00:07This is CS183F, thank you all for coming,
we hope to make a really great class.
00:12So, we're going to try to teach you what
you need to know for the first 100 days
00:17of a startup, basically how do you go
from a very raw idea to a company.
00:22I'm the president of Y Combinator,
I'm Sam Altman, I've been teaching these
00:26people for a while and so hopefully, we'll
be able to make this make a lot of sense.
00:32Today our guest speaker besides
me is Dustin Moskovitz.
00:36Dustin was the co-founder of Facebook and
CTO MVP engineering, I just learned.
00:43And is now the co-founder and
CEO of Asana.
00:45Dustin give a talk at the first person of
this class that is still the one I refer
00:49other people to the most.
00:50And it's about a why to start a startup,
which is
00:53actually a really important question and
one that people don't think about enough.
00:56So, he was kind enough to come back and
do that again.
01:01>> [APPLAUSE]
>> So, if you're here today,
01:04you're watching the video later, you're
probably planning to start a company.
01:07That's why you're taking the course.
01:09Most of the class is going to be
about how to go about doing that and
01:12But, before you dive into
the how of being entrepreneur,
01:14I'm here to help you think about the why.
01:17So, it's important to know
which reason is yours, so
01:20that you think through
the decision correctly, so
01:22I hear a variety of common motivators
from potential entrepeneurs.
01:26But, I found that once they
fully considered the trade off,
01:28they often decided starting a company
isn't actually the best way to achieve
01:33So, I'll hope you make sure you're
choosing the best solution.
01:35And, I also explain the reason I like
to hear best from people about why
01:37they want to start a company, what I hear
when I think someone's really set up for
01:42So, I've given this talk before,
as Sam said.
01:44And a bunch of people have
come up to me after and
01:45said it really helped
them with their decision.
01:47In a few cases, they decided that
they shouldn't start a company,
01:50that they should join an established one.
01:52But, I know a lot of you
are resolved on what you're doing.
01:55If that's true, no problem.
01:56I think this will still be useful for
you because you'll get a better sense
01:59of the reality of what
you're about to go through.
02:01So it's not a long talk.
02:03It's just about ten slides and I've
left some time for questions at the end.
02:08Great.
So it's called Spade to Spade.
02:11A lot of people become entrepreneurs
specifically as a way to try to become
02:16So, they see themselves starting
the next Facebook, or Google.
02:20However, the odds of being, that
successful, are actually incredibly small.
02:24So, only a handful of an entire
generation of companies,
02:26actually end up getting to, that scale.
02:29So, here's a funnel from
the CBN site actually.
02:31It shows how many seed funded
02:34tech companies get through
each round of funding.
02:37So, even if we reduce our ambitions a bit
to becoming unicorns, so a company with
02:40a billion dollar evaluation,
we still have incredibly long odds.
02:42So, only 1% of seed funded companies
get all the way through this funnel.
02:47Now, getting to six rounds of funding,
02:48it's not exactly the same as becoming
unicorn, but it's pretty well correlated.
02:51Most of the unicorns I know, had to have
at least that many rounds of funding.
02:55So, to get there you have
to have a truly great idea.
02:57It's got to be unique, defensible,
going after a large market.
03:01You have to execute it Oop, sorry.
03:03You have to execute extremely well so
that means you have to work hard,
03:06you have to attract the right people and
03:07you have to have a better
strategy than your competitors.
03:11And you also have to just be really,
really lucky.
03:12because there's a lot of things
that can get in your way and
03:14a lot of them are not
even in your control.
03:18So, I talked too much of investors and
entrepreneurs, and
03:21the sense is it's actually getting harder
over time we get through this funnel.
03:23So, not only are more
people starting companies,
03:26we need to have more
people to compete with.
03:28But they're becoming more expensive
to operate for a lot of reasons,
03:30particularly here in the bay area.
03:32And investors have higher
expectations too so
03:34you have seen valuation multiples start to
decline particularly on the public market.
03:39Perhaps most importantly it's becoming
harder to disrupt incumbents.
03:42They're not the slow moving giants that
they were ten or twenty years ago.
03:45They know how to take advantage
of their market position.
03:49Some of you are thinking sure it's hard
but you get so much more equity as
03:53a founder, that it's clearly
the only way to make a lot of money.
03:56So, let's talk about two different
ways you might get to a great
04:01So story one, you're the founder,
you started a company that does Uber for
04:07So, in this picture this is
the customer not the founder.
04:12It's a great idea and
04:13you executed it well, so you sell the
company at some point for $100 million.
04:16And if you've been really successful
limiting dilution, your equity might be
04:20as high as 10% of the company at that
point by the time it becomes liquid.
04:23So, you're walking away with $10 million.
04:24Pretty great outcome.
04:27However, I just showed you only a small
portion of starters that make it that far,
04:29so this is the lucky case.
04:30$100 million a little easier than $1
billion but it's still extremely rare.
04:36And it's actually most likely that
you end up with nothing on this path,
04:39because you just end up shutting down
the company for whatever reason.
04:42And oftentimes you see a company sell to
an acquirer this kind of range evaluation.
04:48In a lot of those cases,
04:49the founder still ends up with nothing
because of investor liquidity preference.
04:53So, it depends a lot on how much
money you've raised to get there.
04:57So this is definitely the high risk path.
04:59But another way to make a similar amount
of money, so join a later stage company
05:03and help them scale from say 500
million evaluation to 20 billion.
05:07So, even straight out college,
05:09you can do really well financially
by joining a company at that stage.
05:12But, especially if you have
few years of experience,
05:14you're going to get a really
good options package and
05:16you'll going to have
a very high salary too.
05:17So, I just sort of swag five basis
point here, if you joined earlier
05:21might be more than that, if you have more
experience it might be more than, but
05:25this is a good sort of benchmark.
05:28And you probably know the market for
experienced tech workers is
05:32extremely competitive right now,
particularly for product roles.
05:37you can also walk away with ten
million dollars by taking this path.
05:39And if you choose really well, and
you do find that next Facebook or Google,
05:42while it's still not yet a unicorn,
you can do extremely well.
05:45So, the 100th engineer at Facebook
had a way better financial outcome
05:48than the vast majority of entrepreneurs.
05:51So, of course, it's still possible
you'll choose the wrong company.
05:54Won't grow enough, for
this kind of outcome.
05:55This is actually 40x growth,
which is pretty impressive.
05:58But the key is, you get to join
it much later in its life cycle.
06:00So you have a lot more information.
06:02You can see the performance so far,
06:03you can meet some of the team, you can
understand the competitive landscape.
06:08And even if you don't find a company
that's going to grow this much,
06:10you've got a good chance of picking
one that's going to grow some.
06:12In fact your equity value's
probably already non-zero.
06:15So, you've got a pretty good chance
of having a positive outcome in that
06:18situation and
maybe a really great outcome.
06:20And then finally, if you've found a
company, you have a long-term commitment.
06:23There's a good chance you're
going to be putting ten years or
06:25more into making it scale, and
you still may fail in the end.
06:29Where as if you join an established
company, you can work there for
06:32a couple years, you can get
a sense of whether it's growing.
06:35If not you can easily leave and try again.
06:37So, you can actually work for
several different ones in that same
06:39ten year period, and that really
increases your chances of a homerun.
06:44So, the ultimate takeaway here is
there are multiple ways to get a great
06:47financial outcome, but it's a lot lower
risk to join an established company.
06:52Don't worry, not all of these will be
arguments about why your should join
06:54an established company.
06:56[LAUGH] So similarly,
06:58a lot of people want to start a company
in order to maximize their impact.
07:01So usually, financial outcomes
are pretty well correlated with that, so
07:04a lot of the arguments that
I made apply here as well.
07:07But when you join a company that's already
established, you get some big advantages.
07:11So you get to access
their existing user base.
07:13It might be hundreds of billions,
sometimes a billion people.
07:16You get the ability to work on top of
infrastructure that's already been
07:19built out and scaled.
07:21And you're collaborating
with an established team.
07:23So, they're going to help you succeed.
07:26So I want to give some concrete examples
of massive impact that people achieved
07:31So, Bret Taylor, who's the head of Quip,
before he became an entrepreneur,
07:36he joined Google after,
it already had over 1,000 employees.
07:39And there, he was able to spearhead
the creation of Google Maps,
07:41which is used by hundreds of millions of
people, including me on my way here today.
07:46Similarly my co-founder of Asana,
Justin Rosenstein,
07:49he joined Google at the similar time and
there he prototyped Gchat inside Gmail.
07:54This was over ten years ago,
still used by a ton of people.
07:59And then shortly after that, he went
to Facebook, after he had a few hundred
08:03employees, and he led the Hackathon
project that created the Like button.
08:06Some of you have probably used it once or
twice.
08:10So, you can still join teams at
Facebook and Google today, and
08:14work on something that literally
might reach a billion people.
08:16Set a lot of impact, even if your
08:19contributions are relatively a small
portion of the product surface area.
08:22So, if you want to become an entrepreneur
and maximize impact, these are the types
08:25of stories that I think you should
be comparing opportunity to.
08:30So next there's lifestyle, so
08:33everyone's got their own story about
what it means to be an entrepreneur.
08:37So in general, the media likes to make it
seem glamorous, emphasizing launches, and
08:43They tend to talk about success cases and
ignore failures.
08:46And the entrepreneurs,
themselves, are like ducks.
08:48They're calm on the surface, but
they're paddling like hell underneath.
08:51But you only get to see them on that
surface, looking passionate and focused.
08:56So the first image here is
from The Social Network,
08:59which is a fictional movie
about the founding of Facebook.
09:02It looks pretty fun, and
09:04the last image is an actual photo from
the founding of Facebook [LAUGH].
09:08They're a little different.
09:09So, reality is a lot of heads
down time doing hard work.
09:13We hardly had any time to
bust open champagne and
09:15spray it all over our laptops.
09:17>> [LAUGH]
>> All right, so in practice,
09:25tech is a little less like The Social
Network, and more like Silicon Valley.
09:28It's actually really stressful.
09:31Well, a few reasons.
09:32One, your team is relying on you, so
09:34they're betting some of their best
years on the story you've told them.
09:37And the recruiters pinging them
constantly many times a week.
09:40So you're always worried
you're going to lose them.
09:42Each round of fundraising feels
a little like life and death, and
09:45your competitors are actually
trying to kill you.
09:47And you always feel stretched thin,
because it's hard to make time for
09:50the company, you're significant other,
your family, and yourself.
09:54So of course, my title here is
reference to Ben Horowitz's book,
09:57The Hard Thing About Hard Things.
09:58If you want to go way
deep on this subject,
10:00I definitely recommend giving that a read.
10:04So relatedly, people also think being a
founder will give you control over how you
10:09Here's a great quote from Phil Libin here,
give you a sec to read it.
10:18So, Phil and
I both learned this the hard way, but
10:20you don't actually have
control in practice.
10:23So, I spend most of my time working on
the problems I just couldn't delegate,
10:26reacting to issues that are popping up,
or resolving conflicts, and
10:30you're always on call.
10:31So, it makes it hard to really unplug
during a vacation, or on the weekends, and
10:35you're role model too.
10:37So, if you take your foot off the gas,
then so will your team.
10:41So that said, this one really doesn't
apply if you want to have a lifestyle
10:45business, you'd be like
a small business entrepreneur.
10:47If you do that, then you actually do have
a lot of control over your lifestyle, but
10:51the financial and
impact outcomes are going to be smaller.
10:55All right, so this is a recap
of those first four topics.
10:59So these are the top reasons
I usually hear from people.
11:02So the success funnel that I showed you
in practice suggests that startups aren't
11:06clearly the best way to maximize
financial impacts, sorry,
11:10financial reward or impacts.
11:11So you might do better by
joining an established company.
11:15the reality of entrepreneurship doesn't
usually match what you see on the media.
11:19So, if you want to aim for a home run,
11:21you should feel committed to putting in
the many years of effort and discipline
11:25that it takes to become a professional
athlete, and you still may fail [LAUGH].
11:30So now that I've given
you a bunch of bad news,
11:33let's talk about what I see as the best
reason for starting a company.
11:37So basically, you can't not do it.
11:39So, this has two roots,
the first is passion.
11:43So passion is really important since
we just talked about how hard it
11:46is to start a company.
11:47So, you're going to need that
passion to power through, and
11:49you also need it to recruit great
people to follow you as a leader.
11:53And then, the second part of this is that
you're the right person to make this
11:55happen by starting a company.
11:57So, if you fail to do it you're actually
11:59going to be depriving
the world of something great.
12:01So this implies that the idea
itself is really valuable,
12:04and it also implies that you're the best
person to bring that idea into the world.
12:07If you're not the best person, and
that best person's out there, and
12:10they're probably going to outcompete you,
and create something even more valuable.
12:14So one twist on this is maybe
you're the best person, but
12:16you should do it within the context
of an existing company.
12:19And so, I often feel this way when I hear
someone describe something to me that
12:22really sounds like a feature
of an existing product.
12:24So, if you want to have the next twist
on photo sharing, I definitely recommend
12:28considering Instagram, or Snapchat, and
helping them build it into their products.
12:32So, you can go entrepreneurial inside
the context of an existing company.
12:37So I've twice chosen to become
an entrepreneur myself, and
12:39both of the times were motivated
by this reason exactly.
12:41So, for Facebook,
we actually continue to be students at
12:46Harvard until the site had over
100,000 monthly active users.
12:50So we had cognitive dissonance, we're kind
of on an embarrassing long period of time
12:52that we could just be students, and
have this little side project on the side.
12:56But eventually, it pulled us out because
we couldn't bear the idea of it not
13:00living up to its full potential.
13:01And then somewhere we, the Justin and
I were both reluctant entrepreneurs,
13:06but we thought the problem
was really important.
13:09And that the other people working on
it were going to develop incremental
13:12solutions, leave a lot
of value on the table.
13:15So we couldn't stop working on it.
13:17Eventually, we decided to leave Facebook,
and focus on it full time.
13:21So when I meet entrepreneurs that
really seem set up for success.
13:23This is usually the reason
I'm hearing from them.
13:25They're starting a company
because it felt like really,
13:28the only thing that they could do next.
13:30So, that's it, short and sweet,
we have time for questions.
13:33I don't know what my cutoff time is.
13:36>> Few minutes, all right, cool.
13:37So, feel free to just raise your hands,
and I'll call on you, and
13:40repeat the question for the mic.
13:44Someone always has to break the bubble,
by the way, kind of view.
13:49>> How do you decide if it's, or how do
you advise people to decide if the best
13:53way is to go do this at some other
company, or do it themselves?
13:58It's easy in the photo sharing example,
but
13:59in the real world, most of the time
it's a little bit murkier.
14:02So what's the framework
you think through about?
14:05>> Yeah, so two things, one is just the
sort of feature-not-company distinction
14:10like Mark and Tristan has talked about.
14:12So, I don't know how make that concrete,
but
14:15it's just sort of thinking about the idea.
14:17Is this a separate product, that it feels
like somebody's going to sign up for,
14:20can it have its own monetization model?
14:22Are people really going to invest
in learning a new system, or
14:25does it really feel like the add
on on top of some existing model.
14:29And very related to that I think are just
going to be the competitive nature.
14:33So, if you have to introduce a whole
new photo sharing app, right, and
14:36then you have to compete
with the distribution and
14:39network effects of the existing ones,
that's a huge barrier to entry,
14:42and there's sort of similar metaphors,
and other products.
14:45Does that makes sense?
14:47>> That's part of product judgement.
14:48Go, you and then, you.
14:51>> I was wondering what's your thought
on the challenges starting a company
14:56when you started a company, and
starting a company, [INAUDIBLE]?
15:00>> Yeah, so I sort of briefly outlined
them when I was talking about the funnel.
15:04Sorry, yeah, the question was about the
difference in challenges between starting
15:08a company basically in 2004
versus starting a company today,
15:11or the second time in 2009.
15:13So I sort of outlined them when
I was talking about the funnel.
15:16But I definitely think,
15:17it's just a lot of more competitive in
terms of the other businesses out there,
15:21so there's just like most of the valuable
markets have interesting players already.
15:26And it's also very competitive
in the recruiting markets.
15:28So, it's really hard to get a big enough
team of sufficiently talented people, and
15:32those people are going to
be more expensive.
15:34So, it's one of the ways that costs have
gone up, there's also a bunch of other
15:38ways including just like real estate and
the really expensive right now.
15:42Some other costs have come down like
data center costs, but in general,
15:47it just feels higher for and
harder to get going, yeah?
15:52>> So I've mentioned the comparison
between start up, being a founder,
15:58So how do position or is that maybe
their first attempt kind of people,
16:04Where on that spectrum.
16:07So, sorry the question is what's
the difference between being a sort of
16:11a later employee at an established
company versus being an early employee?
16:15Is that the question?
16:17So I think of it as just
a spectrum on the risk scale,
16:20between founder and 1,000th employee.
16:22So if you're in the first 10,
you have a little bit more information,
16:25you know who the founders are,
you know who the leaders are.
16:28You can meet some of the investors.
16:29Hopefully they've already done
a seed round or an A round.
16:32But usually you still don't have evidence
yet about the revenue or the monetization.
16:38And probably a product
that isn't scaling yet.
16:40So it's just sort of
a continuous spectrum and
16:42the earlier you are,
the lower your salary is going to be,
16:46the lower the sort of probability of
a positive outcome is going to be.
16:50But you also have a possibility of a
really big outcome, because you might have
16:5350 basis points, or 100 basis points
if you're one of the first employees.
16:57Does that make sense?
16:58>> [INAUDIBLE]
>> Again it's on the spectrum, right?
17:08So maybe the second employee,
17:10so the question was is in the probability
of success basically equal?
17:14Yeah, for the second employee, yes.
17:15For the 10th employee, no,
they've got a lot more information.
17:18For the 20th employee,
17:19they've got even more information so it's
just going to be a continuous spectrum.
17:24>> Yeah, how do you find your core team
when you were founding on Facebook?
17:28Was it a natural process or did you go
about selecting the best of each areas?
17:33>> Sure, so
how did we go about finding the core team?
17:37At Facebook, pretty organic so really a
lot of people are just like the people in
17:41our network at Harvard that we
moved out to Palo Alto west.
17:45And then very early on, we hired
Matt Collier and he sort of took over
17:49recruiting and helped us get in
networking to Standford actually and
17:52a lot of people we hired
were recent graduates here.
17:56And we really focused on
the product team first.
17:58But yeah, a lot of it was very path
dependent and organic, working networks.
18:02Things are little different now, in small
company, you can't work with contractor,
18:07recruiters, and even with some of
the services that help connect people.
18:11And I think those are pretty good.
18:15Go and call on someone, yeah.
18:17>> I was thinking along
the passion dimension.
18:19What are your thoughts
along the lines from, say,
18:23interest to pathological obsession?
18:26>> [LAUGH]
>> [LAUGH]
18:28>> The question is when
18:29I talked about passion, am I talking
just about an interest in the subject or
18:34pathological obsession?
18:36Again, it's a spectrum but probably more
towards the pathological obsession like
18:40when I say you cannot do it, it's like one
of these things where you'll look back 20
18:45years from now and be like man,
I really should have gone after that idea.
18:48It was really important to me.
18:50Whereas interest,
I have a lot of interest in the world.
18:52They're not all necessarily important and
they're not all going to keep my attention
18:56for the 10 or
20 years that you need to focus.
18:59How are we doing on time?
19:01>> One more.
>> One more?
19:03>> I am building not a product or idea,
should you always have a co-founder and
19:06if so, how should you look for
that co-founder?
19:10>> So the question is about, should you
always have a co-founder, and if so,
19:14how should you look for that co-founder?
19:16This is a really tough one.
19:17I happened to have a pretty strong opinion
that co-founders are super important.
19:20Again, because this is really hard and
that's your buddy that you get to lean on.
19:25And they're kind of in
the trenches with you.
19:27But if you don't have someone who's
sort of the obvious person you want to
19:30work with, I don't have good advice on
how to do that in both of my cases.
19:35We're starting a company together and
discussing it together the whole time.
19:38This sort of founder dating thing
doesn't make as much sense to me.
19:42I actually think starting a company is
an even more important relationship than
19:48something because financial issues enter
the conversation even more often [LAUGH].
19:52And found out that
breakups are really bad.
19:55So, I highly recommend working with
someone that you've known a long time, and
20:00really just discussing as many
of the details as possible
20:03to make sure you're on the same page.
20:05because those conversations
get a lot harder later.
20:07All right, so we're going to wrap up?
20:09>> Thank you Dustin.
20:21>> Can I get that clicker?
20:25All right, so I wanted to use today to
sort of summarize other things we'll be
20:29touching on the class.
20:30And since it's mostly guest lectures,
20:32this my chance to say
the things that I believe.
20:36And I wanted to start off by talking
about what makes Silicon Valley special,
20:39there are 100 people in the room
in the class here at Stanford.
20:42There will be hundreds of thousands or
20:43millions of people that watch this
online from around the world.
20:47And as I travel around the world
talking about startups,
20:50the most common question I
get is why Silicon Valley,
20:52what happens there that's
different than everywhere else?
20:56Why can't we do this where I'm from?
20:58And I think it's an instructive question,
even for people living here.
21:01Because you want to find out what this is,
and
21:04surround yourself with the most
concentrated version of it.
21:07The thing that I think is
most important of all is that
21:10there is a relentless
belief in the future here.
21:13There are people here who will take your
wild idea seriously instead of mocking
21:17you, and that's because they've learned
it's very expensive to just pass and
21:21say every idea is stupid.
21:23So if you have someone that's like, I'm
going to start an electric car company,
21:26and they don't know much about batteries,
even less about cars,
21:28it'd be very easy to write that off.
21:31And yesterday Tesla passed
Ford in the market cap.
21:33And so people have learned that
these wild ideas about the future,
21:38you don't want to write
them off too quickly.
21:41You want to give them a real chance.
21:42You want to think about them.
21:43And in most of the world and
in most other work contexts,
21:47people will just mock you behind your
back to your face, whatever it is.
21:53You really want to find the small number
of people in your life that will support
21:58your ambitions,
not belittle your ambitions.
22:01And this is hard to find.
22:03This is not the default state.
22:05We don't realize how rare it is
that we're in an environment where
22:08that's the most people are like.
22:10There's no tall poppy syndrome.
22:12In many other countries,
many other cultures, there's a word for
22:16what it is when if a person gets too tall,
too ambitious, thinking too big,
22:22There's not even really a phrase
like that in America, but
22:24there is one in most other cultures.
22:26There's also a very high density of
people working on startups here,
22:29and there's culture of paying it forward.
22:31People helped me on my startup,
I'm going to help them on theirs.
22:34And so you want to surround yourself with
this no matter where you are in the world.
22:37You may find that you have to go
online to find that community.
22:40You still want to do it.
22:42This is my old version of slides.
22:45Did I send you a new one?
22:47We're just going to go with this.
22:52So one of the things that startups
really have to go right is the idea.
22:57There's become this myth in Silicon Valley
that the idea doesn't matter.
23:01That you should start a startup and
23:02just sort of pivot your way on this random
walk and hope you get something big.
23:08all of the best startups that
we have funded at Y Combinator,
23:14it was an idea first and the startup
second, it was not a bunch of pivots.
23:19The very few pivots that were successful
23:22where when the founders
discovered along the way that
23:24there was some other idea they were more
passionate about than their first one.
23:28Or they just learned some new problem.
23:32Original thought is really hard to
get good at, but really important.
23:36The most successful startups
are not derivatives.
23:38They are not a copy of something
else that was working pretty well.
23:41Most people try to start a copy
of whatever worked last year.
23:44I don't know how many people started a
Facebook Clone in the year after Facebook.
23:48>> A lot.
>> A lot, and
23:49none of those went on to really matter.
23:52The next Facebook never
looks like Facebook,
23:54it looks like something totally different.
23:55And the way to get good at this is to
start noticing problems in your own life.
24:00And the great advantage that you
have As students is that students,
24:04young people in general,
tend to be on the forefront of technology.
24:07You can predict the great
wave before it happens.
24:10And this idea of the great wave,
24:12I think this is the most important
concept to find good idea's out there.
24:17People wonder why startups
cluster in small periods of time.
24:21Why were there a bunch of startups
that were companies that started
24:24in the late 90s,
early 2000s that were really successful?
24:28Why were there a bunch of
start-ups between, sort of,
24:302009 to 2011 that started
that were really successful?
24:34And the reason is that there are these
great waves, the Internet and mobile,
24:38in those two cases, smartphones.
24:40That all of a sudden, new things are
possible that were never possible before.
24:44And when that happens, because startups
can move so quickly, you can do things
24:49that otherwise would never happen, or
that otherwise a big company would win on.
24:55And you want to think about
what the next great wave is.
24:58My personal best guess is that
it will be machine learning, and
25:02just applied to every vertical.
25:04I think that's the easiest layup right
now if I were going to start a company.
25:07But you all probably know what
that is much better than I do.
25:10Whatever your peers are doing,
whatever your peers are excited about,
25:13even if it looks like a toy today,
especially if it looks like a toy today,
25:16that's probably the next great wave.
25:18But you want to identify this.
25:19What is the big
technological tectonic shift
25:22that's going to happen in
the next couple of years?
25:25And do something that's enabled by that,
and built on that platform.
25:29It's also easier to start a hard
company than an easy company.
25:33Most people, especially young people,
25:35want to pick something that doesn't sound
too ambitious, doesn't sound too hard.
25:39Because they're like, well,
starting a company sounds really hard.
25:44I better pick the easiest
possible company.
25:47But actually starting
a company is always hard and
25:49it's about equally hard
no matter what you do.
25:51If you start a hard company though,
if you inspire passionate people,
25:56if you are building like general AI,
or supersonic airplanes or
26:00nuclear power, you'll have a lot more
people that are excited about that than
26:05another derivative idea, Facebook 1952.
26:08So, this idea that it's easier to start
a hard company than an easy company,
26:13I think is a big secret in startup still.
26:16But it's one that I see again and
again play out.
26:20As Dustin mentioned in answering
a question, co-founders are really good.
26:24But a bad co-founder is way
worse than no co-founder.
26:28Because so many people say you need
a co-founder, there are a lot of people
26:32that will pull some random person off
the street and make her their co-founder.
26:37In fact, we did a little analysis of our
data at Y Combinator of this once and
26:42these glommed on random co-founders,
100% failure rate, 100%.
26:48You really need a shared history.
26:50You want someone who you know is good,
you know you can work with and
26:53that you have an obligation to.
26:55There are many times in the course of
the startup where the expected value dips
27:02And it's not rational to keep going.
27:04And if you have a shared history and a
bond with someone, you keep going anyway,
27:08because you don't want
to let your friend down.
27:10This is really important.
27:11You want to select for determination.
27:14Determination is the most important
value in a co-founder I've ever
27:19been able to identify.
27:20And it's not the thing that
people look for the most.
27:23Startup's are really, really hard.
27:25Determined people are the ones
that make it work.
27:27Startups are about not giving up.
27:29When we talk to our best founders, the
things that they say are things like, I
27:35always figure it out, I never give up, and
these are the traits that actually works.
27:40It's not that picture that Dustin showed
from the movie of a Beautiful Mind style,
27:44writing equations on a window.
27:46It's just dogged persistence.
27:48And you keep going, and
it eventually works.
27:50It's co-founders that need to have that.
27:53So, when I think about co-founders I
tell people to think values first,
27:57aptitude second, and
specific skills third.
28:00I think most people go
in the opposite order.
28:01They are like, I need a co-founder
who knows JavaScript and x and y.
28:07And really you want to find
someone that matches your values,
28:11especially this value determination.
28:13You want someone that just has a lot
of potential and aptitude, and
28:17then finally you can think
about specific skills.
28:20And finally, you want someone
that is humble and not entitled.
28:24When someone asked Dustin the question
about what has changed in startups from
28:282004 to 2017, my answer to that
question is that there are more
28:33people than ever before that want to get
into startups for the wrong reasons.
28:37That want to do it because
it's the cool thing to do.
28:39These are the people that would have
gone into investment banking in 2004.
28:43And you want people that are humble,
that are not entitled,
28:46that are willing to do whatever it takes.
28:49And they're doing this because
they want to create this thing.
28:54They have this idea
that they can't let go.
28:58We have five lectures in this course
devoted to the product because a great
29:02product is the single most
important thing that you do.
29:06The one thing I want to mention for
29:07now as you're thinking about the product
you build, is that is it more important to
29:12have a small number of users that love
you, than a lot of users that like you.
29:15And almost all start-ups get this wrong.
29:18Eventually what you want of course,
29:20is a lot of users that
really love your product.
29:24That's almost impossible to do.
29:25In practice, you have two choices.
29:27You can go deep and narrow,
29:29you can have a small number of
users that really love you.
29:32And then you can find out how to find
more and more of these users and
29:36broaden the appeal of the product.
29:38Or you can have a lot of people that
kind of used the product once or twice,
29:41kind of like it and try to figure out
how to get them more engaged over time.
29:47With high confidence I can say,
29:48you want to start with a small number
of users that really love you.
29:53Almost all great companies have
products that start this way.
29:56Think about the ones in your own life,
the products that are so
29:58good that you're spontaneous to
tell your friends about them.
30:01The products that are so good,
30:03that if they went away you would
write the company in protest.
30:06That's what it means to
really love a product.
30:08A good indicator of that is retention and
frequency of use.
30:13So, if you have, and in fact, I think
this is so important that you actually
30:18shouldn't track absolute growth and number
of users in the early days of a startup.
30:22You should just track how
often they're using it and
30:25we'll have a session on metrics later.
30:27But you really want to get good
at analyzing your metrics and
30:30saying is this a user that I'm
retaining and it's using it frequently?
30:34How do I compare to other
products in my space?
30:38And that's a good early indicator
of users that love you.
30:42Better still is them spontaneously telling
their friends to buy your product.
30:46But the important point here is this.
30:49Nothing but a great product will save you.
30:50We're going to talk a lot of
other things in this course and
30:53they all kind of matter.
30:54But if you don't get this one right,
if you don't make a great product,
30:57the thing is still not going to work.
31:02So, you need to get some users
to build a great product.
31:05You can't do this in a vacuum.
31:06You need people to talk to and
to iterate with.
31:09And so, you need to find a small number
of users that will help you build
31:14And one of the most common
cliches in all of startup advice
31:17is to talk to your users.
31:19One thing I've learned is that most people
don't know what that actually means.
31:23Most people will say, I'm supposed to talk
to my users, so they call up a user and
31:27say, hey, it's Sam,
do you like my product?
31:30And the user says, yeah, I do, it's fine.
31:32People kind of generally
don't want to disappoint you.
31:35And so you say, great thanks,
and you hang up the phone.
31:38And this is what most founders do
when you say talk to your users.
31:42This is not what it means.
31:44Emmett Shear,
who's one of our lecturers later,
31:46is really good at doing user interviews
and he'll talk about this in more detail.
31:50But you really need to drill in.
31:52And remember,
people are going to be too nice to you.
31:54So you need to find out exactly
what they like about it.
31:56You need to watch them use it.
31:58You need to try to figure out where
they're doing things that seem weird to
32:01you, because they're trying
to accomplish something else.
32:03You should ask them,
have you recommended this to anyone else?
32:08Have you paid me yet, if not,
why not, what would that take?
32:10You really have to dig in and
32:12talk about specific features,
things that used to use instead.
32:15Times when they stopped using your
product and use some other product.
32:19The top level questions
here don't help you.
32:22In terms of getting those users, everyone
things that they're just going to put up
32:26this website tell one persons about it and
it's going to take off.
32:28Like wildfire,
that's not what usually happens.
32:32So there are four common strategies
to get your first hundred users.
32:35I'm going to go through them in
order of roughly best to worst.
32:39You can e-mail people you already know and
you can ask them to be your customers.
32:43You can call in all the favors
of anyone you can think of,
32:46someone you took a random class with.
32:48Someone you were friends
with in highschool.
32:50You should actually if it's a paid
product, you should actually charge.
32:54This is important, remember, people
are going to be inclined to do you favors,
32:57they're going to be too
nice in what they tell you.
32:59So, if it's a paid project, charge them.
33:02Another strategy is to research people
that you think might use your product, and
33:05then email them or whatever and
ask them to try it.
33:08Conversion rates here are low,
maybe 2%, 3%.
33:10So you'll have to do this to more.
33:12But you can send target emails and say,
hey, I just made this new product,
33:15I'd really appreciate it
if you would try it out.
33:17Most people, want to be helpful.
33:20You can do social media, Hacker News,
forums, press, whatever.
33:25If this is going to be your growth
strategy, you need to figure out a way for
33:30Not a one big pop and then go away.
33:32Most people who do this
find that it works once.
33:35Then, they call up the journalists and
say, will you write about me again.
33:38And the journalist says, anything changed?
33:40No, but I really need users,
will you please write?
33:42The journalist still says no.
33:44Air BnB is an example of a company that
made this work as an ongoing process.
33:48And they would do the craziest things.
33:50They just kept coming up with
press stunt after press stunt.
33:53They would mail journalists giant boxes
of cereal so they got on their desk.
33:57And they were able to
get it to keep going.
34:01And finally, the laziest and
least impressive thing you can do
34:05is to just buy ads on Facebook or
Google and point people to your website.
34:09This is not what I recommend.
34:10I don't know of any startup that's
gotten a big starting this way.
34:13I include it because it's
the idea that most people try.
34:18I want to wrap this up before I take
a few questions by talking about building
34:23We talked about this earlier.
34:27Getting to know your users
really well is important.
34:30they do customer's support themselves,
they go visit their users.
34:34They sit in their office if they can.
34:36In the case of AirBnB,
they go live with them.
34:38You want to get to know your users really,
really well.
34:41They have a short cycle plan.
34:43The cycle here is basically like,
talk to customer, understand pain point,
34:47build product to address that,
get that in front of the user, ask them,
34:51see what they do, and
then repeat the cycle.
34:55And this cycle is how you iterate and
improve.
34:58The law of compound
growth being what it is,
35:00if you can get 2% better every iteration
cycle, and you have a chance of having
35:04an iteration cycle be every four hours or
every four weeks, and you compound
35:09that over the course of a few years,
you get in very, very different places.
35:13So make it one of your top goals to
build the fastest iterating company
35:17the world has ever seen.
35:20You want to make a long term commitment.
35:22Most companies don't do this most
companies especially if they're trying to
35:25start the easy company,
think in a two or three year time frame.
35:29These things always
just take a lot longer,
35:31it's always somehow almost a 10 tear
project, if it's going to work.
35:35And if you think about that
way from the very beginning,
35:37you will make very different and
much better decisions.
35:40I think this is the only arbitrage
opportunity left in the market.
35:43Almost no one makes a very long
term commitment to a new project.
35:47And if you do that,
you will think in a different way.
35:49You will hire different people,
and that'll work really well.
35:53Speaking of hiring, stay lean until
everything's working really well,
35:57I think this is somewhat bimodal.
35:58In the early days,
when you're experimenting and
36:01zigzagging you want to be like
a fast little speedboat, and
36:03you want to be able to turn
the whole company on a dime.
36:06And you can't do that if
you have a big company.
36:08Cash burn aside, which is another problem.
36:11The flexibility of a company basically
decreases with the square of the number of
36:17So you want to stay really small
until you're sure things are working.
36:20Once things are working,
then you can get really big.
36:23And in fact, then you need to.
36:25And so
once you switch into hyperscale mode,
36:28you want to just get as big as
fast as you can with great people.
36:31Because then,
you don't want to be a speedboat.
36:32You want to be an aircraft carrier.
36:34You want to be a battleship.
36:35And you don't care about the fact
that you can't turn as fast.
36:37You just want to steam roll everything.
36:39But you really want to be in one mode or
the other and, and you'll know.
36:45Once users are just begging for
your product and
36:48you'll be convinced you have
great product market fit.
36:51That is when you can really
start to scale up the company.
36:55Even when you get there though,
resist the urge to hire mediocre people.
36:59Linnet Khosla who is speaking later in
the course has a saying that I love
37:03which is the team you build
is the company you build.
37:07And this is really true.
37:08I didn't appreciate how true this was for
a long time.
37:12But if you build a team of great people
and you have a product that people love,
37:16you have a 90 something
percent chance of success.
37:19Those are both really hard to do and
they're independent variables,
37:23but don't ignore the team point.
37:25The best CEOs I know spend huge
amounts of their time recruiting, and
37:29retaining their talent.
37:31How much of your time would
you say you spend on this?
37:34>> [INAUDIBLE] 40, 50%.
37:37This is Dustin Moskovitz, doesn't need to
do anything he doesn't want to do, and
37:42he chooses to spend Half of his time
recruiting and retaining employees.
37:47So if Dustin can do that, you all probably
should really be doing that as well.
37:50Every CEO I've met has an excuse for
37:53why they only spend 5% of their
time on building their team.
37:57And it always sounds really good, and
then they always turn out to fail.
38:01Really, really invest in this.
38:04Relentless execution.
38:06So, this is a theme
we'll talk about a lot.
38:10But you have to keep going, and
keep going, and keep going.
38:13And you have to do things perfectly.
38:14And you have to get all the details right.
38:16You have to care too much
about every experience,
38:19that a customer has with your company.
38:21There's this book,
The Score Takes Care of Itself,
38:25something like that,
read it, it's really good.
38:27But it's about how important it
is to get all the details right,
38:30and just move forward relentlessly and
as quickly as you can.
38:36Startups are about not giving up to a
degree that most people don't have a good
38:40intuitive understanding for.
38:42One of the very best companies
in the last YC batch,
38:47he applied seven times before he got in.
38:50Most people you reject them six times
they're not going to apply again on
38:54the seventh and this is just a version of
what happens in startups all of the time,
38:59where you get beat down again and
again and again and
39:02it's like that last time
when you get pushed down and
39:04you don't think you have enough energy to
get back up, that's when it finally works.
39:09And this is what you sign up for
if you're going to start a start up.
39:14Remember if this is like
a ten year marathon,
39:16you have a fiduciary duty to your
shareholders to take care of yourself.
39:20So some people treat a start
up as an all nighter.
39:23They don't do a good job
taking care of their health.
39:25They don't sleep, they don't maintain
their personal relationships.
39:27It is true that startups are a bad
choice for work life balance.
39:31They always have these posts about how I
changed the world with my startup only
39:33working two hours of the day, and
kite surfing the rest of the time.
39:37Some of these people are never the ones
that actually make a big impact,
39:41they just talk a lot.
39:42So, startups are really hard.
39:44But you have a duty to yourself,
39:46your team, your investors to take care of
yourself and not to neglect your health,
39:50your well-being, the rest of your life,
your personal relationships.
39:53And then, finally a clear mission.
39:55You don't have to figure
this out on day one, but
39:59all of the most successful startups I've
been fortunate enough to be a part of.
40:02Pretty quickly,
first year two years at the outside.
40:05They figure out a really
important mission.
40:07And it is this mission that
gets you to join them to
40:10drive them that drive the founders.
40:12That gets the media to write about them.
40:14And even if you start off building
a project that's just interesting to you,
40:17and solves a problem in your own life,
40:19which is how you should start, remember
to at some point have a clear mission.
40:24You have to become a great evangelist for
this mission.
40:27One other skill that I didn't make
it into this version of the deck,
40:30is being a great communicator.
40:32But you need to clearly communicate and
clearly think,
40:36clearly communicate this clear mission.
40:39And that is what will convince
people to come help you.
40:42And that is how you will build
this idea into this giant set of,
40:47this huge company and all these
people that really love your product.
40:51All right, I talked a little
longer than I was hoping to.
40:53I've got about two minutes left for
questions if anyone has one.
40:58>> I was wondering so like,
there are two people you can hire.
41:01One person is very passionate
about the things you're doing but
41:05lack the skill that you need.
41:07But the other person is really, really
good at the things you're not good at,
41:12but they are not very
passionate about your idea.
41:16Which one would you [INAUDIBLE]?
41:18>> All right, so
you have a choice to hire people.
41:20One is passionate and value aligned,
but not a good skills match.
41:23The other one is a great skills match but
not passionately.
41:27Values first, aptitude second,
specific skills third.
41:30If you can get a really smart person
who really shares your values and
41:34your mission, and
believes in what you're doing.
41:36They can learn the skills.
41:37I think this is a framework that
has not let me down many times.
41:43>> How do you get good
at getting good ideas?
41:45>> How do you get good
at getting good ideas?
41:47One thing is to just practice a lot, and
41:51tell people your ideas and be willing for
them to tell you why it's terrible.
41:54But I think good ideas
are not a solo endeavor.
41:59You want to find a group of smart people
that you can start bouncing things off of
42:03and say, hey, I noticed this thing and
it kind of sucked.
42:06What could we do about it?
42:08And you don't just sit in the room and
42:10write on the window with the white board
pen, and have the good ideas come to you.
42:14Good ideas come because
you talk to people.
42:17You have smart friends,
you have colleagues, and
42:19you spit ball ideas around.
42:21So I would say,
notice problems in your life.
42:24Even if you don't have a solution,
still talk, just about the problem.
42:28And see if you can come up with something.
42:31This is, One more thing on that,
ideas are very fragile.
42:39So when you find the set of people to
start talking about ideas with, you want
42:43people that don't immediately shoot a bad,
half baked, half formed idea down.
42:47You want people who will say, well,
yes, what if we did this other thing?
42:52You don't want people like,
yeah, that sounds stupid.
42:55You want people who will say,
well, that sounds crazy and
42:58unlikely to work, but
think how big it could be if it did work.
43:02That's the spirit of the kind of person.
43:05And then how can we figure out how
to make it work that you want?
43:07But I'd say, notice problems.
43:10Have people to talk with,
anything you'd add to that?
43:13All right,
let me do one more question, yes.
43:15>> Thoughts around fundraising,
how do you know when to start fundraising?
43:19>> How do we know when
to start fundraising?
43:21We're going to have a whole class on that.
43:23But in general, if you can raise money and
it's easy, so if people are desperate to
43:28give you money on good terms that
might be a good time to take it.
43:32And the other one, of course,
is if you need the money, and
43:35then you kind of may need to do
it no matter what the terms are.
43:37In general, you want to have progress
to warrant the funding you need.
43:44And so it's kind of when you have enough
progress that you're able to fairly easily
43:49raise money and you need it,
that's the best of all possible times.
43:52But again, that's a complicated question.
43:53We'll do a full lecture on it.
43:55All right, one more.
43:56>> So how do you decide when to
turn from the searching mode and
44:00stay in to the risk getting mode?
44:02>> How do you decide when to switch
from when you're kind of tacking around
44:06trying to get good product market fit,
and when to really scale up the company?
44:12Everyone wonders how they
know when it's time for that.
44:15And it's like when you are running around
the office 80 hours a week, pulling your
44:20hairs out, and people love your product so
much you just can't build it fast enough.
44:26I have never seen someone not been able
to figure out when this moment is.
44:31All right, on Thursday, we will have
a session on startup mechanics.
44:34And thank you very much.
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