Lecture 1 - How to Start a Startup (Sam Altman, Dustin Moskovitz)

Introduction (00:00:00)

• Sam Altman, president of Y Combinator, introduces the course on how to start a startup.
• The course covers 30% of the practical knowledge taught at YC, focusing on general principles applicable to startups.
• Guest speakers, all involved in creating billion-dollar companies, will teach 17 out of 20 classes.
• The advice is geared towards building hyper-growth businesses and may not apply to big companies or non-startups.

The 4 Areas of Success (00:02:10)

• Four key areas for startup success: great idea, great product, great team, and great execution.
• These factors interact and multiply, with luck playing a significant role (random number between 0 and 10,000).
• Startups offer a level playing field for both young and experienced individuals.
• Advantages of being poor and unknown in the startup context.
• Startups should not be pursued solely for the sake of it; there are easier ways to get rich.
• The decision to start a startup should be driven by a compelling problem and the belief that starting a company is the best solution.
• Successful startups at YC have followed this principle.
• Dustin Moskovitz, co-founder of Facebook and Asana, will discuss the reasons for starting a startup in the second half of the lecture.
• The high level of attention the class has received will ensure ample time for Q&A.

Great Idea (00:03:47)

• Despite the recent trend of downplaying the importance of ideas in startups, a bad idea remains bad, and great execution alone cannot save a terrible idea.
• Successful pivots are usually into something the founders themselves wanted, not random ideas.
• The definition of an idea is broad and includes market size, growth strategy, and defensibility.
• Evaluating an idea requires considering all these aspects, not just the product.
• Long-term thinking is a huge advantage in startups, as the idea will expand and become more ambitious over time.
• It's important to start with a solid kernel of an idea that can develop in interesting ways.
• Building a business that's difficult to replicate is an important part of a good idea.

Wait (00:06:12)

• The idea should come first, and the startup should come second.
• Wait to start a startup until you come up with an idea you feel compelled to explore.
• The best companies are almost always mission-oriented.
• Mission-oriented ideas keep founders dedicated to the startup through the challenges.
• Mission-oriented companies attract more support from people outside the company.
• It's easier to start a hard startup than an easy startup.
• Derivative companies (copying existing ideas) don't excite people or compel teams to work hard enough.

Sound Good (00:08:44)

• A good idea sounds bad at first.
• Most people will think a great idea is bad, so don't be discouraged by naysayers.
• Truly good ideas don't sound worth stealing.
• It's okay if your idea doesn't sound big at first.
• Aim to take over a small, specific market and expand from there.
• Think about how the market will evolve in ten years.
• Customers in rapidly growing markets are usually desperate for a solution and will put up with an imperfect product.
• Students may have better intuition about which markets will grow rapidly.
• You cannot create a market that doesn't want to exist.
• Look for markets that are going to grow really quickly.
• There are more opportunities now than ever before.

Why Now (00:12:20)

• Great startups have a great answer to the question "Why now?"
• Building something you need yourself is advantageous.
• Get very close to your customers and understand their needs.
• Good startup ideas are easy to explain and understand.
• Avoid cloning existing companies with small differentiators.
• Start working on developing new ideas and meeting potential co-founders.
• Think about the market and customer demands first.

Building a Great Product (00:15:05)

• Building a great product is crucial for a successful startup.
• Founders should focus on building a great product before anything else.
• Successful startup owners spend most of their time working on the product or talking to customers.
• Having a great product makes other tasks like raising money and getting press easier.
• The first step is to build something that users love.
• Founders should focus on building the product, talking to users, and getting feedback.

Your Job (00:16:38)

• The goal is to build something that users love.
• Making something that people like but not love is a common reason for startup failures.
• It's better to build something that a small number of users love than something that a large number of users like.
• Expanding from a small group of users who love the product is easier than trying to generate enthusiasm from a large group of users who are ambivalent.

Organic Growth (00:19:09)

• Organic growth through word-of-mouth is a sign that you've created something people love.
• If you find yourself relying on partnerships or other external factors for growth, it's a sign that your product isn't good enough.
• Great products are the secret to long-term growth hacking.
• Don't worry about competitors or fundraising; focus on making a great product.
• Most startups fail because they don't make something users love, not because of competition.
• To make something users love, start with something simple.

Simple (00:20:34)

• Start with a small subset of the problem.
• Successful companies start with simple products.
• Simple products force founders to focus on doing one thing extremely well.
• Founders need to be fanatical about the quality of their product.
• Great products require some level of fanaticism to build.

Manual (00:22:05)

• Recruit users manually in the early days.
• Get feedback from users every day.
• Listen to users and understand their needs.
• Make users love your product.
• Build an engine that transforms user feedback into product decisions.
• Keep the feedback loop as tight as possible.
• Great founders don't put anyone between themselves and their users.
• Founders should do sales and customer support themselves in the early days.

Metrics (00:24:38)

• Use metrics to ensure honesty and track progress.
• For internet services, focus on growth, active users, activity levels, cohort retention, revenue, and Net Promoter scores.
• Startups thrive on growth, which indicates a great product.
• There are various reasons to start a startup.
• Common reasons include:

Why Start a Startup (00:25:42)

Here are four common reasons why people start a startup:

• The allure of glamour and the desire to be one's own boss.
• The flexibility and potential for greater impact and income.
• Entrepreneurship involves hard work, stress, and responsibility.
• Fundraising can be a particularly stressful aspect of being an entrepreneur.

Stress (00:30:30)

• Unwanted media attention can be stressful, both positive and negative.
• Founders are more committed to their startups compared to employees and may feel obligated to stay even when things are not going well.
• Stress can lead to health problems and should be managed effectively.

Narrative (00:32:27)

• People often develop a narrative that the people running other companies are idiots and that they can do it better.
• The reality of decision-making is nuanced, and people in leadership positions often face difficult choices and conflicting priorities.
• As a CEO, the most common focus is on resolving conflicts and navigating difficult situations.
• Day-to-day priorities can change based on urgent matters, such as an important employee threatening to quit.

Flexibility (00:34:03)

• Being an entrepreneur means you have flexibility and control over your own schedule.
• However, you are always on call and your team relies on you, so taking time off can be difficult.
• If you are passionate about your idea, you will likely be driven to keep working on it.
• Working with great investors and partners will also motivate you to work hard.
• The idea of having a four-day workweek or a 12-hour workweek is appealing but only works for small businesses or solo entrepreneurs.
• Once you have more than a few employees, you need to be fully committed and work full-time.

The Big One (00:35:37)

• Many people believe that working for a smaller company or starting their own business will give them a bigger slice of the pie, more impact, and more equity, leading to more money.

When This Might Be True (00:36:00)

• Dropbox and Facebook employees who joined early on made significant amounts of money due to the companies' valuations.
• If you are extremely confident in your ability to build a successful startup, it may be worth pursuing entrepreneurship.
• If you have a $100 million dollar idea or a $2 billion dollar idea, you should consider pursuing it.
• The financial rewards of entrepreneurship are strongly correlated with the impact you have on the world.

Examples (00:38:37)

• Joining a late-stage company can provide significant impact due to its existing user base, infrastructure, and micro proprietary technology.
• Brett Taylor joined Google as employee number 1500 and invented Google Maps, a product used by millions of people worldwide, without starting a company.
• Justin Rosenstein joined Google and prototyped chat with you, which became integrated into Gmail, and later led a hackathon project at Facebook to create the like button, both without starting his own company.
• These examples highlight the importance of considering the context and distribution channels when deciding whether to start a company or join an existing one.