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September 2009
When meeting people you don't know very well, the convention is to seem extra
friendly. You smile and say "pleased to meet you," whether you are or not.
There's nothing dishonest about this. Everyone knows that these little social
lies aren't meant to be taken literally, just as everyone knows that "Can you
pass the salt?" is only grammatically a question.
I'm perfectly willing to smile and say "pleased to meet you" when meeting new
people. But there is another set of customs for being ingratiating in print
that are not so harmless.
The reason there's a convention of being ingratiating in print is that most
essays are written to persuade. And as any politician could tell you, the way
to persuade people is not just to baldly state the facts. You have to add a
spoonful of sugar to make the medicine go down.
For example, a politician announcing the cancellation of a government program
will not merely say "The program is canceled." That would seem offensively
curt. Instead he'll spend most of his time talking about the noble effort made
by the people who worked on it.
The reason these conventions are more dangerous is that they interact with the
ideas. Saying "pleased to meet you" is just something you prepend to a
conversation, but the sort of spin added by politicians is woven through it.
We're starting to move from social lies to real lies.
Here's an example of a paragraph from an essay I wrote about labor unions. As
written, it tends to offend people who like unions.
> People who think the labor movement was the creation of heroic union
> organizers have a problem to explain: why are unions shrinking now? The best
> they can do is fall back on the default explanation of people living in
> fallen civilizations. Our ancestors were giants. The workers of the early
> twentieth century must have had a moral courage that's lacking today.
Now here's the same paragraph rewritten to please instead of offending them:
> Early union organizers made heroic sacrifices to improve conditions for
> workers. But though labor unions are shrinking now, it's not because present
> union leaders are any less courageous. An employer couldn't get away with
> hiring thugs to beat up union leaders today, but if they did, I see no
> reason to believe today's union leaders would shrink from the challenge. So
> I think it would be a mistake to attribute the decline of unions to some
> kind of decline in the people who run them. Early union leaders were heroic,
> certainly, but we should not suppose that if unions have declined, it's
> because present union leaders are somehow inferior. The cause must be
> external.
It makes the same point: that it can't have been the personal qualities of
early union organizers that made unions successful, but must have been some
external factor, or otherwise present-day union leaders would have to be
inferior people. But written this way it seems like a defense of present-day
union organizers rather than an attack on early ones. That makes it more
persuasive to people who like unions, because it seems sympathetic to their
cause.
I believe everything I wrote in the second version. Early union leaders did
make heroic sacrifices. And present union leaders probably would rise to the
occasion if necessary. People tend to; I'm skeptical about the idea of "the
greatest generation."
If I believe everything I said in the second version, why didn't I write it
that way? Why offend people needlessly?
Because I'd rather offend people than pander to them, and if you write about
controversial topics you have to choose one or the other. The degree of
courage of past or present union leaders is beside the point; all that matters
for the argument is that they're the same. But if you want to please people
who are mistaken, you can't simply tell the truth. You're always going to have
to add some sort of padding to protect their misconceptions from bumping
against reality.
Most writers do. Most writers write to persuade, if only out of habit or
politeness. But I don't write to persuade; I write to figure out. I write to
persuade a hypothetical perfectly unbiased reader.
Since the custom is to write to persuade the actual reader, someone who
doesn't will seem arrogant. In fact, worse than arrogant: since readers are
used to essays that try to please someone, an essay that displeases one side
in a dispute reads as an attempt to pander to the other. To a lot of pro-union
readers, the first paragraph sounds like the sort of thing a right-wing radio
talk show host would say to stir up his followers. But it's not. Something
that curtly contradicts one's beliefs can be hard to distinguish from a
partisan attack on them, but though they can end up in the same place they
come from different sources.
Would it be so bad to add a few extra words, to make people feel better? Maybe
not. Maybe I'm excessively attached to conciseness. I write code the same way
I write essays, making pass after pass looking for anything I can cut. But I
have a legitimate reason for doing this. You don't know what the ideas are
until you get them down to the fewest words.
The danger of the second paragraph is not merely that it's longer. It's that
you start to lie to yourself. The ideas start to get mixed together with the
spin you've added to get them past the readers' misconceptions.
I think the goal of an essay should be to discover surprising things. That's
my goal, at least. And most surprising means most different from what people
currently believe. So writing to persuade and writing to discover are
diametrically opposed. The more your conclusions disagree with readers'
present beliefs, the more effort you'll have to expend on selling your ideas
rather than having them. As you accelerate, this drag increases, till
eventually you reach a point where 100% of your energy is devoted to
overcoming it and you can't go any faster.
It's hard enough to overcome one's own misconceptions without having to think
about how to get the resulting ideas past other people's. I worry that if I
wrote to persuade, I'd start to shy away unconsciously from ideas I knew would
be hard to sell. When I notice something surprising, it's usually very faint
at first. There's nothing more than a slight stirring of discomfort. I don't
want anything to get in the way of noticing it consciously.
** |
|
February 2009
A lot of cities look at Silicon Valley and ask "How could we make something
like that happen here?" The organic way to do it is to establish a first-rate
university in a place where rich people want to live. That's how Silicon
Valley happened. But could you shortcut the process by funding startups?
Possibly. Let's consider what it would take.
The first thing to understand is that encouraging startups is a different
problem from encouraging startups in a particular city. The latter is much
more expensive.
People sometimes think they could improve the startup scene in their town by
starting something like Y Combinator there, but in fact it will have near zero
effect. I know because Y Combinator itself had near zero effect on Boston when
we were based there half the year. The people we funded came from all over the
country (indeed, the world) and afterward they went wherever they could get
more funding—which generally meant Silicon Valley.
The seed funding business is not a regional business, because at that stage
startups are mobile. They're just a couple founders with laptops.
If you want to encourage startups in a particular city, you have to fund
startups that won't leave. There are two ways to do that: have rules
preventing them from leaving, or fund them at the point in their life when
they naturally take root. The first approach is a mistake, because it becomes
a filter for selecting bad startups. If your terms force startups to do things
they don't want to, only the desperate ones will take your money.
Good startups will move to another city as a condition of funding. What they
won't do is agree not to move the next time they need funding. So the only way
to get them to stay is to give them enough that they never need to leave.
___
How much would that take? If you want to keep startups from leaving your town,
you have to give them enough that they're not tempted by an offer from Silicon
Valley VCs that requires them to move. A startup would be able to refuse such
an offer if they had grown to the point where they were (a) rooted in your
town and/or (b) so successful that VCs would fund them even if they didn't
move.
How much would it cost to grow a startup to that point? A minimum of several
hundred thousand dollars. Wufoo seem to have rooted themselves in Tampa on
$118k, but they're an extreme case. On average it would take at least half a
million.
So if it seems too good to be true to think you could grow a local silicon
valley by giving startups $15-20k each like Y Combinator, that's because it
is. To make them stick around you'd have to give them at least 20 times that
much.
However, even that is an interesting prospect. Suppose to be on the safe side
it would cost a million dollars per startup. If you could get startups to
stick to your town for a million apiece, then for a billion dollars you could
bring in a thousand startups. That probably wouldn't push you past Silicon
Valley itself, but it might get you second place.
For the price of a football stadium, any town that was decent to live in could
make itself one of the biggest startup hubs in the world.
What's more, it wouldn't take very long. You could probably do it in five
years. During the term of one mayor. And it would get easier over time,
because the more startups you had in town, the less it would take to get new
ones to move there. By the time you had a thousand startups in town, the VCs
wouldn't be trying so hard to get them to move to Silicon Valley; instead
they'd be opening local offices. Then you'd really be in good shape. You'd
have started a self-sustaining chain reaction like the one that drives the
Valley.
___
But now comes the hard part. You have to pick the startups. How do you do
that? Picking startups is a rare and valuable skill, and the handful of people
who have it are not readily hireable. And this skill is so hard to measure
that if a government did try to hire people with it, they'd almost certainly
get the wrong ones.
For example, a city could give money to a VC fund to establish a local branch,
and let them make the choices. But only a bad VC fund would take that deal.
They wouldn't _seem_ bad to the city officials. They'd seem very impressive.
But they'd be bad at picking startups. That's the characteristic failure mode
of VCs. All VCs look impressive to limited partners. The difference between
the good ones and the bad ones only becomes visible in the other half of their
jobs: choosing and advising startups.
What you really want is a pool of local angel investors—people investing money
they made from their own startups. But unfortunately you run into a chicken
and egg problem here. If your city isn't already a startup hub, there won't be
people there who got rich from startups. And there is no way I can think of
that a city could attract angels from outside. By definition they're rich.
There's no incentive that would make them move.
However, a city could select startups by piggybacking on the expertise of
investors who weren't local. It would be pretty straightforward to make a list
of the most eminent Silicon Valley angels and from that to generate a list of
all the startups they'd invested in. If a city offered these companies a
million dollars each to move, a lot of the earlier stage ones would probably
take it.
Preposterous as this plan sounds, it's probably the most efficient way a city
could select good startups.
It would hurt the startups somewhat to be separated from their original
investors. On the other hand, the extra million dollars would give them a lot
more runway.
___
Would the transplanted startups survive? Quite possibly. The only way to find
out would be to try it. It would be a pretty cheap experiment, as civil
expenditures go. Pick 30 startups that eminent angels have recently invested
in, give them each a million dollars if they'll relocate to your city, and see
what happens after a year. If they seem to be thriving, you can try importing
startups on a larger scale.
Don't be too legalistic about the conditions under which they're allowed to
leave. Just have a gentlemen's agreement.
Don't try to do it on the cheap and pick only 10 for the initial experiment.
If you do this on too small a scale you'll just guarantee failure. Startups
need to be around other startups. 30 would be enough to feel like a community.
Don't try to make them all work in some renovated warehouse you've made into
an "incubator." Real startups prefer to work in their own spaces.
In fact, don't impose any restrictions on the startups at all. Startup
founders are mostly hackers, and hackers are much more constrained by
gentlemen's agreements than regulations. If they shake your hand on a promise,
they'll keep it. But show them a lock and their first thought is how to pick
it.
Interestingly, the 30-startup experiment could be done by any sufficiently
rich private citizen. And what pressure it would put on the city if it worked.
___
Should the city take stock in return for the money? In principle they're
entitled to, but how would they choose valuations for the startups? You
couldn't just give them all the same valuation: that would be too low for some
(who'd turn you down) and too high for others (because it might make their
next round a "down round"). And since we're assuming we're doing this without
being able to pick startups, we also have to assume we can't value them, since
that's practically the same thing.
Another reason not to take stock in the startups is that startups are often
involved in disreputable things. So are established companies, but they don't
get blamed for it. If someone gets murdered by someone they met on Facebook,
the press will treat the story as if it were about Facebook. If someone gets
murdered by someone they met at a supermarket, the press will just treat it as
a story about a murder. So understand that if you invest in startups, they
might build things that get used for pornography, or file-sharing, or the
expression of unfashionable opinions. You should probably sponsor this project
jointly with your political opponents, so they can't use whatever the startups
do as a club to beat you with.
It would be too much of a political liability just to give the startups the
money, though. So the best plan would be to make it convertible debt, but
which didn't convert except in a really big round, like $20 million.
___
How well this scheme worked would depend on the city. There are some towns,
like Portland, that would be easy to turn into startup hubs, and others, like
Detroit, where it would really be an uphill battle. So be honest with yourself
about the sort of town you have before you try this.
It will be easier in proportion to how much your town resembles San Francisco.
Do you have good weather? Do people live downtown, or have they abandoned the
center for the suburbs? Would the city be described as "hip" and "tolerant,"
or as reflecting "traditional values?" Are there good universities nearby? Are
there walkable neighborhoods? Would nerds feel at home? If you answered yes to
all these questions, you might be able not only to pull off this scheme, but
to do it for less than a million per startup.
I realize the chance of any city having the political will to carry out this
plan is microscopically small. I just wanted to explore what it would take if
one did. How hard would it be to jumpstart a silicon valley? It's fascinating
to think this prize might be within the reach of so many cities. So even
though they'll all still spend the money on the stadium, at least now someone
can ask them: why did you choose to do that instead of becoming a serious
rival to Silicon Valley?
** |
|
January 2017
Because biographies of famous scientists tend to edit out their mistakes, we
underestimate the degree of risk they were willing to take. And because
anything a famous scientist did that wasn't a mistake has probably now become
the conventional wisdom, those choices don't seem risky either.
Biographies of Newton, for example, understandably focus more on physics than
alchemy or theology. The impression we get is that his unerring judgment led
him straight to truths no one else had noticed. How to explain all the time he
spent on alchemy and theology? Well, smart people are often kind of crazy.
But maybe there is a simpler explanation. Maybe the smartness and the
craziness were not as separate as we think. Physics seems to us a promising
thing to work on, and alchemy and theology obvious wastes of time. But that's
because we know how things turned out. In Newton's day the three problems
seemed roughly equally promising. No one knew yet what the payoff would be for
inventing what we now call physics; if they had, more people would have been
working on it. And alchemy and theology were still then in the category Marc
Andreessen would describe as "huge, if true."
Newton made three bets. One of them worked. But they were all risky.
---
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Japanese Translation
* * *
--- |
|
January 2015
No one, VC or angel, has invested in more of the top startups than Ron Conway.
He knows what happened in every deal in the Valley, half the time because he
arranged it.
And yet he's a super nice guy. In fact, nice is not the word. Ronco is good. I
know of zero instances in which he has behaved badly. It's hard even to
imagine.
When I first came to Silicon Valley I thought "How lucky that someone so
powerful is so benevolent." But gradually I realized it wasn't luck. It was by
being benevolent that Ronco became so powerful. All the deals he gets to
invest in come to him through referrals. Google did. Facebook did. Twitter was
a referral from Evan Williams himself. And the reason so many people refer
deals to him is that he's proven himself to be a good guy.
Good does not mean being a pushover. I would not want to face an angry Ronco.
But if Ron's angry at you, it's because you did something wrong. Ron is so old
school he's Old Testament. He will smite you in his just wrath, but there's no
malice in it.
In almost every domain there are advantages to seeming good. It makes people
trust you. But actually being good is an expensive way to seem good. To an
amoral person it might seem to be overkill.
In some fields it might be, but apparently not in the startup world. Though
plenty of investors are jerks, there is a clear trend among them: the most
successful investors are also the most upstanding.
It was not always this way. I would not feel confident saying that about
investors twenty years ago.
What changed? The startup world became more transparent and more
unpredictable. Both make it harder to seem good without actually being good.
It's obvious why transparency has that effect. When an investor maltreats a
founder now, it gets out. Maybe not all the way to the press, but other
founders hear about it, and that investor starts to lose deals.
The effect of unpredictability is more subtle. It increases the work of being
inconsistent. If you're going to be two-faced, you have to know who you should
be nice to and who you can get away with being nasty to. In the startup world,
things change so rapidly that you can't tell. The random college kid you talk
to today might in a couple years be the CEO of the hottest startup in the
Valley. If you can't tell who to be nice to, you have to be nice to everyone.
And probably the only people who can manage that are the people who are
genuinely good.
In a sufficiently connected and unpredictable world, you can't seem good
without being good.
As often happens, Ron discovered how to be the investor of the future by
accident. He didn't foresee the future of startup investing, realize it would
pay to be upstanding, and force himself to behave that way. It would feel
unnatural to him to behave any other way. He was already living in the future.
Fortunately that future is not limited to the startup world. The startup world
is more transparent and unpredictable than most, but almost everywhere the
trend is in that direction.
** |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
November 2012
The way to get startup ideas is not to try to think of startup ideas. It's to
look for problems, preferably problems you have yourself.
The very best startup ideas tend to have three things in common: they're
something the founders themselves want, that they themselves can build, and
that few others realize are worth doing. Microsoft, Apple, Yahoo, Google, and
Facebook all began this way.
**Problems**
Why is it so important to work on a problem you have? Among other things, it
ensures the problem really exists. It sounds obvious to say you should only
work on problems that exist. And yet by far the most common mistake startups
make is to solve problems no one has.
I made it myself. In 1995 I started a company to put art galleries online. But
galleries didn't want to be online. It's not how the art business works. So
why did I spend 6 months working on this stupid idea? Because I didn't pay
attention to users. I invented a model of the world that didn't correspond to
reality, and worked from that. I didn't notice my model was wrong until I
tried to convince users to pay for what we'd built. Even then I took
embarrassingly long to catch on. I was attached to my model of the world, and
I'd spent a lot of time on the software. They had to want it!
Why do so many founders build things no one wants? Because they begin by
trying to think of startup ideas. That m.o. is doubly dangerous: it doesn't
merely yield few good ideas; it yields bad ideas that sound plausible enough
to fool you into working on them.
At YC we call these "made-up" or "sitcom" startup ideas. Imagine one of the
characters on a TV show was starting a startup. The writers would have to
invent something for it to do. But coming up with good startup ideas is hard.
It's not something you can do for the asking. So (unless they got amazingly
lucky) the writers would come up with an idea that sounded plausible, but was
actually bad.
For example, a social network for pet owners. It doesn't sound obviously
mistaken. Millions of people have pets. Often they care a lot about their pets
and spend a lot of money on them. Surely many of these people would like a
site where they could talk to other pet owners. Not all of them perhaps, but
if just 2 or 3 percent were regular visitors, you could have millions of
users. You could serve them targeted offers, and maybe charge for premium
features.
The danger of an idea like this is that when you run it by your friends with
pets, they don't say "I would _never_ use this." They say "Yeah, maybe I could
see using something like that." Even when the startup launches, it will sound
plausible to a lot of people. They don't want to use it themselves, at least
not right now, but they could imagine other people wanting it. Sum that
reaction across the entire population, and you have zero users.
**Well**
When a startup launches, there have to be at least some users who really need
what they're making — not just people who could see themselves using it one
day, but who want it urgently. Usually this initial group of users is small,
for the simple reason that if there were something that large numbers of
people urgently needed and that could be built with the amount of effort a
startup usually puts into a version one, it would probably already exist.
Which means you have to compromise on one dimension: you can either build
something a large number of people want a small amount, or something a small
number of people want a large amount. Choose the latter. Not all ideas of that
type are good startup ideas, but nearly all good startup ideas are of that
type.
Imagine a graph whose x axis represents all the people who might want what
you're making and whose y axis represents how much they want it. If you invert
the scale on the y axis, you can envision companies as holes. Google is an
immense crater: hundreds of millions of people use it, and they need it a lot.
A startup just starting out can't expect to excavate that much volume. So you
have two choices about the shape of hole you start with. You can either dig a
hole that's broad but shallow, or one that's narrow and deep, like a well.
Made-up startup ideas are usually of the first type. Lots of people are mildly
interested in a social network for pet owners.
Nearly all good startup ideas are of the second type. Microsoft was a well
when they made Altair Basic. There were only a couple thousand Altair owners,
but without this software they were programming in machine language. Thirty
years later Facebook had the same shape. Their first site was exclusively for
Harvard students, of which there are only a few thousand, but those few
thousand users wanted it a lot.
When you have an idea for a startup, ask yourself: who wants this right now?
Who wants this so much that they'll use it even when it's a crappy version one
made by a two-person startup they've never heard of? If you can't answer that,
the idea is probably bad.
You don't need the narrowness of the well per se. It's depth you need; you get
narrowness as a byproduct of optimizing for depth (and speed). But you almost
always do get it. In practice the link between depth and narrowness is so
strong that it's a good sign when you know that an idea will appeal strongly
to a specific group or type of user.
But while demand shaped like a well is almost a necessary condition for a good
startup idea, it's not a sufficient one. If Mark Zuckerberg had built
something that could only ever have appealed to Harvard students, it would not
have been a good startup idea. Facebook was a good idea because it started
with a small market there was a fast path out of. Colleges are similar enough
that if you build a facebook that works at Harvard, it will work at any
college. So you spread rapidly through all the colleges. Once you have all the
college students, you get everyone else simply by letting them in.
Similarly for Microsoft: Basic for the Altair; Basic for other machines; other
languages besides Basic; operating systems; applications; IPO.
**Self**
How do you tell whether there's a path out of an idea? How do you tell whether
something is the germ of a giant company, or just a niche product? Often you
can't. The founders of Airbnb didn't realize at first how big a market they
were tapping. Initially they had a much narrower idea. They were going to let
hosts rent out space on their floors during conventions. They didn't foresee
the expansion of this idea; it forced itself upon them gradually. All they
knew at first is that they were onto something. That's probably as much as
Bill Gates or Mark Zuckerberg knew at first.
Occasionally it's obvious from the beginning when there's a path out of the
initial niche. And sometimes I can see a path that's not immediately obvious;
that's one of our specialties at YC. But there are limits to how well this can
be done, no matter how much experience you have. The most important thing to
understand about paths out of the initial idea is the meta-fact that these are
hard to see.
So if you can't predict whether there's a path out of an idea, how do you
choose between ideas? The truth is disappointing but interesting: if you're
the right sort of person, you have the right sort of hunches. If you're at the
leading edge of a field that's changing fast, when you have a hunch that
something is worth doing, you're more likely to be right.
In _Zen and the Art of Motorcycle Maintenance_ , Robert Pirsig says:
> You want to know how to paint a perfect painting? It's easy. Make yourself
> perfect and then just paint naturally.
I've wondered about that passage since I read it in high school. I'm not sure
how useful his advice is for painting specifically, but it fits this situation
well. Empirically, the way to have good startup ideas is to become the sort of
person who has them.
Being at the leading edge of a field doesn't mean you have to be one of the
people pushing it forward. You can also be at the leading edge as a user. It
was not so much because he was a programmer that Facebook seemed a good idea
to Mark Zuckerberg as because he used computers so much. If you'd asked most
40 year olds in 2004 whether they'd like to publish their lives semi-publicly
on the Internet, they'd have been horrified at the idea. But Mark already
lived online; to him it seemed natural.
Paul Buchheit says that people at the leading edge of a rapidly changing field
"live in the future." Combine that with Pirsig and you get:
> Live in the future, then build what's missing.
That describes the way many if not most of the biggest startups got started.
Neither Apple nor Yahoo nor Google nor Facebook were even supposed to be
companies at first. They grew out of things their founders built because there
seemed a gap in the world.
If you look at the way successful founders have had their ideas, it's
generally the result of some external stimulus hitting a prepared mind. Bill
Gates and Paul Allen hear about the Altair and think "I bet we could write a
Basic interpreter for it." Drew Houston realizes he's forgotten his USB stick
and thinks "I really need to make my files live online." Lots of people heard
about the Altair. Lots forgot USB sticks. The reason those stimuli caused
those founders to start companies was that their experiences had prepared them
to notice the opportunities they represented.
The verb you want to be using with respect to startup ideas is not "think up"
but "notice." At YC we call ideas that grow naturally out of the founders' own
experiences "organic" startup ideas. The most successful startups almost all
begin this way.
That may not have been what you wanted to hear. You may have expected recipes
for coming up with startup ideas, and instead I'm telling you that the key is
to have a mind that's prepared in the right way. But disappointing though it
may be, this is the truth. And it is a recipe of a sort, just one that in the
worst case takes a year rather than a weekend.
If you're not at the leading edge of some rapidly changing field, you can get
to one. For example, anyone reasonably smart can probably get to an edge of
programming (e.g. building mobile apps) in a year. Since a successful startup
will consume at least 3-5 years of your life, a year's preparation would be a
reasonable investment. Especially if you're also looking for a cofounder.
You don't have to learn programming to be at the leading edge of a domain
that's changing fast. Other domains change fast. But while learning to hack is
not necessary, it is for the forseeable future sufficient. As Marc Andreessen
put it, software is eating the world, and this trend has decades left to run.
Knowing how to hack also means that when you have ideas, you'll be able to
implement them. That's not absolutely necessary (Jeff Bezos couldn't) but it's
an advantage. It's a big advantage, when you're considering an idea like
putting a college facebook online, if instead of merely thinking "That's an
interesting idea," you can think instead "That's an interesting idea. I'll try
building an initial version tonight." It's even better when you're both a
programmer and the target user, because then the cycle of generating new
versions and testing them on users can happen inside one head.
**Noticing**
Once you're living in the future in some respect, the way to notice startup
ideas is to look for things that seem to be missing. If you're really at the
leading edge of a rapidly changing field, there will be things that are
obviously missing. What won't be obvious is that they're startup ideas. So if
you want to find startup ideas, don't merely turn on the filter "What's
missing?" Also turn off every other filter, particularly "Could this be a big
company?" There's plenty of time to apply that test later. But if you're
thinking about that initially, it may not only filter out lots of good ideas,
but also cause you to focus on bad ones.
Most things that are missing will take some time to see. You almost have to
trick yourself into seeing the ideas around you.
But you _know_ the ideas are out there. This is not one of those problems
where there might not be an answer. It's impossibly unlikely that this is the
exact moment when technological progress stops. You can be sure people are
going to build things in the next few years that will make you think "What did
I do before x?"
And when these problems get solved, they will probably seem flamingly obvious
in retrospect. What you need to do is turn off the filters that usually
prevent you from seeing them. The most powerful is simply taking the current
state of the world for granted. Even the most radically open-minded of us
mostly do that. You couldn't get from your bed to the front door if you
stopped to question everything.
But if you're looking for startup ideas you can sacrifice some of the
efficiency of taking the status quo for granted and start to question things.
Why is your inbox overflowing? Because you get a lot of email, or because it's
hard to get email out of your inbox? Why do you get so much email? What
problems are people trying to solve by sending you email? Are there better
ways to solve them? And why is it hard to get emails out of your inbox? Why do
you keep emails around after you've read them? Is an inbox the optimal tool
for that?
Pay particular attention to things that chafe you. The advantage of taking the
status quo for granted is not just that it makes life (locally) more
efficient, but also that it makes life more tolerable. If you knew about all
the things we'll get in the next 50 years but don't have yet, you'd find
present day life pretty constraining, just as someone from the present would
if they were sent back 50 years in a time machine. When something annoys you,
it could be because you're living in the future.
When you find the right sort of problem, you should probably be able to
describe it as _obvious_ , at least to you. When we started Viaweb, all the
online stores were built by hand, by web designers making individual HTML
pages. It was obvious to us as programmers that these sites would have to be
generated by software.
Which means, strangely enough, that coming up with startup ideas is a question
of seeing the obvious. That suggests how weird this process is: you're trying
to see things that are obvious, and yet that you hadn't seen.
Since what you need to do here is loosen up your own mind, it may be best not
to make too much of a direct frontal attack on the problem — i.e. to sit down
and try to think of ideas. The best plan may be just to keep a background
process running, looking for things that seem to be missing. Work on hard
problems, driven mainly by curiosity, but have a second self watching over
your shoulder, taking note of gaps and anomalies.
Give yourself some time. You have a lot of control over the rate at which you
turn yours into a prepared mind, but you have less control over the stimuli
that spark ideas when they hit it. If Bill Gates and Paul Allen had
constrained themselves to come up with a startup idea in one month, what if
they'd chosen a month before the Altair appeared? They probably would have
worked on a less promising idea. Drew Houston did work on a less promising
idea before Dropbox: an SAT prep startup. But Dropbox was a much better idea,
both in the absolute sense and also as a match for his skills.
A good way to trick yourself into noticing ideas is to work on projects that
seem like they'd be cool. If you do that, you'll naturally tend to build
things that are missing. It wouldn't seem as interesting to build something
that already existed.
Just as trying to think up startup ideas tends to produce bad ones, working on
things that could be dismissed as "toys" often produces good ones. When
something is described as a toy, that means it has everything an idea needs
except being important. It's cool; users love it; it just doesn't matter. But
if you're living in the future and you build something cool that users love,
it may matter more than outsiders think. Microcomputers seemed like toys when
Apple and Microsoft started working on them. I'm old enough to remember that
era; the usual term for people with their own microcomputers was "hobbyists."
BackRub seemed like an inconsequential science project. The Facebook was just
a way for undergrads to stalk one another.
At YC we're excited when we meet startups working on things that we could
imagine know-it-alls on forums dismissing as toys. To us that's positive
evidence an idea is good.
If you can afford to take a long view (and arguably you can't afford not to),
you can turn "Live in the future and build what's missing" into something even
better:
> Live in the future and build what seems interesting.
**School**
That's what I'd advise college students to do, rather than trying to learn
about "entrepreneurship." "Entrepreneurship" is something you learn best by
doing it. The examples of the most successful founders make that clear. What
you should be spending your time on in college is ratcheting yourself into the
future. College is an incomparable opportunity to do that. What a waste to
sacrifice an opportunity to solve the hard part of starting a startup —
becoming the sort of person who can have organic startup ideas — by spending
time learning about the easy part. Especially since you won't even really
learn about it, any more than you'd learn about sex in a class. All you'll
learn is the words for things.
The clash of domains is a particularly fruitful source of ideas. If you know a
lot about programming and you start learning about some other field, you'll
probably see problems that software could solve. In fact, you're doubly likely
to find good problems in another domain: (a) the inhabitants of that domain
are not as likely as software people to have already solved their problems
with software, and (b) since you come into the new domain totally ignorant,
you don't even know what the status quo is to take it for granted.
So if you're a CS major and you want to start a startup, instead of taking a
class on entrepreneurship you're better off taking a class on, say, genetics.
Or better still, go work for a biotech company. CS majors normally get summer
jobs at computer hardware or software companies. But if you want to find
startup ideas, you might do better to get a summer job in some unrelated
field.
Or don't take any extra classes, and just build things. It's no coincidence
that Microsoft and Facebook both got started in January. At Harvard that is
(or was) Reading Period, when students have no classes to attend because
they're supposed to be studying for finals.
But don't feel like you have to build things that will become startups. That's
premature optimization. Just build things. Preferably with other students.
It's not just the classes that make a university such a good place to crank
oneself into the future. You're also surrounded by other people trying to do
the same thing. If you work together with them on projects, you'll end up
producing not just organic ideas, but organic ideas with organic founding
teams — and that, empirically, is the best combination.
Beware of research. If an undergrad writes something all his friends start
using, it's quite likely to represent a good startup idea. Whereas a PhD
dissertation is extremely unlikely to. For some reason, the more a project has
to count as research, the less likely it is to be something that could be
turned into a startup. I think the reason is that the subset of ideas
that count as research is so narrow that it's unlikely that a project that
satisfied that constraint would also satisfy the orthogonal constraint of
solving users' problems. Whereas when students (or professors) build something
as a side-project, they automatically gravitate toward solving users' problems
— perhaps even with an additional energy that comes from being freed from the
constraints of research.
**Competition**
Because a good idea should seem obvious, when you have one you'll tend to feel
that you're late. Don't let that deter you. Worrying that you're late is one
of the signs of a good idea. Ten minutes of searching the web will usually
settle the question. Even if you find someone else working on the same thing,
you're probably not too late. It's exceptionally rare for startups to be
killed by competitors — so rare that you can almost discount the possibility.
So unless you discover a competitor with the sort of lock-in that would
prevent users from choosing you, don't discard the idea.
If you're uncertain, ask users. The question of whether you're too late is
subsumed by the question of whether anyone urgently needs what you plan to
make. If you have something that no competitor does and that some subset of
users urgently need, you have a beachhead.
The question then is whether that beachhead is big enough. Or more
importantly, who's in it: if the beachhead consists of people doing something
lots more people will be doing in the future, then it's probably big enough no
matter how small it is. For example, if you're building something
differentiated from competitors by the fact that it works on phones, but it
only works on the newest phones, that's probably a big enough beachhead.
Err on the side of doing things where you'll face competitors. Inexperienced
founders usually give competitors more credit than they deserve. Whether you
succeed depends far more on you than on your competitors. So better a good
idea with competitors than a bad one without.
You don't need to worry about entering a "crowded market" so long as you have
a thesis about what everyone else in it is overlooking. In fact that's a very
promising starting point. Google was that type of idea. Your thesis has to be
more precise than "we're going to make an x that doesn't suck" though. You
have to be able to phrase it in terms of something the incumbents are
overlooking. Best of all is when you can say that they didn't have the courage
of their convictions, and that your plan is what they'd have done if they'd
followed through on their own insights. Google was that type of idea too. The
search engines that preceded them shied away from the most radical
implications of what they were doing — particularly that the better a job they
did, the faster users would leave.
A crowded market is actually a good sign, because it means both that there's
demand and that none of the existing solutions are good enough. A startup
can't hope to enter a market that's obviously big and yet in which they have
no competitors. So any startup that succeeds is either going to be entering a
market with existing competitors, but armed with some secret weapon that will
get them all the users (like Google), or entering a market that looks small
but which will turn out to be big (like Microsoft).
**Filters**
There are two more filters you'll need to turn off if you want to notice
startup ideas: the unsexy filter and the schlep filter.
Most programmers wish they could start a startup by just writing some
brilliant code, pushing it to a server, and having users pay them lots of
money. They'd prefer not to deal with tedious problems or get involved in
messy ways with the real world. Which is a reasonable preference, because such
things slow you down. But this preference is so widespread that the space of
convenient startup ideas has been stripped pretty clean. If you let your mind
wander a few blocks down the street to the messy, tedious ideas, you'll find
valuable ones just sitting there waiting to be implemented.
The schlep filter is so dangerous that I wrote a separate essay about the
condition it induces, which I called schlep blindness. I gave Stripe as an
example of a startup that benefited from turning off this filter, and a pretty
striking example it is. Thousands of programmers were in a position to see
this idea; thousands of programmers knew how painful it was to process
payments before Stripe. But when they looked for startup ideas they didn't see
this one, because unconsciously they shrank from having to deal with payments.
And dealing with payments is a schlep for Stripe, but not an intolerable one.
In fact they might have had net less pain; because the fear of dealing with
payments kept most people away from this idea, Stripe has had comparatively
smooth sailing in other areas that are sometimes painful, like user
acquisition. They didn't have to try very hard to make themselves heard by
users, because users were desperately waiting for what they were building.
The unsexy filter is similar to the schlep filter, except it keeps you from
working on problems you despise rather than ones you fear. We overcame this
one to work on Viaweb. There were interesting things about the architecture of
our software, but we weren't interested in ecommerce per se. We could see the
problem was one that needed to be solved though.
Turning off the schlep filter is more important than turning off the unsexy
filter, because the schlep filter is more likely to be an illusion. And even
to the degree it isn't, it's a worse form of self-indulgence. Starting a
successful startup is going to be fairly laborious no matter what. Even if the
product doesn't entail a lot of schleps, you'll still have plenty dealing with
investors, hiring and firing people, and so on. So if there's some idea you
think would be cool but you're kept away from by fear of the schleps involved,
don't worry: any sufficiently good idea will have as many.
The unsexy filter, while still a source of error, is not as entirely useless
as the schlep filter. If you're at the leading edge of a field that's changing
rapidly, your ideas about what's sexy will be somewhat correlated with what's
valuable in practice. Particularly as you get older and more experienced. Plus
if you find an idea sexy, you'll work on it more enthusiastically.
**Recipes**
While the best way to discover startup ideas is to become the sort of person
who has them and then build whatever interests you, sometimes you don't have
that luxury. Sometimes you need an idea now. For example, if you're working on
a startup and your initial idea turns out to be bad.
For the rest of this essay I'll talk about tricks for coming up with startup
ideas on demand. Although empirically you're better off using the organic
strategy, you could succeed this way. You just have to be more disciplined.
When you use the organic method, you don't even notice an idea unless it's
evidence that something is truly missing. But when you make a conscious effort
to think of startup ideas, you have to replace this natural constraint with
self-discipline. You'll see a lot more ideas, most of them bad, so you need to
be able to filter them.
One of the biggest dangers of not using the organic method is the example of
the organic method. Organic ideas feel like inspirations. There are a lot of
stories about successful startups that began when the founders had what seemed
a crazy idea but "just knew" it was promising. When you feel that about an
idea you've had while trying to come up with startup ideas, you're probably
mistaken.
When searching for ideas, look in areas where you have some expertise. If
you're a database expert, don't build a chat app for teenagers (unless you're
also a teenager). Maybe it's a good idea, but you can't trust your judgment
about that, so ignore it. There have to be other ideas that involve databases,
and whose quality you can judge. Do you find it hard to come up with good
ideas involving databases? That's because your expertise raises your
standards. Your ideas about chat apps are just as bad, but you're giving
yourself a Dunning-Kruger pass in that domain.
The place to start looking for ideas is things you need. There _must_ be
things you need.
One good trick is to ask yourself whether in your previous job you ever found
yourself saying "Why doesn't someone make x? If someone made x we'd buy it in
a second." If you can think of any x people said that about, you probably have
an idea. You know there's demand, and people don't say that about things that
are impossible to build.
More generally, try asking yourself whether there's something unusual about
you that makes your needs different from most other people's. You're probably
not the only one. It's especially good if you're different in a way people
will increasingly be.
If you're changing ideas, one unusual thing about you is the idea you'd
previously been working on. Did you discover any needs while working on it?
Several well-known startups began this way. Hotmail began as something its
founders wrote to talk about their previous startup idea while they were
working at their day jobs.
A particularly promising way to be unusual is to be young. Some of the most
valuable new ideas take root first among people in their teens and early
twenties. And while young founders are at a disadvantage in some respects,
they're the only ones who really understand their peers. It would have been
very hard for someone who wasn't a college student to start Facebook. So if
you're a young founder (under 23 say), are there things you and your friends
would like to do that current technology won't let you?
The next best thing to an unmet need of your own is an unmet need of someone
else. Try talking to everyone you can about the gaps they find in the world.
What's missing? What would they like to do that they can't? What's tedious or
annoying, particularly in their work? Let the conversation get general; don't
be trying too hard to find startup ideas. You're just looking for something to
spark a thought. Maybe you'll notice a problem they didn't consciously realize
they had, because you know how to solve it.
When you find an unmet need that isn't your own, it may be somewhat blurry at
first. The person who needs something may not know exactly what they need. In
that case I often recommend that founders act like consultants — that they do
what they'd do if they'd been retained to solve the problems of this one user.
People's problems are similar enough that nearly all the code you write this
way will be reusable, and whatever isn't will be a small price to start out
certain that you've reached the bottom of the well.
One way to ensure you do a good job solving other people's problems is to make
them your own. When Rajat Suri of E la Carte decided to write software for
restaurants, he got a job as a waiter to learn how restaurants worked. That
may seem like taking things to extremes, but startups are extreme. We love it
when founders do such things.
In fact, one strategy I recommend to people who need a new idea is not merely
to turn off their schlep and unsexy filters, but to seek out ideas that are
unsexy or involve schleps. Don't try to start Twitter. Those ideas are so rare
that you can't find them by looking for them. Make something unsexy that
people will pay you for.
A good trick for bypassing the schlep and to some extent the unsexy filter is
to ask what you wish someone else would build, so that you could use it. What
would you pay for right now?
Since startups often garbage-collect broken companies and industries, it can
be a good trick to look for those that are dying, or deserve to, and try to
imagine what kind of company would profit from their demise. For example,
journalism is in free fall at the moment. But there may still be money to be
made from something like journalism. What sort of company might cause people
in the future to say "this replaced journalism" on some axis?
But imagine asking that in the future, not now. When one company or industry
replaces another, it usually comes in from the side. So don't look for a
replacement for x; look for something that people will later say turned out to
be a replacement for x. And be imaginative about the axis along which the
replacement occurs. Traditional journalism, for example, is a way for readers
to get information and to kill time, a way for writers to make money and to
get attention, and a vehicle for several different types of advertising. It
could be replaced on any of these axes (it has already started to be on most).
When startups consume incumbents, they usually start by serving some small but
important market that the big players ignore. It's particularly good if
there's an admixture of disdain in the big players' attitude, because that
often misleads them. For example, after Steve Wozniak built the computer that
became the Apple I, he felt obliged to give his then-employer Hewlett-Packard
the option to produce it. Fortunately for him, they turned it down, and one of
the reasons they did was that it used a TV for a monitor, which seemed
intolerably déclassé to a high-end hardware company like HP was at the time.
Are there groups of scruffy but sophisticated users like the early
microcomputer "hobbyists" that are currently being ignored by the big players?
A startup with its sights set on bigger things can often capture a small
market easily by expending an effort that wouldn't be justified by that market
alone.
Similarly, since the most successful startups generally ride some wave bigger
than themselves, it could be a good trick to look for waves and ask how one
could benefit from them. The prices of gene sequencing and 3D printing are
both experiencing Moore's Law-like declines. What new things will we be able
to do in the new world we'll have in a few years? What are we unconsciously
ruling out as impossible that will soon be possible?
**Organic**
But talking about looking explicitly for waves makes it clear that such
recipes are plan B for getting startup ideas. Looking for waves is essentially
a way to simulate the organic method. If you're at the leading edge of some
rapidly changing field, you don't have to look for waves; you are the wave.
Finding startup ideas is a subtle business, and that's why most people who try
fail so miserably. It doesn't work well simply to try to think of startup
ideas. If you do that, you get bad ones that sound dangerously plausible. The
best approach is more indirect: if you have the right sort of background, good
startup ideas will seem obvious to you. But even then, not immediately. It
takes time to come across situations where you notice something missing. And
often these gaps won't seem to be ideas for companies, just things that would
be interesting to build. Which is why it's good to have the time and the
inclination to build things just because they're interesting.
Live in the future and build what seems interesting. Strange as it sounds,
that's the real recipe.
** |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
October 2012
One advantage of Y Combinator's early, broad focus is that we see trends
before most other people. And one of the most conspicuous trends in the last
batch was the large number of hardware startups. Out of 84 companies, 7 were
making hardware. On the whole they've done better than the companies that
weren't.
They've faced resistance from investors of course. Investors have a deep-
seated bias against hardware. But investors' opinions are a trailing
indicator. The best founders are better at seeing the future than the best
investors, because the best founders are making it.
There is no one single force driving this trend. Hardware does well on
crowdfunding sites. The spread of tablets makes it possible to build new
things controlled by and even incorporating them. Electric motors have
improved. Wireless connectivity of various types can now be taken for granted.
It's getting more straightforward to get things manufactured. Arduinos, 3D
printing, laser cutters, and more accessible CNC milling are making hardware
easier to prototype. Retailers are less of a bottleneck as customers
increasingly buy online.
One question I can answer is why hardware is suddenly cool. It always was
cool. Physical things are great. They just haven't been as great a way to
start a rapidly growing business as software. But that rule may not be
permanent. It's not even that old; it only dates from about 1990. Maybe the
advantage of software will turn out to have been temporary. Hackers love to
build hardware, and customers love to buy it. So if the ease of shipping
hardware even approached the ease of shipping software, we'd see a lot more
hardware startups.
It wouldn't be the first time something was a bad idea till it wasn't. And it
wouldn't be the first time investors learned that lesson from founders.
So if you want to work on hardware, don't be deterred from doing it because
you worry investors will discriminate against you. And in particular, don't be
deterred from applying to Y Combinator with a hardware idea, because we're
especially interested in hardware startups.
We know there's room for the next Steve Jobs. But there's almost certainly
also room for the first <Your Name Here>.
**Thanks** to Sam Altman, Trevor Blackwell, David Cann, Sanjay Dastoor, Paul
Gerhardt, Cameron Robertson, Harj Taggar, and Garry Tan for reading drafts of
this.
---
A Hardware Renaissance while Software Eats the World?
* * *
--- |
|
January 2015
My father is a mathematician. For most of my childhood he worked for
Westinghouse, modelling nuclear reactors.
He was one of those lucky people who know early on what they want to do. When
you talk to him about his childhood, there's a clear watershed at about age
12, when he "got interested in maths."
He grew up in the small Welsh seacoast town of Pwllheli. As we retraced his
walk to school on Google Street View, he said that it had been nice growing up
in the country.
"Didn't it get boring when you got to be about 15?" I asked.
"No," he said, "by then I was interested in maths."
In another conversation he told me that what he really liked was solving
problems. To me the exercises at the end of each chapter in a math textbook
represent work, or at best a way to reinforce what you learned in that
chapter. To him the problems were the reward. The text of each chapter was
just some advice about solving them. He said that as soon as he got a new
textbook he'd immediately work out all the problems — to the slight annoyance
of his teacher, since the class was supposed to work through the book
gradually.
Few people know so early or so certainly what they want to work on. But
talking to my father reminded me of a heuristic the rest of us can use. If
something that seems like work to other people doesn't seem like work to you,
that's something you're well suited for. For example, a lot of programmers I
know, including me, actually like debugging. It's not something people tend to
volunteer; one likes it the way one likes popping zits. But you may have to
like debugging to like programming, considering the degree to which
programming consists of it.
The stranger your tastes seem to other people, the stronger evidence they
probably are of what you should do. When I was in college I used to write
papers for my friends. It was quite interesting to write a paper for a class I
wasn't taking. Plus they were always so relieved.
It seemed curious that the same task could be painful to one person and
pleasant to another, but I didn't realize at the time what this imbalance
implied, because I wasn't looking for it. I didn't realize how hard it can be
to decide what you should work on, and that you sometimes have to figure it
out from subtle clues, like a detective solving a case in a mystery novel. So
I bet it would help a lot of people to ask themselves about this explicitly.
What seems like work to other people that doesn't seem like work to you?
**Thanks** to Sam Altman, Trevor Blackwell, Jessica Livingston, Robert Morris,
and my father for reading drafts of this.
---
---
Robert Morris: All About Programming
French Translation
* * *
--- |
|
April 2016
_(This is a talk I gave at an event called Opt412 in Pittsburgh. Much of it
will apply to other towns. But not all, because as I say in the talk,
Pittsburgh has some important advantages over most would-be startup hubs.)_
What would it take to make Pittsburgh into a startup hub, like Silicon Valley?
I understand Pittsburgh pretty well, because I grew up here, in Monroeville.
And I understand Silicon Valley pretty well because that's where I live now.
Could you get that kind of startup ecosystem going here?
When I agreed to speak here, I didn't think I'd be able to give a very
optimistic talk. I thought I'd be talking about what Pittsburgh could do to
become a startup hub, very much in the subjunctive. Instead I'm going to talk
about what Pittsburgh can do.
What changed my mind was an article I read in, of all places, the _New York
Times_ food section. The title was "_Pittsburgh's Youth-Driven Food Boom_." To
most people that might not even sound interesting, let alone something related
to startups. But it was electrifying to me to read that title. I don't think I
could pick a more promising one if I tried. And when I read the article I got
even more excited. It said "people ages 25 to 29 now make up 7.6 percent of
all residents, up from 7 percent about a decade ago." Wow, I thought,
Pittsburgh could be the next Portland. It could become the cool place all the
people in their twenties want to go live.
When I got here a couple days ago, I could feel the difference. I lived here
from 1968 to 1984. I didn't realize it at the time, but during that whole
period the city was in free fall. On top of the flight to the suburbs that
happened everywhere, the steel and nuclear businesses were both dying. Boy are
things different now. It's not just that downtown seems a lot more prosperous.
There is an energy here that was not here when I was a kid.
When I was a kid, this was a place young people left. Now it's a place that
attracts them.
What does that have to do with startups? Startups are made of people, and the
average age of the people in a typical startup is right in that 25 to 29
bracket.
I've seen how powerful it is for a city to have those people. Five years ago
they shifted the center of gravity of Silicon Valley from the peninsula to San
Francisco. Google and Facebook are on the peninsula, but the next generation
of big winners are all in SF. The reason the center of gravity shifted was the
talent war, for programmers especially. Most 25 to 29 year olds want to live
in the city, not down in the boring suburbs. So whether they like it or not,
founders know they have to be in the city. I know multiple founders who would
have preferred to live down in the Valley proper, but who made themselves move
to SF because they knew otherwise they'd lose the talent war.
So being a magnet for people in their twenties is a very promising thing to
be. It's hard to imagine a place becoming a startup hub without also being
that. When I read that statistic about the increasing percentage of 25 to 29
year olds, I had exactly the same feeling of excitement I get when I see a
startup's graphs start to creep upward off the x axis.
Nationally the percentage of 25 to 29 year olds is 6.8%. That means you're .8%
ahead. The population is 306,000, so we're talking about a surplus of about
2500 people. That's the population of a small town, and that's just the
surplus. So you have a toehold. Now you just have to expand it.
And though "youth-driven food boom" may sound frivolous, it is anything but.
Restaurants and cafes are a big part of the personality of a city. Imagine
walking down a street in Paris. What are you walking past? Little restaurants
and cafes. Imagine driving through some depressing random exurb. What are you
driving past? Starbucks and McDonalds and Pizza Hut. As Gertrude Stein said,
there is no there there. You could be anywhere.
These independent restaurants and cafes are not just feeding people. They're
making there be a there here.
So here is my first concrete recommendation for turning Pittsburgh into the
next Silicon Valley: do everything you can to encourage this youth-driven food
boom. What could the city do? Treat the people starting these little
restaurants and cafes as your users, and go ask them what they want. I can
guess at least one thing they might want: a fast permit process. San Francisco
has left you a huge amount of room to beat them in that department.
I know restaurants aren't the prime mover though. The prime mover, as the
Times article said, is cheap housing. That's a big advantage. But that phrase
"cheap housing" is a bit misleading. There are plenty of places that are
cheaper. What's special about Pittsburgh is not that it's cheap, but that it's
a cheap place you'd actually want to live.
Part of that is the buildings themselves. I realized a long time ago, back
when I was a poor twenty-something myself, that the best deals were places
that had once been rich, and then became poor. If a place has always been
rich, it's nice but too expensive. If a place has always been poor, it's cheap
but grim. But if a place was once rich and then got poor, you can find palaces
for cheap. And that's what's bringing people here. When Pittsburgh was rich, a
hundred years ago, the people who lived here built big solid buildings. Not
always in the best taste, but definitely solid. So here is another piece of
advice for becoming a startup hub: don't destroy the buildings that are
bringing people here. When cities are on the way back up, like Pittsburgh is
now, developers race to tear down the old buildings. Don't let that happen.
Focus on historic preservation. Big real estate development projects are not
what's bringing the twenty-somethings here. They're the opposite of the new
restaurants and cafes; they subtract personality from the city.
The empirical evidence suggests you cannot be too strict about historic
preservation. The tougher cities are about it, the better they seem to do.
But the appeal of Pittsburgh is not just the buildings themselves. It's the
neighborhoods they're in. Like San Francisco and New York, Pittsburgh is
fortunate in being a pre-car city. It's not too spread out. Because those 25
to 29 year olds do not like driving. They prefer walking, or bicycling, or
taking public transport. If you've been to San Francisco recently you can't
help noticing the huge number of bicyclists. And this is not just a fad that
the twenty-somethings have adopted. In this respect they have discovered a
better way to live. The beards will go, but not the bikes. Cities where you
can get around without driving are just better period. So I would suggest you
do everything you can to capitalize on this. As with historic preservation, it
seems impossible to go too far.
Why not make Pittsburgh the most bicycle and pedestrian friendly city in the
country? See if you can go so far that you make San Francisco seem backward by
comparison. If you do, it's very unlikely you'll regret it. The city will seem
like a paradise to the young people you want to attract. If they do leave to
get jobs elsewhere, it will be with regret at leaving behind such a place. And
what's the downside? Can you imagine a headline "City ruined by becoming too
bicycle-friendly?" It just doesn't happen.
So suppose cool old neighborhoods and cool little restaurants make this the
next Portland. Will that be enough? It will put you in a way better position
than Portland itself, because Pittsburgh has something Portland lacks: a
first-rate research university. CMU plus little cafes means you have more than
hipsters drinking lattes. It means you have hipsters drinking lattes while
talking about distributed systems. Now you're getting really close to San
Francisco.
In fact you're better off than San Francisco in one way, because CMU is
downtown, but Stanford and Berkeley are out in the suburbs.
What can CMU do to help Pittsburgh become a startup hub? Be an even better
research university. CMU is one of the best universities in the world, but
imagine what things would be like if it were the very best, and everyone knew
it. There are a lot of ambitious people who must go to the best place,
wherever it is. If CMU were it, they would all come here. There would be kids
in Kazakhstan dreaming of one day living in Pittsburgh.
Being that kind of talent magnet is the most important contribution
universities can make toward making their city a startup hub. In fact it is
practically the only contribution they can make.
But wait, shouldn't universities be setting up programs with words like
"innovation" and "entrepreneurship" in their names? No, they should not. These
kind of things almost always turn out to be disappointments. They're pursuing
the wrong targets. The way to get innovation is not to aim for innovation but
to aim for something more specific, like better batteries or better 3D
printing. And the way to learn about entrepreneurship is to do it, which you
_can't in school_.
I know it may disappoint some administrators to hear that the best thing a
university can do to encourage startups is to be a great university. It's like
telling people who want to lose weight that the way to do it is to eat less.
But if you want to know where startups come from, look at the empirical
evidence. Look at the histories of the most successful startups, and you'll
find they grow organically out of a couple of founders building something that
starts as an interesting side project. Universities are great at bringing
together founders, but beyond that the best thing they can do is get out of
the way. For example, by not claiming ownership of "intellectual property"
that students and faculty develop, and by having liberal rules about deferred
admission and leaves of absence.
In fact, one of the most effective things a university could do to encourage
startups is an elaborate form of getting out of the way invented by Harvard.
Harvard used to have exams for the fall semester after Christmas. At the
beginning of January they had something called "Reading Period" when you were
supposed to be studying for exams. And Microsoft and Facebook have something
in common that few people realize: they were both started during Reading
Period. It's the perfect situation for producing the sort of side projects
that turn into startups. The students are all on campus, but they don't have
to do anything because they're supposed to be studying for exams.
Harvard may have closed this window, because a few years ago they moved exams
before Christmas and shortened reading period from 11 days to 7. But if a
university really wanted to help its students start startups, the empirical
evidence, weighted by market cap, suggests the best thing they can do is
literally nothing.
The culture of Pittsburgh is another of its strengths. It seems like a city
has to be socially liberal to be a startup hub, and it's pretty clear why. A
city has to tolerate strangeness to be a home for startups, because startups
are so strange. And you can't choose to allow just the forms of strangeness
that will turn into big startups, because they're all intermingled. You have
to tolerate all strangeness.
That immediately rules out _big chunks of the US_. I'm optimistic it doesn't
rule out Pittsburgh. One of the things I remember from growing up here, though
I didn't realize at the time that there was anything unusual about it, is how
well people got along. I'm still not sure why. Maybe one reason was that
everyone felt like an immigrant. When I was a kid in Monroeville, people
didn't call themselves American. They called themselves Italian or Serbian or
Ukranian. Just imagine what it must have been like here a hundred years ago,
when people were pouring in from twenty different countries. Tolerance was the
only option.
What I remember about the culture of Pittsburgh is that it was both tolerant
and pragmatic. That's how I'd describe the culture of Silicon Valley too. And
it's not a coincidence, because Pittsburgh was the Silicon Valley of its time.
This was a city where people built new things. And while the things people
build have changed, the spirit you need to do that kind of work is the same.
So although an influx of latte-swilling hipsters may be annoying in some ways,
I would go out of my way to encourage them. And more generally to tolerate
strangeness, even unto the degree wacko Californians do. For Pittsburgh that
is a conservative choice: it's a return to the city's roots.
Unfortunately I saved the toughest part for last. There is one more thing you
need to be a startup hub, and Pittsburgh hasn't got it: investors. Silicon
Valley has a big investor community because it's had 50 years to grow one. New
York has a big investor community because it's full of people who like money a
lot and are quick to notice new ways to get it. But Pittsburgh has neither of
these. And the cheap housing that draws other people here has no effect on
investors.
If an investor community grows up here, it will happen the same way it did in
Silicon Valley: slowly and organically. So I would not bet on having a big
investor community in the short term. But fortunately there are three trends
that make that less necessary than it used to be. One is that startups are
increasingly cheap to start, so you just don't need as much outside money as
you used to. The second is that thanks to things like Kickstarter, a startup
can get to revenue faster. You can put something on Kickstarter from anywhere.
The third is programs like Y Combinator. A startup from anywhere in the world
can go to YC for 3 months, pick up funding, and then return home if they want.
My advice is to make Pittsburgh a great place for startups, and gradually more
of them will stick. Some of those will succeed; some of their founders will
become investors; and still more startups will stick.
This is not a fast path to becoming a startup hub. But it is at least a path,
which is something few other cities have. And it's not as if you have to make
painful sacrifices in the meantime. Think about what I've suggested you should
do. Encourage local restaurants, save old buildings, take advantage of
density, make CMU the best, promote tolerance. These are the things that make
Pittsburgh good to live in now. All I'm saying is that you should do even more
of them.
And that's an encouraging thought. If Pittsburgh's path to becoming a startup
hub is to be even more itself, then it has a good chance of succeeding. In
fact it probably has the best chance of any city its size. It will take some
effort, and a lot of time, but if any city can do it, Pittsburgh can.
**Thanks** to Charlie Cheever and Jessica Livingston for reading drafts of
this, and to Meg Cheever for organizing Opt412 and inviting me to speak.
---
* * *
--- |
|
March 2009
About twenty years ago people noticed computers and TV were on a collision
course and started to speculate about what they'd produce when they converged.
We now know the answer: computers. It's clear now that even by using the word
"convergence" we were giving TV too much credit. This won't be convergence so
much as replacement. People may still watch things they call "TV shows," but
they'll watch them mostly on computers.
What decided the contest for computers? Four forces, three of which one could
have predicted, and one that would have been harder to.
One predictable cause of victory is that the Internet is an open platform.
Anyone can build whatever they want on it, and the market picks the winners.
So innovation happens at hacker speeds instead of big company speeds.
The second is Moore's Law, which has worked its usual magic on Internet
bandwidth.
The third reason computers won is piracy. Users prefer it not just because
it's free, but because it's more convenient. Bittorrent and YouTube have
already trained a new generation of viewers that the place to watch shows is
on a computer screen.
The somewhat more surprising force was one specific type of innovation: social
applications. The average teenage kid has a pretty much infinite capacity for
talking to their friends. But they can't physically be with them all the time.
When I was in high school the solution was the telephone. Now it's social
networks, multiplayer games, and various messaging applications. The way you
reach them all is through a computer. Which means every teenage kid (a)
wants a computer with an Internet connection, (b) has an incentive to figure
out how to use it, and (c) spends countless hours in front of it.
This was the most powerful force of all. This was what made everyone want
computers. Nerds got computers because they liked them. Then gamers got them
to play games on. But it was connecting to other people that got everyone
else: that's what made even grandmas and 14 year old girls want computers.
After decades of running an IV drip right into their audience, people in the
entertainment business had understandably come to think of them as rather
passive. They thought they'd be able to dictate the way shows reached
audiences. But they underestimated the force of their desire to connect with
one another.
Facebook killed TV. That is wildly oversimplified, of course, but probably as
close to the truth as you can get in three words.
___
The TV networks already seem, grudgingly, to see where things are going, and
have responded by putting their stuff, grudgingly, online. But they're still
dragging their heels. They still seem to wish people would watch shows on TV
instead, just as newspapers that put their stories online still seem to wish
people would wait till the next morning and read them printed on paper. They
should both just face the fact that the Internet is the primary medium.
They'd be in a better position if they'd done that earlier. When a new medium
arises that's powerful enough to make incumbents nervous, then it's probably
powerful enough to win, and the best thing they can do is jump in immediately.
Whether they like it or not, big changes are coming, because the Internet
dissolves the two cornerstones of broadcast media: synchronicity and locality.
On the Internet, you don't have to send everyone the same signal, and you
don't have to send it to them from a local source. People will watch what they
want when they want it, and group themselves according to whatever shared
interest they feel most strongly. Maybe their strongest shared interest will
be their physical location, but I'm guessing not. Which means local TV is
probably dead. It was an artifact of limitations imposed by old technology. If
someone were creating an Internet-based TV company from scratch now, they
might have some plan for shows aimed at specific regions, but it wouldn't be a
top priority.
Synchronicity and locality are tied together. TV network affiliates care
what's on at 10 because that delivers viewers for local news at 11. This
connection adds more brittleness than strength, however: people don't watch
what's on at 10 because they want to watch the news afterward.
TV networks will fight these trends, because they don't have sufficient
flexibility to adapt to them. They're hemmed in by local affiliates in much
the same way car companies are hemmed in by dealers and unions. Inevitably,
the people running the networks will take the easy route and try to keep the
old model running for a couple more years, just as the record labels have
done.
A recent article in the _Wall Street Journal_ described how TV networks were
trying to add more live shows, partly as a way to make viewers watch TV
synchronously instead of watching recorded shows when it suited them. Instead
of delivering what viewers want, they're trying to force them to change their
habits to suit the networks' obsolete business model. That never works unless
you have a monopoly or cartel to enforce it, and even then it only works
temporarily.
The other reason networks like live shows is that they're cheaper to produce.
There they have the right idea, but they haven't followed it to its
conclusion. Live content can be way cheaper than networks realize, and the way
to take advantage of dramatic decreases in cost is to increase volume. The
networks are prevented from seeing this whole line of reasoning because they
still think of themselves as being in the broadcast business—as sending one
signal to everyone.
___
Now would be a good time to start any company that competes with TV networks.
That's what a lot of Internet startups are, though they may not have had this
as an explicit goal. People only have so many leisure hours a day, and TV is
premised on such long sessions (unlike Google, which prides itself on sending
users on their way quickly) that anything that takes up their time is
competing with it. But in addition to such indirect competitors, I think TV
companies will increasingly face direct ones.
Even in cable TV, the long tail was lopped off prematurely by the threshold
you had to get over to start a new channel. It will be longer on the Internet,
and there will be more mobility within it. In this new world, the existing
players will only have the advantages any big company has in its market.
That will change the balance of power between the networks and the people who
produce shows. The networks used to be gatekeepers. They distributed your
work, and sold advertising on it. Now the people who produce a show can
distribute it themselves. The main value networks supply now is ad sales.
Which will tend to put them in the position of service providers rather than
publishers.
Shows will change even more. On the Internet there's no reason to keep their
current format, or even the fact that they have a single format. Indeed, the
more interesting sort of convergence that's coming is between shows and games.
But on the question of what sort of entertainment gets distributed on the
Internet in 20 years, I wouldn't dare to make any predictions, except that
things will change a lot. We'll get whatever the most imaginative people can
cook up. That's why the Internet won.
** |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
October 2009
_(This essay is derived from a talk at the 2009 Startup School.)_
I wasn't sure what to talk about at Startup School, so I decided to ask the
founders of the startups we'd funded. What hadn't I written about yet?
I'm in the unusual position of being able to test the essays I write about
startups. I hope the ones on other topics are right, but I have no way to test
them. The ones on startups get tested by about 70 people every 6 months.
So I sent all the founders an email asking what surprised them about starting
a startup. This amounts to asking what I got wrong, because if I'd explained
things well enough, nothing should have surprised them.
I'm proud to report I got one response saying:
> What surprised me the most is that everything was actually fairly
> predictable!
The bad news is that I got over 100 other responses listing the surprises they
encountered.
There were very clear patterns in the responses; it was remarkable how often
several people had been surprised by exactly the same thing. These were the
biggest:
**1\. Be Careful with Cofounders**
This was the surprise mentioned by the most founders. There were two types of
responses: that you have to be careful who you pick as a cofounder, and that
you have to work hard to maintain your relationship.
What people wished they'd paid more attention to when choosing cofounders was
character and commitment, not ability. This was particularly true with
startups that failed. The lesson: don't pick cofounders who will flake.
Here's a typical reponse:
> You haven't seen someone's true colors unless you've worked with them on a
> startup.
The reason character is so important is that it's tested more severely than in
most other situations. One founder said explicitly that the relationship
between founders was more important than ability:
> I would rather cofound a startup with a friend than a stranger with higher
> output. Startups are so hard and emotional that the bonds and emotional and
> social support that come with friendship outweigh the extra output lost.
We learned this lesson a long time ago. If you look at the YC application,
there are more questions about the commitment and relationship of the founders
than their ability.
Founders of successful startups talked less about choosing cofounders and more
about how hard they worked to maintain their relationship.
> One thing that surprised me is how the relationship of startup founders goes
> from a friendship to a marriage. My relationship with my cofounder went from
> just being friends to seeing each other all the time, fretting over the
> finances and cleaning up shit. And the startup was our baby. I summed it up
> once like this: "It's like we're married, but we're not fucking."
Several people used that word "married." It's a far more intense relationship
than you usually see between coworkers—partly because the stresses are so much
greater, and partly because at first the founders are the whole company. So
this relationship has to be built of top quality materials and carefully
maintained. It's the basis of everything.
**2\. Startups Take Over Your Life**
Just as the relationship between cofounders is more intense than it usually is
between coworkers, so is the relationship between the founders and the
company. Running a startup is not like having a job or being a student,
because it never stops. This is so foreign to most people's experience that
they don't get it till it happens.
> I didn't realize I would spend almost every waking moment either working or
> thinking about our startup. You enter a whole different way of life when
> it's your company vs. working for someone else's company.
It's exacerbated by the fast pace of startups, which makes it seem like time
slows down:
> I think the thing that's been most surprising to me is how one's perspective
> on time shifts. Working on our startup, I remember time seeming to stretch
> out, so that a month was a huge interval.
In the best case, total immersion can be exciting:
> It's surprising how much you become consumed by your startup, in that you
> think about it day and night, but never once does it feel like "work."
Though I have to say, that quote is from someone we funded this summer. In a
couple years he may not sound so chipper.
**3\. It's an Emotional Roller-coaster**
This was another one lots of people were surprised about. The ups and downs
were more extreme than they were prepared for.
In a startup, things seem great one moment and hopeless the next. And by next,
I mean a couple hours later.
> The emotional ups and downs were the biggest surprise for me. One day, we'd
> think of ourselves as the next Google and dream of buying islands; the next,
> we'd be pondering how to let our loved ones know of our utter failure; and
> on and on.
The hard part, obviously, is the lows. For a lot of founders that was the big
surprise:
> How hard it is to keep everyone motivated during rough days or weeks, i.e.
> how low the lows can be.
After a while, if you don't have significant success to cheer you up, it wears
you out:
> Your most basic advice to founders is "just don't die," but the energy to
> keep a company going in lieu of unburdening success isn't free; it is
> siphoned from the founders themselves.
There's a limit to how much you can take. If you get to the point where you
can't keep working anymore, it's not the end of the world. Plenty of famous
founders have had some failures along the way.
**4\. It Can Be Fun**
The good news is, the highs are also very high. Several founders said what
surprised them most about doing a startup was how fun it was:
> I think you've left out just how fun it is to do a startup. I am more
> fulfilled in my work than pretty much any of my friends who did not start
> companies.
What they like most is the freedom:
> I'm surprised by how much better it feels to be working on something that is
> challenging and creative, something I believe in, as opposed to the hired-
> gun stuff I was doing before. I knew it would feel better; what's surprising
> is how much better.
Frankly, though, if I've misled people here, I'm not eager to fix that. I'd
rather have everyone think starting a startup is grim and hard than have
founders go into it expecting it to be fun, and a few months later saying
"This is supposed to be _fun_? Are you kidding?"
The truth is, it wouldn't be fun for most people. A lot of what we try to do
in the application process is to weed out the people who wouldn't like it,
both for our sake and theirs.
The best way to put it might be that starting a startup is fun the way a
survivalist training course would be fun, if you're into that sort of thing.
Which is to say, not at all, if you're not.
**5\. Persistence Is the Key**
A lot of founders were surprised how important persistence was in startups. It
was both a negative and a positive surprise: they were surprised both by the
degree of persistence required
> Everyone said how determined and resilient you must be, but going through it
> made me realize that the determination required was still understated.
and also by the degree to which persistence alone was able to dissolve
obstacles:
> If you are persistent, even problems that seem out of your control (i.e.
> immigration) seem to work themselves out.
Several founders mentioned specifically how much more important persistence
was than intelligence.
> I've been surprised again and again by just how much more important
> persistence is than raw intelligence.
This applies not just to intelligence but to ability in general, and that's
why so many people said character was more important in choosing cofounders.
**6\. Think Long-Term**
You need persistence because everything takes longer than you expect. A lot of
people were surprised by that.
> I'm continually surprised by how long everything can take. Assuming your
> product doesn't experience the explosive growth that very few products do,
> everything from development to dealmaking (especially dealmaking) seems to
> take 2-3x longer than I always imagine.
One reason founders are surprised is that because they work fast, they expect
everyone else to. There's a shocking amount of shear stress at every point
where a startup touches a more bureaucratic organization, like a big company
or a VC fund. That's why fundraising and the enterprise market kill and maim
so many startups.
But I think the reason most founders are surprised by how long it takes is
that they're overconfident. They think they're going to be an instant success,
like YouTube or Facebook. You tell them only 1 out of 100 successful startups
has a trajectory like that, and they all think "we're going to be that 1."
Maybe they'll listen to one of the more successful founders:
> The top thing I didn't understand before going into it is that persistence
> is the name of the game. For the vast majority of startups that become
> successful, it's going to be a _really_ long journey, at least 3 years and
> probably 5+.
There is a positive side to thinking longer-term. It's not just that you have
to resign yourself to everything taking longer than it should. If you work
patiently it's less stressful, and you can do better work:
> Because we're relaxed, it's so much easier to have fun doing what we do.
> Gone is the awkward nervous energy fueled by the desperate need to not fail
> guiding our actions. We can concentrate on doing what's best for our
> company, product, employees and customers.
That's why things get so much better when you hit ramen profitability. You can
shift into a different mode of working.
**7\. Lots of Little Things**
We often emphasize how rarely startups win simply because they hit on some
magic idea. I think founders have now gotten that into their heads. But a lot
were surprised to find this also applies within startups. You have to do lots
of different things:
> It's much more of a grind than glamorous. A timeslice selected at random
> would more likely find me tracking down a weird DLL loading bug on Swedish
> Windows, or tracking down a bug in the financial model Excel spreadsheet the
> night before a board meeting, rather than having brilliant flashes of
> strategic insight.
Most hacker-founders would like to spend all their time programming. You won't
get to, unless you fail. Which can be transformed into: If you spend all your
time programming, you will fail.
The principle extends even into programming. There is rarely a single
brilliant hack that ensures success:
> I learnt never to bet on any one feature or deal or anything to bring you
> success. It is never a single thing. Everything is just incremental and you
> just have to keep doing lots of those things until you strike something.
Even in the rare cases where a clever hack makes your fortune, you probably
won't know till later:
> There is no such thing as a killer feature. Or at least you won't know what
> it is.
So the best strategy is to try lots of different things. The reason not to put
all your eggs in one basket is not the usual one, which applies even when you
know which basket is best. In a startup you don't even know that.
**8\. Start with Something Minimal**
Lots of founders mentioned how important it was to launch with the simplest
possible thing. By this point everyone knows you should release fast and
iterate. It's practically a mantra at YC. But even so a lot of people seem to
have been burned by not doing it:
> Build the absolute smallest thing that can be considered a complete
> application and ship it.
Why do people take too long on the first version? Pride, mostly. They hate to
release something that could be better. They worry what people will say about
them. But you have to overcome this:
> Doing something "simple" at first glance does not mean you aren't doing
> something meaningful, defensible, or valuable.
Don't worry what people will say. If your first version is so impressive that
trolls don't make fun of it, you waited too long to launch.
One founder said this should be your approach to all programming, not just
startups, and I tend to agree.
> Now, when coding, I try to think "How can I write this such that if people
> saw my code, they'd be amazed at how little there is and how little it
> does?"
Over-engineering is poison. It's not like doing extra work for extra credit.
It's more like telling a lie that you then have to remember so you don't
contradict it.
**9\. Engage Users**
Product development is a conversation with the user that doesn't really start
till you launch. Before you launch, you're like a police artist before he's
shown the first version of his sketch to the witness.
It's so important to launch fast that it may be better to think of your
initial version not as a product, but as a trick for getting users to start
talking to you.
> I learned to think about the initial stages of a startup as a giant
> experiment. All products should be considered experiments, and those that
> have a market show promising results extremely quickly.
Once you start talking to users, I guarantee you'll be surprised by what they
tell you.
> When you let customers tell you what they're after, they will often reveal
> amazing details about what they find valuable as well what they're willing
> to pay for.
The surprise is generally positive as well as negative. They won't like what
you've built, but there will be other things they would like that would be
trivially easy to implement. It's not till you start the conversation by
launching the wrong thing that they can express (or perhaps even realize) what
they're looking for.
**10\. Change Your Idea**
To benefit from engaging with users you have to be willing to change your
idea. We've always encouraged founders to see a startup idea as a hypothesis
rather than a blueprint. And yet they're still surprised how well it works to
change the idea.
> Normally if you complain about something being hard, the general advice is
> to work harder. With a startup, I think you should find a problem that's
> easy for you to solve. Optimizing in solution-space is familiar and
> straightforward, but you can make enormous gains playing around in problem-
> space.
Whereas mere determination, without flexibility, is a greedy algorithm that
may get you nothing more than a mediocre local maximum:
> When someone is determined, there's still a danger that they'll follow a
> long, hard path that ultimately leads nowhere.
You want to push forward, but at the same time twist and turn to find the most
promising path. One founder put it very succinctly:
> Fast iteration is the key to success.
One reason this advice is so hard to follow is that people don't realize how
hard it is to judge startup ideas, particularly their own. Experienced
founders learn to keep an open mind:
> Now I don't laugh at ideas anymore, because I realized how terrible I was at
> knowing if they were good or not.
You can never tell what will work. You just have to do whatever seems best at
each point. We do this with YC itself. We still don't know if it will work,
but it seems like a decent hypothesis.
**11\. Don't Worry about Competitors**
When you think you've got a great idea, it's sort of like having a guilty
conscience about something. All someone has to do is look at you funny, and
you think "Oh my God, _they know._ "
These alarms are almost always false:
> Companies that seemed like competitors and threats at first glance usually
> never were when you really looked at it. Even if they were operating in the
> same area, they had a different goal.
One reason people overreact to competitors is that they overvalue ideas. If
ideas really were the key, a competitor with the same idea would be a real
threat. But it's usually execution that matters:
> All the scares induced by seeing a new competitor pop up are forgotten weeks
> later. It always comes down to your own product and approach to the market.
This is generally true even if competitors get lots of attention.
> Competitors riding on lots of good blogger perception aren't really the
> winners and can disappear from the map quickly. You need consumers after
> all.
Hype doesn't make satisfied users, at least not for something as complicated
as technology.
**12\. It's Hard to Get Users**
A lot of founders complained about how hard it was to get users, though.
> I had no idea how much time and effort needed to go into attaining users.
This is a complicated topic. When you can't get users, it's hard to say
whether the problem is lack of exposure, or whether the product's simply bad.
Even good products can be blocked by switching or integration costs:
> Getting people to use a new service is incredibly difficult. This is
> especially true for a service that other companies can use, because it
> requires their developers to do work. If you're small, they don't think it
> is urgent.
The sharpest criticism of YC came from a founder who said we didn't focus
enough on customer acquisition:
> YC preaches "make something people want" as an engineering task, a never
> ending stream of feature after feature until enough people are happy and the
> application takes off. There's very little focus on the cost of customer
> acquisition.
This may be true; this may be something we need to fix, especially for
applications like games. If you make something where the challenges are mostly
technical, you can rely on word of mouth, like Google did. One founder was
surprised by how well that worked for him:
> There is an irrational fear that no one will buy your product. But if you
> work hard and incrementally make it better, there is no need to worry.
But with other types of startups you may win less by features and more by
deals and marketing.
**13\. Expect the Worst with Deals**
Deals fall through. That's a constant of the startup world. Startups are
powerless, and good startup ideas generally seem wrong. So everyone is nervous
about closing deals with you, and you have no way to make them.
This is particularly true with investors:
> In retrospect, it would have been much better if we had operated under the
> assumption that we would never get any additional outside investment. That
> would have focused us on finding revenue streams early.
My advice is generally pessimistic. Assume you won't get money, and if someone
does offer you any, assume you'll never get any more.
> If someone offers you money, take it. You say it a lot, but I think it needs
> even more emphasizing. We had the opportunity to raise a lot more money than
> we did last year and I wish we had.
Why do founders ignore me? Mostly because they're optimistic by nature. The
mistake is to be optimistic about things you can't control. By all means be
optimistic about your ability to make something great. But you're asking for
trouble if you're optimistic about big companies or investors.
**14\. Investors Are Clueless**
A lot of founders mentioned how surprised they were by the cluelessness of
investors:
> They don't even know about the stuff they've invested in. I met some
> investors that had invested in a hardware device and when I asked them to
> demo the device they had difficulty switching it on.
Angels are a bit better than VCs, because they usually have startup experience
themselves:
> VC investors don't know half the time what they are talking about and are
> years behind in their thinking. A few were great, but 95% of the investors
> we dealt with were unprofessional, didn't seem to be very good at business
> or have any kind of creative vision. Angels were generally much better to
> talk to.
Why are founders surprised that VCs are clueless? I think it's because they
seem so formidable.
The reason VCs seem formidable is that it's their profession to. You get to be
a VC by convincing asset managers to trust you with hundreds of millions of
dollars. How do you do that? You have to seem confident, and you have to seem
like you understand technology.
**15\. You May Have to Play Games**
Because investors are so bad at judging you, you have to work harder than you
should at selling yourself. One founder said the thing that surprised him most
was
> The degree to which feigning certitude impressed investors.
This is the thing that has surprised _me_ most about YC founders' experiences.
This summer we invited some of the alumni to talk to the new startups about
fundraising, and pretty much 100% of their advice was about investor
psychology. I thought I was cynical about VCs, but the founders were much more
cynical.
> A lot of what startup founders do is just posturing. It works.
VCs themselves have no idea of the extent to which the startups they like are
the ones that are best at selling themselves to VCs. It's exactly the same
phenomenon we saw a step earlier. VCs get money by seeming confident to LPs,
and founders get money by seeming confident to VCs.
**16\. Luck Is a Big Factor**
With two such random linkages in the path between startups and money, it
shouldn't be surprising that luck is a big factor in deals. And yet a lot of
founders are surprised by it.
> I didn't realize how much of a role luck plays and how much is outside of
> our control.
If you think about famous startups, it's pretty clear how big a role luck
plays. Where would Microsoft be if IBM insisted on an exclusive license for
DOS?
Why are founders fooled by this? Business guys probably aren't, but hackers
are used to a world where skill is paramount, and you get what you deserve.
> When we started our startup, I had bought the hype of the startup founder
> dream: that this is a game of skill. It is, in some ways. Having skill is
> valuable. So is being determined as all hell. But being lucky is the
> critical ingredient.
Actually the best model would be to say that the outcome is the _product_ of
skill, determination, and luck. No matter how much skill and determination you
have, if you roll a zero for luck, the outcome is zero.
These quotes about luck are not from founders whose startups failed. Founders
who fail quickly tend to blame themselves. Founders who succeed quickly don't
usually realize how lucky they were. It's the ones in the middle who see how
important luck is.
**17\. The Value of Community**
A surprising number of founders said what surprised them most about starting a
startup was the value of community. Some meant the micro-community of YC
founders:
> The immense value of the peer group of YC companies, and facing similar
> obstacles at similar times.
which shouldn't be that surprising, because that's why it's structured that
way. Others were surprised at the value of the startup community in the larger
sense:
> How advantageous it is to live in Silicon Valley, where you can't help but
> hear all the cutting-edge tech and startup news, and run into useful people
> constantly.
The specific thing that surprised them most was the general spirit of
benevolence:
> One of the most surprising things I saw was the willingness of people to
> help us. Even people who had nothing to gain went out of their way to help
> our startup succeed.
and particularly how it extended all the way to the top:
> The surprise for me was how accessible important and interesting people are.
> It's amazing how easily you can reach out to people and get immediate
> feedback.
This is one of the reasons I like being part of this world. Creating wealth is
not a zero-sum game, so you don't have to stab people in the back to win.
**18\. You Get No Respect**
There was one surprise founders mentioned that I'd forgotten about: that
outside the startup world, startup founders get no respect.
> In social settings, I found that I got a lot more respect when I said, "I
> worked on Microsoft Office" instead of "I work at a small startup you've
> never heard of called x."
Partly this is because the rest of the world just doesn't get startups, and
partly it's yet another consequence of the fact that most good startup ideas
seem bad:
> If you pitch your idea to a random person, 95% of the time you'll find the
> person instinctively thinks the idea will be a flop and you're wasting your
> time (although they probably won't say this directly).
Unfortunately this extends even to dating:
> It surprised me that being a startup founder does not get you more
> admiration from women.
I did know about that, but I'd forgotten.
**19\. Things Change as You Grow**
The last big surprise founders mentioned is how much things changed as they
grew. The biggest change was that you got to program even less:
> Your job description as technical founder/CEO is completely rewritten every
> 6-12 months. Less coding, more managing/planning/company building, hiring,
> cleaning up messes, and generally getting things in place for what needs to
> happen a few months from now.
In particular, you now have to deal with employees, who often have different
motivations:
> I knew the founder equation and had been focused on it since I knew I wanted
> to start a startup as a 19 year old. The employee equation is quite
> different so it took me a while to get it down.
Fortunately, it can become a lot less stressful once you reach cruising
altitude:
> I'd say 75% of the stress is gone now from when we first started. Running a
> business is so much more enjoyable now. We're more confident. We're more
> patient. We fight less. We sleep more.
I wish I could say it was this way for every startup that succeeded, but 75%
is probably on the high side.
**The Super-Pattern**
There were a few other patterns, but these were the biggest. One's first
thought when looking at them all is to ask if there's a super-pattern, a
pattern to the patterns.
I saw it immediately, and so did a YC founder I read the list to. These are
supposed to be the surprises, the things I didn't tell people. What do they
all have in common? They're all things I tell people. If I wrote a new essay
with the same outline as this that wasn't summarizing the founders' responses,
everyone would say I'd run out of ideas and was just repeating myself.
What is going on here?
When I look at the responses, the common theme is that starting a startup was
like I said, but way more so. People just don't seem to get how different it
is till they do it. Why? The key to that mystery is to ask, how different
_from what?_ Once you phrase it that way, the answer is obvious: from a job.
Everyone's model of work is a job. It's completely pervasive. Even if you've
never had a job, your parents probably did, along with practically every other
adult you've met.
Unconsciously, everyone expects a startup to be like a job, and that explains
most of the surprises. It explains why people are surprised how carefully you
have to choose cofounders and how hard you have to work to maintain your
relationship. You don't have to do that with coworkers. It explains why the
ups and downs are surprisingly extreme. In a job there is much more damping.
But it also explains why the good times are surprisingly good: most people
can't imagine such freedom. As you go down the list, almost all the surprises
are surprising in how much a startup differs from a job.
You probably can't overcome anything so pervasive as the model of work you
grew up with. So the best solution is to be consciously aware of that. As you
go into a startup, you'll be thinking "everyone says it's really extreme."
Your next thought will probably be "but I can't believe it will be that bad."
If you want to avoid being surprised, the next thought after that should be:
"and the reason I can't believe it will be that bad is that my model of work
is a job."
** |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
March 2009
A couple days ago I finally got being a good startup founder down to two
words: relentlessly resourceful.
Till then the best I'd managed was to get the opposite quality down to one:
hapless. Most dictionaries say hapless means unlucky. But the dictionaries are
not doing a very good job. A team that outplays its opponents but loses
because of a bad decision by the referee could be called unlucky, but not
hapless. Hapless implies passivity. To be hapless is to be battered by
circumstances — to let the world have its way with you, instead of having your
way with the world.
Unfortunately there's no antonym of hapless, which makes it difficult to tell
founders what to aim for. "Don't be hapless" is not much of a rallying cry.
It's not hard to express the quality we're looking for in metaphors. The best
is probably a running back. A good running back is not merely determined, but
flexible as well. They want to get downfield, but they adapt their plans on
the fly.
Unfortunately this is just a metaphor, and not a useful one to most people
outside the US. "Be like a running back" is no better than "Don't be hapless."
But finally I've figured out how to express this quality directly. I was
writing a talk for investors, and I had to explain what to look for in
founders. What would someone who was the opposite of hapless be like? They'd
be relentlessly resourceful. Not merely relentless. That's not enough to make
things go your way except in a few mostly uninteresting domains. In any
interesting domain, the difficulties will be novel. Which means you can't
simply plow through them, because you don't know initially how hard they are;
you don't know whether you're about to plow through a block of foam or
granite. So you have to be resourceful. You have to keep trying new things.
Be relentlessly resourceful.
That sounds right, but is it simply a description of how to be successful in
general? I don't think so. This isn't the recipe for success in writing or
painting, for example. In that kind of work the recipe is more to be actively
curious. Resourceful implies the obstacles are external, which they generally
are in startups. But in writing and painting they're mostly internal; the
obstacle is your own obtuseness.
There probably are other fields where "relentlessly resourceful" is the recipe
for success. But though other fields may share it, I think this is the best
short description we'll find of what makes a good startup founder. I doubt it
could be made more precise.
Now that we know what we're looking for, that leads to other questions. For
example, can this quality be taught? After four years of trying to teach it to
people, I'd say that yes, surprisingly often it can. Not to everyone, but to
many people. Some people are just constitutionally passive, but others
have a latent ability to be relentlessly resourceful that only needs to be
brought out.
This is particularly true of young people who have till now always been under
the thumb of some kind of authority. Being relentlessly resourceful is
definitely not the recipe for success in big companies, or in most schools. I
don't even want to think what the recipe is in big companies, but it is
certainly longer and messier, involving some combination of resourcefulness,
obedience, and building alliances.
Identifying this quality also brings us closer to answering a question people
often wonder about: how many startups there could be. There is not, as some
people seem to think, any economic upper bound on this number. There's no
reason to believe there is any limit on the amount of newly created wealth
consumers can absorb, any more than there is a limit on the number of theorems
that can be proven. So probably the limiting factor on the number of startups
is the pool of potential founders. Some people would make good founders, and
others wouldn't. And now that we can say what makes a good founder, we know
how to put an upper bound on the size of the pool.
This test is also useful to individuals. If you want to know whether you're
the right sort of person to start a startup, ask yourself whether you're
relentlessly resourceful. And if you want to know whether to recruit someone
as a cofounder, ask if they are.
You can even use it tactically. If I were running a startup, this would be the
phrase I'd tape to the mirror. "Make something people want" is the
destination, but "Be relentlessly resourceful" is how you get there.
** |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
April 2010
The best way to come up with startup ideas is to ask yourself the question:
what do you wish someone would make for you?
There are two types of startup ideas: those that grow organically out of your
own life, and those that you decide, from afar, are going to be necessary to
some class of users other than you. Apple was the first type. Apple happened
because Steve Wozniak wanted a computer. Unlike most people who wanted
computers, he could design one, so he did. And since lots of other people
wanted the same thing, Apple was able to sell enough of them to get the
company rolling. They still rely on this principle today, incidentally. The
iPhone is the phone Steve Jobs wants.
Our own startup, Viaweb, was of the second type. We made software for building
online stores. We didn't need this software ourselves. We weren't direct
marketers. We didn't even know when we started that our users were called
"direct marketers." But we were comparatively old when we started the company
(I was 30 and Robert Morris was 29), so we'd seen enough to know users would
need this type of software.
There is no sharp line between the two types of ideas, but the most successful
startups seem to be closer to the Apple type than the Viaweb type. When he was
writing that first Basic interpreter for the Altair, Bill Gates was writing
something he would use, as were Larry and Sergey when they wrote the first
versions of Google.
Organic ideas are generally preferable to the made up kind, but particularly
so when the founders are young. It takes experience to predict what other
people will want. The worst ideas we see at Y Combinator are from young
founders making things they think other people will want.
So if you want to start a startup and don't know yet what you're going to do,
I'd encourage you to focus initially on organic ideas. What's missing or
broken in your daily life? Sometimes if you just ask that question you'll get
immediate answers. It must have seemed obviously broken to Bill Gates that you
could only program the Altair in machine language.
You may need to stand outside yourself a bit to see brokenness, because you
tend to get used to it and take it for granted. You can be sure it's there,
though. There are always great ideas sitting right under our noses. In 2004 it
was ridiculous that Harvard undergrads were still using a Facebook printed on
paper. Surely that sort of thing should have been online.
There are ideas that obvious lying around now. The reason you're overlooking
them is the same reason you'd have overlooked the idea of building Facebook in
2004: organic startup ideas usually don't seem like startup ideas at first. We
know now that Facebook was very successful, but put yourself back in 2004.
Putting undergraduates' profiles online wouldn't have seemed like much of a
startup idea. And in fact, it wasn't initially a startup idea. When Mark spoke
at a YC dinner this winter he said he wasn't trying to start a company when he
wrote the first version of Facebook. It was just a project. So was the Apple I
when Woz first started working on it. He didn't think he was starting a
company. If these guys had thought they were starting companies, they might
have been tempted to do something more "serious," and that would have been a
mistake.
So if you want to come up with organic startup ideas, I'd encourage you to
focus more on the idea part and less on the startup part. Just fix things that
seem broken, regardless of whether it seems like the problem is important
enough to build a company on. If you keep pursuing such threads it would be
hard not to end up making something of value to a lot of people, and when you
do, surprise, you've got a company.
Don't be discouraged if what you produce initially is something other people
dismiss as a toy. In fact, that's a good sign. That's probably why everyone
else has been overlooking the idea. The first microcomputers were dismissed as
toys. And the first planes, and the first cars. At this point, when someone
comes to us with something that users like but that we could envision forum
trolls dismissing as a toy, it makes us especially likely to invest.
While young founders are at a disadvantage when coming up with made-up ideas,
they're the best source of organic ones, because they're at the forefront of
technology. They use the latest stuff. They only just decided what to use, so
why wouldn't they? And because they use the latest stuff, they're in a
position to discover valuable types of fixable brokenness first.
There's nothing more valuable than an unmet need that is just becoming
fixable. If you find something broken that you can fix for a lot of people,
you've found a gold mine. As with an actual gold mine, you still have to work
hard to get the gold out of it. But at least you know where the seam is, and
that's the hard part.
** |
|
May 2008
Great cities attract ambitious people. You can sense it when you walk around
one. In a hundred subtle ways, the city sends you a message: you could do
more; you should try harder.
The surprising thing is how different these messages can be. New York tells
you, above all: you should make more money. There are other messages too, of
course. You should be hipper. You should be better looking. But the clearest
message is that you should be richer.
What I like about Boston (or rather Cambridge) is that the message there is:
you should be smarter. You really should get around to reading all those books
you've been meaning to.
When you ask what message a city sends, you sometimes get surprising answers.
As much as they respect brains in Silicon Valley, the message the Valley sends
is: you should be more powerful.
That's not quite the same message New York sends. Power matters in New York
too of course, but New York is pretty impressed by a billion dollars even if
you merely inherited it. In Silicon Valley no one would care except a few real
estate agents. What matters in Silicon Valley is how much effect you have on
the world. The reason people there care about Larry and Sergey is not their
wealth but the fact that they control Google, which affects practically
everyone.
_____
How much does it matter what message a city sends? Empirically, the answer
seems to be: a lot. You might think that if you had enough strength of mind to
do great things, you'd be able to transcend your environment. Where you live
should make at most a couple percent difference. But if you look at the
historical evidence, it seems to matter more than that. Most people who did
great things were clumped together in a few places where that sort of thing
was done at the time.
You can see how powerful cities are from something I wrote about earlier: the
case of the Milanese Leonardo. Practically every fifteenth century Italian
painter you've heard of was from Florence, even though Milan was just as big.
People in Florence weren't genetically different, so you have to assume there
was someone born in Milan with as much natural ability as Leonardo. What
happened to him?
If even someone with the same natural ability as Leonardo couldn't beat the
force of environment, do you suppose you can?
I don't. I'm fairly stubborn, but I wouldn't try to fight this force. I'd
rather use it. So I've thought a lot about where to live.
I'd always imagined Berkeley would be the ideal place — that it would
basically be Cambridge with good weather. But when I finally tried living
there a couple years ago, it turned out not to be. The message Berkeley sends
is: you should live better. Life in Berkeley is very civilized. It's probably
the place in America where someone from Northern Europe would feel most at
home. But it's not humming with ambition.
In retrospect it shouldn't have been surprising that a place so pleasant would
attract people interested above all in quality of life. Cambridge with good
weather, it turns out, is not Cambridge. The people you find in Cambridge are
not there by accident. You have to make sacrifices to live there. It's
expensive and somewhat grubby, and the weather's often bad. So the kind of
people you find in Cambridge are the kind of people who want to live where the
smartest people are, even if that means living in an expensive, grubby place
with bad weather.
As of this writing, Cambridge seems to be the intellectual capital of the
world. I realize that seems a preposterous claim. What makes it true is that
it's more preposterous to claim about anywhere else. American universities
currently seem to be the best, judging from the flow of ambitious students.
And what US city has a stronger claim? New York? A fair number of smart
people, but diluted by a much larger number of neanderthals in suits. The Bay
Area has a lot of smart people too, but again, diluted; there are two great
universities, but they're far apart. Harvard and MIT are practically adjacent
by West Coast standards, and they're surrounded by about 20 other colleges and
universities.
Cambridge as a result feels like a town whose main industry is ideas, while
New York's is finance and Silicon Valley's is startups.
_____
When you talk about cities in the sense we are, what you're really talking
about is collections of people. For a long time cities were the only large
collections of people, so you could use the two ideas interchangeably. But we
can see how much things are changing from the examples I've mentioned. New
York is a classic great city. But Cambridge is just part of a city, and
Silicon Valley is not even that. (San Jose is not, as it sometimes claims, the
capital of Silicon Valley. It's just 178 square miles at one end of it.)
Maybe the Internet will change things further. Maybe one day the most
important community you belong to will be a virtual one, and it won't matter
where you live physically. But I wouldn't bet on it. The physical world is
very high bandwidth, and some of the ways cities send you messages are quite
subtle.
One of the exhilarating things about coming back to Cambridge every spring is
walking through the streets at dusk, when you can see into the houses. When
you walk through Palo Alto in the evening, you see nothing but the blue glow
of TVs. In Cambridge you see shelves full of promising-looking books. Palo
Alto was probably much like Cambridge in 1960, but you'd never guess now that
there was a university nearby. Now it's just one of the richer neighborhoods
in Silicon Valley.
A city speaks to you mostly by accident — in things you see through windows,
in conversations you overhear. It's not something you have to seek out, but
something you can't turn off. One of the occupational hazards of living in
Cambridge is overhearing the conversations of people who use interrogative
intonation in declarative sentences. But on average I'll take Cambridge
conversations over New York or Silicon Valley ones.
A friend who moved to Silicon Valley in the late 90s said the worst thing
about living there was the low quality of the eavesdropping. At the time I
thought she was being deliberately eccentric. Sure, it can be interesting to
eavesdrop on people, but is good quality eavesdropping so important that it
would affect where you chose to live? Now I understand what she meant. The
conversations you overhear tell you what sort of people you're among.
_____
No matter how determined you are, it's hard not to be influenced by the people
around you. It's not so much that you do whatever a city expects of you, but
that you get discouraged when no one around you cares about the same things
you do.
There's an imbalance between encouragement and discouragement like that
between gaining and losing money. Most people overvalue negative amounts of
money: they'll work much harder to avoid losing a dollar than to gain one.
Similarly, although there are plenty of people strong enough to resist doing
something just because that's what one is supposed to do where they happen to
be, there are few strong enough to keep working on something no one around
them cares about.
Because ambitions are to some extent incompatible and admiration is a zero-sum
game, each city tends to focus on one type of ambition. The reason Cambridge
is the intellectual capital is not just that there's a concentration of smart
people there, but that there's nothing _else_ people there care about more.
Professors in New York and the Bay area are second class citizens — till they
start hedge funds or startups respectively.
This suggests an answer to a question people in New York have wondered about
since the Bubble: whether New York could grow into a startup hub to rival
Silicon Valley. One reason that's unlikely is that someone starting a startup
in New York would feel like a second class citizen. There's already
something else people in New York admire more.
In the long term, that could be a bad thing for New York. The power of an
important new technology does eventually convert to money. So by caring more
about money and less about power than Silicon Valley, New York is recognizing
the same thing, but slower. And in fact it has been losing to Silicon
Valley at its own game: the ratio of New York to California residents in the
Forbes 400 has decreased from 1.45 (81:56) when the list was first published
in 1982 to .83 (73:88) in 2007.
_____
Not all cities send a message. Only those that are centers for some type of
ambition do. And it can be hard to tell exactly what message a city sends
without living there. I understand the messages of New York, Cambridge, and
Silicon Valley because I've lived for several years in each of them. DC and LA
seem to send messages too, but I haven't spent long enough in either to say
for sure what they are.
The big thing in LA seems to be fame. There's an A List of people who are most
in demand right now, and what's most admired is to be on it, or friends with
those who are. Beneath that, the message is much like New York's, though
perhaps with more emphasis on physical attractiveness.
In DC the message seems to be that the most important thing is who you know.
You want to be an insider. In practice this seems to work much as in LA.
There's an A List and you want to be on it or close to those who are. The only
difference is how the A List is selected. And even that is not that different.
At the moment, San Francisco's message seems to be the same as Berkeley's: you
should live better. But this will change if enough startups choose SF over the
Valley. During the Bubble that was a predictor of failure — a self-indulgent
choice, like buying expensive office furniture. Even now I'm suspicious when
startups choose SF. But if enough good ones do, it stops being a self-
indulgent choice, because the center of gravity of Silicon Valley will shift
there.
I haven't found anything like Cambridge for intellectual ambition. Oxford and
Cambridge (England) feel like Ithaca or Hanover: the message is there, but not
as strong.
Paris was once a great intellectual center. If you went there in 1300, it
might have sent the message Cambridge does now. But I tried living there for a
bit last year, and the ambitions of the inhabitants are not intellectual ones.
The message Paris sends now is: do things with style. I liked that, actually.
Paris is the only city I've lived in where people genuinely cared about art.
In America only a few rich people buy original art, and even the more
sophisticated ones rarely get past judging it by the brand name of the artist.
But looking through windows at dusk in Paris you can see that people there
actually care what paintings look like. Visually, Paris has the best
eavesdropping I know.
There's one more message I've heard from cities: in London you can still
(barely) hear the message that one should be more aristocratic. If you listen
for it you can also hear it in Paris, New York, and Boston. But this message
is everywhere very faint. It would have been strong 100 years ago, but now I
probably wouldn't have picked it up at all if I hadn't deliberately tuned in
to that wavelength to see if there was any signal left.
_____
So far the complete list of messages I've picked up from cities is: wealth,
style, hipness, physical attractiveness, fame, political power, economic
power, intelligence, social class, and quality of life.
My immediate reaction to this list is that it makes me slightly queasy. I'd
always considered ambition a good thing, but I realize now that was because
I'd always implicitly understood it to mean ambition in the areas I cared
about. When you list everything ambitious people are ambitious about, it's not
so pretty.
On closer examination I see a couple things on the list that are surprising in
the light of history. For example, physical attractiveness wouldn't have been
there 100 years ago (though it might have been 2400 years ago). It has always
mattered for women, but in the late twentieth century it seems to have started
to matter for men as well. I'm not sure why — probably some combination of the
increasing power of women, the increasing influence of actors as models, and
the fact that so many people work in offices now: you can't show off by
wearing clothes too fancy to wear in a factory, so you have to show off with
your body instead.
Hipness is another thing you wouldn't have seen on the list 100 years ago. Or
wouldn't you? What it means is to know what's what. So maybe it has simply
replaced the component of social class that consisted of being "au fait." That
could explain why hipness seems particularly admired in London: it's version 2
of the traditional English delight in obscure codes that only insiders
understand.
Economic power would have been on the list 100 years ago, but what we mean by
it is changing. It used to mean the control of vast human and material
resources. But increasingly it means the ability to direct the course of
technology, and some of the people in a position to do that are not even rich
— leaders of important open source projects, for example. The Captains of
Industry of times past had laboratories full of clever people cooking up new
technologies for them. The new breed are themselves those people.
As this force gets more attention, another is dropping off the list: social
class. I think the two changes are related. Economic power, wealth, and social
class are just names for the same thing at different stages in its life:
economic power converts to wealth, and wealth to social class. So the focus of
admiration is simply shifting upstream.
_____
Does anyone who wants to do great work have to live in a great city? No; all
great cities inspire some sort of ambition, but they aren't the only places
that do. For some kinds of work, all you need is a handful of talented
colleagues.
What cities provide is an audience, and a funnel for peers. These aren't so
critical in something like math or physics, where no audience matters except
your peers, and judging ability is sufficiently straightforward that hiring
and admissions committees can do it reliably. In a field like math or physics
all you need is a department with the right colleagues in it. It could be
anywhere — in Los Alamos, New Mexico, for example.
It's in fields like the arts or writing or technology that the larger
environment matters. In these the best practitioners aren't conveniently
collected in a few top university departments and research labs — partly
because talent is harder to judge, and partly because people pay for these
things, so one doesn't need to rely on teaching or research funding to support
oneself. It's in these more chaotic fields that it helps most to be in a great
city: you need the encouragement of feeling that people around you care about
the kind of work you do, and since you have to find peers for yourself, you
need the much larger intake mechanism of a great city.
You don't have to live in a great city your whole life to benefit from it. The
critical years seem to be the early and middle ones of your career. Clearly
you don't have to grow up in a great city. Nor does it seem to matter if you
go to college in one. To most college students a world of a few thousand
people seems big enough. Plus in college you don't yet have to face the
hardest kind of work — discovering new problems to solve.
It's when you move on to the next and much harder step that it helps most to
be in a place where you can find peers and encouragement. You seem to be able
to leave, if you want, once you've found both. The Impressionists show the
typical pattern: they were born all over France (Pissarro was born in the
Carribbean) and died all over France, but what defined them were the years
they spent together in Paris.
_____
Unless you're sure what you want to do and where the leading center for it is,
your best bet is probably to try living in several places when you're young.
You can never tell what message a city sends till you live there, or even
whether it still sends one. Often your information will be wrong: I tried
living in Florence when I was 25, thinking it would be an art center, but it
turned out I was 450 years too late.
Even when a city is still a live center of ambition, you won't know for sure
whether its message will resonate with you till you hear it. When I moved to
New York, I was very excited at first. It's an exciting place. So it took me
quite a while to realize I just wasn't like the people there. I kept searching
for the Cambridge of New York. It turned out it was way, way uptown: an hour
uptown by air.
Some people know at 16 what sort of work they're going to do, but in most
ambitious kids, ambition seems to precede anything specific to be ambitious
about. They know they want to do something great. They just haven't decided
yet whether they're going to be a rock star or a brain surgeon. There's
nothing wrong with that. But it means if you have this most common type of
ambition, you'll probably have to figure out where to live by trial and error.
You'll probably have to find the city where you feel at home to know what sort
of ambition you have.
** |
|
March 2011
Yesterday Fred Wilson published a remarkable post about missing Airbnb. VCs
miss good startups all the time, but it's extraordinarily rare for one to talk
about it publicly till long afterward. So that post is further evidence what a
rare bird Fred is. He's probably the nicest VC I know.
Reading Fred's post made me go back and look at the emails I exchanged with
him at the time, trying to convince him to invest in Airbnb. It was quite
interesting to read. You can see Fred's mind at work as he circles the deal.
Fred and the Airbnb founders have generously agreed to let me publish this
email exchange (with one sentence redacted about something that's
strategically important to Airbnb and not an important part of the
conversation). It's an interesting illustration of an element of the startup
ecosystem that few except the participants ever see: investors trying to
convince one another to invest in their portfolio companies. Hundreds if not
thousands of conversations of this type are happening now, but if one has ever
been published, I haven't seen it. The Airbnbs themselves never even saw these
emails at the time.
We do a lot of this behind the scenes stuff at YC, because we invest in such a
large number of companies, and we invest so early that investors sometimes
need a lot of convincing to see their merits. I don't always try as hard as
this though. Fred must have found me quite annoying.
* * *
from: Paul Graham
to: Fred Wilson, AirBedAndBreakfast Founders
date: Fri, Jan 23, 2009 at 11:42 AM
subject: meet the airbeds
One of the startups from the batch that just started, AirbedAndBreakfast,
is in NYC right now meeting their users. (NYC is their biggest
market.) I'd recommend meeting them if your schedule allows.
I'd been thinking to myself that though these guys were going to
do really well, I should introduce them to angels, because VCs would
never go for it. But then I thought maybe I should give you more
credit. You'll certainly like meeting them. Be sure to ask about
how they funded themselves with breakfast cereal.
There's no reason this couldn't be as big as Ebay. And this team
is the right one to do it.
--pg
from: Brian Chesky
to: Paul Graham
cc: Nathan Blecharczyk, Joe Gebbia
date: Fri, Jan 23, 2009 at 11:40 AM
subject: Re: meet the airbeds
PG,
Thanks for the intro!
Brian
from: Paul Graham
to: Brian Chesky
cc: Nathan Blecharczyk, Joe Gebbia
date: Fri, Jan 23, 2009 at 12:38 PM
subject: Re: meet the airbeds
It's a longshot, at this stage, but if there was any VC who'd get
you guys, it would be Fred. He is the least suburban-golf-playing
VC I know.
He likes to observe startups for a while before acting, so don't
be bummed if he seems ambivalent.
--pg
from: Fred Wilson
to: Paul Graham,
date: Sun, Jan 25, 2009 at 5:28 PM
subject: Re: meet the airbeds
Thanks Paul
We are having a bit of a debate inside our partnership about the
airbed concept. We'll finish that debate tomorrow in our weekly
meeting and get back to you with our thoughts
Thanks
Fred
from: Paul Graham
to: Fred Wilson
date: Sun, Jan 25, 2009 at 10:48 PM
subject: Re: meet the airbeds
I'd recommend having the debate after meeting them instead of before.
We had big doubts about this idea, but they vanished on meeting the
guys.
from: Fred Wilson
to: Paul Graham
date: Mon, Jan 26, 2009 at 11:08 AM
subject: RE: meet the airbeds
We are still very suspect of this idea but will take a meeting as
you suggest
Thanks
fred
from: Fred Wilson
to: Paul Graham, AirBedAndBreakfast Founders
date: Mon, Jan 26, 2009 at 11:09 AM
subject: RE: meet the airbeds
Airbed team -
Are you still in NYC?
We'd like to meet if you are
Thanks
fred
from: Paul Graham
to: Fred Wilson
date: Mon, Jan 26, 2009 at 1:42 PM
subject: Re: meet the airbeds
Ideas can morph. Practically every really big startup could say,
five years later, "believe it or not, we started out doing ___."
It just seemed a very good sign to me that these guys were actually
on the ground in NYC hunting down (and understanding) their users.
On top of several previous good signs.
--pg
from: Fred Wilson
to: Paul Graham
date: Sun, Feb 1, 2009 at 7:15 AM
subject: Re: meet the airbeds
It's interesting
Our two junior team members were enthusiastic
The three "old guys" didn't get it
from: Paul Graham
to: Fred Wilson
date: Mon, Feb 9, 2009 at 5:58 PM
subject: airbnb
The Airbeds just won the first poll among all the YC startups in
their batch by a landslide. In the past this has not been a 100%
indicator of success (if only anything were) but much better than
random.
--pg
from: Fred Wilson
to: Paul Graham
date: Fri, Feb 13, 2009 at 5:29 PM
subject: Re: airbnb
I met them today
They have an interesting business
I'm just not sure how big it's going to be
fred
from: Paul Graham
to: Fred Wilson
date: Sat, Feb 14, 2009 at 9:50 AM
subject: Re: airbnb
Did they explain the long-term goal of being the market in accommodation
the way eBay is in stuff? That seems like it would be huge. Hotels
now are like airlines in the 1970s before they figured out how to
increase their load factors.
from: Fred Wilson
to: Paul Graham
date: Tue, Feb 17, 2009 at 2:05 PM
subject: Re: airbnb
They did but I am not sure I buy that
ABNB reminds me of Etsy in that it facilitates real commerce in a
marketplace model directly between two people
So I think it can scale all the way to the bed and breakfast market
But I am not sure they can take on the hotel market
I could be wrong
But even so, if you include short term room rental, second home
rental, bed and breakfast, and other similar classes of accommodations,
you get to a pretty big opportunity
fred
from: Paul Graham
to: Fred Wilson
date: Wed, Feb 18, 2009 at 12:21 AM
subject: Re: airbnb
So invest in them! They're very capital efficient. They would
make an investor's money go a long way.
It's also counter-cyclical. They just arrived back from NYC, and
when I asked them what was the most significant thing they'd observed,
it was how many of their users actually needed to do these rentals
to pay their rents.
--pg
from: Fred Wilson
to: Paul Graham
date: Wed, Feb 18, 2009 at 2:21 AM
subject: Re: airbnb
There's a lot to like
I've done a few things, like intro it to my friends at Foundry who
were investors in Service Metrics and understand this model
I am also talking to my friend Mark Pincus who had an idea like
this a few years ago.
So we are working on it
Thanks for the lead
Fred
from: Paul Graham
to: Fred Wilson
date: Fri, Feb 20, 2009 at 10:00 PM
subject: airbnb already spreading to pros
I know you're skeptical they'll ever get hotels, but there's a
continuum between private sofas and hotel rooms, and they just moved
one step further along it.
[link to an airbnb user]
This is after only a few months. I bet you they will get hotels
eventually. It will start with small ones. Just wait till all the
10-room pensiones in Rome discover this site. And once it spreads
to hotels, where is the point (in size of chain) at which it stops?
Once something becomes a big marketplace, you ignore it at your
peril.
--pg
from: Fred Wilson
to: Paul Graham
date: Sat, Feb 21, 2009 at 4:26 AM
subject: Re: airbnb already spreading to pros
That's true. It's also true that there are quite a few marketplaces
out there that serve this same market
If you look at many of the people who list at ABNB, they list
elsewhere too
I am not negative on this one, I am interested, but we are still
in the gathering data phase.
fred
---
* * *
--- |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
September 2012
I've done several types of work over the years but I don't know another as
counterintuitive as startup investing.
The two most important things to understand about startup investing, as a
business, are (1) that effectively all the returns are concentrated in a few
big winners, and (2) that the best ideas look initially like bad ideas.
The first rule I knew intellectually, but didn't really grasp till it happened
to us. The total value of the companies we've funded is around 10 billion,
give or take a few. But just two companies, Dropbox and Airbnb, account for
about three quarters of it.
In startups, the big winners are big to a degree that violates our
expectations about variation. I don't know whether these expectations are
innate or learned, but whatever the cause, we are just not prepared for the
1000x variation in outcomes that one finds in startup investing.
That yields all sorts of strange consequences. For example, in purely
financial terms, there is probably at most one company in each YC batch that
will have a significant effect on our returns, and the rest are just a cost of
doing business. I haven't really assimilated that fact, partly because
it's so counterintuitive, and partly because we're not doing this just for
financial reasons; YC would be a pretty lonely place if we only had one
company per batch. And yet it's true.
To succeed in a domain that violates your intuitions, you need to be able to
turn them off the way a pilot does when flying through clouds. You need to
do what you know intellectually to be right, even though it feels wrong.
It's a constant battle for us. It's hard to make ourselves take enough risks.
When you interview a startup and think "they seem likely to succeed," it's
hard not to fund them. And yet, financially at least, there is only one kind
of success: they're either going to be one of the really big winners or not,
and if not it doesn't matter whether you fund them, because even if they
succeed the effect on your returns will be insignificant. In the same day of
interviews you might meet some smart 19 year olds who aren't even sure what
they want to work on. Their chances of succeeding seem small. But again, it's
not their chances of succeeding that matter but their chances of succeeding
really big. The probability that any group will succeed really big is
microscopically small, but the probability that those 19 year olds will might
be higher than that of the other, safer group.
The probability that a startup will make it big is not simply a constant
fraction of the probability that they will succeed at all. If it were, you
could fund everyone who seemed likely to succeed at all, and you'd get that
fraction of big hits. Unfortunately picking winners is harder than that. You
have to ignore the elephant in front of you, the likelihood they'll succeed,
and focus instead on the separate and almost invisibly intangible question of
whether they'll succeed really big.
**Harder**
That's made harder by the fact that the best startup ideas seem at first like
bad ideas. I've written about this before: if a good idea were obviously good,
someone else would already have done it. So the most successful founders tend
to work on ideas that few beside them realize are good. Which is not that far
from a description of insanity, till you reach the point where you see
results.
The first time Peter Thiel spoke at YC he drew a Venn diagram that illustrates
the situation perfectly. He drew two intersecting circles, one labelled "seems
like a bad idea" and the other "is a good idea." The intersection is the sweet
spot for startups.
This concept is a simple one and yet seeing it as a Venn diagram is
illuminating. It reminds you that there is an intersection—that there are good
ideas that seem bad. It also reminds you that the vast majority of ideas that
seem bad are bad.
The fact that the best ideas seem like bad ideas makes it even harder to
recognize the big winners. It means the probability of a startup making it
really big is not merely not a constant fraction of the probability that it
will succeed, but that the startups with a high probability of the former will
seem to have a disproportionately low probability of the latter.
History tends to get rewritten by big successes, so that in retrospect it
seems obvious they were going to make it big. For that reason one of my most
valuable memories is how lame Facebook sounded to me when I first heard about
it. A site for college students to waste time? It seemed the perfect bad idea:
a site (1) for a niche market (2) with no money (3) to do something that
didn't matter.
One could have described Microsoft and Apple in exactly the same terms.
**Harder Still**
Wait, it gets worse. You not only have to solve this hard problem, but you
have to do it with no indication of whether you're succeeding. When you pick a
big winner, you won't know it for two years.
Meanwhile, the one thing you _can_ measure is dangerously misleading. The one
thing we can track precisely is how well the startups in each batch do at
fundraising after Demo Day. But we know that's the wrong metric. There's no
correlation between the percentage of startups that raise money and the metric
that does matter financially, whether that batch of startups contains a big
winner or not.
Except an inverse one. That's the scary thing: fundraising is not merely a
useless metric, but positively misleading. We're in a business where we need
to pick unpromising-looking outliers, and the huge scale of the successes
means we can afford to spread our net very widely. The big winners could
generate 10,000x returns. That means for each big winner we could pick a
thousand companies that returned nothing and still end up 10x ahead.
If we ever got to the point where 100% of the startups we funded were able to
raise money after Demo Day, it would almost certainly mean we were being too
conservative.
It takes a conscious effort not to do that too. After 15 cycles of preparing
startups for investors and then watching how they do, I can now look at a
group we're interviewing through Demo Day investors' eyes. But those are the
wrong eyes to look through!
We can afford to take at least 10x as much risk as Demo Day investors. And
since risk is usually proportionate to reward, if you can afford to take more
risk you should. What would it mean to take 10x more risk than Demo Day
investors? We'd have to be willing to fund 10x more startups than they would.
Which means that even if we're generous to ourselves and assume that YC can on
average triple a startup's expected value, we'd be taking the right amount of
risk if only 30% of the startups were able to raise significant funding after
Demo Day.
I don't know what fraction of them currently raise more after Demo Day. I
deliberately avoid calculating that number, because if you start measuring
something you start optimizing it, and I know it's the wrong thing to
optimize. But the percentage is certainly way over 30%. And frankly the
thought of a 30% success rate at fundraising makes my stomach clench. A Demo
Day where only 30% of the startups were fundable would be a shambles. Everyone
would agree that YC had jumped the shark. We ourselves would feel that YC had
jumped the shark. And yet we'd all be wrong.
For better or worse that's never going to be more than a thought experiment.
We could never stand it. How about that for counterintuitive? I can lay out
what I know to be the right thing to do, and still not do it. I can make up
all sorts of plausible justifications. It would hurt YC's brand (at least
among the innumerate) if we invested in huge numbers of risky startups that
flamed out. It might dilute the value of the alumni network. Perhaps most
convincingly, it would be demoralizing for us to be up to our chins in failure
all the time. But I know the real reason we're so conservative is that we just
haven't assimilated the fact of 1000x variation in returns.
We'll probably never be able to bring ourselves to take risks proportionate to
the returns in this business. The best we can hope for is that when we
interview a group and find ourselves thinking "they seem like good founders,
but what are investors going to think of this crazy idea?" we'll continue to
be able to say "who cares what investors think?" That's what we thought about
Airbnb, and if we want to fund more Airbnbs we have to stay good at thinking
it.
** |
|
December 2014
American technology companies want the government to make immigration easier
because they say they can't find enough programmers in the US. Anti-
immigration people say that instead of letting foreigners take these jobs, we
should train more Americans to be programmers. Who's right?
The technology companies are right. What the anti-immigration people don't
understand is that there is a huge variation in ability between competent
programmers and exceptional ones, and while you can train people to be
competent, you can't train them to be exceptional. Exceptional programmers
have an aptitude for and _interest in_ programming that is not merely the
product of training.
The US has less than 5% of the world's population. Which means if the
qualities that make someone a great programmer are evenly distributed, 95% of
great programmers are born outside the US.
The anti-immigration people have to invent some explanation to account for all
the effort technology companies have expended trying to make immigration
easier. So they claim it's because they want to drive down salaries. But if
you talk to startups, you find practically every one over a certain size has
gone through legal contortions to get programmers into the US, where they then
paid them the same as they'd have paid an American. Why would they go to extra
trouble to get programmers for the same price? The only explanation is that
they're telling the truth: there are just not enough great programmers to go
around.
I asked the CEO of a startup with about 70 programmers how many more he'd hire
if he could get all the great programmers he wanted. He said "We'd hire 30
tomorrow morning." And this is one of the hot startups that always win
recruiting battles. It's the same all over Silicon Valley. Startups are that
constrained for talent.
It would be great if more Americans were trained as programmers, but no amount
of training can flip a ratio as overwhelming as 95 to 5. Especially since
programmers are being trained in other countries too. Barring some cataclysm,
it will always be true that most great programmers are born outside the US. It
will always be true that most people who are great at anything are born
outside the US.
Exceptional performance implies immigration. A country with only a few percent
of the world's population will be exceptional in some field only if there are
a lot of immigrants working in it.
But this whole discussion has taken something for granted: that if we let more
great programmers into the US, they'll want to come. That's true now, and we
don't realize how lucky we are that it is. If we want to keep this option
open, the best way to do it is to take advantage of it: the more of the
world's great programmers are here, the more the rest will want to come here.
And if we don't, the US could be seriously fucked. I realize that's strong
language, but the people dithering about this don't seem to realize the power
of the forces at work here. Technology gives the best programmers huge
leverage. The world market in programmers seems to be becoming dramatically
more liquid. And since good people like good colleagues, that means the best
programmers could collect in just a few hubs. Maybe mostly in one hub.
What if most of the great programmers collected in one hub, and it wasn't
here? That scenario may seem unlikely now, but it won't be if things change as
much in the next 50 years as they did in the last 50.
We have the potential to ensure that the US remains a technology superpower
just by letting in a few thousand great programmers a year. What a colossal
mistake it would be to let that opportunity slip. It could easily be the
defining mistake this generation of American politicians later become famous
for. And unlike other potential mistakes on that scale, it costs nothing to
fix.
So please, get on with it.
** |
|
January 2015
Corporate Development, aka corp dev, is the group within companies that buys
other companies. If you're talking to someone from corp dev, that's why,
whether you realize it yet or not.
It's usually a mistake to talk to corp dev unless (a) you want to sell your
company right now and (b) you're sufficiently likely to get an offer at an
acceptable price. In practice that means startups should only talk to corp dev
when they're either doing really well or really badly. If you're doing really
badly, meaning the company is about to die, you may as well talk to them,
because you have nothing to lose. And if you're doing really well, you can
safely talk to them, because you both know the price will have to be high, and
if they show the slightest sign of wasting your time, you'll be confident
enough to tell them to get lost.
The danger is to companies in the middle. Particularly to young companies that
are growing fast, but haven't been doing it for long enough to have grown big
yet. It's usually a mistake for a promising company less than a year old even
to talk to corp dev.
But it's a mistake founders constantly make. When someone from corp dev wants
to meet, the founders tell themselves they should at least find out what they
want. Besides, they don't want to offend Big Company by refusing to meet.
Well, I'll tell you what they want. They want to talk about buying you. That's
what the title "corp dev" means. So before agreeing to meet with someone from
corp dev, ask yourselves, "Do we want to sell the company right now?" And if
the answer is no, tell them "Sorry, but we're focusing on growing the
company." They won't be offended. And certainly the founders of Big Company
won't be offended. If anything they'll think more highly of you. You'll remind
them of themselves. They didn't sell either; that's why they're in a position
now to buy other companies.
Most founders who get contacted by corp dev already know what it means. And
yet even when they know what corp dev does and know they don't want to sell,
they take the meeting. Why do they do it? The same mix of denial and wishful
thinking that underlies most mistakes founders make. It's flattering to talk
to someone who wants to buy you. And who knows, maybe their offer will be
surprisingly high. You should at least see what it is, right?
No. If they were going to send you an offer immediately by email, sure, you
might as well open it. But that is not how conversations with corp dev work.
If you get an offer at all, it will be at the end of a long and unbelievably
distracting process. And if the offer is surprising, it will be surprisingly
low.
Distractions are the thing you can least afford in a startup. And
conversations with corp dev are the worst sort of distraction, because as well
as consuming your attention they undermine your morale. One of the tricks to
surviving a grueling process is not to stop and think how tired you are.
Instead you get into a sort of flow. Imagine what it would do to you if at
mile 20 of a marathon, someone ran up beside you and said "You must feel
really tired. Would you like to stop and take a rest?" Conversations with corp
dev are like that but worse, because the suggestion of stopping gets combined
in your mind with the imaginary high price you think they'll offer.
And then you're really in trouble. If they can, corp dev people like to turn
the tables on you. They like to get you to the point where you're trying to
convince them to buy instead of them trying to convince you to sell. And
surprisingly often they succeed.
This is a very slippery slope, greased with some of the most powerful forces
that can work on founders' minds, and attended by an experienced professional
whose full time job is to push you down it.
Their tactics in pushing you down that slope are usually fairly brutal. Corp
dev people's whole job is to buy companies, and they don't even get to choose
which. The only way their performance is measured is by how cheaply they can
buy you, and the more ambitious ones will stop at nothing to achieve that. For
example, they'll almost always start with a lowball offer, just to see if
you'll take it. Even if you don't, a low initial offer will demoralize you and
make you easier to manipulate.
And that is the most innocent of their tactics. Just wait till you've agreed
on a price and think you have a done deal, and then they come back and say
their boss has vetoed the deal and won't do it for more than half the agreed
upon price. Happens all the time. If you think investors can behave badly,
it's nothing compared to what corp dev people can do. Even corp dev people at
companies that are otherwise benevolent.
I remember once complaining to a friend at Google about some nasty trick their
corp dev people had pulled on a YC startup.
"What happened to Don't be Evil?" I asked.
"I don't think corp dev got the memo," he replied.
The tactics you encounter in M&A conversations can be like nothing you've
experienced in the otherwise comparatively upstanding world of Silicon Valley.
It's as if a chunk of genetic material from the old-fashioned robber baron
business world got incorporated into the startup world.
The simplest way to protect yourself is to use the trick that John D.
Rockefeller, whose grandfather was an alcoholic, used to protect himself from
becoming one. He once told a Sunday school class
> Boys, do you know why I never became a drunkard? Because I never took the
> first drink.
Do you want to sell your company right now? Not eventually, right now. If not,
just don't take the first meeting. They won't be offended. And you in turn
will be guaranteed to be spared one of the worst experiences that can happen
to a startup.
If you do want to sell, there's another set of techniques for doing that. But
the biggest mistake founders make in dealing with corp dev is not doing a bad
job of talking to them when they're ready to, but talking to them before they
are. So if you remember only the title of this essay, you already know most of
what you need to know about M&A in the first year.
** |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
September 2012
A startup is a company designed to grow fast. Being newly founded does not in
itself make a company a startup. Nor is it necessary for a startup to work on
technology, or take venture funding, or have some sort of "exit." The only
essential thing is growth. Everything else we associate with startups follows
from growth.
If you want to start one it's important to understand that. Startups are so
hard that you can't be pointed off to the side and hope to succeed. You have
to know that growth is what you're after. The good news is, if you get growth,
everything else tends to fall into place. Which means you can use growth like
a compass to make almost every decision you face.
**Redwoods**
Let's start with a distinction that should be obvious but is often overlooked:
not every newly founded company is a startup. Millions of companies are
started every year in the US. Only a tiny fraction are startups. Most are
service businesses — restaurants, barbershops, plumbers, and so on. These are
not startups, except in a few unusual cases. A barbershop isn't designed to
grow fast. Whereas a search engine, for example, is.
When I say startups are designed to grow fast, I mean it in two senses. Partly
I mean designed in the sense of intended, because most startups fail. But I
also mean startups are different by nature, in the same way a redwood seedling
has a different destiny from a bean sprout.
That difference is why there's a distinct word, "startup," for companies
designed to grow fast. If all companies were essentially similar, but some
through luck or the efforts of their founders ended up growing very fast, we
wouldn't need a separate word. We could just talk about super-successful
companies and less successful ones. But in fact startups do have a different
sort of DNA from other businesses. Google is not just a barbershop whose
founders were unusually lucky and hard-working. Google was different from the
beginning.
To grow rapidly, you need to make something you can sell to a big market.
That's the difference between Google and a barbershop. A barbershop doesn't
scale.
For a company to grow really big, it must (a) make something lots of people
want, and (b) reach and serve all those people. Barbershops are doing fine in
the (a) department. Almost everyone needs their hair cut. The problem for a
barbershop, as for any retail establishment, is (b). A barbershop serves
customers in person, and few will travel far for a haircut. And even if they
did, the barbershop couldn't accomodate them.
Writing software is a great way to solve (b), but you can still end up
constrained in (a). If you write software to teach Tibetan to Hungarian
speakers, you'll be able to reach most of the people who want it, but there
won't be many of them. If you make software to teach English to Chinese
speakers, however, you're in startup territory.
Most businesses are tightly constrained in (a) or (b). The distinctive feature
of successful startups is that they're not.
**Ideas**
It might seem that it would always be better to start a startup than an
ordinary business. If you're going to start a company, why not start the type
with the most potential? The catch is that this is a (fairly) efficient
market. If you write software to teach Tibetan to Hungarians, you won't have
much competition. If you write software to teach English to Chinese speakers,
you'll face ferocious competition, precisely because that's such a larger
prize.
The constraints that limit ordinary companies also protect them. That's the
tradeoff. If you start a barbershop, you only have to compete with other local
barbers. If you start a search engine you have to compete with the whole
world.
The most important thing that the constraints on a normal business protect it
from is not competition, however, but the difficulty of coming up with new
ideas. If you open a bar in a particular neighborhood, as well as limiting
your potential and protecting you from competitors, that geographic constraint
also helps define your company. Bar + neighborhood is a sufficient idea for a
small business. Similarly for companies constrained in (a). Your niche both
protects and defines you.
Whereas if you want to start a startup, you're probably going to have to think
of something fairly novel. A startup has to make something it can deliver to a
large market, and ideas of that type are so valuable that all the obvious ones
are already taken.
That space of ideas has been so thoroughly picked over that a startup
generally has to work on something everyone else has overlooked. I was going
to write that one has to make a conscious effort to find ideas everyone else
has overlooked. But that's not how most startups get started. Usually
successful startups happen because the founders are sufficiently different
from other people that ideas few others can see seem obvious to them. Perhaps
later they step back and notice they've found an idea in everyone else's blind
spot, and from that point make a deliberate effort to stay there. But at
the moment when successful startups get started, much of the innovation is
unconscious.
What's different about successful founders is that they can see different
problems. It's a particularly good combination both to be good at technology
and to face problems that can be solved by it, because technology changes so
rapidly that formerly bad ideas often become good without anyone noticing.
Steve Wozniak's problem was that he wanted his own computer. That was an
unusual problem to have in 1975. But technological change was about to make it
a much more common one. Because he not only wanted a computer but knew how to
build them, Wozniak was able to make himself one. And the problem he solved
for himself became one that Apple solved for millions of people in the coming
years. But by the time it was obvious to ordinary people that this was a big
market, Apple was already established.
Google has similar origins. Larry Page and Sergey Brin wanted to search the
web. But unlike most people they had the technical expertise both to notice
that existing search engines were not as good as they could be, and to know
how to improve them. Over the next few years their problem became everyone's
problem, as the web grew to a size where you didn't have to be a picky search
expert to notice the old algorithms weren't good enough. But as happened with
Apple, by the time everyone else realized how important search was, Google was
entrenched.
That's one connection between startup ideas and technology. Rapid change in
one area uncovers big, soluble problems in other areas. Sometimes the changes
are advances, and what they change is solubility. That was the kind of change
that yielded Apple; advances in chip technology finally let Steve Wozniak
design a computer he could afford. But in Google's case the most important
change was the growth of the web. What changed there was not solubility but
bigness.
The other connection between startups and technology is that startups create
new ways of doing things, and new ways of doing things are, in the broader
sense of the word, new technology. When a startup both begins with an idea
exposed by technological change and makes a product consisting of technology
in the narrower sense (what used to be called "high technology"), it's easy to
conflate the two. But the two connections are distinct and in principle one
could start a startup that was neither driven by technological change, nor
whose product consisted of technology except in the broader sense.
**Rate**
How fast does a company have to grow to be considered a startup? There's no
precise answer to that. "Startup" is a pole, not a threshold. Starting one is
at first no more than a declaration of one's ambitions. You're committing not
just to starting a company, but to starting a fast growing one, and you're
thus committing to search for one of the rare ideas of that type. But at first
you have no more than commitment. Starting a startup is like being an actor in
that respect. "Actor" too is a pole rather than a threshold. At the beginning
of his career, an actor is a waiter who goes to auditions. Getting work makes
him a successful actor, but he doesn't only become an actor when he's
successful.
So the real question is not what growth rate makes a company a startup, but
what growth rate successful startups tend to have. For founders that's more
than a theoretical question, because it's equivalent to asking if they're on
the right path.
The growth of a successful startup usually has three phases:
1. There's an initial period of slow or no growth while the startup tries to figure out what it's doing.
2. As the startup figures out how to make something lots of people want and how to reach those people, there's a period of rapid growth.
3. Eventually a successful startup will grow into a big company. Growth will slow, partly due to internal limits and partly because the company is starting to bump up against the limits of the markets it serves.
Together these three phases produce an S-curve. The phase whose growth defines
the startup is the second one, the ascent. Its length and slope determine how
big the company will be.
The slope is the company's growth rate. If there's one number every founder
should always know, it's the company's growth rate. That's the measure of a
startup. If you don't know that number, you don't even know if you're doing
well or badly.
When I first meet founders and ask what their growth rate is, sometimes they
tell me "we get about a hundred new customers a month." That's not a rate.
What matters is not the absolute number of new customers, but the ratio of new
customers to existing ones. If you're really getting a constant number of new
customers every month, you're in trouble, because that means your growth rate
is decreasing.
During Y Combinator we measure growth rate per week, partly because there is
so little time before Demo Day, and partly because startups early on need
frequent feedback from their users to tweak what they're doing.
A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're
doing exceptionally well. If you can only manage 1%, it's a sign you haven't
yet figured out what you're doing.
The best thing to measure the growth rate of is revenue. The next best, for
startups that aren't charging initially, is active users. That's a reasonable
proxy for revenue growth because whenever the startup does start trying to
make money, their revenues will probably be a constant multiple of active
users.
**Compass**
We usually advise startups to pick a growth rate they think they can hit, and
then just try to hit it every week. The key word here is "just." If they
decide to grow at 7% a week and they hit that number, they're successful for
that week. There's nothing more they need to do. But if they don't hit it,
they've failed in the only thing that mattered, and should be correspondingly
alarmed.
Programmers will recognize what we're doing here. We're turning starting a
startup into an optimization problem. And anyone who has tried optimizing code
knows how wonderfully effective that sort of narrow focus can be. Optimizing
code means taking an existing program and changing it to use less of
something, usually time or memory. You don't have to think about what the
program should do, just make it faster. For most programmers this is very
satisfying work. The narrow focus makes it a sort of puzzle, and you're
generally surprised how fast you can solve it.
Focusing on hitting a growth rate reduces the otherwise bewilderingly
multifarious problem of starting a startup to a single problem. You can use
that target growth rate to make all your decisions for you; anything that gets
you the growth you need is ipso facto right. Should you spend two days at a
conference? Should you hire another programmer? Should you focus more on
marketing? Should you spend time courting some big customer? Should you add x
feature? Whatever gets you your target growth rate.
Judging yourself by weekly growth doesn't mean you can look no more than a
week ahead. Once you experience the pain of missing your target one week (it
was the only thing that mattered, and you failed at it), you become interested
in anything that could spare you such pain in the future. So you'll be willing
for example to hire another programmer, who won't contribute to this week's
growth but perhaps in a month will have implemented some new feature that will
get you more users. But only if (a) the distraction of hiring someone won't
make you miss your numbers in the short term, and (b) you're sufficiently
worried about whether you can keep hitting your numbers without hiring someone
new.
It's not that you don't think about the future, just that you think about it
no more than necessary.
In theory this sort of hill-climbing could get a startup into trouble. They
could end up on a local maximum. But in practice that never happens. Having to
hit a growth number every week forces founders to act, and acting versus not
acting is the high bit of succeeding. Nine times out of ten, sitting around
strategizing is just a form of procrastination. Whereas founders' intuitions
about which hill to climb are usually better than they realize. Plus the
maxima in the space of startup ideas are not spiky and isolated. Most fairly
good ideas are adjacent to even better ones.
The fascinating thing about optimizing for growth is that it can actually
discover startup ideas. You can use the need for growth as a form of
evolutionary pressure. If you start out with some initial plan and modify it
as necessary to keep hitting, say, 10% weekly growth, you may end up with a
quite different company than you meant to start. But anything that grows
consistently at 10% a week is almost certainly a better idea than you started
with.
There's a parallel here to small businesses. Just as the constraint of being
located in a particular neighborhood helps define a bar, the constraint of
growing at a certain rate can help define a startup.
You'll generally do best to follow that constraint wherever it leads rather
than being influenced by some initial vision, just as a scientist is better
off following the truth wherever it leads rather than being influenced by what
he wishes were the case. When Richard Feynman said that the imagination of
nature was greater than the imagination of man, he meant that if you just keep
following the truth you'll discover cooler things than you could ever have
made up. For startups, growth is a constraint much like truth. Every
successful startup is at least partly a product of the imagination of growth.
**Value**
It's hard to find something that grows consistently at several percent a week,
but if you do you may have found something surprisingly valuable. If we
project forward we see why.
weekly| yearly
---|---
1%| 1.7x
2%| 2.8x
5%| 12.6x
7%| 33.7x
10%| 142.0x
A company that grows at 1% a week will grow 1.7x a year, whereas a company
that grows at 5% a week will grow 12.6x. A company making $1000 a month (a
typical number early in YC) and growing at 1% a week will 4 years later be
making $7900 a month, which is less than a good programmer makes in salary in
Silicon Valley. A startup that grows at 5% a week will in 4 years be making
$25 million a month.
Our ancestors must rarely have encountered cases of exponential growth,
because our intuitions are no guide here. What happens to fast growing
startups tends to surprise even the founders.
Small variations in growth rate produce qualitatively different outcomes.
That's why there's a separate word for startups, and why startups do things
that ordinary companies don't, like raising money and getting acquired. And,
strangely enough, it's also why they fail so frequently.
Considering how valuable a successful startup can become, anyone familiar with
the concept of expected value would be surprised if the failure rate weren't
high. If a successful startup could make a founder $100 million, then even if
the chance of succeeding were only 1%, the expected value of starting one
would be $1 million. And the probability of a group of sufficiently smart and
determined founders succeeding on that scale might be significantly over 1%.
For the right people — e.g. the young Bill Gates — the probability might be
20% or even 50%. So it's not surprising that so many want to take a shot at
it. In an efficient market, the number of failed startups should be
proportionate to the size of the successes. And since the latter is huge the
former should be too.
What this means is that at any given time, the great majority of startups will
be working on something that's never going to go anywhere, and yet glorifying
their doomed efforts with the grandiose title of "startup."
This doesn't bother me. It's the same with other high-beta vocations, like
being an actor or a novelist. I've long since gotten used to it. But it seems
to bother a lot of people, particularly those who've started ordinary
businesses. Many are annoyed that these so-called startups get all the
attention, when hardly any of them will amount to anything.
If they stepped back and looked at the whole picture they might be less
indignant. The mistake they're making is that by basing their opinions on
anecdotal evidence they're implicitly judging by the median rather than the
average. If you judge by the median startup, the whole concept of a startup
seems like a fraud. You have to invent a bubble to explain why founders want
to start them or investors want to fund them. But it's a mistake to use the
median in a domain with so much variation. If you look at the average outcome
rather than the median, you can understand why investors like them, and why,
if they aren't median people, it's a rational choice for founders to start
them.
**Deals**
Why do investors like startups so much? Why are they so hot to invest in
photo-sharing apps, rather than solid money-making businesses? Not only for
the obvious reason.
The test of any investment is the ratio of return to risk. Startups pass that
test because although they're appallingly risky, the returns when they do
succeed are so high. But that's not the only reason investors like startups.
An ordinary slower-growing business might have just as good a ratio of return
to risk, if both were lower. So why are VCs interested only in high-growth
companies? The reason is that they get paid by getting their capital back,
ideally after the startup IPOs, or failing that when it's acquired.
The other way to get returns from an investment is in the form of dividends.
Why isn't there a parallel VC industry that invests in ordinary companies in
return for a percentage of their profits? Because it's too easy for people who
control a private company to funnel its revenues to themselves (e.g. by buying
overpriced components from a supplier they control) while making it look like
the company is making little profit. Anyone who invested in private companies
in return for dividends would have to pay close attention to their books.
The reason VCs like to invest in startups is not simply the returns, but also
because such investments are so easy to oversee. The founders can't enrich
themselves without also enriching the investors.
Why do founders want to take the VCs' money? Growth, again. The constraint
between good ideas and growth operates in both directions. It's not merely
that you need a scalable idea to grow. If you have such an idea and don't grow
fast enough, competitors will. Growing too slowly is particularly dangerous in
a business with network effects, which the best startups usually have to some
degree.
Almost every company needs some amount of funding to get started. But startups
often raise money even when they are or could be profitable. It might seem
foolish to sell stock in a profitable company for less than you think it will
later be worth, but it's no more foolish than buying insurance. Fundamentally
that's how the most successful startups view fundraising. They could grow the
company on its own revenues, but the extra money and help supplied by VCs will
let them grow even faster. Raising money lets you _choose_ your growth rate.
Money to grow faster is always at the command of the most successful startups,
because the VCs need them more than they need the VCs. A profitable startup
could if it wanted just grow on its own revenues. Growing slower might be
slightly dangerous, but chances are it wouldn't kill them. Whereas VCs need to
invest in startups, and in particular the most successful startups, or they'll
be out of business. Which means that any sufficiently promising startup will
be offered money on terms they'd be crazy to refuse. And yet because of the
scale of the successes in the startup business, VCs can still make money from
such investments. You'd have to be crazy to believe your company was going to
become as valuable as a high growth rate can make it, but some do.
Pretty much every successful startup will get acquisition offers too. Why?
What is it about startups that makes other companies want to buy them?
Fundamentally the same thing that makes everyone else want the stock of
successful startups: a rapidly growing company is valuable. It's a good thing
eBay bought Paypal, for example, because Paypal is now responsible for 43% of
their sales and probably more of their growth.
But acquirers have an additional reason to want startups. A rapidly growing
company is not merely valuable, but dangerous. If it keeps expanding, it might
expand into the acquirer's own territory. Most product acquisitions have some
component of fear. Even if an acquirer isn't threatened by the startup itself,
they might be alarmed at the thought of what a competitor could do with it.
And because startups are in this sense doubly valuable to acquirers, acquirers
will often pay more than an ordinary investor would.
**Understand**
The combination of founders, investors, and acquirers forms a natural
ecosystem. It works so well that those who don't understand it are driven to
invent conspiracy theories to explain how neatly things sometimes turn out.
Just as our ancestors did to explain the apparently too neat workings of the
natural world. But there is no secret cabal making it all work.
If you start from the mistaken assumption that Instagram was worthless, you
have to invent a secret boss to force Mark Zuckerberg to buy it. To anyone who
knows Mark Zuckerberg, that is the reductio ad absurdum of the initial
assumption. The reason he bought Instagram was that it was valuable and
dangerous, and what made it so was growth.
If you want to understand startups, understand growth. Growth drives
everything in this world. Growth is why startups usually work on technology —
because ideas for fast growing companies are so rare that the best way to find
new ones is to discover those recently made viable by change, and technology
is the best source of rapid change. Growth is why it's a rational choice
economically for so many founders to try starting a startup: growth makes the
successful companies so valuable that the expected value is high even though
the risk is too. Growth is why VCs want to invest in startups: not just
because the returns are high but also because generating returns from capital
gains is easier to manage than generating returns from dividends. Growth
explains why the most successful startups take VC money even if they don't
need to: it lets them choose their growth rate. And growth explains why
successful startups almost invariably get acquisition offers. To acquirers a
fast-growing company is not merely valuable but dangerous too.
It's not just that if you want to succeed in some domain, you have to
understand the forces driving it. Understanding growth is what starting a
startup _consists_ of. What you're really doing (and to the dismay of some
observers, all you're really doing) when you start a startup is committing to
solve a harder type of problem than ordinary businesses do. You're committing
to search for one of the rare ideas that generates rapid growth. Because these
ideas are so valuable, finding one is hard. The startup is the embodiment of
your discoveries so far. Starting a startup is thus very much like deciding to
be a research scientist: you're not committing to solve any specific problem;
you don't know for sure which problems are soluble; but you're committing to
try to discover something no one knew before. A startup founder is in effect
an economic research scientist. Most don't discover anything that remarkable,
but some discover relativity.
** |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
December 2010
Someone we funded is talking to VCs now, and asked me how common it was for a
startup's founders to retain control of the board after a series A round. He
said VCs told him this almost never happened.
Ten years ago that was true. In the past, founders rarely kept control of the
board through a series A. The traditional series A board consisted of two
founders, two VCs, and one independent member. More recently the recipe is
often one founder, one VC, and one independent. In either case the founders
lose their majority.
But not always. Mark Zuckerberg kept control of Facebook's board through the
series A and still has it today. Mark Pincus has kept control of Zynga's too.
But are these just outliers? How common is it for founders to keep control
after an A round? I'd heard of several cases among the companies we've funded,
but I wasn't sure how many there were, so I emailed the ycfounders list.
The replies surprised me. In a dozen companies we've funded, the founders
still had a majority of the board seats after the series A round.
I feel like we're at a tipping point here. A lot of VCs still act as if
founders retaining board control after a series A is unheard-of. A lot of them
try to make you feel bad if you even ask — as if you're a noob or a control
freak for wanting such a thing. But the founders I heard from aren't noobs or
control freaks. Or if they are, they are, like Mark Zuckerberg, the kind of
noobs and control freaks VCs should be trying to fund more of.
Founders retaining control after a series A is clearly heard-of. And barring
financial catastrophe, I think in the coming year it will become the norm.
Control of a company is a more complicated matter than simply outvoting other
parties in board meetings. Investors usually get vetos over certain big
decisions, like selling the company, regardless of how many board seats they
have. And board votes are rarely split. Matters are decided in the discussion
preceding the vote, not in the vote itself, which is usually unanimous. But if
opinion is divided in such discussions, the side that knows it would lose in a
vote will tend to be less insistent. That's what board control means in
practice. You don't simply get to do whatever you want; the board still has to
act in the interest of the shareholders; but if you have a majority of board
seats, then your opinion about what's in the interest of the shareholders will
tend to prevail.
So while board control is not total control, it's not imaginary either.
There's inevitably a difference in how things feel within the company. Which
means if it becomes the norm for founders to retain board control after a
series A, that will change the way things feel in the whole startup world.
The switch to the new norm may be surprisingly fast, because the startups that
can retain control tend to be the best ones. They're the ones that set the
trends, both for other startups and for VCs.
A lot of the reason VCs are harsh when negotiating with startups is that
they're embarrassed to go back to their partners looking like they got beaten.
When they sign a termsheet, they want to be able to brag about the good terms
they got. A lot of them don't care that much personally about whether founders
keep board control. They just don't want to seem like they had to make
concessions. Which means if letting the founders keep control stops being
perceived as a concession, it will rapidly become much more common.
Like a lot of changes that have been forced on VCs, this change won't turn out
to be as big a problem as they might think. VCs will still be able to
convince; they just won't be able to compel. And the startups where they have
to resort to compulsion are not the ones that matter anyway. VCs make most of
their money from a few big hits, and those aren't them.
Knowing that founders will keep control of the board may even help VCs pick
better. If they know they can't fire the founders, they'll have to choose
founders they can trust. And that's who they should have been choosing all
along.
**Thanks** to Sam Altman, John Bautista, Trevor Blackwell, Paul Buchheit,
Brian Chesky, Bill Clerico, Patrick Collison, Adam Goldstein, James
Lindenbaum, Jessica Livingston, and Fred Wilson for reading drafts of this.
* * *
--- |
|
_Note: The strategy described at the end of this essay didn't work. It would
work for a while, and then I'd gradually find myself using the Internet on my
work computer. I'm trying other strategies now, but I think this time I'll
wait till I'm sure they work before writing about them._
May 2008
Procrastination feeds on distractions. Most people find it uncomfortable just
to sit and do nothing; you avoid work by doing something else.
So one way to beat procrastination is to starve it of distractions. But that's
not as straightforward as it sounds, because there are people working hard to
distract you. Distraction is not a static obstacle that you avoid like you
might avoid a rock in the road. Distraction seeks you out.
Chesterfield described dirt as matter out of place. Distracting is, similarly,
desirable at the wrong time. And technology is continually being refined to
produce more and more desirable things. Which means that as we learn to avoid
one class of distractions, new ones constantly appear, like drug-resistant
bacteria.
Television, for example, has after 50 years of refinement reached the point
where it's like visual crack. I realized when I was 13 that TV was addictive,
so I stopped watching it. But I read recently that the average American
watches 4 hours of TV a day. A quarter of their life.
TV is in decline now, but only because people have found even more addictive
ways of wasting time. And what's especially dangerous is that many happen at
your computer. This is no accident. An ever larger percentage of office
workers sit in front of computers connected to the Internet, and distractions
always evolve toward the procrastinators.
I remember when computers were, for me at least, exclusively for work. I might
occasionally dial up a server to get mail or ftp files, but most of the time I
was offline. All I could do was write and program. Now I feel as if someone
snuck a television onto my desk. Terribly addictive things are just a click
away. Run into an obstacle in what you're working on? Hmm, I wonder what's new
online. Better check.
After years of carefully avoiding classic time sinks like TV, games, and
Usenet, I still managed to fall prey to distraction, because I didn't realize
that it evolves. Something that used to be safe, using the Internet, gradually
became more and more dangerous. Some days I'd wake up, get a cup of tea and
check the news, then check email, then check the news again, then answer a few
emails, then suddenly notice it was almost lunchtime and I hadn't gotten any
real work done. And this started to happen more and more often.
It took me surprisingly long to realize how distracting the Internet had
become, because the problem was intermittent. I ignored it the way you let
yourself ignore a bug that only appears intermittently. When I was in the
middle of a project, distractions weren't really a problem. It was when I'd
finished one project and was deciding what to do next that they always bit me.
Another reason it was hard to notice the danger of this new type of
distraction was that social customs hadn't yet caught up with it. If I'd spent
a whole morning sitting on a sofa watching TV, I'd have noticed very quickly.
That's a known danger sign, like drinking alone. But using the Internet still
looked and felt a lot like work.
Eventually, though, it became clear that the Internet had become so much more
distracting that I had to start treating it differently. Basically, I had to
add a new application to my list of known time sinks: Firefox.
* * *
The problem is a hard one to solve because most people still need the Internet
for some things. If you drink too much, you can solve that problem by stopping
entirely. But you can't solve the problem of overeating by stopping eating. I
couldn't simply avoid the Internet entirely, as I'd done with previous time
sinks.
At first I tried rules. For example, I'd tell myself I was only going to use
the Internet twice a day. But these schemes never worked for long. Eventually
something would come up that required me to use it more than that. And then
I'd gradually slip back into my old ways.
Addictive things have to be treated as if they were sentient adversaries—as if
there were a little man in your head always cooking up the most plausible
arguments for doing whatever you're trying to stop doing. If you leave a path
to it, he'll find it.
The key seems to be visibility. The biggest ingredient in most bad habits is
denial. So you have to make it so that you can't merely _slip_ into doing the
thing you're trying to avoid. It has to set off alarms.
Maybe in the long term the right answer for dealing with Internet distractions
will be software that watches and controls them. But in the meantime I've
found a more drastic solution that definitely works: to set up a separate
computer for using the Internet.
I now leave wifi turned off on my main computer except when I need to transfer
a file or edit a web page, and I have a separate laptop on the other side of
the room that I use to check mail or browse the web. (Irony of ironies, it's
the computer Steve Huffman wrote Reddit on. When Steve and Alexis auctioned
off their old laptops for charity, I bought them for the Y Combinator museum.)
My rule is that I can spend as much time online as I want, as long as I do it
on that computer. And this turns out to be enough. When I have to sit on the
other side of the room to check email or browse the web, I become much more
aware of it. Sufficiently aware, in my case at least, that it's hard to spend
more than about an hour a day online.
And my main computer is now freed for work. If you try this trick, you'll
probably be struck by how different it feels when your computer is
disconnected from the Internet. It was alarming to me how foreign it felt to
sit in front of a computer that could only be used for work, because that
showed how much time I must have been wasting.
_Wow. All I can do at this computer is work. Ok, I better work then._
That's the good part. Your old bad habits now help you to work. You're used to
sitting in front of that computer for hours at a time. But you can't browse
the web or check email now. What are you going to do? You can't just sit
there. So you start working.
---
---
Good and Bad Procrastination
| | Spanish Translation
Arabic Translation
| | Catalan Translation
Russian Translation
| | Spanish Translation
* * *
--- |
|
| **Want to start a startup?** Get funded by Y Combinator.
---
November 2009
I don't think Apple realizes how badly the App Store approval process is
broken. Or rather, I don't think they realize how much it matters that it's
broken.
The way Apple runs the App Store has harmed their reputation with programmers
more than anything else they've ever done. Their reputation with programmers
used to be great. It used to be the most common complaint you heard about
Apple was that their fans admired them too uncritically. The App Store has
changed that. Now a lot of programmers have started to see Apple as evil.
How much of the goodwill Apple once had with programmers have they lost over
the App Store? A third? Half? And that's just so far. The App Store is an
ongoing karma leak.
* * *
How did Apple get into this mess? Their fundamental problem is that they don't
understand software.
They treat iPhone apps the way they treat the music they sell through iTunes.
Apple is the channel; they own the user; if you want to reach users, you do it
on their terms. The record labels agreed, reluctantly. But this model doesn't
work for software. It doesn't work for an intermediary to own the user. The
software business learned that in the early 1980s, when companies like
VisiCorp showed that although the words "software" and "publisher" fit
together, the underlying concepts don't. Software isn't like music or books.
It's too complicated for a third party to act as an intermediary between
developer and user. And yet that's what Apple is trying to be with the App
Store: a software publisher. And a particularly overreaching one at that, with
fussy tastes and a rigidly enforced house style.
If software publishing didn't work in 1980, it works even less now that
software development has evolved from a small number of big releases to a
constant stream of small ones. But Apple doesn't understand that either. Their
model of product development derives from hardware. They work on something
till they think it's finished, then they release it. You have to do that with
hardware, but because software is so easy to change, its design can benefit
from evolution. The standard way to develop applications now is to launch fast
and iterate. Which means it's a disaster to have long, random delays each time
you release a new version.
Apparently Apple's attitude is that developers should be more careful when
they submit a new version to the App Store. They would say that. But powerful
as they are, they're not powerful enough to turn back the evolution of
technology. Programmers don't use launch-fast-and-iterate out of laziness.
They use it because it yields the best results. By obstructing that process,
Apple is making them do bad work, and programmers hate that as much as Apple
would.
How would Apple like it if when they discovered a serious bug in OS X, instead
of releasing a software update immediately, they had to submit their code to
an intermediary who sat on it for a month and then rejected it because it
contained an icon they didn't like?
By breaking software development, Apple gets the opposite of what they
intended: the version of an app currently available in the App Store tends to
be an old and buggy one. One developer told me:
> As a result of their process, the App Store is full of half-baked
> applications. I make a new version almost every day that I release to beta
> users. The version on the App Store feels old and crappy. I'm sure that a
> lot of developers feel this way: One emotion is "I'm not really proud about
> what's in the App Store", and it's combined with the emotion "Really, it's
> Apple's fault."
Another wrote:
> I believe that they think their approval process helps users by ensuring
> quality. In reality, bugs like ours get through all the time and then it can
> take 4-8 weeks to get that bug fix approved, leaving users to think that
> iPhone apps sometimes just don't work. Worse for Apple, these apps work just
> fine on other platforms that have immediate approval processes.
Actually I suppose Apple has a third misconception: that all the complaints
about App Store approvals are not a serious problem. They must hear developers
complaining. But partners and suppliers are always complaining. It would be a
bad sign if they weren't; it would mean you were being too easy on them.
Meanwhile the iPhone is selling better than ever. So why do they need to fix
anything?
They get away with maltreating developers, in the short term, because they
make such great hardware. I just bought a new 27" iMac a couple days ago. It's
fabulous. The screen's too shiny, and the disk is surprisingly loud, but it's
so beautiful that you can't make yourself care.
So I bought it, but I bought it, for the first time, with misgivings. I felt
the way I'd feel buying something made in a country with a bad human rights
record. That was new. In the past when I bought things from Apple it was an
unalloyed pleasure. Oh boy! They make such great stuff. This time it felt like
a Faustian bargain. They make such great stuff, but they're such assholes. Do
I really want to support this company?
* * *
Should Apple care what people like me think? What difference does it make if
they alienate a small minority of their users?
There are a couple reasons they should care. One is that these users are the
people they want as employees. If your company seems evil, the best
programmers won't work for you. That hurt Microsoft a lot starting in the 90s.
Programmers started to feel sheepish about working there. It seemed like
selling out. When people from Microsoft were talking to other programmers and
they mentioned where they worked, there were a lot of self-deprecating jokes
about having gone over to the dark side. But the real problem for Microsoft
wasn't the embarrassment of the people they hired. It was the people they
never got. And you know who got them? Google and Apple. If Microsoft was the
Empire, they were the Rebel Alliance. And it's largely because they got more
of the best people that Google and Apple are doing so much better than
Microsoft today.
Why are programmers so fussy about their employers' morals? Partly because
they can afford to be. The best programmers can work wherever they want. They
don't have to work for a company they have qualms about.
But the other reason programmers are fussy, I think, is that evil begets
stupidity. An organization that wins by exercising power starts to lose the
ability to win by doing better work. And it's not fun for a smart person to
work in a place where the best ideas aren't the ones that win. I think the
reason Google embraced "Don't be evil" so eagerly was not so much to impress
the outside world as to inoculate themselves against arrogance.
That has worked for Google so far. They've become more bureaucratic, but
otherwise they seem to have held true to their original principles. With Apple
that seems less the case. When you look at the famous 1984 ad now, it's easier
to imagine Apple as the dictator on the screen than the woman with the hammer.
In fact, if you read the dictator's speech it sounds uncannily like a
prophecy of the App Store.
> We have triumphed over the unprincipled dissemination of facts.
>
> We have created, for the first time in all history, a garden of pure
> ideology, where each worker may bloom secure from the pests of contradictory
> and confusing truths.
The other reason Apple should care what programmers think of them is that when
you sell a platform, developers make or break you. If anyone should know this,
Apple should. VisiCalc made the Apple II.
And programmers build applications for the platforms they use. Most
applications—most startups, probably—grow out of personal projects. Apple
itself did. Apple made microcomputers because that's what Steve Wozniak wanted
for himself. He couldn't have afforded a minicomputer. Microsoft likewise
started out making interpreters for little microcomputers because Bill Gates
and Paul Allen were interested in using them. It's a rare startup that doesn't
build something the founders use.
The main reason there are so many iPhone apps is that so many programmers have
iPhones. They may know, because they read it in an article, that Blackberry
has such and such market share. But in practice it's as if RIM didn't exist.
If they're going to build something, they want to be able to use it
themselves, and that means building an iPhone app.
So programmers continue to develop iPhone apps, even though Apple continues to
maltreat them. They're like someone stuck in an abusive relationship. They're
so attracted to the iPhone that they can't leave. But they're looking for a
way out. One wrote:
> While I did enjoy developing for the iPhone, the control they place on the
> App Store does not give me the drive to develop applications as I would
> like. In fact I don't intend to make any more iPhone applications unless
> absolutely necessary.
Can anything break this cycle? No device I've seen so far could. Palm and RIM
haven't a hope. The only credible contender is Android. But Android is an
orphan; Google doesn't really care about it, not the way Apple cares about the
iPhone. Apple cares about the iPhone the way Google cares about search.
* * *
Is the future of handheld devices one locked down by Apple? It's a worrying
prospect. It would be a bummer to have another grim monoculture like we had in
the 1990s. In 1995, writing software for end users was effectively identical
with writing Windows applications. Our horror at that prospect was the single
biggest thing that drove us to start building web apps.
At least we know now what it would take to break Apple's lock. You'd have to
get iPhones out of programmers' hands. If programmers used some other device
for mobile web access, they'd start to develop apps for that instead.
How could you make a device programmers liked better than the iPhone? It's
unlikely you could make something better designed. Apple leaves no room there.
So this alternative device probably couldn't win on general appeal. It would
have to win by virtue of some appeal it had to programmers specifically.
One way to appeal to programmers is with software. If you could think of an
application programmers had to have, but that would be impossible in the
circumscribed world of the iPhone, you could presumably get them to switch.
That would definitely happen if programmers started to use handhelds as
development machines—if handhelds displaced laptops the way laptops displaced
desktops. You need more control of a development machine than Apple will let
you have over an iPhone.
Could anyone make a device that you'd carry around in your pocket like a
phone, and yet would also work as a development machine? It's hard to imagine
what it would look like. But I've learned never to say never about technology.
A phone-sized device that would work as a development machine is no more
miraculous by present standards than the iPhone itself would have seemed by
the standards of 1995.
My current development machine is a MacBook Air, which I use with an external
monitor and keyboard in my office, and by itself when traveling. If there was
a version half the size I'd prefer it. That still wouldn't be small enough to
carry around everywhere like a phone, but we're within a factor of 4 or so.
Surely that gap is bridgeable. In fact, let's make it an RFS. Wanted: Woman
with hammer.
** |
|
March 2009
_(This essay is derived from a talk atAngelConf.)_
When we sold our startup in 1998 I thought one day I'd do some angel
investing. Seven years later I still hadn't started. I put it off because it
seemed mysterious and complicated. It turns out to be easier than I expected,
and also more interesting.
The part I thought was hard, the mechanics of investing, really isn't. You
give a startup money and they give you stock. You'll probably get either
preferred stock, which means stock with extra rights like getting your money
back first in a sale, or convertible debt, which means (on paper) you're
lending the company money, and the debt converts to stock at the next
sufficiently big funding round.
There are sometimes minor tactical advantages to using one or the other. The
paperwork for convertible debt is simpler. But really it doesn't matter much
which you use. Don't spend much time worrying about the details of deal terms,
especially when you first start angel investing. That's not how you win at
this game. When you hear people talking about a successful angel investor,
they're not saying "He got a 4x liquidation preference." They're saying "He
invested in Google."
That's how you win: by investing in the right startups. That is so much more
important than anything else that I worry I'm misleading you by even talking
about other things.
**Mechanics**
Angel investors often syndicate deals, which means they join together to
invest on the same terms. In a syndicate there is usually a "lead" investor
who negotiates the terms with the startup. But not always: sometimes the
startup cobbles together a syndicate of investors who approach them
independently, and the startup's lawyer supplies the paperwork.
The easiest way to get started in angel investing is to find a friend who
already does it, and try to get included in his syndicates. Then all you have
to do is write checks.
Don't feel like you have to join a syndicate, though. It's not that hard to do
it yourself. You can just use the standard series AA documents Wilson Sonsini
and Y Combinator published online. You should of course have your lawyer
review everything. Both you and the startup should have lawyers. But the
lawyers don't have to create the agreement from scratch.
When you negotiate terms with a startup, there are two numbers you care about:
how much money you're putting in, and the valuation of the company. The
valuation determines how much stock you get. If you put $50,000 into a company
at a pre-money valuation of $1 million, then the post-money valuation is $1.05
million, and you get .05/1.05, or 4.76% of the company's stock.
If the company raises more money later, the new investor will take a chunk of
the company away from all the existing shareholders just as you did. If in the
next round they sell 10% of the company to a new investor, your 4.76% will be
reduced to 4.28%.
That's ok. Dilution is normal. What saves you from being mistreated in future
rounds, usually, is that you're in the same boat as the founders. They can't
dilute you without diluting themselves just as much. And they won't dilute
themselves unless they end up net ahead. So in theory, each further round of
investment leaves you with a smaller share of an even more valuable company,
till after several more rounds you end up with .5% of the company at the point
where it IPOs, and you are very happy because your $50,000 has become $5
million.
The agreement by which you invest should have provisions that let you
contribute to future rounds to maintain your percentage. So it's your choice
whether you get diluted. If the company does really well, you eventually
will, because eventually the valuations will get so high it's not worth it for
you.
How much does an angel invest? That varies enormously, from $10,000 to
hundreds of thousands or in rare cases even millions. The upper bound is
obviously the total amount the founders want to raise. The lower bound is
5-10% of the total or $10,000, whichever is greater. A typical angel round
these days might be $150,000 raised from 5 people.
Valuations don't vary as much. For angel rounds it's rare to see a valuation
lower than half a million or higher than 4 or 5 million. 4 million is starting
to be VC territory.
How do you decide what valuation to offer? If you're part of a round led by
someone else, that problem is solved for you. But what if you're investing by
yourself? There's no real answer. There is no rational way to value an early
stage startup. The valuation reflects nothing more than the strength of the
company's bargaining position. If they really want you, either because they
desperately need money, or you're someone who can help them a lot, they'll let
you invest at a low valuation. If they don't need you, it will be higher. So
guess. The startup may not have any more idea what the number should be than
you do.
Ultimately it doesn't matter much. When angels make a lot of money from a
deal, it's not because they invested at a valuation of $1.5 million instead of
$3 million. It's because the company was really successful.
I can't emphasize that too much. Don't get hung up on mechanics or deal terms.
What you should spend your time thinking about is whether the company is good.
(Similarly, founders also should not get hung up on deal terms, but should
spend their time thinking about how to make the company good.)
There's a second less obvious component of an angel investment: how much
you're expected to help the startup. Like the amount you invest, this can vary
a lot. You don't have to do anything if you don't want to; you could simply be
a source of money. Or you can become a de facto employee of the company. Just
make sure that you and the startup agree in advance about roughly how much
you'll do for them.
Really hot companies sometimes have high standards for angels. The ones
everyone wants to invest in practically audition investors, and only take
money from people who are famous and/or will work hard for them. But don't
feel like you have to put in a lot of time or you won't get to invest in any
good startups. There is a surprising lack of correlation between how hot a
deal a startup is and how well it ends up doing. Lots of hot startups will end
up failing, and lots of startups no one likes will end up succeeding. And the
latter are so desperate for money that they'll take it from anyone at a low
valuation.
**Picking Winners**
It would be nice to be able to pick those out, wouldn't it? The part of angel
investing that has most effect on your returns, picking the right companies,
is also the hardest. So you should practically ignore (or more precisely,
archive, in the Gmail sense) everything I've told you so far. You may need to
refer to it at some point, but it is not the central issue.
The central issue is picking the right startups. What "Make something people
want" is for startups, "Pick the right startups" is for investors. Combined
they yield "Pick the startups that will make something people want."
How do you do that? It's not as simple as picking startups that are already
making something wildly popular. By then it's too late for angels. VCs will
already be onto them. As an angel, you have to pick startups before they've
got a hit—either because they've made something great but users don't realize
it yet, like Google early on, or because they're still an iteration or two
away from the big hit, like Paypal when they were making software for
transferring money between PDAs.
To be a good angel investor, you have to be a good judge of potential. That's
what it comes down to. VCs can be fast followers. Most of them don't try to
predict what will win. They just try to notice quickly when something already
is winning. But angels have to be able to predict.
One interesting consequence of this fact is that there are a lot of people out
there who have never even made an angel investment and yet are already better
angel investors than they realize. Someone who doesn't know the first thing
about the mechanics of venture funding but knows what a successful startup
founder looks like is actually far ahead of someone who knows termsheets
inside out, but thinks "hacker" means someone who breaks into computers. If
you can recognize good startup founders by empathizing with them—if you both
resonate at the same frequency—then you may already be a better startup picker
than the median professional VC.
Paul Buchheit, for example, started angel investing about a year after me, and
he was pretty much immediately as good as me at picking startups. My extra
year of experience was rounding error compared to our ability to empathize
with founders.
What makes a good founder? If there were a word that meant the opposite of
hapless, that would be the one. Bad founders seem hapless. They may be smart,
or not, but somehow events overwhelm them and they get discouraged and give
up. Good founders make things happen the way they want. Which is not to say
they force things to happen in a predefined way. Good founders have a healthy
respect for reality. But they are relentlessly resourceful. That's the closest
I can get to the opposite of hapless. You want to fund people who are
relentlessly resourceful.
Notice we started out talking about things, and now we're talking about
people. There is an ongoing debate between investors which is more important,
the people, or the idea—or more precisely, the market. Some, like Ron Conway,
say it's the people—that the idea will change, but the people are the
foundation of the company. Whereas Marc Andreessen says he'd back ok founders
in a hot market over great founders in a bad one.
These two positions are not so far apart as they seem, because good people
find good markets. Bill Gates would probably have ended up pretty rich even if
IBM hadn't happened to drop the PC standard in his lap.
I've thought a lot about the disagreement between the investors who prefer to
bet on people and those who prefer to bet on markets. It's kind of surprising
that it even exists. You'd expect opinions to have converged more.
But I think I've figured out what's going on. The three most prominent people
I know who favor markets are Marc, Jawed Karim, and Joe Kraus. And all three
of them, in their own startups, basically flew into a thermal: they hit a
market growing so fast that it was all they could do to keep up with it. That
kind of experience is hard to ignore. Plus I think they underestimate
themselves: they think back to how easy it felt to ride that huge thermal
upward, and they think "anyone could have done it." But that isn't true; they
are not ordinary people.
So as an angel investor I think you want to go with Ron Conway and bet on
people. Thermals happen, yes, but no one can predict them—not even the
founders, and certainly not you as an investor. And only good people can ride
the thermals if they hit them anyway.
**Deal Flow**
Of course the question of how to choose startups presumes you have startups to
choose between. How do you find them? This is yet another problem that gets
solved for you by syndicates. If you tag along on a friend's investments, you
don't have to find startups.
The problem is not finding startups, exactly, but finding a stream of
reasonably high quality ones. The traditional way to do this is through
contacts. If you're friends with a lot of investors and founders, they'll send
deals your way. The Valley basically runs on referrals. And once you start to
become known as reliable, useful investor, people will refer lots of deals to
you. I certainly will.
There's also a newer way to find startups, which is to come to events like Y
Combinator's Demo Day, where a batch of newly created startups presents to
investors all at once. We have two Demo Days a year, one in March and one in
August. These are basically mass referrals.
But events like Demo Day only account for a fraction of matches between
startups and investors. The personal referral is still the most common route.
So if you want to hear about new startups, the best way to do it is to get
lots of referrals.
The best way to get lots of referrals is to invest in startups. No matter how
smart and nice you seem, insiders will be reluctant to send you referrals
until you've proven yourself by doing a couple investments. Some smart, nice
guys turn out to be flaky, high-maintenance investors. But once you prove
yourself as a good investor, the deal flow, as they call it, will increase
rapidly in both quality and quantity. At the extreme, for someone like Ron
Conway, it is basically identical with the deal flow of the whole Valley.
So if you want to invest seriously, the way to get started is to bootstrap
yourself off your existing connections, be a good investor in the startups you
meet that way, and eventually you'll start a chain reaction. Good investors
are rare, even in Silicon Valley. There probably aren't more than a couple
hundred serious angels in the whole Valley, and yet they're probably the
single most important ingredient in making the Valley what it is. Angels are
the limiting reagent in startup formation.
If there are only a couple hundred serious angels in the Valley, then by
deciding to become one you could single-handedly make the pipeline for
startups in Silicon Valley significantly wider. That is kind of mind-blowing.
**Being Good**
How do you be a good angel investor? The first thing you need is to be
decisive. When we talk to founders about good and bad investors, one of the
ways we describe the good ones is to say "he writes checks." That doesn't mean
the investor says yes to everyone. Far from it. It means he makes up his mind
quickly, and follows through. You may be thinking, how hard could that be?
You'll see when you try it. It follows from the nature of angel investing that
the decisions are hard. You have to guess early, at the stage when the most
promising ideas still seem counterintuitive, because if they were obviously
good, VCs would already have funded them.
Suppose it's 1998. You come across a startup founded by a couple grad
students. They say they're going to work on Internet search. There are already
a bunch of big public companies doing search. How can these grad students
possibly compete with them? And does search even matter anyway? All the search
engines are trying to get people to start calling them "portals" instead. Why
would you want to invest in a startup run by a couple of nobodies who are
trying to compete with large, aggressive companies in an area they themselves
have declared passe? And yet the grad students seem pretty smart. What do you
do?
There's a hack for being decisive when you're inexperienced: ratchet down the
size of your investment till it's an amount you wouldn't care too much about
losing. For every rich person (you probably shouldn't try angel investing
unless you think of yourself as rich) there's some amount that would be
painless, though annoying, to lose. Till you feel comfortable investing, don't
invest more than that per startup.
For example, if you have $5 million in investable assets, it would probably be
painless (though annoying) to lose $15,000. That's less than .3% of your net
worth. So start by making 3 or 4 $15,000 investments. Nothing will teach you
about angel investing like experience. Treat the first few as an educational
expense. $60,000 is less than a lot of graduate programs. Plus you get equity.
What's really uncool is to be strategically indecisive: to string founders
along while trying to gather more information about the startup's trajectory.
There's always a temptation to do that, because you just have so little
to go on, but you have to consciously resist it. In the long term it's to your
advantage to be good.
The other component of being a good angel investor is simply to be a good
person. Angel investing is not a business where you make money by screwing
people over. Startups create wealth, and creating wealth is not a zero sum
game. No one has to lose for you to win. In fact, if you mistreat the founders
you invest in, they'll just get demoralized and the company will do worse.
Plus your referrals will dry up. So I recommend being good.
The most successful angel investors I know are all basically good people. Once
they invest in a company, all they want to do is help it. And they'll help
people they haven't invested in too. When they do favors they don't seem to
keep track of them. It's too much overhead. They just try to help everyone,
and assume good things will flow back to them somehow. Empirically that seems
to work.
** |
Subsets and Splits