wk1 2 Sam Altman - How to Succeed with a Startup

Today I'm gonna talk about how to succeed with a startup, obviously more than can be said here in 20 minutes, but I will do the best I can. The  most important thing, the number one lesson we try to teach startups is that, the  degree to which your successful, approximates the degree to which you build a product that  is so good people spontaneously tell their friends about it. Startups always ask us for  the secret to success. They always want to believe it's something other than this, because  this is really hard to do. But this is it. If you can build a  product that is so good, people spontaneously tell their friends about it, you have done  80% of the work that you need to be a really successful startup. If you  think about the most successful companies, you know Google, Facebook, whatever, you probably found out  about them because a friend of yours said, you got to try this, it's great.  So this is the bar. Something that people love so much, they tell their friends  about it. One important indicator for a product like that is, a product that's simple  to explain, an easy to understand. If you can't explain in a few words what  you do, and if at least some people don't say, "Oh, that's pretty interesting.", that's  usually a mistake. It's usually a sign of unclear thinking, or a need that is  not big enough. Another thing that startups need to look for is, a market that  is either started to undergo, or is soon gonna undergo exponential growth. I think this  is actually related to one of the biggest mistakes investors make when evaluating startups. Investors  always say, well, what's your growth rate? We care about the growth rate. Investors will  forgive smallest revenue today, if it's growing quickly. For some reason, people don't think about  markets this way. But if you think about the most important startups, they are the  ones that start in small markets, that are growing very, very quickly. 11 years ago,  the market for iPhone apps was $0, it's now huge. And I think if you  only think about the tam today, you'll make a big mistake. What you really want  to do is identify a market that's gonna grow every year, and be able to  ride that up elevator. A really important thing to figuring this out is, learning how  to differentiate between real trends and fake trends. A real trend is something that's actually  gonna happen, and the fake trend is not, or at least not yet. Before you  make a big bet on a new platform, you want to make sure it's real.  Now there's an easy trick for this, which I'll share now. Real trends are ones  where a new technology platform comes along, and the early adopters use it obsessively, and  tell their friends how much they love it. A fake trend is one where, people  may buy the product but don't use it, or at least not enough. So an  example of a real trend, I already mentioned the iPhone, I'll mention that again. When  the iPhone first came out, many people were dismissive, because they only sold a million  or 2 million that year. And they said, well, this just doesn't matter. But for  the people that had an iPhone, they used it for hours every day. It became  central to their lives. They loved it. They told their friends you've got to get  one. I think it was obvious then to people paying attention, that something had fundamentally  shifted. And we had a new computing platform, that was gonna spawn huge businesses. And  it was a good time to bet on mobile apps. A fake trend or, at  least a fake trend as of, August 2018, I would say is VR. I do  believe VR will be big someday, but today most people that I know that own  a VR headset use it never, or very rarely. And so, although a lot of  people talk about it, and maybe even a lot of people buy them, there's not  the intense usage per user among the early adopters, that I think you want to  see before you make a big bet. Another thing that startups need, at least one  evangelical founder, usually the CEO. Someone at the startup has got to be the person  that is gonna recruit, sell the product, talk to the press, raise money. This requires  someone who can infect with enthusiasm, the whole world about what the company is trying  to do. And someone who becomes the chief evangelist for the company, it's very hard  to succeed wildly without that. It's very hard to build a team at all without  being able to do that. One thing that helps for this is, having an ambitious  vision. You never want to be grandiose that turns people off, but you want to  let yourself grow more ambitious over time. And as long as you do that organically,  people will respond. Ambitious visions are exciting, they're fun to work on. In fact, I  think in 2018, at least in Silicon Valley, it's easier to start a hard startup  than it is to start an easy startup. Now, this sounds paradoxical, but ambitious projects  are interesting. In the current environment, it may be relatively easy to raise capital, but  it's really hard to do everything else. There's so many startups. It's so easy to  start one, they all sound so promising, that bringing it together enough talent in one  organization is really hard to do. And if you're working on a problem that may  be modestly successful, it's easy to get the first few people to join. You can  give them a lot of equity. But then it gets really hard. Why is employee  20 gonna join? Why does this matter to the world? Why should someone work on  your startup versus any of the other things they could do? And picking something that  matters if you're successful, is a great way to do that. And so, I think  it's really important to think about when you were starting the company, how is this  gonna evolve into a vision that a lot of people want to help with, that  a lot of people want to be associated with? Because, I think getting talent and  getting mind share, it's really hard in the current environment. And people are interested in  startups that matter. Another thing that we've noticed among our best founders again, and again  and again, is that they have a confident and definite view of the future. They  may be wrong. And so we say it's good to be confident and flexible. But  this idea that you are confident and definite, "This is what I think is going  to happen." Or, "This is what is going to happen." and being relatively sure of  that. Having courage of your convictions, being a clear leader saying, "We're gonna do this."  And that's why even in the face of a lot of doubt, that seems to  really correlate with success. And this comes back to, having an ambitious vision. But the  entire startup ecosystem is best set up to support companies that have a low chance  of success, but are huge if they work. And I think going for something that  is huge if it works, will attract the best people. I'm not gonna talk too  much about the team. There are a lot of obvious things I could say, that  had been said many times by many people about, you need smart people, who want  to work really hard, and who communicate well. These are all really true, but I'd  like to mention a few non-obvious things that we've noticed, that we don't hear people  say as much. About the team you need to assemble. [inaudible] says that the team  you build, is the company you build. And I really think that's true. I've still  met only a handful of founders, I think that spend enough time on recruiting. Like  Mark Zuckerberg is famously one of them. But building a great team, I think other  than picking the right market and building a great product, is the most important thing  you do. All founders go through a transition, all successful founders, where you switch from  building a product, to building a company, and building a company really is about the  team. So you need optimists.Thee whole world will be telling you why you're gonna fail  as a startup. If you don't have that internal fire of belief, if you don't  have people who say, "You know what, we are gonna do this, and it doesn't  matter what the haters say. We're gonna figure this out. And there is this problem,  it must be solvable." If you don't have the spirit of optimism on the team,  it's very hard to succeed when the world continues to punch you in the face.  You need at least some idea generators. There are a handful of people in any  company that has gone on to be really successful, that I've been able to work  with, who are just really good at coming up with lots of ideas. You don't want too many of these people, because that's more ideas than a company can follow  through on. But, having some people within a company that are just constantly throwing out  new ideas, most of which will be bad, turns out to be super important to  have on the team. This spirit of, "we'll figure it out" is my favorite thing to hear among early startup team members. A lot of things go wrong. The situations that startups win, intend to be incredibly dynamic. And so this idea that, even if  I'm not qualified on paper, even if I haven't solved this problem before, even if  this problem feels like it's gonna kill the company, which many problems will feel that way. This spirit among the team of, "You know, what? We've got the people we need. We're gonna figure this out. We're gonna bet this done." That's super important. Another  thing that I love to hear from early team members is, "I've got it." So  you know, you hear in big companies, a lot of people say, "That's not my department. Someone else is gonna do that." Or you know, "Ooh, this is really bad, this is gonna hurt us." And you want people who just step up and say,  "I'll do it. I've got it. Don't worry about it." You want people to have  a bias towards action. Startups, especially in their early days, often win by moving very  quickly. You never get as much data as you'd like. You never have as much  time to deliberate as you'd like. And you want people who are willing to act,  with much less data than they like to have, with much less certainty. And then  if they act and it doesn't work, they adapt really quickly and try something else.  We talk also about the blessing of inexperience. We have seen many of our startups  do incredible things, because no one told them it was hard. Or no one told  them they can't do it. There's a great quote from Steve Wasniak, about how all  the best things he ever did came from having no experience whatsoever, and having no  money. And you know, that obviously is not always true. But there is a magic  thing that happens with startups, especially in the early days, before they've learned they're not  supposed to be able to do certain things. And so I think as a startup,  again, it doesn't work to have everybody being inexperienced, but you can take more bets  than you normally would on inexperienced, but super high potential people. That's the end of  the topic on team. One of the most important jobs you have as a founder  is to never lose momentum, and this is a little bit depressing, because it means  for the first few years you never get to take your foot off the gas.  You never get to really rest. We try to be honest about this, that startups  are not the best choice for work life balance at all, but especially in the  early days. Startups survive on their own momentum. If you have momentum, people keep delivering  results beyond what they think they're capable of. If you lose momentum, it's very difficult  to get it back. And so continuing to make sure that the startup has a  cadence, that the startup keeps winning on a relatively short and predictable intervals, this is  really important. And it's up to the founders, to make sure that you don't lose  a hold of this. Another thing that we think startups need, is a competitive advantage  over time. Now, this is something that sounds so obvious, I hesitated even put it  in. This is well discussed, but we're seeing more and more startups, apply to YC.  And when we asked them, "So what is the longterm monopoly effect here? What is  the long term competitive advantage? Where is the network effect in this business?" They look  at us like it's the first time they've ever heard this question. All of the  really great businesses I know, have an answer to this question. And in fact, the  better they are, the more they pretend not to. But this is something that you  want to have a plan for. Another thing you want to have a plan for,  is at least a sensible business model. You don't have to have it all figured  out at the beginning. But when we asked founders, "So how are you ever gonna  make money?" And they look at us like it's the first time they've ever been  asked that question, which happens more often than you would think recently. That's a bad  sign too. Again, this one is so common that I hesitated to put it in  here. But when we ask a startup, how they're gonna grow, how they're gonna get  users, and they look at us like it's the first time they've ever heard that  question, bad sign. So some sensible idea to try here. First, Paul Buhite, one of  the VC partners, spent a bunch of time looking at the traits of our best  founders. And tried to distill down what they were. He came up with frugality, focus,  obsession, and love. I actually, I think that is really good, I don't have much to add. But I think these are things, that you should be able to say  about what you're doing, and you as a founder. And finally I want to talk  about why startups get to beat big companies. There are lots of reasons, I'm gonna  talk about a few common ones here. I think these trends are valuable enough that,  as you evaluate startup ideas, you might do. It's worth thinking about if you fit  into these. Because it's really hard for startups to beat big companies most of the  time. And here's some areas where we see it happening repeatedly. So I think one  difference is, if you are a product manager at a big company, and you want  to do something that sounds like a bad idea, but is a good idea, you  have to get everybody from your boss sometimes all the way up to the CEO  to say yes. So one no can kill you. If you're a startup, you can  go to YC Demo Day. Any number of the thousands of investors can say yes,  and you get to have a crack at it. So it's a very different mindset.  And for those ideas that sound bad, but are good, because of this phenomenon, this  one no versus one yes, startups can win. In fact, startups usually do beat big  companies in that category of ideas. So, look for ideas that sound bad but are  good, and where you are much more likely to get one yes, than someone in a big company is to get all yeses. Another area where startups usually beat big companies, are in very fast changing markets. Startups, great advantages in agility and speed. The  more market is changing, the higher the number of decisions you got to make. And  the higher number of tweaks to your product and your strategy you get to make.  And you want to optimize the number of those decisions that someone has to make  to compete with you, because a big company will make them, on average, worse and  certainly much slower than you do. So, the speed of market evolution, gives you a  lot more chances to compound your advantage over a big company. And then finally, startups,  usually win on big platform shifts. Many people have observed that startups come in these  clusters. Those clusters usually come after a big platform shift. We'll stick with the iPhone  example here. After mobile apps became a thing, many new companies got started that are  now quite valuable. And one of the reasons here is, most large companies work on  sort of an annual cadence at least. And when there's a huge platform shift, they  are not good at making a big enough strategic pivot, the battleship just turns too  slowly. Whereas a startup can say, "Wow, woke up this morning, the world is fundamentally different than it was six months ago. We're gonna go all in on this new  direction." And so, that's an area where startups usually win. There are many others, but thinking about these three, I think, is directionally a good thing to do. Alright, that's all I've got for today. Jeff, thank you very much for having me, and for  the class.