Sam Altman on how to pick which startup to work at

So I wanna talk about how to pick which startup to work at. The most important considerations, you all already know. Picking a company you're excited about, people you're excited about, a role you're excited about, that's more important than the rest of the stuff I have to say, but that's also intuitive. And so I'm gonna talk about the things that are not intuitive or at least haven't been for me.

And I wanna just echo one thing that Justin said because I think it's so important. Every job I've ever had and probably every job Justin's ever had as well, I'll speak for myself at least, I've been wildly unqualified for. And doing that I think is like the number one secret to having a really great career. Like that's the way you have a super fast rate of personal growth.

And I think the way careers go is you should put in the most of the effort at the beginning because there's it's this compound interest like thing where the work you do now, the learning you do now, the improvement you make early in your career gets to pay off for all the rest. So you may as well work hard and take a chance on a role that you feel unqualified for early.

And if you flame out, you flame out and you go try something different. But my experience is when someone does a role they're unqualified for, it either goes way worse or way better than expectations. And a lot of the times it goes way better.

And if you hold yourself back from doing this because you're afraid of not working out, which is totally understandable, sometimes it doesn't, I think you miss this opportunity to have the sort of most impactful career you can. And that is what's so cool about startups is you can get jobs you are wildly unqualified for. So I want to talk about how to pick a startup.

And I want to talk about this from the perspective of being an investor because I think what you're doing when you go to work at a startup is making one big investment. If you're really good, you are going to take way less cash comp you can than you could get at Google or Facebook. And you are going to be compensated for that by investing your time in the startup in return for equity.

So people have different risk reward trade offs. You might want a later stage startup with this lower risk or return. You might want higher risk, high return of a very early stage startup. But I think the right framework this is to think about it like you're investing in a startup. And for me at least, learning to invest in startups was deeply counterintuitive.

And I'm gonna talk about eight things that I learned about how to evaluate startups for investment. This mostly applies to sort of the stage of startups you'll see here today. Number one. This is a Paul Buhite, another Paul Buhite ism. It's more important that a startup have a small number of users that really love the product rather than a lot of users that really like the product.

Most startups either have no one who cares at all or a lot of people who are kinda like, yeah, that's okay. Very rare to find a startup where people love the product so much they spontaneously tell their friends. But if you think about the really big companies today, Google, Facebook, you probably heard about it because someone was like this is awesome, you gotta sign up.

And you know people talk about product market fit, all this other stuff, I think it's sort of hard to evaluate. But one thing you can do is either like talk to some users of the company or ideally you are one yourself or know some and like is this product so good that people are telling other people they've got to use it?

And that I think matters much more than the vanity metrics number of users, current growth rate, whatever that most startups throw around. So if you only do one piece of diligence, this is the one I would do. Number two, trust in exponential growth, and as a as a byproduct of that, in momentum. Momentum is sort of this really important concept to startups.

If things are feeling good, if it's growing, if people are loving the product, if good people are joining, that tends to keep going. And if that falters, it's very hard to get it back. So does the startup have a good sense of momentum and is there some sort of exponential growth model? By the way, I've been investing in startups for like, I don't know, eight or ten years now.

I still have not managed to get good at intuiting exponential growth in my head. So I have to do it in a spreadsheet every time. But I've learned to trust it. And if it's if it's if a startup is growing exponentially and it's not fake, it's not like, you know, they're buying all the users or something, it tends to keep going.

And making that leap of faith because almost no one understands just how powerful exponential growth is even if they say out loud they do, making the leap of faith and trusting that is super valuable. Related concept, this is the third one. The size of the market today matters almost not at all. It is the the growth rate of the market and how big the market will be in ten years.

So I think the number one mistake investors make when they miss out on a really great opportunity is they look at the size of the market today. Now they only care about how fast the startup is growing. They don't care about the size of the revenue today. And and why they can't make this same leap of faith for the market, I've never understood.

But if you make a really great decision on what startup to join, it will probably be a smallish market today that's growing really quickly. You know, I saw this morning on the way down here, this is like the ten year anniversary of the iPhone app store. So ten years ago, not very long, the size of the market for iPhone applications was $0.

And a lot of investors, you know, somewhat rationally but obviously wrongly said, alright, well, we're not investing in these iPhone apps because this is a small market. I also saw this morning the Uber deck when they first raised money and they said, you know, their TAM is like $2,000,000,000 or something. And If you think about the world from a certain set of constraints, that was true.

But it turns out that the market of people that want to move around cities easily grows quickly when you have a better product. So thinking about the growth rate of the market, not just the growth rate of the startup, super important if you're going to identify something really big.

And a related concept to that is the biggest companies that we have been able to be a part of and I think the biggest companies in the technology industry as a whole happen when there's a technological platform shift. So for example, stick with the iPhone example, the iPhone app store launches in 02/2008.

In a period of say 02/2009 to 02/2012, there were a lot of companies that you could never have started before and that all of a sudden you could. Uber's a good example but there's other ones like Snapchat which really just didn't quite make sense before mobile phones and apps.

And so trying to identify these platform shifts, that's another place where I think you can find almost all of the big startups. Most people are wrong about this, so you have to learn to trust your own intuitions here. It's very hard to differentiate between real trends and fake trends. The technology journalists in particular seem easy to trick about this, but honestly so is everybody.

And so if you read the news, you're not gonna find the answer here. If you talk to most people, you're not gonna find the answer here. But if you think hard and you really pay attention, sometimes you can. The metric that I use to differentiate between a real trend and a fake trend is similar to loving a product. It's when is there a new platform that people are using many hours every day.

So the iPhone comes out, not that many people buy it but they use it all day. VR headsets come out, a lot of people buy it but they never come off the shelf. So VR by that metric is not yet a real trend. And at the point where people start having their headset on hours a day, that might be a good time to start a VR company. The fifth consideration. Is the company exciting?

And here's why that's important. The hardest thing to get, especially right now in Silicon Valley, is a critical mass of talented people at one company. It's easy to get the first few employees, you can give them a ton of equity, give them big job titles, but that stops to work. And then you get to employee 30, employee 300.

Why are they still gonna join rather than start their own startup, join a small startup, go to Google? And this ability to have an exciting enough mission to be able to concentrate talent, this is why I think it's easier to start a hard startup than an easy startup because people care. And if you don't have this it's really hard.

I have basically in my life tried had to recruit a lot for two different startups. One was a company I started a long time ago that did social networking on iPhones and another was OpenAI. And in the first one we could tell people like hey you like you should come do this, it's really cool and it was kind of cool.

In OpenAI we can say like you know if we don't do a good job or if someone does not do a good job building AGI like the world will very likely get destroyed And we need you specifically to do this piece of it. If you don't do that, it's really bad for the world. And that is a really hard pitch to say no to. And so a startup that has a reason why people need to join it is super powerful.

The sixth one is is thinking about how impressed you are by the founders and the early employees at the startup. So as a general observation, it is extremely powerful whenever you can identify something in the world that is true and important and that most people don't believe. And in fact, I think this is one of the two major market inefficiencies that startups get to exploit.

There exists a small number of founders in the world that are so good that they end up bending the world to their will. And they can do this without a lot of business experience. And they are like hundreds of times more effective than people that aren't like this.

And, you know, there are programmers that are, I I know people hate the 10x engineer meme because it's so often used to justify being a jerk, but there are plenty of people who are 10 times as good as average programmers and also nice people. And in companies where you find a lot of these people concentrated in the early hires, this is a huge deal. And these startups consistently outperform.

And the quality of the early people at a company, the quality of the founders is so determinant of success, and it has such a bigger impact than people like to believe or wanna believe about the world that when you find this, it is one of these secrets about the world that is critically important and that people try not to believe. So I think that's a really great thing to look for.

The other the other big market inefficiency to look for is ideas that sound bad but are good. So most ideas that sound bad are unfortunately bad and you should try not to join those companies. But there exists a class, and this is where YC has made most of its money, of ideas that sound bad but are good.

If an idea is good and sounds good, then the big companies will try to do it and usually outcompete you. But there's a really important difference between startups and big companies.

If you have the same idea at a big company and you wanna do it, you have to get your boss to say yes, your boss's boss to say yes, your boss's boss to say yes, and then Sundar to say yes, and then Larry Page to say yes. And in that chain of 21 no kills the entire idea. And if the idea sounds bad, someone will rationally so say no.

If you're a start up, you may also have 20 conversations, you may go up and down Sand Hill Road trying to convince someone to fund it, but you only need one yes. And the one yes, you get to go do it even if it's 19 no's. It's very different than what has to happen in a big company.

So one idea I often ask startups is can you tell me why this idea sounds bad to the big companies but actually is good? And then a final thing that I look at are what This has been a long standing YC metric. What are the smartest sort of recent college graduates excited about?

In our experience now over more than thirteen years that YC has been in business, that group of people consistently is three, four years ahead of what investors focus on. And that has been a model for us of identifying real trends before they happen. That group is not always right. There have been some big failures.

But directionally speaking, young people I think have more time, they're more on the forefront of technology, they're less set in their ways, whatever it's for. What those people are going into is an area that we have always looked at. So another question that's related to all of this is how to get good advice about what startup to join.

And you have to choose the peers whose opinion you care about in your life very, very carefully. Most people will have bring whatever biases they have about what a career should look like or what a safe choice is or what a good thing to work on is. They'll they'll bring all that to the table. And most people have let bad processes in behind their firewall and they will give you bad advice.

And so trying to find a group of people that you can go to in your lives whenever you have a big career decision that are kind of open minded and intellectually rigorous thinkers and who care about the similar kinds of things that you care about, whatever that is, is a really valuable thing to do. I was lucky to find a handful of those people very early in my life.

I still ping them on every big decision. And the advice that they give me, I think, is generally quite good and very different than what I'd get from most of my friends. So finding people who can give you good advice about what startup to join is really important. I was gonna talk about how to think about equity at a startup, but I only have one minute left.

So I will say this, you probably aren't getting enough. I think most startups are not nearly generous enough with employee equity. The difference, the amount of value that you create as an early employee versus a founder is not the 100x difference that you usually see reflected on a cap table.

We try to get YC startups to be more generous with equity and I think over time it's trending in that direction. But like remember, startups need really talented people. Startups need people that could otherwise go work at Google and make a gigantic salary. And I think you should demand to be treated fairly for that.

That's my that was supposed to be five minutes, but there's the twenty five second version. Alright. Thank you very much. We are going to start with company presentations now. And thanks for coming today.