I feel like this needs a "when to give up" section. Like at some point it's obvious right. When is that point. Should you just destroy your entire life and never give up no matter how long since it's been since you've had steady growth? I've seen startups struggle for years with average growth or really slow linear growth where real profitability was years away. Do they just continue? Is that the advice? What about their employees who are being paid less than market value?
> an even bigger problem is that once you have a startup you have to hurry to come up with an idea, and because it’s already an official company the idea can’t be too crazy. You end up with plausible sounding but derivative ideas. This is the danger of pivots.
A great point, that I haven't seen in too many places. I sometimes feel like we're seeing too many people who "want to have a startup" for the supposed fame and fortune, and not enough who are truly passionate about an idea. Believing in an idea will get you through, not dreams of gold coins.
Sam, I noticed you didn't mention watching cash burn or unit economics. Is that a later section you might add? Too many founders don't realize the importance of that until it's too late (speaking from personal experience)
That's great. This has been my life, finding the easy wins, and when they stop working, moving on to the next. This is one of the points that characterize me as soft.
> On the other hand, starting a startup is not in fact very risky to your career—if you’re really good at technology, there will be job opportunities if you fail. Most people are very bad at evaluating risk.
It's true that career risk is low, but opportunity cost could be high. If you're well into your career, taking a few years off to work at a startup that might fail could really be a million dollar tradeoff.
So you really gotta believe in your startup.
(Note: I left my comfortable high paying job earlier this year to start a startup)
That is the calculation I used over the course of a few months to switch from being a teacher to going all-in on my office design website.
At the time I was pretty burnt out from teaching, ended up moving to a new city and was doing a few temp jobs to make some extra cash. The risk was low enough at that point that the website was almost a no brainer. I'm pretty confident that had I been in a good spot career-wise at the time, I would likely have either never kept my side project going.
I wish there was a similar level and quality of resources for what I think are called lifestyle businesses. By that, I mean product-based businesses with at most a few million in revenue, a 5ish person team, a solid sustainable market position, and no desire to revolutionize any unicorns.
I know a lot of people attempting this and they mostly seem to be flying under the radar, or at least have nowhere near the cachet of a startup. They are often bootstrapped, frequently for lack of other options.
For those of us who don't want to be in the pressure cooker or are turned off by the hype machine, these businesses are a viable alternative route toward independence and possibly achieving a significant impact. The fact that they have become as attainable as they are is I think also something quite remarkable.
The Basecamp (née 37Signals) folks have been beating this drum for quite some time. DHH posted "Reconsider" to their blog today, actually; it's an entertaining read, if nothing else: https://signalvnoise.com/posts/3972-reconsider
Here in Seattle, there's a great community of small software businesses with meaningful profits and impact. We have ties to the broader Seattle startup and technology community, without being a proper subset.
I don't see it as an either-or proposition. Right funding for the right business, as it were.
Reading the advice in the handbook, I don't think it's all that different from what you'd need to start a lifestyle business. You still need to start with a business niche that is underserved where you can make a few customers very happy. You still need to focus on improving your product (or service) to the point where people will give you business via referrals - pounding the pavement for every single sale isn't a very desirable lifestyle. You still need to listen carefully to everything your users say, and to focus tightly and improve the product.
The difference, I think, is that a lifestyle business is a startup where you take your foot off the gas once your income meets your personal needs. It doesn't need to be a monopoly - in fact, it's better if it isn't, because if it is some other company will likely monopolize it. And you don't need to deal with the fundraising and hiring parts of the handbook, since you never get that big. Everything else seems to apply, though.
That's my business. 2 partners (me: President and Founder, partner: CEO who I hired), 4 employees, and 2-3 at-will contractors for sporadic work. Revenue barely $1MM but growing, probably to $4-5MM in 3 years. Really love what I do and happy to be out of the BS VC silicon valley groupthink crap.
By that, I mean product-based businesses with at most a few million in revenue, a 5ish person team, a solid sustainable market position, and no desire to revolutionize any unicorns.
I believe this used to just be called "a small business". Not a terribly new idea, but being rediscovered perhaps by tech people?
Because they benefit from YC's value prop, it's in Sama's and PG's interest to beat the Big Startup, Fast Growth, VC train, Silicon Valley drum. It's not disingenuous, it's literally what they believe and are committed to. But it's not the only way to be happy as a technologist. I'm not even convinced it's the best way to be happy as a technologist. YC put those materials out 1) as a branding and marketing effort and 2) to be helpful (part of their brand). In order for us to get quality resources like these for doing something small instead of big, we need folks who have a sustained interest and experience in beating that drum as well. Maybe we need a "Slow Tech" movement akin to the Slow Food movement.
I really hate this term. It makes it seem like anything that's not a high growth unicorn startup is somehow a failure. It's like a way to give it a label and somehow look down on it.
(don't mean to aim this at you - just a general remark)
I never went to one, I just follow patio11 tweetstorms whenever he is on it and it is full of gems (the tweets, I can only imagine the conference itself).
They have lots of videos on the website, but a "playbook" format would by an awesome resource!
BTW, I work at "trying-to-be-big-with-outside-investment" startup applying to YC, but I see A LOT of value on the advice of these people when I'm daily executing stuff and not daydreaming how to big a "YC startup"
Along similar lines, it would also be nice to have resources for one (or max two) person businesses, with 100-300K revenue per year (clicky was two man team making 500K/year). That is more than enough to live well and spend some time pursuing interests (not for money).
> They are often bootstrapped, frequently for lack of other options.
The key thing that people don't understand is that investors only make money if you're trying to "revolutionize unicorns." In other words, so many company fails, that in order for your fund to have positive returns, you need to have an investment return 10,000x. Otherwise, you're losing money.
Companies that don't intend to become massive business are fine; but they are not candidates for venture funding. It's not about being un-sexy, it's that the economics just don't work for venture funding. It's not enough to return the investment. It's not enough to 10x. It's not even enough to 100x.
I have a really hard time buying a lot of this about how novelty and monopoly are keys to a successful company. If you look at the really successful startups, especially unicorns, almost none of them are actually monopolies or new ideas. The vast, vast majority are old products done right, and almost all of them have very substantial competition. This attitude is, in fact, encompassed in the near footnote-like section entitled "Competition." That section sums it all up: success is determined with obsessively improving the company. Competition isn't what kills, it is failure to keep on improving.
There is the list of current Unicorns. I can't think of one of them that doesn't have very, very substantial competition or is a genuinely novel product. All of them ventured into highly competitive, well-worn fields and what set them apart was quality of service, ease of use, and responsivity. Very few of them made conceptual leaps in the underlying product - they mostly made leaps in lowering activity energy to use products or solving associated logistical problems.
Sorry Sam, I have to politely disagree with you on this one. Lord knows you are the one with the resume and authority on this, but I am a startup lawyer and work with clients on this stuff all day, so I am not totally unqualified. I do defer to your judgment, obviously, on companies that you want to fund, and your track record more than speaks for itself. However, what I want to know is if there isn't some disconnect between the companies you do fund and the attitude that is expressed in this post. I would love to hear your insights or opinions on whether you feel that I have this wrong, and if you think that the next generation of unicorns are going to be novel monopolies, or that maybe I am misreading the characteristics of current successful startups.
A resource like this is terrific. Would be great to see it in github so you can solicit the occasional outside contribution.
I've always found that even the best teams still need to constantly explore and add new tools in the toolbox in order to execute effectively and achieve success.
(In fact, it's not that even the best teams need to still do this, the best teams actively go out and do this, which likely contributes to them being a high-performing team.)
> Thanks to Paul Buchheit, Erica Carpenter, Brian Chesky, Adam D’Angelo, Drew Houston, Justin Kan, Matt Krisiloff, Aaron Levie, Gabriel Leydon, Jessica Livingston, Dustin Moskovitz, David Rusenko and Colleen Taylor for contributing thoughts to this.
^ this group + @sama... wow. Terrific advice from an amazing list of credible people.
To be honest, I don't think I know a single one of them. Who are they and how can I learn more about what they do and how they formulate such great content?
This is a welcome synthesis of a lot of great info.
It's also a more attractive and credible way to introduce fast-growing technology startups* to the uninitiated than just saying, "oh, just read this bunch of blog posts by this guy called 'pg' who you've never heard of, no, no, trust me, it's reaaally good, he founded YC, which you've also never heard of, but trust me, they're like, the real deal".
*YC-style/SV-type, even if some of the advice is more general, and the definition of 'YC-style' is quickly expanding and loosing meaning.
"We once tried an experiment where we funded a bunch of promising founding teams with no ideas in the hopes they would land on a promising idea after we funded them.
All of them failed."
I was under the impression Reddit fell within this category. I recall a PG quote that went something like "we [Y combinator] hate your idea, but we like you [Alexis and Steve]" in reference to reddit's initial YC funding.
I know Reddit isn't considered a smashing success by VC standards (originally sold for roughly 15-20 MM), but I certainly wouldn't call it a failure.
>It’s important that you distort reality for others but not yourself.
I would love to see more content and discussion around this. I understand clearly why it is important to pitch who you will be not who you are when recruiting and raising money but when it comes to day to day, doesn't this contradict what you had said earlier about sharing all of the good and bad with your employees? Replacing your water jugs with Kool-Aid at the office just seems evil to me. I'm not sure if that is really what you are saying or not but it seems synonymous with unicorn culture. I see a lot of positives to creating a culture masked with illusion, but in my head, all of the value seems short-term.
Okay, I've been researching and reaching out to various entities for, well, going on a couple years now regarding my "start-up" concept of a company that creates some inventions, brings to market, and licenses technology as another revenue stream. Yes, it's not a software-oriented business, but it's a viable entity with multiple prospects. Thus, the following line doesn't really ring true to me:
>One important counterintuitive reason for this is that it’s easier to do something new and hard than something derivative and easy. People will want to help you and join you if it’s the former; they will not if it’s the latter.
In every single instance where I actually get a response, there's a consistent chorus of "this doesn't fit the model of what we support" and, basically, I chalk it up to an investment environment that actually, truly targets the derivative and easy moreso than the unique and difficult.
That's why I'm still slogging along in the self-directed patent process. Nobody is interested in helping (beyond some constructive comments I've received here from community members - thank you!), and certainly not in contributing financial backing. It is what it is...but that claim? I don't really buy it.
I think the point is that if the problem is interesting you can get people onboard helping you as ex. tech founders.
But if your problem is trivial (build a en ecommerce website) then they want you to pay them hard cash.
I agree though that some problems might be hard to articulate and so you end up with having a problem getting people to believe in your project.
I personally was trying to convince developers to join me on a venture I wanted to do and had no luck. Then I decided to just pay someone to do a small fraction of what I wanted to do and which I knew I could pay for and now that developer I paid to do my first project is now partnering with me in my next project.
Sometimes you have to look at your idea and see if you can create a much smaller product from what you want so you can get started on someting at least. Then if it's successful you will have people wanting to join you.
This might sound harsh, but nothing you've said has indicated to me that you idea is actually one of those new and hard startups. Developing foo technology with a business model of licensing it is pretty derivative. The hard problems are in bringing technology products to market.
Seems like a lot of the pushback on this is about whether in releasing this playbook @sama and YC are (i) making a value judgment on unicorn startups vs other businesses, and (ii) serving their own agenda. Personally I don't understand either of these positions.
On (i) it's like attacking someone for releasing a book of muffin recipes by saying "you think muffins are the best food in the world! I only bake cookies -- do you think you're better than me?!". In fact they just like muffins, they have a lot of experience in baking muffins, and instead of keeping their recipes secret they want to help other people bake the best muffins in the world.
On (ii), again my personal reaction, I don't care if it's self-serving. It also happens to be very helpful to me.
Small businesses, large businesses, "lifestyle" businesses, unicorns -- they all take a lot of effort, not to speak of other life commitments. In fact there is a maximum amount of time they can take (24 hours minus a few hours for sleep per day) and depending on your personality you will likely dedicate more or less of this time regardless of the scale of the venture.
I don't think whether it's a $10m business or $100m business or more is a choice based on personal preference, it's based on the nature of the idea you find yourself compelled to pursue.
For example, I used to be an antitrust lawyer. I was often in the office until 5am, and that was as an employee. I worked HARD. I thought I wanted to work less so I quit my job to start a small business. But it turns out that the idea that I have been excited about for the last few years is not a small business, it could never be one even if I wanted it to be. It's the kind of idea that will either be huge or it will be nothing. When you are standing on the brink of that kind of endeavour a few helpful words, a playbook if you will, from someone who knows how it's done can be very helpful indeed.
Entrepreneurs need to be very careful when developing self-belief in their idea. As Sam points out, the people telling you that you are crazy "may be right." I've started angel investing, and it really pains me to see people who have quit their job and devoted years of their life to a business that (in my opinion) has no chance of succeeding. Yes, I may well be wrong about some of them, but the entrepreneur needs to be able to articulate why they think everyone else is wrong.
Self-belief in a crazy idea is not enough. Obviously Sam wouldn't disagree with this sentiment, but many entrepreneurs seem to omit the step of proving to themselves that their idea is not crazy, or they suffer from confirmation bias.
"One important counterintuitive reason for this is that it’s easier to do something new and hard than something derivative and easy. People will want to help you and join you if it’s the former; they will not if it’s the latter." So Google didn't invent the Internet Search it was a derivative but not easy. Facebook didn't invent the SocialNetwork and actually made it easier than e.g. MySpace. Amazon was not the first online retailer but made it better, more reliable. WhatsApp? we knew how to send textmessages for a while but well they made it more convient. So a good idea must not be something unique new but something which makes the product better than the rest.
Basically they're saying: "To succeed you need to have an awesome idea that hasn't been done before. You need a great team and build a great product your users will love".
Wow, thanks for the advice, why didn't I think of that.
[+] [-] lemevi|10 years ago|reply
[+] [-] webmasterraj|10 years ago|reply
A great point, that I haven't seen in too many places. I sometimes feel like we're seeing too many people who "want to have a startup" for the supposed fame and fortune, and not enough who are truly passionate about an idea. Believing in an idea will get you through, not dreams of gold coins.
Sam, I noticed you didn't mention watching cash burn or unit economics. Is that a later section you might add? Too many founders don't realize the importance of that until it's too late (speaking from personal experience)
[+] [-] jMyles|10 years ago|reply
Awesome thesis, hidden in the middle of the text. In some ways, this is a great single sentence answer to the question, "What is a startup, really?"
[+] [-] jrauser|10 years ago|reply
"So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working."
http://www.paulgraham.com/before.html
[+] [-] sama|10 years ago|reply
[+] [-] tertius|10 years ago|reply
[+] [-] webmasterraj|10 years ago|reply
[+] [-] jedberg|10 years ago|reply
It's true that career risk is low, but opportunity cost could be high. If you're well into your career, taking a few years off to work at a startup that might fail could really be a million dollar tradeoff.
So you really gotta believe in your startup.
(Note: I left my comfortable high paying job earlier this year to start a startup)
[+] [-] stevesearer|10 years ago|reply
At the time I was pretty burnt out from teaching, ended up moving to a new city and was doing a few temp jobs to make some extra cash. The risk was low enough at that point that the website was almost a no brainer. I'm pretty confident that had I been in a good spot career-wise at the time, I would likely have either never kept my side project going.
[+] [-] m_fayer|10 years ago|reply
I know a lot of people attempting this and they mostly seem to be flying under the radar, or at least have nowhere near the cachet of a startup. They are often bootstrapped, frequently for lack of other options.
For those of us who don't want to be in the pressure cooker or are turned off by the hype machine, these businesses are a viable alternative route toward independence and possibly achieving a significant impact. The fact that they have become as attainable as they are is I think also something quite remarkable.
[+] [-] davepeck|10 years ago|reply
Here in Seattle, there's a great community of small software businesses with meaningful profits and impact. We have ties to the broader Seattle startup and technology community, without being a proper subset.
I don't see it as an either-or proposition. Right funding for the right business, as it were.
[+] [-] nostrademons|10 years ago|reply
The difference, I think, is that a lifestyle business is a startup where you take your foot off the gas once your income meets your personal needs. It doesn't need to be a monopoly - in fact, it's better if it isn't, because if it is some other company will likely monopolize it. And you don't need to deal with the fundraising and hiring parts of the handbook, since you never get that big. Everything else seems to apply, though.
[+] [-] icelancer|10 years ago|reply
[+] [-] ska|10 years ago|reply
[+] [-] subdane|10 years ago|reply
[+] [-] drewrv|10 years ago|reply
http://www.amazon.com/Start-Small-Stay-Developers-Launching/...
[+] [-] shocks|10 years ago|reply
I really hate this term. It makes it seem like anything that's not a high growth unicorn startup is somehow a failure. It's like a way to give it a label and somehow look down on it.
(don't mean to aim this at you - just a general remark)
[+] [-] gkoberger|10 years ago|reply
[+] [-] sausax|10 years ago|reply
[+] [-] soneca|10 years ago|reply
I never went to one, I just follow patio11 tweetstorms whenever he is on it and it is full of gems (the tweets, I can only imagine the conference itself).
They have lots of videos on the website, but a "playbook" format would by an awesome resource!
BTW, I work at "trying-to-be-big-with-outside-investment" startup applying to YC, but I see A LOT of value on the advice of these people when I'm daily executing stuff and not daydreaming how to big a "YC startup"
[+] [-] vijayr|10 years ago|reply
[+] [-] elliotec|10 years ago|reply
But I highly recommend anything DHH says (as mentioned before) and also the 4 hour workweek book.
[+] [-] aarondf|10 years ago|reply
[+] [-] SeoxyS|10 years ago|reply
The key thing that people don't understand is that investors only make money if you're trying to "revolutionize unicorns." In other words, so many company fails, that in order for your fund to have positive returns, you need to have an investment return 10,000x. Otherwise, you're losing money.
Companies that don't intend to become massive business are fine; but they are not candidates for venture funding. It's not about being un-sexy, it's that the economics just don't work for venture funding. It's not enough to return the investment. It's not enough to 10x. It's not even enough to 100x.
[+] [-] fiatjaf|10 years ago|reply
[+] [-] CountdownGraph|10 years ago|reply
https://www.cbinsights.com/research-unicorn-companies
There is the list of current Unicorns. I can't think of one of them that doesn't have very, very substantial competition or is a genuinely novel product. All of them ventured into highly competitive, well-worn fields and what set them apart was quality of service, ease of use, and responsivity. Very few of them made conceptual leaps in the underlying product - they mostly made leaps in lowering activity energy to use products or solving associated logistical problems.
Sorry Sam, I have to politely disagree with you on this one. Lord knows you are the one with the resume and authority on this, but I am a startup lawyer and work with clients on this stuff all day, so I am not totally unqualified. I do defer to your judgment, obviously, on companies that you want to fund, and your track record more than speaks for itself. However, what I want to know is if there isn't some disconnect between the companies you do fund and the attitude that is expressed in this post. I would love to hear your insights or opinions on whether you feel that I have this wrong, and if you think that the next generation of unicorns are going to be novel monopolies, or that maybe I am misreading the characteristics of current successful startups.
[+] [-] sama|10 years ago|reply
[+] [-] ilurk|10 years ago|reply
And BTW, thanks for all the info YC has been putting out there for free.
[+] [-] christiangenco|10 years ago|reply
> Founders and employees that are burn out nearly always work at startups without momentum. It’s hard to overstate how demoralizing it is.
s/are //
[+] [-] flipside|10 years ago|reply
Just wondering because it sounds like this is the collective wisdom of all the partners (even if you're the one that wrote it).
[+] [-] danellis|10 years ago|reply
[+] [-] mrdrozdov|10 years ago|reply
[+] [-] revorad|10 years ago|reply
[+] [-] davidu|10 years ago|reply
I've always found that even the best teams still need to constantly explore and add new tools in the toolbox in order to execute effectively and achieve success.
(In fact, it's not that even the best teams need to still do this, the best teams actively go out and do this, which likely contributes to them being a high-performing team.)
[+] [-] taylorwc|10 years ago|reply
^ this group + @sama... wow. Terrific advice from an amazing list of credible people.
[+] [-] jMyles|10 years ago|reply
[+] [-] djhn|10 years ago|reply
It's also a more attractive and credible way to introduce fast-growing technology startups* to the uninitiated than just saying, "oh, just read this bunch of blog posts by this guy called 'pg' who you've never heard of, no, no, trust me, it's reaaally good, he founded YC, which you've also never heard of, but trust me, they're like, the real deal".
*YC-style/SV-type, even if some of the advice is more general, and the definition of 'YC-style' is quickly expanding and loosing meaning.
[+] [-] billmalarky|10 years ago|reply
All of them failed."
I was under the impression Reddit fell within this category. I recall a PG quote that went something like "we [Y combinator] hate your idea, but we like you [Alexis and Steve]" in reference to reddit's initial YC funding.
I know Reddit isn't considered a smashing success by VC standards (originally sold for roughly 15-20 MM), but I certainly wouldn't call it a failure.
[+] [-] tptacek|10 years ago|reply
[+] [-] dsugarman|10 years ago|reply
I would love to see more content and discussion around this. I understand clearly why it is important to pitch who you will be not who you are when recruiting and raising money but when it comes to day to day, doesn't this contradict what you had said earlier about sharing all of the good and bad with your employees? Replacing your water jugs with Kool-Aid at the office just seems evil to me. I'm not sure if that is really what you are saying or not but it seems synonymous with unicorn culture. I see a lot of positives to creating a culture masked with illusion, but in my head, all of the value seems short-term.
[+] [-] petecooper|10 years ago|reply
[+] [-] sharjeel|10 years ago|reply
The server is temporarily unable to service your request due to the site owner reaching his/her bandwidth limit. Please try again later. """
Any mirrors?
[+] [-] 6stringmerc|10 years ago|reply
>One important counterintuitive reason for this is that it’s easier to do something new and hard than something derivative and easy. People will want to help you and join you if it’s the former; they will not if it’s the latter.
In every single instance where I actually get a response, there's a consistent chorus of "this doesn't fit the model of what we support" and, basically, I chalk it up to an investment environment that actually, truly targets the derivative and easy moreso than the unique and difficult.
That's why I'm still slogging along in the self-directed patent process. Nobody is interested in helping (beyond some constructive comments I've received here from community members - thank you!), and certainly not in contributing financial backing. It is what it is...but that claim? I don't really buy it.
[+] [-] ThomPete|10 years ago|reply
But if your problem is trivial (build a en ecommerce website) then they want you to pay them hard cash.
I agree though that some problems might be hard to articulate and so you end up with having a problem getting people to believe in your project.
I personally was trying to convince developers to join me on a venture I wanted to do and had no luck. Then I decided to just pay someone to do a small fraction of what I wanted to do and which I knew I could pay for and now that developer I paid to do my first project is now partnering with me in my next project.
Sometimes you have to look at your idea and see if you can create a much smaller product from what you want so you can get started on someting at least. Then if it's successful you will have people wanting to join you.
[+] [-] argonaut|10 years ago|reply
[+] [-] SocksCanClose|10 years ago|reply
[+] [-] michmeagher|10 years ago|reply
On (i) it's like attacking someone for releasing a book of muffin recipes by saying "you think muffins are the best food in the world! I only bake cookies -- do you think you're better than me?!". In fact they just like muffins, they have a lot of experience in baking muffins, and instead of keeping their recipes secret they want to help other people bake the best muffins in the world.
On (ii), again my personal reaction, I don't care if it's self-serving. It also happens to be very helpful to me.
Small businesses, large businesses, "lifestyle" businesses, unicorns -- they all take a lot of effort, not to speak of other life commitments. In fact there is a maximum amount of time they can take (24 hours minus a few hours for sleep per day) and depending on your personality you will likely dedicate more or less of this time regardless of the scale of the venture.
I don't think whether it's a $10m business or $100m business or more is a choice based on personal preference, it's based on the nature of the idea you find yourself compelled to pursue.
For example, I used to be an antitrust lawyer. I was often in the office until 5am, and that was as an employee. I worked HARD. I thought I wanted to work less so I quit my job to start a small business. But it turns out that the idea that I have been excited about for the last few years is not a small business, it could never be one even if I wanted it to be. It's the kind of idea that will either be huge or it will be nothing. When you are standing on the brink of that kind of endeavour a few helpful words, a playbook if you will, from someone who knows how it's done can be very helpful indeed.
[+] [-] ryporter|10 years ago|reply
Self-belief in a crazy idea is not enough. Obviously Sam wouldn't disagree with this sentiment, but many entrepreneurs seem to omit the step of proving to themselves that their idea is not crazy, or they suffer from confirmation bias.
[+] [-] Bouncingsoul1|10 years ago|reply
[+] [-] sebak|10 years ago|reply
Wow, thanks for the advice, why didn't I think of that.