Making Startups Powerful
paulgraham.com
paulgraham.com
> It's exciting when you notice users "misusing" your product to do something you hadn't intended. This means there's something they want so desperately that they'll not only use any solution you offer, but even use things that aren't meant to be solutions. When you see something like that, don't be annoyed that your users are using your product wrong; listen for the message they're sending, because it could be valuable.
A lot of very specialist businesses seem to fail this test, and lose out on the potential for a huge market because of it. Like it sounds ridiculous as hell, but I remember when GoAnimate had a huge audience among kids and teens looking to make silly videos for sites like YouTube. I also remember the company feeling uncomfortable that they were getting known for that online, and trying to refocus their product/service towards business users instead.
Maybe they should have not done that, and realised that the periphery demographic was a potential customerbase that could have used a slightly different, perhaps more focused product with features relevant to their usecases.
Similarly, I remember an example of a business creating software meant for designing signs for road and metro systems being surprised that toy train and simulation game enthusiasts were using the software for other uses. Again, feels like they should have treated this as a business opportunity, not a cause for confusion or concern.
> Squeezing every last penny out of customers is a distraction. It gets you 2x returns at most. Whereas discovering some new thing you could make for them could easily get you 10x or 100x returns. They're two different ways of looking at the world, and the O'Reilly way makes more, for those who can do it. [5]
This feels like a perfect condemnation of how a lot of private equity firms manage businesses. These sorts of tactics make them money sure, but a lot of the businesses they buy up would probably do better if they held off on the whole 'squeeze resources to breaking point' philosophy in favour of a much more customer focused one.
I was testing ISP billing software a decade ago, and there was a product we had already committed to buy and it was 99% feature complete, there was just 1 little thing it wouldnt do. And they refused to implement it. Not only that but they told us "Actually we have been acquired and we aren't allowed to implement any new features anyway."
Anyway we went with our second choice, who are now very famous in the space, but at the time were still getting a foothold. And they were only 75% feature complete. But they brought themselves up to 100% over 3 sprints. Other than them using an old version of a single package, they never gave us any grief. They know that their customer needs are what they build software for.
> Hired CEOS take the power of the companies they run for granted, whereas founders remember the days when the company was so weak that it had to delight users to survive.
I've always instinctively followed the generosity path, and have experienced that when customers are delighted and that when frictions are removed (or not added in the first place), good things will follow.
However, I have not always been able to convince others to trust in and follow this path. Can anyone offer any advice or experiences on talking people out of trying to prematurely squeeze out every last penny?
before the pandemic hit and most of the world was quarantined, we decided to give loom away to students and teachers for free and made the service 50% off indefinitely. this was generous but also strategic. we made the simple deduction that, should people be locked inside, they would naturally see their sons/daughters using loom as students. or their spouse or roommates as teacher/staff.
There's plenty of businesses where you are simply optimizing a funnel, and driving more revenue at all costs is fully aligned with the goals of the company
If you're starting with $2000 and bootstrapping a textiles business out of Kolkata, it's a terrible idea, you're likely going to immediately get burned and never recover.
(take with a grain of salt as I have no experience, just stating my observations)
A company with $2000 in its first few days need not give away $1000 to act generously.
Yes. Lend them many more pennies, removing the necessity for short-term profit taking and allowing them to run at a loss until they decimate the competition, capture the market and then start raising prices to the point that they are more profitable than had they taken the short-sighted approach.
> experienced that when customers are delighted and that when frictions are removed
Charlie Munger:
When other companies find ways to save money, they turn it into profit. [Costco] passes it on to customers. It’s almost a religious duty. [They] sacrifice short-term profits for long-term success”.
Many different ways to conduct business. "Lean Enterprise" might be in line with your thinking: https://en.wikipedia.org/wiki/Lean_enterprise
> talking people out of trying to prematurely squeeze out every last penny?
I'd say this is a wrong framing. It isn't the people; it is the systems & environs they are in, the incentives they operate under.
Economists have a term they call "willingness-to-pay", using which some business might optimize for "consumer surplus" (low price), some for "producer surplus" (high margin).
See also, The Economics of Customer Businesses, Michael Mauboussin et al, https://www.eatonvance.com/insights/consilient-observer/the-... (2021).
Or Bezos' "Create more than you consume": https://www.aboutamazon.com/news/company-news/2020-letter-to...
Exactly what I came to say. This 100% is hippy dippy head in the clouds stuff. Sure if your product is 100% digital you can "be generous" in so far as it costs you nothing. Real products, real services. Hell no. You will get robbed blind if you give people too much slack or come off as willing to easily pay out.
I learned this the hard way early on doing contract work. Multimillionaires would actively try to take advantages of my naivety and inexperience to coerce free work out of me. Also I highly suspect many of them get a sick sense of pleasure out of it. Good luck being "generous" to those types.
Take a look at those donate for pain videos on tiktok if you don't believe there is significant population of sadists out there.
One of my clients provisions front office applications for banks and the conversation has come up more than once regarding the client evolving into a bank themselves and building up operations around the capabilities of the product stack.
One good multi-regional partner and it could be a radically different animal. Providing software to one very big customer tends to be a lot simpler than providing it to 20+ smaller customers.
Reminds me of Slack. https://techcrunch.com/2019/05/30/the-slack-origin-story/
I never understood why anybody would pay for Slack when its based on IRC and IRC is free, but whatever. I guess when you are spending other people's money and all your employees are super insecure these kinds of things pay for themselves... maybe?
Comparing IRC vs Slack maybe made sense when Slack was very young, and it was like buying a Honda Civic vs a Ferrari, where one is obviously nicer but the other still accomplished the same thing with less frills.
These days it's the choice between buying a Honda Civic vs a Boeing 747. They both get you from one place to another (communicating between employees) but that's where the similarities end now. Slack has way too many API integrations, historical search, features for everything from compliance message archiving to embedding images to dumb GIF searches that people seem to like. The fact that it has irc-like channels and chatting isn't really the point of the platform anymore.
Yes you could code this all yourself using IRC bots, but at that point IRC is no longer free, it's costing you time. If you get to that point, Slack does it better and cheaper.
For those of us who do write software an API integration is typically one HTTP request and I wouldn’t pay a subscription price per headcount for something that takes 10 minutes to build and test one time.
I think this is the strongest point being made here. It so accurately describes the situation in every category of software that it almost makes the rest of the post obsolete advice.
Playing for the long game is good. But that sentence is too lossy to decipher the meaning unless you know what it means.
Instead of making the company more powerful, I would recommend making the company more aligned with truth and the real world which has a nice side effect of being resilient.
Add to that, preparing for scale.
We have dedicated an entire year for nothing but architecture, correctness, distributedness and scaling.
The economic perspective of the same would be reducing the cost of software development (not in the LLM massive code generation way but the opposite with architecture).
Its been 5 years since we have been building Slyp and SlypBusiness along with the plethora of technologies around it.
I don't know whether we are powerful as per the author's definition but we are damn resilient.
Uh oh. How long until the ORACLE sign comes off the big cylindrical building in San Mateo? Will Ellison have to sell his private island?[2]
[1] https://www.techtimes.co.uk/oracle-new-layoffs-restructuring...
That's a great way to put it!
Good thing we have venture capital to alleviate that constraint by enabling selling a dollar for 50 cents.
For example, I am sure facebook users (the ones buying ads) are super happy, but is the company aligned?
How do we prove alignment? Often times, large regulatory bodies. Who supports that? Does the regulatory body actually have enough power to enforce those standards? (Hint: look at modern America). That's an example of power questions sneaking in even when you didn't want to.
Even "mere Darwinism" is less extreme because it pretends like there is some objective criterion called natural selection that will filter out bad candidates, when it's often the case that the bad candidates are the ones that weren't proactive to define the selection process themselves. Sitting back and optimizing for an externally imposed standard is worse than being able to impose said standard yourself.
(If this point was complicated - my point is that yes, Darwinism makes sense, but when applying it, you can get a mis-skewed definition of what "natural selection" really entails. I am calling out that caveat).
Of course, my hope is that that isn't the end all, be all solution. Philosophy doesn't end with Nietzche, hopefully. But the world does sure looks bleak right now...
"Where love rules, there is no will to power, and where power predominates, there love is lacking. The one is the shadow of the other." -Jung
Even in the cases where the answer is "yes"; I believe that working backwards from the why could provide a more elegant path to accomplishing said goal.
For example "startups make the best stuff" is just wrong these days. I almost always assume the startup's product today is going to screw you or is hacky, because they prove over and over again they cut corners for growth. Very few startups still take the mentality PG has in his era and now ship half broken hacked stuff.
In many cases, the problem can only be understood through many failed solution attempts. It could be because the actual problem is novel. It could be because there is a different way of thinking about the problem that is not apparent studying only what a customer does today with the limitations of the software that they have right now.
The point of "move fast, break things" is to address this fallacy that anyone can fully understand a problem before attempting the solution; it is often the case that in attempting a solution, one comes to understand the actual, valuable problem.
That led to a long period where startups were shipping things that barely worked and would fall apart if you deviated from the happy path at all.
Companies and consumers alike got tired of paying to be alpha testers and do market research for startups. It was really bad when you’d start using a startup product, spend a lot of time working with them to identify bugs, and then they would pivot to some other idea they had.
Nope. They did, but that's not the problem.
The problem is that VCs moved way too much in the direction of "take over the world or go home" and don't allow companies that take investment to be just successful anymore.
The only ones I've seen are AI grifters (not even useful AI) and Polymarket/Kalshi, which makes me cynical; although I've seen some decent startups that are small (i.e. non-powerful) but nonetheless profitable.
Anthropic launched only 5, but was built from connections to OpenAI
seems to be doing well (https://x.com/paulg/status/2095997934584160647)?
Ah, yes! The dream of being rent seeking middleman! The first thing that come to mind when I think “hacker” ;)
The vanilla one? Is this the pg Malcolm Gladwell arc, where he's retelling some real concept but warped by misunderstanding to the point of incoherence? Who's getting hobbled running on "vanilla models", do we have examples?
It's like how LG TVs make you consent to recording and uploading everything you say in the vicinity, or else you can't have voice commands, which they explain is because it would be illegal to analyze sound inputs for the voice commands without that consent. It's not true, of course, but it sounds true and it makes you want to consent.
Go to the 2:00 mark of this interview. Sam Altman says “Paul Graham is the most important force in startups of the past few decades” and the whole auditorium starts cheering. So Paul Graham is akin to a god in some places.
I don't think that a change in the composition of HN users is sufficient to explain it. To start with, a lot of the original user base which came over from main Reddit and /r/programming still seems to be active here. And if I had to hazard a guess I'd say that our attitude to pg has indeed shifted.
These are the companies advertised on ycombinator.com. The only one I like is GitLab which I'm neutral about. All other are companies I dislike.
Greed has been clearly very efficient at allocating resources and money is the first resource of any business endeavour.
Politics and courts should frames and boundaries around that greed's reach, otherwise just let it alone.
Like Ayn Rand, and PT Barnum before them VCs and Tech Bros will be looked at with great hostility in next years as having destroyed society with their brand of hyper-capitalism all in the name of “disruption”
It is a pay to play game where if you are not in the club, you have little chance of playing let alone winning.
The cherry on top is the culture of cheating, lying, stealing, and all kinds of other “disruptive” tactics is actively encouraged and cheered on. This is while claiming to be altruistic too.
The public is growing a strong deep hatred of sv, whose only response seems to be calling everyone poor and laughing. It is sad, because I still think technology is a force for good.
Meanwhile he moves his family to England and Europe to take advantage of small town life, more govt protection less screen time for his kids etc
The VC model is about funding supergrowth potential sustainably for PROFITS not society
Its all about extracting every ounce of profitability in any situation not about caring for employees, customers etc with the expectation that trickle down disruption will benefit society
We’ve had 20 years of this in the us -are we better off?
Why don't you let artists decide if they want record labels? They were far better off with EMI and Columbia records than with Spotify.
It is better to give $500,000 of $1,000,000 to a record label than $3 of $10 to Spotify. And record labels were pretty damn good at selecting artists, even in pop music. Does Paul Graham think music got any better after 2010?.
References to record labels? How much do record labels have to do with people discovering and catching on to music artists in 2026? What does a multi-billion-dollar 17 year old tech conglomerate like Stripe have to do with startups at this point?
I maintain that one of the hardest things for people to really internalize is when the group that they are in goes from being an insurgent to being the establishment. I can think of very few examples of people successfully adapting their worldview to that fundamental change in their identity.
The next class of YC founders is no less a product of the financial/tech ruling elite than the next batch of Goldman Sachs summer interns.
In the context of the post-AI economic environment where we are casually talking about our TVs wiretapping our homes even when they don't have Internet access, the whole article reads so gross. How to make your startups more powerful:
1. Get your customers signed up and locked in ASAP
2. Make your product its own little feudal kingdom with walls, moats, and gates
3. Maximize the amount you slurp up customer data in disgusting ways your customers can't even comprehend
Steve Jobs was no saint but compare how he talked about products to how Paul G is talking about them, it's not even the same basic concept of business. For the former, it was about increasing profits by building the best product experience possible. People will spend more on a Mac or an iPod because it's better than the competition. Yes, there were plenty of forms of ecosystem and lock-in, but the way you locked customers in was by providing the best experience.
In the case of the latter, it's all about flexing your leverage and holding power over your customers. You don't even hold basic respect your customers in the system that Paul and the rest of Silicon Valley champions these days.
Capitalism is being replaced by Leveragism: https://www.youtube.com/watch?v=4FZy1lBNykA
"The article suggests that more musicians rather than fewer might now be able to earn money from recorded music than in preceding recorded-music systems. But it also proposes that the current system retains the striking inequalities and generally poor working conditions that characterised its predecessors, and that better debate requires greater transparency about usage and payment on the part of streaming services and music businesses."
https://journals.sagepub.com/doi/10.1177/1461444820953541
Here's an article about Germany, which claims streaming is not worse
"However, the current streaming-dominated music market does not fundamentally perform worse compared to the former CD market: in 2023, more than twice as many music creators earned revenues above the basic tax-free allowance compared to 2002."
Just on PG as a persona, I was never a fan or non fan I've barely read his blogposts and only know of him incidentally from knowing this forum, but on the general area of "thought leaders" and the increasingly asymmetry one-to-many relationships we have been getting used to for decades I came across this very interesting and well put together video here: https://www.youtube.com/watch?v=Dqh17U3tymU , give it 15 minutes if you do decide to watch it its a bit of a slow burn.
How?
Wealth and power is all that society obsesses about and there's an endless list of suckers for people that appear to be wealthy or powerful. Hell, even this board is filled with rat races spamming how to climb the pyramid in companies I vomit just thinking about "oh, this is how I got promoted to L17 from L16" or bs like that.
Nobody's getting interviewed and hailed for saving the most lives in an Indian hospital or risking its life reporting in Gaza under constant Israeli bombs and shooting.
But sure there's endless content of how this or that startupper created yet another unicorn with some pointless B2B saas.
People want to hear and reflect and empathize with winners who have all, not with the "real" heroes impacting the world positively through sacrifice and pain.
It doesn't need need to be tied to some mystical god, "music is my religion" is a phrase that has been used and is understood easily, and you can replace music with many other nouns, games, science, family, dog grooming, whatever.
You can kind of see this in the rise of weird internet cults around celebrities and obviously many IRL cults over the years, and I don't know if the frequency of weird cults has increased in the last 3 decades but I would take wild guess and say it has.
"Make religions cool again" is a bit of a hard sell considering worldwide events but unless we can come up with a better word for a shared value system where people sacrifice things they can gain, for the good of the group, I don't think there is a stronger word.
I dont think this holds as strongly in other countries. Other countries do not have the religious like worship of money that is the usa. Having a Phd is seen as higher status than making millions on legal scamming.
My Indian coworkers talk more about people in their country helping other than who is richest in India where the us folks talk about nothing but stonks and what car they will buy next.
Maybe asian cultures are different.
i have seen many people spill their guts on-line, and i did so myself until, at last, i began to see that i had commodified myself. commodification means that you turn something into a product which has a money-value. in the nineteenth century, commodities were made in factories, which karl marx called “the means of production.” capitalists were people who owned the means of production, and the commodities were made by workers who were mostly exploited. i created my interior thoughts as a means of production for the corporation that owned the board i was posting to, and that commodity was being sold to other commodity/consumer entities as entertainment. that means that i sold my soul like a tennis shoe and i derived no profit from the sale of my soul. people who post frequently on boards appear to know that they are factory equipment and tennis shoes, and sometimes trade sends and email about how their contributions are not appreciated by management."
-- https://web.archive.org/web/20260615024403/https://alphavill...
When you are signalling to the latter, you need to be cruder with your approach or the signal may be lost. There needs not be any wisdom in it.