00:00okay today I'm going to talk about how
00:03to succeed with a startup obviously more
00:05than can be said here in 20 minutes but
00:06I will do the best I can the most
00:09important thing the number one lesson we
00:11try to teach startups is that the degree
00:14to which you're successful approximates
00:16the degree to which you build a product
00:18that is so good people spontaneously
00:20tell their friends about it startups
00:23always ask us for the secret to success
00:25they always want to believe it's
00:26something other than this because this
00:27is really hard to do but this is it if
00:30you can build a product that is so good
00:32people spontaneously tell their friends
00:34about it you have done 80% of the work
00:36that you need to be a really successful
00:37startup if you think about the most
00:40successful companies you know Google
00:42Facebook whatever you probably found out
00:45about them because a friend of yours
00:46said you got to try this it's great so
00:49this is the bar something that people
00:51love so much they tell their friends
00:53one important indicator for a product
00:56like that is a product it's simple to
00:58explain and easy to understand if you
01:01can't explain in a few words what you do
01:03and if people don't if at least some
01:04people don't say oh that's pretty
01:06that's usually a mistake it's usually a
01:08sign of unclear thinking or a need that
01:13another thing that startups need to look
01:15for is a market that is either started
01:18to undergo or is soon going to under
01:19grow exponential growth I think this is
01:22actually related to one of the biggest
01:23mistakes investors make when evaluating
01:25startups investors always say well
01:28what's your growth rate we care about
01:29the growth rate investors will forgive
01:31smallish revenue today if it's growing
01:33quickly for some reason people don't
01:35think about markets this way but if you
01:37think about the most important startups
01:39they are the ones that I start in small
01:41markets that are growing very very
01:43quickly 11 years ago the market for
01:46iPhone apps is zero dollars it's not
01:47huge and I think if you only think about
01:50the TAM today you'll make a big mistake
01:52what you really want to do is identify a
01:55market that's going to grow every year
01:57and be able to ride that up elevator a
02:00really important thing to figure
02:02figuring this out is learning how to
02:04differentiate between real trends and
02:06fake trends a real trend is something
02:09that's actually going to happen in the
02:10fake trend is not or at least not yet
02:13you make a big bet on a new platform you
02:15want to make sure it's real now there's
02:17an easy trick for this which I'll share
02:19now real trends are ones where a new
02:22technology platform comes along and the
02:24early adopters use it obsessively and
02:26tell the friends how much they love it
02:28a fake trend is one where people may buy
02:30the product but don't use it or at least
02:33not enough so an example of a real trend
02:35I already mentioned the iPhone I'll
02:37mention that again when the iPhone first
02:39came out many people were dismissive
02:41because they only sold a million or two
02:42million that year and they said well
02:44this just doesn't matter but for the
02:46people that had an iPhone they used it
02:48for hours every day it became central to
02:50their lives they loved it they told
02:51their friends you've got to get one and
02:53I think it was obvious then do people
02:55pay an attention that something had
02:56fundamentally shifted and we had a new a
02:59new computing platform that was gonna
03:00spawn huge businesses and it was a good
03:03time to bet on mobile apps a fake trend
03:06or at least a fake trend as of august
03:092018 I would say as VR I do believe VR
03:12will be big someday but today most
03:14people that I know that own a VR headset
03:17use it never or very rarely and so
03:19although a lot of people talk about it
03:21and maybe even a lot of people buy them
03:22there's not the intense usage per user
03:25among the early adopters that I think
03:27you want to see before you make a big
03:29bet another thing that startups need at
03:33least one evangelical founder usually
03:35the CEO someone at the startup has got
03:38to be the person that is going to
03:39recruit sell the product talk to the
03:44raise money and this requires someone
03:46who can infect with enthusiasm the whole
03:50world about what the company is trying
03:52to do and someone who becomes the chief
03:55evangelist for the company it's very
03:58hard to succeed wildly without that it's
04:01very hard to build a team at all without
04:03being able to do that one thing that
04:05helps for this is having an ambitious
04:07vision you never want to be grandiose
04:11that turns people off but you want to
04:12let yourself grow more ambitious over
04:14time and as long as you do that
04:16organically people will respond
04:18ambitious visions are exciting they're
04:20fun to work on in fact I think in 2018
04:23at least in Silicon Valley it's easier
04:27startup than it is to start an easy
04:28startup now this sounds paradoxical but
04:32ambitious projects are interesting you
04:33know in the current environment it may
04:35be relatively easy to raise capital but
04:38it's really hard to do everything else
04:39there are so many startups it's so easy
04:41to start one they all sound so promising
04:43that that bringing together enough
04:46talent in one organization is really
04:48hard to do and if you're working on a
04:50problem that you know maybe modestly
04:52successful it's it's kind of easy to get
04:55the first two people to join you can
04:56give them a lot of equity but then it
04:59gets really hard why is employee xx
05:01gonna join why is this why does this
05:03matter to the world why should someone
05:04work on your startup versus any of the
05:06other things they could do and picking
05:09something that matters if you're
05:10successful is a great way to do that and
05:12so I think it's really important to
05:15think about when you're starting a
05:17company how is this going to evolve into
05:19a vision that a lot of people want to
05:21help with but a lot of people want to be
05:23associated with because I think getting
05:25talent and getting mindshare it is
05:28really hard in the current environment
05:29and people are interested in startups
05:32that matter another thing that we've
05:36noticed among our best Saunders again
05:38and again and again is that they are
05:41have a confident and definite view of
05:43the future they may be wrong and so we
05:47say it's good to be confident and
05:48flexible but this idea that you are
05:50confident in definite this is what I
05:52think is going to happen or this is what
05:54is going to happen and being relatively
05:57sure of that having courage of your
06:00convictions being a clear leader saying
06:02we're gonna do this and that's why even
06:05in the face of a lot of doubt that seems
06:07to really correlate with success and
06:10this comes back to having an ambitious
06:14vision but the entire startup ecosystem
06:16is best set up to support companies that
06:19have a low chance of success but are
06:21huge if they work and I think going for
06:24something that is huge if it works will
06:27attract the best people
06:30not going to talk too much about the
06:32team there are a lot of obvious things I
06:34could say that have been said many times
06:36by many people about you know you need
06:39smart people who want to work really
06:40hard and who communicate well these are
06:42all really true but I'd like to mention
06:44a few non-obvious things that we've
06:46noticed that we don't hear people say as
06:48much about the team you need to assemble
06:50the note Khosla says that the team you
06:53build is the company you build and I
06:55really think that's true I've still met
06:58only a handful of founders I think that
07:00spend enough time on recruiting like
07:01Mark Zuckerberg is famously one of them
07:03but building a great team I think other
07:06than picking the right market and
07:08building a great product is the most
07:09important thing you do all founders go
07:12through a transition all successful
07:14founders where you switch from building
07:15a product to building a company and
07:17building a company really is about the
07:19team so you need to mist the whole world
07:25will be telling you why you're gonna
07:26fail as a start-up if you don't have
07:28that internal fire of belief if you
07:30don't have people who say you know what
07:32we are gonna do this and it doesn't
07:33matter what the haters say we're gonna
07:35figure this out and there is you know
07:37this problem it must be solvable if you
07:40don't have the spirit of optimism on the
07:42team it's very hard to succeed when the
07:44world continues to punch you in the face
07:47you need at least some idea generators
07:49there are a handful of people in any
07:52company that has gone on to be really
07:54successful that I that I've been able to
07:56work with who are just really good at
07:58coming up with lots of ideas you don't
08:01too many these people because that's
08:03more ideas than a company can follow
08:04through on but having some people within
08:07a company that are just constantly
08:09throwing out new ideas most of which
08:12will be bad it turns out to be super
08:14important to have on the team this
08:18spirit of we'll figure it out is my
08:20favorite thing to hear among early
08:23startup team members a lot of things go
08:26wrong the situations that startups win
08:28in tend to be incredibly dynamic and so
08:31this idea that even if I'm not qualified
08:33on paper even if I haven't solved this
08:35problem before even if this problem
08:37feels like it's gonna kill the company
08:38which many problems will feel that way
08:40this spirit among the team of you know
08:44people we need we're gonna figure this
08:46out we're gonna get this done that's
08:48super important another thing that I
08:52love to hear from early team members is
08:54I've got it so you know you hear in big
08:57companies a lot of people say that's not
08:58my department someone else is gonna do
08:59that yeah or you know who this is really
09:02bad this is gonna hurt us and you want
09:04people who just step up and say I'll do
09:05it I've got it don't worry about it you
09:10want people to have a bias towards
09:11action startups especially in their
09:14early days often win by moving very
09:16quickly you never get as much data as
09:19you'd like you never have as much time
09:20to deliberate as you'd like and you want
09:22people who will are willing to act with
09:26much less data than they'd like to have
09:28with much less certainty and then if
09:30they act then it doesn't work they adapt
09:32really quickly and try something else we
09:37talk also about the blessing of
09:38inexperience we have seen many of our
09:41startups do incredible things because no
09:43one told them it was hard no one told
09:45them they can't do it um there's a great
09:47quote from Steve Wozniak about how all
09:49the best things he ever did came from
09:50having no experience whatsoever and
09:52having no money and you know that
09:56obviously is not always true but there
09:58is a magic thing that happens with
09:59startups especially in their early days
10:01before they've learned they're not
10:02supposed to be able to do certain things
10:04and so I think as a start-up again
10:07doesn't work to have everybody being
10:08experienced but you can take more bets
10:11than you normally would on inexperienced
10:13but super high potential people that's
10:16the end of a topic on on team one of the
10:20most important jobs you have as a
10:21founder is to never lose momentum and
10:24this is a little bit depressing because
10:26it means for the first few years you
10:27never get to take your foot off of the
10:29gas you never get to really rest we try
10:32to be honest about this that startups
10:34are not the best choice for work-life
10:35balance at all but especially in the
10:37early days startups survive on their own
10:40momentum if you have momentum people
10:43keep delivering results beyond what they
10:45think they're capable of if you lose
10:47momentum it's very difficult to get it
10:49back and so continuing to make sure that
10:52the startup has a cadence that the
10:54startup keeps winning on a relatively
10:56predictively short and predictable and
10:59this is really important and it's up to
11:01the founders to make sure that that you
11:02don't lose ahold of this
11:05another thing that we think startups
11:09need is a competitive advantage over
11:11time now this is something that sounds
11:13so obvious I hesitated to even put it in
11:15this is well discussed but we're seeing
11:19more and more startups apply to YC and
11:22when we ask them so what is the long
11:24term monopoly effect here what is the
11:26long term competitive advantage what is
11:28you know where is the network effect in
11:30this business they look at us like it's
11:31the first time we've ever they've ever
11:33heard this question all of the really
11:36great businesses I know have an answer
11:38to this question and in fact the better
11:40they are the more they pretend not to
11:42but this is something that you you want
11:45to have a plan for another thing you
11:47want to have a plan for is at least a
11:49sensible business model you don't have
11:51to have it all figured out at the
11:52beginning but when we ask founders so
11:55how are you ever going to make money and
11:56they look at us like it's the first time
11:58they've ever been asked that question
11:58which happens more often than you would
12:00think recently that's a bad sign too
12:04again this one is so common that I
12:06hesitate to put it in here
12:08but when we ask a start-up how they're
12:10gonna grow how they're gonna get users
12:12and they look at us like it's the first
12:13time they've ever heard that question
12:15bad sign so some sensible idea to try
12:21Paul Buchheit once spent a bunch of time
12:24looking one of the YC partners spent a
12:26bunch of time looking at the traits of
12:28our best founders and tried to distill
12:31down what they were and he came up with
12:33a frugality focus obsession and love
12:35I actually I think that is really good I
12:38don't know how much to add but I think
12:41these are things that you should be able
12:42to say about what you're doing and you
12:44as a founder and finally I want to talk
12:48about why startups get to be big
12:50companies we've there are lots of
12:53reasons I'm going to talk about a few
12:54common ones here I think these trends
12:57are valuable enough that as you evaluate
12:59startup ideas you might do it's worth
13:02thinking about if you fit into these
13:04because it's really hard for startups to
13:06beat big companies most of the time and
13:08here are some areas where we see it
13:10happening repeatedly
13:13so I think one difference is if you are
13:17a product manager at a big company and
13:19you want to do something that sounds
13:21sounds like a bad idea but is a good
13:23idea you have to get everybody from your
13:26boss sometimes all the way up to the CEO
13:28to say yes so one no can kill you if
13:32you're a start-up you can go to I see
13:35demo day any number of the thousands of
13:37investors can say yes and you get to
13:38have a crack at it so it's a very
13:41different mindset and for those ideas
13:43that sound bad but are good because of
13:46this phenomenon this one no versus one
13:48yes startups can win in fact startups
13:51usually do beat big companies in that
13:52category of ideas so look look for ideas
13:56that sound bad but are good and where
13:59you are much more likely to get one yes
14:02then someone in a big company is to get
14:04all yeses another area where startups
14:09usually be big companies aren't very
14:11fast changing markets startups great
14:13speed great advantage is an agility and
14:15speed the more a market is changing the
14:18higher the number of decisions you get
14:19to make and the higher number of tweaks
14:22to your product and your strategy you
14:25get to make and you want to optimize the
14:26number of those decisions that someone
14:29has to make to compete with you because
14:31a big company will make them on average
14:33worse than certainly much slower than
14:34you do so the speed of market evolution
14:38gives you a lot more chances to compound
14:40your advantage over a big company and
14:44then finally startups usually win on big
14:47platform shifts many people have
14:50observed that startups companies
14:51clusters those clusters usually come
14:54after a big platform shift we'll stick
14:56with the iPhone example here after
14:59mobile apps became a thing many new
15:02companies got started that are now quite
15:04valuable and one of the reasons here is
15:07you know most large companies work on
15:10sort of an annual cadence at least and
15:11when there's a huge platform shift they
15:14are not good at making a big enough
15:17strategic pivot the Battleship just
15:19turns too slowly whereas a start-up can
15:22say wow woke up this morning the world
15:24is fundamentally different than it was
15:25six months ago we're gonna go all in on
15:27this new direction and so that's a way
15:29that startups usually win or that that's
15:31an area where startups usually win there
15:33there are many others but thinking about
15:37these three I think is is directionally
15:39a good thing to do alright that's all
15:42I've got for today Jeff thank you very
15:44much for having me and for the class
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