Lecture 1 – How to Start a Startup (Sam Altman, Dustin Moskovitz)


Welcome. Can I turn this on? Maybe, all right.>>Can people hear in the
back?>>Can you guys hear me? Is the mic on? No, ah, maybe you can ask
them to turn it on. Maybe we can get a bigger,
ah, there we go. All right. Maybe we can get a bigger
auditorium, we’ll see. So welcome to CS183B. I’m Sam Altman. I’m the President of Y
Combinator. Nine years ago, I was a
Stanford student and then I dropped out to start
a company. And then I’ve been an
investor for the last few. So, at YC, we’ve been
teaching people how to start startups for nine
years. Most of it’s very hands on
and specific to the startups. But, 30% of it is pretty
generally applicable. And so, we think that we can teach that 30% in this
class. And even though that’s only
30% of the way there hopefully it’ll still
be really helpful. We’ve taught a lot of this
at YC already, but it’s all been off the
record. And this is the first time
that a lot of what we teach in YC is gonna be on
the record. So we’ve invited some of our
best speakers to come and give the same talks they
give at YC. We’ve now funded 720
companies. And so, we’re pretty sure that a lot of this advice is
pretty good. We can’t fund every startup
yet, but we can hopefully make this advice
very generally available. Guest speakers are gonna
teach 17 of the 20 classes. I’m only teaching three. Counting YC itself, every guest speaker has been
involved in the creation of a billion plus dollar
company. So the advice shouldn’t be
that theoretical. It’s all been, it’s all from
people who have done it. All of the advice in this class is geared towards
people starting a business where the goal was
hyper-growth. And eventually building a
very large company. Much of it doesn’t apply in
other cases and I wanna warn people up
front. That if you try and do these things in a lot of
big companies or non startups, it won’t work. It should still be
interesting. I, I really do think that
startups are the way of the future and it’s worth
trying to understand them. But startups are very
different than normal companies. So over the course of today
and Thursday, I’m gonna try to
give an overview of the four areas that you need to excel
at in order to maximize your chances of
success at a startup. And then throughout the
course, the guest speakers are gonna drill into all of
these in more detail. So the four areas, you need
a great idea, a great product, a great
team and great execution. These overlap somewhat, but
I’m gonna have to talk about them somewhat individually
to make it make sense. You may still fail. The outcome is something
like idea times product times execution times team
times luck, where luck is the random
number between 0 and 10,000. Literally that much. But if you do really well in
the four areas you can control, you have a good
chance of at least some amount of
success. One of the exciting things
about startups, is that they are surprisingly
even playing field. Young and inexperienced, you
can do this. Old and very experienced,
you can do this too. And one of the things that I
particularly like about startups is that some of the
things that are bad in other work situations, like
being poor and unknown are actually huge assets when it
comes to starting a startup. Before we jump in on the
how. I want to talk about why you
should start a startup. I’m somewhat hesitant to be
doing this class at all, because you should never
start a startup just for the sake of doing so. There are much easier ways
to get rich and everyone who starts a
startup always says, always, that they couldn’t
have imagined how hard and painful it was going to be. You should only start a
startup if you com, feel compelled by a
particular problem. And that you think starting
a company is the best way to solve it. The specific passion should
come first and the startup second. In fact, all of the big successes we have at
YC followed this. So, for the second half of
today’s lecture, Dustin Moskovitz the
co-founder of Facebook and Asana, is going to take over
and talk about why to start a
startup. We’re so surprised by the
amount of attention that this class
got. That we wanna make sure we spend a lot of time on the
why. Okay.
So the first of the four areas. A great idea. It’s become popular in recent years to say that the
idea doesn’t matter. In fact, it’s almost uncool
to spend a lot of time thinking about the idea for
a startup. You’re just supposed to
start. Throw stuff at the walls. See what sticks. And not even spend any time
thinking about if it’ll be valuable if it
works. And pivots are supposed to
be great. The more pivots, the better. So this isn’t totally wrong. Things do evolve in ways that are difficult to
predict. And there’s a limit to how
much you can figure out, without actually getting a
product in the hands of users. And great execution is at least ten times more
important and a hundred times harder than
a good idea. But the pendulum has swung
way out of whack here. A bad idea is still bad. In the pivot happy world
that we’re in today, it feels really sub optimal. Great execution towards a
terrible idea will get you nowhere. There are exceptions, of
course. But most great companies
start with a great idea, not a pivot. If you look at successful
pivots, they almost always are a pivot into something
the founders themselves wanted, not a
random made up idea. Airbnb happened because
Brian Chesky couldn’t pay his rent, but he did have
some extra space. In general, though, if you look at the track
record of pivots, they don’t become big
companies. I myself used to believe
ideas didn’t matter that much, but I’m very sure
that’s wrong now. The definition of the idea, as we talk about it, is very
broad. It includes the size and the
growth of the market, the growth strategy for the
company, the defensibility strategy
and so on. When you’re evaluating an
idea, you need to think through
all these things, not just the product. If it works out, you’re
gonna be working on this for ten years. So it’s worth some real
upfront time to think we’ve a long term
value in the defensibility of the
business. Even though plans themselves
are worthless, to exercise a planning is
really valuable and totally missing in most
startups today. Long term thinking is so
where, anywhere, but especially in
startups. That it’s a huge advantage
if you do it. Remember that the idea will
expand and become more ambitious as you
go. You certainly don’t need to
have everything figured out, in a path from here to world
domination. But you really want a nice
kernel to start with.>>You want something that
can develop in interesting ways. As you’re thinking through
ideas, another thing that we see
young founders get wrong all the time, is that
someday you need to build a business that’s
difficult to replicate. This is an important part of
a good idea. I wanna make this point
again because it’s so important. The idea should come first,
and the startup should come
second. Wait to start a startup,
until you come up with an idea you feel
compelled to explore. This is also the way to chose between multiple
ideas. If you have several ideas
that all seem pretty good, work on the one that you
think about most often when you’re not trying to think
about work. But we hear again and again
from founders that they wish they had waited to
start a startup until they came up with an idea that
they really loved. Another way of looking at
this is that the best companies are almost always
mission oriented. It’s difficult to get large
groups of people to the extreme levels of focus
and productivity that you need for a startup to be
successful, unless the company feels
like an important mission. And it’s usually really hard
to get that without a great founding idea. A related advantage of
mission oriented ideas is that you yourself
will be dedicated to them. It takes years and years, usually a decade to
create a great startup. If you don’t love and believe in what you’re
building, you’re likely to give up at
some point along the way. There’s no way I know of to
get through the pain of a startup without belief that
the mission really matters. A lot of founders,
especially students, believe that their startup’s
only gonna take two or three years and then after
that they’ll work on what they’re really
passionate about. That almost never works. Good startups usually take
ten years. A third advantage of
mission-oriented companies is that people
outside the company, are more willing to help
you. You’ll get more support on a hard important project
than a derivative one. When it comes to starting
startups, in many ways it’s easier to start a hard startup than an
easy startup. This is one of those
counter-intuitive things. It takes people a long time
to understand. It’s difficult to overstate
how important being
mission-driven is, so I wanna emphasize it one
last time. Derivative companies,
companies that copy an existing idea with
very few new insights, don’t excite people and they
don’t compel the teams to work hard enough to be
successful. Paul Graham is gonna talk
about how to get startup ideas next week. It’s something that a lot of
founders struggle with but it’s something I believe you
can get better with it, better at with practice. And it’s definitely worth
trying to get better at. The hardest part about
coming up with great ideas is that the best ideas often look
terrible at the beginning. The 13th search engine and without all the features of
web portal. Most people thought that was
pointless, search was done, and anyway, it didn’t matter
that much, Portal’s where the value is
at. The tenth social network,
and limited only to college
students with no money? Also terrible. MySpace had won, and who wants college students
as customers, or a way to stay on strangers’
couches? That just sounds terrible
all around. These all sounded really
bad, but they turned out to be
good. If they had sounded really
good, there would have been too
many people working on them. As Peter Tills discussed in
the fifth class, you want an idea that turns
into a monopoly, but you can’t get a monopoly in
a big market right away. Too much competition for
that. You have to find a small
market in which you can get a monopoly, and then quickly
expand. This is why some great
startup ideas look really bad at the beginning. It’s good if you can say
something like, today only the small subset of users
are going to use my product. But I’m gonna get all of
them. And in the future, almost everyone will use my
product.>>Here’s the thing that’s
gonna come up a lot, you need conviction in your
own beliefs, and the willingness to ignore
others nay saying. The hard part is that this
is a very fine line. There’s right on one side of
it, and crazy on the other. But keep in mind that if you
do come up with a great idea, most people
are going to think it’s bad. You should be happy about
that. It means they won’t compete
with you. This is also a reason why
it’s not usually dangerous to
tell people about your idea. The truly good ideas don’t
sound like they’re worth stealing. You want an idea about which
you can say, I know it sounds like a bad
idea. But hear specifically why
it’s actually a great one. You wanna sound crazy, but
you wanna actually be right. And you want an idea that
not many other people are working on. And it’s okay if it doesn’t
sound big at first. Common mistake among
founders, especially first time
founders, is they think that the first
version of their product, the first version of their
idea, needs to sound really big. But it doesn’t. It needs to take over a
small, specific market and expand
from there. That’s how most great
companies have started. Unpopular but right is what
you’re going for. You want something that
sounds like a bad idea, but is a good idea. You also really wanna take
the time to think about how the market’s
going to evolve. You need a market that’s
going to be big in ten years. Most investors are obsessed
with the market size today, and they don’t think at all
about how the market is going to evolve. In fact, I think this is one
of the biggest systemic mistakes that
investors make. They think about the growth
of the startup itself, they don’t think about the
growth of the market. I care much more about the
growth rate of the market than it’s current
size. And I also care if there’s any reason that it’s
gonna top out. You should think about this. I’d prefer to invest in a company that’s going after
a small but rapidly growing market than
a big but slow growing one. One of the big advantages of
these sorts of markets um, these small but rapidly
growing markets, is that customers are usually pretty
desperate for a solution. And they’ll put, put up with
an imperfect but rapidly improving product. And a big advantage of being
a student, one of the two biggest advantages
is that you probably have better intuition about which
markets are likely to start growing rapidly than
older people do. Another thing that students
usually don’t understand, or at least takes a while you
cannot create a market that doesn’t want to exist. You can basically change
everything in a startup but the market. So you should actually do
some thinking, to be sure or at least as sure as you can
be, that the market your going after is going to grow
and be there. There are a lot of different
ways to talk about the right kind of
market. For example, surfing someone
else’s wave or stepping into an up elevator
or being part of a movement. But all of this is just a
way of saying you want a market that’s going to
grow really quickly. It may seem small today. It may be small today. But you know, and other people don’t that it’s
gonna grow really fast. So think about where this is
happening in the world. You need this sort of a tail wind to make a
startup successful. The exciting thing is there
are probably more of these tail winds now than
ever before. As Mark Andreessen says, software is eating the
world. It’s just everywhere. There are like, so many
great ideas out there and you just have to pick one,
and find one that you really
care about. Another version of this, that would, gets down to the
same idea, is Sequoia’s famous
question. Why now? Why is this the perfect time
for this particular idea and to start this particular
company? Why couldn’t it have been
done two years ago? And why will two years in
the future be too late? For the most successful
startups we’ve been involved with, they’ve all
had a great idea, great answer to this
question. And if you don’t, you should
be at least somewhat suspicious
about it. In general, it’s best if you’re building something
that you yourself need. You’ll understand it much
better than if you have to understand it by talking to a customer to build the very
first version. If you don’t know it
yourself and you’re building something
that someone else needs, realize that you’re at a big
disadvantage and get very, very close to your
customers. Try to work in their office
if you can. And if not, talk to them
multiple times a day. Another somewhat
counter-intuitive thing about good start up ideas, is that they’re almost
always very easy to explain, and very easy to understand. If it takes more than a
sentence to explain what you’re doing
um, it’s almost always a sign
that it’s too complicated. It should be a clearly
articulate, articulated vision with a
small number of words. And the best ideas are
usually either, very different from existing
companies in one important way. Like Google being a search
engine that worked just really well and none of
the other stuff of the portals or totally new,
like Space X. Any company that’s a clone
of something else that already
exists with some small or made up differentiator, like we’re gonna be x
beautiful design or we’re gonna be y for people
that like red wine instead. That usually fails. So as I mentioned one of the
great things about being a student is you have a very good perspective
on new technology. And learning to get good at
having new ideas takes a while. So start working on that
right now. That’s one thing we hear
from people all the time, that they wish they had done more when they were a
student. The other is meeting
potential co-founders. You have no idea how good of
an environment you are in right now for meeting people
that you can start a company with
down the road. And the one thing that we always tell college
students, is more important than starting any
particular startup is getting to know a lot of
potential co-founders. So I want to finish this
section of my talk with a quote from 50 Cent. This is from when he was
asked about vitamin water. I won’t read it, its up
there. But it’s about the
importance of thinking about what
customers want, and thinking about the demands
of the market. Most people don’t do this, most students especially
don’t do this. If you can just do this one
thing, if you can just learn to think about the
market first, you will have a big leg up on most people
starting startups. All right, and this is
something. This is probably the thing
that we see wrong with Y Combinator
apps most frequently, is that people have not thought
about the market first. And what people want first. So for the next section, I’m gonna talk about
building a great product. And here again, I’m gonna use a very broad
definition of product. It includes customer support
and copyright explaining the
product. Anything involved in your
customer’s interaction with what you built for them. To build a really great
company, you first have to turn a great idea into a
great product. This is really hard, but
it’s crucially important, and fortunately it’s pretty
fun. Although great products are
always new to the world and it’s hard to give you advice
about what to build, there are enough
commonalities that we can give you a lot of advice
about how to build it. One of the most important
tasks for a founder is to make sure that the company
builds a great product. Until you’ve built a great
product, almost nothing else matters. When really successful
startup founders tell the story of their early
days. It’s almost always sitting
in front of the computer, working on their product or
talking to their customers. That’s pretty much all the
time. They do very little else,
and you should be very skeptical
if your time allocation is much different. Most other problems that
founders are trying to solve, raising money,
getting more press, hiring, business
development, et cetera. These are significantly
easier when you have a great product. It’s really important to
take care of that first. Step 1, is to build
something that users love. At YC, we tell founders to
work on their product, talk to users, exercise eat
and sleep and very little else. All the other stuff I just
mentioned, PR conferences, recruiting advisers, doing
partnerships, you should ignore all of
that and just build a product. And get it as good as
possible by talking to your users. Your job is to build
something that users love. Very few companies that go
on to be super successful get there
without first doing this. A lot of good on paper
startups fail because they merely make something that
people like. Making something that people
want, but only a medium amount is
a great way to fail and not understand why you’re
failing. So these are the two jobs. Something that we say at YC a lot is that it’s better
to build a small number, it’s better to build
something that a small number of users love than a
large number of users like. Of course, it’d be best to build something that a small
number of users love. But opportunities to do that
for V1 are rare, and they’re usually not
available to startups. So in practice, you end up choosing either
the grey or the orange. You make something that a
lot of users like a little bit, or something that a
small number of users, like, love a lot. And this is a very important
piece of advice. Build something that a small
number of users love. It’s much easier to expand
from something that a small number of people love to something
that a lot of people love. Than from something that a
lot of people like to a lot of
people love. If you get this right, you can get a lot of other
things wrong. If you don’t get this right, you can get everything else
right, and you’ll probably still
fail. So when you start on a
startup, this is the only thing you need to care about
until it’s working.>>Excuse me, can you
explain that again?>>Sure.
So you have a choice in a startup. The best thing of all worlds
would be to build a product that a lot
of people will really love. In practice you can’t usually do that
because of big company. If there’s an opportunity
like that, Google or Facebook will do it. So there’s like a limit to
the area under the curve of what you can build and
you can either build something that lot of users
like a little bit or you can build something that a small
number of users love a lot. And, like, the total amount
of love is the same, it’s just a question of how
it’s distributed. And there’s like this law of
conversation of how much happiness you can
put into the world with the first product of a
startup. And so startups always
struggle with which of those two they should go. And they seem equal, right, cuz the area under
the curve is the same. But we’ve seen this time and
again that they’re not. And that it’s so much easier
to expand. Once you’ve got something
that some people love, you can expand that something that a lot of
other people love. But if you only get
ambivalence or sort of like weak
enthusiasm. And then try to expand that, you’ll never get up to a lot
of people loving it. So the advice is, uh, find a
small group of users and make them really love what
you’re doing. Does that make sense? All right. I’m, I’m, one way that you
know when this is working is that you’ll get
growth by word of mouth. If you make something people
love people will tell their
friends about it. This works for consumer
products and enterprise products, as
well. When people really love
something, they tell their friends
about it and you’ll see organic growth. If you find yourself talking
about how it’s okay that you’re not growing because
there’s a big partnership that’s gonna come save you
or something like that, it’s almost always a sign of
real trouble. Sales and marketing are
really important, and we’re gonna have two classes
on them later. But if you don’t have some
early organic growth, then your product probably
isn’t good enough yet. A great product is the
secret to long term growth hacking. You should get that right before you worry
about anything else. It doesn’t get easier to put
off making a great product. If you try to build a growth
machine before you have a product that some
people really love, you’re almost certainly
gonna waste your time. Breakout companies almost
always have a product that’s so good that it grows
by word of mouth. Over the long run great
products win. Don’t worry about your
competitors raising a lot of money and what they may do
in the future. They probably aren’t very
good anyway. Very few startups die from
competition. Most die because they
themselves fail to make something users love. They spend their time on
other things. So worry about this above
all else. Another piece of advice to
make something that users love is to start with
something simple. It’s much, much easier to
make a great product if you have something simple. Even if your eventual plans
are super complex, and hopefully they are, you can almost always start
with a smaller subset of the problem than whatever
you think is the smallest. And it’s hard to build a
great product. So you wanna start with as little surface area as
possible. Think about the really
successful companies and what they started with. Think about products that
you really love. They’re generally incredibly
simple to use and especially to get started
using. The first version of Facebook was almost
comically simple. The first version of Google
was just an ugly webpage with a textbox and
two buttons but it returned the best results, and that’s
why users loved it. The iPhone is far simpler to use than any smartphone that
ever came before it and it was the first one that
people really loved. Another reason that simple
is good, is because it forces you to
do one thing extremely well. And you have to do that to
make something that people love. The word fanatical comes up
again and again when you listen to
successful founders talk about how they think about
their product. Founders talk about being
fanatical in the way they care about the quality
of the small details. Fanatical in getting the
copy that they use to explain the product just
right and fanatical in the way they think about
customer support. In fact, one thing that
correlates into success among the YC
companies is the founders that hook up pager duty to
their ticketing system, so that even if the user emails
in the middle of the night when the founders
are asleep. They still get a response
within an hour. Companies actually do this
in the early days. These founders feel physical
pain when the product sucks. And they wanna wake up and
fix it. They don’t ship crap. And if they do they fix it
very, very quickly. And it definitely takes some
level of fanaticism to build a great
product. You need some users to help
with the feedback cycle. But the way to get those
users is manually. You should go recruit them
by hand. Don’t do things like buy
Google ads in the early days to get
initial users. You don’t need very many. You just needs ones that
will give you feedback every day and eventually love your
product. So instead of trying to get
them on Google AdWords, just find a few people in
the world that will be good users. Recruit them by hand. Ben Silverman when everyone
though Pinterest was a joke, recruited the initial
Pinterest users by tagging up strangers in
coffee shops. He really did.
He just walked around Palo Alto and said will you
please use my product. He also used to run around
the Apple store in Palo Alto. And he would like set all
the browsers to the Pinterest home page real
quick before they caught him and kicked him out. So then when people walked
in there, they were like oh, what is this? This is an important example
of doing things that don’t scale. If you haven’t read Paul
Graham’s essay on that topic you definitely
should. So get users manually and
remember that the goal is to get a small group of them to
love you. Understand that group
extremely well, get extremely close into
them, close to them, listen to them and you’ll
almost always find out that they’re very willing to
give you feedback. Even if you’re building the
product for yourself, listen to outside
users and they’ll tell you how to make
a product they’ll pay for. Do whatever you need to make
them love you, make you’re doing, cuz
they’re also gonna be the advocates that help you
get your next users. You wanna build an engine in
the company that transforms feedback from users into
product decisions then get it back in front of the
users and then repeat. Ask them what they like and what they don’t like, and
watch them use it. Ask them what they pay for. Ask them if they’d be really
bummed if your company went away. Ask them what would make
them recommend the product to their friends. And ask them if they’ve
recommended it to any yet. You should make this
feedback loop as tight as possible. If your product gets 10%
better every week, that compounds really,
really quickly. One of the great advantages
of start, of software startups is just
how short you can make the feedback loop. It can go circle in hours,
and the best companies usually have the
tightest feedback loops. You should try to keep this
going for all of your company’s life. But it’s really important in
the early days. The good news is that all of
this is doable. It’s hard, it takes a lot of
effort, but there’s no magic. The plan is at least
straight forward and you will eventually get to a
great product. Great founders don’t put anyone between themselves
and their users. The founders of these companies do things
like sales and customer support themselves
in the early days. It’s critical to get this loop embedded in
the culture. In fact, the specific
problem that we always see with Stanford
startups for some reason is that the
students try and hire sales and customer
support people right away. And you’ve gotta do this
yourself. It’s the only way. You really need to use
metrics to keep yourself honest on
this. It really is true that the
company will build whatever the CEO
decides to measure. If you’re building an
internet service, ignore things like total
registrations. Don’t talk about them. Don’t let anyone in the
company talk about them. And look at growth in active
users, activity levels, cohort retention, revenue,
net promoter scores. These things that matter. And then be brutally honest
if they aren’t going in the right direction. Startups live on growth. It’s the indicator of a
great product. So this about wraps up the overview on building a
great product. I wanna emphasize again, that if you don’t get this
right, nothing else we talk about
in the class will matter. You can basically ignore
everything else that we talked about until this is
working well. On the positive side, this is one of the most fun
parts of building a startup. So I’m gonna pause here, I’ll pick back up with the
rest of this on Thursday and now we’re gonna have Dustin
talk about why you should start a startup. Thank you for coming Dustin.>>Sure. But yeah.
So Sam asked me to talk about why you should
start a startup. There’s a bunch of reasons
you might have. And there’s a bunch of
common reasons that people have that I hear all
the time for, for why you might start a
startup. It’s important to know,
like, what reason is yours. Because some of them only
make sense in, in certain contexts. Some of them will actually
like lead you astray. You may have been misled by
the way that Hollywood or the press likes to romanticize
entrepreneurship. So I wanna try and like
illuminate you know, some of those potential
fallacies, so you guys can, can make the
decision in a clear way. And then I’ll talk about
the, the reason I like best for
actually starting a startup. It’s very related to a lot
of what Sam just talked about but surprisingly I
don’t think it’s the most common reason usually people
have one of these other reasons or they just wanna
start up, you know, start a company for the sake
of starting a company. So the, the four common
reasons just to numerate them are it’s
glamorous. You know, you’ll be, you’ll
get to be the boss. You’ll have flexibility, especially over your
schedule. And you’ll have the change
to have, you know, bigger impact. And make more money than
you’d, than you might by joining a
later stage company. So, okay, so uh, you know,
you, you guys are probably pretty
familiar with this concept. When I wrote the Medium
post, which a lot of you guys read
a year ago uh, I felt like the story in the press was
a, a little more unbalanced. You know, entrepreneurship
just got romanticized quite a
bit. You know, the movie, The
Social Network, came out, had a lot of sort
of like bad aspects of, of, you know, what it’s like
to be an entrepreneur. But mainly pa, sort of painted this picture
of like. There’s a lot of partying
and you just kinda move from like one
brilliant insight to another brilliant insight um, and
really made it, you know, seem like this, like really
cool thing to do. And I think the reality is
just, you know, not quite so glamorous. There’s sort of a, there’s
an ugly side to being an entrepreneur and also
just more importantly what, what you’re actually
spending your time on is, is just a lot of hard work. Sam mentioned this, but
you’re basically just sitting at
your desk heads down, focused answering customers,
customer support, emails, doing sales, figuring out
hard engineering problems. So it’s really important
that you kind of like, go in with, with eyes wide
open. And then also it’s, it’s
really quite stressful. This has been a popular
topic in the press lately. The Economist actually ran a
story just last week called like entrepreneurs
anonymous, and shows like a founder kinda
like hiding under his desk And talking about
like founder depression. This is like a very real
thing, like, you know, let’s be real. This, if you start a
company, it’s gonna be extremely
hard. Why is it so stressful? So, a couple reasons. One is you’ve got a lot of
responsibility. So people in any kind of of
career have fear of failure. It’s kind of just like a
dominant part of the psychology. But when you’re an
entrepreneur your fear of failure on the behalf of
yourself and all of the people who
decided to follow you ah, so that’s really stressful. In some cases these people
are depending on you for their livelihood. Even when that’s not true, they have decided to devote
the, the best of your, years of
their life to following you. And so you’re responsible
for the opportunity cost of
their time. So that’s a big deal. And you’re always on call. If something comes up maybe
not always at 3 in the morning, but for some
startups that’s true. But if something important
comes up, you’re gonna deal with it. That’s kinda the end of the
story. Doesn’t matter if you’re on
vacation. Doesn’t matter if it’s the
weekend. You kinda always got to be
on the ball and always be in a, in a place,
mentally, where you’re prepared to
deal with those things. And then a sorta special
example of that is, is or of this kind of stress
is fundraising. So a scene from The Social
Network. This is us partying and
working at the same time. And somebody’s spraying
champagne everywhere. You know, so The Social
Network spends a lot of time kind of painting these
scenes. Mark’s not in the scene. The other thing they spend
all their time on is kind of like painting how,
him out to be a huge jerk. This computer?>>Yes.
Oh.>>Okay.
So. This is an, an actual scene
from um, See it. I’m gonna move this just a
little.>>Oh, no.>>This, this will work.>>This will work.
Okay. On the PDF as well?>>Yep
>>Okay. Okay, cool.
This is an actual scene from Palo
Alto. Spent a lot of time, his
desk, just kinda heads down and
focused. Mark was still kind or a
jerk sometimes, but in this more like fun
loveable way, not a like sociopathic
scorned lover way. So this is him like,
signaling his intention to, you know, just be focused
and keep working. Not be social.>>So then there’s also the
scene sort of demonstrating the like
brilliant insight moment. It’s kind of like straight
out of A Beautiful Mind.>>They literally stole that
scene. So they like to paint it as
you just kinda jump from one of these moments to, to the other moment with
like partying in between, but really we were just at
that table the whole time. So interestingly if you
compare this to the other photo, Mark is in
the exact same position, but he’s wearing different
clothes. This is definitely a
different day. So cool. So that’s what it, that’s what it’s actually
like in person. And I just covered this
bullet up here. This is the Economist
article I was talking about a second
ago. So another form of, of,
stress is just, like, unwanted media a,
attention. So part of it being
glamorous is you get some positive media
attention sometimes. It’s nice to be on, like, the cover of Time and, like,
be the person of the year. It’s maybe a little less
nice to be on the cover of People with, like, one of
your wedding photos. It depends who you are. Some people would like that. I’d really hate it. But when Valleywag like, you
know, analyses your lecture and
just tears you apart, like, you definitely don’t want
that. Nobody wants that. And then, one thing I almost
never hear people talk about is, you’re just a of
more committed. So if you’re an employee of
a startup. and, you know, things are
stressful, it’s not going well, you’re
unhappy, you can just leave. For a founder you can leave
but it’s, it’s very uncool. It’s pretty much a black eye
on the rest of your career. And so you really are
committed you know, for ten years if it’s going well
probably more like five years if it’s not
going well. So three years to figure out
that it’s not going well and then if you find, like, a nice landing for your
company, another two years at the
acquiring company. And if you leave before
that, again, it’s not only gonna
harm yourself financially, it’s gonna harm all your
employees. So you pretty much don’t um,
so if you’re lucky, and you have a bad startup idea
you fail quickly um, but most of the time, it’s not
like that. All right, moving right
along um, so. And I should say, I have had a lot of this
stress in my own life, especially in the early
years of Facebook. You know, I just got really
unhealthy. I wasn’t exercising. I had a lot of anxiety. Actually, I threw out my
back, like, almost every six months,
like, when I was like, 21, 22. Which was, like, pretty
crazy. And so, if you do start a
company. make, you know, be aware that you’re gonna
have to deal with this and you have to actually manage
it. It’s actually, like, one of
your core responsibilities. Ben Horowitz likes to say,
like, the number one rule of a CEO is managing your own
psychology. It’s absolutely true, make
sure you do it. so, another reason so people
especially if they’ve already had a job at
another company. You tend to develop this
narrative of like, okay like, the people running this
company are idiots, they’re making all these
stupid decisions, they’re spending their time
in, in these stupid ways. I’m gonna start a company
and I’m gonna do it better. I’m gonna like, set all the
rules. It’s a pretty attractive
idea. Makes a lot of sense. If you’ve read my Medium posts you know what’s
coming. I’ll give you guys a second
to read this quote. Cool.
So this, this really resonates with
me. And one thing I’d point out
is you know, the reality of these decisions is pretty
nu, nuanced. The people you thought were idiots probably weren’t
idiots. They probably just had like a really difficult decision
in front of them. And people pulling them in
multiple directions. So the most common thing I
have to spend my time on. And, and focus my energy on
as a CEO is like. The, the problems that like other people are
bringing to me. The, the other priorities
that people create. And it’s usually in the form
of a conflict. People wanna go in different
directions. Or like customers want
different things. And like I might have my own
opinion about that. But really the, the game I’m playing is like who do I
disappoint the least? And like just trying to like
navigate all, all these difficult
situations. And even on a day to day
basis I might come in on Monday and like have all
these, you know, grand plans for like how I’m
gonna improve the company and what I’m
gonna spend my time on, but then if like an important
employee is threatening to quit, that’s what I’m
spending my time on. That’s my number one
priority. So a subset of you’re the boss is you have
flexibility. You have control over your
own schedule. This really attractive idea. So here’s the reality. And their Phil Libin quote. So this, this truly reson,
resonates with me as well. And some of the reasons for this, again, you’re always
on call. So maybe you don’t intend to
work all parts of the day but you might not
get to control which ones. You’re a role model, this is
super important. So if you’re an employee of
a company um, you might have some good weeks, you might
have some bad weeks, some weeks when you’re,
you’re low energy, maybe you wanna take a couple extra
days off um, that’s really bad if you’re, you’re an
entrepreneur like your team will really signal off what
your bringing to the table. And so if you take your foot
off the gas, so will they. And you’re always working
anyway. So, if you’re really
passionate about an idea, it’s just gonna like pull
you to, to keep working on it. If you’re working with great
investors, you’re working with great
partners, they’re gonna wanna be
working really hard, they’re gonna want you to be
working really hard uh, and again, you’re gonna wanna
work really hard. So some some companies like
to tell the story about you can have your cake and eat
it too, you can have, like, four day week, work weeks
maybe if you’re, if you’re, Tim Ferris maybe you can
have a 12-hour work week. It’s a really attractive
idea and it does work in a particular
instance. Which is if you wanna like
actually have a small business or go after a niche
market. Then you’re a small business
entrepreneur. That makes total sense. But as soon as you get past
like two or three people uh, you really
need to step it up and, and be full time committed. cool. So, this is the big one this
is the, the one I hear the most especially
like candidates applying to a Asana they tell me, you
know, I, I’d really like to work for,
for a much smaller company, or
start my own because. Then I have a much bigger
slice of the pie, I’ll have much more impact
on how that company does and I’ll have more equity so I’ll make more money as
well. So let’s examine when this
might be true. So I’ll explain these tables
they’re a little complex but let’s focus on the left
first so these is, this is just explaining. Dropbox and Facebook. These are their current
valuations. And this is how much money
you might make as employee number 100
coming into these companies. Especially if you’re like,
an experience, a relatively experienced
engineer, like, you have five years of, of
industry experience. You’re pretty likely to have an offer that’s around
10 basis points. So if you joined DropBox a
couple years ago, the upside you’d have
already locked in. As about ten million, there’s plenty more growth
from there. If you leave the company if
you joined Facebook a couple years into its, its existence you made $200
million. This is a huge number. And if you. Even if you joined Facebook
as employee number 1,000. So you joined it in like
2009 you still made $20 million. That’s a giant number. And that’s how you should be
benchmarking when you’re thinking about what might I
make as an entrepreneur. So moving over to the table
on the right uh, these are two theoretical
companies you might start. So Uber for Pet Sitting,
pretty good idea. If you’re, if you’re really
well suited to this, you might have, uh, a really
good shot at building a $100 million
company. And then your share of that
company is pretty likely to be about 10%. That certainly fluctuates. Some founders have a lot
more than this, some have a lot less. But after multiple rounds of
dilution multiple rounds of option table, option pool
creation, you’re pretty likely to end
up about here. If you have more than this, I recommend Sam’s post on
like the equity split between founders and
employees. You probably should be
giving out more. And then but so basically,
if you’re extremely confident about building
this $100 million business, which is a big ask it should
go without saying that you should have a lot more
confidence than Facebook in 2009 or Dropbox in 2014 and you might, for a start up
that doesn’t even exist yet. Then this is worth hearing. So if you have a $100
million idea and you’re pretty confident you
can execute it, I would consider that. If you think you’re the
right entrepreneur to build Uber, Uber for space travel,
that’s really huge idea. $2 billion idea. You’re actually gonna have a
pretty good return for that. You should definitely do
that. This is also only the value
after four years. And this idea probably has
legs. So definitely go after that. If, if you’re thinking of
building that, you probably shouldn’t even
be in this class right now. You should go and, go and
build that company. So why is this, financial
reward and, and impact, I really think that financial
reward is very strongly correlated with the impact
you have on the world. If you don’t believe that
let’s talk through some specific
examples and not think about the equity
at all. So why might joining a, a
late-stage company actually provide you a lot of impact? You get this multiplier They
have an existing massive user base. If it’s Facebook, it’s a
billion users. Or if it’s Google it’s a
billion users. They have existing
infrastructure you get to build on. That’s also increasingly
true for new startups. Things like AWS. Like awesome independent
service providers. But you usually get some,
like, proprietary technology and
it’s all maintained for you. It’s a pretty great place to
start uh, and you get to work with a team
and they’ll help you just leverage your idea into
something great. So, a couple of specific
examples Bret Taylor came into employee around or came into Google as around
employee number 1,500. And he invented Google Maps. This is a product you guys
probably use every day. I used it to get here. And it’s used by hundreds of
millions of people all around the world. Didn’t need to start a
company to do that, did happen to get a big
financial reward. But the, the point is he had
massive impact. My co-founder Justin
Rosenstein. Joined go, Google a little
later after Brad he was a PM there. And just as a side project
he ended up prototyping a chat
which, which used to be a standalone app as
integrated into Gmail, like you see it on the upper
right there. And before he did that, like
people didn’t even think you could do chat over AJAX, or
chat in the browser at all, and he just kind of like
demonstrated it, and showed it to his team, and
made it happen. Again, this is probably a
product most of you use maybe every day. And then, perhaps even more
impressively, shortly after that,. JR left, he became employee around
number 250 at Facebook. And he led a hack-a-thon
project along with people like Andrew Bosworth
and Leah Pearlman uh, to create
the like button. So, this is one of the most
popular elements anywhere on the web. Totally changes how people
use it. And again didn’t need to
start a company to do it and almost certainly would have
failed if he had tried. Because he really needed the
distribution of Facebook to make it work. So important to, to keep in
mind the context for uh, what kind of company you’re
trying to start and like, where will you actually be
able to make it happen. So what’s the best reason? So, Sam already talked about
this a little bit but basically, you can’t not do
it. You’re super passionate
about this idea. You’re the right person to
do it. You’ve gotta make it happen. So how does this break down?>>Cuz we’re getting close
to end here. How am I doing on time?>>Cool. Sweet.
Perfect. So this, this is sort of
like a word play. You can’t not do it in two
ways. One is, you’re so passionate about it that
you’re just like, you have to do it. You’re gonna do it anyway. And this is really
important. Cuz you’ll need that passion
to get through all of those like hard parts of being an entrepreneur that
we talked about earlier. You’ll also need it to
effectively recruit. Candidates can smell when
you don’t have passion. And there are enough
entrepreneurs out there who do have passion. That they may as well work
for one of those. So this is sort of like
table stakes for being an entrepreneur. Your subconscious can also
tell when you don’t have passion and
that’ll be a huge problem. And then so the other way to
interpret this is the world needs you to do it. So this is sort of validation that the idea is
important. It’s gonna make the world
better, so the world needs it. If it’s not em, if it’s not
something the world needs, go do something the world
needs. Your time’s really valuable.
Um, there are plenty good ideas
out there. Maybe it’s not one of your
own. Maybe it’s an existing
company. But you may as well work on something that’s gonna be
good. And then the second way to interpret this is the world
needs you to do it. You’re actually well suited
to this problem in some way. If this isn’t true it may be
a sign that your time is better spent
somewhere else. But also just best case
scenario if this isn’t true, you out compete the team for
which it is true. And you just end up with like a sub-optimal
outcome for the world. That doesn’t feel very good. So drawing this back to my
own experience at Asana, you know, Justin and I were kind of like
reluctant entrepreneurs. We, before we founded Asana
so we’re working at Facebook. We were already working on a
great problem. And we would basically work
all day long on our normal projects
and then at night we would keep
working on this internal task manager that was used
internally at the company. And it was just cuz we were
like so passionate about the idea
that was so clearly valuable, that we
couldn’t do anything else. And at some point we had to
have the hard conversation of like, okay
well what does it mean if we don’t actually
start this company. We were pretty, we were able
to see the impact it was having
on Facebook. We were pretty convinced it could be really valuable for
the world. We were also pretty convinced nobody else was
gonna build it. The problem had been around
a long time and we just kept seeing sort of
incremental solutions to it. So if we didn’t go out with
the one that we thought was best, we thought there’d be a lot
of value left on the table. And yeah. So we just couldn’t,
couldn’t stop working on it. And literally the idea was
like beating itself out of our chest, like forcing
itself into the world. And I think that’s the
feeling you should really be looking for when you start a
company. That’s how you know you have
the right idea. So I’ll go ahead and stop
there. I’ll put some recommended
books up here, but won’t narrate them. And maybe, that’s the end of
the class.>>Yeah, thank you. Maybe you guys could stick
around for a few minutes if you have
questions for him. And uh, see you Thursday. Thank you.

Danny Hutson

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