transcribe this text

[Assistant] Um, carried on, uh, did well, raised some money, then raised another round of money with, again, new lawyers. New lawyers always go through all the paperwork with a fine tooth comb.


[User] Please transcribe this text

[Assistant] And the new lawyers discovered that actually in the original company,


[User] Please transcribe this text

[Assistant] They had never papered the share purchases, so they didn't actually legally own the shares, which meant that then when they swapped them for the new shares in the new company, they didn't own the new shares in the new company because they hadn't actually done a two-way transaction. You know, they hadn't given one thing in return for something else.


[User] Please transcribe this text

[Assistant] So again, Q, lots of lawyers, lots of time, lots of money, and it's, you know, it's just not what needs to be focused on by the company.


[User] Please transcribe this text

[Assistant] So the way that, the way that you buy your shares as founders is on a stock purchase agreement.


[User] Please transcribe this text

[Assistant] And you, as I say, you exchange it, uh, for, usually for cash. So in the case of a formation, you usually pay a few dollars to buy your shares. And the money gets deposited from your individual bank account into the company bank account. Sometimes it's, uhm, in return for IP, but that gets a little bit more complex.


[User] Please transcribe this text

[Assistant] Ownership of the company and this is how you record the ownership. You use a cap table. Now this is a really basic cap table.


[User] Please transcribe this text

[Assistant] It will get more complex as the company goes on. Uhm, you know, you'll issue shares to employees, you'll issue shares to investors. But basically the key points of this are that you're recording how many shares each of the, the people on the cap table own. So in this case, currently the founders.


[User] Please transcribe this text

[Assistant] And what their ownership is. So in this example we have three founders, they each have the same number of shares and they each have the same ownership of the company.


[User] Please transcribe this text

[Assistant] One of the key parts of the stock purchase agreement that you will sign as founders is that there are actually some restrictions on the shares.


[User] Please transcribe this text

[Assistant] You own them as of the day you buy them. Uhm, but actually, if a founder was going to leave, then the company has the right to take some of those shares back over time. And as time progresses, the number of shares that the company has the right to repurchase reduces. And that's called vesting.


[User] Please transcribe this text

[Assistant] So to put it the opposite way around, vesting is earning the right to permanent ownership of the shares over time.


[User] Please transcribe this text

[Assistant] And here, here for startups again, it makes sense to use the standard template, uh, the standard process. And generally, that is four-year vesting with a one-year cliff. Uhm, and what that means is,


[User] Please transcribe this text

[Assistant] And so the cliff happens at one year. So between day one and day 365, uhm, all of your shares are subject to the repurchase option. But then on day 365, 25% of them are immediately released. So that's where the cliff comes in.


[User] Please transcribe this text

[Assistant] And then after that, each month of the year, 1 48th of your shares will vest. Uhm, so that gradually they're, they're gradually being released so that by the end of the 4 years, 100% of the shares are vested. So basically,


[User] Please transcribe this text

[Assistant] Depending on where you are on the time period of this, if you were to leave the company, you would be able to calculate how many shares you would keep as a founder and how many shares would be repurchased by the company.


[User] Please transcribe this text

[Assistant] And the documents are written in such a way that the shares that get repurchased by the company are purchased at the price that was originally paid for them. So there's no, there's no gain or anything built into that.


[User] Please transcribe this text

[Assistant] The reason why we have vesting, uhm, is there's actually a number of different reasons.


[User] Please transcribe this text

[Assistant] So the first one is because it provides protection to any remaining founders. So if you think of an example where you're working on a company with three, oh there's three of you in total, so you and two co-founders.


[User] Please transcribe this text

[Assistant] Now let's assume that one of your co-founders and you don't have vesting.


[User] Please transcribe this text

[Assistant] Let's assume one of your co-founders leaves in six months.


[User] Please transcribe this text

[Assistant] And then think about, if your company gets acquired, let's say your company is acquired for 500 million dollars, without vesting, that ex-co-founder would get the same amount of money as the two remaining founders. Which again, is not going to make you feel that great.


[User] Please transcribe this text

[Assistant] So, so it protects from those situations. If they had been investing and that founder had left after six months, then they would have had no shares in there and the remaining founders who put in all the effort over the next five to ten years would have seen all of the value creation.


[User] Please transcribe this text

[Assistant] Investors care deeply about, uhm, because they don't want to put in a bunch of money into a company when really they're investing in the founders because they're the people who are going to actually make this happen. But the founders turn around after a month and say, oh yeah, we're out, we're going to get some new people in to run the company. So it protects the investors as well.


[User] Please transcribe this text

[Assistant] And finally, the final reason is that it sets an example to future employees and as we'll see, uhm,


[User] Please transcribe this text

[Assistant] In a little while, you would expect employees to have vesting, and so it's very unfair to say to your employees, you must have vesting, but I don't as a founder. So it's, it's, it's just a good way to be, you know, look, we all have the same situation here.


[User] Please transcribe this text

[Assistant] There is one piece of paper as part of the incorporation process called an 83B election.


[User] Please transcribe this text

[Assistant] And basically, I'm not going to go into a huge amount of details, but basically if you don't sign it, then you're taxed on the increase in value of your shares every time your shares vest. So if you think about that graph, it's, you know, after the first year and then every month over the next three years.


[User] Please transcribe this text

[Assistant] So this can create huge personal tax liabilities and it can also, it also creates company tax liabilities. So this is a bad thing.


[User] Please transcribe this text

[Assistant] So the way to solve this is to file your 83B election and basically then you don't have this, this tax, taxation over the vesting period. It's the one thing


[User] Please transcribe this text

[Assistant] Any corporation that cannot be fixed if you don't do it.


[User] Please transcribe this text

[Assistant] So you have to file it with the IRS within 30 days and it's best to retain proof of mailing so that you can actually show that you did that. Uhm, if you get down the line, you know, in a acquisition or when you're doing a funding round, it will get asked for, that proof will get asked for that you signed it.


[User] Please transcribe this text

[Assistant] And we have seen deals break, uh, fall apart over this. Uhm, both funding rounds and acquisition deals because the investor or the acquirer has been spooked by the potential liabilities on the company and they just don't want to go there and they walk away from the deal.


[User] Please transcribe this text

[Assistant] So, the way to solve this is follow the instructions. Either when you're dealing with lawyers or when you're dealing with clerky, they will give you instructions about how to complete the form, they will give you instructions about where to send it, how to do it. Just follow those instructions and all will be fine.


[User] Please transcribe this text

[Assistant] Alright, let's move on to fundraising. So you've now got a company that can actually raise some money.


[User] Please transcribe this text

[Assistant] Uhm, and this is, this is probably, you know, something that you'll hear a lot about over the course of, of the rest of this course. So I'm not going to talk here about the strategy around pricing or, you know, valuation or how you talk to investors. I'm talking more about the, the sort of nuts and bolts that happen behind the scenes.


[User] Please transcribe this text

[Assistant] And in very simple terms, you can either raise money on a priced round or you can raise money on a non-priced round, which are also known as convertible rounds.


[User] Please transcribe this text

[Assistant] So in a priced round, the shares are sold for a specific price at the time of that round. And in an unpriced or convertible round, the investor gives money now, but the shares are given in the future.