Inside the Group Partner Lounge: Advantages of a first-time founder

Yeah. Basically.

Hello. This is Michael with Harge and Brad. Welcome to inside the group partner lounge. As YC group partners, we often find ourselves repeating the same advice over and over again to start up founders we work with. Before COVID, we'd often gather together in the group partner lounge at the YC office to try to figure out why this was the case and how we could help start ups figure it out faster.

Today, we're gonna talk about all of the advantages that first time founders have over second time founders.

Brad and Hart, set this up.

So, we talk to a lot of founders where it's the first time they've ever started their business. And some of you listening at home, this might be working on your first startup ever or you're thinking about working on your first startup. And one thing we see is, founders love to read, all the tech news. They love to read VC Twitter.

They're out there consuming all of this content information about the startup world.

Oftentimes, they get pretty psyched out by the fact that a lot of the coverage is about repeat founders, people that have sold companies, they've IPO ed companies, they've built huge companies, had huge successes, and now they are building some new company maybe in the space that the founder is thinking about starting a business in, and it can be really discouraging.

How the heck are you gonna compete with them considering all the success they've had? So, Harsh, one of the things that you mentioned before we started recording.

is the idea that as a second time founder, you had access to a lot of expert opinions. Now on the surface, that would seem incredibly helpful when creating a company, but tell us why, counterintuitively, maybe that, that that's that's not exactly what you want.

Yeah. I think as a as a second time founder, you both have access to more people, like, more smart people, who know a lot about startups, and you've had a lot more of your own experiences. And so every time you have a decision to make, you just have a lot more data to check the decision against. And I think that obvious there are obvious reasons that's great.

Having had the experience of choosing a startup idea or running a start up idea by your smart start up friends or mentors is has obvious advantages, but it can also just slow you down. I think this is something I felt myself is that it took me much longer to pick the idea or commit to working on an idea for my second startup than the first startup.

And I think it's because we had so many people we could run the idea by and get feedback and opinions from. And then digesting all of that feedback and thoughtful and thoughtful ideas.

can actually just mean you move slower. And let's pick at what that means. Like, when you're in that scenario, you're not talking to your potential customers and your users there. Right? You're talking to all these other startup people that you've made friends with as the over the course of doing your first startup.

I remember, I was at a Camp YC once, and I had this idea, and I pitched it to 10 people. And they all told me it was terrible. So I I didn't work on it. But had I gone and talked to actual customers for it, maybe they could have helped me, like, find a better version of that idea that actually would have solved the real problem for them.

I also think this concept of expert is a really interesting concept. Right? Because I'm so happy you said this idea of separating the expert from the user because there are so many people who are really smart about startups but who don't really have the problem you're trying to solve and really can't give you great advice, to be honest. But they will give you advice that sounds very expert.

And then there's other people who are users who might not be able to tell you whether this can be a billion dollar company, but they can easily tell you they have the problem. And I think as a second time founder, it's it's just as hard to talk to your users, but it's 10 times easier to talk to experts. So almost by extension, it's, like, even harder to talk to your users.

And that's a it's a it's a tricky it's a tricky thing. Another area that's interesting is this idea of picking your market. Right? Like, oh, you know, like, I don't wanna get caught by the trap of having us be building in a small market. You know? God forbid, I build a small company that only makes a hundred million dollars in revenue.

But I see so many founders who don't understand that markets can grow or that you can move to an adjacent market. You know, it's like, oh, no. I have to be in the trillion dollar energy market. That's the only place that can contain my ambition. Have you all seen some of this,.

disadvantage for second time founders? I I call this, like, the dinner party or the drinks problem. It's that when you're a second time founder, you start optimizing for how impressive what you're working on sounds at, like, dinner parties when you go for drinks with people. And so it's like, yes. I'm working on, like like, revolutionizing energy and blah blah blah. Right?

But, like, you don't wanna sound like you're working on some dumb idea, like, air bed and breakfast as, like, example. Right? And so, like, it's actually is all, like, you know, like, it's come 2011, '20 '12. Like, if you were pitching the idea for Coinbase, like, it's hard to do that as, like, a second time founder because it would just seem so dumb. And so I think that, like, first right?

Like, first time founders can actually take more risk on the ideas that they pick because they don't they don't have other startup friends or they don't care as much. They're just working on stuff they find interesting.

I love that. They have nobody to impress. Yeah. Basically. Oh, man. Now what about this concept of, like, the novel? Like, it's as a first time founder, you experience so many things for the first time, which can be so energizing. You know, second time founder is like, you know, one of the things we've been saying is, like, the lows are just as low, but the highs aren't as high.

Like, how have you guys seen that? Well, with with my company, I know that.

that first time we got anyone to pay us anything for anything was incredible. And we were dancing around the apartment. Right? We were, you know, cracking beers left and right. Like, what a what a rush. And yet, you know, the next day, we didn't feel that way. It was just more more revenue.

And so, yeah, if you if you take away all those fun little moments, where do you find the motivation to go further and to push harder? It's gotta come from somewhere else.

Yeah. That one's also fun because you know the lows are gonna suck. Right? So it's actually it hits you on both sides. Like, you know that there are gonna be moments you hate your life as second time founder. But you also know, like, the first amazing hire would just feel like, yeah. That's one of the first hundred people I have to hire. Great.

And then thousand people. You know, it's like none of these moments kind of stick as much anymore in your head, and and and that can be demoralizing. I think one of the other tricky, advantage first time founders is that, like, because they're gonna have harder times typically raising money or hiring employees, they tend to have to innovate more.

Like, they they tend to have to they're into building something good, whereas, like, the lack of constraints.

so often lead people astray. Yeah. I think that's a common one. That's a what's the phrase? Like, constraints breed creativity. Like, I definitely see that, especially with early stage startups because, yeah, as a second time founder, all of these things play in again.

Like, you can use you have an easier time raising funding, so you don't need to have the product be necessarily as amazing to raise your first round. You often have other people who are willing to try it out and be beta users or testers or whatever.

So it can you know, your your friends and family network is is potentially larger, whereas a first time founder oh, you can get pressed to write about what you write what you're launching as well. Right? Whereas a first time founder, the only way you're getting your first few users is having a really great product and being really great at selling it.

And I think you can just get a little bit lazy on that front as a second time founder.

Yeah. And then the other one is this idea of honesty. Like, Brad, do you think as second time founder, it's really possible to get honest feedback from your investors or friends or things like that? Or or do people have a hard time being honest with you at that point? I I think it's harder.

I when you're a first time founder, nobody cares about you because they don't have any sort of relationship with you yet. You know, you talk to some investor and you're just the product, and they tell you if the if they wanna invest or not.

And but then after you've been through a process with people and you've built some sort of rapport and relationship, now costly to tell them what you really think about what they're working on.

It, you know, it it basically it it all just comes from it's just a continuation of the same the the first startup being carried through into the second one and not having, like, a clean break and resetting all those relationships. But but, yeah, I definitely just.

it's really hard to get, you know, real true feedback from people. Yeah. It's just part of the the broader thing that first time founders often don't get is that when you're getting feedback on your idea from investors in particular, like, they're not their pure motivation is not to just give you the highest quality feedback they possibly can.

Like, they're often playing a different game, which is how do they set themselves up to get referrals to other good startups in the future? And it's like when you're a second time founder, the investors know that you know more people. They don't wanna give you bad feedback. Right? Like, they're incentivized to tell you nice things so that you'll continue being nice to them.

Whereas when you're a first time founder, you're less useful to an investor in that way. So they kind of can be a little bit more, like, just direct with what they think about you. They they can treat you without the the kid gloves or the they don't wrap you up in cotton wool as much. Yeah. What I've also seen for second time founders is that oftentimes for an investor, it's more of a catch.

It, like, helps you build your reputation in your firm, or it helps you get the deal approved. And, like so oftentimes, there's, like, internal political reasons why you might be getting funded that have, like, nothing to do with your product being great or your users loving you, you know. And and you you're never told that stuff. Right?

Like, it's just kinda happening in the background, and and and you don't really know that you're being graded on a different front. Whereas, like you said, when you're a first time founder,.

you're nobody. Nobody care. I'll I'll say you you find out eventually, though. It's a little bit like taking out debt, honestly, where it's like maybe early on as a second time founder. Like, maybe the seed round's easier, maybe even a series a is easier. But the later the longer you work in your start up for, the more people just care about the results.

And, like, sooner or later, if you don't have a product, if it doesn't actually have product market fit, if you don't have customers who love you and will do a reference call saying how great your product is, like, the whole thing falls down. And so I think that's another thing often we can see with, like, a first time founder.

Like, they never had it easy, so they just have to learn how to operate, like, at a certain, like, level of execution from day one. Whereas a second time founder, you sometimes it's a little bit like you're, like, driving on, like, autopilot or something, and then it like, the autopilot gets shut off. And now you're like, oh, crap.

Like like, I have to actually figure out, like, how to get, like, a great product shipped. I have to, like, actually fix all these problems because now I'm not gonna be able to raise investment or get to, like, the next revenue milestone.

unless I have something that's really good. It's funny. I love that analogy. Because in that analogy, when the autopilot gets shut off, you're, like, going a 20 miles an hour down, like, a curvy mountain road. Right? And then it's like, well, I I thought everything was good, though. The computer was driving. Things are gonna be going great.

Best driver. Yeah. Whereas Elise is a first time signer. You you start on, like, some suburban road going two miles an hour. Oh, man. Alright. Well, let's be clear, though. Like, someone should play devil's advocate because, certainly, there are some advantages to being second time founder.

What what do y'all think is, like, the.

the first kind of big boy here on on a massive advantage being a second time founder? Well, I think if you have did did your first start up and got some semblance of financial independence from it, then you don't carry the same, like, massive weight of asking yourself constantly, how the heck am I going to survive, eat, sleep, whatever, that first time founders often carry with them. Right?

We we work with a lot of these first time founders. We we know lots of first time founders. That desperation in their eyes, which is a great thing. Sometimes it helps drive them forward, also comes with a cost of just being stressed out all the time. And it can lead to some short term thinking, in terms of what to work on, how to sell your product, what even what go to market strategy.

We I see a lot of companies that that just wanna do product led growth, for example, because they think that'll get them their first revenue, when really they should be selling enterprise, which might take a while, but actually be the fit for their business, for example.

Whereas if you have some financial independence, like a lot of second time founders, you can think bigger and actually, like, play out the implications of the business that you're going after and try to build something that's optimized to get big from day one. Yeah. You know? And that's a big one when you wanna have family or wanna own a house. Just like, you know, being able to.

if you're successful, as you mentioned, being using that money to free your life of distractions can be a big advantage. You know? You can up the childcare. You can up the quality of the space you live in, and so on and so forth. Like, for sure, that's one. What do you think, Harjee? Another devil's advocate position here on why second time founders founders have an advantage?

Another very specific type of startup that seems to be suited to second time founders as capital intensive businesses.

And by that, I mean, you know, any any start up where, like, more money raised or just more money is a strategic advantage, Second time founders who are good at raising money can benefit. Right? So, like, let's make some examples around it. Like, there's famous ones, like Elon Musk, probably the most famous one. Right?

Like, he started, I think it was Zip two or something, then PayPal, but now, you know, now SpaceX and Tesla. But from our own orbit, like, we have example. I speak I pass to one. A friend and former roommate of mine, Eric Wu, the YC founder, who started a company called Moviti, was acquired by Trulia pretty early on, but, like, it was a a good exit for him. And then he started Opendoor. Right?

Opendoor's now a public company worth billions of dollars. And I think Opendoor's a company he's raised, like, well over a billion dollars for that company, and I think that was much easier for him to do as a second time founder. Well but, Todd, people probably won't know. Why is Opendoor so capital intensive? Oh, because they're actually buying and selling houses. They're like they're like yeah.

It's it's yeah. It couldn't be more it's very have intensive. Like, they actually go out and just buy, like, tens of thousands of homes across America. So, yeah, definitely helps. Definitely helps out a lot of money.

Good software, not sufficient. Yeah. Software plus money. Yeah. Oh, man. Another class example is is Blake from Boom who started a software company and sold it and then decided to make, you know, a supersonic jet company. Right? And another example of a company that, like, will take a decade to make the first flight and at least and that's, like, on an aggressive time frame.

That would be a massive accomplishment. And so, you know, yeah, being able to say I've already exited. I've already given my investors cash back. Like, that's really helpful when you have to build a supersonic jet company. Any other examples here, Brad? I.

I mean, I think you can look at Cruise, for example, and, you know, you can you can look at, like, what Max has done, Max Levchin, with all the different companies that he's built. And each one just gets more and more and more and more ambitious. And it's just something you can do more as a second time founder.

I think what I will say, though, is that so many founders are confused about whether they're building a business where money is the real advantage. Like, I would certainly say that's the minority of businesses here. You know? When we describe what's going on, we have, like, large physical like, our examples are large physical things. Right? Rockets, cars, self driving cars, and hypersonic planes.

Right? So large physical things clearly need a lot of money. Also, lending. Right? You know, Brex, second time founders, they extend credit to to startups. Max Levkin with the firm extending credit. So it's like lending and big physical things definitely require a lot of money.

It's not obvious to me that there are many other business categories that require a lot of money where cash is the advantage. So,.

if you're doing one of those two, it might make sense. Yeah. And and if you're one of the many people listening at home who's thinking about building a software company, like, it's not gonna help the incumbents. Right? Having all this access to capital is not gonna do it. You go out and talk to your users. That's what's gonna make the difference.

In fact, it'll hurt them. Right? Because they'll spend it on instead of spending it on, you know, rockets and stuff, they'll spend it on too many employees. And then, yeah, we'll see. We all know knows what happened then. So maybe the last area is when you're building in a space you know really well.

You know, Harj, you know Parker, Conrad well. Like, you've seen him build two companies in the same space. What are your thoughts on this? Yeah. He's Parker's a great example. Right? Like, he built Xenophits, which was worth, like, $4,000,000,000 at its peak, and then, like, he started rippling, which is now worth, like, over $10,000,000,000.

And I think if you if you sort of I if you if you ask him to sort of explain that a little bit, he'll say that the experience of working on Xenophits gave him really deep domain expertise around how to build, like, high quality HR software and sell it, and he used a lot of expertise to build something even bigger with Ripley. Right? Like, he's clearly a world class.

domain expert in how to build effective HR software. And, you know, I've looked it up. The Workday founder's very similar. You know, one of the Workday founders was a CEO of PeopleSoft, and then he saw how the world was moving to the cloud, and he decided to move along with it. So there's definitely advantage if you've got, like, intense deep knowledge about a space.

And by the way and you're not sick of that space, and you wanna go back to it for another couple decades.

But but, Michael, that that raise that raises the the other point I wanna make about this, which is that it's so common to talk to a second time founder, and they just hate the market they were just working in. And they oh, like, oh, never do that. Those one of those startups. It's the worst. What no. What whatever the market is. If they did a startup in it, it's terrible.

And yet we're highlighting that when they go back,.

that's one of the times when it can be really good. Another really important point about that though, Brad, is that it's why it's really important if you're a first time founder and you get feedback on your idea from a founder who had tried the idea before and failed is you have to be very careful. Because on the one hand, there's probably interesting learning for you there.

But the other hand, you have to remember that, like, sometimes when founders don't succeed in a market, they end up hating that market, and they kinda don't want anyone to succeed. Because otherwise, it's sort of, like, it sort of like hurts their own self image. Right? Like and so, this is something I noticed.

I always I often tell YC founders to talk to other YC founders that have worked on similar things before, and maybe they've moved on. But the trick is to listen to just the facts.

of what they did and what happened, not what they think about it. Because we're all so deluded about why things happened or what they mean or the significance of them that it's just not useful signal to founders that are building a new business.

So if we're gonna wrap this up, how for the person who is thinking about being a first time founder but is worried that they don't have the advantages, what's the kind of party message you wanna give them? You're actually well situated to build a unique novel business that delivers,.

real value to your users. And a lot of the, glamour that comes with being a repeat founder is a trap. And they have their own problems that they're working through, and it's it's not gonna help them. So don't be discouraged by that. Understand that you can you can and should take your swing.

Yeah. I I'd say to first time founders, just don't get sucked into grass is greener syndrome. Like, don't think that just because you've got a competitor that started by a founder who's on their second or third company that they're gonna crush you.

Like, we as we speak from our own personal perspectives here, often those same second, third time founders are wishing that they had the benefits and advantages of the first time founder.

And, you know, I think we would be remiss without adding that, you know, some of the biggest companies ever, Google, Facebook, Microsoft, first time founders. So you're in good company as a first time founder. Always remember that. You know? Your company is maybe the best founders who ever existed, Jeff Bezos. You know? So with that, good luck out there. K.

Thanks. See you guys later. See you.