How not to fail

Oh, hi everyone. One thing, I think I'm missing the clicker. Should I have brought the clicker out? Thank you. Alright. Sorry. Welcome, everyone. I am so, so happy to see you all today.

I'm so happy to be here. Thank you for traveling all this way, for those of you that traveled. I just have a question because I'm personally curious. Can you raise your hand and I'll try to see you in the light? How many of you is this your first Female Founders Conference? Oh my god. Oh, this is so exciting. Okay.

Oh, wow. And then, how many of you have actually started a startup and are working on one right now? Oh my god. Oh, jeez. Okay. That's a lot. This is very exciting. Alright.

Well, let's get started then. I want to start off today with some well, this is this is by the way the Twitter Twitter thing and and share the live feed for people who can't be there. I want to start off today with some personal news. After working on Y Combinator for eleven years, I'm going on a sabbatical for the next year, which is exciting.

I want to focus on some projects, and to be honest, I'm a little bit tired. YC is my favorite thing in the world, but it's also all consuming, and it's hard to work on something all consuming for eleven years without a break, including maternity leave, which was my fault. I also want to spend more time with my sons. They're seven and four now, and I'm not going to be able to get these years back.

So pretty much right after this conference, I'm going to go on sabbatical. Thank you. And that brings me to the topic of my talk. I'm going to tell you what I want you to remember while I'm away.

And I was thinking about what I wanted YC founders to remember while I was away, and I realized that everything I wanted to tell them was just as applicable to you all, so I'm going to give you the exact same advice that I'd give YC founders. Okay. Make something people want. This is why Combinator's motto, and after eleven years and more than a thousand startups, I know we picked the right one.

Nothing else you do will matter if you're not making something people want. You can be the best spokesperson, the best fundraiser, the best programmer, but if you aren't building a product that satisfies a real need, you'll never succeed. And my advice to those of you who are still looking for an idea is to solve a problem that you yourself have.

Then you'll at least know it's something that at least one person really wants. And when you're part of the target market, you'll have insights about it that you wouldn't otherwise. But you should graduate from making something just for yourself and make something for other people as fast as you can. And to know what they want, you have to understand them. Do they like what you've made so far?

If not, why not? Talk to your users as much as you can, even if that means doing things that don't scale early on. I don't know a single case of a startup that felt like they spent too much time talking to users. And be open to adjusting your ideas because good ideas evolve. The most famous example of this type of evolution within the YC community is probably Airbnb.

They started off having air beds on floors for conferences, and then air beds on floors but without conferences, and then actual bedrooms, and then whole places. And that final step happened, believe it or not, because Barry Manilow went on tour. His drummer was an early Airbnb host, and that was back in the days when the hosts were expected to be there.

One day, he told the Airbnb's that Barry was going on tour and could he rent out his whole place while he was away. And the Airbnb's like really had to think about if that was okay. They were still air bed and breakfast back then, not Airbnb. So, like, guests had to get breakfast. But in the end, they said yes, and this type of stay is now most of Airbnb's business.

Your users are your guidepost, and the way you stay on the right path in the early stages of a startup is to build stuff and talk to users and nothing else. One of the most conspicuous patterns we've seen among the thousand startups we've funded is that the most successful founders are always totally focused on their product and their users to the point of being fanatical.

The best founders don't have time to get caught up in other things. This is a list of things that I see easily distract founders, and these are the equivalent. They're like the startup equivalent of wolves in sheep's clothing. Notice that this list implies you shouldn't be here.

Here I am up on stage at a conference telling you that you shouldn't go to conferences, and honestly, as a rule, you shouldn't. And that's why we try so hard to make this conference good because we know that it has to be more useful to you than spending the same time building things and talking to users. And that's a really high bar.

I want to talk a little bit more about the last point, worrying about being a woman in tech since it's the only one on this list that's specific to this audience. There are some real obstacles women face as startup founders. But there's just so much talk and noise on this topic that I worry it will scare potential founders away.

Also, it's hard to sift through everything and know what's accurate and what's not. The conversation around this topic is too often driven by people who are not actually building things themselves. And as with any other topic, the amount of attention the press devotes to this issue is not determined by the size of the problem, but by its potential to generate page views.

Controversy generates page views, so they write about controversy. You don't hear as much about the female founders, and there are a lot of them, who are quietly and successfully building their companies. I don't give a shit about page views. What I care about is how I can help support female founders. The way I do it is to encourage women to start startups and to help them succeed once they do.

So while I'll tell you that it is going to be harder for you as a woman, it's not going to be so much harder that it will make the difference between success and failure. If you want to start a startup, go ahead and do it, and don't let yourself be intimidated or distracted by all the noise, all the news articles and the Twitter controversy about how it's harder for you as a woman.

That's not only the best plan for you personally, but it's also the best way to fix these problems. If you do the first things that I told you, make something people want and focus, you'll get growth as a result. And that means you can use growth as a test of whether you're doing those two things. If you have a good growth rate, which in a startup means 10% per month, you're on the right track.

And if you don't, you're missing at least one of the two ingredients that I mentioned. You're either making the wrong thing or not focusing enough. There's a famous sentence we often quote at Y Combinator, you make what you measure. Pick a number you want to grow and focus on that. The best metric to choose is good old fashioned revenue.

There's no better test of whether you're really making something people want. Focusing on growth also prevents you from being in denial, which is a big danger for startup founders. For some reason, a lot of the problems you face in a startup tend to provoke denial. Maybe it's simply because these problems are hard. Founders who are making the wrong thing are often in denial about it.

Founders who are wasting their time on inessential stuff are often in denial about it. Denial is the silent killer of startups. But if you hold yourself to growth targets, you can't remain in denial. The numbers, good or bad, are staring you in the face. Unless, of course, you're in denial about the need to hold yourself to growth targets, and that, believe it or not, happens all the time.

We constantly hear founders saying, we're not focusing on growth right now. And there are times when that's the right thing to do, but I don't even need to tell you how things usually work out when we hear that from founders. Growth isn't enough though. You can have a good growth rate and still die if you run out of money and can't raise more.

The critical question is whether you're what we call default alive or default dead. Default alive means if your expenses stay the same and your revenue continues to grow at the rate it's been growing, you get to break even before you run out of money. Default dead means you don't. Paul wrote an essay about it at that URL. I strongly recommend you you read that.

We now ask all YC founders to begin their investor updates to us by saying which of the two they are. As well as telling us how the startup is doing, it's a good way to yank the founders out of denial because being about to run out of money is another one of those dangerous problems founders are often in denial about.

You'd be amazed at how many founders don't even know whether they're default alive or default dead. Why do startups run out of money? By spending too much. And since the main expense in startups is salaries, spending too much equals hiring too many people. Overhiring is the big mistake in the second phase of a start up as making something no one wants is in the first phase.

I know how dangerous overhiring is because y c startups constantly make this mistake despite us constantly warning them against it. The problem with overhiring is it gives you less margin for error. The faster you're burning through the money you have in the bank, the less time you have to make it to profitability.

But startups, both because they're usually run by inexperienced founders and doing something novel, they take longer to get right than you expect. And that's a deadly combination because when you start to run out of money before you have things working right, you have to raise more during a phase when the company is an ugly duckling.

And even if you're on the right track, you look bad now, and investors don't like startups like that. So after you raise money, be very conservative how you spend it. Hire for the pessimistic case. Assume it will take you longer than expected to get things working. If there's one thing you can foresee in a start up, it's unforeseen problems.

I constantly see start ups die even though they're on the right track simply because they hired too fast. The reason start ups get so slammed when they have to raise money as an ugly duckling is that later rounds of fundraising get much harder. Founders who had a fairly easy time raising a seed round think it will be just as easy to raise a series a. It's not.

We often get emails from startups saying, we're running out of money, so we're going to raise a series a now, as if it were like making a second trip to the ATM. And when we ask how they're doing, the answer is usually a combination of slow growth and high expenses, and we have to tell them there's no hope of raising a series a, and they'll have to make drastic changes even to survive.

Series A investors have a totally different attitude from seed investors, and this is important. Seed investors are looking for promise. Series A investors are looking for performance. They know that all the returns in venture investing are concentrated in the big winners. So they want to invest in you only if you're clearly on the path to being a big winner.

They'll pay high prices if you are, but if you aren't, they won't invest at all. So even if you're on the right path but still in the middle of converting promise to performance, they still won't invest. To them, there's not much difference between a startup halfway along the right path and a startup on the wrong path. If they don't see sufficient progress, they don't care why.

So I've made startups seem pretty scary so far. I'm really sorry. I can't help myself. I've just seen so much. The good news is that this is a pretty complete list. If you avoid all the mistakes I warn you about here, you'll be in really good shape.

And if you start by making something people actually want, focus on making users really happy, make sure you have a good growth rate and don't overhire, you'll be in a very happy position. You'll be master of your own fate in a way that very few people ever get to be. We host this conference for two reasons.

One is to inspire more women to start startups, and two is to try to help women who already have become more successful. But I have a more specific goal than that. I want there not just to be more female founders. I want there to be more female founders of the big winners, the unicorns.

These are the founders who make the most effective role models, and role models are what we need most if we want to encourage more women to take the leap and start their own companies. And you know where most of the founders of the big winners are gonna come from? From this room. Seriously.

After funding over a thousand startups at Y Combinator, I know what it takes to start these successful companies. And from meeting the people who've come to past female founders conferences, I know there are a lot of you in this room who have what it takes. Imagine the future we'll have if you go ahead and do it. Thank you.