What's The Secret Behind Y Combinator's Success?
forbes.com
forbes.com
Not unlike YC, Harvard was also the first of its kind (oldest college in the US), which gives them a first mover advantage right off the bat. And then somewhere along the way, just like YC with Airbnb and Dropbox, Harvard too probably got "lucky" early on with several alums who became super rich and successful, who then started giving back to the Harvard community via generous donations of their money and time, which coupled with their first-mover advantage resulted in a virtuous cycle of success that no other university has been able to replicate since.
Smash cut to the present, and Harvard has a $32 BILLION war chest (endowment) and a network of alumni who go out of their way to ensure that the next generation of Harvard students can succeed as well.
Lastly, I think YC's small size has been essential to its success. I myself went to a very small liberal arts college (total student body of only ~2,000), and the small size allows for a level of intimacy and personal care that larger universities could never dream of. It also causes us to feel like underdogs and war buddies, and thus that much more willing to help other alums in order to keep growing and sustaining our small but precious community.
Oh and btw, it just so happens that pg got his Masters and PhD from Harvard. Coincidence? You tell me :P
If I understand this correctly, the $10B is the total valuation of all companies YC has invested in, not actually the valuation of YC's portfolio (which starts at 2-10% and decreases as other investors buy in).
Which isn't to say that YC hasn't been achieving great returns -- but it's not fair to paint it as turning $8M into $10B.
Where have I seen that exact phrase before?
The larger problem is that, ironically, the article actually fails to mention one of the key Y Combinators differentiators and ultimate marketing tool - Hacker News.
How long are we going to pretend that its the people who are the center of success and not the process.
If someone is saying if you do Step X, Step Y and Step Z you will become like <insert a successful leader> they just lost the whole point. A leader is not successful because of steps X, Y and Z. Some other leader would execute step A, B and C exactly opposite to X, Y and Z and be equally successful.
People are (obviously) starting to pick up on this and their brand is being quickly diluted.
Oh wait - that's not right, that's actually the gross error that all "What's the X behind Y?" questions make - when in reality, it's probably about 100+ different things all coming together at the same time.
For YC it's the falling cost of bandwidth, the falling cost of storage, the falling cost of computation, an increase in the number of internet users by nearly 1 billion over the last decade, a doubling in the global economy over the last 2 decades - quite frankly the list leading up to the creation of a Y Combinator is almost endless - and I haven't even dealt with the actual people who help make YC the success that it has become today.
Single factor explanations of complex phenomena are stupid.
I think that is what they/we are trying to get at.
I agree with your general principle that causation is rarely as black and white as we make it out to be, but saying that all/most phenomena is a result of hundreds of different factors coming together at the right time and right place would make it very difficult to ever learn anything about anything.
> "..the falling cost of bandwidth, the falling cost of storage, the falling cost of computation, an increase in the number of internet users of nearly 1 billion over the last decade, a doubling in the global economy over the last 2 decades."
These are all situational factors common to TechStars, 500 Startups, etc. but which don't explain YC's unique success.
Not really - if you are talking about investigating things that have a multitude of conflating variables affecting the end result. In that case you aren't learning anything either - because then everything is just correlation.
When one investigates some arbitrary phenomena, it is important to constrain one's experiment and control all but one variable so that one can be sure that the changes one observes are more likely to be due to causation rather than correlation.
For example: Stating that Africa is a failure because of X thing is full of peril.
However, stating that when people don't have easy access to safe drinking water, they are more likely to die of water borne illnesses, and that this has probably contributed to the failure of Africa is a much more secure statement. It's not nearly as pithy, and it includes many qualifiers - but then again, it is a much more accurate and true assessment. It is also much less likely to be subject to vague/"woo"/dumbass business like thinking.
> These are all situational factors common to TechStars, 500 Startups, etc. but which don't explain YC's unique success.
First mover advantage anyone? Path dependence is a bitch - just ask DVORAK.
If I were to sum up why YC might have succeeded like it did, I'd say that pg is great at pattern recognition and is better than most at figuring out who might become a great entrepreneur vs. who is just posturing, which increases (but doesn't at all guarantee) his chances of finding great founders capable of building great companies.
Of course, things played out pretty well for pg, but with less luck perhaps it might've taken a longer time for them to find their Airbnb/Dropbox, or perhaps Drew Houston and the three co-founders of Airbnb might have failed several times before hitting their respective home runs. In which case TechStars and 500 Startups (admitted copycats of YC) might never have come into existence.
pg's knack for identifying great founders doesn't guarantee that everyone who gets into YC is going to be "great," just like there are probably plenty of not-so-capable people in Harvard who somehow still managed to get in.
But I would posit that the % of potential great founders is significantly higher at YC than at other accelerators (due to brand, prestige, whatever), which in the short run doesn't mean much but which over time will be greatly and increasingly to their advantage.
These incubators should have an equally impressive group of founders.
I think their is something special about YC, though I don't know exactly what that is.
At the same time, you have to suspect that some of the cache comes from AirBnB and DropBox hitting bases loaded home runs.
What are the most successful start-ups from 500Startups and TechStars? Did YC just get lucky with these two, and luck begets luck because now the best and brightest will apply to YC because it has had the early success?
----update------
I also hadn't realized how many companies have been through more than one incubator program. For example, sendgrid was both 500Startups and TechStars, Webmynd,Chirply and GazeHawk were all part of 500Startups and YC.
I'm sure there are many more.
YC provides three key benefits:
1) "The Alumni" -- YC founders helping each other
2) "The Man" -- PG and the other partners do bring some value in the form of advice and connections (and the associated branding)
3) "The Cycle" -- Any moderately interesting product/service will have guaranteed customers in the form of other YC companies.
AFAICT, the other programs don't have a charismatic character at the helm, may not have as strong an alumni network, and don't have the portfolio breadth to sustain a business from the cycle
- to organize applications in classes that are solidly oversubscribed
This allows YC to select the cream of a batch of applicants rather than to have to judge each proposal at some point in time on its merits on an individual basis. Having a background against which to judge is a huge benefit.
- Hacker News
Having a place that is a breeding ground that already works before joining/applying gives another way to look at applicants and creates a way for applicants to join up.
After YC had run for a while a third ingredient came to represent an ever growing factor in the success, the YC alumni, as the article rightly points out. Like any network there are second order effects at work here, effectively YC has a very large multiple of the number of eyes, ears and brains compared to other entities.
Other incubators may try to replicate it, maybe with a Web 2.0 look and hiring a couple of people to post news and then we end up with a (worse) BI/SAI 2.0
They iterate on their own successes and mistakes .. don't follow the latest trend, but genuinely think for themselves.
Forbes publishes a ranking of accelerators based on financial results, and YC was #1 for what it's worth:
http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-i...
"The rankings are based on a number of factors, focusing on the value of the incubators’ companies. In other words, we took the exit prices or the last priced equity valuation of the companies that have gone through each program. We also took into account other measures, such as how much venture funding their companies have raised, what percentage of their companies have raised funding and what percentage of their companies have been acquired or gone out of business."
Y Combinator had the reputation and credibility instantly (as opposed to other, mostly undistinguished, incubators) so it could take equity at extremely advantageous valuations-- justifiably, because just being able to say you're YC improves the value of your company by at least 1.1x (probably 1.5-2x).
The problem right now is that it seems to be a "feeder school" for traditional investment, and it won't be able to replace VC outright. YC is an impressive and commendable project, but its value is prestige and it's hard to scale without losing it.
Why is this a problem? The intention was never to replace VC outright, YC and VC both play different and important roles.
"the VC’s stake gives them control. It gives them board seats, influence over senior management, and the opportunity to hand out a few executive positions to their children or to people whom they owe favors"
http://michaelochurch.wordpress.com/2012/07/08/dont-waste-yo...