How to Start a Startup 2014 Lecture 1 Sam Altman's Introduction: 4 Areas of great importance - Ideas, Products, Teams and Execution. Why start a startup? not for wealth, other easier ways to make it. When compelled to solve a problem and the best way to solve it is through making a company, passion first then startup. 1. Idea - recent popular trend - ideas doesn't matter and it's uncool to spend time on thinking about ideas, you just have to start and see what works and pivots are great - this is actually wrong, things evolve in a way that is difficult to predict, and there's a limit on how much you can figure out before actually getting your products in the hands of users. - Great execution is at least 10 times more important and 100 times more harder than a great idea. - but a bad idea is a bad idea, pivots are seemingly suboptimal. - great execution + terrible idea = nowhere, - All successful companies start with a great idea, and majority successful pivots are what founders had already thought about. - In general the track record of pivots is that they don't become successful companies. - The definition of an idea is very broad; it includes size and growth of the market, the growth strategy of the company, defensibility strategy and so on. - Even though plans in itself are worthless, the exercise of planning is really valuable and missing in today's startup. - ideas will expand and become more ambitious. You don't need a path to the end. - someday you need to become a business that’s difficult to replicate. - The best companies are always mission oriented - it's difficult to make large groups of people motivated and productive unless the company feels like an important mission. - Advantage of mission oriented ideas: you yourself will be dedicated to them and people outside the company will be more willing to help. - You get more support on a hard & important project than a derivative one. - In many ways it's easier to start a hard startup than an easy startup. - Derivatives company: companies that copy an existing ideaṣ with very few insights; don't excite people and don't compel the teams to work hard enough to get successful. - You can get better at generating better ideas with practice; start early. - Hardest part about coming up with great ideas is that the best ideas often look terrible at the beginning. - Peter Thiel in a class: you want an idea that turns into a monopoly, but you can't get a monopoly in a big market right away, find a small market in which you can get a monopoly then expand rapidly. - Conviction in your own beliefs & willingness to ignore others may say. - Unpopular but right, sounds like a bad idea but it's actually good - Take time to think about how the market is going to evolve - Mistake of investors: they think about the growth of the startup itself and not about the growth of the market. - Sam Altman: “I care much more about the growth rate of the market than its size and i also care if there's any reason that’s going to top out” - Sam Altman - “i prefer to invest in the company that’s going after a small but rapidly growing market than a big in slow growing” - One advantage of a small market is that customers are in desperate need of a solution and may put up with an imperfect but rapidly improving solution (product). - Big advantage of being a student: you probably have a better intuition about which markets are likely to start growing rapidly than older folks. - You can’t create a market that doesn’t want to exist, you can basically change everything in a startup but the market. - Sequoias 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 2 years ago and why two years in the future will be too late? - Good startup ideas are almost always very easy to explain and very easy to understand. If it takes more than a sentence to explain then it's a sign that it's too complicated; it should be a clearly articulated vision with a small number of words. - Best idea are usually either very different from existing companies in one important way or are totally new - Any company that is a clone of something with some small or made-up differentiator usually fails. - While you are a student: think about new ideas & meet potential Co-founders. - Slide: “most people think first of what they want to express or make, then find the audience for their idea. You must work the opposite angle, thinking first of the public. You need to keep your focus on their changing needs, the trends that are washing through them. Beginning with their demand, you create the appropriate supply.” 2. Product - Broad definition: customer support, copyright explaining the product. - Great idea => Great product => Great company. - Most difficult task is to build a great product and until you do it nothing else matters. - Most successful startup founders tell their story of early days, it's almost always working on the product and talking to customers takes all their time. - Your job is to build something that users love - It's better to build something that a small number of users love, than a large number of users like. - When people love something they tell it to their friends & partners: you will see word of mouth organic growth in your product whether it's a consumer or enterprise product. - You don't have some early organic growth then there is something wrong. - Breakout companies always have great products and organic growth, over the long run great products wins. - Very few startups die from competition, the majority die because they fail to make something that customers love. - Start with something simple, it's much easier to make a great product if you have something simple even if your eventual plans are super complex. - Always start with a smaller subset of problems and what you think is the smallest, and it's hard to build a great product so you want to start with as little surface area as possible. - Another reason that simple is good is that it forces you to do one thing extremely well and that's important to build a great product. - It takes some level of fanaticism to build a great product. - Get users manually in early days; don't do google ads. - Goal is to get a small group of people to love your product, understand that group extremely well, and are very willing to give feedback. Listen to outside users and they will tell you how to make a product that they'll pay for. - You need a system that converts user feedback into product decisions. - Slide: 1. Show it to users 2. User feedback: what do they like? What would they pay for? What wou;d make them recommend it? 3. Product decision. - Slide: Metrics: focus on growth - total registration, activity users, activity levels, cohort retention, revenue, net promoter score. Dustin Moskovitz Why start a startup? - Slide: common reasons - it's glamorous, you’ll be the boss, flexibility, you will make more $$$ & have more impact. - Slide: the ugly side of being an entrepreneur - Stress: responsibility: your team bet the best years of their life on you, you’re always on call, fundraising; unwanted media attention; you’re more committed(-> less option value). - Slide: Recommended readings - the hard thing about the hard things, zero to one, the facebook effect, the 15 commitments of conscious leadership, the tao of leadership, nonviolent communication. Lecture 2 3. Team - Cofounder relationships are one of the most important things in the company. - One of the biggest reasons for early deaths in startups is because of cofounder blowups. - The Track records of founders that don't really know each other is really bad. - Best places to meet cofounders is college followed by interesting companies like facebook or google. - It's better to have no cofounder than a bad cofounder, but being a solo founder is also hard. - You need a cofounder that's relentlessly resourceful, unflappable, tough, they know what to do in every situation, they act quickly, decisive, creative, ready for anything. - And it turns out that there is a model for this in pop culture, and that model is James Bond. - You really want to know your cofounders for a while, at least for years. This is true for early hires too. - You really need a technical cofounder if you rent yourself a technical person, hiring only technical persons and thinking that you will be just a good manager does not typically work. - General trend: big number of employees = great startup; whereas you really want to have a small number and be proud of what you can do with just that. - More employees in early stages usually means more burn rate of cashflow, slow decision making, complexity and tension. - You should only hire when you are in desperate need to; in the early days the goal should be not to hire. - The reason this is really important is because the cost of hiring a bad employee in the early stage is really high. - When you are in the hiring mode, it should be the number one priority to get the best people. - Great people have great opportunities and it easily takes a year to recruit someone. - Either spend 0% of your time hiring means don't hire or when hiring spend about 25% of your time in the hiring process. - Slide: mediocre engineers don't build great companies. - A single mediocre hire in the first 5 hires could really kill a startup. - Sources of candidates - best source for hiring is the people you already know, people that other employees in the company already know. - Most great companies in tech are built by personal referral, for the first at least 100 employees. - Another tip is to look outside the valley, it's brutally competitive to hire engineers in silicon valley. There are good people in the world, look everywhere. - How much experience matters? Short answer: experience matters for some roles and not others. - For most of the early hires in a startup, experience doesn’t matter much and you should go for aptitude. - 3 things sam altman looks for in a hire: are they smart? Do they get things done? Do I want to spend a lot of time around them? - The very best way to know these answers is by working together, if you have worked together previously then you know the answers and if have not then do a small project of 2-3 days together. - If you do interview, ask specifically about the projects they have done in the past. - And call references and really dig in to know about this person. Is this person in the top 5% of people you have worked with? What specifically did they do? Would you hire them again? Why aren't you trying to hire them again? - Others things to look for: good communication skills, risk taking and tolerance, maniacally determined, paul graham’s animal test, would feel comfortable reporting to them if the roles were to be reversed. - Employee Equity: rough guideline - you should aim to give 10% of your company to first 10 employees over the 4 years, for whatever reasons founders are very stingy to employees and very generous to investors with equity; whereas the opposite should be the case. - After you get the best hires you have to retain them; you have to make sure that your employees feel happy and valued. - You have to give your team the credit for anything good that happens and take responsibility for anything bad. - Don't micromanage, give people different areas of responsibility. - Daniel Pink’s 3 motivators: Autonomy, Mastery, Purpose. - Fire fast when it's not working; the worst part and the most painful one is to fire people for founders but it's better for both the startup and employee. - In addition to firing employees that are bad at their jobs, you also want to fire employees that are either creating office politics or are persistently negative. - When should cofounders decide on equity split? You want to set this ideally very soon you start working together, and it should be near equal, if you are not sure to give someone equal share of equity you should ask if you really want them to be your cofounder. - What happens when your relationship with the cofounder breaks down? Every cofounder has to have vesting - pre-negotiation of what happens when cofounders split. - What about cofounders that are not working in the same location? Don't do it. Even having a remote team doesn’t work as communication and speed are important in the early days. 4. Execution - Not the most fun part but it is often the most critical - What being a founder is not just having a idea but being on yearlong grinds on execution and it can’t be outsourced - The way to have a company that executes well is to execute well yourself, everything in the startup gets modelled after the founders, whatever the founders do becomes the culture. - Ideas themselves are worth nothing and executing well is the only thing that creates value or adds to it. - Slide: The CEO has five jobs - set the vision, raise money, evangelise, hire and manage and make sure the entire company executes. - Execution can be divided into 2 key questions - can you figure out what to do and can you get it done? - Two parts of getting it done - Focus & Intensity - One of Sam’s fav. Question to ask founders is what they’re spending their time and money on. - One of the hard things about being a founder is that there are 100 important things competing for your attention everyday and you have to identify the right 2 or 3 to work on and then ignore, delegate or defer the rest. - Slide: Can you get it done? - Focus - Say no. A lot., set overarching goals. Repeat them., communicate. - Growth and momentum are something you could never lose focus on. They are what a startup lives on. - You should always know how you’re doing against your metrics, you should have weekly review meetings and you should be extremely suspicious if you’re ever talking about we’re not focused on growth right now. - Don't let the company get distracted or excited by other things. - A common mistake is that the companies get excited by their own PR, it’s really easy to get PR with no results - Startups only work at a fairly intense level, the secret to success of startup is extreme focus and extreme dedication. - Slide: Can you get it done? - Intensity - relentless operating rhythm, obsession with execution quality, bias towards action. - You have to be decisive, indecisiveness kills startup - Every time you talk to the best founders they have gotten new things done. - YC best predictor of success - everytime they talk to a team, they have gotten new things done. - Part of this is that you can do things in incremental pieces, there’s always a way to break things down into smaller projects. - Slide: Can you get it done? - Intensity - Quick, do whatever it takes, show up, don’t give up, be courageous. - Slide: Set an operating rhythm - shipping product, launching new features, reviewing/reporting metrics and milestones. - One thing that often disrupts momentum that shouldn’t is competitors, competitors making noises in the press probably crushes a company’s momentum more often than any other external factor. - Slide: “The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.” - Henry Ford
