How and why to start a startup

So if you're here today, you're watching the video later, you're probably planning to start a company, that's why you're taking the course. Most of the class is gonna be about like how to go about doing that and achieving success. But before you dive into the how of being an entrepreneur, I'm here to help you think about the why.

So it's important to know which reason is yours so that you think through this this the decision correctly. So I hear a variety of common motivators from potential entrepreneurs. But I found that once they fully consider the trade off, they often decide that starting a company isn't actually the best way to achieve their goals. So I'll hope you make sure you're choosing the best solution.

And I'll also explain the reason I like to hear best from people about why they wanna start a company, what I hear when I think someone's really set up for success. So I've given this talk before, Sam said, and a bunch of people have come up to me after and said it really helped them with their decision.

And in a few cases, they decided that they they shouldn't start a company and they should really join established one. But I know a lot of you are resolved in what you're doing. If that's true, no problem. I think this will still be useful for you because you'll get a better sense of the reality of of what you're about to go through. So it's not a long talk.

It's just about 10 slides and I've left some time for questions at the end. Great. So, let's call a spade a spade. A lot of people become entrepreneurs specifically as a way to try to become extremely wealthy. So they see themselves starting the next Facebook or Google. However, the odds of being that successful are actually incredibly small.

So only a handful and entire generation of companies actually end up getting to that scale. So here's a funnel from CB Insights actually. It shows how many seed funded tech companies get through each round of funding. So even if we reduce our ambitions a bit to becoming a unicorn, so a company with a billion dollar valuation, you still have like incredibly long odds.

So only 1% of seed funded companies get all the way through this funnel. Now getting to six rounds of funding, it's not exactly the same as becoming unicorn, but it's pretty well correlated. Most of the unicorns I know had to have at least that many rounds of funding. So to get there, you have to have a truly great idea. It's gotta be unique, defensible, going after a large market.

You have to execute sorry. You have to execute extremely well. So that means you have to work hard, you have to attract the right people, and you have to have a better strategy than your competitors. And you also just have to be really, really lucky. Because there's a lot of things that can get in your way, and a lot of them aren't even in your control.

So I've talked to a bunch of, investors, entrepreneurs and the sense is that it's actually getting harder over time to get through this funnel. So not only are more people starting companies, meaning you have more people to compete with, but they're becoming more expensive to operate for a lot of reasons, particularly here in the Bay Area.

And investors have higher expectations too, so you've seen valuation multiples start to decline, particularly on the public market. And perhaps most importantly, it's becoming harder to disrupt incumbents. So they're not the slow moving giants that they were ten or twenty years ago. They know how to take advantage of their market position.

So some of you are thinking, sure it's hard, but you get so much more equity as a founder that it's clearly the only way to make a lot of money. So let's talk about two different ways that you might get to a great financial outcome. So, story one, you're the founder. You started a company that does Uber for pet sitting. So in this picture, this is the customer, not the founder.

It's a great idea and you execute it well. So you sell the company at some point for a hundred million dollars. And if you've been really successful limiting dilution, your equity might be as high as 10%, of the company at that point by the time it becomes liquid. So you're walking away with $10,000,000. Pretty great outcome.

However, just showed you only a small portion of startups make it that far, so this is the lucky case. Hundred million dollars, a little easier than a billion dollars, but it's still extremely rare. And it's actually most likely that you end up with nothing on this path because you just end up shutting down the company for whatever reason.

And oftentimes you see a company sell to an acquirer at this kind of range evaluation. In a lot of those cases, the founder still ends up with nothing because investor liquidity preference. So it depends a lot on how much money you've raised to get there. So this is definitely the high risk path.

But another way to make a similar amount of money, is to join a later stage company and help them scale from say 500,000,000 evaluation to 20,000,000,000. So even straight out of college, you can do really well financially by joining a company at that stage.

But especially if you have a few years of experience, you're gonna get a really good options package and you're gonna have a fairly high salary too. So I just sort of swagged five basis points here. If you joined a little earlier, it might be more than that. If you have more experience, it might be more than that. But this is sort of a a good sort of benchmark.

And you probably know the market for experienced tech workers, extremely competitive right now, particularly for product roles. So if you choose well, you can also walk away with $10,000,000 by taking this path. And if you choose really well, and you do find that next Facebook or Google, while it's still not yet a unicorn, you can do extremely well.

So the hundredth engineer at Facebook had a way better financial outcome than the vast majority of entrepreneurs. So, of course, it's still possible you'll choose the wrong company. It won't grow enough for this kind of outcome. This is actually 40 x growth, which is pretty impressive. But the key is you get to join it much later in its life cycle. So you have a lot more information.

You can see the performance so far. You can meet some of the team. You can understand the competitive landscape. And even if you don't find the company that's gonna grow this much, you've got a good chance of picking one that's gonna grow some. In fact, your equity value is probably already non zero.

So you've got a pretty good chance of having a positive outcome in that situation and maybe a really great outcome. And then finally, if you found a company, you have a long term commitment. So there's a good chance you're gonna be putting ten years or more into making it scale and you still may fail in the end.

Whereas if you join established company, you can work there for a couple years, you can get a sense of whether it's growing. If not, you can can easily leave and try again. So you can actually work for several different ones in that same ten year period and that really increases your chances of a home run.

So the ultimate takeaway here is there are multiple ways to get a great financial outcome, but it's a lot lower risk to join an established company. Don't worry, not all of these will be arguments about why you should join an established company. So similarly, a lot of people wanna start a company in order to maximize their impact. So usually financial outcomes pretty well correlated with that.

So a lot of the arguments I just made apply here as well. But when you join a company that's already established, you get some big advantages. So you get access their existing user base, might be hundreds of millions, sometimes a billion people. You get the ability to to work on top of infrastructure that's already been built built out and scaled. And you're collaborating with an established team.

So they're gonna help you succeed. So I wanna give some concrete examples of massive impact that people achieved as an employee. So Brett Taylor, who's the head of Quip. Before he became an entrepreneur, he he joined Google after it already had over a thousand employees.

And there he was able to spearhead the creation of Google Maps, which is used by hundreds of millions of people, including me on my way here today. Similarly, my co founder at Asana, Justin Rosenstein, he joined Google at a similar time. And there he prototyped g chat inside Gmail. So this was over ten years ago, still used by a ton of people.

And then shortly after that, he went to Facebook, after it had a few hundred employees and he led the hackathon project that created the like button. Some of you have probably used it once or twice. So you can still join teams at Facebook and Google today and work on something that literally might reach a billion people.

So that's a lot of impact even if your port even if your contribution is relatively small portion of the product surface area. So if you wanna become an entrepreneur to maximize impact, these are the types of stories that I think you should be comparing the opportunity to. So next, there's lifestyle. So everyone's got their own story about what it means to be an entrepreneur.

So in general, the media likes to make it seem glamorous, emphasizing launches and funding milestones. They tend to talk about success cases and ignore failures. And the entrepreneurs are themselves are like ducks. They're calm on the surface, but they're paddling like hell underneath. But you only get to to see them, you know, on that surface looking passionate and focused.

So the first image here is from The Social Network, which is a fictional movie about the founding of Facebook. Looks pretty fun. And the last image is an actual photo from the founding of Facebook. They're a little different. So reality is is a lot of heads down time doing hard work. We hardly had any time to bust open champagne and spray it all over our laptops. Alright.

So in practice, tech is a little less like the social network and more like Silicon Valley. It's actually really stressful. So why is that? Well, a few reasons. One, your team is relying on you, so they're betting some of their best years on the story you've told them. And their recruiter's pinging them constantly, like many times a week. So you're always worried you're gonna lose them.

Each round of fundraising feels a little like life and death and your competitors are actually trying to kill you. And you always feel stretched then because it's hard to make time for the company, your significant other, your family and yourself. So, of course, my title here is a reference to Ben Horowitz's book, The Hard Thing About Hard Things.

If you wanna go like way deep on this subject, I definitely recommend giving that a read. So relatedly, people also think being a founder will give you control over how you spend your time. There's a great quote from Phil Leibman here. Give you a sec to read it. So Phil and I both learned this the hard way, but you don't actually have control in practice.

So I spend most of my time working on the problems I just couldn't delegate. Reacting to issues that are popping up or resolving conflicts. And you're always on call, so it makes it hard to like really unplug during a vacation or on the weekends. And you're a role model too. So if you take the foot off if you take your foot off the gas, then so will your team.

So that said, this one really doesn't apply if you want to have a lifestyle business or be like a small business entrepreneur. If you do that, then you actually do have a lot of control over your lifestyle. But the financial and impact outcomes are gonna be smaller. Alright. So this is a recap of those first four topics. So these are the top reasons I usually hear from people.

So the success funnel that I showed you in practice suggests that startups aren't clearly the best way to maximize financial impact or sorry, financial reward or impact. So you might do better by joining an established company. And then similarly, the reality of entrepreneurship doesn't usually match what you see on the media.

So if you wanna aim for a home run, you should you should feel committed to putting in the many years of effort and discipline that it takes to become a professional athlete. And you still may fail. So now that I've given you a bunch of bad news, let's talk about what I see as the best reason for starting a company. So basically, you can't not do it. So this has two roots. The first is passion.

So passion is is really important since we just talked about how hard it is to start a company. So you're gonna need that passion to power through. And you also need it to recruit great people to follow you as a leader. And then the second part of this is that you're the right person to make this happen by starting a company.

So if you fail to do it, you're actually gonna be depriving the world of something great. So, this implies that the idea itself is really valuable, and it also implies that you're the best person to bring that idea into the world. If you're not the best person, then that best person's out there, and they're probably gonna out compete you and create something even more valuable.

So one twist on this is maybe you're the best person, but you should do it within the context of an existing company. So I often feel this way when I hear someone describe something to me that really sounds like a feature of an existing product.

So if you wanna have like the next twist on photo sharing, I definitely recommend considering Instagram or Snapchat, and helping them build it into their products. So you can be entrepreneurial inside the context of an existing company. So I've twice chosen to become an entrepreneur myself and both of the times were motivated by this reason exactly.

So, for Facebook, we're actually we actually continued to be students, at Harvard until, the site had over a hundred thousand monthly active users. So we had cognitive dissonance for kind of an embarrassing long period of time that we could just like be students and have this little side project on the on the side.

But eventually, it pulled us out because we we couldn't bear the idea of it not living up to its full potential. And then similarly at Asana, Justin and I were both reluctant entrepreneurs, but we thought the the problem of work tracking was really important, and that the other people working on it were gonna develop incremental solutions and leave a lot of value on the table.

So we couldn't stop working on it. Eventually, decided to leave, Facebook and focus on it full time. So when I meet entrepreneurs that really seem set up for success, this is usually the reason I'm hearing from them. They're starting a company because it felt like really the only thing that they could do next. So that's it. Short and sweet. Left time for questions.

I don't know what my, cutoff time is. Few minutes. Few minutes? Alright. Cool. So feel free to just raise your hands and I'll call on you and repeat the question for the mic. Someone always has to break the bubble but like 10 of you have questions. I have one.

Okay.

How do you decide if it's like, or how do you advise people to decide if the best way is to go do this at some other company or do it themselves? Like it's easy in the photo sharing example, but in the real world, most of the time it's a little bit murkier. So what's the framework you think through about?

Yeah. So two two things. Like, one is just the sort of like, know, feature not company distinction that like Mark Andreessen has talked about. So I don't know how to like make that concrete, but it's just sort of like thinking about the idea. Is this like a separate product that it feels like somebody's gonna sign up for, can have its own monetization model?

Are people really gonna invest in like learning a new system? Or does it really feel like the add on on top of of some existing model? And very related to that, think are just gonna be the competitive nature. So if you're if you have to introduce like a whole new photo sharing app, right?

And then you have to compete with the distribution and network effects of the existing ones, that's a huge barrier to entry and there's sort of similar metaphors and other other products. Does that make sense? Yes. That's gonna require judgment. Oh. Go with you and then you.

I was wondering like what's your thought on like the challenges starting a company when you started a company and like starting a company like two of today?

Yeah. So I sort of briefly outlined them when I was talking about the funnel. Oh, so yeah. Sorry. The the question was about the difference and challenges between starting a company basically in 02/2004 versus starting a company today or the second time in 02/2009. So I sort of outlined them when I was talking about the funnel.

But I definitely think, it's just a lot more competitive in terms of the exit the other businesses out there. So there's just like, most of the valuable markets, like, have interesting players already. It's also very competitive in the recruiting market. So it's really hard to get a big enough team of sufficiently talented people and those people are gonna be more expensive.

So that's one of the ways that costs have gone up. There's also a bunch of other ways including just like real estate in the Bay Area is really expensive right now. Some other costs have come down like data center costs, but in general, it it just feels higher friction and and harder to get going. Yeah.

So I mentioned there's a comparison between startup, like being a founder and being a late stage. So how do you position that early stage? Say, like, maybe the first ten Chinese people? Yeah. It's just somewhere on that spectrum.

So the original Oh, so sorry. The question is what's the difference between being a a sort of late stage or a later employee at a established company versus being like an early employee? Is that the question? So I I think of it as just a spectrum on the risk scale between like founder and like one thousandth employee. So if you're in the first ten, you have a little more bit more information.

You know who the founders are. You know who the leaders are. You can meet some of the investors. Hopefully, they've already done a seed round or an a round. But usually, you still don't have evidence yet about like the the revenue or the monetization and probably a product that isn't scaling yet. So it's just it's just sort of continuous spectrum.

And the earlier you are, you know, the lower your salary is gonna be, the lower the sort of probability of a positive outcome is gonna be. But you also have a possibility of a really big outcome because you're you might have, you know, 50 basis points or a hundred basis points if you're one of the first employees. Does it make sense?

Yeah. But still the probability of successful early employee at founder is approximately equal.

Again, it's on the spectrum. Right? So maybe the second employee so the question was, isn't the probability of success basically equal? Yeah. For the second employee, yes. For the tenth employee, no. They've got a lot more information. For like the twentieth employee, they've got even more information.

So it's just gonna be a continuous spectrum.

Question over here. Oh, yeah. How'd you find your core team when you were founding like Asana and Facebook? Like, natural process or did you go about like selecting the best of each, like, area? Sure. So how did we go about finding the core team?

At Facebook, pretty organic. So really, a lot of people were just like the people in our network at Harvard that we we moved out to Palo Alto with. And then very early on, we hired Matt Koehler and he sort of took over recruiting and helped us get into network into Stanford actually. And a lot of the people we hired were recent graduates here. And we really focused on the product team first.

But, yeah, a lot of it was very path dependent and organic working networks. Things are a little different now. As a small company, you can work with, you know, contractor recruiters and, even with some of the the services that that help connect people. And I think those are pretty good. Well, go call it something new. For sure. I was thinking along the passion dimension.

What are your thoughts along the lines from say like interest to like pathological obsession? Okay. The question is,.

when I talked about passion, am I talking just about an interest in the subject or pathological obsession? You know, again, it's a spectrum, but probably more towards the pathological obsession. Like, when I say, like, you can't not do it, it's like one of these things where you'll look back twenty years from now and be like, man, I really should have, like, gone after that idea.

It was really important to me. Whereas, like, interests. I have a lot of interests in the world. They're not all necessarily important and they're not all they're not all gonna keep my attention for like the ten or twenty years that you need to focus.

How are we doing on time? One more? Okay. Take care. I am building out a product or idea. Should you always have a co founder? And if so, like, how should you work for that co founder?

So the question is about, should you always have a co founder? And if so, how should you look for that co founder? This is a really tough one. I I happen to have a pretty strong opinion that like co founders are super important. Again, because like this is really hard and that's like your buddy that you get to lean on. And they're they're kind of like in the trenches with you.

But if you don't have someone who's sort of like the obvious person you wanna work with, I don't have good advice on on how to do that. In in both of my cases, we were starting a company together and like discussing it together the whole time. The sort of like founder dating thing doesn't make as much sense to me.

I actually think starting a company is like an even more important relationship than like getting married or something, because like financial issues enter the conversation even more often. And founder breakups are really bad.

So I highly recommend, you know, working with someone that you've you've known a long time and like really just discussing as many of the details as possible to make sure you're on the same page because those conversations get a lot harder later.

Alright. So I'm gonna wrap up. Thank you, Dustin. That was great. Yeah. Can I get that clicker? All right, so I wanted to use today to sort of summarize other things we'll be touching on in the class. And since it's mostly guest lecturers, this is my chance to say the things that I believe.

And I wanted to start off by talking about what makes Silicon Valley special. There are a hundred people in the room, in the class here at Stanford. There will be hundreds of thousands or millions, low millions of people that watch this online from around the world. And as I travel around the world talking about startups, the most common question I get is why Silicon Valley?

What happens there that's different than everywhere else? Why can't we do this where I'm from? And I think it's an instructive question, even for people living here. Because you want to find out what this is and surround yourself with the most concentrated version of it. The thing that I think is most important of all is that there is a relentless belief in the future here.

There are people here who will take your wild ideas seriously instead of mocking you. And that's because they've learned it's very expensive to just pass and say every idea is stupid. So if you have someone that's like, I'm gonna start an electric car company. And they don't know much about batteries, even less about cars. It'd be very easy to write that off.

And yesterday Tesla passed Ford in market cap. And so people have learned that these wild ideas about the future, you don't want to write them off too quickly. You want to give them a real chance, want to think about them. And in most of the world, and in most other work contexts, people will just mock you behind your back, to your face, whatever it is.

You really want to find the small number of people in your life that will support your ambitions, not belittle your ambitions. And this is hard to find. This is not the default state. We don't realize how rare it is that we're in an environment where that's what most people are like. There's no tall poppy syndrome.

In many other countries, many other cultures, there's a word for what it is when if a person gets too tall, too ambitious, thinking too big, you cut them down. There's not even really a phrase like that in America, but there is one in most other cultures. There's also a very high density of people working on startups here, and there's a culture of paying it forward.

People help me on my startup, I'm gonna help them on theirs. And so you want to surround yourself with this no matter where you are in the world. You may find that you have to go online to find that community, you still wanna do it. This is my old version of slides. Did I send you a new one? We're just gonna go with this.

All right, so one of the things that startups really have to get right is the idea. There's become this myth in Silicon Valley that the idea doesn't matter. And that you should start a startup and just sort of pivot your way on this random walk and hope you get something big. But Dustin said, all of the best startups that we have funded at Y Combinator, it was an idea first and a startup second.

It was not a bunch of pivots. The very few pivots that were successful were when the founders discovered along the way that there was some other idea, they were more passionate about than their first one. Or they just learned some new problem. Original thought is really hard to get good at, but really important. The most successful startups are not derivatives.

They are not a copy of something else that was working pretty well. Most people try to start a copy of whatever worked last year. I don't know how many people started a Facebook clone in the year after Facebook. Had to be a lot, a lot. And none of those went on to really matter. The next Facebook never looks like Facebook. It looks like something totally different.

And the way to get good at this is to start noticing problems in your own life. And the great advantage that you have as students is that students, young people in general, tend to be on the forefront of technology. You can predict the great wave before it happens. And this idea of the great wave, I think this is the most important concept to find good ideas out there.

People wonder why startups cluster in small periods of time. Why were there a bunch of startups that were companies that started in the late 90s, early 2000s that were really successful? Why were there a bunch of startups between sort of 02/2011 that started that were really successful? And the reason is that there are these great waves, the internet and mobile in those two cases, smartphones.

That all of a sudden new things are possible that were never possible before. And when that happens, because startups can move so quickly, you can do things that otherwise would never happen. Or that otherwise a big company would win on. And you want to think about what the next great wave is. My personal best guess is that it will be machine learning and just applied to every vertical.

I think that's the easiest layup right now if I were going to start a company. But you all probably know what that is much better than I do. Whatever your peers are doing, whatever your peers are excited about, even if it looks like a toy today, especially if it looks like a toy today. That's probably the next great wave. But you want to identify this.

What is the big technological tectonic shift that's gonna happen in the next couple of years? And do something that's enabled by that and built on that platform. It's also easier to start a hard company than an easy company. Most people, especially young people, wanna pick something that doesn't sound too ambitious, doesn't sound too hard.

Because they're like, well, starting a company sounds really hard. I better pick the easiest possible company. But actually, starting a company is always hard. And it's about equally hard no matter what you do.

If you start a hard company though, if you inspire passionate people, if you are building general AI or supersonic airplanes or nuclear power, you'll have a lot more people that are excited about that than another derivative idea. Facebook, nineteen fifty two. So this idea that it's easier to start a hard company than an easy company, I think is a big secret in startups still.

But it's one that I've seen again and again play out. As Dustin mentioned in answering a question, co founders are really good. But a bad co founder is way worse than no co founder. Because so many people say you need a co founder, there are a lot of people that will pull some random person off the street and make her their co founder. This is really bad.

In fact, we did a little analysis of our data at Y Combinator on this once. And these glommed on random co founders, one hundred percent failure rate, 100%. You really need a shared history. You want someone that you know is good, you know you can work with, and that you have an obligation to.

There are many times in the course of a startup where the expected value dips below the x axis, just temporarily. And it's not rational to keep going. And if you have a shared history and a bond with someone, you keep going anyway because you don't want to let your friend down. This is really important. You want to select determination.

Determination is the most important value in a co founder I've ever been able to identify. And it's not the thing people look for the most. Startups really, really hard. Determined people are the ones that make it work. Startups are about not giving up. When we talk to our best founders, the things that they say are things like, I always figure it out. I never give up.

And these are the traits that it actually works. It's not that picture that Dustin showed from the movie of like a beautiful mind style writing equations on the window. It's just dogged persistence. And you keep going and eventually it works. And that comes, it's co founders that need to have that.

So when I think about co founders, I tell people to think values first, aptitude second, and specific skills third. I think most people go in the opposite order. They're like, I need a co founder who knows JavaScript and X and Y. And really, you want to find someone that matches your values, especially this value of determination. You want someone that just has a lot of potential and aptitude.

And then finally, you can think about specific skills. And finally, you want someone that is humble and not entitled. When someone asked Dustin the question about what has changed in startups from 02/2004 to 2017, my answer to that question is that there are more people than ever before that want to get into startups ups for the wrong reasons. They want to do it because it's the cool thing to do.

These are the people that would have gone into investment banking in 02/2004. And you want people that are humble, that are not entitled, that are willing to do whatever it takes. And they're doing this because they want to create this thing. They have this idea that they can't let go. We have five lectures in this course devoted to the product.

Because a great product is the single most important thing that you do. The one thing I wanna mention for now, as you're thinking about the product you build, is that it is more important to have a small number of users that love you than a lot of users that like you. And almost all startups get this wrong. Eventually what you want of course is a lot of users that really love your product.

That's almost impossible to do. In practice you have two choices. You can go deep and narrow. You can have a small number of users that really love you and then you can find out how to find more and more of those users and broaden the appeal of the product.

Or you can have a lot of people that kinda use the product once or twice kinda like it And try to figure out how to get them more engaged over time. With high confidence, I can say, you want to start with a small number of users that really love you. Almost all great companies have products that start this way. Think about the ones in your own life.

The products that are so good you spontaneously tell your friends about them. The products that are so good that if they went away, you would write the company in protest. That's what it means to really love a product. A good indicator of that is retention and frequency of use.

So if you have, and in fact, I think this is so important that you actually shouldn't track absolute growth in number of users in the early days of a startup. You should just track how often they're using it. And we'll have a session on metrics later, But you really wanna get good at analyzing your metrics and saying, is this a user that I'm retaining and that's using it frequently?

How do I compare to other products in my space? And that's a good early indicator of users that love you. Better still is them spontaneously telling their friends to buy your product. But the important point here is this, nothing but a great product will save you. We're gonna talk about a lot of other things in this course, and they all kinda matter.

But if you don't get this one right, if you don't make a great product, the thing is still not going to work. So you need to get some users to build a great product. You can't do this in a vacuum. You need people to talk to and to iterate with. And so you need to find a small number of users that will help you build this great product.

And one of the most common cliches in all of startup advice is to talk to your users. One thing I've learned is that most people don't know what that actually means. Most people will say, I'm supposed to talk to my users. So they call up a user and say, hey, it's Sam. Do you like my product? And then the user says, yeah, do. It's fine. People kinda generally don't wanna disappoint you.

And so you say, great, thanks. And you hang up the phone. And this is what most founders do when you say talk to your users. This is not what it means. Emmett Sheer, who's one of our lecturers later, is really good at doing user interviews. And he'll talk about this in more detail. But you really need to drill in and remember people are going to be too nice to you.

So you need to find out exactly what they like about it. You need to watch them use it. You need to try to figure out where they're doing things that seem weird to you because they're trying to accomplish something else. You should ask them, have you recommended this to anyone else? If not, why not? Have you paid me yet? If not, why not? What would that take?

You really have to dig in and talk about specific features, things they used to use instead, times when they stopped using your product and used some other product. The top level questions here don't help you. In terms of getting those users, everyone thinks that they're just gonna put up this website, tell one person about it, it's gonna take off like wildfire. That's not what usually happens.

So there are four common strategies to get your first one hundred users. I'm gonna go through them in order of roughly best to worst. You can email people you already know and you can ask them to be your customers. You can call in all the favors with anyone you can think of, someone you took a random class with, someone you were friends with in high school.

You should actually, if it's a paid product, you should actually charge. This is important. Remember, people are going to be inclined to do you favors. They're gonna be too nice in what they tell you. So if it's a paid product, charge them. Another strategy is to research people that you think might use your product and then email them or whatever and ask them to try it.

Conversion rates here are low, maybe 2%, three %, so you'll have to do this to more. But you can send targeted emails and say, hey, I just made this new product. I'd really appreciate if you would try it out. Most people wanna be helpful, they probably will. You can do social media, hacker news, forums, press, whatever.

If this is going to be your growth strategy, you need to figure out a way for it to be ongoing. Not a one big pop and then go away. Most people who do this find that it works once. Then they call up the journalist and say, will you write about me again? And the journalist says, anything changed? No, but I really need users. Will you please write? The journalist still says no.

Airbnb is an example of a company that made this work as an ongoing process. And they would do the craziest things. They just kept coming up with press after press stunt. They would mail journalists giant boxes of cereal so they got on their desk. And they were able to get it to keep going. But that's hard.

And finally, the laziest and least impressive thing you can do is to just buy ads on Facebook or Google and point people to your website. This is not what I recommend. I don't know of any startup that's gotten a big starting this way. I include it because it's the idea that most people try. I wanna wrap this up before I take a few questions by talking about building a great company.

We talked about this earlier, getting to know your users really well is important. The best founders, they do customer support themselves. They go visit their users. They sit in their office if they can. In the case of Airbnb, they go live with them. You want to get to know your users really, really well. They have a short cycle time.

The cycle here is basically like talk to customer, understand pain point, build product to address that, get that in front of a user, ask them, see what they do, and then repeat the cycle. And this cycle is how you iterate and improve.

The law of compound growth being what it is, if you can get 2% better every iteration cycle, and you have a chance of having iteration cycle be every four hours or every four weeks. And you compound that over the course of a few years, you get in very, very different places. So make it one of your top goals to build the fastest iterating company the world has ever seen.

You wanna make a long term commitment. Most companies don't do this. Most companies, especially if they're trying to start the easy company, think in a two or three year time frame. These things always just take a lot longer. It's always somehow almost a ten year project if it's gonna work.

And if you think about that way from the very beginning, you will make very different and much better decisions. I think this is the only arbitrage opportunity left in the market. Almost no one makes a very long term commitment to a new project. And if you do that, you will think in a different way, you will hire different people, and that'll work really well.

Speaking of hiring, stay lean until everything is working really well. I think this is somewhat bimodal. In the early days when you're experimenting and zig zagging and you wanna be like a fast little speedboat, and you wanna be able to turn the whole company on a dime. And you can't do that if you have a big company. Cash burn aside, which is another problem.

The flexibility of a company basically decreases with the square of the number of employees. So you want to stay really small until you're sure things are working. Once things are working, then you can get really big. And in fact, then you need to. And so once you switch into hyperscale mode, you wanna just get as big as fast as you can with great people.

Because then you don't wanna be a speedboat, you want to be an aircraft carrier. You want to be a battleship. And you don't care about the fact that you can't turn as fast. You just want to steamroll everything. But you really want to be in one mode or the other. And you'll know, once users are just begging for your product. And you'll be convinced you have great product market fit.

That is when you can really start to scale up the company. Even when you get there though, resist the urge to hire mediocre people. Vinod Khosla, who's speaking later in the course, has a saying that I love, which is the team you build is the company you build. And this is really true. I didn't appreciate how true this was for a long time.

But if you build a team of great people and you have a product that people love, you have a 90 something percent chance of success. Those are both really hard to do and they're independent variables, but don't ignore the team point. The best CEOs I know spend huge amounts of their time recruiting and retaining their talent. How much of your time would you say you spend on this?

Probably.

40%, fifty %. Forty %, fifty %. This is Dustin Moskovitz, doesn't need to be doing anything he doesn't want to do, and he chooses to spend half of his time recruiting and retaining employees. So if Dustin can do that, you all probably should really be doing that as well. Every CEO I've met has an excuse for why they only spend 5% of their time on building their team.

And it always sounds really good and then they always turn out to fail. Really, really invest in this. Relentless execution. So this is a theme we'll talk about a lot, but you have to keep going and keep going and keep going. And you have to do things perfectly and you have to get all the details right. You have to care too much about every experience that a customer has with your company.

There's this book, The Score Takes Cares of Itself. The Score Will Take Care of Itself, something like that. Read it, it's really good. But it's about how important it is to get all the details right and just move forward relentlessly and as quickly as you can. Startups are about not giving up to a degree that most people don't have a good intuitive understanding for.

One of the very best companies in the last YC batch, He applied seven times before he got in. Most people, you reject them six times, they're not going to apply again on the seventh. And this is just a version of what happens in startups all of the time. Where you get beat down again and again and again.

And it's like that last time when you get pushed down and you don't think you have enough energy to get back up, that's when it finally works. And this is what you sign up for if you're gonna start a startup. Remember, if this is like a ten year marathon, you have a fiduciary duty to your shareholders to take care of yourself. So some people treat a start up as an all nighter.

They don't do a good job taking care of their health. They don't sleep. They don't maintain their personal relationships. It is true that startups are a bad choice for work life balance. There are always these posts about how I changed the world with my startup, only working two hours a day and kite surfing the rest of the time.

Some of these people though are never the ones that actually make a big impact. They just talk a lot. So startups are really hard. But you have a duty to yourself, your team, your investors to take care of yourself. And to not neglect your health, your well-being, the rest of your life, your personal relationships. And then finally, a clear mission. You don't have to figure this out on day one.

But all of the most successful startups I've been fortunate enough to be a part of, pretty quickly, first year, two years at the outside, they figure out a really important mission. And it is this mission that gets people to join them, that drives them, that drives the founders, that gets the media to write about them.

And even if you start off building a project that's just interesting to you and solves a problem in your own life, which is how you should start, remember to at some point have a clear mission. You have to become a great evangelist for this mission. One other skill that didn't make it into this version of the deck is being a great communicator.

But you need to clearly communicate and clearly think, clearly communicate this clear mission. And that is what will convince people to come help you. And that is how you will build this idea into this giant set of this huge company and all these people that really love your product. All right, I talked a little longer than I was hoping to.

I've got about two minutes left for questions if anyone has one.

I was wondering, so if there are two people you could hire. One person is very passionate about like the things that you're building, but lack of skill that you need. But the other person is like really really good at like in things that you're not good at, but they're not really passionate.

about like your idea. Like, which one would you convert them to join? Alright, so you have the choice to hire people. One is passionate and value aligned, but not a good skills match. The other one's a great skills match, but not passion aligned. Values first, aptitude second, specific skills third.

If you can get a really smart person who really shares your values and your mission and believes in what you're doing, they can learn the skills. I think this is a framework that does not let me down many times. Thank you. Sure. How do you get good at getting good ideas? How do you get good at getting good ideas?

One thing is just to practice a lot and tell people your ideas and be willing for them to tell you why it's terrible. But I think good ideas are not a solo endeavor. You want to find a group of smart people that you can start bouncing things off of and say, hey, I noticed this thing and it kind of sucked. What could we do about it?

And you don't just sit in the room and write on the window with the whiteboard pen and have the good ideas come to you. Good ideas come because you talk to people. You have smart friends, you have colleagues, and you spitball ideas around. So I would say, notice problems in your life. Even if you don't have a solution, still talk just about the problem and see if you can come up with something.

This is, one more thing on that. Ideas are very fragile. So when you find this set of people to start talking about ideas with, you want people that don't immediately shoot a bad half baked, half formed idea down. You want people who will say, well, yes, what if we did this our thing? You don't want people who like, that sounds stupid.

You want people who will say, well, sounds crazy and unlikely to work, but think how big it could be if it did work. That's the spirit of the kind of person. And then how can we figure out how make it work that you want? But I'd say notice problems, have people to talk with. Anything you'd add to that? All right, we can do one more question. Yes?

Got a thoughts around fundraising. How do you know when to start fundraising?

How do you know when to start fundraising? We don't have a whole class on that. But in general, if you can raise money on easy, and it's easy. So if people are desperate to give you money on good terms, that might be a good time to take it. And the other one, of course, is if you need the money. And then you kind of may need to do it no matter what the terms are.

In general, you want to have progress to warrant the funding you need. And so it's kind of when you have enough progress that you're able to fairly easily raise money and you need it, that's the best of all possible times. But again, that's a complicated question. We'll do a full lecture on it.

All right, one more. So how do you decide when to turn from the searching mode and stay linked to the place scaling mode? How do you decide to.

switch from when you're kind of like tacking around trying to get good product market fit and when to really scale up the company? You will know. Everyone wonders how they know when it's time for that. And it's like, when you are running around the office eighty hours a week, pulling your hairs out, and people love your product so much you just can't build it fast enough. That's when.

I have never seen someone not been able to figure out when this moment is. All right, on Thursday we will have a session on startup mechanics. And thank you very much.