Lecture 3: How to Start a Startup
startupclass.samaltman.com
startupclass.samaltman.com
However here is one additional counterintuitive point. Not all startups work hard. The good ones are focused and might not have all the answers but you at least know what your going to be doing. Some startups are just there, they don't work consistent hours and spend allot of time doing fluff stuff and not productive stuff. Some startups are just there because it's the cool thing now and they come in at 12:00pm and leave at 4:00 pm.
For reference I have worked few startups, some small companies and one very large company. I am currently working out of a co-working space. I see very few startups here working any type of consistent hours. I don't mean 9-5 , I mean consistently being here and working no matter what hours they prefer, even though they are full time members of the space.
I can reference companies like Apple in which people are basically working as much as humanly possible[1]. Their work culture is actually more intense than allot of startups. Even at a small-medium company I worked at I would see executives up at 3am, even after they have been at work all day long.
[1] - http://9to5mac.com/2014/10/01/former-apple-managers-talk-of-...
I get the general usefulness of advising undergraduates that MBAs are, in general, a bad idea for them. They're certainly about as poor of a financial investment these days as a degree in English. But the hopeless idealist in me asks if it isn't possible to get an MBA to actually try to theorize about customer behavior, economic structure, supply chains, what have you and build part of ones academic foundation around it? Or is it truly impossible to walk into today's MBA programs wanting to study business as theoretical and societal constructs, without walking out a professional networker and middle manager?
All I know is, I never seem to get tired of reading HBS case studies. I'm always curious to learn how other people approached things and how the world worked then, in addition to how it works now. If anyone has a good community for embracing that sort of knowledge, I'm all ears.
but if you tease out the strands of advice, you'd see that you shouldn't do an mba if you think that will prepare you for a startup. you could (and i'm extrapolating here) do an mba if the subject matter is genuinely interesting to you (as it was for me). i learned a lot in my mba program that i was genuinely interested in learning.
and if you decide to do an mba, take all the quantitative classes you can. you want to practice and hone skills, not just be versed in theory. also, applied economics might be interesting to you.
Yes, an MBA will help you understand many of our societal, economic, and business constructs. I did not find an MBA to be particularly helpful in understanding customer behavior, but it's definitely valuable in understanding government and corporate behavior.
And yes, it'll help you understand supply chains/logistics, various process and people optimizations, etc. Think of it like learning algorithms and patterns for solving problems that are commonly found in large human organizations.
> Or is it truly impossible to walk into today's MBA programs wanting to study business as theoretical and societal constructs, without walking out a professional networker and middle manager?
It's a degree. Nothing more. However, I would not get an MBA with a goal of middle management as the focus of most programs is on getting you ready for upper management decision making. For middle management in a large company skills such as project management, people management, scheduling, delegation and communication are more important than high level strategic thinking.
However, I would not get an MBA with a goal of middle
management as the focus of most programs is on getting
you ready for upper management decision making. For middle
management in a large company skills
such as project management, people management, scheduling,
delegation and communication are more
important than high level strategic thinking.
The military typically does it this way. What you learn in Officer Candidate School is different from what they teach you at the War College.
What's that Einstein attributed quote?
In theory, theory and practice are the same.
In practice, they are not.
One of the things I focus on when interviewing is whether they are passionate about their craft, have an interest in their trade. There's a huge difference between the CompSci graduate who studied because of a love of computer science and programming, and the one who did it because they are motivated by an above average salary.
With MBAs, it's extremely hard to determine those who care about the theory and craft, those who will theorise and adjust the application of their knowledge and experience. If the motivation was merely "My salary will be $(n)k greater" then they are likely to apply the formula they learned without caring about how it applies in the given case.
Not all MBAs are bad, but we are poorly qualified to separate the good from the bad. And given that the bad choice could be an early employee, a bad mistake here could be the end of the company.
And I have to say that one of my MBA friends who frequents HN (he might be reading this but I won't name names) frequently laughs at blog posts about great insight that some developer-entrepreneur had about customers or markets etc. that is considered really basic knowledge to him.
This comment struck a chord for me. Me (and most of my friends) are about to transition out of the military. After 5 years of literally living a different world, but still being intellectually curious but with no (obvious) technical skills...for a lot of us getting an MBA seems to be the only option to "learn the language" and transition out, so to speak. What you're expressing has been the feeling a lot of us has gotten from friends we have in San Fran or New York or wherever - that MBAs are worthless, and that former military officers are generally risk averse and therefore not good hires in fast moving companies (I don't believe this to be the case at all, btw, but I'm obviously biased). What I'm suggesting is that getting an MBA might have more utility for certain groups of people, and less so for others. Perhaps I'm relying too much on the anecdotal evidence of my circle of friends.
So my question is: does the experience, the knowledge I learn from startups helps me on my probably eventual job in an established company? Should I just go work for a large company right away so I can be good at what I will end up doing? It seems to be opposite to what PG said[2].
[1] http://online.wsj.com/news/articles/SB1000087239639044372020...
From a rational standpoint, having even a mild level of success that ends up in an acqui-hire instead of an outright failure will yield you a better offer from a large corp than an applicant who just sent his resume in.
Given two choices - equivalent compensation at failure, and higher compensation at anything but failure, you should do a startup.
That does not take into account stress levels and opportunity cost of your spare time.
The simple reason why is because while a startup is the best place to learn how to start a startup, it isn't always the best place to learn how to be an engineer.
At least, not the sort of robust engineering (hopefully) done at established companies, where you have to understand existing best practices like code style, continuous deployment and testing, and non-technical conventions like proper code reviews and pager schedules. That sort of rigor isn't found in all startups, but some amount of it is a necessity when your primary job is shipping code, lots of it, and not just searching for product market fit.
I think it is far more likely that you'll get a strong offer for a large corp coming out of another large corp - where you'll speak the language and have found at least someone talented to mentor you - than as a typical acqui-hire or founder of an also-ran startup. In fact, many acqui-hire employees themselves have to go through interviews at the acquiring company, finding themselves on the bottom of the pecking order at their new companies - if they even have jobs at all.
That's not to say you shouldn't do a startup...just, don't do it expecting your Plan B to be a cushy job at Facebook. :)
> many acqui-hire employees themselves have to go through interviews at the acquiring company, finding themselves on the bottom of the pecking order at their new companies
Employees yes, from OP's wording I understood the question was in regards to the founder. An acqui-hirer is likely to sweeten the offer for the founding team, otherwise why even pursue an acqui-hire.
I was blushing down to my beltline for that guy.
...this is exacerbated by the existence of this term "growth hacks"... whenever you hear anybody talk about "growth hacks", just mentally translate it... to "bullshit".
i'm not necessarily defending "entrepreneur" but one would hope that the alternative would be shorter.
entrepreneur
noun, plural entrepreneurs
1. a person who organizes and manages any enterprise, especially a business,
usually with considerable initiative and risk.
"I don't think I'm very efficient. I have two ways of getting work done. One is like during YC, the way I worked at YC is I was forced to. I had to set the application deadline, and then people would apply, and then there were all these applications that I had to respond to by a certain time, so I had to read them, and I knew if I read them badly we would get bad startups, so I tried really hard to read them well. So I set up this situation that forced me to work.
The other kind of work I do is like writing essays, and I do that involuntarily. I'm like walking down the street and the essay starts writing itself in my head. And so really I either force myself to work on less exciting things, or I can't help working on exciting things. I don't have any useful techniques for making myself efficient. If you work on things you like, you don't have to force yourself to be efficient."
[1] https://investor.google.com/corporate/certificate-of-incorpo...
[2] http://en.wikipedia.org/wiki/Delaware#Incorporation_in_Delaw...
The vast majority of possible startups fail at the mechanics of forming a company - not knowing how/where to do it, not knowing how to find the right lawyer/accountant, not knowing how much that costs, not knowing what to ask, not knowing how to employ people... There are a hundred forms and answers to find before you can open a shop.
http://blakemasters.com/post/21742864570/peter-thiels-cs183-... (Look at point #2 - "You Should Be a Delaware C-corp")
Yes, if you raise venture money, you will need a Delaware C-corp. But the percentage of companies that are successful in raising venture capital is extremely low. How low? Probably lower than Y Combinator's acceptance rate.
For entrepreneurs serious about building a real business, entity selection should be based on what's best for the business and the founders, not what's going to be required by investors they don't yet have and may never have. Generally speaking, young companies have no legitimate incentive to pay Delaware for the privilege of being incorporated in Delaware.
So what about companies that are successful in raising money? For early stage startups with little to no revenue and assets (read: most startups), it is quite straightforward to revisit entity selection if necessary with minimal complexity and cost, and with few if any tax consequences. Delaware has a statutory conversion that makes it super simple and inexpensive to convert a Delaware LLC to a Delaware corporation. Even conversion of a non-Delaware entity to a Delaware C corporation is a simple task and will not come close to being the most expensive item when you pay your law firm for its work associated with your financing.
Of course, if your company has no assets, you could just dissolve if need be. Which, ironically, is what happens to a lot of those Delaware corporations.
"Snapchat? What do I know about snapchat, we didn't fund them. How about another question."
I'm not saying there's something wrong with Sam's lectures, but there's a stark contrast between the two formats which makes me even more interested in seeing what the other speakers will bring.
By the way, we are a couple of italian friends building FlashUp, a platform for sharing notes on lectures, videos, books, panels so other people can enjoy the nitty-gritty without having to spend hours and hours glued to their screens.
Any feedback is appreciated.
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NOTES:
--> Startups are very counter-intuitive – if you trust and never question your intuition you will make mistakes
--> LIST OF COUNTERINTUIVE STUFF TO REMEMBER WHEN BUILDING A STARTUP:
--> Startups are so weird that you will make mistakes if you follow your instincts. That’s why at YC partners give advices to founders, to warn them about these counter-intuitive mistakes.
--> Trust your instincts about people. A mistake founders often make is not trusting their instincts about people. In business pick people like you would pick friends.
--> You don’t need expertise in startups to succeed in startups. What you need is expertise in your users.
Zuckemberg wasn’t an expert on startups but he knew his users and what they wanted.
--> Another mistake founders is not making something people want first but “playing house”: they come up with a plausible idea, raise money, rent an nice office in SOMA and hire their friends to later figure they have no product. Why? Cause they have been trained to believe this is how you do it. They measure success by how much money they have raised.
--> They are always looking for a trick: What’s the trick to raise capital? Start a startup that’s growing fast and let investors know about it What’s the trick to grow? Make something people want.
--> Tricks and gaming the system doesn’t work in startups. There are no bosses to trick, only users to build good software for and make happy.
--> Startups are time consuming: they will take over your life time in a way you can’t imagine now. If it’s successful it will take over your life time for several years. There is a cost opportunity here. It’s like having kids, it will change your life (kids are awesome – pg)
--> What you really need to learn are your users’ needs. University can’t teach that.
--> You can’t start a startup in college. If you do, you won’t be a student for long.
--> DON’T START A STARTUP IN COLLEGE. There are things you can only do when you are 20, like backpacking around Thailand that people like Zuckemberg won’t ever be able to do. So wait.
--> While you are in college, come up with an idea and meet your future founders, friends you love to spend time and work with.
--> The way to get startup ideas is not to think about having good startups ideas: you’ll get bad and plausible ideas that will end up wasting your time.
--> To have a good idea, take a step back and don’t even try.
--> You can have them unconsciously if: - You learn a lot of things that matter - Work on problems that interest you with people you respect
--> Be on the edge of some technology, live in the future: you will be able to spot good ideas where other won’t. They won’t look like startup ideas but they will look good, like a search engine for example.
--> If you want to start a startup later in life, learn important things and be genuinely interested in them. You need domain expertise.
--> Bottom line: IN COLLEGE JUST LEARN.
The question time part is missing. I'm sorry, it's almost 2 o'clock in my zone. I just wanted to share some notes!
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Personally, I use stackedit.io
Personally, I think living near the action is the way to go. And yes, moving to where a large tech culture already exists helps.
It feels very lonely and discouraging to spend 12 hours on a Saturday banging out a personal project, and then not know anyone who would care to see it.
I hardly know any other techies/programmers. And of the ones I do know, 90% of them are 9-5 programmers, who are done talking about it once they clock out, and don't have their own personal projects. That's good for them! But that's not me, nor who I want to surround myself with.
I know there's that space in Wynwood, I think it's called The Lab. It seems like a good place to meet people, but all the events they do are usually while I'm working or something else occurs where I just can't attend.
https://medium.com/how-to-start-a-startup/50-quotes-from-pau...
You can find more from Sam Altman and the rest of the lectures there as well.
You could even see him hesitating and questioning his own statements in his head a few times.
Also, given the limited time I don't think he had a lot of opportunities to go into detail with examples. This was just a broad overview of advice he thinks you should take.
I really can see that from his experience in Silicon Valley PG gave a view of what he has actually seen in how startup ideas are or have been found. I have to respect most of what he said.
Still, from some of what he said, I have a tough time taking him literally: E.g., as I recall from the lecture, he indicated that early on Google was just a little thing, just a small interest, or some such.
However, also, as is well-known, even in the early days of Google even as just an idea, Internet search was already widely regarded as an important need and problem. Without checking dates, there was, what, Lycos and Yahoo!, maybe more?
Without means of search, the Internet was like being in the world's biggest library with all the books, etc. just in a big pile. For libraries, the solution has long been the library card catalog, especially the subject index. So I have to suspect that, even in the beginnings of the idea for Google, the founders did understand that what they were working on was possibly important as a business.
Next, the lecture did mention that Ron Conway wrote Google an early check: I have to believe that Conway took the future of Google fully seriously.
From all I know, Facebook, Microsoft, Cisco, Intel, etc. all knew early on, at the beginning of the idea or not long after, that they were trying to make a successful business.
But the lecture seemed to be suggesting that at the start an idea is hardly more than a toy or curiosity.
Next there was,
> The way to get startup ideas is not to think about having good startups ideas: you’ll get bad and plausible ideas that will end up wasting your time.
> To have a good idea, take a step back and don’t even try.
While I can believe that PG has plenty of examples where startups followed this advice and were successful, still I'm shocked and have a tough time swallowing that this advice is the only way to be successful or that, in particular, always any effort to find a good idea
> will end up wasting your time.
Instead, I'd like to build on PG's
> What you really need to learn are your users’ needs.
Now I'm on board!
But then I want to go farther: Okay, not everyone has to go along with my next thinking, and here is some of why: First, there's not just one way to "skin a cat" or be successful. Second, and something I regard as very important for successful startups, as we know too well, a really successful startup is rare, so rare that we have to suspect that, not all, but some of the most successful startups will be taking approaches that are new and with few or no examples from the past, say, 30 years in Silicon Valley venture funded startups.
Moreover, if a startup looks close to what has been tried, and even worked, before, then we have to be suspicions and question if that "what" should be tried again instead of something new.
But, broad strokes, aside, let's try to be more definite:
Step (1) Need.
Assume we've seen some users' need. Suppose we use some judgment here and accept only a genuine need. Such a need might be, say, a safe, effective, cheap one pill taken once to cure any cancer. Yup, that's definitely a need -- no question. We want a need so serious that we can be quite sure, e.g., the pill, that the first good or a much better solution will be a must have and not just a nice to have. So, we pick a need.
Now I narrow the scope: We want to exploit Moore's law and the Internet and do have a need that, at least for its solution, is in information technology. One reason: Can send to the users just bits, and those sent just over the Internet.
Step (2) Solution.
With the need, we try to find the first good or a much better solution. If we fail, as we likely would for years on a cure for cancer, or, in information technology, a project were we needed an algorithm that shows that P = NP, we return to Step (1) and find another genuine need.
Step (3) How to
So, how can we find a solution?
Well, here's my suggestion: Right, even with PG's broad experience, the suggestion may so far never have been seen even by PG in Silicon Valley. So, in this sense we're talking something new, and we keep in mind that we should not be reluctant to pursue something new since being new and different is from maybe good up to crucial for the rare, big successes in the future.
But for something new, we very much want some evidence of, say, efficacy, or will that dog hunt?
So, we have a problem, and we want a solution, in information technology, and a solution we have high confidence in, even before we start writing software. So, where can we find examples of doing that? Sure: The US DoD. They've been doing that with, comparatively, a great batting average for 70+ years, that is, finding solutions that well informed people can have high confidence in before starting implementation.
So, we have
Lesson 1: By example, it's actually possible, and in the US DoD quite common, nearly standard, to find solutions that well informed people can have high confidence in before starting implementation.
Now, this lesson, and the fairly obvious DoD examples, e.g., the SR-71, were often quite expensive to implement. But, there is also
Lesson 2: The implementation work commonly was routine, that is, low risk, maybe expensive but, still, low risk.
More of my suggestion: It can be good, when we can, to convert the work of finding the solution to a mathematical problem where, if the math is correct, then we are quite sure the solution is correct and, quite likely, effective as a solution for the need.
Advantages here include: (A) The math has a good chance of being done just on paper by just one person, with very low "burn rate". (B) The math is comparatively easy to check for correctness. (C) Since we have assumed that our startup is in information technology, a solution based on math has a big natural advantage; e.g., maybe the implementation is just software with no metal bending, team of thousands, big buildings, etc.
So (1)-(3) is my suggestion for insight into how to find a good idea for a startup.
So, where is this suggestion for finding a startup idea unclear, wrong?