AUTHOR: Randall Stross, New York Times columnist
The Launch Pad is really a must for anyone who has ever been interested in the startup world; after reading it, you’d figure out whether founding a startup is something that might fit your personalty or not.
I understood that I wouldn’t be able to stand a startup development pace. I need to go to bed and sleep my 8 hours. I need to stop and get my walk beside the river. But it’s been fun to read YC stories. Many of the startups you’ll find in the book won’t exist anymore. Still, YC founded more than 940 companies so far, with an overall market evaluation of more than $64 billion, and 8 so-called unicorns, such as Dropbox, AirBnb, Instacart, Stripe.
Fantastic reading for the evening, to gain a taste of business wisdom before falling over that pillow.
“It’s very common for a group of founders to go through one bad idea before hitting the bull’s-eye on the second try. We did. Even Bill Gates and Paul Allen did.” Paul Graham, p.16
Team counts much more than the idea. That’s why YC application policies look much deeper at people, rather than ideas. Of course teams that are already running profitable projects would go on the fast track, but YC has several stories of multiple-pivoting teams. So focus on how to become a good founder, instead of getting that amazing $2 billion idea. There is no such a thing, until someone gives you thta $2 billions.
“I like the guys. They pass my test for young founders, which is, they seem older than they are.” Paul Graham
I believe many nerds may have found themselves in this situation. “You are too old for your age! Let’s go party, c’mon!” you may have heard. Well, isn’t it good that you would have passed Paul Graham’s test? I consider myself proud to seem older than I am. Remember this quote when you’re get pass your forties and beyond.
“The essential nature of a startup is not that is a new business but that it is a new business set up to grow very quickly – in Paul Graham’s phrasing, it must be ‘designed for scale'”. p.67
Wikipedia agrees on the definition, but there is a lot of noise out there concerning what a startup is and what it is not, especially if you live in a city where “startups” have exploded in the last three to five years. Bear in mind Graham’s definition, please. It is lean, and straightforward.
“Here’s how to generate new ideas. Three things. One: founders are target users. Two: not many people could build it, but founders are among them. Three: few people realise it is a big deal.” Paul Graham, p.68
Frankly, I didn’t use Graham’s frame to come up with a new, marvellous idea. Otherwise, I wouldn’t be here to tell you so. But it is very useful and I bet it would eliminate 95% of ideas which people usually come up defining as “the idea of a lifetime”. Moreover, once you realise you really have it, you should verify it and be ready to change a lot of things. That’s where the hard work really begins.
Here follow some further sentences to focus the “how-to-get-an-idea-that works issue” a little more.
“What do I wish someone would start a startup to do for me? The next big thing: something for someone else that you know is a problem”.
“What will people say in the future was an unmet need today?” p.69
“If you’re not embarrassed by the first version of the product you have launched, you’ve launched too late.” Reid Hoffman, p.77
I believe you can apply this rule to any artistic product as well, unless it involves major investments. You should release a crappy version of your product, if that helps you gather meaningful data and correct the route. You shouldn’t publish a novel with wrong spelling, of course.
I still find it very difficult with my work. I used to be more a “Rohald Dahl” kind of a writer – I wrote several drafts, deleted them and started from scratch several times, until I got up with something that I liked. This is still true – not everything I write gets published – but I now consider the publishing as part of the writing process, which is ought to improve. I believe that having the publish button as the ultimate goal influences how I write in a positive way, from the very first draft. I have to be understood from the few people who might end up reading up to this point (THANK YOU!!). I still have a lot to learn about writing, and it’s good to know that someone is following your growth. And I suggest you do the same.
“It is investors, however, not founders, who are best positioned to seek outsized rewards by taking on outsized risks – investors have the protection of a portfolio that spreads the risk. [Graham ] understands that investors like YC will naturally have a greater appetite for risk than individual founders, and he has tried to come up with a way to close the gap by encouraging founders to serially start lots of startups. A succession of startups would spread risk across many bets. The problem with this argument, however, is that startup founders cannot start all that many.
No statistical table exists showing that rewards for startup founders are neatly, predictably matched to risk. Founders who have chosen an idea that is highly risky, in the hopes of reaching the commensurate rewards, are arguably guided more by emotion than anything else. This does not make it the wrong decision for the founders. But they should keep in mind that Graham, the investor, has a bigger appetite for risk than Graham, the startup founder.” p.160
It is fascinating to feel how investors’ greater appetite for risk is not a sightless quest for bigger rewards, rather an accurate strategy to cap the downsides. This is not something that could be easily done as founders start from scratch – they need that taste of madness and emotional investment to make the leap. Results, although, are not guaranteed. As Seneca advised in his lasting moral letters, “the wise man regards the reason for all his actions, but not the results. The beginning is in our own power; fortune decides the issue, but I do not allow her to pass sentence upon myself.” For, if you care about your own happiness more than anything else, being wise is what you are ought to do.
“VCs ask you for estimates of how well you’re going to do, but I don’t believe them. They want to see how you think. If you keep a plausible-sounding story about how you can get to your billion dollars a year, five years from now, that’s very exciting to a VC.” Paul Graham, p.176
Put yourself into VC’s shoes, part one.
This is the thing: when VCs decide they don’t like you, it’s based on gut feel.” Paul Graham, p.178
I was glad to know that VCs are nothing but ordinary men, who may commit some fallacies and sometimes prefer to base their decisions on gut and eventually miss some good investment along the way. And as a startupper, a VC’s behaviour does’t tell very much about your idea either: gut feel is all about them, and as some clever guy pointed at rejection as a mere mathematical game, you might as easily find someone who has a different gut about your project.
Here is a less poetic way to describe it:
“The reason we got onto this subject is because you were asking what your valuation would be, and it’s going to come down to their personal reactions to you. Which aren’t going to be impossible to predict. Be fatalistic. Since it’s due to this unpredictable thing, it’s going to vary a lot between VCs. Realise that some VCs you’re going to talk to are going to like you and some VCs aren’t, and whatever reasons they give you are going to be bullshit.” Paul Graham, p.182
The framework to turn a crowded market sector into a brilliant startup idea:
“You say, ‘How are we going to win? There’s already so many things hosting photos. Well, the sign there’s room to win is the fact that there’s so many! That means nobody’s got it right.'” Paul Graham, p.187
“If a statement is not surprising, it’s probably not an insight.” YC User Manual
“Don’t show projected revenue. If you don’t have any revenues yet, don’t lie. You don’t have to have a hockey stick. Only show it if you have one. Don’t make one up.” Paul Graham, p.191
In short, be honest. People do smell it.
“Fund-raising is not the battle you’re fighting here. The battle you’re fighting is to make a successful company that makes this great product and gets tons of users. And fund-raising is just this tedious errand to be got over with as quickly as possible.” Paul Graham, p.220
Graham points out that worrying about future concerns may be as harmful to your present – developing the company – as any good stoic philosopher would say it is detrimental to your health: “You will suffer soon enough, when it arrives; so look forward meanwhile to better things. […] Even bad fortune is fickle. Perhaps it will come, perhaps not; in the meantime it is not. So look forward to better things.”
“Don’t think ‘Oh, users don’t like our product! We give up!’” Instead, founders should proceed analytically and unemotionally: “Users don’t like our product? OK, we’ll analyse it. We still have lots of money in the bank. We’ll figure out something.” Paul Graham, p.223
That part of “still having lots of money in the bank” may not apply to lots of people, but you get the point of how emotion usually is a bad choice advisor. Check out Thinking, fast and slow to expand on the topic (soon available as a book review at this very section)
And how does startup-life look from a founder perspective? Here is one of the best recaps I found throughout the book:
“So what have we learned? One. You’ve got to put yourself out there and meet people, even if it’s awkward. Two. You’ve got to hug your cofounders and love your batchmates. Three. Experts aren’t going to help you solve your problems. Four. You’ve gotta have swag.” Tom Lehman, p.236
Startups, in Graham’s view, constitute a revolutionary economic force, equal in significance to the advent of agricolture, the rise of cities, and industrialisation. The other revolutions spread worldwide, but the startup revolution does not seem to lend itself to replication. Software does not need local producers the way every region needed its own railroad or electric power grid. Any place can create software companies, but they are more likely to be found at a startup hub, the place that has all of the necessary ingredients.
“I think you only need two kinds of people to create a technology hub: rich people and nerds,” wrote Graham in 2006.
[…] Nerds congregate in places that host a leading department of computer science – and also places that “tolerate oddness,” because “smart people by definition have odd ideas.” p.237
This definition of who a nerd is ought to be might be a little reductive, but surely creativity sparks where people can play with previously unmatched ideas.
Graham has consistently argued that few people are suited for starting a startup but that the only effective way of determining who does excel is by having lots of people try:
“As long as you’re at a point in your life when you can bear the risk of failure, the best way to find out if you’re suited to running a startup is to try it.” p.238