welcome um can they turn this on maybe
all right
uh people here in the back can you guys
hear me is the mic on
no uh maybe you can ask them to turn it
on maybe we can get a big ah there we go
all right maybe we can get a bigger
Auditorium we'll see so welcome to cs1
183b I'm Sam Alman I'm the president of
Y combinator 9 years ago I was a
Stanford student and then I dropped out
to start a company uh and then I've been
an investor for the last few so at YC um
we've been teaching people how to start
startups for 9 years most of it's very
Hands-On and specific to the startups
but 30% of it is pretty generally
applicable and so we think that we can
teach that 30% in this class and even
though that's only 30% of the way there
uh hopefully it'll still be really
helpful we've taught a lot of this at YC
already um but it's all been off the
Record and this is the first time that a
lot of what we teach in YC is going to
be on the record so we've invited some
of our best speakers to come and give
the same talks they give at YC um we've
now funded 720 companies and so we're
pretty sure that a lot of this advice is
pretty good we can't fund every startup
yet but we can hopefully make this
advice very generally
available guest speakers are going to
teach 17 of the 20 classes and only
teaching three uh counting YC itself
every guest speaker has been involved in
the creation of a billion plus dollar
company so the advice shouldn't be that
theoretical um it's all been it's all
from people who have done
it all the advice in this class is
geared towards people starting a
business where the goal is hyper growth
and eventually building a very large
company much of it doesn't apply in
other cases and I want to warn people
upfront that if you try and do these
things in a lot of big companies or
non-st startups it won't work it should
still be interesting I I really do think
that startups are the way of the future
and it's worth trying to understand them
but startups are very different than
normal
companies so over the course of today
Thursday I'm going to try to give an
overview of the four areas that you need
to excel at in order to maximize your
chances of success a startup and then
throughout the course the guest speakers
are going to drill into all of these in
more
detail so the four areas you need a
great idea a great product a great team
and great
execution these overlap somewhat but I'm
going to have to talk about them
somewhat individually to make it make
sense you may still fail uh the outcome
is something like idea times product
time execution time team times luck
where luck is a random number between 0
and 10,000 uh literally that much but if
you do really well on the fours you can
control you have a good chance at at
least some amount of
success one of the exciting things about
startups is that they are surprisingly
even playing field young and
inexperience you can do this old and
very experienced you can do this too and
one of the things that I particularly
like about startups is that some of the
things that are bad in other work
situations like being poor and unknown
are actually huge assets when when it
comes to starting a
startup before we jump in on the how I
want to talk about why you should start
a startup I'm somewhat hesitant to be
doing this class at all because you
should never start a startup just for
the sake of doing so there are much
easier ways to get rich and everyone who
starts a startup always says always that
they couldn't have imagined how hard and
painful it was going to be you should
only start a startup if you comp feel
compelled by a particular problem and
that you think starting a company is the
best way to solve it the specific
passion should come first and the
startup second
in fact all of the big successes we have
at YC followed this so for the second
half of today's lecture Dustin movitz
the co-founder of Facebook and Asana is
going to take over and talk about why to
start a startup we're so surprised by
the amount of attention that this class
got that we want to make sure we spend a
lot of time on the
why okay so the first of the four areas
a great
idea it's become popular in recent years
to say that the idea doesn't matter in
fact it's almost uncool to spend a lot
of time thinking about the idea for a
startup you're just supposed to start
throw stuff at the wall see what sticks
and not even spend any time thinking
about if it'll be valuable if it works
and pivots are supposed to be great the
more pivots the better um so this isn't
totally wrong things do evolve in ways
that are difficult to predict and
there's a limit to how much you can
figure out without actually getting a
product in the hands of users um and
great execution is at least 10 times
more important and 100 times harder than
a good idea but the pendulum has swung
way out of whack here a bad idea is
still bad uh and the pivot happy world
that we're in today feels really
suboptimal great execution towards a
terrible idea will get you nowhere there
are exceptions of course but most great
companies start with a great idea not a
pivot if you look at successful pivots
they almost always are EP pivoted into
something the founders themselves wanted
not a random madeup idea Airbnb happened
because Brian chesky couldn't pay his
rent but he did have some extra space in
general though if you look at the track
recet of pivots they don't become big
companies I myself used to believe ideas
didn't matter that much um but I'm very
sure that's wrong
now the definition of the idea as we
talk about it is very broad it includes
the size and the growth of the market
the growth strategy for the company the
defensibility strategy and so on when
you're evaluate an idea you need to
think through all these things not just
the
product if it works out you're going to
be working on this for 10 years so it's
worth some real upfront time to think
through the long-term value and the
defensibility of the business even
though plans themselves are worthless
the exercise of planning is really
valuable and totally missing in most
startups today long-term thinking is so
weere anywhere but especially in
startups that it's a huge Advantage if
you do
it remember that the idea will expand
and become more ambitious as you go you
certainly don't need to have everything
figured out in a path from here to World
Domination but you really want a nice
kernel to start
with you want something that can develop
in interesting ways
as you're thinking through ideas another
thing that we see young Founders get
wrong all the time is that someday you
need to build a business that's
difficult to replicate this is an
important part of a good
idea I want to make this point again
because it's so important the idea
should come first and the startup should
come second wait to start a startup
until you come up with an idea you feel
compelled to explore this is also the
way to choose between multiple ideas if
you have several ideas that all seem
pretty good work on the one that you
think about most often when you're not
trying to think about work but we hear
again and again from Founders that they
wish they had waited start a startup
until they came up with an idea that
they really
loved another way of looking at this is
that the best companies are almost
always Mission oriented it's difficult
to get large groups of people to the
extreme levels of focus and productivity
that you need for a startup to be
successful unless the company feels like
an important Mission and it's usually
really hard to get that without a great
founding idea
a related advantage of mission oriented
ideas is that you yourself will be
dedicated to them it takes years and
years usually a decade to create a great
startup if you don't love and believe in
what you're building you'll likely to
give up at some point along the way
there's no way I know of to get through
the pain of a startup without belief
that the mission really matters a lot of
Founders especially students believe
that their startups only going to take 2
or 3 years and then after that they'll
work on what they're really passionate
about that almost never works good
startups usually take 10 years
a third advantage of mission oriented
companies is that people outside the
company are more willing to help you
you'll get more support on a hard
important project than a derivative one
when it comes to starting startups in
many ways it's easier to start a hard
startup than an easy startup this is one
of those counterintuitive things it
takes people a long time to
understand it's difficult to overstate
how important being Mission driven is so
I want to emphasize it one last time
derivative companies companies that copy
an existing idea with very few new
insights don't excite people and they
don't compel the teams to work hard
enough to be
successful Paul Graham is going to talk
about how to get startup ideas next week
it's something that a lot of Founders
struggle with but it's something I
believe you can get better with it
better at with practice and it's
definitely worth trying to get better
at the hardest part about coming up with
great ideas is that the best ideas often
look terrible at the beginning the 13th
search engine and without all the
features of a web portal most people
thought that was pointless search was
done and anyway didn't matter that much
portals were where the value was at the
10th social network and limited only to
college students with no money also
terrible Myspace had won and who wants
college students as customers or a way
to stay on Strangers couches that just
sounds terrible all around these all
sounded really bad but they turned out
to be good if they had sounded really
good there would have been too many
people working on
them as Peter te is going to discuss in
the fifth class you want an idea that
turns into a monopoly but you can't get
a monopoly in a big big market right
away too much competition for that you
have to find a small Market in which you
can get a monopoly and then quickly
expand this is why some great startup
ideas look really bad at the beginning
it's good if you can say something like
today only the small subset of users are
going to use my product but I'm going to
get all of them and in the future almost
everyone will use my
product here's a theme that's going to
come up a lot you need conviction in
your own beliefs and a willingness to
ignore others
naysaying the hard part is that this is
a very fine line there's right on one
side of it and crazy on the other but
keep in mind that if you do come up with
a great idea most people are going to
think it's bad you should be happy about
that means they won't compete with you
this is also a reason why it's not
usually dangerous to tell people about
your idea the truly good ideas don't
sound like they're worth
stealing you want an idea about which
you can say I know it sounds like a bad
idea but here's specifically why it's
actually a great one you want to sound
crazy but you want to actually be right
and you want an idea that not many other
people are working on and it's okay if
it doesn't sound big at first Common
mistake among Founders especially first
time Founders is they think that the
first version of their product the first
version of their idea needs to sound
really big but it doesn't it needs to
take over a small specific market and
expand from there that's how most great
companies have started unpopular but
right is what you're going for you want
something that sounds like a bad idea
but is a good
idea you also really want to take the
time to think about how the Market's
going to evolve you need a market that's
going to be big in 10 years most
investors are obsessed with the market
size today and they don't think at all
about how the Market's going to evolve
in fact I think this is one of the
biggest systemic mistakes that investors
make they think about the growth of the
startup itself they don't think about
the growth of the
market I care much more about the growth
rate of the market than its current size
and I also care if there's any reason
that it's going to top out you should
think about this um I'd prefer to invest
in a company that's going after a small
but rapidly growing Market than a big
but slow growing one one of the big
advantages of these sorts of markets um
these small but rapidly growing markets
is that customers are usually pretty
desperate for a solution and they'll put
up with an imperfect but rapidly
improving
product and a big advantage of being a
student one of the two biggest
advantages um is that you probably have
better intuition about which markets are
likely to start growing rapidly than
older people
do another thing that students usually
don't understand or at least takes a
while
um you cannot create a market that
doesn't want to exist you can basically
change everything in a startup but the
market so you should actually do some
thinking to be sure or at least as sure
as you can be that the market you're
going after is going to grow and be
there there are a lot of different ways
to talk about the right kind of market
for example surfing someone else's wave
or stepping into an up elevator or being
part of a movement but all of this is
just a way of saying you want a market
it's going to grow really quickly it may
seem small today it may be small today
but you know and other people don't that
it's going to grow really
fast so think about where this is
happening in the world you need this
sort of a Tailwind to make a startup
successful the exciting thing is there
are probably more of these Tailwinds now
than ever before as Mark andrion says
software is eating the world um it's
just everywhere they're like so many
great ideas out there um and you just
have to pick one and find one that you
really care
about another version of this that gets
down to the same idea is Sea's famous
question why now why is this the perfect
time for this particular idea and to
start this particular company why
couldn't it have been done two years ago
and why will two years in the future be
too late for the most successful
startups we've been involved with
they've all had a great idea great
answer to this question and if you don't
you should be at least somewhat
suspicious about
it in general it's best if you're
building something that you yourself
need you'll understand it much better
than if you have to understand it by
talking to a customer to build the very
first
version if you don't need it yourself
and you're building something that
someone else needs realize that you're
at a big disadvantage and get very very
close to your customers try to work in
their office if you can and if not talk
to them multiple times a
day another somewhat counterintuitive
thing about good startup ideas is that
they're almost always very easy to
explain and very easy to understand if
it takes more than a sentence to explain
what you're doing um it's almost always
a sign that it's too complicated it
should be a clearly articulate
articulated Vision with a small number
of
words and the best ideas are usually
either very different from existing
companies in one important way uh like
Google being a search engine that worked
just really well and none of the other
stuff of the portals or totally new like
SpaceX any company that's a clone of
something else that already exists with
some small or madeup differentiator like
we're going to be X beautiful design or
we're going to be y for people that like
red wine instead um that usually
fails so as I mentioned um one of the
great things about being a student is
that you have a very good perspective on
new technology um and learning to get
good at having new ideas takes a while
so start working on that right now um
that's one thing we hear from people all
the time that they wish they had done
more of when they were a student the
other is meeting potential
co-founders um you have no idea how good
of an environment you're in right now
for meeting people that you can start a
company with down the road uh and the
one thing that we always tell college
students is more important than starting
any particular startup is getting to
know a lot of potential
co-founders so I want to finish this
section of my talk um with a quote from
50 this is um this is from when he was
asked about Vitamin Water um I won't
read it it's up there uh but it's about
the importance of thinking about what
customers want and thinking about the
demands of the market um most people
don't do this most students especially
don't do this if you can just do this
one thing if you can just learn to think
about the market first you will have a
big leg up on most people starting
startups uh and this is something this
is probably the thing that we see wrong
with YC combinator apps most frequently
is that people have not thought about
the market first and what people want
first so for the next section I'm going
to talk about building a great product
um and here
again I'm going to use a very broad
definition of product it includes
customer support and copyright
explaining the product anything involved
in your customer's interaction with what
you built from
them to build a really great company you
first have to turn a great idea into a
great product this is really hard but
it's crucially important and fortunately
it's pretty fun although great products
are always new to the world and it's
hard to give you advice about what to
build there are enough commonalities
that we can give you a lot of advice
about how to build
it one of the most important tasks for a
Founder is to make sure that the company
builds a great product until you've
built a great product almost nothing
else matters when really successful
startup Founders tell the story of their
early days it's almost always sitting in
front of the computer working on their
product or talking to their customers
that's pretty much all the time they do
very little else and you should be very
skeptical if your time allocation is
much different most other problems that
Founders are trying to solve raising
money getting more press hiring Business
Development Etc these are significantly
easier when you have a great product
it's really important to take care of
that first step one is to build
something that users
love and YC we tell Founders to work on
their product talk to users exercise eat
and sleep and very little else all the
other stuff I just mentioned PR
conferences recruiting advisers doing
Partnerships you should ignore all of
that and just build a product and then
get it as good as possible by talking to
your
users your job is to build something
that users
love very few companies that go on to be
super successful get there without first
doing this a lot of good onp paper
startups fail because they merely make
something that people like making
something that people want but only a
medium amount is a great way to fail and
not understand why you're failing so
these are the two
jobs something that we say at YC a lot
is that it's better to build a small
number it's better to build something
that a small number of users love than a
large number of users like of course
it'd be best to build something that a
small number of users love but
opportunities to do that for V1 are rare
and they're usually not available to
startups so in practice you end up
choosing either the gray or the orange
you make something that a lot of users
like a little bit or something that a
small number of users like love a lot
and this is a very important piece of
advice build something that a small
number of users love it's much easier to
expand from something that a small
number of people love to something that
a lot of people love then from something
that a lot of people like to a lot of
people
love if you get this right you can get a
lot of other things
wrong if you don't get this right you
can get everything else right and you'll
probably still fail so when you start on
a startup this is the only thing you
need to care about until it's working
okay sure so you have a choice in a
startup the best thing of all worlds
would be to build a product that a lot
of people really love um in practice you
can't usually do that because a big
company if there's an opportunity like
that Google or Facebook will do it so
there's like a limit to the area under
the curve of what you can build and you
can either build something that a lot of
users like a little bit uh or you can
build something that a small number of
users love a lot and like the total
amount of Love is the same it's just a
question of How It's distributed um
and there's like this law of
conservation of how much happiness you
can put into the world with the first
product of a startup um and so startups
always struggle with which of those two
they should go and they seem equal right
because the area under the curve is the
same um but we've seen this time in
again that they're not and that it's so
much easier to expand once you've got
something that some people love you can
expand that something that a lot of
other people love but if you only get
ambivalence or sort of like weak
enthusiasm and then try to expand that
you'll never get up to a lot of people
loving it
so the advice is
uh find a small group of users and make
them really love what you're doing does
that make sense all
right one way that you know when this is
working is that you'll get growth By
Word of Mouth um if you make something
people love uh people will tell their
friends about it this works for Consumer
products and Enterprise Products as well
when people really love something they
tell their friends about it and you'll
see organic
growth if you find find yourself talking
about how it's okay that you're not
growing um because there's a big
partnership that's going to come save
you or something like that it's almost
always a sign of real
trouble sales and marketing are really
important and we're going to have two
classes on them later but if you don't
have some early organic growth then your
product probably isn't good enough yet a
great product is the secret to long-term
growth hacking you should get that right
before you worry about anything else it
doesn't get easier to put off making a
great product if you try to build a
growth machine before you have a product
that some people really love you're
almost certainly going to waste your
time breakout companies almost always
have a product that's so good that it
grows By Word of
Mouth over the long run great products
win don't worry about your competitors
raising a lot of money and what they may
do in the future they probably aren't
very good anyway very few startups die
from competition most die because they
themselves fail to make something users
love they spend their time on other
things so worry about this Above All
Else another piece of advice to make
something that users love start with
something simple it's much much easier
to make a great product if you have
something simple even if your eventual
plans are super complex and hopefully
they are you can almost always start
with a smaller subset of the problem
than whatever you think is the smallest
and it's hard to build a great product
so you want to start with as little
surface areas possible think about the
really successful companies and what
they started with think about products
that you really love they're generally
incredibly simple to use and especially
to get started
using the first version of Facebook was
almost comically simple the first
version of Google was just an ugly web
page with a text box and two buttons but
it returned the best results and that's
why users loved it the iPhone is far
simpler to use than any smartphone that
ever came before it and it was the first
one that people really
loved another reason that simple's good
is because it forces you to do one thing
extremely well and you have to do that
to make something that people
[Applause]
love the word fanatical comes up again
and again when you listen to successful
Founders talk about how they think about
their product Founders talk about being
fanatical in the way they care about the
quality of the small details fanatical
in getting the copy that they use to
explain the product just right and
fanatical in the way they think about
customer
support in fact one thing that
correlates with success among the YC
companies is the founders that hook up
pagro duty to their ticketing system so
that even if a user emails in the middle
of the night when the founders are
asleep they still get a response within
an hour um companies actually do this in
the early days these Founders feel
physical pain when the product sucks and
they want to wake up and fix it they
don't ship crap and if they do they fix
it very very quickly and it definitely
takes some level of fanaticism to build
a great
product you need some users to help with
the feedback cycle um but the way to get
those users is manually you should go
recruit them by hand um don't do things
like buy Google ads in the early days to
get initial users you don't need very
many you just need ones that will give
you feedback every day and eventually
love your product so instead of trying
to get them on Google AdWords just find
a few people in the world that will be
good users recruit them by hand
Ben Silverman uh when everyone thought
Pinterest was a joke recruited the
initial Pinterest users by chatting up
strangers in coffee shops he really did
he just walked around Palo Alto and said
will you please use my product um he
also used to run around the Apple Store
in Palo Alto and he would like set all
the browsers to the Pinterest home page
real quick before they caught him and
kicked him out um so then when people
walked in there they're like oh what is
this
um this is an important example of doing
things that don't scale if you haven't
read Paul Gram's essay on that topic you
definitely should so get users manually
and remember that the goal is to get a
small group of them to love you
understand that group extremely well get
extremely close to them close to them
listen to them and you'll almost always
find out that they're very willing to
give you feedback even if you're
building the product for yourself listen
to outside users and they'll tell you
how to make a product they'll pay for do
whatever you need to make them love you
make them what you're doing because
they're also going to be The Advocates
that help you get your next
users you want to build an engine in the
company that transforms feedback from
users into product decisions then get it
back in front of the users and repeat
ask them what they like and what they
don't like and watch them use it ask
them what they pay for ask them if
they'd be really bummed if your company
went away ask them what would make them
recommend the product to their friends
and ask them if they've recommended it
to any yet you should make this feedback
loop as tied as possible if your product
gets 10% better every week that
compounds really really
quickly one of the great advantages of
start of software startups is just how
short you can make the feedback loop it
can be measured in hours and the best
companies usually have the tightest
feedback loops you should try to keep
this going for all of your company's
life but it's really important in the
early
days the good news is that all of this
is doable it's hard it takes a lot of
effort but there's no magic the plan is
at least straightforward and you will
eventually get to a great
product great Founders don't put anyone
between themselves and their users the
founders of these companies do things
like sales and customers support
themselves in the early days it's
critical to get this Loop embedded in
the culture in fact a specific problem
that we always see with Stanford
startups for some reason is that the
students try and hire sales and customer
support people right away and you got to
do this yourself it's the only
way you really need to use metrics to
keep yourself honest on this um it
really is true that the company will
build whatever the CEO decides to
measure if you're building an internet
service ignore things like total
registrations don't talk about them
don't let anyone in the company talk
about them and look at growth in active
users activity levels cohort retention
Revenue net from motor scores these
things that matter and then be brutally
honest if they aren't going in the right
direction startups live on growth it's
the indicator of a great
product so this about wraps up the
overview on building a great product I
want to emphasize again that if you
don't get this right nothing else we
talk about in the class will matter um
you can basically ignore everything else
that we talk about until this is working
well on the positive side this is one of
the most fun parts of building a startup
so I'm going to pause here I'll pick
back up with the rest of this on
Thursday and now we're going to have
Dustin talk about um why you should
start a
startup thank you for coming Justin
sure uh but yeah so Sam asked me to talk
about um why you should start a startup
there's a bunch of reasons you might
have um and uh there's a bunch of common
reasons that people have that I hear all
the time for for why you might start a
startup um it's important to know like
what reason is yours because some of
them only make sense in in certain
context uh some of them will actually
like Lead You astray you may have been
misled by the way that uh Hollywood or
the likes to romanticize
entrepreneurship so I want to try and
like illuminate um you know some of
those potential fallacies so you guys
can can make the decision in a clear way
uh and then uh I'll talk about the the
reason I like best for actually starting
a startup uh it's very related to a lot
of what uh Sam just talked about um but
surprisingly I don't think it's the most
common reason uh usually people have one
of these other reasons um or they just
want to start up you know start a
company for the sake of starting a
company um so the the four common
reasons uh just to enumerate are it's
glamorous um you know you'll be you'll
get to be the boss uh you'll have
flexibility especially over your
schedule um and you'll have the chance
to have you know bigger impact and make
more money than you than you might uh by
joining a later Stage
Company so okay so uh you know you guys
are probably pretty familiar with this
concept when I wrote the medium post
which a lot of you guys read a year ago
uh I felt like the story in the Press
was a little more unbalanced uh you know
entrepreneurship just got romant
sythesized quite a bit um you know the
movie with social network came out had a
lot of sort of like bad aspects of of
you know what it's like to be an
entrepreneur but mainly uh sort of
painted this picture of like there's a
lot of partying and you kind of moved
from like one brilliant insight to
another brilliant Insight um and really
made it you know seem like this like
really cool thing to do um and I think
the reality uh is just you know not
quite So Glamorous there's sort of
there's an ugly side to uh being an
entrepreneur uh and also just more
importantly uh what what you're actually
spending your time on is is just a lot
of hard work uh Sam mentioned this but
you're basically just sitting at your
desk heads down focused um answering
customer customer support emails doing
sales figuring out hard engineering
problems um so it's really important
that you kind of like go in with with
eyes wide open uh and then also it's
it's really uh quite stressful um this
has been a popular Topic in the Press
lately uh The Economist actually ran a
story just last week called like
entrepreneurs Anonymous and shows like a
Founder kind of like hiding under his
desk um and talking about like founder
depression um this is like a very real
thing like you know let's be real this
if you start a company it's going to be
extremely hard um why is it so stressful
so a couple reasons um one is you've got
a lot of responsibility uh so uh people
in any kind of career have fear of
failure it's kind of just like a
dominant part of the psychology but when
you're an entrepreneur uh you have fear
of failure on behalf of yourself and all
of the people who decided to follow you
uh so that's really stressful um in some
cases these people are depending on you
for their livelihood even when that's
not true they've decided to devote the
the best of your years of their life to
following you um and so you're
responsible for the opportunity cost of
their time uh so that's a big deal um
and you're always on call uh if
something comes up uh maybe not always
at 3: in the morning but for some
startups that's true uh but if something
important comes up you're going to deal
with it that's kind of the end of the
story doesn't matter if you're on
vacation doesn't matter if it's the
weekend um you kind of always got to be
on the ball and always be in a in a
place mentally where you're prepared to
deal with those things um and then uh a
sort of special example of that is is uh
or this kind of stress is fundraising uh
so seen from The Social Network This Is
Us partying and working at the same time
somebody's spraying champagne everywhere
um you know uh so the social network
spends a lot of time kind of painting
these scenes uh Mark's not in the scene
the other thing they spend all their
time on is kind of like painting him out
to be a huge jerk um this computer yeah
oh okay
so this is an an actual scene for
um see I'm going to move this just a
little oh no this will work this work
this will work okay on the PDF as well
yeah
okay okay cool uh this is an actual
scene from pal Alto um spent a lot of
time at this desk just kind of heads
down in Focus uh Mark was still kind of
a jerk sometimes but in this more like
fun lovable way and not a like
sociopathic scorn lover way um so this
is him like signaling his intention to
you know just be focused in keep working
not be social um so then there's also
the scene sort of demonstrating the like
brilliant Insight moment uh it's kind of
like straight out of a beautiful
mind literally sto that scene um so they
like to paint it is you just kind of
like jump from one of these moments to
to the other moment with like parting in
between but really we just at that table
the whole
time so interestingly if you compare
this to the other photo Mark is in the
exact same position but he's wearing
different clothes this is definitely a
different day
um so cool so that's what that's what
it's actually like in person um and I
just covered this bullet up here this is
the economist article I was talking
about a second ago um so another form of
of uh stress is just like unwanted media
attention uh so part of it being
glamorous you get some positive media
attention sometimes it's nice to be on
like the cover of time and like be the
person of the year um it's maybe a
little less nice to be on the cover of
people with like one of your wedding
photos uh depends who you are some
people would like that I'd really hate
it
um but when valleywag like you know
analyzes your lecture and just tears you
apart like you definitely don't want
that nobody wants that um and then one
thing I almost never hear people talk
about is you're just a lot more
committed um so if you're an employee of
a startup um and you know things are
stressful it's not going well you're
unhappy you can just leave uh for a
Founder uh you can leave but it's it's
very uncool uh pretty much a black eye
in the rest of your career um and so you
really are committed uh you know for 10
years if it's going well uh probably
more like 5 years if it's not going well
um so 3 years to figure out that it's
not going well and then if you find like
a nice landing for your company another
two years at the acquiring company um
and if you leave before that again it's
not only going to harm yourself
financially it's going to harm all your
employees so you pretty much don't um so
if you're lucky and you have a bad
startup idea you fail quickly um but
most of the time it's not like
that all right moving right along um
so uh and I should say I I've had a lot
of this stress in my own life uh
especially in the early years of
Facebook um you know I just got really
unhealthy I wasn't exercising had a lot
of anxiety actually like throughout my
back like almost every six months like
when I was like 21 22 which is like
pretty crazy um and so if you do start a
company um make you know be aware that
you're going to have to deal with this
and you have to actually manage it it's
actually like one of your core
responsibilities uh Ben Horowitz likes
to say like the number one role of a CEO
is managing your own psychology it's
absolutely true make sure you do it
um so another reason uh so people uh
especially if they've already had a job
at another company you tend to develop
this Narrative of like okay like the
people running this company are idiots
they're making all these stupid
decisions they're spending their time in
in these stupid ways uh I'm going to
start a company and I'm going to do it
better I'm going to like set all the
rules um it's a pretty attractive idea
um makes a lot of sense uh if you've
read my medium post you know it's coming
I'll give you guys a second to read this
quote
um cool so this this really resonates
with me um and one thing I'd point out
is uh you know the reality of these
decis decisions is pretty Nu nuanced uh
the people you thought were idiots
probably weren't idiots they probably
just had like really difficult decision
in front of them and people pulling them
in multiple directions um so the most
common thing I have to uh spend my time
on and and focus my energy on as as a
CEO is like the problems that like other
people are bringing to me the the other
priorities that people create um and
it's usually in the form of a conflict
uh people want to go in different
directions or like customers want
different things and like I might have
my own opinion about that um but really
the the game I'm playing is like who do
I disappoint the least um and like just
trying to like navigate all all these
difficult situations um and even on a
day-to-day basis I might come in on
Monday and like have all these you know
Grand plans for like how I'm going to
improve the company and what I'm going
to spend my time on but then if like an
important is threatening to quit that's
what I'm spending my time on that's my
number one
priority um so a subset of your the boss
is you have flexibility uh you have
control over your own schedule this is a
really attractive
idea so here's the reality another full
live in
quote um so this this really res
resonates with me as well um and some of
the reasons for this again you're always
on call so maybe you don't intend to
work uh all parts of the day but you
might not get to control which ones um
your a role model this is super
important so if you're an employee of a
company um you might have some good
weeks you might have some bad weeks some
weeks when you're you're low energy
maybe you want to take a couple extra
days off um that's really bad if you're
you're an entrepreneur like your team
will really uh signal off what you're
bringing to the table and so if you take
your foot off the gas so will they um
and uh you're always working anyway so
if you're really passionate about an
idea it's just going to like pull you to
to keep working on it
um if you're working with great
investors if you're working with great
Partners they're going to want to be
working really hard they're going to
want you to be working really hard uh
and again you're going to want to work
really hard um so some uh some companies
like to tell the story about you can
have your cake and eat it too you can
have like 4 day work weeks maybe if
you're if you're Tim Ferris maybe you
can have a 12-h hour work week um it's
really attractive idea uh and it does
work in a particular instance which is
if you want to like actually have a
small business or go after a niche
market then you're a small business
entrepreneur that makes total sense but
as soon as you get past like two or
three people uh you really need to step
it up and and be full-time
committed um
cool so this is the big one uh so this
is the the one I hear the most um
especially like candidates applying to a
sauna um they tell me you know I'd
really like to work for for a much
smaller company or start my own because
uh then I have a much bigger slice of
the pie I'll have much more impact on
how that company does um and I'll have
more Equity so I'll make more money as
well
so let's examine when this might be
true um so I'll explain these tables uh
they're a little complex but let's focus
on the left first um so these this is
just explaining Dropbox and Facebook
these are their current valuations um
and this is how much money you might
make as uh employee number 100 coming
into these companies um especially if
you're uh like an exper a relatively
experienced engineer like you have like
5 years of of Industry experience you're
pretty likely to have an offer that's
around 10 basis points um so if you
joined Dropbox a couple years ago the
upside you'd have already locked in is
about 10 million there's plenty more
growth from there if you leave in the
company um if you joined Facebook a
couple years into its existence you made
$200 million this is a huge number uh
and if
you um even if you joined Facebook as
employee number 1,000 so you joined it
in like 2009 uh you still made $20
million that's a giant number uh and
that's how you should be benchmarking
when you're thinking about what might I
make as an entrepreneur so moving over
to the table on the right uh these are
two theoretical companies you might
start um so Uber for pet sitting pretty
good idea um if you're if you're really
well suited to this you might have a
really good shot at building a $100
million company uh and then your share
of that company is pretty likely to be
about 10% um this certainly fluctuates
some Founders have a lot more than this
some have a lot less but after multiple
rounds of dilution uh multiple rounds of
option table uh uh option pool creation
you're pretty likely to end up about
here um if you have more than this I'd
recommend Sam's post on like the equity
uh split between Founders and employees
you probably should be giving out more
um and then uh but uh so basically if
you're extremely confident about
building this $100 million business
which is a big ask um it should go
without saying that you should have a
lot more confidence in Facebook in 2009
or Dropbox in 2014 then you might um for
a startup that doesn't even exist yet um
then this is worth doing so if you have
a $100 million idea and you're pretty
confident you can execute it I would
consider that uh if you think you're the
right entrepreneur to build Uber Uber
for space travel that's a really huge
idea2 billion idea uh you're actually
going to have a pretty good return for
that you should definitely do that um
this is also only the value after four
years and this idea probably has legs uh
so definitely go after that if if you're
thinking of building that you probably
shouldn't even be in this class right
now you just go and go and build that
company um so why is this uh Financial
reward in and impact uh I really think
that Financial rewards very strongly
correlated with the impact you have on
the world um if you don't believe that
uh let's talk through some specific
examples uh and not think about the
equity at all um so why am I joining uh
late Stage Company actually provide you
a lot of impact you get this Force M
multiplier they have an existing massive
user base if it's Facebook it's a
billion users or if it's Google it's a
billion users um they have existing
infrastructure you get to build on
that's also increasingly true for new
startups thanks to like AWS and all
these like awesome uh independent
service providers um but you you usually
get some like proi proprietary
technology and it's all maintained for
you it's a pretty great place to start
uh and you get to work with a team and
they'll help you just leverage your idea
into something great so a couple
specific examples uh Brett Taylor came
into employee around or came into Google
as around employee number 1500 uh and he
invented Google Maps this is a product
you guys probably use every day I used
it to get here um and it's used by
hundreds of millions of people all
around the world didn't need to start a
company to do that did happen to get a
big Financial reward um but the point is
you had massive impact um my co-founder
Justin Rosenstein joined Google a little
later after Brett uh he was a PM there
um and just as a side project he ended
up prototyping uh chat used which used
to be a standalone app uh as integrated
into Gmail like you see it in the upper
right there um and before he did that
like people didn't even think you could
do chat over Ajax or chat the browser at
all uh and he just kind of like
demonstrated it and showed it to uh his
team and then they made it happen and
again this is this is probably a product
most of you use maybe every day uh and
then perhaps even more impressively
shortly after that J left he became
employee around number 250 at Facebook
um and he led a hackathon project along
with uh people like Andrew Bosworth and
leam Perman uh to create the like button
so this is one of the most popular
elements anywhere on the web totally
changes how people use it uh and again
didn't need to start a company to do it
and almost certainly would have failed
if he had tried because he really needed
the distribution of Facebook to make it
work so important to to keep in mind the
context for uh what kind of company
you're trying to start and like where
will you actually be able to make it
happen um so what's the best reason so
Sam already talked about this a little
bit but basically you can't not do it
you're super passionate about this idea
you're the right person to do it you've
got to make it happen
so how does this break
down um so we're getting close to the
end here on I doing have time sweet
perfect um so uh this this is sort of
like a word play uh you can't not do it
in two ways one is you're so passionate
about it that you just like you have to
do it you're going to do it anyway um
and this is really important because
you'll need that passion to get through
all of those like hard parts of being an
entrepreneur that we talked about
earlier um you'll also need it to
effectively recruit candidates can smell
when you don't have passion um and
they're enough entrepreneurs out there
who do have passion that they may as
well work for one of those uh so this is
sort of like table Stakes for being an
entrepreneur um your subconscious can
also tell when you don't have passion
and that'll be a huge problem um and
then so the other way to interpret this
is the world needs you to do it um so
this is sort of validation that the idea
is important it's going to make the
world better so the world needs it um if
it's not if it's not something the world
needs go to something the world needs
new time's really valuable um there are
plenty of good ideas out there maybe
it's not one of your own maybe it's an
existing company but you may as well
work on something uh that's going to be
good um and then the second way to
interpret this is the world needs you to
do it you're actually well suited to
this problem in some way um if this
isn't true um it may be a sign that um
your time is better spent somewhere else
uh but also just best case scenario if
this isn't true you out compete the team
for which it is true and you just end up
with like a suboptimal outcome for the
world that doesn't feel very good um so
drawing this back to my own experience
um uh at ass SAA you know Justin I were
kind of like reluctant entrepreneurs um
uh before we founded a sauna so we're
working at Facebook we're already
working on a great problem um and we
would basically work all day long on our
normal projects and then at night we
would keep working on this internal task
manager uh that was used internally at
the company uh and it was just because
we were like so passionate about the
idea it was so clearly valuable that we
couldn't do anything else um and it's
some point we had to have the hard
conversation of like okay well what does
it mean if we don't actually start this
company uh pretty we were able to see
the impact it was having on Facebook we
were pretty convinced it could be really
valuable for the world we're also pretty
convinced nobody else was going to build
it uh the problem had been around a long
time and we just kept seeing sort of
incremental solutions to it so if we
didn't go out with the one that we
thought was best we thought there'd be a
lot of value left on the table um and
yeah so we just couldn't couldn't stop
working on it um and literally the idea
was like beating itself out of our chest
like forcing itself into the world uh
and I think that's the feeling you
should really be looking for when you
start a company that's how you know you
have the right idea
um so I'll go ahead and stop there I'll
put some recommended books up here but
won't narrate them and maybe that's the
end of the class yeah yeah thank you
um maybe DUS can stick around for a few
minutes if you have questions for him
and uh see you Thursday thank you