Sam Altman's Startup Advice (Part 1)
My personal notes / summaries of the readings available on Sam Altman's 'How to Start a Startup' lectures.
I decided to venture into the world of Sam Altman this week. If you’ve been living on Mars and you don’t happen to know who he is, I’ll summarize it for you briefly:
Sam Altman is the current CEO of OpenAI. The organization's mission is to ensure that artificial general intelligence (AGI) benefits all of humanity, and they’re the master-minds behind ChatGPT. Prior to OpenAI, Mr. Altman was the president of Y-Combinator (YC) -- one of the most prestigious startup accelerators in Silicon Valley. Y-Combinator has played a significant role in the growth and success of numerous tech startups (including Airbnb, Dropbox, Reddit, Stripe, Docker, etc… ) and it was originally founded by the one and only Paul Graham. Prior to that, he founded Loopt – a mobile location-based social networking app. The company aimed to connect users with their friends and discover local events. Loopt was eventually acquired by Green Dot Corporation for $43.4 million.
In other words, Altman is a man beaming with success, so I decided to go through his notes on starting a start up and to do my best to summarize some of the advice given throughout his recommended reading list. For anyone who wants to slog through each one manually, you can find them all here:
https://startupclass.samaltman.com/lists/readings/
My own notes and highlights are provided below.
#1 Advice for Ambitious 19 year olds (by Sam Altman):
No matter what you choose, build stuff and be around smart people.
“Stuff” can be a lot of different things—open source projects outside of class, a startup, a new sales process at a company you work at. The key: don’t talk about it. Build it.
Don’t be scared of taking risk (most people are too risk averse).
Try to join a company on a breakout trajectory.
Don’t choose a job for salary (like joining Microsoft. Mentions a friend who chose Microsoft and judged him to make a terrible decision since his mental model of Microsoft was most likely a bunch of non-intelligent bureaucrats working on non-interesting things. Ohh Sam, how times change?).
If you start a company, only do so if you have an idea you’re in love with. Startups are a 6-10 year commitment, so you need to be in love with the idea you’re pushing forward.
Keep your expenses low and minimize your commitments (in other words, commit yourself to making the idea happen no matter what circumstances may be in store).
#2: Good and Bad Reasons to Become an Entrepreneur (by Dustin Moskovitz):
To be successful at starting a startup, you need to be passionate about the idea. Entrepreneurship is hard.
Bad reasons for trying to start a company:
You want to be your own boss. The reality is that starting a startup makes everyone else (the customer, employees, partners, etc…) your boss.
Glamour. Usually any glamour is clouded with a mountain of hard work.
Financial return (for your talent). There are much easier ways to receive a good piece of the financial pie than starting a start up (the 100th engineer at Facebook made much more money than 95% of Silicon Valley entrepreneurs).
#3: Stupid Apps and Changing the World (by Sam Altman):
Many people often accuse Silicon Valley of working on stuff that doesn’t matter, but a ton of important things usually start out looking as if they don’t matter.
If some users really love what you’re building and engage with it often in their daily lives, keep working on it!!
Pay no attention to market predictions (they tend to be terrible).
There are 2 primary ways of change the world with tech:
Build something that some people love but most others think is a toy.
Be hyper-ambitious.
Ignore the haters and work on whatever you find interesting. Most critics tend to be ignorant f*cks that aren’t building anything themselves.
#4: Do things that Don’t Scale (by Paul Graham):
Do things that don’t scale (i.e. do things manually and really get involved – at least in the beginning). The most common thing founders have to do at the start is recruit users manually. Airbnb and Stripe are great examples of this (founders went WAY out of their way to recruit new users).
Many founders under-estimate the power of compound growth. If you have 100 users, you need to get 10 more next week to grow 10% a week. If you keep growing at 10% a week, after a year you'll have 14,000 users, and after 2 years you'll have 2 million.
The right question to ask a start up: how fast is the company growing? Forget about changing the world and everything else. Focus on growth.
Build something that solves your own problem(s) – which also opens up the door to finding new users as well (since they’ll be your peers).
Take extraordinary measures to not only acquire users, but to make them incredibly happy (send out thank you notes / do a lot of schmoozing / do whatever it takes to make your initial users happy).
Focus on making your user experience ‘insanely great’ (as coined by Steve Jobs). The product is just one component of that. (As a note, he also mentions that you can make the experience great even with an early, incomplete, buggy product which … well, I tend to disagree with but hey, he’s the pro).
Over-engaging with early users is not just permissible, but necessary. You need them as a feed-back loop in order to make the product better.
Perfectionism is often an excuse for procrastination. Don’t try to make things perfect – focus on shipping.
Sometimes the best early trick is to focus on a narrow market (like Facebook, which start off as a platform for Harvard / university students and focused on building a great experience for them initially and expanded afterwards).
Most great start-ups focus on a narrow market: the founders build something great for themselves or their friends, and then later realize that it could be expanded to a broader market.
If you can find someone with a problem that needs solving and you can solve it manually, go ahead and do that for as long as you can, and then gradually automate the bottlenecks.
Launches: forget big launches. Most founders believe that a ‘big event’ is necessary to get off to a good start. Most great things don’t start off with a big launch event. They start off quietly and attract a few users.
#5: How to Get Startup Ideas (by Paul Graham):
Don’t try to think of start up ideas. Look for problems – preferably problems that you have yourself.
The very best startup ideas tend to have three things in common: they're something the founders themselves want, that they themselves can build, and that few others realize are worth doing. Microsoft, Apple, Yahoo, Google, and Facebook all began this way.
There have to be users who really need what you’re making (or trying to make). Not just people who see themselves as using it one day – they need to have the urge to use it IMMEDIATELY. The initial user group needing it is usually small, but it doesn’t hinder the idea (if the need was broad – an existing company would have tried to solve it already).
Choose to build something a small amount of users really want rather than a large group of users somewhat want.
Live in the future, then build what's missing. That describes the way many if not most of the biggest startups got started. As an example, Zuckerberg pretty much lived online prior to starting Facebook. If you asked most people on whether they would like to post their personal info online prior to Facebook, most of them would have been terrified.
Be open to new opportunities. Bill Gates and Paul Allen hear about the Altair and think "I bet we could write a Basic interpreter for it." Drew Houston realizes he's forgotten his USB stick and thinks "I really need to make my files live online." The verb you want to be using with respect to startup ideas is not "think up" but "notice." Observe the opportunities that stand unnoticed before you.
Try to be at the leading edge of a rapidly changing field. This is where the real opportunities come from.
Try to notice and find things that seem to be missing. Turn off the normal perceptual filters which you use in everyday life and open up. Try to think of things that make life more efficient or tolerable. You're trying to see things that are obvious, and yet that you hadn't seen.
Try to work on cool projects and build things – even if they seem like toys at first. Live in the future and build what seems interesting.
If you’re going to college, don’t take a class on entrepreneurship. Build things and look for ideas to build and people to build it with.
Don’t worry about being late: good ideas seem like they’re obvious, which means that someone might have already tried to solve it. Don’t let that deter you.
It’s better to have a good idea with more competitors than a bad one without. You don't need to worry about entering a "crowded market" so long as you have a thesis about what everyone else in it is overlooking. Google wasn’t the first to market, but it didn’t keep them from dominating and being the best! A crowded market is actually a good sign, because it means both that there's demand and that none of the existing solutions are good enough.
Turn off your “schlep” (avoidance of tedious tasks) and “unsexy” (avoidance of unglamorous work) filters.
When searching for ideas, look in areas where you have some expertise. If you're a UI expert, don't build a database app.
One good trick is to ask yourself whether in your previous job you ever found yourself saying "Why doesn't someone make x? If someone made x we'd buy it in a second."
Talk to other people about their unmet needs. Find the gaps that they believe exist in the world. What's missing? What would they like to do that they can't? What's tedious or annoying, particularly in their work?
#6: Excerpt from Steve Jobs’s 1995 interview with Computerworld’s Oral History Project:
Many people approach the world with a ‘fixed’ mindset (thus lacking imagination and a lack of propensity to dream of how things ‘could’ be).
The world needs death: to get rid of the people who are satisfied with the current ways of doing things and produces new people who see the potential to improve things and dream of new things.
Large companies suck. The people at the top of the company tend to not notice what many people notice at the lower levels of the company – and even when they do tend to notice, it tends to be too late (think IBM). Big companies move too slowly.
As long as new humans keep getting born – there will be many new opportunities for young people to come in and come up with new ideas and for young people to come in an innovate.
What advice would you give to young entrepreneurs?
Find something you’re really passionate about instead of thinking of ‘ideas.’ Ideas are useless. Work on something and find your ideas through work rather than fishing for the next idea or big thing.
More than half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance. Most people give up and it’s a hard road to take.
You have to have passion for the idea that you’re bringing about.
We’re all going to be dead soon. Live each day on earth like it’s going to be your last. You never know when you’re gonna go. Look to leave something great behind.
Talent attracts talent. Ambitious and bright people tend to attract each other and work in groups (which thus explains the great success within the Bay area).
#8: Why Startups Need to Focus on Sales, Not Marketing (by Jessica Livingston):
You should not be doing any ‘marketing’ at your start up. Instead, your focus should be on sales (narrow and deep) rather than marketing (broad and shallow).
Talk to a small number of users using your product and focus on that. You need to talk individually to early adopters to make a really good product, so engage with the early birds and don’t be scared of getting your hands dirty and being really involved.
Successful startups almost always start narrow and deep.
Get a small number of users initially, and focus in on them.
How to measure if your efforts are effective? Focus on growth rather than absolute numbers.
Make a really good product and go out and find users for it manually.
#9: Chapter 3-5 of Zero to One (by Peter Thiel):
If you want to create and capture lasting value, don’t build an undifferentiated commodity business and avoid markets which have destructive competition (like the airline or restaurant industries). Look to build differentiated products and a monopoly (like Google).
Both monopolies and non-monopolies try to bend the truth. Monopolies don’t want governments getting in the way, so they up-sell their own competition. Non-monopolies want investors, so they overstate their own differentiation and talk down their competition.
Competition pushes people towards ruthlessness or death. Monopolies have the freedom to do what they want and focus on what’s important without prioritizing money.
Not all monopolies are bad: creative monopolists give customers more choices by adding entirely new categories of abundance to the world. Creative monopoly profits provide an incentive to innovate. Monopolies can funnel their profits into long-term thinking and various research projects which non-monopolies don’t have the ability to do.
Old school economics is outdated and no longer relevant. Businesses are not static. Static = death. Monopolies are dynamic and usually creative. Monopolies are actually good for the world.
So why do we value competition?
Our education system brainwashes us into valuing and believing in competition.
Managers never tire of comparing business to war.
Our society hero-worships competition and what it represents, when reality shows the opposite: competition and extremely competitive markets simply suck.
It’s better to merge with competitors than to fight them. Thiel goes on to describe PayPal’s merger with X.com and how it benefited both companies and equipped them to survive the dot-com crash.
Simply put: competition is a force of destruction, so avoid it at all costs.
So – how do you build a monopoly business?
Why is Twitter valued so much more than the New York Times? The New York times was profitable while Twitter wasn’t. Simply put: cash flow. Great business is valued by the cash flow its able to produce in the future rather than today. Investors expect that Twitter will be able to capture monopoly profits over the next few decades, so the newspaper monopoly days are over.
Most of the value in low-growth businesses (like nightclubs and restaurants) is focused on the near term: they trade in profits which they make today for its future profits (which get eaten away by substitutes and competitors). Technology companies follow the opposite trajectory: they sacrifice today’s profits (and lose) to build something which will generate great value 10 to 15 years into the future.
PayPal and LinkedIn are excellent examples of these sorts of companies: the valuations might seem insane on the surface, but the future cash flows and compound growth tell a good story.
If you focus on near term growth too much, you’ll miss out on the most important question which you should be asking yourself: will this business still be around a decade from now?
Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding.
Proprietary technology: Think Google: it’s search algorithm dominated (fast results combined with incredible quality). As a good rule of thumb, the technology should be 10 times better than its substitutes. The best way to make something 10x better is to invest something completely new. Or you can radically improve an existing solution: once you’re 10x better, you escape competition. Amazon made its first 10x improvement in a particularly visible way: they offered at least 10 times as many books as any other bookstore. Apple made a tablet that went from unusable to something that was beautiful and useful.
Network Effects: Network effects make a product more useful as more people use it. For example, if all your friends are on Facebook which draws even more people towards using Facebook. Paradoxically, then, network effects businesses must start with especially small markets. Facebook started with just Harvard students.
Economies of Scale: A monopoly gets stronger as it gets bigger: the fixed costs of creating a product (like employee costs or office space) can be spread our over greater quantities / sales. Software can enjoy incredible economies of scale due to marginal costs of making more copies being close to zero. Many business gain only limited advantages from scaling (like service businesses). A good startup should have the potential for great scale built into its first design.
Branding: today’s strongest brand is Apple. Apple offers products so good as to constitute a category of their own. Apple has a complex suite of proprietary technologies, both in hardware (like superior touchscreen materials) and software (like touchscreen interfaces purpose-designed for specific materials). It manufactures products at a scale large enough to dominate pricing for the materials it buys. And it enjoys strong network effects from its content ecosystem: thousands of developers write software for Apple devices because that’s where hundreds of millions of users are, and those users stay on the platform because it’s where the apps are. These other monopolistic advantages are less obvious than Apple’s sparkling brand, but they are the fundamentals that let the branding effectively reinforce Apple’s monopoly.
Building a Monopoly:
Every startup is small at the start. Every monopoly dominates a large share of its market. Therefore, every startup should start with a very small market.
Always err on focusing on a small market. The reason? A small market is easier to dominate than a large one.
The perfect target market for a startup is a small group of particular people concentrated together and served by few or no competitors. Any big market is a bad choice, and a big market already served by competing companies is even worse.
Once you dominate a niche market – your focus should be on expanding into related broader markets. Amazon as an example started with books and then moved into other areas.
Don’t disrupt: avoid competition as much as possible. Build a monopoly in a niche market and “study the endgame before everything else.” Also – forget about the ‘first mover advantage.’ Usually, you want to be the last mover – make the last great development in a specific market and enjoy years or even decades of monopoly profits.
#10: How we put Facebook on the path to 1 billion users (by Chamath Palihapitiya):
Most people and most companies are mostly shit (learned this at AOL).
Spent most of his time investing and playing poker.
Many people try to mask themselves in a ‘veneer of complexity’ but it’s fairly simply: measure some shit, try some shit, test some more shit, throw out some more shit and it’s really not that complicated.
It’s unbelievable the lack of ‘dog-fooding’ that happens in the real world (where dog-fooding refers to people using their own product or the product which they produce).
People in general think of growth in completely wrong way.
Three of the most important questions in regards to consumer products that are asked:
How do you get people into the front door?
How do you get to an ‘aha’ moment as quickly as possible?
How do you deliver the core-product value and engagement?
Only after you address these questions can you focus on growth.
Eliminate ego. Be comfortable with not being rewarded in the short term.
Don’t live on gut-feeling. Most people can’t predict things correctly.
Be honest. Don’t allow bullshit to permeate your culture.
Do you really know what you’re building and why?
Key thing which Facebook focused on: how do we provide value to as many users as possible. They didn’t focus on growth or anything else. Focus was on delivering the core product value to as many users as possible.
#11: Does Slow Growth Equal Slow Death? (by Joel Spolsky):
Speed to market often involves a trade-off with quality: if you need high quality code, it takes time and Joel usually takes the time to do things right. This has also slowed Fog Creek (his company) down a lot.
He’s OK with reasonable and steady growth over explosive growth (Fog Creek had grown 56% annually for 10 years).
Joel is happy with this growth rate: the company is profitable, their customers love their products and their sales are rising.
But, in the book ‘Crossing the Chasm,’ Moore writes about the battle between Oracle and Ingres in the 1980s: Oracle drove for 100 percent growth while Ingres accepted 50 percent growth. According to executives at Ingres, the company could not grow any faster than 50 percent and still adequately serve their customers. They said that Oracle was over-promising and under-delivering and that their customers hated them. They ended up being wrong and Oracle won the war.
This concerned Joel. Moore also said “Once the apparent leader-to-be emerges, pragmatists will support that company, virtually regardless of how arrogant, unresponsive, or overpriced it is."
This is entirely possible and you can think of it this way: “If you're growing at 50 percent a year, and your competitor is growing at 100 percent a year, it takes only eight years before your competitor is 10 times bigger than you. And when it's 10 times bigger than you, it can buy 10 times as much advertising and do 10 times as many projects and have meetings with 10 times as many customers. And you begin to disappear.”
Many software companies have gone away because they simply didn’t grow fast enough and were over-taken by the market leader (look at Word Perfect or Word Star) - but expanding a business faster than its natural rate is also risky. You have to hire quickly and borrow money from investors as well as rely on outside partnerships.
Key point: If you want to win, you need to be OK with focusing on growth taking risks. If you aren’t, someone else will be and they will take your market share.
At Fog Creek, they plan to take more risks in the future by:
Focusing on delivering a product that can square off with their competitors; often, they lose a customer because the don’t have X and the competitor does. They plan to address this by adding features to their already excellent product.
Focusing on building up a sales force. Word of mouth isn’t enough and Fog Creek could use a bigger sales team which they plan on delivering soon.
#12: A Recipe for Growth - Adding Layers to the Cake (by Jeff Jordan):
Businesses don’t grow themselves. One of the most important jobs of a CEO is to aggressively define and pursue a growth agenda for his or her business.
When he joined e-bay, he noticed that month over month growth wasn’t there for one month and needed a plan to prioritize growth. Rather than using more marketing (which they were already utilizing) or attempting to acquire a company (it felt desperate to acquire a company), they decided to focus on focusing on product innovation.
Decided to look into buying formats: at the time, they only allowed buying through auctions, but research showed that non-male users may not have loved auctions and preferred fixed-price formats. The buy-now option that they added now represents 62% of eBay’s revenue.
He came to call this process of layering in new innovations on top of the core business “adding layers to the cake.” eBay within the U.S. was the company’s original business but the team focused on adding more ‘growth layers’ – the first one being international expansion, followed by payments and finally by acquiring PayPal which all took place between 1996-2005.
At PayPal – they added further layers through international expansion, improving offerings for merchants (who sold outside of eBay) and starting to offer credit on top of payments business.
His earlier success at OpenTable also used the ‘layer on the cake’ growth strategy, and other public companies like Apple and Amazon utilized it heavily during this time (Apple by expanding its product like and Amazon by expanding into other non-merchandise businesses). The key to the success here almost always lied in brilliant innovation.
These winning Net companies are incredibly strong at product innovation. The best innovations improve and compliment the core business of a company, taking advantage of and enhancing its most valuable assets.
#13: Mark Zuckerberg on Facebook’s Early Days: Go Hard or Go Home (by Mike Isaac):
Like most other start-ups, Facebook didn’t have many resources in its early days. Its very first server back in 2004 cost $85 to rent. They didn’t spend much and were small, tight and had a lot to prove.
They first went to schools that were hardest to succeed in. Zuckerberg figured that if they had a product that was better than all others, it would be worth investing in.
After first growing Facebook inside of Harvard, the plan was essentially to go hard or go home — to launch at universities that already had a really well integrated social network (like Columbia, Stanford and Yale). The thinking was that if Facebook succeeded there, scaling to less integrated schools would be a downhill and easier battle.
Some other great advice which Zuckerberg offered to the crowd: listen to your users, stay simple, be reliable.
#14: The Secret Behind Pinterest’s Growth Was Marketing, Not Engineering (by Liz Gannes):
The way Pinterest grew had little to do with wisdom and more to do with regular grassroots marketing.
Initially had a small number of users (3000) who really loved the product.
Instead of changing the product (to accelerate growth) – they focused on finding more ‘core users’ who could love the product and what it offered, and it worked.
General advice: don’t simply follow the herd or follow Venture Capitalist advice. Fundamentally, the future isn’t written.
#16: Startup = Growth (by Paul Graham):
A startup is a company designed to grow fast. If you want to start one, it's important to understand that. Millions of companies are started every year in the US. Only a tiny fraction are startups.
Most startups fail. To grow rapidly, you need to make something you can sell to a big market. To do this, you have to 1) make something lots of people want and 2) reach and serve all those people. Writing software is a great way to solve 2, but you’re stilled constrained with 1.
Most successful startups are started by founders who notice ideas that most other people overlook. In other words, the founders are different and able to notice a blind spot the market has ignored.
The growth of a successful startup usually has three phases:
Initial period of slow growth while startup figures out what it’s doing.
The startup figures out how to make something lots of people want and how to reach them, they go through rapid growth.
Eventually, startup grows into a big company and growth declines again.
Y-Combinator measures growth rate per week. A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well. The best thing to measure here is revenue; the next best thing is active users.
It's hard to find something that grows consistently at several percent a week, but if you do you may have found something surprisingly valuable. (1% weekly growth = 1.7x yearly multiple; 5% weekly growth = 12.6x yearly multiple; 7% =33.7x; 10% = 142x).
Why are VCs interested only in high-growth companies? The reason is that they get paid by getting their capital back, ideally after the startup IPOs, or failing that when it's acquired. Many startups fail, but the ones which do make it are growth focused and return a huge multiple of the initial investment.
A lot of startups are acquisition targets. Rapidly growing companies can bring great value (PayPal brought great value to eBay as an example).
If you want to understand startups, understand growth. When you start a start-up, you’re committing yourself to finding growth.
#17: Chasing Facebook's Next Billion Users (by Douglas MacMillan):
Talks about Facebook’s growth team and its early days (went from 5 people to 150+). Early focus was on expanding market from universities to general population.
Some of their growth strategies focused on:
Partnering with Google and adding Facebook profiles to their search results.
Adding ‘People You May Know’ feature that let others discover more connections.
Making site available in other languages.
The team views a dashboard every morning which shows a running tally of monthly active users.
Next focus is on emerging international markets and Facebook use on mobile phones.
Other companies are also copying Facebook and now have their own growth teams.
#19: Your App Makes Me Fat (by Kathy Sierra):
In 1999, a study was done asking one group of students to memorize a 7-digit number while another group was asked to memorize only 2 digits. The group that memorized 7 digits were 50% more likely to take cake when being offered cake vs. fruit after the study.
Key finding: Willpower and cognitive processing draw from the same pool of resources.
Same type of study was done but with dogs, and the findings were similar: dogs which exercised more control over their cognitive resources (by waiting) were more likely to give up on solving a toy puzzle than dogs who didn’t need to wait patiently.
Cognitive resources are easily depleted: if you had to spend all day at work exercising self-control dealing with angry customers and co-workers, you’ll have less resources when you get back home.
Think about what this means for your users:
If your app asks users to make choices, you’re draining resources.
If your app is confusing, once again – draining cognitive resources.
Adding new features: yup, you’re taking more cognitive resources.
At each design meeting, ask: ‘Is this a fruit-choosing feature or cake-choosing feature?’ If you’re adding content-marketing to the site, will your users really use it or pay attention to it? Are you draining their resources by making them use your app? How can you make it easy to use and do the best possible job of not taking away from your users’ precious and easily depleted cognitive resources?
#20: What Makes a Design Intuitive (by Jared Spool):
The whole article talks about what makes a design ‘intuitive’ – and explains that what’s intuitive to one person may not be intuitive to another. The difference is outlined by a ‘knowledge gap.’
In the grand scheme – there are going to be many users of a design. They can all be lined up on a spectrum ranging from ‘no knowledge’ to ‘all knowledge’. In other words – the knowledge of the interface ranges from knowing everything there is to know about it to knowing nothing about it.
Current Knowledge represents the knowledge the user has when they first approach the interface to complete the task. Target Knowledge is the knowledge the user needs to accomplish the task. Every user will have a different ‘current knowledge point.’
The difference between the target point and current point is normally referred to as “the knowledge gap”. Users can complete the task when their current knowledge = the target knowledge.
Two conditions are needed to bridge the gap:
Both the current knowledge point and target knowledge point are identical (i.e. the design is simple enough so that most users approaching it already are familiar with the elements needed in order to use it).
The points aren’t identical, but the current design helps them ‘bridge’ this gap by supplying enough information on how to use it.
To identify a user’s current knowledge point, it’s valuable to do field studies.
To identify the target knowledge for important tasks, perform user and usability testing.
Sometimes, making something intuitive doesn’t make sense for a company. As an example, Amazon doesn’t make it easy to find its customer service phone #. Instead, it makes return products very intuitive and easy (and uses a simple wizard interface to do so).
#21: [video] Creative mornings with Ben Chestnut:
Embrace chaos. Managers love controlling things. Creatives don’t and nature needs entropy. Without entropy there is no creation (i.e. no work) so you need to embrace creativity and chaos.
Let people have time to work on stuff and avoid meetings.
Tells people to make small things and keep working on building small prototypes. He believes big ideas come from combining little things from lots of different parts / pieces.
Encourages employees to continually work on and build new things (but tries to put a timeline on it of 2 weeks). Idea: build lots of small things and keep working on new ideas.
Likes going around asking employees what they’re working on – if they’re not working on anything, likes to connect them to employees who are building or working on something and encourages them to help them out.
Doesn’t focus on ‘happiness’ when it comes to running a business. Knows that the job of a business is to generate money so tries to encourage the exploration of many new ideas and building new things which they could use to generate income or deliver to customers.
#23: The Press is a Tool (by Alexia Tsotsis):
From a startup’s perspective the press is a tool. Dealing with press is part of the job of building a successful tech company.
At its most basic level, press is about telling stories.
Building great relationships with press people early on can pay great dividends.
Some companies that have used the hype cycle successfully are Uber, Twitter and
Airbnb. When a company reaches a peak, hype-wise, it’s time to start bearing fruit.
While everyone hopes for a Cinderella story, truth is that over 90% of startups fail. 74% percent of these startups fail because of premature scaling (i.e. the hype overwhelming product capabilities).
Hype is still the currency of Silicon Valley. People think Silicon Valley is a magical place filled with amazing technologies, but it also has some of the best marketers in the world.
When you’ve got nothing, hype, manufactured by blog posts and marketing gimmicks actually can help raise VC and capture the imagination of early adopters. Sometimes this works out for startups.
Hype may help companies get investments faster, but at the same time may scare away investors (at too high of a valuation).
For the past five years, the mythological desired outcome is such: Get your
TechCrunch post, get 1 million users, raise a huge round, sell to Google for $100
million. Now that narrative is changing — Get your Product Hunt link, TechCrunch post, Re/Code post, WSJ post, blog on Tech-meme and Hacker News, sell. But the average experience, even when you do sparkle, is fade. In other words, you might not need as much press as you think you might need.
So what’s the best media/hype strategy through all the risk and randomness? Go with Warren Buffet: "Markets are risky, good businesses are not."
In other words, have a positive attitude and design your business intelligently. Always ask:
What problem am I solving for customers?
Does my startup have a reason to exist?
How can I make my service even better?
Am I improving things for the economy or society at large?
Another 3 questions to ask founders:
Who is your closest competitor and what do you do differently?
What are the challenges of doing this?
What are your future plans?
Avoid over-promising and under-delivering.
#24: Why Software is Eating the World (by Marc Andreessen written in 2011):
Many people believe that we have a software bubble, but Marc Andreessen argues the opposite: companies like Apple were trading at around 15 P/E even though they had a highly differentiated product with huge margins.
Believes that we are in a middle of a broad technological and economic shift where software companies will take over large swatches of the economy (which did come true).
More businesses are being run through software delivered online.
The costs to run a tech company have gone down tremendously (used to cost him 150K a month to run Loud-cloud but now it costs 1.5K to run through Amazon’s web services).
With lower start-up costs and vastly expanded market for online services, the global economy will be digitally integrated. Look at the world’s largest bookseller, Amazon as an example. Today’s largest video service is Netflix. Music companies are becoming software companies too (iTunes, Spotify, etc...). Video-game industry and video-game makers are also growing fast. Pixar used to be a software company as well. Mobile phones have replaced cameras. The largest marketing platform today is Google. The fastest growing Telecom company is Skype. LinkedIn is today’s fastest growing recruiting company.
Software is also disrupting value-chains in physical based products (like autos). Modern cars have built-in entertainment systems, maps for guidance, etc...
Walmart uses software to power its logistics and distribution capabilities.
Oil and gas exploration uses software based solutions.
Health care is the next industry to be transformed (along with national defense industry as well).
We should be proud of this development within America!! Still, we face several challenges:
First, every new company is being built in the face of economic headwinds (side note: I totally disagree. Interest rates were at around 0% for a very very very long time).
Secondly, many people in the US and around the world lack the level of education and skills needed in order to benefit from this oncoming software revolution. There’s no solution to this other than to increase education, and we have a long way to go.
The new companies need to prove their worth: they need to build strong cultures, delight their customers, establish a competitive advantage and justify their rising valuations. No one should expect to build such companies easily: it’s brutally difficult to do so.
Instead of questioning valuations, people should seek to understand this new generation of companies and seek to expand them.
#25: How to Convince Investors (by Paul Graham):
Most founders try to convince others to invest into them through a pitch, which is a mistake: instead of making a pitch, let the startup do the work. Explain to investors why the start up is worth investing in and explain it clearly and simply.
Investors are looking for start-ups that are going to be very successful, but many aren’t and only a few make it through. Out of the ones that make it through, a few become giants (distribution follows power law). Most investors want to know if you have a chance of becoming one of the big 15 successes.
How do you convince them that you will be a big success? You need three things:
Formidable founders.
A promising market.
Some evidence of success so far.
How can you be formidable? A formidable person is one who seems like they'll get what they want, regardless of whatever obstacles are in the way. Formidable also equates to being confident as well.
Truth: the way to seem most formidable as an inexperience founder is to speak the truth. Convince yourself that your startup is worth investing in and then learn how to explain it to others.
To evaluate whether your startup is worth investing in, you have to be a domain expert. Know everything about your market.
The time to raise money is not when you need it, or when you reach some artificial deadline, it's when you can convince investors.
Market: you need a plausible path to owning a big piece of a big market. Founders think of startups as ideas, but investors think of them as markets.
If there are x number of customers who'd pay an average of $y per year for what you're making, then the total addressable market, or TAM, of your company is $xy. Make xy big enough and you’ll get interest.
You don’t have to start with targeting a large market: many times it’s often better starting off with a small one that can turn into a big one.
One big question: if this is such a great idea, why hasn’t anyone else done it. Key: most start ups notice something other people miss or they ride a trend, and also: most companies seem like only pretty good ideas (including Microsoft) in the first few months after they’re started. A huge element of ‘luck’ plays a role in other words.
Rejection: don’t lie to investors. Also, it's not uncommon for a startup to be rejected by all the VCs except the best ones. That's what happened to Dropbox.
Different: don’t use bullshit language or ‘try’ to convince investors. Believe in your idea and show them it’s worth investing it.
In other words, make something worth investing in, understand why it’s worth investing it and explain it clearly.
#26: How to Raise Money (by Paul Graham):
Most startups that raise money do it more than once. A typical trajectory might be (1) to get started with a few tens of thousands from something like Y-Combinator or individual angels, then (2) raise a few hundred thousand to a few million to build the company, and then (3) once the company is clearly succeeding, raise one or more later rounds to accelerate growth. This essay is focused on #2.
What makes a company a start up? Rapid growth. If taking on money makes you grow faster then take it on, and if not, don’t raise money.
If you do decide to raise money: do it as quickly as possible so you can focus your attention to getting back to work (of building your company).
Most investors have 2 main fears: the fear of missing out or the fear of investing in a flop. To mitigate investing in flops, normal investors try to wait as long as possible to gain information about the company prior to investing (in order to minimize risk).
If you’re not fundraising and an investor wants to meet with you, don’t accept the invitation.
The best type of intro is from a well-known investor who has just invested in you. So when you get an investor to commit, ask them to introduce you to other investors they respect. The next best type of intro is from a founder of a company they've funded.
When searching for investors, talk to many in parallel and do it through breadth-first search weighed by expected value (where expected value = amount willing to invest * chances of investing).
Never leave a meeting with an investor without asking what happens next. What more do they need in order to decide? Don't be too pushy, but know where you stand.
Getting the first investor to invest in your company is usually the hardest. Once you have one, the rest follow more easily.
Once an investor commits, find out when you will get the money. Don’t say you raised money until the money is in the bank.
When an investor tells you "I want to invest in you, but I don't lead," translate that in your mind to "No, except yes if you turn out to be a hot deal."
If you need to estimate the upper limit on what you should raise, a good rule of thumb is to multiply the number of people you want to hire times $15k times 18 months. In most startups, nearly all the costs are a function of the number of people. If you have additional expenses, like manufacturing, add in those at the end.
Underestimate how much you want: err on underestimating how much you want to raise. Also keep your expenses low.
Be profitable if you can: it will give you a much stronger position in raising money. You want to tell investors that you’ll succeed no matter what, but raising money will help you do it faster.
Don’t try to maximize your company valuation. Y-Combinators best 2 investments had really low valuations when they raised (Dropbox and Airbnb). Beware of ‘valuation sensitive’ investors (investors who won’t invest unless they know your current valuation).
If you're surprised by a low-ball offer, treat it as a backup offer and delay responding to it.
Accept offers greedily: If someone makes you an acceptable offer, take it. If you have multiple incompatible offers, take the best.
Don't sell more than 25% in phase 2: Our rule of thumb is not to sell more than 25% in phase 2, on top of whatever you sold in phase 1, which should be less than 15%.
Have one person handle fundraising (if you have 2 founders, the other one can focus on working on the company). The person who handles this should be the CEO.
You'll need an executive summary (one-page paper describing in simple language what you plan to do) and (maybe) a deck.
Don’t get addicted to fundraising: you should be listening to your users, not focusing on raising money. Also, don’t raise too much money.
This ends part 1 of this series. You can find part 2 below:
