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