yeah all
right all right uh good afternoon and
welcome to the last class of how to
start a startup so this is a little bit
different than every other class every
other class has been things that you
should be thinking about in general at
the beginning of a startup um and today
we're going to talk about things that
you don't have to think about for a
while in fact you shouldn't but since
I'm not going to get to talk to most of
you uh again before you get to sort of
post product Market fit stage I wanted
to just give you the list of things that
you need to think about as your startup
scales and the list of the things that
usually uh Founders fail to make the
transition on so these are the topics
we're going to talk about but again um
all of these things are things that are
not writing code or talking to users
which means with a few exceptions that
I'll try to note you can ignore them
until after you have product Market fit
most of these things for most companies
become important between months 12 and
24 but it's really more about stage
anything else these are things that
usually hit around 25 people uh and
definitely post product Market fit so
just write these down somewhere and look
back at them when you get there so the
first area we're going to talk about uh
is
management at the beginning of a company
um there is no management and this
actually works really well before 20 or
25 employees most companies are
structured with everyone reporting to
the founder it's totally flat and that's
really good and that's what you want um
and at that stage that is the optimal
way um for product that's the optimal
structure for productivity but the thing
that tricks people is that when when
lack of structure fails it fails all at
once and so what works totally fine at
20 employees is from Zer to 20 employees
is disastrous at 30 and so you want to
be aware that this transition will
happen and you don't actually need to
make the structure complicated in fact
you shouldn't um all you need is for
every employee to know who their manager
is and every and there should be exactly
one and and every manager should know
who their direct reports are you want to
ideally cluster people in teams that
make sense of course but the most
important thing is that there's just
clear reporting structure uh and that
everyone knows what it is and if you
want to make changes to it uh people
understand how to make changes or to
hire someone Clarity and simplicity are
the most important things here um but
failing to do it is really bad so
because it works in the early days to
have no structure at all and because it
sort of feels cool to have no structure
many companies are like we're going to
try this crazy New Management Theory and
have no structure um what you want to do
is innovate on your product and your
business model um management structure
is not where I would recommend trying to
innovate so uh don't make the mistake of
having nothing but don't make the other
mistake of having something super
complicated a lot of people fall into
this trap where they think it's like you
know people feel cool if they're
someone's manager and if they're just an
employee they don't feel cool so people
come up with these convoluted circular
matrices management structures where you
report to this person for this thing and
this person for that thing and this
person for that thing but you know
actually this person reports to you for
this thing um that's a mistake too so
don't don't try to innovate
here this is the first instance of an
important shift uh in companies or in in
in the Founder's job before product
Market fit your only job that matters is
to build a great product or your number
one job to build a great product
um as the company grows and at about
this you know 25 or so employee size um
your main job shifts from building a
great product to building a great
company and it stays there for the rest
of your time and this is probably the
biggest shift in being a Founder that
ever
happens there are four failure cases we
see all the time as Founders become
managers um so I want to talk about the
four most common ones the first one is
being a to hire senior people in the
early days of a startup hiring senior
people is usually a mistake you just
want people that get stuff done um and
and the willingness to work hard and
aptitude matters more than experience as
the company starts to scale and about
this time when you have to put in place
a basic management structure it is
actually valuable to have senior people
on the team you know Executives that
have built companies per and almost all
founders after the first time they hire
a really great executive and that
executive takes over big pieces of the
business and just makes them happen the
founder says wow I wish I had done that
earlier um but everybody makes this
mistake and it waits too long to do this
so don't don't be afraid to hire senior
Executives um the second mistake is hero
mode so um I will use the example of say
someone that runs the customer service
team someone runs the customer service
team um they want to lead by example
this starts from a good place it's it's
the extreme of leading by example it's
saying you know what I want my team to
work really hard rather than tell them
to work hard I'm going to set an example
and I'm going to work 18 hours a day um
and I'm going to show people how to get
a lot of tickets done but then the
company starts growing also they have
the normal discomfort of assigning a lot
of work to other people so the company
starts growing and the ticket volume
keeps going up and now they have to do
like 19 hours a day and 20 hours a day
and it's just obviously not working but
they won't stop and hire people because
they're like if I stop even for one day
we're going to get behind on tickets the
only way to get out of hero mode in this
case is to say you know what we're going
to get behind on tickets for 2 or 3
weeks cuz I'm going to go off and I'm
going to hire three more support team
members and I've calculated based off of
our growth rate that this is going to
last this long and next time I'm not
going to make the same mistake I'll get
ahead of it and higher again um but you
actually have to make a trade-off you
actually have to say you know what I
need to hire more people and we're going
to get behind other stuff um that is the
right answer the wrong answer is to stay
in hero mode until you burn out which is
what most people
do third mistake bad
delegation most Founders have not
managed people before and they certainly
haven't managed managers and so the way
that uh the bad way you delegate is you
say hey employee um we need to do this
big thing you go off and research it
come back to me with all the data and
the tradeoffs I'll make a decision and
tell it to you and then you'll go off
and implement it um that's how most
Founders delegate and that does not make
people feel good and it certainly
doesn't scale uh a subtle difference but
really important is to say hey you're
really smart that's why I hired you you
go off here are the things to think
about here's what I think but you make
this decision I totally trust you um and
let me know what you
decide that's the delegation that
actually works um because I think
because Steve Jobs was able to get away
with the former um and make every
decision himself and people just put up
with it and every founder thinks they're
the next Steve Jobs um a lot of people
try this but but I for 99.9% of people
the second method here works a lot
better and then the fourth area is just
a personal organization one um when you
are working on product you don't
actually need to be that organized in
terms of how you run the company and how
you talk to people what they're working
on but if you failed to get your own
personal organization system right where
you can keep track in some way of what
you need to do and what everybody else
is doing and what you need to follow up
with them on um that will come back to
by you so developing this early as the
company begins to scale is really
important um two other things that we
hear again and again from our Founders
they wish they had done earlier um and
that is simply writing down how you do
things and why you do things um these
two things the how and the why are
really important in the early days you
just tell everyone employee when you're
like sitting around having lunch or
dinner you know this is how we think
about Building Product this is how we
push to production you know this is how
we handle customer support whatever um
as you get bigger you can't keep doing
that uh and if you don't do it someone
else is just going to say it but if you
write it down and put it up on a Wiki or
whatever that every employee reads
um you as the founder get to basically
write the law and and if you write this
down it will become law on the company
and if you make everyone read this as
the company hires 100 and then a
thousand employees people will read this
and say all right that's how we do
things um if you don't do it it'll be
like random oral tradition whatever the
hiring manager or their best friend that
they make their first week in the at the
company tells them so writing down um
how you do things and the why the why is
the cultural values Brian chesky talked
about this really well um every founder
I know wishes that they'd written down
both of these the how and the why
earlier um to just establish it as the
company grows and then this becomes what
happens I think it's one of the highest
leverage things you can do that that
people don't all right next area
HR HR is another thing that most people
correctly ignore in the first phase of a
startup because again it's not writing
code it's not talking to users but it's
a huge mistake to continue to ignore it
and the reason that I think most
Founders ignore it is they have in their
mind this idea of like TV sitcom HR you
know awfulness but it doesn't have to
slow you down actually it speeds you up
most Founders will say out of one side
of their mouth people are most important
asset and on the other side we don't
want any HR so what they mean is we
don't want HR we don't want like the bad
kind of TV
HR what good HR means is a few things a
clear structure which we already talked
about you know a path for people about
how they can um evolve their careers
most important one of the most important
things is performance feedback um again
this happens organically early on people
know how they're doing as the company
gets to 25 30 45 people um that gets
lost and it doesn't have to be complex
it can be super simple but there should
be a way that it happens and it should
be frequent you know people need to hear
pretty quickly how they're doing and it
should tie you know if they're doing
badly to a way you get them out of the
company or if they do doing well it
should there should be a clear path to
how this ties to compensation um and
that's the next thing uh in the early
days of a startup people's compensation
is whatever they negotiate with the
founder and it's all over the place as
you grow it feels hopelessly corporate
but it really is worth putting in place
these compensation bands so a mid-level
engineer is in this range a senior
engineer is in this range here's how you
move from this to this and it keeps
things really fair uh someday everyone
will find out everyone else's comp um if
it's all over the place it will be a
complete meltdown disaster if you put
these bands in place early it will at
least be fair it will also save you a
lot of crazy
negotiation um one thing that I think is
really important when it comes to HR is
equity um most people get this right for
the early employees they give a lot of
equity but I think you should continue
to give a lot of equity all the way
through and this is one place that your
investors will always give you bad
advice I think not YC but all other
investors give bad advice here most do
um you should be giving out a lot of
equity to your employees uh now this
dutes everyone right this dutes you as
the founder and the investors equally um
for some reason Founders usually
understand this is good investors are
very shortsighted and don't want to
dilute themselves um so they'll like
fight you over every Equity Grant but
we've seen a lot of data at YC now and
the most successful companies and the
ones where the investors do the best end
up giving a lot of stock out to
employees year after year after year um
so I tell Founders like you should think
about you know for the next 10 years
you're going to be giving out 3 to 5% of
the company every year because you just
get bigger and bigger so the individual
grants get smaller but in aggregate it's
a lot of
stock and I think this is really
important to do if you value your people
you should be doing this um
specifically you need to do this with
refresher grants um and you should get a
uh a plan in place for this early you
know I think you never want an employee
in a place where they vested three out
of their four years of stock and they
start thinking about leaving so you
should always stay in front of people's
vesting schedules um and you know have a
plan early where you have professional
grants in place there are lot of new
structures that people have been using
here um I personally like sixy Year big
grants but six years of vesting uh
because I think these companies just
take a while to build um there's pyramid
vesting where you back weight someone's
Grant so in year four they get a lot
more of the vesting than year one um
there's a concept different names for it
but something like continuous forward
vesting where people's grants are
automatically re-up every year at the
same number of shares whatever you
decide uh get an option management
system in place at about this point uh
the normal way people do this is just
someone keeps an Excel spreadsheet
um I have seen mistakes that have cost
employees or companies tens of millions
of dollars because they didn't get this
right uh so there's really good option
Management systems or software and you
should get those in place around this
point the other sort of HR stuff to
touch on um there are a bunch of rules
that change around 50 employees uh
common examples are that you have to
start sexual harassment training and
diversity training um there's a bunch of
others as well but just put a little pin
in your mind that when you cross 50
employees there's a new set of HR rules
that you have to comply with um monitor
your team for Burnout again it's up to
product Market fit it's just a Sprint
now becomes a marathon at this point you
actually don't want people to work 100
hours a week forever you want them to go
on vacation you want them to have new
challenges and do new things um and if
you let the whole company get burned out
all at once that that is often a company
ending thing this is also a good time to
put in place a a hiring process um
another thing that most Founders regret
is is they don't hire as soon as
everything is working I think you should
hire a full-time recruiter um if you do
this too early that's bad because you'll
hire too fast and that usually implodes
but uh most Founders get behind the ball
on this the there are a lot of other
sort of just hiring process tips uh for
example I think most companies even
until they get up to say three or 400
employees should announce every offer on
some internal mailing list or something
before they make it um because like half
the time you do that someone in the
company will know something good or bad
about that employee uh and the companies
that I know that have instituted this
have been really happy um also a good
time to have a program in place to ramp
up employees so when someone starts you
know what does their first week look
like how do they get how do they get
spun up how do they learn everything
they need to learn are they going to
have a buddy that's going to think
through them um that's going to help
them think through kind of everything
about the
company here is one that you actually do
need to think about before the 12 to 24
month Mark which is diversity on the
team um
the most common place this comes up
honestly is people that hire you know
all guys on their engineering team for
the first 15 or 20 people um and at that
point you get a culture in place that
sort of takes on a life of its own and
most Founders that I've spoken to that
have made this mistake regret it and
they wished they had hired some
diversity of perspective on the team
earlier on
um engineering teams are not the only
place where it comes up but that's where
you see it the most often and if you get
this right early uh you'll be able to
grow the team much more quickly over
over the long term the other thing to
think about is what happens to your
early employees so a common situation
that happens is the company evolves past
the early employees um you know the
company so like you hire an engineer
who's a really great engineer but then
as the engineering team grows you need a
VP of engineering the early engineer
wants to be the VP of engineering um you
can't do that and and but you don't want
the early employee to leave they're an
important important part of the culture
they know a lot people love them uh and
so I think you want to be very proactive
about this you know you want to like
think about what's the path for my first
10 or 15 employees going to be as the
company grows and then just talk to them
about it very directly be upfront you
know I want like sit them down and say I
want to talk about sort of where you
want to see your career go inside of
this
company all right so company
productivity um um this is something
that you don't need to think about in
the early days because small teams are
just sort of naturally productive most
of the time um but as you grow it uh the
productivity I think goes down with the
square of the number of employees if you
don't make an effort because it's sort
of one of these like connections between
nodes every pair of people adds
communication overhead um and so if you
don't start thinking about the systems
that you're going to put in place when
the company is 25 to 50 people to stay
productive as you grow um things will
grind to a halt faster than you can
imagine the single word that matters
most I think to keep the company
productive as it grows is alignment um
the reason companies become unproductive
is people are either not on the same
page and you know don't know what the
same priorities are or they're actively
working against each other which is
obviously worse but if you can keep the
entire company aligned in the same
direction um you'll have one well over
half of the battle
uh and and the way to start with this is
just a very clear road map and goals um
everyone in the company should know what
the road map for the next three or six
months or a year depending on where the
company is in its life cycle looks like
um you know a classic test that I love
to give is if I walk into a company
getting beginning to struggle with these
scaling issues um I'll ask the founders
like if I walked around and pulled 10
random employees and asked them what the
top three goals for the company are
right now would they all say the same
thing and 100% of the time the founder
says yes of course they would and then I
go do it and 100% of the time uh no two
employees even stay the same three top
three goals in order um and the founders
can never believe it because they're
like well I announced it in all hands
like three months ago what our goals
were going to be and how can they not
remember um but it's really important to
keep
reiterating uh the the message about the
road map and the goals and almost no
founder does this enough and if you do
it you know the company will say you
know all right these are our goals we
understand them we're going to get them
done and I'll self-organize around that
but if people don't know what the road
map or the goals are it won't happen
we've already talked about figuring out
your values early but I want to
reiterate that because that also will
really help the company make the right
decisions if everyone knows what the
framework to decide is they'll make
hopefully the same decisions if they're
smart
people um you want to continue to be run
by great products and not process for
its own sake this is a fine fine line um
because you do need to put some process
in place but you never want to put
process in place that rewards the
process the focus has to always be on
great product one easy way to do this
that a lot of companies try is they just
say we're going to ship something every
day and if you do that uh you know
there's at least a continued focus on
delivery and then transparency and
Rhythm and how you communicate are
really important um most Founders wait
way too long on these but having a
management meeting every week of just
the people that report directly to the
founder the CEO critical um all hands
meetings not quite sure how often is
optimal for those at least once a month
where you go through the results and the
road map with the entire company really
important and then you know doing a plan
every quarter of what we're going to get
done over the next three months and how
that fits into our goals for the year
also becomes really
important I put offsides up there
because I don't think people do those
nearly enough
um a surprising number of the successful
companies we've been involved with do a
lot of offsites where they'll take their
best people for a weekend to a cabin in
the woods or somewhere and just talk
about what do we want to be when we grow
up what are our most important things to
be doing what are we not doing that we
should be doing but get people out of
the office and out of the day-to-day um
everyone I know that does those thanks
they're well worth the
time so the goal in all of this
productivity planning is that you're
trying to build a company that creates a
lot of value over a long period of time
and the long period of time is what's
important here you can avoid all of this
and just like with the authority of the
founder make sure the company ships a
great next version but that won't work
for version 10 it won't work for version
11 um I I really believe that the single
hardest thing in business is building a
company that does repeatable innovation
and just has this ongoing culture of
Excellence as it grows if you look at
the examp examples of this um most
companies fail here most companies do
one great thing where the founder just
pushes to get it done um and then don't
innovate that well on follow-on products
and it really takes Founders that think
about how I'm going to do this second
thing this really hard thing to get
something like an apple that can turn
out great products for 30 or 40 years or
longer um all right these are super
tactical mechanics this is this is
definitely to just put on a list and
remember these things for
later um all right in the early days
people basically ignore all accounting
and they have like maybe if they're
lucky a shoe box full of receipts they
certainly don't have anything that looks
like a financial report uh this is a
good time to get it in place you know
when things are working say month 18 or
whatever you can do this with an
outsourced person just say you know what
we want like to get our books in order
we want to start getting audits every
year um we want to start a relationship
with an accounting firm easy to do
definitely worth it um this is also a
good time to collect your legal
documents um because it's easy to fix
things now so if you actually assign
someone to go through and collect every
agreement the company has ever signed uh
then when you're a landlord tries to
screw you out of your lease and no one
can find the lease which happens like
half the time somehow um someone will be
able to find it also you're almost
certainly missing something you know
some employee didn't sign their P or
whatever um and you'll find it now it's
easy to fix now it gets really hard to
fix like in the middle of your next
round of financing so again this is time
to bring like a little bit of the order
to to
chaos um FF stock is a special class of
stock for Founders that the founders can
sell in a later round without messing up
the common stock
valuation it used to be that most people
set this up right when they started the
company uh Founders fund sort of
popularized this which is why it's
called aath stock um but it became a
really bad signal right Founders that
were obsessed with their own personal
liquidity when the company had nothing
turned out to like fail most of the time
and so investors learned that if
Founders pushed on this in the seed
round was a very very bad sign um most
Founders don't actually want to sell
stock until the company is worth like a
billion dollars or something like that
so I think you can actually safely set
this up after things start working in
the next financing round and then you
can sell it two 3 four years down the
road but it's a good thing to remember
by about the time you get to the
B um
IP trademarks and patent uh actually
just IP and trademarks so you have 12
months after you announce something if
you want to patent it and if you miss
that window it's very hard to do uh so
11 months after you launch or first
publicly talked about you're doing is a
good time to file provisional patents um
we recommend people just file
provisional patents all that does is
like hold your place in line at the
patent office and it gives you another
year to decide if you want a patent
something or not it only costs about
$1,000 uh it takes way less effort than
a full patent and most of the time
you'll know uh whether or not you need
the full patent a year later but if you
just do this one step you'll at least
have the option it's also a good time to
file trademarks for uh the US and major
International markets again if you don't
do this at this stage most people end up
regretting it and while you're at it a
good time to grab all the
domains um fpna good time also I think
to think about someone to start doing
fpna um I think most companies don't end
up realizing where the knobs on their
financial model are until far too late
um and I think it turns out that if you
have someone build a really great model
at the
business um and by really great
apparently uh Roff B who was the PayPal
CFO and built their fpna model um the
top the like the top sheet of his
spreadsheet was, 1500 lines
um just as a level of the detail people
build these to but you can really
optimize the business and understand it
at a level that I think most people
Totally Miss most people don't hire
someone like this until they're many
hundreds of employees I think it's worth
hiring
earlier another thing that I think is
worth hiring earlier um that almost no
one does is a full-time
fundraiser let's say you hire someone
like really really great and their
full-time job is to raise money for the
company um you hire them after your B
round and you say you know what by the
time we raise our C round we want the
valuation to be double what it would
have been
otherwise you almost certainly get
better results than if you hire an
investment banker or someone else uh if
it's just someone internal to the
company and you end up paying way less
money and take like literally half the
delution so I think this is one of these
like slightly non-obvious optimizations
that people just fail to make
um tax structuring so this is another
thing um most once things are working
uh it would be worth you spending a
little bit of time thinking about how
you set up the tax structure for the
company I confess I don't know a lot
about the details here because I just
find it personally really boring but
like somehow if you assign all the IP to
like some Corporation in Ireland that
licenses it back to the US Corporation
you end up paying like no tax no
corporate tax um but I know you you can
only do that like relatively early on
and this ends up being a huge issue for
companies that don't do it that compete
with companies that do do it uh wants
their big public
companies so that's what worth
doing um a lot of people throughout the
class have talked about your own
psychology as a Founder um here's what
they haven't said it gets worse not
better um as the company grows you
continue to oscillate the highs are
better but the lows keep getting worse
and you you really want to think about
this early on and just be aware that
this is going to happen uh and try to
try to manage your own psychology
through the expanding swing that it's
going to go
through another thing that happens as
you begin to be successful as you go
from being someone that most people
rooted for kind of the underdog to
someone that a lot of people start
hating on and you know you see this
first in Internet commenters who will be
like I can't believe this shitty company
raised money it sucks like awful
um and it only bothers you a little bit
but then like journalists that you kind
of care about start writing this and it
just goes on and on um this also will go
on and on as you get more and more
successful and you just have to make
peace with this early um but if you
don't it will bother you all the way
through um this is also a good time to
start thinking about how long of a
journey this is going to be very few
Founders think longterm um most Founders
think kind of a year in advance and they
think that you know what in 3 years I'm
going to sell my company and either I'm
going to become a VC or sit on the beach
or something um because so few people
make an actual long-term commitment to
what they're building uh the ones that
do have a huge Advantage they're they're
in a very rarified class and so this is
a good time to like sit around with your
co-founders and decide you know what
we're going to work on this for a very
long time and we're going to build a
strategy that assumes that we're going
to be doing this for the next 10 years
um just thinking that way alone uh I
think is probably a very high leverage
thing you can do for
success take vacation um another common
thing that we see is Founders will run
their business for three or four years
uh without ever taking you know more
than a day of vacation um and that works
for like a year or two years or
something like that it really leads to
nasty burnout if you don't do
it losing focus is another uh way that
Founders get off track I actually think
this is a symptom of burnout when you
get really burned out on running the
business you want to do easier things or
sort of more gratifying things you want
to go to conferences and have people
tell you how great you are you know you
want to do all these things that are not
actually building the business and the
most common post YC failure case for the
companies we fund is that they're
incredibly focused during YC on their
company and then after they start doing
a lot of other things you know they they
advise companies they go to conferences
whatever
um focus is what made you successful in
the first place um there are a lot of
reasons people lose focus but fight
against that really really
hard this is the special case of focus
um as you start to do well you will
start to get a bunch of um potential
acquires sniffing
around and it's very gratifying and
you're like wow I could be so rich and
I'd be so cool and m&a negotiations feel
really fun um this is one of the biggest
killers of of companies is that they
entertain acquisition conversations you
you distract yourself you get
demoralized if it doesn't happen um if
an offer does come in it's really low
you've already like mentally thought
that you're done and so you take the
offer um as a general rule don't start
any acquisition conversation unless
you're willing to sell uh for a pretty
low number don't ever just check it
hoping that you're going to have the one
Miracle High offer if that's going to
happen you'll know because they'll just
make you a big offer before you even
meet them um but this this is a big
company killer
and then just as a reminder to everybody
the thing that kills startups at some
level is the founders giving up um
so sometimes you should quit but if you
mismanage your own
psychology and you quit when you
shouldn't uh that that is what kills
companies I mean that is that is the
sort of final cause of death for most of
these startups and so if you can manage
your own psychology in a way that you
don't quit don't get to a place where
you need to quit um or give up on the
startup you'll be in a far far better
place so marketing a PR is something
that we tell companies to ignore for a
long time um everyone thinks in the
early days that the Press is going to be
what saves them we tell them all the
time it doesn't work that way it's
definitely true you know press is not
what's going to save your startup but as
you start to be successful um this is
something that the founders themselves
need to spend time on so once your
product is working switch switch from
not caring about this to caring about it
a little
bit and the two most important things
for the founder to do the founders to do
uh figure out the key messaging
yourselves uh never Outsource this to
you're how of marketing or PR firm you
Founders have to figure out what the
message of the company is going to be
and once you set that it kind of sticks
very hard to change this once the Press
decides how they're going to talk about
you um the other thing is getting to
know key journalists yourself um PR
firms will always try to prevent you
from doing this because they need to
have a reason to exist uh and so they're
like we're going to handle the
relationship with a journalist we'll
just bring you in for interviews no
journalist wants to talk to a PR Flack
ever they're so much more happy to just
hear from a Founder uh I think the
biggest PR hack you can do is to not
hire a PR firm um just pick three or
four journalists that you develop really
close relationships with that like you
that understand you that you get um and
then you contact them yourself they will
cover every story you ever give them and
they'll actually pay attention and get
to know you and care about the company
um this is so much better than the
normal strategy of having a PR from
blast 200 contacts that never read their
emails with every piece of news um so
this is something that I think is
important to start
doing um this is also the time in a
company when business development starts
to matter um and so in the early days
you can basically ignore anything that
would be like doing deals except maybe
fundraising and sales um um you know
this is the time when they're important
and and everything or many things that
you do like even fundraising it falls
under the the category of doing deals so
there are here's my one minute crash
course on this um there are five points
that I think are important to understand
here we've talked about this a lot
nothing will Ser nothing
will matter if you don't build a great
product so assume that you've done this
before you go try and get anyone to do
anything with
you um um developing a personal
connection with anyone you're trying to
do any sort of big deal with is really
important um for whatever reason most
Founders fail to do this or many
Founders fail to do this um but no one
wants to feel like they're this
transactional thing that you're using
them to get distribution for your
product or to raise money or whatever
and so figuring out some way to actually
care about this person and care about
what you're doing with them and not view
them you have to in your own mind not
just view them as this one-off
transaction you have to actually care
about and what they're going to get out
of
this um competitive Dynamics uh so this
is like basic principle of negotiation
most Founders learn this the first time
in fundraising but it actually matters
for everything um the way you get deals
done the way you get good terms is to
have a competitive situation you know if
you don't do this deal with party a
you're going to do with party B it's not
always an option but it usually is and
this is like the single thing that makes
deals happen and makes deals move
Tyler talked about persistence the last
lecture so I want to hit on that again
too much other than to say uh you have
to go beyond your comfort point here
most of the time as a
founder and then the fifth point is you
have to ask for what you want um this is
another thing I still have trouble with
this and certainly most other Founders
we do have you know if you want
something in a deal just ask for it most
of the time you
know you won't get left out of the room
and you might get it uh but you have to
be like at some point you actually have
to say you know this is what i' would
like you to do even if it feels
aggressive or an overreach or
whatever so I'm going to close uh this
part of the talk with an image um one of
the Airbnb Founders Drew this on like a
business card or something for another
founder that was starting a company and
then I saw it once and took a picture of
it because I thought it was such a good
summary and what he had tried to draw
here was the Y combinat process as he
remembered
it um and I love it cuz it's like so
simple and it looks so doable when it's
written on a business card um but you're
trying to find product Market fit uh you
know you're trying to build a product
and you're trying to close the gap
between those two gears the only way to
do that is to go off and meet the people
um you cannot do this without getting
really really close to your users um and
then he drew this graph that is sort of
on a whiteboard at YC and gotten kind of
like a one of the YC rights of Passage
but that's the the graph of how adoption
goes for a new company so you launch in
the Press you get a huge spike it falls
off to nothing uh at some point at least
one point things look like they're going
to completely die and kind of dip below
the x-axis they recover a little bit you
have this long long long chough of
Sorrow before things work in airbnb's
case uh it was a thousand days before
the graph started ticking upward you
have these Wiggles of false hope uh and
then finally finally finally things
start to grow 3 years later um so
starting to Startup ends up being this
very long process it is um you know it
can be really rewarding it's definitely
long but it is doable um and that's what
I love about that drawing so with that I
think I have about 10 minutes left um I
can answer questions on this or anything
else in the course that we've covered if
anyone has
some yes you talk about diversity being
important but an earlier speaker said
diversity wasn't important and you
should just hire people that are very
much like you and that you can trust and
to so here is the uh the question is how
do you square the device of diversity
being important with earlier speakers
saying uh you want people that are very
similar um the the difference what you
want is you want diversity at
backgrounds but you don't want diversity
of vision like where companies get in
trouble is when they have people that
think very differently about what the
company should be doing or don't work
well together um you don't want that you
do want to hire people that you know and
that you trust and that you can work
with um
but if everyone on the team comes from
exactly the same background you you do
end up developing somewhat of a
monoculture which often causes problems
down the road not always some companies
have been successful with that um so
what what we tell people is hire people
that you know and that you've worked
with before um but try to try to hire
people that are complimentary and align
towards the same goal not people that
are exactly the same uh because you just
get a a better skill set
yeah so what are some examples of ways
to think
about um how to keep track uh
productivity systems so the one I use uh
which I actually think works really well
is I keep one piece of paper with my
goals for sort of a 3 to 12 month time
frame and I like that every day and then
separately I keep one one page for every
day of my short-term goals for that day
and so if I need to do something in like
a week I just flip forward seven pages
and write it down and then I also keep a
list of every person and what they're
working on and what I need to tell them
and what I need to talk to them about
what we talked about last time so every
time I sit down with someone I kind of
have the full State and a list of things
for that person that works really well
yes so we've talked a lot about startups
growing but most startups fail any
advice for kind of how to fail
gracefully yeah yeah great
question how to fail gracefully so most
startups fail um and silic and Valley
almost goes too far in how much it loves
failure um failure still sucks you
should still try not to fail and this
whole like thing of like ah failure is
great I I don't agree with um but it
will happen to most people most of the
time and it's a very forgiving
environment as long as you are upfront
about it and ethical and don't let
anyone get into a bad situation so if
you're failing first of all you should
tell your investors and second of all
you should not totally run out of money
what you don't want is a blowup with a
bunch of you know debts that the company
owe and everyone you know showing up to
work one day and the door being locked
um you'll know when you're failing
you'll know when the compan is things
just aren't going to work and you should
just tell your investors like hey sorry
this isn't going to work no one will be
surprised like I expect to lose my or
I'm willing to lose my money
on every investment I ever make I know
that happens most of the time and the
winners pay for it you know still with a
factor of 100 so it's okay um no one
people will be very understanding and
supportive um but you want to tell
people early you don't want to surprise
them and you want you don't want to like
let your employees get shocked one day
when they another job you know you you
you want to shut the company down in a
graceful way help them find jobs make
sure you give them two or four weeks of
severance payment so that they're not
suffering a cash problem um all of this
stuff is pretty important yes how many
immigrant Founders have you seen in y
combinator how many immigrant Founders
have we seen in y combinator um in the
last batch I think it probably went up
for this next batch in the last batch
41% of the founders we funded were born
outside the US um from 30 different
countries so it's yeah pretty big
percentage and from the Val what do you
think are other good places to start a
startup apart from the valley where do I
think are other good places to start a
startup um well I still think the valley
is the best by a very significant margin
but I think it's finally maybe beginning
to weaken a little bit because the costs
have just gotten so out of control um to
be clear if I was going to start a
company I still wouldn't think about it
I would still pick Silicon Valley and I
think if you look at the data of
companies over the last few years Vala
wins by a lot
but Seattle La um lots of places outside
the US I think all of these make sense
what
um I hesitate to make recommendations
there because I haven't spent enough
time in the cities to really have an
intuitive feel uh but like I mean you
know as well as I do the common ones
people talk about startup hubs and I
just I can't make a personal
recommendation
there so when did the founders should
start to think about hiring a
professional CEO senior guys when should
the founders think about hiring a
professional CEO never um you if you
look at the most successful companies in
Tech um they are run by their Founders
for a very long time um sometimes
forever uh and sometimes they even hire
a professional CEO and then realize that
that is not going to like build a great
company and so like Larry pagee came
back to be CEO again
um I think if you don't want to be the
long-term CEO of a company you probably
shouldn't start one I'm not totally sure
about that I think there are exceptions
but generally um that the transition I
talked about today of you go from
building a great product to building a
great company um being a Founder you
know for nine of the 10 years is going
to be about building that great company
and if you're if you're not excited
about doing that I think you should
think hard about about
it yes what are some of the most common
and most alarming warning signs you
should be looking for when you're trying
to make this Shi from building a great
product to building a great company what
are the the most common mistakes um to
when you're shifting towards building a
great company I think I went through
most of them here um I try to put
everything in here that I see people
mess up most of the
time yes is there a way to get involved
in the wcom community before getting
accepted is there a way to get involved
with YC before um getting funded no and
intentionally not um actually I'll say
the one thing you can do is if you work
at a YC company um and then later apply
I think that probably like well not
probably that definitely if you get a
good recommendation from those Founders
will help with YC uh so you know working
at a YC company helps um but there's not
much you can do to help and that's
intentional like there is no pre-
startup in the way that there is Premed
you should just focus on whatever you're
doing and then when you start a startup
there are things like YC and others that
are structured to help you um most of
the founders we fund we don't know at
all before we do it you know you don't
you really don't need to get to know us
or get involved we're we're all good
that way yes there was a statistic
you're saying now harder to get into why
comp than getting get into Harvard so
I'm curious the criteria that you use
pickup startups does it change over time
or the question is what what criteria do
we use to pick startups and has it
gotten harder uh or has it changed
um you know we the two things that we
need to see are are good Founders and a
good idea
um and without both of those we we won't
fund a company um but that hasn't
changed like that that has always been
the case um the applicant pool to YC has
grown quite a bit but most of or a lot
of the growth is you know people that
shouldn't be starting startups anyway
probably that are just doing it because
it's sort of the cool thing now um so
you know if you're really passionate
about an idea and the idea is good and
you're you know smart and you get things
done and you're executing and I still
think you have a a very reasonable shot
YC even though the headline number is
bigger yes there's a c a certain Market
that you're really excited about but
don't necessarily know a lot about yet
is there certain path you recommend or
ways to sure um if there's a market that
you're excited about but don't know a
lot about yet what should you do um two
schools of thought on this one is to
just jump right in learn it as you go um
that's worked a lot of times the other
is to go work at a company in the space
or do something in in the market for you
know a year or two years
um I lean slightly towards the second
but as long as you're willing to really
learn and really study and really get
uncomfortably close to your users either
case will work um and I don't even think
it's that much of a disadvantage I I I
think all things being equal I would go
spend a couple of years learning about
it in detail but I don't think you have
to Yes uh I have a question related to
why
yeah so I think y did a fantastic job in
promoting entrepreneurship in C Valley
in fact as Institutional Investor
actually I invested three of the YC in
the past few years but however right now
seems like uh you know you guys has 180
companies a year dumping into the market
and looks like uh it's hard to follow
each of Y company anymore do you think
this will create some uh you know uh
some people will work away from St
because they cannot follow such a bu B
for companies and us you know in the old
days the company has to be very polished
and the fund has to be think over and
over about idea the cons we see in San
Road and then they got F but right now
since the young easy to access the
capital all right so I think the
question is do I think investors are
going to fund less YC companies as we
grow um no definitely not like certainly
the trend in this is the other way we
have more and more investors saying that
you know half their portfolio is not YC
companies and they look forward to the
day where it's 3/4
um no I don't think that's a problem at
all I think that is like so not on my
top 100 problem list the opposite of
that maybe all right one more question
yes when should a group of Founders
raise a seed fund or the first when
should a group of Founders raise some
seed money um this is a great question
uh I think
that I think that in general it's nice
to wait until you have the idea figured
out and initial
signs of promise before you raise money
um raising money puts some pressure on
the company some time pressure uh and
once you've raised money you can't be in
this exploratory phase indefinitely um
you and you end up having to rush and so
like if you haven't raised money and
your idea is not working you can you
know like flail around and pivot until
you really hit on the thing that's
working but if you've raised money and
your idea doesn't work you're in this
like oh moment and you have to
Pivot and you pivot to whatever the
first vaguely plausible idea is and
that's bad um so I
think if you can wait to raise any
outside Capital more than say like1 or
$200,000 if necessary but ideally not
even that um until things are working or
or at least pointed in the direction of
working um you're way better off all
right thank you all very much this was
fun