00:00Okay, today I'm going to talk about how to succeed with a startup

00:03Obviously, more than can be said here in 20 minutes, but I will do the best I can

00:06The most important thing, the number one lesson we try to teach startups, is that the degree to which you're successful approximates the degree to which you build a product that is so good people spontaneously tell their friends about it

00:20Startups always ask us for the secret to success

00:25They always want to believe it's something other than this, because this is really hard to do, but this is it

00:27If you can build a product that is so good people spontaneously tell their friends about it, you have done 80% of the work that you need to be a really successful startup

00:37If you think about the most successful companies you know, Google, Facebook, whatever, you probably found out about them because a friend of yours said, "You got to try this, it's great." So this is the bar, something that people love so much they tell their friends about it

00:53One important indicator for a product like that is a product, it's simple to explain and easy to understand

00:58If you can't explain in a few words what you do, and if people don't, if at least some people don't say, "Oh, that's pretty interesting," that's usually a Mistake, it's usually a sign of unclear thinking or a need that is not big enough

01:13Another thing that startups need to look for is a market that is either started to undergo, or is soon going to undergo, exponential growth

01:19I think this is actually related to one of the biggest mistakes investors make when evaluating startups

01:25Investors always say, "Well, what's your growth rate? We care about the growth rate." Investors will forgive smallish revenue today if it's growing quickly

01:33For some reason, people don't think about markets this way, but if you think about the most important startups, they are the ones

01:39That I start in small markets that are growing very, very quickly

01:4311 years ago, the market for iPhone apps was zero dollars, it's not huge, and I think if you only think about the TAM today, you'll make a big mistake

01:52What you really want to do is identify a market that's going to grow every year and be able to ride that up elevator

01:57A really important thing to figure out is learning how to differentiate between real trends and fake trends

02:06A real trend is something that's actually going to happen, and the fake trend is not, or at least not yet, and before you make a big bet on a new platform, you want to make sure

02:10It's real now

02:14There's an easy trick for this, which I'll share now

02:19Real trends are ones where a new technology platform comes along, and the early adopters use it obsessively and tell their friends how much they love it

02:28A fake trend is one where people may buy the product, but don't use it, or at least not enough

02:33So an example of a real trend, I already mentioned the iPhone, I'll mention that again

02:37When the iPhone first came out, many people were dismissive because they only sold a million or two million that year, and they said, well, this just doesn't matter, but for the people that had an iPhone, they used it for hours

02:48Every day it became central to their lives, they loved it, they told their friends, "You've got to get one." And I think it was obvious then, do people pay attention that something had fundamentally shifted and we had a new, a new computing platform that was gonna spawn huge businesses, and it was a good time to bet on mobile apps

03:03A fake trend, or at least a fake trend as of August 2018, I would say, is VR

03:09I do believe VR will be big someday, but today most people that I know that own a VR headset use it never, or very rarely

03:17And so, although a lot of people talk about it, and maybe even a lot of people buy them, there's not the Intense usage per user among the early adopters, that I think you want to see before you make a big bet

03:29Another thing that startups need, at least one evangelical founder, usually the CEO

03:35Someone at the startup has got to be the person that is going to recruit, sell the product, talk to the press, raise money, and this requires someone who can infect with enthusiasm the whole world about what the company is trying to do, and someone who becomes the chief evangelist for the company

03:55It's very hard to succeed wildly without that

03:58It's very hard to build a team at all without being able to do that, one thing that helps

04:05For this is having an ambitious vision

04:07You never want to be grandiose, that turns people off, but you want to let yourself grow more ambitious over time, and as long as you do that organically, people will respond

04:18Ambitious visions are exciting, they're fun to work on

04:20In fact, I think in 2018, at least in Silicon Valley, it's easier to start a hard startup than it is to start an easy startup

04:28Now, this sounds paradoxical, but ambitious projects are interesting

04:32You know, in the current environment, it may be relatively easy to raise capital, but it's really hard to do everything else

04:39There are so many startups, it's so Easy to start one, they all sound so promising, that bringing together enough talent in one organization is really hard to do

04:48And if you're working on a problem that you know, maybe modestly successful, it's kind of easy to get the first two people to join, you can give them a lot of equity, but then it gets really hard

04:59Why is employee X gonna join? Why is this, why does this matter to the world? Why should someone work on your startup versus any of the other things they could do? And picking something that matters if you're successful is a great way to do that, and so I think it's really important to think

05:15About when you're starting a company, how is this going to evolve into a vision that a lot of people want to help with, but a lot of people want to be associated with? Because I think getting talent and getting mindshare is really hard in the current environment, and people are interested in startups that matter

05:32Another thing that we've noticed among our best founders again and again and again is that they have a confident and definite view of the future

05:43They may be wrong, and so we say it's good to be confident and flexible, but this idea that you are confident and definite, this is what I think is going to Happen, or this is what is going to happen, and being relatively sure of that, having courage of your convictions, being a clear leader, saying we're gonna do this, and that's why even in the face of a lot of doubt, that seems to really correlate with success, and this comes back to having an ambitious vision, but the entire startup ecosystem is best set up to support companies that have a low chance of success, but are huge if they work, and I think going for something that is huge if it works will attract the best people, not going to talk too much about the team, there are a lot of obvious things I could say that have been

06:34Said many times by many people about, you know, you need smart people who want to work really hard and who communicate well

06:40These are all really true, but I'd like to mention a few non-obvious things that we've noticed, that we don't hear people say as much about the team you need to assemble

06:50Vinod Khosla says that the team you build is the company you build, and I really think that's true

06:55I've still met only a handful of founders, I think, that spend enough time on recruiting, like Mark Zuckerberg is famously one of them, but building a great team, I think other than picking the right market and building a great Product is the most important thing you do

07:09All founders go through a transition, all successful founders, where you switch from building a product to building a company, and building a company really is about the team, so you need to

07:19The whole world will be telling you why you're gonna fail as a startup

07:26If you don't have that internal fire of belief, if you don't have people who say, you know what, we are gonna do this, and it doesn't matter what the haters say, we're gonna figure this out, and there is, you know, this problem, it must be solvable

07:37If you don't have the spirit of optimism on the team, it's very hard to

07:42Succeed when the world continues to punch you in the face, you need at least some idea generators

07:49There are a handful of people in any company that has gone on to be really successful that I, that I've been able to work with, who are just really good at coming up with lots of ideas

07:58You don't need too many of these people because that's more ideas than a company can follow through on, but having some people within a company that are just constantly throwing out new ideas, most of which will be bad, it turns out to be super important to have on the team

08:14This spirit of "we'll figure it out" is my favorite thing to hear among early

08:23Startup team members, a lot of things go wrong

08:26The situations that startups win in tend to be incredibly dynamic, and so this idea that even if I'm not qualified on paper, even if I haven't solved this problem before, even if this problem feels like it's gonna kill the company, which many problems will feel that way, this spirit among the team of, you know, what, we've got the people we need, we're gonna figure this out, we're gonna get this done, that's super important

08:48Another thing that I love to hear from early team members is, I've got it

08:54So, you know, you hear in big companies a lot of people say, that's not my Department, someone else is gonna do that

08:59Yeah, or you know, who, this is really bad, this is gonna hurt us, and you want people who just step up and say, "I'll do it, I've got it, don't worry about it." You want people to have a bias towards action

09:11Startups, especially in their early days, often win by moving very quickly

09:16You never get as much data as you'd like, you never have as much time to deliberate as you'd like, and you want people who are willing to act with much less data than they'd like to have, with much less certainty, and then if they act, then it doesn't work, they adapt really quickly and try something else

09:32We Talk also about the blessing of inexperience

09:38We have seen many of our startups do incredible things because no one told them it was hard, no one told them they can't do it

09:45Um, there's a great quote from Steve Wozniak about how all the best things he ever did came from having no experience whatsoever and having no money

09:52And, you know, that obviously is not always true, but there is a magic thing that happens with startups, especially in their early days, before they've learned they're not supposed to be able to do certain things

10:04And so I think as a startup, again, it doesn't work to have everybody being experienced

10:08But you can take more bets than you normally would on inexperienced, but super high potential people

10:13That's the end of a topic on team

10:16One of the most important jobs you have as a founder is to never lose momentum, and this is a little bit depressing because it means for the first few years, you never get to take your foot off of the gas, you never get to really rest

10:29We try to be honest about this, that startups are not the best choice for work-life balance at all, but especially in the early days, startups survive on their own momentum

10:40If you have momentum, people keep delivering results beyond what they think

10:45They're capable of, if you lose momentum, it's very difficult to get it back, and so continuing to make sure that the startup has a cadence, that the startup keeps winning on a relatively predictively short and predictable, and this is really important, and it's up to the founders to make sure that you don't lose ahold of this

11:05Another thing that we think startups need is a competitive advantage over time

11:11Now, this is something that sounds so obvious, I hesitated to even put it in, this is well discussed, but we're seeing more and more startups apply to YC, and when we ask them, so what is the long term monopoly, effect here, what is the long term competitive advantage, what is, you know, where is the network effect in this business? They look at us like it's the first time we've ever, they've ever heard this question

11:33All of the really great businesses I know have an answer to this question, and in fact, the better they are, the more they pretend not to, but this is something that you, you want to have a plan for

11:45Another thing you want to have a plan for is at least a sensible business model

11:49You don't have to have it all figured out at the beginning, but when we ask founders, so how are you ever going to make money, and they look at us, Like it's the first time they've ever been asked that question, which happens more often than you would think

12:00Recently, that's a bad sign too

12:04Again, this one is so common that I hesitate to put it in here, but when we ask a start-up how they're gonna grow, how they're gonna get users, and they look at us like it's the first time they've ever heard that question, bad sign

12:15So, some sensible idea to try here

12:18First, Paul Buchheit once spent a bunch of time looking, one of the YC partners spent a bunch of time looking at the traits of our best founders and tried to distill down what they were, and he came up with a frugality

12:33Focus, obsession, and love

12:37I actually, I think that is really good

12:41I don't know how much to add, but I think these are things that you should be able to say about what you're doing and you as a founder

12:44And finally, I want to talk about why startups get to be big companies

12:50We've, there are lots of reasons

12:53I'm going to talk about a few common ones here

12:54I think these trends are valuable enough that as you evaluate startup ideas, you might, it's worth thinking about if you fit into these, because it's really hard for startups to beat big companies most of the time, and here are some areas where we see it happening

13:10Repeatedly, so I think one difference is, if you are a product manager at a big company and you want to do something that sounds, sounds like a bad idea, but is a good idea, you have to get everybody from your boss, sometimes all the way up to the CEO, to say yes, so one no can kill you

13:28If you're a start-up, you can go to, I see demo day, any number of the thousands of investors can say yes, and you get to have a crack at it, so it's a very different mindset

13:41And for those ideas that sound bad, but are good, because of this phenomenon, this one no versus one yes, startups can win, in fact, startups usually do beat big companies in that

13:52Category of ideas, so look, look for ideas that sound bad but are good, and where you are much more likely to get one "yes" than someone in a big company is to get all "yeses." Another area where startups usually beat big companies are very fast-changing markets

14:11Startups' great speed, great advantage, is agility and speed

14:15The more a market is changing, the higher the number of decisions you get to make, and the higher number of tweaks to your product and your strategy you get to make, and you want to optimize the number of those decisions that someone has to make to compete with you, because a big company will make them

14:31On average, worse than, certainly much slower than you do

14:34So the speed of market evolution gives you a lot more chances to compound your advantage over a big company

14:40And then finally, startups usually win on big platform shifts

14:47Many people have observed that startups, companies, clusters, those clusters usually come after a big platform shift

14:54We'll stick with the iPhone example here

14:56After mobile apps became a thing, many new companies got started that are now quite valuable

15:04And one of the reasons here is, you know, most large companies work on sort of an annual cadence, at least, and when there's a huge Platform shift, they are not good at making a big enough strategic pivot

15:17The Battleship just turns too slowly, whereas a startup can say, "Wow, woke up this morning, the world is fundamentally different than it was six months ago, we're gonna go all in on this new direction." And so that's a way that startups usually win, or that that's an area where startups usually win

15:31There, there are many others, but thinking about these three, I think, is directionally a good thing to do

15:39Alright, that's all I've got for today

15:42Jeff, thank you very much for having me and for the class.