Lecture 1 - How to Start a Startup (Sam Altman, Dustin Moskovitz)
Introduction (0s)
- Sam Altman, president of Y Combinator, introduces the course on how to start a startup.
- The course covers 30% of the practical knowledge taught at YC, focusing on general principles applicable to startups.
- Guest speakers, all involved in creating billion-dollar companies, will teach 17 out of 20 classes.
- The advice is geared towards building hyper-growth businesses and may not apply to big companies or non-startups.
The 4 Areas of Success (2m10s)
- Four key areas for startup success: great idea, great product, great team, and great execution.
- These factors interact and multiply, with luck playing a significant role (random number between 0 and 10,000).
- Startups offer a level playing field for both young and experienced individuals.
- Advantages of being poor and unknown in the startup context.
- Startups should not be pursued solely for the sake of it; there are easier ways to get rich.
- The decision to start a startup should be driven by a compelling problem and the belief that starting a company is the best solution.
- Successful startups at YC have followed this principle.
- Dustin Moskovitz, co-founder of Facebook and Asana, will discuss the reasons for starting a startup in the second half of the lecture.
- The high level of attention the class has received will ensure ample time for Q&A.
Great Idea (3m47s)
- Despite the recent trend of downplaying the importance of ideas in startups, a bad idea remains bad, and great execution alone cannot save a terrible idea.
- Successful pivots are usually into something the founders themselves wanted, not random ideas.
- The definition of an idea is broad and includes market size, growth strategy, and defensibility.
- Evaluating an idea requires considering all these aspects, not just the product.
- Long-term thinking is a huge advantage in startups, as the idea will expand and become more ambitious over time.
- It's important to start with a solid kernel of an idea that can develop in interesting ways.
- Building a business that's difficult to replicate is an important part of a good idea.
Wait (6m12s)
- 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.
- The best companies are almost always mission-oriented.
- Mission-oriented ideas keep founders dedicated to the startup through the challenges.
- Mission-oriented companies attract more support from people outside the company.
- It's easier to start a hard startup than an easy startup.
- Derivative companies (copying existing ideas) don't excite people or compel teams to work hard enough.
Sound Good (8m44s)
- A good idea sounds bad at first.
- Most people will think a great idea is bad, so don't be discouraged by naysayers.
- Truly good ideas don't sound worth stealing.
- It's okay if your idea doesn't sound big at first.
- Aim to take over a small, specific market and expand from there.
- Think about how the market will evolve in ten years.
- Customers in rapidly growing markets are usually desperate for a solution and will put up with an imperfect product.
- Students may have better intuition about which markets will grow rapidly.
- You cannot create a market that doesn't want to exist.
- Look for markets that are going to grow really quickly.
- There are more opportunities now than ever before.
Why Now (12m20s)
- Great startups have a great answer to the question "Why now?"
- Building something you need yourself is advantageous.
- Get very close to your customers and understand their needs.
- Good startup ideas are easy to explain and understand.
- Avoid cloning existing companies with small differentiators.
- Start working on developing new ideas and meeting potential co-founders.
- Think about the market and customer demands first.
Building a Great Product (15m5s)
- Building a great product is crucial for a successful startup.
- Founders should focus on building a great product before anything else.
- Successful startup owners spend most of their time working on the product or talking to customers.
- Having a great product makes other tasks like raising money and getting press easier.
- The first step is to build something that users love.
- Founders should focus on building the product, talking to users, and getting feedback.
Your Job (16m38s)
- The goal is to build something that users love.
- Making something that people like but not love is a common reason for startup failures.
- It's better to build something that a small number of users love than something that a large number of users like.
- Expanding from a small group of users who love the product is easier than trying to generate enthusiasm from a large group of users who are ambivalent.
Organic Growth (19m9s)
- Organic growth through word-of-mouth is a sign that you've created something people love.
- If you find yourself relying on partnerships or other external factors for growth, it's a sign that your product isn't good enough.
- Great products are the secret to long-term growth hacking.
- Don't worry about competitors or fundraising; focus on making a great product.
- Most startups fail because they don't make something users love, not because of competition.
- To make something users love, start with something simple.
Simple (20m34s)
- Start with a small subset of the problem.
- Successful companies start with simple products.
- Simple products force founders to focus on doing one thing extremely well.
- Founders need to be fanatical about the quality of their product.
- Great products require some level of fanaticism to build.
Manual (22m5s)
- Recruit users manually in the early days.
- Get feedback from users every day.
- Listen to users and understand their needs.
- Make users love your product.
- Build an engine that transforms user feedback into product decisions.
- Keep the feedback loop as tight as possible.
- Great founders don't put anyone between themselves and their users.
- Founders should do sales and customer support themselves in the early days.
Metrics (24m38s)
- Use metrics to ensure honesty and track progress.
- For internet services, focus on growth, active users, activity levels, cohort retention, revenue, and Net Promoter scores.
- Startups thrive on growth, which indicates a great product.
- There are various reasons to start a startup.
- Common reasons include:
Why Start a Startup (25m42s)
Here are four common reasons why people start a startup:
- The allure of glamour and the desire to be one's own boss.
- The flexibility and potential for greater impact and income.
- Entrepreneurship involves hard work, stress, and responsibility.
- Fundraising can be a particularly stressful aspect of being an entrepreneur.
Stress (30m30s)
- Unwanted media attention can be stressful, both positive and negative.
- Founders are more committed to their startups compared to employees and may feel obligated to stay even when things are not going well.
- Stress can lead to health problems and should be managed effectively.
Narrative (32m27s)
- People often develop a narrative that the people running other companies are idiots and that they can do it better.
- The reality of decision-making is nuanced, and people in leadership positions often face difficult choices and conflicting priorities.
- As a CEO, the most common focus is on resolving conflicts and navigating difficult situations.
- Day-to-day priorities can change based on urgent matters, such as an important employee threatening to quit.
Flexibility (34m3s)
- Being an entrepreneur means you have flexibility and control over your own schedule.
- However, you are always on call and your team relies on you, so taking time off can be difficult.
- If you are passionate about your idea, you will likely be driven to keep working on it.
- Working with great investors and partners will also motivate you to work hard.
- The idea of having a four-day workweek or a 12-hour workweek is appealing but only works for small businesses or solo entrepreneurs.
- Once you have more than a few employees, you need to be fully committed and work full-time.
The Big One (35m37s)
- Many people believe that working for a smaller company or starting their own business will give them a bigger slice of the pie, more impact, and more equity, leading to more money.
When This Might Be True (36m0s)
- Dropbox and Facebook employees who joined early on made significant amounts of money due to the companies' valuations.
- If you are extremely confident in your ability to build a successful startup, it may be worth pursuing entrepreneurship.
- If you have a $100 million dollar idea or a $2 billion dollar idea, you should consider pursuing it.
- The financial rewards of entrepreneurship are strongly correlated with the impact you have on the world.
Examples (38m37s)
- Joining a late-stage company can provide significant impact due to its existing user base, infrastructure, and micro proprietary technology.
- Brett Taylor joined Google as employee number 1500 and invented Google Maps, a product used by millions of people worldwide, without starting a company.
- Justin Rosenstein joined Google and prototyped chat with you, which became integrated into Gmail, and later led a hackathon project at Facebook to create the like button, both without starting his own company.
- These examples highlight the importance of considering the context and distribution channels when deciding whether to start a company or join an existing one.