Sam Altman: Welcome. This is CS183F. Thank you all for coming. We hope to make it a really great class. We're going to try to teach you what you need to know for the first hundred days of a startup, basically how do you go from a very raw idea, to a company. I'm the president of Y Combinator, my name is Sam Altman. I've been teaching these people for a while, and so hopefully we'll be able to make this make a lot of sense. Today, our guest speaker, besides me, is Dustin Moskovitz. Dustin was the CTO ... Was the co-founder of Facebook, and CTO and VP of Engineering, I just learned, and is now the co-founder and CO of Asana. Dustin gave a talk at the first version of this class, that is still the one I refer other people to the most. It's about why to start a start up, which is actually a really important question, and one that people don't think about enough. He was kind enough to come back and do that again.
[0:01:04] Dustin M: So if you're here today, your watching the video later, you're probably planning to start a company. That's why you're taking the course. Most of the class is going to be about how to go about doing that and achieving success. But before you dive into the how of being an entrepreneur, I'm here to help you think about the why. It's important to know which reason is yours, so that you think though the decision correctly. I hear a variety of common motivators from potential entrepreneurs, but I found that once they fully considered the trade off, they often decide that starting a company isn't actually the best way to achieve their goals. I'll help you make sure you're choosing the best solution, and I'll also explain the reason I like to hear best from people about why they want to start a company, what I hear when I think someone is really set up for success. I've given this talk before, as Sam said, and a bunch of people have come up to me after and said it really helped them with their decision. In a few cases, they decided that they shouldn't start a company and they should really join an established one. But, I know a lot of you are resolved on what you're doing. If that's true, no problem. I think this will still be useful for you because you'll get a better sense of the reality of what you're about to go through. It's not a long talk, it's just about 10 slides and I have left some time for questions at the end.
Let's call a spade a spade.
A lot of people become entrepreneurs specifically as a way to try to become extremely wealthy.
They see themselves starting the next Facebook or Google. However, the odds of being that successful are actually incredibly small.
Only an handful in an entire generation of companies actually end up getting to that scale.
Here's a funnel from C B Insights, actually. It shows how many seed funded tech companies get through ground of funding.
Even if we reduce our ambitions a bit to becoming a unicorn so with a company with a billion dollar valuation, you still have incredibly long odds.
Only one percent of seed funded companies get all the way through this funnel.
Now, getting the six rounds of funding, it's not exactly the same as becoming unicorn, but it's pretty well correlated. Most of the unicorns I know had to have at least that many rounds of funding.
So, to get there, you have to have a truly great idea. It's got to be unique, defensible, going after a large market. You have to execute extremely well. That means you have to work hard. You have to attract the right people, and you have to have a better strategy than your competitors.
You also just have to be really, really lucky because there's a lot of things that can get in your way and a lot of them aren't even in your control.
I've talked to a bunch of investors, entrepreneurs and that it's actually getting harder over time to get through this funnel. Not only are more people starting companies, but then you have more people to compete with. But they're becoming more expensive to operate for a lot of reasons, particularly here in the Bay area.
Investors have higher expectations, too. You've seen valuation multiples start to decline, particularly on the public market. Perhaps, most importantly, it's becoming harder to disrupt incumbents. They're not the slow moving giants that they were 10 or 20 years ago.
They know how to take advantage of their market position. Some of you are thinking, sure it's hard, but you get so much more equity as a founder that it's clearly the only way to make a lot of money.
Let's talk about two different ways that you might get to a greater financial outcome.
Story one, you're the founder. You started a company that does Uber for pet sitting. In this picture, this is the customer, not the founder. It's a great idea and you executed it well.
So, you sell the company at some point for a hundred million dollars. If you've been really successful limiting dilution, your equity might be as high as 10 percent of the company at that point by the time it becomes liquid.
So you're walking away with ten million dollars. Pretty great outcome. However, I just showed you only a small portion of startups make it that far, so this is the lucky case. A hundred million dollars, a little easier than a billion dollars, but it's still extremely rare.
It's most likely that you end up with nothing on this path because you just end up shutting down the company for whatever reason. Often times you see a company sell to an acquirer at this kind of range valuation. In a lot of those cases, the founder still ends up with nothing because of the investor liquidity preference.
It depends a lot on how much money you've raised to get there. This is definitely the high risk path.
Another way to make a similar amount of money is to join a later stage company and help them scale from, say, five hundred million in valuation to twenty billion. Even straight out of college, you can do really well financially by joining a company at that stage. Especially if you have a few years of experience, you're going to get a really good options package. You're going to have a fairly high salary, too.
I just sort of swagged five basis points here. If you join a little earlier, it might be more than that. If you have more experience, it might be more than that. But, this is sort of a good benchmark. And you probably know the market, for experienced tech workers is extremely competitive right now particularly for product roles.
If you choose well, you can also walk away with ten million dollars by taking this path. If you choose really well, and you do find that next space for Google while it's still not a unicorn, you can do extremely well.
The Hundredth Engineer Facebook had a way better financial outcome than the vast majority of entrepreneurs.
Of course, it's still possible you'll choose the wrong company. It won't grow enough for this kind of outcome.
This is actually 40X growth which is pretty impressive. The key is you get to join it much later in its life cycles. You have a lot more information. You can see the performance so far. You can meet some of the team. You can understand the competitive landscape. Even if you don't find the company that's going to grow this much, you've got a good chance of picking one that's going to grow some. In fact, your equity value is probably already nonzero.
So, you've got a pretty good chance of having a positive outcome in that situation and maybe a really great outcome. Finally, if you've found a company, you have a long term commitment. There's a good chance you're going to be putting 10 years or more into making it scale. And you still may fail in the end.
Whereas if you join an established company, you can work there for a couple of years. You can get a sense of whether it's growing. If not, you can usually leave and try again. You can actually work for several different ones in that same 10 year period and that really increases your chances of a home run.
The ultimate takeaway here is there are multiple ways to get a great financial outcome. But it's a lot lower risk to join an established company.
Don't worry, not all of these will be arguments about why you should join an established company.
Similarly, a lot of people want to start a company in order to maximize their impact. Usually, financial outcome is pretty well correlated with that. A lot of the arguments I just made apply here as well. But when you join a company that's already established, you get some big advantages. You get access to their existing user base. It might be hundreds of millions, sometimes a billion people. You get the ability to work on top of infrastructure that's already been built out and scaled. And you're collaborating with an established team, so they're going to help you succeed. I want to give some concrete examples of massive impact that people achieved as an employee.
Brett Taylor who is the head of Quip, before he became an entrepreneur, he joined Google after it already had over a thousand employees. There he was able to spearhead the creation of Google Maps which is used by hundreds of millions of people, including me on my way here today.
Similarly, my co-founder at Asana, Justin Rosenstein, he joined Google at a similar time. There he prototyped Gchat inside of Gmails. This was over 10 years ago, still used by a ton of people. Then, shortly after that, he went to Facebook after it had a few hundred employees. He led the hackathon project that created the Like button.
You can still join teams at Facebook and Google today and work on something that literally might reach a billion people. That's a lot of impact even if your contribution is a relatively small portion of the product surface area. If you want to become an entrepreneur and maximize impact, these are the types of stories that I think you should be comparing opportunity to.
Next, there's lifestyle.
Everyone's got their own story about what it means to be an entrepreneur. In general, the media likes to make it seem glamorous, emphasizing launches and funding milestones. They tend to talk about success cases and ignore failures.
The entrepreneurs themselves are like ducks. They're calm on the surface, but they're paddling like hell underneath.
But you only get to see them on that surface, looking passionate and focused.
The first image here is from the Social Network which is a fictional movie about the founding of Facebook. It looks pretty fun. The last image is an actual photo from the founding of Facebook. They're a little different. Reality is a lot of heads down time doing hard work. We hardly had any time to bust open champagne and spray it all over our laptops.
In practice, tech is a little less like the Social Network and more like Silicon Valley. It's actually really stressful. Why is that? Well, a few reasons. One, your team is relying on you, so they're betting some of their best years on the story you've told them. And there are recruiters pinging them constantly, like many times a week. You're always worried you're going to lose them. Each round of fund raising feels a little like life and death and your competitors are actually trying to kill you. You always feel stretched thin because it's hard to make time for the company, your significant other, your family, and yourself. Of course, my title here is a reference to Ben Horowitz's book, The Hard Thing About Hard Things. If you want to go, like, way deep on this subject, I'd definitely recommend giving that a read.
Relatedly, people also think being a founder will give you control over how you spend your time. Here's a great quote from Phil Leibinger:
People have this vision of being the CEO - that it's like being on the top of a pyramid. The reality is - as CEO, everyone else is your boss. You work for your employees, customers, partners, users, and even the media (and anyone who either promotes your or attacks your vision). As CEO, you will be accountable to everyone.
Phil and I both learned this the hard way, but you don't actually have control in practice. I spend most of my time working on the problems I just couldn't delegate. Reacting to issues that are popping up, resolving conflicts. And you're always on call so it makes it hard to really unplug during a vacation or on the weekends.
And you're a role model, too. If you take your foot off the gas, then so will your team.
That said, this one really doesn't apply if you want to have a lifestyle business or if your like a small business entrepreneur. If you do that, then you actually do have a lot of control over your lifestyle, but the financial and impact outcomes are going to be smaller.
This is a recap of those first four topics. These are the top reasons I usually hear from people. The successful one that I showed you in practice suggests that startups aren't clearly the best way to maximize financial reward or impact. You might do better by joining an established company. Similarly, the reality of entrepreneurship usually doesn't match what you see in the media. If you want to aim for a home run, you should feel committed to putting in the many years of effort and discipline that it takes to become a professional athlete. And you still may fail.
Now that I've given you a bunch of bad news, let's talk about what I see as the best reason for starting a company ... So basically you can't not do it. This has two roots. The first is passion. Passion it truly important since we just talked about how hard it is to start a company. You're going to need that passion to power through. You also need it to recruit great people to follow you as a leader. The second part of this is that you're the right person to make this happen by starting a company. If you fail to do it, you're actually going to be depriving the world of something great.
This implies that the idea itself is really valuable and it also implies that you're the best person to bring that idea into the world. If you're not the best person, then that person is out there and they're probably going to out compete you and create something even more valuable.
One twist on this is maybe you're the best person, but you should do it within the context of an existing company. I often feel this way when I hear someone describe something to me that really sounds like a feature of an existing product. If you want to have the next twist on photo sharing, I definitely recommend considering Instagram or Snapchat and helping them build it into their products.
You can be entrepreneurial inside the context of an existing company. I've twice chosen to become an entrepreneur, myself. Both of the times were motivated by this reason exactly. For Facebook, we actually continued to be students at Harvard until the site had over a hundred thousand monthly active users. We had cognitive dissidence. We were kind of on an embarrassing long period of time that we could just be students and have this little side project on the side. Eventually, it pulled us out because we couldn't bear the idea of it not living up to its full potential.
Similarly, at Asana, Justin and I were both reluctant entrepreneurs, but we thought the problem of work tracking was really important and that the other people were working on it were going to develop incremental solutions and leave a lot of value on the table. We couldn't stop working on it. Eventually we decided to leave Facebook and focus on it full time.
When I meet entrepreneurs that really seem set up for success, this is usually the reason I'm hearing from them. They're starting a company because it felt like really the only thing that they could do next. That's it. Short and sweet!!
[0:13:49]
Speaker 3: How do you decide if its ... How do you advise people for this side if the best way is to go do this at some other company, or do it themselves? Like it's easy in the photo sharing example, but in the real world, most of the time it's a little bit murkier. What's the framework you think through about?
[0:14:06] Dustin M: Two things. One is sort of like feature not company distinction like Mark and has talked about. I don't know how to make that concrete, but it's just sort of like thinking about the ideas. Is this like a separate product that it feels like somebody is going to sign up for? Can it have its own monetization model? Are people really going to invest in learning a new system or does it really feel like the add-on on top of some existing model? And very related to that, I think, are just going to be the competitive nature. If you have to introduce like a whole new photo sharing app, and then you have to compete with the distribution and network effect of the existing ones, that's a huge barrier to entry. There are sort of similar metaphors in other products. Does that make sense?
[0:14:47] Dustin M: That's going to require judgment. You and then you.
[0:14:52] Speaker 4: I was wondering like what's your thought on like the challenges starting a company when you started a company and starting like .
[0:15:02] Dustin M: I sort of briefly outlined them when I was talking about the funnel. Yes, sorry. The question was about the difference in challenges between starting a company basically in 2004 for starting a company today. Or the second time in 2009. I sort of outlined them when I was talking about the funnel. I definitely think it's just a lot more competitive in terms of the other businesses out there. Most of the valuable markets have interesting players already. It's also very competitive in the recruiting market. It's really hard to get a big enough team of sufficiently talented people, and those people are going to be more expensive. That's one of the ways that costs have gone up. There's also a bunch of other ways, including just like real estate in the Bay area is really expensive right now. Some other costs have come down like data center costs, but in general, it just feels higher friction and harder to get going.
[0:15:53] Speaker 5: You mentioned there's a comparison between startup like being a founder and then being on . How do you position that early stage? Say like maybe the first of 10 kind of people?
[0:16:04] Dustin M: Yeah, it's just somewhere on that spectrum. So sorry, the question is, what's the difference between being a sort of later employee at an established company versus being like an early employee? Is that the question? I think of it as just the spectrum on the risk scale between like founder and like one thousandth employee. If you're in the first 10, you have a little bit more information. You know who the founders are. You know who leaders are. You can meet some of the investors. Hopefully, they've already done a seed round or an A round.
But usually, you still don't have evidence yet about like the revenue or the monetization, and probably a product that isn't scaling yet. It's just sort of continuous spectrum and the earlier you are, the lower your salary is going to be. The lower the sort of probability of a positive outcome is going to be, but you also have a possibility of a really big outcome because you might have 50 basis points or a hundred basis points if you're one of the first employees. Does that make sense? Again, it's on the spectrum, right? Maybe the second employee. So, the question was, is the probability of success basically equal? Yeah, for the second employ, yes. For the tenth employ, no they've got a lot more information. For the twentieth, they've got even more information. It's just going to be a continuous spectrum. This question over here.
How did you find your core team when you were founding like Asana and Facebook? Did or did you go about like getting the best of each area?
[0:17:34] Dustin M: Sure, so how did we go about finding the core team? At Facebook, pretty organic. A lot of people were just like the people in our network at Harvard that we moved out to Palo Alto with. And then, very early on, we hired Matt Koler, and he sort of took over recruiting and helped us get into networking ... into Stanford, actually, and a lot of the people we hired were recent graduates here. We really focused on the product team first. A lot of it was very path dependent and organic, working networks. Things are a little different now. As a small company you can work with contractor recruiters, even with some of the services that help connect people. I think those are pretty good.
[0:18:17] Speaker 7: I was thinking along the passion dimension. What are your thoughts along the lines from say like interest to like pathological obsession?
[0:18:28] Dustin M: The question is, when I talked about passion, am I just talking about an interest in the subject or pathological obsession? Again, it's a spectrum, but probably more towards the pathological obsession. When I say you can't not do it, it's like one of these things where you'll look back twenty years from now and be like, man, I really should have gone after that idea. It was really important to me. Whereas like interest, I have a lot interests in the world. There not all necessarily important. And they're not all going to keep my attention for like the 10 or 20 years that you need to focus. How are we doing on time?
Q. Should you always have a co-founder? And if so, how should you look for that co-founder?
The question is about should you always have a co-founder and if so, how should you look for that co-founder? This is a really tough one. I have a pretty strong opinion that like co-founders are super important. Again, cause like this is really hard, and that's like your buddy that you get to lean on. They're kind of like in the trenches with you. But, if you don't have someone who is sort of like the obvious person you want to work with, I don't have good advice on how to do that. In both of my cases, like we were starting a company together and like discussing it together the whole time.
That sort of like founder dating thing doesn't make as much sense to me. I actually think starting a company is like an even more important relationship than like getting married or something because like financial issues enter the conversation even more often. And founder breakups are really bad. I highly recommend working with someone that you've known a long time and just discussing as many of the details as possible to make sure you're on the same page cause those conversations get a lot harder later.
I wanted to use today to sort of summarize other things that we touched on in the class.
Since it's just mostly guest lecturers, this is my chance to say the things that I believe.
I wanted to start off by talking about what makes Silicon Valley special.
There are a hundred people in the room in the class here at Stanford. There will be hundreds of thousands or a million, low millions of people that watch this online around the world. As I travel around the world talking about startups, the most common question I get is, why Silicon Valley?
What happens there that's different than everywhere else? Why can't we do this where I'm from? I think it's an instruct question even for people living here because you want to find out what this is and surround yourself with the most concentrated version of it. The thing that I think is most important of all is there is a relentless belief in the future here.
There are people here who will take your wild ideas seriously, instead of mocking you. And that's because they've learned it's very expensive to just pass and say every idea is stupid. If you have someone that's like, I'm going to start an electric car company. And they don't know much about batteries, even less about cars, it would be very easy to write that off. And yesterday Tesla passed Ford in the market cap.
So people have learned that these wild ideas about the future, you don't want to write them off too quickly. You want to give them a real chance. You want to think about them. In most of the world, and in most other work contexts, people will just mock you behind your back, to your face, whatever it is.
You really want to find the small number of people in your life that will support your ambitions, not belittle your ambitions.
And this hard to find. This is not the default state. We don't realize how rare it is that we're in an environment where that's what most people are like. There's no tall poppy syndrome. In many other countries, many other cultures, there's a word for what it is when if a person gets too tall, too ambitious, thinking too big, you cut them down.
There's not even really a phrase like that in America, but there is one in most other cultures. There's also a very high density of people working on startups here. And there's a culture of paying if forward. People help me on my startup, I'm going to help them on theirs. And so you want to surround yourself with this, no matter where you are in the world.
You may find that you have to go online to find that community, you still want to do it. Oh, this is my old version of slides. Did I send you a new one? We're just going to go with this.
One of the things that startups really have to get right is the idea. There's become this myth in Silicon Valley that the idea doesn't matter. That you should start a startup and just sort of pivot your way on this random walk and hope you get to something big. As Dustin said, all of the best startups that we have funded at Y Combinator, it was an idea first and startup second. I was not a bunch of pivots.
The very few pivots that were successful were when the founders discovered along the way that there was some other idea they were more passionate about than their first one. Or, they just learned some new problem.
Original thought is really hard to get good at, but really important. The most successful startups are not derivatives, they are not a copy of something else that was working pretty well. Most people try to start a copy of whatever worked last year. I don't know how many people started a Facebook clone in the year after Facebook. Had to be a lot. A lot. None of those went on to really matter.
The next Facebook never looks like Facebook. It looks like something totally different. The way to get good at this is to start noticing problems in your own life. And the great advantage that you have as students is that students, young people in general, tend to be on the forefront of technology.
You can predict the great wave before it happens. And this idea of the great wave, I think this is the most important concept to find good ideas out there. People wonder why startups cluster in small periods of time.
Why were there a bunch of companies that started in the late 90s, early 2000s that were really successful? Why were there a bunch of startups between sort of 2009 and 2011 that started that were really successful?
The reason that there are these great waves, the Internet and mobile, in those two cases, smart phones that all of a sudden new things are possible that were never possible before. When that happens, because startups can move so quickly, you can do things that otherwise a big company would win on. You want to think about what the next great wave is. My personal best guess is that it will be machine learning and just applied to every vertical.
I think that's the easiest layup right now if I were going to start a company. But you all probably know what that is much better than I do. Whatever your peers are doing, whatever peers are excited about, even if it looks like a toy today ... Especially if it looks like a toy today, that's probably the next great wave.
But you want to identify this, what is the big technological tectonic shift that's going to happen in the next couple of years? Do something that's enabled by that and built on that platform. It's also easier to start a hard company than an easy company.
Most people, especially young people, want to pick something that doesn't sound too ambitious, doesn't sound too hard. Starting a company sounds really hard. I better pick the easiest possible company.
But actually, starting a company is always hard, and it's about equally hard not matter what you do. If you start a hard company, though, if you inspire passionate people, if you are building like general AI or supersonic airplanes or nuclear power, you'll have a lot more people who are excited about that than in another derivative idea.
You know, Facebook, nineteen hundred and fifty two. This idea that it's easier to start a hard company than an easy company, I think is a big secret in startups still.
But it's one that I've seen again and again play out.
As Dustin mentioned in answering a question, co-founders are really good. But a bad co-founder is way worse than no co-founder. Because so many people say you need a co-founder, there are a lot of people that will pull some random person off the street and make her their co-founder. This is really bad. In fact, we did a little analysis of our data at Y Combinator on this once.
And this glom don, random co-founders, a hundred percent failure rate. A hundred percent. You really need a shared history. You want someone that you know is good, you know you can work with, and that you have an obligation to.
There are many times in the course of the startup where the expected value dips below the x axis, just temporarily. And it's not rational to keep going. If you have a shared history and a bond with someone, you keep going anyway because you don't want to let your friend down.
This is really important. You want to select with determination. Determination is the most important value in a co-founder I've ever been able to identify. It's not the thing people look for the most.
Startups really, really hard. Determined people are the ones that make it work. Startups are about not giving up. When we talk to our best founders, the things that they say are things like, "I always figure it out. I never give up." These are the traits that actually works. It's not that picture that Dustin showed from the movie of like the beautiful writing equations on the window.
It's just dogged persistence. You keep going and it eventually works. It's co-founders that need to have that.
When I think about co-founders, I tell people to think values first, aptitudes second, and specific skills third. I think most people go in the opposite order. They're like, I need a co-founder who knows JavaScript and X and Y. Really, you want to find someone that matches your values, especially this value of determination.
You want someone just has a lot of potential and aptitude, and then finally you can think about specific skills. Finally, you want someone who is humble and not entitled. When someone asked Dustin the question about what has changed in startups from 2004 to 2017, my answer to that question is that there are more people than ever before that want to get into startups for the wrong reasons.
That want to do it because it's the cool thing to do. These are the people that would have gone into investment banking in 2004. You want people that are humble, that are not entitled, that are willing to do whatever it takes. And they're doing this because they want to create this thing. They have this idea that they can't let go.
We have five lectures in this course devoted to the product because a great product is the single most important thing that you do.
The one thing I want to mention for now, as you are thinking about the product you build, is that it is more important to have a small number of users that love you, than a lot of users that like you. Almost all startups get this wrong.
Eventually what you want, of course, is a lot of users that really love your product. That's almost impossible to do. In practice, you have two choices. You can go deep and narrow. You can have a small number of users that really love you and then you can find out how to find more and more of those users and broaden the appeal of the product.
Or, you can have a lot of people that kind of use the product once or twice, kind of like it and try to figure out how to get them more engaged overtime.
With high confidence, I can say you want to start with a small number of users that really love you. Almost all great companies have products that start this way. Think about the ones in your own life. The products that are so good that you spontaneously tell your friends about them. The products that are so good that if they went away, you would write the company and protest. That's what it means to really love a product.
A good indicator of that is retention and frequency of use. In fact, I think this is so important that you shouldn't track absolute growth and number of users in the early days of a startup. You should just track how often they're using it. We'll have a session on metrics later, but you really want to get good at analyzing your metrics and saying, "Is this a user that I'm retaining and that's using it frequently? How do I compare to other products in my space?" That's a good early indicator of users that love you.
Better still is them spontaneously telling your friends to buy your product. The important point here is this, nothing but a great product will save you. We're going to talk about a lot other things in this course, and they all kind of matter, but if you don't get this one right... If you don't make a great product, the thing is still not going to work.
You need to get some users to build a great product. You can't do this in a vacuum. You need people to talk to and to iterate with. You need to find a small number of users that will help you build this great product.
One of the most common cliches in all of startup advice is the talk to your users. One thing I've learned is that most people don't know what that actually means. Most people will say, "Oh, I'm supposed to talk to my users." So, they call up a user and say, "Hey, it's Sam. Do you like my product?" And the user says, "Yeah, I do, it's fine." People kind of generally don't want to disappoint you. So you say, "Oh great, thanks", and you hang up the phone.
This is what most founders do when you say, talk to your users. This is not what it means. Emmet Shear, who is one of our lecturers later, is really good at doing user interviews. He'll talk about this in more detail. But you really need to drill in and remember people are going to be too nice to you.
You need to find out exactly what they like about it. And you need to watch them use it. You need to try to figure out where they're doing things that seem weird to you because they're trying to accomplish something else. You should ask them, "Have you recommended this to anyone else? If not, why not? Have you paid me yet? If not, why not? What would that take?" You really have to dig in and talk about specific features, things they used to use instead, times when they stopped using your product and used some other product.
The top level questions here don't help you. In terms of getting those users, everyone thinks that they're just going to put up this website, tell one person about it, and it's going take off like wildfire. That's not what usually happens. There are four common strategies to get your first hundred users. I'm going to go through them in roughly best to worst.
You can email people you already know and you can ask them to be your customers. You can call in all the favors with anyone you can think of, someone you took a random class with, someone you were friends with in high school. If it's a paid product, you should actually charge. This is important. Remember, people are going to be inclined to do you favors. They are going to be too nice in what they tell you. So, if it's a paid product, charge them.
Another strategy is to research people that you think might use your product, and then email them or whatever and ask them to try it. Conversions rate here are low, maybe two, three percent. So you'll have to do this a ton more. But you can send targeted emails and say, "Hey, I just made this new product. I'd really appreciate it if you would try it out." Most people want to be helpful. They probably will.
You can do social media, hacker news, forums, press, whatever. If this is going to be your growth strategy, you need to figure out a way for it to be ongoing. Not a one big pop and then go away. Most people who do this find that it works once, then they call up the journalists and say, "Will you write about me again?" And the journalist will say, "Has anything changed?" "No, but I really need users. Will you please write?" The journalist still says no.
Airbnb is an example of a company that made this work as an ongoing process. They would do the craziest things. They just kept coming up with press stunt after press stunt. They would mail journalists giant boxes of cereal, so they got on their desks. They were able to get it to keep going. But that's hard.
I want to wrap this up before I take a few questions by talking about building a great company. We talked about this earlier, getting to know your users really well is important. The best founders, they do customer support themselves. They go visit their users. They sit in their office if they can. In the case of Airbnb, they'd go live with them. You want to get to know your users really, really well. They have a short cycle time. The cycle here is basically like, talk to customer, understand pain point, build product to address that, get that in front of a user, ask them, see what they do, and then repeat the cycle. This cycle is how you iterate and improve.
The law of compound growth being what it is, if you can get two percent better every iteration cycle, and you have a chance of having iteration cycle be every four hours or every four weeks, and you compound it over the course of a few years, you get in very, very different places.
Make it one of your top goals to build the fastest iterating company the world has ever seen.
You want to make a long term commitment. Most companies don't do this. Most companies, especially if they're trying to start the easy company, think in a two or three year time frame.
These things always just take a lot longer. It's always somehow almost a ten year project if it's going to work. If you think about it that way from the very beginning, you will make very different and much better decisions.
I think this is the only arbitrage opportunity left in the market. Almost no one makes a very long term commitment to the new project. If you do that, you will think in a different way. You will hire different people, and that will work really well.
Speaking of hiring, stay lean until everything is working really well. I think this is somewhat bimodal. In the early days when you're experimenting and zigzagging and you want to be like a fast little speedboat, and you want to be able to turn the whole company on a dime... And you can't do that if you have a big company.
Cash burn aside, which is another problem, the flexibility of a company basically decreases with the square of the number of employees. You want to stay really small until you're sure things are working.
When things are working, then you can get really big. In fact, then you need to. Once you switch into hyper scale mode, you want to just get as fast as you can with great people. Because then, you don't want to be a speedboat, you want to be an aircraft carrier. You want to be a battleship. And you don't care about the fact that you can't turn as fast. You just want to steamroll everything.
You really want to be in one mode or the other. You'll know, like once users are just begging for your product, you'll be convinced you have great product, market fit. That is when you can start to scale up the company. Even when you get there, though, resist the urge to hire mediocre people. who's speaking later in the course, has a saying that I love which is, the team you build is the company you build. This is really true. I didn't appreciate how true this was for a long time.
If you build a team of great people and you have a product people love, you have a ninety something percent chance of success. Those are really hard to do and there are independent variables, but don't ignore the team. The best CEOs I know spend huge amounts of their time recruiting and retaining their talent. How much of your time would you say you spend on this?
Forty or fifty percent.
This is Dustin Moskovitz, doesn't need to do anything he doesn't want to do and he chooses to spend half of his time recruiting and retaining employees. If Dustin can do that, you all should probably really be doing that as well. Every CEO I've met has an excuse for why they only spend five percent of their time on building their team. It always sounds really good and then they always turn out to fail. Really, really invest in this.
Relentless execution. This is a theme we'll talk about a lot. But you have to keep going and keep going and keep going. And you have to do things perfectly. And you have to get all the details right. You have to care too much about every experience that a customer has with your company.
There's this book, The Score Takes Care of Itself, read it. It's really good. It's about how important it is to get all the details right and just move forward relentlessly and as quickly as you can.
Startups are about not giving up to a degree that most people don't have a good intuitive understanding for. One of the very best companies in the last YC batch, he applied seven times before he got in.
Most people, you reject them six times, they're not going to apply on the seventh. This is just a version of what happens in startups all the time where you get beat down again and again and again.
It's like that last time when you get pushed down and you don't think you have enough energy to get back up... That's when it finally works.
This is what you sign up for if you're going to start a startup. Remember, if this is like a 10 year marathon, you have a fiduciary duty to your shareholders to take care of yourself. Some people treat a startup as an all nighter. They don't do a good job taking care of their health. They don't sleep. They don't maintain their personal relationships. It is true that startups are a bad choice for a work life balance.
There are always these posts about how I changed the world with my startup only working two hours a day and you know, kite surfing the rest of the time. Somehow, these people, though, are never the ones that actually make a big impact. They just talk a lot.
Startups are really hard. You have a duty to yourself, your team, your investors, to take care of yourself and to not neglect your health, your wellbeing, the rest of you... your life, your personal relationships.
And then finally, a clear mission. You don't have to figure this out on day one. But all of the most successful startups I've been fortunate enough to be a part of, pretty quickly ... First year or two years at the outside, they figure out a really important mission. It is this mission that gets you to join them, that drives them, that drives the founders.
They get the media to write about them. And even if you start off building a project that's just interesting to you and solves a problem in your own life, which is how you should start. Remember to, at some point, have a clear mission.
You have to become a great evangelist for this mission.
One other skill that didn't make it into this version of the deck is being a great communicator. You need to clearly communicate, clearly think, this clear mission. That is what will convince people to come help you. That is how you will build this idea into this giant set of... This huge company and all these people that really love your product.
Q. I was wondering like if there are two people you can hire. One person is like a very passionate about like the things you were building, but lacks all the skill you need. The other person is really, really good at things that you're not good at, but they're not really passionate about your idea. Which one would you
A. So you have a choice to hire people. One is passionate and value aligned, but not a good skills match. The other one is a great skills match, but not passionate. Values first, aptitude second, specific skills third. If you can get a really smart person who really shares your values and your mission and believes in what you're doing, they can learn the skills. This is a framework that has not let me down many times.
Q. How do you get good at getting good ideas?
A. How do you get good at getting good ideas? One thing is just to practice a lot and tell people your ideas. And be willing for them to tell you why it's terrible. I think good ideas are not a solo endeavor.
You want to find a group of smart people that you can start bouncing things off of and say, "Hey, I noticed this thing and it kind of sucked. What can we do about it?" You don't just sit in the room and write on the window with the whiteboard pen and have ideas come to you. Good ideas come because you talk to people.
You have smart friends, you have colleagues and you spitball ideas around. I would say notice problems in your life, even if you don't have a solution, still talk just about the problem and see if you can come up with something.
One more thing on that. Ideas are very fragile. When you find this set of people to start talking about ideas with, you want people that don't immediately shoot at bad, half-baked, half-formed idea down. You want people who will say, "Well, yes... What if we do this other thing?" You don't want people who are like, "That sounds stupid." You want people who will say, "Well, that sounds crazy and unlikely to work, but think about how big it could be if it did work."
That's the spirit of the kind of person. And then how can we figure out how to make it work that you want? But, I'd say notice problems, have people to talk with.
Q. This revolves around fund raising. How do you know when to start fund raising?
A. How do you know when to start fund raising? We're going to have a whole class on that. But in general, if you can raise money, and it's easy... So if people are desperate to give you money on good terms, that might be a good time to take it. The other one, of course, is if you need the money. And then you kind of may need to do it no matter what the terms are. In general, you want to have progress to warrant the funding you need. It's kind of when you have enough progress, then you're able to fairly easily raise money and you need it, that's the best of all possible times. But again, that's a complicated question. We'll do a full lecture on it.
Q. How do you decide when to turn from the searching mode and stay lean?
A. How do you decide to switch from when you're kind of like hacking around trying to get good product market fit and when to really scale up the company? You will know. Everyone wonders how they know when it's time for that. It's like when you are running around the office 80 hours a week, pulling your hairs out, and people love your product so much you just can't build it fast enough... That's when. I have never seen someone not be able to figure out when this moment is. All right. On Thursday, we will have a session on startup mechanics. And thank you very much.