The path to $100B

It is now my great pleasure to introduce my long-time colleague at Y Combinator, Paul Buchheit. Paul is known for a lot of things, not the least of which is his wisdom and all things when it comes to startups. But he's also, of course, the creator of Gmail, the inventor, this is true, of Don't Be Evil. And has had an incredible career.

So I just thought I'd turn it over to Paul for a couple of minutes for him to describe his journey from somewhere into YC and what's happened then. Then we're going to have an interesting conversation, I hope, on what it means to build an epic company. Paul? Wow, all right, thank you. How far back do you want me to go exactly? Where were you born? Where was I born? Upstate New York.

Me too. Yeah, so I grew up in the Midwest and I went to college in Ohio and like in the 90s, which is different from now probably. Everything in the 90s is different from now. So yeah, I was always interested in startups and even as a kid, I think I just didn't like the idea of working for someone else.

And also I liked the idea that you could make a lot of money and create cool new inventions, basically. You'd read about inventors like Tesla or someone like that. You're like, wow, if only that guy were smarter at business. He invented so much. He invented so much and he died penniless. Didn't he start that car company? Yeah, I don't know if he actually. ..

I'm not sure if he actually got any equity in that. I don't think he did. So yeah, I was always kind of in the back of my mind. But as I'm coming up to graduate college, which was in 1998, so I was very interested in startups. But there really was, you know, there's obviously no startup school. There was no Y Combinator. There's basically very little. The web was relatively tiny at the time.

There was not a lot of resources. I didn't really have any connections. I didn't know anyone who worked at a startup. But I suspected they were like in California. So just always doing kind of like the simplest thing first. I'm kind of intrigued by that. What made you think of California?

I mean, like eBay, Netscape, like that first generation Yahoo, all of that first generation of internet companies. They had already. .. You know, those companies are IPO'd by the time I graduated. And they were all located here, you know, with the exception of Amazon up in Seattle. It's pretty obvious. I didn't have to be that smart. Silicon Valley was.

.. I didn't have to be that smart to figure out where Silicon Valley is. So I took a job out here at Intel, kind of with the hope that I would just like. .. You know, there would be startups everywhere. I'll just like find one or something. So you went to work for the man. Yeah, I went to work at Intel.

And that was. .. You know, Intel is a big company. It wasn't awesome. It wasn't terrible. It wasn't like a bad job. You know, I don't want to like. ..

But it wasn't something I look forward to like continuing to do year after year. Yeah, we used to call working at HP where I first worked the fur-lined rut. Yeah. It's comfortable. It's comfortable, but it's a rut. I actually have a specific memory like hanging out with a couple of other friends who worked at Intel. And, you know, I'm like 21, 22 years old, something like that.

And they're talking about like, oh, yeah, they've got this really great like retirement plan where, you know, if you work there until. .. For however many years, like your age plus your number of years of service, like you could retire at like 55 or something. I'm like, ah! It's like, oh, yeah, why don't I just take the next 30 years of my life and stick it in a box and bury it? Yeah.

I mean, it's worse. Worse. There are people there when you're sitting there at 22 who have been there for 30 years who are just kind of doing their time. Yeah. So I wasn't really into doing time. But I was really into Linux. So that was kind of my obsession. I had gotten interested in Linux like actually really early, like 93, like when it wasn't actually very good.

And so I was kind of like an early kind of Linux zealot who was like, oh, this is so awesome. This is how, you know, the future is gonna be. And, you know, back then businesses didn't really. .. Linux wasn't like a serious operating system. They're like, no, serious businesses will always use Windows. You know, you need like an enterprise operating system, not some hobbyist junk.

So I was like looking for something to work in Linux. Because, you know, everything at Intel was like pretty much Windows based. And so that was my criteria when looking for startups was just that I wanted it to be kind of technically interesting Linux stuff. Again, there weren't like, you know, great resources on like a huge list of startups.

So I just kind of like scouted out what I could find basically on Slashdot. Because I would read Slashdot a lot. And I came up with a list of like six startups that seemed like they might be interesting doing stuff with Linux. And so I like just emailed my resume to all of them. Sort of like ironically it immediately bounced from Google. Because their mail server was misconfigured.

So I didn't hear back from most of them ever. I interviewed at one other company. And then I re-sent my resume the next day. And then it went through. They had fixed. .. Like I think the MX record was broken or something. So I only interviewed at like Google and one other company.

And the other company like I wasn't interested. And I think maybe they weren't interested. Because neither one of us really like contacted each other. And so Google was really the only offer I had. So that made it easy to like choose. And so I went to work there in 1999. And how many employees did Google have? I was the 23rd at that point.

And so we were in Palo Alto on University Ave. Kind of on the second floor above what is I think a bookshop or cafe or something like that. What did it feel like at Google when there were 20 employees there? It was really cool actually. I was really impressed when I was interviewing with them that they asked actually like really smart questions. Which I think is a pretty good indication.

Like that was one of the other reasons I wasn't excited. Another startup I went to that I interviewed at, it was just like I went into their office and I just sort of felt depressed. Like you could just tell people weren't really that excited to be there. And then they'd ask kind of like dumb questions that I didn't think were like. Anyway, it just wasn't like a good sign.

Versus like Google kind of like they were into whatever it was they were doing. And actually after I was there for maybe like a week, I went back and I'm like, hey, I want more equity. They're like, sorry, you have to negotiate that before you start. That might have been like the smartest pseudo-investment decision you've ever made. Even though it didn't, I guess it worked out.

Yeah, I mean it worked out overall. But yeah, I do wish I'd gotten more. More. The thing about the office, I mean you asked about the environment. It just had like a very, kind of like a buzz of productivity, right? Because we were doing these really kind of exciting things.

And I think like they had hired people who were really into building these like big systems and creating great products and everything. So it was an exciting place to work where I would actually like wake up in the morning and be kind of like eager to go to work. It's like I've got stuff I want to do.

Do you think that was because not just they were working on exciting things, but because they believed they were going somewhere? Yeah, I mean there was kind of like an irrational belief, right? Like objectively we were just this tiny little company or whatever. But Larry would be talking about whatever crazy ideas. We were just like, wow, what?

Like I remember having an early memory where I was building this system and then I'm talking to Larry about it. He's like, why are you even bothering with the disk? We're just going to store everything in memory or whatever. Which at the time was sort of an absurd. We didn't have enough RAM to store all of the data.

He was always thinking like so many years ahead and it was a little bit insane, but it made it a very exciting place to be. It seems like there's something fundamental. If you're thinking about whether you have the potential to build a really big business, if you don't have some sort of vision, some sort of idea of a future, it's hard to believe you're ever going to get there.

Yeah, I think you have to have some notion of the big picture. It doesn't mean you have a detailed step-by-step plan. Occasionally I'll run into a startup where they're like, here's our five-step plan for how we become whatever. It isn't until the fifth step that actually they have a product anyone would want to use. Those are really bad.

You have to have something today that's good and you have to have something tomorrow and you have to day after day have a product that people actually want. Yeah, you almost want a certain amount of vagueness around your vision because if you have too much detail, you're just guaranteed to have wasted your time because it's not going to be right. You spent how much time at Google?

I was at Google for seven years. Wow, that's just about how long you've been at YC now. I've actually been at YC for over seven years now. What happened during those seven years? Stuff happened, right? Stuff happened, a few things. When did you know? When did you realize that Google was a thing, that it was going to be this secular juggernaut that was going to take over the world?

Earlier this year. I mean, it builds. I think, like many people, I continually underestimated its potential. But from very early on, after being there for a week, I was like, ooh, there's something magical going on. I didn't think it would be what it is today, as big as it is. But it definitely felt like we were somehow creating the future.

And then when we started really, like when we got the Yahoo deal and started really displacing. We started really just crushing all the other search engines. And then there was a feeling of inevitability. It was pretty clear we were just going to win because no one else, they just didn't even know what they were doing. The competition just wasn't very good.

Before we move on to leaving Google and starting your own company, just maybe say a word about the founding of Gmail and how that happened. Sure. So, email was actually a thing that I'd been interested in for a long time. Ever since your resume bounced? Yeah. Before that. So, in college, I had actually been thinking a lot about this.

Because, again, back in the 90s, people, their email would download to their computer. They would run like Eudora or something, and it would use POP3 to pull the email down to their computer. And I remember people would be like, I need to go to my room to check my email. I'm like, that's dumb. That doesn't make any sense. It's information. It shouldn't be stuck in a box.

I'd been thinking about this idea that everything is just going to be online, and then we'll just be able to access it anywhere, anytime we want. And so I actually, in the summer of 1996, I think, I kind of had gotten maybe a little bit excessively arrogant and had only applied for a couple of summer jobs, just assuming they would want to hire me, and they didn't.

So I sort of ended up without a job. And so I'm like, that's fine. I'm just going to start my own company. And so I actually tried to start this thing of like a web-based email. That's funny, because that's right when we were building web-based email. Yeah. Mine would have been better. 95, 96.

RocketMail was really good. Anyway, I had grand visions for it, but my approach to developing it was wrong. It was very much like I had this great big grand vision, and then I started trying to implement it piece by piece, the components, and then I got bored and gave up. It's actually a multi-person job to build email. Yeah, it's kind of a lot of work. It's a lot of stuff.

But the way I went about it was kind of wrong, because I actually did sort of this detailed design of this very intricate system and everything. And I've kind of come, at least for myself, I've come to decide that that doesn't work. I need, and this is what we preach to the startups, is like figure out what you can launch today. And so to jump forward to Google, like it was kind of 2001.

There was sort of a big reorg where they got rid of all the managers and just gave engineers more of a free-range engineering thing, gave us all projects. And so they were just like, I should build an email thing. Like they knew I kind of had an interest in email, but it was just like we want to do something in email. We don't really know what exactly. Like just go build it.

So having learned from my prior experience, I decided to, you know, like I kind of know I have a short attention span. So the very first version of Gmail I wrote in a day, and it wasn't very good. But I had previously been working on Google Groups, which was like a Usenet search at the time. Now it's something different.

But I took the code that I'd been working on for that, and then I just like took all of my email and shoved it into that database, into that indexing engine. And then, you know, I kind of had an email search. So your first thing was just an email you could search. Yeah, and so then I like emailed that out to the engineering team. I'm like, hey, I built this email search. Let me know what you think.

And then people reply like, yeah, it's okay, but it would be better with my email instead of yours. So I'm like, all right. I have a feature request. So version zero only searched my email. And then like, you know, the next version, I made it so it would search other people's email.

But there's a stunning lesson in there, I think, which is like the point wasn't so much that whose email was being searched. It was that email was being searched. Like you guys got to realize back then you couldn't really search email. All you could do is like find the email you wanted and click on it. So searching was like a thing.

Yeah, and I figured, I mean, a lot of our email is in common, so it sort of works, right? We're on a lot of the same mailing lists or whatever. Everyone's CC'd. So yeah, so then version two is just like it indexes other people's email. And so I send that out. And then people are like, all right, this is cool. Now I want to be able to reply to one of the messages. All right, feature request, right?

And so the whole thing was just iterating, you know, just step by step trying to make something that would make people happy. And so we actually had as our kind of like launch gate this idea that we needed to have 100 happy users inside of Google because, you know, we just hadn't launched it to the world, obviously.

And so I actually embedded in the interface this thing that would pop up and be like, are you happy, yes or no? It was just like a single question. Are you happy with, you know, Gmail? Or it was at the time known as Caribou. Yes or no? And it would get a list then I would look at of who said yes and who said no.

And then I'd go to all the no's and be like, what's it going to take to make you a happy user, right? And actually just get them one at a time. And some of the people, they're like, it basically has to be a clone of Outlook. And I'm like, well, you're never going to be a happy user. Actually, I did end up getting a lot of those. You are dead to me. I know. I did end up getting those people.

And the way I would get them is that Outlook at the time, when you would hit two gigabytes in your mail file, it would corrupt the database and they would lose all of their mail. And then I had the only copy of their email. And so then they would become a Gmail user. Not always a happy user, but they would become a user.

But anyway, other people, it would just be like a minor thing where I just need to add one feature or fix a bug or something and then they'll be happy. And so we kind of slogged through just one user at a time until we got to like a hundred happy users. Is that the genesis of what we call YC, the Buchheit rule? Maybe you can just tell these guys. Which rule is that? Right.

So one of the ideas is like when you're starting out building something new, especially if you're kind of going into an established category like email, like literally email was like 30 years old when we started on it, right? So there is a lot of history and a lot of opinions about how email should be.

People would sometimes angrily tell me I'm like doing it wrong because we made the reply on top instead of the bottom or like weird stuff like that. And so there's like all this history, so it's pretty much impossible to enter a space like that and make a thing that appeals to everyone. And if you try to do that, what you end up making is just like a mediocre product that nobody really loves.

And so my philosophy and what we try to get all the startups to do is figure out a thing that will just have really deep appeal, even if it's to like a tiny fraction of people.

If you can make that small fraction of people just like obsessively love what you're doing, it's easier to then grow that group, you know, because like there's always people at the margin where if I just make something slightly better, they're going to join into that group.

So it's easier to start with that like that deep but narrow appeal and then broaden it over time than it is to start with just sort of like broad meh and then try to like convert people from meh to like loving your thing in mass. Yeah, I've been thinking about that lately just in terms of retention.

Like if you get 100 people who never leave, that's a great place to start then if you have thousands of people, all of whom churn eventually. Yeah. Okay. So Gmail happened. And then you left. Yeah. So Gmail happened. And yeah, a couple years later, I left the company kind of, you know, it was becoming a big company again.

And I just decided that wasn't the direction I personally wanted to go. And I just had a baby who had a pretty traumatic start on life. So I kind of had other things going on. So actually around that same time, actually even before I left Google, I was again reading Slashdot because that was where I got all of my information.

And I saw this thing about the Summer Founders Program, which I thought like sounded super cool because I'm always just like looking for an idea that's actually novel. For those of you who don't know the Summer Founders Program, that's YC. That was the YC. That's caribou. Right. That ended up being YC Batch Summer 05. That's the one that had Reddit and a bunch of companies that didn't make it.

Looped. Sam's company, Justin and Emmett's company Kiko were all in that batch. So I saw that. Justin Conn is the founder of Justin TV and Twitch and Atrium. So yeah, a few things. A few things. Yeah. So I was just like really interested.

I didn't know Paul Graham or any of these guys. So I was just kind of like keeping it on my radar. Like I'm really excited to see. And part of that was my own experience, kind of like being there in Ohio and thinking like I'm excited about startups and I wouldn't even know where to begin. Right.

Because I don't like if you go to Stanford, like your roommate probably has a startup or something like it's just in the water. But if you're from someplace else, if you're not from Silicon Valley, if you're not from this environment, like it feels like you're just excluded. And I really liked the idea that it was just this open thing. Like anyone in the world, you didn't have to know anyone.

You could just like submit an application and they were going to like, you know, bring you in. And so like that idea. Turns out startup school is the same way now. Yeah, exactly. I mean, that's the idea that I think like really resonated with me is that it's like opening it up to everyone, even if you're not kind of like an insider or something. So I followed them, you know, pretty closely.

I was one of the very first Reddit users, I think, when that launched. And then. .. Did you go to the demo day? No, I didn't make it to the very first demo day. Is that the only one you ever missed? That's the only one I missed. I've been to every demo day except the first.

Paul actually has a distinction of having been to more demo days than anyone. Yeah. Than anyone, including PG and Jessica. Yeah. I don't know if it's a good distinction, but. .. It is a distinction. Yeah, it is a distinction.

So yeah, then that fall, they announced, like PG put out this thing, hey, for the second batch, we're going to do it in Mountain View, like in this room, it turns out. And so I was like, oh, that's cool. I just dropped them. I didn't know him. I just sent him a cold email, introduced myself. I'm like, hey, if I can like help out in any way, just let me know. So he's like, yeah, come on by.

And, you know, I started just attending the dinners and actually made my very first angel investment in a company in the second batch, WinterO6, which was Kevin Hale, who then later became a YC partner, Wufoo, which is a form filler. You know, it isn't like a company that IPO'd, but it actually turned out to be a really good investment. Nice first win. Yeah.

I forget what the multiple is, but pretty high. Yeah. You know, my first investment returned like 10x, and it was actually a little unfortunate because it made me think I was better at it than I was. Yeah. I think it was maybe like 50x, something like that. Yeah. Hmm. Not bad.

So, yeah. So that was kind of how I got hooked into this stuff. So I started at that point just getting to know the founders in each batch. And I've invested in every batch since then, at least a few of the companies. And how did FriendFeed emerge during that time? So yeah, after I left Google, I sort of like retired. And then we just like get depressed because it turns out retirement's not fun.

Yeah. And maybe I have issues with depression. I don't know. But working distracts me. So I started talking to some other friends from Google who were thinking of leaving, and basically ended up starting a new company, which was FriendFeed. And that was actually, the actual goal of FriendFeed was just to build a place that was really awesome to work at.

I was actually just trying to create a job for myself. We tried to recreate what it felt like when you were at Google in the early days? Yeah. Kind of like the best of parts. Because there was also a lot of stuff about Google that I found just tremendously frustrating. And so I kind of had this idea that like we could take like the good parts and not the bad parts. It's like a little bit naive.

But that was the hope. And managed to get like an incredibly strong team, mostly of former Google people. Did you ever feel like, I mean, FriendFeed, it went fine, but it didn't obviously end up becoming like a $100 billion company. Did you ever feel like you could pinpoint what was missing from the beginnings of FriendFeed that might have led you on that path? Or I mean, was there a grand vision?

Was that missing? Was it? I'd say explosive growth was missing. You know, social is, for those of you who don't know, it was a social network. We actually created the like button. So like the very first like button was on FriendFeed and then mysteriously appeared on Facebook a number of months later. They had been completely by coincidence. Anyway, social stuff is just really hard.

We've seen this. We've had a lot of social stuff come through YC. Google has tried it. It's a really hard space. Somehow, some of these things that kind of like Twitter or Facebook, they just kind of like catch. And you can go back in time and make up a bunch of stories about like why it is. And some of those stories may or may not be true.

But it's one of these things that I think is like one of the hardest product categories to like engineer success. But actually, I will answer your question. Which is that I did sort of come to realize this because in the process of trying to make FriendFeed a success, we kept running into this company, Facebook, who actually knew what they were doing.

And part of why ultimately like I came to believe that Facebook was just this unstoppable force and that like we weren't going to beat them and Google wasn't going to beat them and Twitter wasn't going to beat them, like, no, it's certainly not my space. Right? Like none of these people are going to stop them.

It's like having sort of competed with them, you start to realize, oh, they're really good at this. Right? So that was why I sold FriendFeed to Facebook because I'm like, wow, this is going to be like another Google-sized success. They were the best at what you were doing.

Like Google was the best in the world at what they were doing when you were there and they were the best in the world and you weren't. Right. And so it's just like I should go there because it's going to be, first of all, I feel like another one of these Google-sized companies. And then like hopefully I can learn how they do it.

And I think being there and kind of reflecting on it, one realization I had is that we kind of brought, like Google always had like a very product-oriented mindset. Like we would try to build products that were like what the user wanted. And you guys were the users. You built product. Like you said, you built Gmail originally for Google people, for yourself.

And so with FriendFeed, it was kind of the same thing of like we're just thinking about like what do I want? And I think like one of the really powerful insights that they had at Facebook was that it's almost like it's not the end user who you have to please. It's the network. Because they understood that the most important feature of a social network is that your friends are there.

And so sometimes there's actually a tension between like what's good for the individual and what's good for the network. And they would always do what's good for the network. Do you think that's just specific to network effect businesses, social media? Or is that a more general rule, do you think? Like an enterprise product probably doesn't need to think about that.

Yeah, I mean enterprise kind of has some of the similar thing where you have to make the buyer happy, not the end user. Which is I think a lot of times why enterprise software is not really lovely to use is because the person using it isn't the person making the buying decision.

So in both cases you sort of have to have a meta level where you're like we always talk about making something people want. But people you have to think more broadly than just the end user. It's everyone who's involved in the system. Right, right.

And it's people get this wrong a lot of times where they think like there's this meme out there that like oh if you're not paying you're not, you're the product, not the customer or whatever. But it really isn't right. You have to identify whose happiness makes you successful. So like for Google it really is like the end, like the people using Google search.

Like if they go to a different search engine like they're Google screwed, right. Like you have to keep those people happy. And you know with the enterprise example it's whoever the buyer is. I think the sort of subtle thing with Facebook was that what makes those people happy is that you have this like huge network, right. And so that's efficient and easy to use and right.

And so you really have to think in terms of like almost what the network wants which is a different way of thinking. Yeah. So when you were, FriendFeed was bought by Facebook and so you landed in Facebook. Did it have a similar feel to their, I guess Facebook was a little bigger by the time you got bought. But did it have a Google like feel then? I mean there were a lot of people from Google.

So yes. They say hi, you know former co-workers. Similarities and differences. So that was again one of the things, one of the reasons I was excited to go there was just like I had had this experience going through Google and it's very easy to over generalize you know like oh wow the reason we were successful is we had like you know brightly colored balls or something like that.

Like you can make up all of these like rationalizations for what made you a success. But in retrospect everything looks different. The truth is I think the majority of the reasons you come up with are probably wrong. There's like a few key things. I will say though that like going into the office it kind of had that vibe of like this is a place that's going somewhere, right.

And I think it's like a really powerful indicator and it's a subtle thing and it's a little bit almost metaphysical or whatever but like you walk into an office and you're just like how's the energy? How does it make me feel? When I'm here is that like when I watch my own energy levels am I going up? Is this making me feel like oh wow or is this like pulling me down?

Am I like depressed because and I think the reason that works is because the employees actually know what's going on, right. And so if you're just there because like you're collecting your paycheck while you wait for the company to go bust like you're going to have a different energy from like. Yeah, you feel that.

Because if you think like oh my God I'm going to launch this thing it's going to be so exciting like it's going to take over the world, right. Like it's just a very exciting feeling to have like these products like when we were building Gmail and Maps and stuff like there was this feeling, this palpable feeling of like this is going to blow people's minds when we put it out there, right.

Like and that's a really exciting thing. Do you think, so part of the energy comes from these amazing products that you're building but it seems like part of that has to come from the founders and the just the attitude that they bring, the belief that they bring like whether it's Zuck or Larry and Sergey or. Yeah, absolutely.

I mean I think that there has to be a founder conviction like they have to believe in what they're doing and not that they're just chasing after you know some trend like oh I read an article in TechCrunch I'm going to go off in a new direction. I mean I actually think like Zuck is probably the most extreme example of this I've seen.

I almost feel like the whole world could tell him he's wrong and he'd be like no. Not really. And this is really reflected in some of the I think like internal mythology of the company.

There's a really interesting and this is before my time but you know back when they were just a college social network they had something like 10 million users which for a social network isn't that much and Yahoo wanted to buy them for like a billion dollars and everyone is like you should take the money, right? Like it's a billion dollars. It's a lot of money. He took the money.

He actually took the money. But then it changed. And then they like. Then it changed. And he didn't want to. There was pressure on him. Right. So like everyone around him was like pressuring him to take the deal and then by the way if you get offered a billion dollars take the deal, right, in case you have any doubts.

And so finally, yeah, I mean it ultimately turns it down, basically replaces an entire management team after that because they were all kind of like we should sell, we should sell. And so it kind of brought in people who maybe believed a little bit more. Oh and then there's kind of like actually the story I meant to tell wasn't even that.

It was that when they launched the news feed which was around the same time people were furious. So again, there were like something like 10 million users, something like 8 million of them joined a group protesting it. Like it's impossible to get that percentage of your users to do anything even if you want them to.

So to like suddenly have the majority of your users like revolting or whatever and they're just like no, I think people are going to come around on this. And they were, you know, right, obviously, like the news feed is like a fundamental thing. But that requires. The news feed is Facebook for most people now, right? There's nothing else.

But I mean, that requires, I think, like a pretty high level of conviction when essentially all of your users are furious at you and you're like, no, I think you're going to come around on this.

For somewhat unclear reasons, this reminds me of another Paul Bukaitism, which is that Sam actually repeated in his introduction to the course, which was that, you know, what a company really needs is frugality, focus, obsession and love.

And it seems like if you encapsulate those things, even in the very beginning, and you think about leaders like Zuck, that they kind of go together and make sense. Yeah. Yeah. I think like focus is one of the most important things because like as a startup, it's actually, I think, your most powerful weapon, right?

Like the reason that you're able to take on like these big companies or whatever is because they're doing a thousand different things, right? And so the only way you can win is if you take everything you have and you focus it at one point, right? Because you are underpowered in every way versus these other companies.

So the one thing you do have that they don't have is you can be like absolutely 100% focused on the thing that you're doing. And that was like, you know, with Google, that was part of the reason that we won at search was that was all we were focused on like early on, right? And you became the best in the world at it. Versus like everyone else is like, oh, we want to be a portal, right?

We need all this other shit. So like that's really key frugality, I think, is also really essential. I think like one of the best indicators of if you're doing it right is essentially your input to output ratio So you want to do more with less?

Unfortunately, most startups do less with more So like you give them money and they just burn it up and there's like no result So like being able to to produce a lot of outputs with a minimum amount of Amplified time and money, right, but you have to like amplify the money and get that ratio where it's like I give you a dollar and you turn it at $10. My god, that's a good business, right?

like we just scale that thing up even if it's $10 worth of something like $10 worth of product $10 worth of innovation and so and this goes back to always figuring out how to do things in the absolutely minimal way and You know it means this is one of the key startup things where they're like it You know, if you if you're not embarrassed of your product You've waited too long to launch like these things are at the root There's a lot of like frugality there, right?

Because you don't want to spend too much time or too much money Like you want to get it out there as quickly as possible and at as little cost You know So you don't want to spend too much time money on the wrong thing and you just don't know enough, right? You could have built too much email and you wouldn't have learned what to actually build, right?

It's easy to go completely off the rails and it's one of the most surprising things like I've learned just working with so many startups Is how often the cause of death is too much money?

Like I think there are companies that if they had not been so well funded could have been successful in the company, I like to make fun of not because they may have been successful, but just because it's funny to laugh at is Juicero like the the $700 juice bag squeezing machine and the thing that made that I think such a Like tremendous train wreck is that they gave them a hundred and twenty million dollars for that thing Before they ever like talked to any customer like if if Juicero had gone through YC and we gave them a hundred and twenty $1,000 they would have had to go talk to a customer and be like, hey Like we want to sell you this $700 juice bag squeezer, right?

They would have had to talk to customers like like and that's the thing like we push so Like you have to go talk to your customers It's so easy to become detached and off in this like bubble of delusion And the problem with having lots of funding before you're really ready for it is that's exactly what happens So you can you can sell yourself on this idea?

Oh, yeah Once we build the perfect juice bag squeezer like we're gonna take over the world. Everyone's gonna want to spend $700 I mean plus like you get this giant box in the mail that has tiny bags of juice in it It's awesome like everyone's gonna want this right and they were able to live in that delusion for Years because they never had to go out and talk to customers, right?

If I recall you could actually just recreate everything you did by just going like that, right the reason for it So I cut open one of the bags The reason is I think to actually get it to work.

They had to really heavily macerate the fruit So that's why I call it a juice bag squeezer is because it was actually already juiced It was so it was really just separating the pulp from the juice Which is why also it's no better than just like going to the store and buying juice like the whole thing was like built on a number of flawed premises, but But like in particular you weren't really even juicing.

It has already been juiced.

You're just straining the juice But there's a deep lesson there, which is no matter what you raise if you raise $50,000 or five million You you should think of the amplification you need if you raise five million dollars That doesn't mean you can create $150,000 worth of value and be happy you have to create 50 million dollars worth of value Yeah But you can't like it's easy again I think to come up with stories in your mind about how you're doing it because like once we release this, you know juice squeezer And and that's why I think like you just have to stay close to the customers You have to be out there selling because you can just become delusional otherwise and so that's why you know with startups like I I've just seen it again and again Like if they get a huge round of funding before they have product market fit It kills the company like it because because it's just too hard for the founders to resist that Because actually going out and dealing with the fact that you don't have product market fit.

It's really painful It's easier to tell yourself stories about how oh, yeah, we're killing it. I'm hiring. I just hired a whole new team We've got this cool office like there's all these like a cool technology Yeah, we're doing all this amazing stuff. Like I'm in the press all the time. I go to conferences.

I'm up on stage, you know, like Theranos like it's easy to just kind of like be completely detached from reality because because you're not out there Selling a thing and you're creating a thing that people actually want to use we were talking earlier It seems like there's this there's this interesting juxtaposition that that if you really want to be creating an epic company You have to be thinking about the future But you better be paying attention to the past at the same time because there's a lot of lessons to be learned about what goes Wrong more things go wrong than go right with startups.

Yeah I mean, that's just the past but I think more importantly the present like that's the thing like you have to have some some you have to maintain kind of like a dual like a Dream or a vision of like what that future is of you know, something that gives you an orientation Like I need to head in that direction like like I think about you know, the Lewis and Clark expedition or ever They're like we're going west we're going that direction But like you don't really know all the streams and rivers and forests and mountains.

You're gonna have to cross along the way, right? You but so you have to be very focused in the moment so that you don't get like eaten by a bear or something like But at the same time you have to have that vision of like where you're headed and so I think those are kind of the two things I've been being a most like between You know just paying incredible attention to your current customers, right?

And having a take over the world, right?

And I think the thing that happens with too much money is you just spend all of your time like dreaming of like the promised land But you but you're not actually dealing with the problem that's in front of you We may have I want to turn it over to Q&A and we may have covered most of this already which is fine But you've been spending a lot of time with YC batch companies doing I think what you're called hundred billion dollar office hours, which is which is My understanding is a way for you to help them think About what it might mean to actually become an epic company What are the like other two or three things maybe that we haven't talked about that you cover in those office hours?

I thought this would be like a group office hour a hundred billion dollar office. Yeah, all of our startup school companies Yeah, so I thought a lot about you know, what is it that makes these these companies that are you know, Google Netflix? Amazon like all of these like just huge huge companies like What is the thing that gets you there and it's not?

It's I don't think it's that you're smarter necessarily. It helps to be smart. It isn't that you're harder working Like there's a limit to how hard you can work What I think necessarily to get to that point you're sitting on top of a Big exponential change in reality or in the world.

So like, you know Intel and Microsoft And in the early days Apple, we're kind of sitting on top of this like the rise of Microcomputers right and so like what made Microsoft a big company is that they got in early on Microcomputers and then they kind of owned that space right where the microcomputer operating system, you know And they were they were able to ride that If it weren't for microcomputers like they wouldn't have been able to do that and likewise, you know Google obviously was sitting on the growth of the Internet the reason that Google made sense and the thing that Part of the reason other people got it wrong Was they weren't thinking about the fact that the amount of information online was increasing exponentially?

and so we were gonna have to get a lot better at like Organizing it right like Google's mission from the beginning is to like organize and make useful all the world's information And people are always surprised that they're aggressively gathering information.

It's like right there in the mission statement I All the world's information so so so I what I try to have the the Founders I kind of give them a two-part question. And so the first part is like let's say I hop in my Time machine, which is hopefully a DeLorean And I like travel 10 years into the future. So I get out.

It's the year 2028 You know, I take a look around I like grab some nearby people and talk to them or whatever I ask questions like What about the world of 2028 is fundamentally different from 2018? Like what's what's the thing? That's totally different, right?

and so Donald Trump will no longer be president We don't really know the future I You just completely around me That was the first thing out of two Anyway, so the thing is what I want them to do is identify the change and this should be as it pertains to their Startup because obviously there's gonna be a bunch of changes But as it pertains to your startup but factoring out your startup because even if like Facebook didn't exist I guarantee someone would have built a giant social network, right?

Like Facebook was was was sitting on top of that exponential change and they were the ones who were most able to like Capture it that position and hold on to it But if it wasn't them, I guarantee someone else would be in that ecological space.

There's an evidibility There's an inevitability these companies will exist in some form and maybe you're making it a little bit faster or a little bit better Or something like that, but that position is going to exist And then the second part of the question is simply like how are you gonna be the one who captures it, right?

awesome, so Let's do some Q&A any questions Ralph we found a way to Change coffee. So that's actually going to switch the entire market.

I was wondering what's the Tipping point where you really approach the market and you know Know that you're going to convert a lot of it for us and customer interviews about 80% of the people want to try What our product does and we even have people pay 40 bucks for a cup of coffee I just take my money. So what's your question?

So how do you identify the tipping point and really how do you execute that tipping point? That gets a market to that hundred billion. So the question is how do you identify a tipping point for a market?

And execute really how do you make sure that it's uh, I Almost feel like this is being overthought if you've got people who will pay you $40 for a cup of coffee I would just start selling $40 cups of coffee like that sounds like a really good business and The tipping point is when you can't keep up with demand, right?

And so again, like you don't you don't find this by thinking about it If you think about it too much you end up just like in delusional land you find out by talking to the market and having them give you dollars and and so it's it's like literally when you're just like scrambling to keep up with with demand and that and that's the thing that you get into in these like Hypergrowth companies like one of the biggest problems inside of Google is like we couldn't build data centers fast enough, right?

Like things are just exploding so quickly that you can't even scale out. That's that's what tells you that you have that Yeah, it kind of hits you over the head, right? It's not like you don't you don't have to give instruction for when you're in hyper growth.

You know, you're there in the back Best Practices for enterprise companies where maybe you can't launch something that's really really bad because there's requirements around security, etc So the danger I feel like with a lot of these enterprise things is that You end up not really solving an urgent problem because like when you talk to people they're like, oh, yeah This is it would be great to have this solution or whatever And so then you go off and you build this thing you spend years Maybe building this product and then you go to them.

You're like here it is. We got it and like You know, we're really busy this quarter and actually we don't have it in the budget until maybe next year So can we talk again in nine months or something? Right like that's just deadly for a startup like so The way I try to think about it is you want to find someone? Who has a really really urgent problem, right?

and so like the analogy I like to use is like imagine that your arm is pinned underneath a boulder and You have two options one option is to like gnaw off your own arm with your teeth Or the other option is to sign an LOI with this promising young startup like Right, like that's the kind of customer you want is like someone who's like desperate, right?

And because they're desperate they're they're willing to put up with kind of a shitty product Maybe they're willing to spend a lot of time working with you, right?

and so like actually one of the things that works really well, like is is is if the Founders are actually able to just go into the organization and actually work there So like that was how like the very early stripe installs Patrick Collison would show up and integrate stripe into your code He would just show up and do the work And so like that's a good thing and and if they're not really eager to have you come in and integrate into their systems or talk to their people or whatever like Maybe they're not in enough pain and like you need to go find a different customer who's in more pain And if it's a big enough market, there's got to be someone who's desperate back there Do you believe in using personas to represent your customers do I have that right?

Uh, not really no believe in using people to represent my customers Sorry common denominators for the founders of hundred billion dollar companies So this was actually where the focus frugality obsession and love thing came from is I was actually trying to distill it down into a Small enough number of words and then I was gonna try to translate it into emoji But I failed at that part.

I couldn't figure out the I couldn't figure out what is the emoji for obsession? They're like love. I'm like, okay a heart But there is I think like this obsessive focus there's there's almost an irrationality in some of these founders Like the example that comes out as like the most insane version of it is probably like Elon Musk So I actually he came in to Google Gave like a tech talk.

I want to say 2003 or something like that And it was it was after he had started SpaceX, but before they had done the first rocket launch and someone is like What are you gonna do if the rocket explodes when you launch it he's like well I have enough money for three launches So I hope one of them succeeds like he literally plowed his entire fortune the first three blew up, too I think yeah, the first three did blob He they managed to scrape together enough money for like a fourth rocket But if that fourth rocket hadn't gone there would be no SpaceX and Elon would be bankrupt, right?

Like he like that is insane I would not take all of my money and plow it into like some her brain rocket scheme, right? Like that's like a level of irrationality that is I think like wonderful The network So I think the question is, how come Google never made it in social networking? It just wasn't, I think, really in the DNA. So we actually had, even before Facebook, do you remember Orkut?

We actually could have, at the time. .. Big in Brazil, right? Yeah. Well, it became big in Brazil. But I actually tell you, Orkut actually was taking off, and you can make up a bunch of reasons why maybe it didn't end up being the social network. But it was exploding. And then it became.

.. It was growing so fast, it became unresponsive. So that was kind of why it died off, at least in the United States, is that it was just so slow. But part of the thing is that, within the company, I think it just didn't resonate with people enough. It wasn't really. .. It didn't become this crisis where, like, oh my God, we have to make this thing succeed.

It was kind of like this thing that's over here to the side, right? And so Google is very much about these really interesting, big computer science problems and stuff like that. That's what really would get people excited. And this stuff kind of seemed like a distraction. I mean, the founders of Twitter, or at least two of the three founders of Twitter were Google employees, right?

And they never would have built that at Google, because if you had built. .. It'd be like, what is this thing? There's nothing technically interesting about Twitter, right? And so I think it just wasn't really in the DNA. And then when they did try to do it, it wasn't because, like, Larry has a deep love for social networking or whatever, right?

It was because they wanted to be competitive with Facebook. But by then, Facebook was way ahead of them and had a much deeper understanding of, like, what makes this stuff go. So if you're behind and not as good, you're guaranteed to lose. It's not a good outcome. So I think we're gonna call it there. Thank you very much, Paul. Thanks.