Startup FAQ
104 insights to 19 questions, distilled from 9 articles by 3 authors.
Insights are paraphrases, not necessarily quotes. Click an insight to see the context from the article. Read the full article for the full context.
The authors:
- Marc Andreessen
- Paul Graham
- Peter Thiel
The articles:
Table of Contents
Competition top
Should we be worried about competition?
WHAT YOU SHOULD FEAR IS OTHER STARTUPS.
What you should fear, as a startup, is not the established players, but other startups you don't know exist yet. They're way more dangerous than Google because, like you, they're cornered animals.
Source: Paul Graham, The Hardest Lessons for Startups to Learn
How should we compete?
GROW FAST TO BEAT YOUR COMPETITION
Why do founders want to take the VCs' money? Growth, again. The constraint between good ideas and growth operates in both directions. It's not merely that you need a scalable idea to grow. If you have such an idea and don't grow fast enough, competitors will. Growing too slowly is particularly dangerous in a business with network effects, which the best startups usually have to some degree.
Source: Paul Graham, Startup = Growth
CAPTURE THE MOST IMPORTANT MARKET SEGMENT FIRST, FORCE WOULD-BE COMPETITORS TO SCRAMBLE FOR SECOND, THIRD MOST IMPORTANT SEGMENTS.
Certain segments grow fasters than others. The goal is to identify the most important segment first, so that anybody who enters the market after you has a hard time catching up. Consider Hotmail, for instance. It achieved viral growth by putting sign-up advertising at the bottom of each e-mail in their system. Once they did that successfully, it was really hard to copy with the same success. Even if other providers did it and had similar growth curves, they were a whole segment behind. If you’re the first mover who is able to get a product to grow virally, no one else can catch up. Depending on how the exponential math shakes out in a particular case, the mover can often be the last mover as well.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
HAVING THE BEST PRODUCT IS NOT ENOUGH BY ITSELF TO WIN.
The first thing to do is to dispel the belief that the best product always wins. There is a rich history of instances where the best product did not, in fact, win. Nikola Tesla invented the alternating current electrical supply system. It was, for a variety of reasons, technologically better than the direct current system that Thomas Edison developed. Tesla was the better scientist. But Edison was the better businessman, and he went on to start GE. Interestingly, Tesla later developed the idea of radio transmission. But Marconi took it from him and then won the Nobel Prize. Inspiration isn’t all that counts. The best product may not win
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
How do we get acquired?
A RAPIDLY GROWING COMPANY IS DANGEROUS TO BIGGER COMPANIES.
But acquirers have an additional reason to want startups. A rapidly growing company is not merely valuable, but dangerous. If it keeps expanding, it might expand into the acquirer's own territory. Most product acquisitions have some component of fear. Even if an acquirer isn't threatened by the startup itself, they might be alarmed at the thought of what a competitor could do with it. And because startups are in this sense doubly valuable to acquirers, acquirers will often pay more than an ordinary investor would.
Source: Paul Graham, Startup = Growth
Founding top
What makes a good founder?
SUCCESSFUL FOUNDERS CAN SEE DIFFERENT PROBLEMS.
What's different about successful founders is that they can see different problems. It's a particularly good combination both to be good at technology and to face problems that can be solved by it, because technology changes so rapidly that formerly bad ideas often become good without anyone noticing. Steve Wozniak's problem was that he wanted his own computer. That was an unusual problem to have in 1975. But technological change was about to make it a much more common one. Because he not only wanted a computer but knew how to build them, Wozniak was able to make himself one. And the problem he solved for himself became one that Apple solved for millions of people in the coming years. But by the time it was obvious to ordinary people that this was a big market, Apple was already established.
Source: Paul Graham, Startup = Growth
COMMITMENT IS A SELF-FULFILLING PROPHECY.
I now have enough experience with startups to be able to say what the most important quality is in a startup founder, and it's not what you might think. The most important quality in a startup founder is determination. Not intelligence-- determination.
Source: Paul Graham, The Hardest Lessons for Startups to Learn
Fundraising top
Should we raise money?
DON'T GET SUCKED INTO FUNDRAISING WHEN YOU'RE NOT IN FUNDRAISING MODE.
Investors will try to lure you into fundraising when you're not. It's great for them if they can, because they can thereby get a shot at you before everyone else. They'll send you emails saying they want to meet to learn more about you. If you get cold-emailed by an associate at a VC firm, you shouldn't meet even if you are in fundraising mode. Deals don't happen that way. [5] But even if you get an email from a partner you should try to delay meeting till you're in fundraising mode. They may say they just want to meet and chat, but investors never just want to meet and chat. What if they like you? What if they start to talk about giving you money? Will you be able to resist having that conversation? Unless you're experienced enough at fundraising to have a casual conversation with investors that stays casual, it's safer to tell them that you'd be happy to later, when you're fundraising, but that right now you need to focus on the company. [6]
Source: Paul Graham, How to Raise Money
DON'T RAISE MONEY IF YOU DON'T WANT TO GROW FASTER OR MONEY WOULDN'T HELP YOU TO DO SO.
Such a high proportion of successful startups raise money that it might seem fundraising is one of the defining qualities of a startup. Actually it isn't. Rapid growth is what makes a company a startup. Most companies in a position to grow rapidly find that (a) taking outside money helps them grow faster, and (b) their growth potential makes it easy to attract such money. It's so common for both (a) and (b) to be true of a successful startup that practically all do raise outside money. But there may be cases where a startup either wouldn't want to grow faster, or outside money wouldn't help them to, and if you're one of them, don't raise money.
Source: Paul Graham, How to Raise Money
DON'T RAISE MONEY IF YOU'RE NOT READY TO CONVINCE INVESTORS.
The other time not to raise money is when you won't be able to. If you try to raise money before you can convince investors, you'll not only waste your time, but also burn your reputation with those investors.
Source: Paul Graham, How to Raise Money
RAISING MONEY LETS YOU CHOOSE YOUR GROWTH RATE.
Almost every company needs some amount of funding to get started. But startups often raise money even when they are or could be profitable. It might seem foolish to sell stock in a profitable company for less than you think it will later be worth, but it's no more foolish than buying insurance. Fundamentally that's how the most successful startups view fundraising. They could grow the company on its own revenues, but the extra money and help supplied by VCs will let them grow even faster. Raising money lets you choose your growth rate.
Source: Paul Graham, Startup = Growth
How should we raise money?
AVOID INVESTORS WHO DON'T "LEAD."
Since getting the first offer is most of the difficulty of fundraising, that should be part of your calculation of expected value when you start. You have to estimate not just the probability that an investor will say yes, but the probability that they'd be the first to say yes, and the latter is not simply a constant fraction of the former. Some investors are known for deciding quickly, and those are extra valuable early on.
Source: Paul Graham, How to Raise Money
BE IN FUNDRAISING MODE OR NOT.
Because fundraising is so distracting, a startup should either be in fundraising mode or not. And when you do decide to raise money, you should focus your whole attention on it so you can get it done quickly and get back to work. [2]
Source: Paul Graham, How to Raise Money
BE NICE.
It's a mistake to behave arrogantly to investors. While there are certain situations in which certain investors like certain kinds of arrogance, investors vary greatly in this respect, and a flick of the whip that will bring one to heel will make another roar with indignation. The only safe strategy is never to seem arrogant at all.
Source: Paul Graham, How to Raise Money
BE PROFITABLE IF YOU CAN.
You will be in a much stronger position if your collection of plans includes one for raising zero dollars—i.e. if you can make it to profitability without raising any additional money. Ideally you want to be able to say to investors "We'll succeed no matter what, but raising money will help us do it faster."
Source: Paul Graham, How to Raise Money
BEWARE "VALUATION SENSITIVE" INVESTORS.
Occasionally you'll encounter investors who describe themselves as "valuation sensitive." What this means in practice is that they are compulsive negotiators who will suck up a lot of your time trying to push your price down. You should therefore never approach such investors first. While you shouldn't chase high valuations, you also don't want your valuation to be set artificially low because the first investor who committed happened to be a compulsive negotiator. Some such investors have value, but the time to approach them is near the end of fundraising, when you're in a position to say "this is the price everyone else has paid; take it or leave it" and not mind if they leave it. This way, you'll not only get market price, but it will also take less time.
Source: Paul Graham, How to Raise Money
CLOSE COMMITTED MONEY.
Even a day's delay can bring news that causes an investor to change their mind. So when someone commits, get the money. Knowing where you stand doesn't end when they say they'll invest. After they say yes, know what the timetable is for getting the money, and then babysit that process till it happens. Institutional investors have people in charge of wiring money, but you may have to hunt angels down in person to collect a check.
Source: Paul Graham, How to Raise Money
DO BREADTH-FIRST SEARCH WEIGHTED BY EXPECTED VALUE.
When you talk to investors your m.o. should be breadth-first search, weighted by expected value. You should always talk to investors in parallel rather than serially. You can't afford the time it takes to talk to investors serially, plus if you only talk to one investor at a time, they don't have the pressure of other investors to make them act. But you shouldn't pay the same attention to every investor, because some are more promising prospects than others. The optimal solution is to talk to all potential investors in parallel, but give higher priority to the more promising ones. Expected value = how likely an investor is to say yes, multiplied by how good it would be if they did. So for example, an eminent investor who would invest a lot, but will be hard to convince, might have the same expected value as an obscure angel who won't invest much, but will be easy to convince. Whereas an obscure angel who will only invest a small amount, and yet needs to meet multiple times before making up his mind, has very low expected value. Meet such investors last, if at all.
Source: Paul Graham, How to Raise Money
DON'T GET ADDICTED TO FUNDRAISING.
The danger of fundraising is particularly acute for people who are good at it. It's always fun to work on something you're good at. If you're one of these people, beware. Fundraising is not what will make your company successful. Listening to users complain about bugs in your software is what will make you successful. And the big danger of getting addicted to fundraising is not merely that you'll spend too long on it or raise too much money. It's that you'll start to think of yourself as being already successful, and lose your taste for the schleps you need to undertake to actually be successful. Startups can be destroyed by this.
Source: Paul Graham, How to Raise Money
DON'T MAKE THINGS COMPLICATED.
I realize it may seem odd to sum up this huge treatise by saying that my overall advice is not to make fundraising too complicated, but if you go back and look at this list you'll see it's basically a simple recipe with a lot of implications and edge cases. Avoid investors till you decide to raise money, and then when you do, talk to them all in parallel, prioritized by expected value, and accept offers greedily. That's fundraising in one sentence. Don't introduce complicated optimizations, and don't let investors introduce complications either.
Source: Paul Graham, How to Raise Money
DON'T OPTIMIZE FOR VALUATION.
When you raise money, what should your valuation be? The most important thing to understand about valuation is that it's not that important.
Source: Paul Graham, How to Raise Money
DON'T RAISE TOO MUCH.
Though only a handful of startups have to worry about this, it is possible to raise too much. The dangers of raising too much are subtle but insidious. One is that it will set impossibly high expectations. If you raise an excessive amount of money, it will be at a high valuation, and the danger of raising money at too high a valuation is that you won't be able to increase it sufficiently the next time you raise money.
Source: Paul Graham, How to Raise Money
DON'T REJECT AN ACCEPTABLE OFFER IN THE HOPE OF GETTING A BETTER ONE IN THE FUTURE.
I'm a little leery of using the term "greedily" when writing about fundraising lest non-programmers misunderstand me, but a greedy algorithm is simply one that doesn't try to look into the future. A greedy algorithm takes the best of the options in front of it right now. And that is how startups should approach fundraising in phases 2 and later. Don't try to look into the future because (a) the future is unpredictable, and indeed in this business you're often being deliberately misled about it and (b) your first priority in fundraising should be to get it finished and get back to work anyway.
Source: Paul Graham, How to Raise Money
DON'T SELL MORE THAN 25% IN PHASE 2.
Which means you should avoid doing things in earlier rounds that will mess up raising an A round. For example, if you've sold more than about 40% of your company total, it starts to get harder to raise an A round, because VCs worry there will not be enough stock left to keep the founders motivated.
Source: Paul Graham, How to Raise Money
GET A YES OR NO BEFORE VALUATION.
Some investors want to know what your valuation is before they even talk to you about investing. If your valuation has already been set by a prior investment at a specific valuation or cap, you can tell them that number. But if it isn't set because you haven't closed anyone yet, and they try to push you to name a price, resist doing so. If this would be the first investor you've closed, then this could be the tipping point of fundraising. That means closing this investor is the first priority, and you need to get the conversation onto that instead of being dragged sideways into a discussion of price.
Source: Paul Graham, How to Raise Money
GET INTRODUCTIONS TO INVESTORS.
Intros vary greatly in effectiveness. The best type of intro is from a well-known investor who has just invested in you. So when you get an investor to commit, ask them to introduce you to other investors they respect. [7] The next best type of intro is from a founder of a company they've funded. You can also get intros from other people in the startup community, like lawyers and reporters.
Source: Paul Graham, How to Raise Money
GET THE FIRST COMMITMENT.
The biggest factor in most investors' opinions of you is the opinion of other investors. Once you start getting investors to commit, it becomes increasingly easy to get more to. But the other side of this coin is that it's often hard to get the first commitment.
Source: Paul Graham, How to Raise Money
HAVE MULTIPLE PLANS.
Many investors will ask how much you're planning to raise. This question makes founders feel they should be planning to raise a specific amount. But in fact you shouldn't. It's a mistake to have fixed plans in an undertaking as unpredictable as fundraising.
Source: Paul Graham, How to Raise Money
HAVE ONE PERSON HANDLE FUNDRAISING.
If you have multiple founders, pick one to handle fundraising so the other(s) can keep working on the company. And since the danger of fundraising is not the time taken up by the actual meetings but that it becomes the top idea in your mind, the founder who handles fundraising should make a conscious effort to insulate the other founder(s) from the details of the process. [25]
Source: Paul Graham, How to Raise Money
HEAR NO TILL YOU HEAR YES.
Fortunately, the next rule is a tactic for neutralizing this behavior. But to work it depends on you not being tricked by the no that sounds like yes. It's so common for founders to be misled/mistaken about this that we designed a protocol to fix the problem. If you believe an investor has committed, get them to confirm it. If you and they have different views of reality, whether the source of the discrepancy is their sketchiness or your wishful thinking, the prospect of confirming a commitment in writing will flush it out. And till they confirm, regard them as saying no.
Source: Paul Graham, How to Raise Money
KNOW WHERE YOU STAND.
How do you judge how well you're doing with an investor, when investors habitually seem more positive than they are? By looking at their actions rather than their words. Every investor has some track they need to move along from the first conversation to wiring the money, and you should always know what that track consists of, where you are on it, and how fast you're moving forward.
Source: Paul Graham, How to Raise Money
STOP FUNDRAISING WHEN IT STOPS WORKING.
It's hard to give general advice about this, because there have been cases of startups that kept trying to raise money even when it seemed hopeless, and miraculously succeeded. But what I usually tell founders is to stop fundraising when you start to get a lot of air in the straw. When you're drinking through a straw, you can tell when you get to the end of the liquid because you start to get a lot of air in the straw. When your fundraising options run out, they usually run out in the same way. Don't keep sucking on the straw if you're just getting air. It's not going to get better.
Source: Paul Graham, How to Raise Money
THE BAR WILL BE HIGHER NEXT TIME.
Assume the money you raise in phase 2 will be the last you ever raise. You must make it to profitability on this money if you can.
Source: Paul Graham, How to Raise Money
THE FOUNDER WHO HANDLES FUNDRAISING SHOULD BE THE CEO.
The founder who handles fundraising should be the CEO, who should in turn be the most formidable of the founders. Even if the CEO is a programmer and another founder is a salesperson? Yes. If you happen to be that type of founding team, you're effectively a single founder when it comes to fundraising.
Source: Paul Graham, How to Raise Money
UNDERESTIMATE HOW MUCH YOU WANT.
Though you can focus on different plans when talking to different types of investors, you should on the whole err on the side of underestimating the amount you hope to raise.
Source: Paul Graham, How to Raise Money
YOU'LL NEED AN EXECUTIVE SUMMARY AND (MAYBE) A DECK.
Traditionally phase 2 fundraising consists of presenting a slide deck in person to investors. Sequoia describes what such a deck should contain, and since they're the customer you can take their word for it.
Source: Paul Graham, How to Raise Money
General top
What is a startup?
A STARTUP IS A COMPANY DESIGNED TO GROW FAST.
A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth.
Source: Paul Graham, Startup = Growth
What’s key to success?
REACH PRODUCT/MARKET FIT.
Whenever you see a successful startup, you see one that has reached product/market fit -- and usually along the way screwed up all kinds of other things, from channel model to pipeline development strategy to marketing plan to press relations to compensation policies to the CEO sleeping with the venture capitalist. And the startup is still successful.
Source: Marc Andreessen, The Pmarca Guide To Startups, Part 4: The only thing that matters
MARKET MATTERS MOST.
You can obviously screw up a great market -- and that has been done, and not infrequently -- but assuming the team is baseline competent and the product is fundamentally acceptable, a great market will tend to equal success and a poor market will tend to equal failure. Market matters most.
Source: Marc Andreessen, The Pmarca Guide To Startups, Part 4: The only thing that matters
MAKE SOMETHING PEOPLE WANT.
About a month after we started Y Combinator we came up with the phrase that became our motto: Make something people want. We've learned a lot since then, but if I were choosing now that's still the one I'd pick.
Source: Paul Graham, Be Good
UNDERSTAND YOUR USERS.
You can envision the wealth created by a startup as a rectangle, where one side is the number of users and the other is how much you improve their lives. The second dimension is the one you have most control over. And indeed, the growth in the first will be driven by how well you do in the second. As in science, the hard part is not answering questions but asking them: the hard part is seeing something new that users lack. The better you understand them the better the odds of doing that. That's why so many successful startups make something the founders needed.
Source: Paul Graham, Startups in 13 Sentences
DON'T GET DEMORALIZED.
Though the immediate cause of death in a startup tends to be running out of money, the underlying cause is usually lack of focus. Either the company is run by stupid people (which can't be fixed with advice) or the people are smart but got demoralized. Starting a startup is a huge moral weight. Understand this and make a conscious effort not to be ground down by it, just as you'd be careful to bend at the knees when picking up a heavy box.
Source: Paul Graham, Startups in 13 Sentences
DON'T GIVE UP.
Even if you get demoralized, don't give up. You can get surprisingly far by just not giving up. This isn't true in all fields. There are a lot of people who couldn't become good mathematicians no matter how long they persisted. But startups aren't like that. Sheer effort is usually enough, so long as you keep morphing your idea.
Source: Paul Graham, Startups in 13 Sentences
GET RAMEN PROFITABLE.
Ramen profitable means a startup makes just enough to pay the founders' living expenses. It's not rapid prototyping for business models (though it can be), but more a way of hacking the investment process. Once you cross over into ramen profitable, it completely changes your relationship with investors. It's also great for morale.
Source: Paul Graham, Startups in 13 Sentences
DEALS FALL THROUGH.
One of the most useful skills we learned from Viaweb was not getting our hopes up. We probably had 20 deals of various types fall through. After the first 10 or so we learned to treat deals as background processes that we should ignore till they terminated. It's very dangerous to morale to start to depend on deals closing, not just because they so often don't, but because it makes them less likely to.
Source: Paul Graham, Startups in 13 Sentences
LAUNCH FAST.
The reason to launch fast is not so much that it's critical to get your product to market early, but that you haven't really started working on it till you've launched. Launching teaches you what you should have been building. Till you know that you're wasting your time. So the main value of whatever you launch with is as a pretext for engaging users.
Source: Paul Graham, Startups in 13 Sentences
SPEND LITTLE.
I can't emphasize enough how important it is for a startup to be cheap. Most startups fail before they make something people want, and the most common form of failure is running out of money. So being cheap is (almost) interchangeable with iterating rapidly. But it's more than that. A culture of cheapness keeps companies young in something like the way exercise keeps people young.
Source: Paul Graham, Startups in 13 Sentences
BETTER TO MAKE A FEW USERS LOVE YOU THAN A LOT AMBIVALENT.
Ideally you want to make large numbers of users love you, but you can't expect to hit that right away. Initially you have to choose between satisfying all the needs of a subset of potential users, or satisfying a subset of the needs of all potential users. Take the first. It's easier to expand userwise than satisfactionwise. And perhaps more importantly, it's harder to lie to yourself. If you think you're 85% of the way to a great product, how do you know it's not 70%? Or 10%? Whereas it's easy to know how many users you have.
Source: Paul Graham, Startups in 13 Sentences
AVOID DISTRACTIONS.
Nothing kills startups like distractions. The worst type are those that pay money: day jobs, consulting, profitable side-projects. The startup may have more long-term potential, but you'll always interrupt working on it to answer calls from people paying you now. Paradoxically, fundraising is this type of distraction, so try to minimize that too.
Source: Paul Graham, Startups in 13 Sentences
OFFER SURPRISINGLY GOOD CUSTOMER SERVICE.
Customers are used to being maltreated. Most of the companies they deal with are quasi-monopolies that get away with atrocious customer service. Your own ideas about what's possible have been unconsciously lowered by such experiences. Try making your customer service not merely good, but surprisingly good. Go out of your way to make people happy. They'll be overwhelmed; you'll see. In the earliest stages of a startup, it pays to offer customer service on a level that wouldn't scale, because it's a way of learning about your users.
Source: Paul Graham, Startups in 13 Sentences
PICK GOOD COFOUNDERS.
Cofounders are for a startup what location is for real estate. You can change anything about a house except where it is. In a startup you can change your idea easily, but changing your cofounders is hard. And the success of a startup is almost always a function of its founders.
Source: Paul Graham, Startups in 13 Sentences
YOU MAKE WHAT YOU MEASURE.
I learned this one from Joe Kraus. Merely measuring something has an uncanny tendency to improve it. If you want to make your user numbers go up, put a big piece of paper on your wall and every day plot the number of users. You'll be delighted when it goes up and disappointed when it goes down. Pretty soon you'll start noticing what makes the number go up, and you'll start to do more of that. Corollary: be careful what you measure.
Source: Paul Graham, Startups in 13 Sentences
LET YOUR IDEA EVOLVE.
This is the second half of launching fast. Launch fast and iterate. It's a big mistake to treat a startup as if it were merely a matter of implementing some brilliant initial idea. As in an essay, most of the ideas appear in the implementing.
Source: Paul Graham, Startups in 13 Sentences
ACTION IS THE KEY TO SUCCESS.
In theory this sort of hill-climbing could get a startup into trouble. They could end up on a local maximum. But in practice that never happens. Having to hit a growth number every week forces founders to act, and acting versus not acting is the high bit of succeeding. Nine times out of ten, sitting around strategizing is just a form of procrastination. Whereas founders' intuitions about which hill to climb are usually better than they realize. Plus the maxima in the space of startup ideas are not spiky and isolated. Most fairly good ideas are adjacent to even better ones.
Source: Paul Graham, Startup = Growth
SIMPLE SOLUTIONS TO OVERLOOKED PROBLEMS THAT ACTUALLY NEED TO BE SOLVED, DELIVERED AS INFORMALLY AS POSSIBLE, STARTING WITH A VERY CRUDE VERSION 1, THEN ITERATED UPON RAPIDLY.
Now people are saying the same things about Arc that they said at first about Viaweb and Y Combinator and most of my essays. Why the pattern? The answer, I realized, is that my m.o. for all four has been the same. Here it is: I like to find (a) simple solutions (b) to overlooked problems (c) that actually need to be solved, and (d) deliver them as informally as possible, (e) starting with a very crude version 1, then (f) iterating rapidly.
Source: Paul Graham, Six Principles for Making New Things
HAVE A POWERFUL, EFFECTIVE WAY TO DISTRIBUTE YOUR PRODUCT.
To succeed, every business has to have a powerful, effective way to distribute its product. Great distribution can give you a terminal monopoly, even if your product is undifferentiated. The converse is that product differentiation itself doesn’t get you anywhere. Nikola Tesla went nowhere because he didn’t nail distribution. But understanding the critical importance of distribution is only half the battle; a company’s ideal distribution effort depends on many specific things that are unique to its business. Just like every great tech company has a good, unique product, they’ve all found unique and extremely effective distribution angles too.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
Ideas & Vision top
What kind of idea should we have?
A STARTUP HAS TO WORK ON SOMETHING FAIRLY NOVEL.
That space of ideas has been so thoroughly picked over that a startup generally has to work on something everyone else has overlooked. I was going to write that one has to make a conscious effort to find ideas everyone else has overlooked. But that's not how most startups get started. Usually successful startups happen because the founders are sufficiently different from other people that ideas few others can see seem obvious to them. Perhaps later they step back and notice they've found an idea in everyone else's blind spot, and from that point make a deliberate effort to stay there. But at the moment when successful startups get started, much of the innovation is unconscious.
Source: Paul Graham, Startup = Growth
FIND SIMPLE SOLUTIONS TO OVERLOOKED PROBLEMS THAT ACTUALLY NEED TO BE SOLVED.
Now people are saying the same things about Arc that they said at first about Viaweb and Y Combinator and most of my essays. Why the pattern? The answer, I realized, is that my m.o. for all four has been the same. Here it is: I like to find (a) simple solutions (b) to overlooked problems (c) that actually need to be solved, and (d) deliver them as informally as possible, (e) starting with a very crude version 1, then (f) iterating rapidly.
Source: Paul Graham, Six Principles for Making New Things
Marketing & Sales top
How should we market our product?
VIRAL MARKETING REQUIRES THAT A PRODUCT'S CORE USE CASE MUST BE INHERENTLY VIRAL.
Marketing people can’t do viral marketing. You don’t just build a product and then choose viral marketing. There is no viral marketing add-on. Anyone who advocates viral marketing in this way is wrong and lazy. People romanticize it because, if you do it right, you don’t have to spend money on ads or salespeople. But viral marketing requires that the product’s core use case must be inherently viral. Dropbox, for example, let’s people share files. Implicit is that there’s someone—a potential new user—to share with. Spotify does this with its social music angle. As people use the product, they encourage other people to use it as well. But it’s not just a “tell your friends” button that you can add-on post-product.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
How should we approach sales?
BEST CASE SCENARIO IS A PRODUCT THAT SELLS ITSELF COMBINED WITH A STRONG SALES EFFORT.
Product sells itself, no sales effort. Does not exist. Product needs selling, no sales effort. You have no revenue. Product needs selling, strong sales piece. This is a sales-driven company. Product sells itself, strong sales piece. This is ideal
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
IF YOU DON'T HAVE A SALES TEAM, THEN YOU ARE THE SALES TEAM.
Understanding this is key. You must appreciate that people can only show tip of the iceberg. Distribution works best when it’s hidden. Question is how big the iceberg is, and how you can leverage it. Every tech company has salespeople. If it doesn’t, there is no company. This is true even if it’s just you and a computer. Look around you. If you don’t see any salespeople, you are the salesperson.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
SALES AND ADVERTISING WORK BEST WHEN IT'S HIDDEN.
On some level, this was a literary masterpiece. If nothing else, it was impressive for the many nested levels of conversation that were woven in. Other people were talking to other people about PayPal, possibly at infinite levels on down. The son was talking to other people about those people. Bill Gross was talking to his son. Then Gross was talking to Peter Thiel. And at the most opaque and important level, Gross was talking to the other investors at the table, tacitly playing up how smart he was for having invested in PayPal. The message is that sales is hidden. Advertising is hidden. It works best that way.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
THINK REALLY HARD ABOUT FINDING YOUR SINGLE BEST DISTRIBUTION CHANNEL.
That is a really bad idea. It is very likely that one channel is optimal. Most businesses actually get zero distribution channels to work. Poor distribution—not product—is the number one cause of failure. If you can get even a single distribution channel to work, you have great business. If you try for several but don’t nail one, you’re finished. So it’s worth thinking really hard about finding the single best distribution channel. If you are an enterprise software company with a sales team, your key strategic question is: who are the people who are most likely to buy the product? That will help you close in on a good channel. What you want to avoid is not thinking hard about which customers are going to buy it and just sending your sales team out to talk to everybody.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
Metrics & Analytics top
How do we measure our progress?
A GOOD GROWTH RATE IS 5-7% PER WEEK.
A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing.
Source: Paul Graham, Startup = Growth
THE BEST MEASURE OF GROWTH RATE IS REVENUE, OR ACTIVE USERS.
The best thing to measure the growth rate of is revenue. The next best, for startups that aren't charging initially, is active users. That's a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users.
Source: Paul Graham, Startup = Growth
GROWTH RATE IS THE MEASURE OF A STARTUP.
The slope is the company's growth rate. If there's one number every founder should always know, it's the company's growth rate. That's the measure of a startup. If you don't know that number, you don't even know if you're doing well or badly.
Source: Paul Graham, Startup = Growth
A SUCCESSFUL BUSINESS HAS CLV > CPA.
The basic question is: is CLV greater or less than CPA? In a frictionless world, you build a great business if CLV > 0. In a world with some friction and uncertainty, you build a great business if CLV > CPA
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
Mistakes & Failure top
What mistakes should we avoid?
THE #1 COMPANY-KILLER IS LACK OF MARKET.
In honor of Andy Rachleff, formerly of Benchmark Capital, who crystallized this formulation for me, let me present Rachleff's Law of Startup Success: The #1 company-killer is lack of market. Andy puts it this way: When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens.
Source: Marc Andreessen, The Pmarca Guide To Startups, Part 4: The only thing that matters
NEVER GETTING TO PRODUCT/MARKET FIT.
Lots of startups fail before product/market fit ever happens. My contention, in fact, is that they fail because they never get to product/market fit.
Source: Marc Andreessen, The Pmarca Guide To Startups, Part 4: The only thing that matters
DON'T GET YOUR HOPES UP.
Startup founders are naturally optimistic. They wouldn't do it otherwise. But you should treat your optimism the way you'd treat the core of a nuclear reactor: as a source of power that's also very dangerous. You have to build a shield around it, or it will fry you.
Source: Paul Graham, The Hardest Lessons for Startups to Learn
NOT WANTING TO GET YOUR HANDS DIRTY.
Nearly all programmers would rather spend their time writing code and have someone else handle the messy business of extracting money from it. And not just the lazy ones. Larry and Sergey apparently felt this way too at first. After developing their new search algorithm, the first thing they tried was to get some other company to buy it.
Source: Paul Graham, The 18 Mistakes That Kill Startups
CHOOSING THE WRONG PLATFORM.
A related problem (since it tends to be done by bad programmers) is choosing the wrong platform. For example, I think a lot of startups during the Bubble killed themselves by deciding to build server-based applications on Windows. Hotmail was still running on FreeBSD for years after Microsoft bought it, presumably because Windows couldn't handle the load. If Hotmail's founders had chosen to use Windows, they would have been swamped.
Source: Paul Graham, The 18 Mistakes That Kill Startups
FIGHTS BETWEEN FOUNDERS.
Fights between founders are surprisingly common. About 20% of the startups we've funded have had a founder leave. It happens so often that we've reversed our attitude to vesting. We still don't require it, but now we advise founders to vest so there will be an orderly way for people to quit.
Source: Paul Graham, The 18 Mistakes That Kill Startups
HAVING NO SPECIFIC USER IN MIND.
You can't build things users like without understanding them. I mentioned earlier that the most successful startups seem to have begun by trying to solve a problem their founders had. Perhaps there's a rule here: perhaps you create wealth in proportion to how well you understand the problem you're solving, and the problems you understand best are your own.
Source: Paul Graham, The 18 Mistakes That Kill Startups
HIRING BAD PROGRAMMERS.
But when I think about what killed most of the startups in the e-commerce business back in the 90s, it was bad programmers. A lot of those companies were started by business guys who thought the way startups worked was that you had some clever idea and then hired programmers to implement it. That's actually much harder than it sounds—almost impossibly hard in fact—because business guys can't tell which are the good programmers. They don't even get a shot at the best ones, because no one really good wants a job implementing the vision of a business guy.
Source: Paul Graham, The 18 Mistakes That Kill Startups
LAUNCHING TOO EARLY.
Launching too slowly has probably killed a hundred times more startups than launching too fast, but it is possible to launch too fast. The danger here is that you ruin your reputation. You launch something, the early adopters try it out, and if it's no good they may never come back.
Source: Paul Graham, The 18 Mistakes That Kill Startups
MARGINAL NICHE.
Most of the groups that apply to Y Combinator suffer from a common problem: choosing a small, obscure niche in the hope of avoiding competition.
Source: Paul Graham, The 18 Mistakes That Kill Startups
BAD LOCATION.
Startups prosper in some places and not others. Silicon Valley dominates, then Boston, then Seattle, Austin, Denver, and New York. After that there's not much. Even in New York the number of startups per capita is probably a 20th of what it is in Silicon Valley. In towns like Houston and Chicago and Detroit it's too small to measure.
Source: Paul Graham, The 18 Mistakes That Kill Startups
DERIVATIVE IDEA.
Many of the applications we get are imitations of some existing company. That's one source of ideas, but not the best. If you look at the origins of successful startups, few were started in imitation of some other startup. Where did they get their ideas? Usually from some specific, unsolved problem the founders identified.
Source: Paul Graham, The 18 Mistakes That Kill Startups
OBSTINACY.
In some fields the way to succeed is to have a vision of what you want to achieve, and to hold true to it no matter what setbacks you encounter. Starting startups is not one of them. The stick-to-your-vision approach works for something like winning an Olympic gold medal, where the problem is well-defined. Startups are more like science, where you need to follow the trail wherever it leads.
Source: Paul Graham, The 18 Mistakes That Kill Startups
SPENDING TOO MUCH.
It's hard to distinguish spending too much from raising too little. If you run out of money, you could say either was the cause. The only way to decide which to call it is by comparison with other startups. If you raised five million and ran out of money, you probably spent too much.
Source: Paul Graham, The 18 Mistakes That Kill Startups
POOR INVESTOR MANAGEMENT.
As a founder, you have to manage your investors. You shouldn't ignore them, because they may have useful insights. But neither should you let them run the company. That's supposed to be your job. If investors had sufficient vision to run the companies they fund, why didn't they start them?
Source: Paul Graham, The 18 Mistakes That Kill Startups
RAISING TOO LITTLE MONEY.
Too little money means not enough to get airborne. What airborne means depends on the situation. Usually you have to advance to a visibly higher level: if all you have is an idea, a working prototype; if you have a prototype, launching; if you're launched, significant growth. It depends on investors, because until you're profitable that's who you have to convince.
Source: Paul Graham, The 18 Mistakes That Kill Startups
RAISING TOO MUCH MONEY.
It's obvious how too little money could kill you, but is there such a thing as having too much? Yes and no. The problem is not so much the money itself as what comes with it. As one VC who spoke at Y Combinator said, "Once you take several million dollars of my money, the clock is ticking." If VCs fund you, they're not going to let you just put the money in the bank and keep operating as two guys living on ramen. They want that money to go to work. At the very least you'll move into proper office space and hire more people. That will change the atmosphere, and not entirely for the better. Now most of your people will be employees rather than founders. They won't be as committed; they'll need to be told what to do; they'll start to engage in office politics.
Source: Paul Graham, The 18 Mistakes That Kill Startups
SACRIFICING USERS TO (SUPPOSED) PROFIT.
When I said at the beginning that if you make something users want, you'll be fine, you may have noticed I didn't mention anything about having the right business model. That's not because making money is unimportant. I'm not suggesting that founders start companies with no chance of making money in the hope of unloading them before they tank. The reason we tell founders not to worry about the business model initially is that making something people want is so much harder.
Source: Paul Graham, The 18 Mistakes That Kill Startups
SINGLE FOUNDER.
Have you ever noticed how few successful startups were founded by just one person? Even companies you think of as having one founder, like Oracle, usually turn out to have more. It seems unlikely this is a coincidence.
Source: Paul Graham, The 18 Mistakes That Kill Startups
SLOWNESS IN LAUNCHING.
One reason to launch quickly is that it forces you to actually finish some quantum of work. Nothing is truly finished till it's released; you can see that from the rush of work that's always involved in releasing anything, no matter how finished you thought it was. The other reason you need to launch is that it's only by bouncing your idea off users that you fully understand it.
Source: Paul Graham, The 18 Mistakes That Kill Startups
A HALF-HEARTED EFFORT.
The failed startups you hear most about are the spectactular flameouts. Those are actually the elite of failures. The most common type is not the one that makes spectacular mistakes, but the one that doesn't do much of anything—the one we never even hear about, because it was some project a couple guys started on the side while working on their day jobs, but which never got anywhere and was gradually abandoned.
Source: Paul Graham, The 18 Mistakes That Kill Startups
POOR DISTRIBUTION—NOT PRODUCT—IS THE NUMBER ONE CAUSE OF FAILURE.
That is a really bad idea. It is very likely that one channel is optimal. Most businesses actually get zero distribution channels to work. Poor distribution—not product—is the number one cause of failure. If you can get even a single distribution channel to work, you have great business. If you try for several but don’t nail one, you’re finished. So it’s worth thinking really hard about finding the single best distribution channel. If you are an enterprise software company with a sales team, your key strategic question is: who are the people who are most likely to buy the product? That will help you close in on a good channel. What you want to avoid is not thinking hard about which customers are going to buy it and just sending your sales team out to talk to everybody.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
Planning & Strategy top
What strategy should we use?
DO WHATEVER IS REQUIRED TO GET TO PRODUCT/MARKET FIT.
When you are BPMF, focus obsessively on getting to product/market fit. Do whatever is required to get to product/market fit. Including changing out people, rewriting your product, moving into a different market, telling customers no when you don't want to, telling customers yes when you don't want to, raising that fourth round of highly dilutive venture capital -- whatever is required.
Source: Marc Andreessen, The Pmarca Guide To Startups, Part 4: The only thing that matters
JUST FOCUS ON HITTING A TARGET GROWTH RATE.
We usually advise startups to pick a growth rate they think they can hit, and then just try to hit it every week. The key word here is "just." If they decide to grow at 7% a week and they hit that number, they're successful for that week. There's nothing more they need to do. But if they don't hit it, they've failed in the only thing that mattered, and should be correspondingly alarmed.
Source: Paul Graham, Startup = Growth
USE GROWTH LIKE A COMPASS TO MAKE DECISIONS.
If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face.
Source: Paul Graham, Startup = Growth
FOLLOW GROWTH OVER VISION.
You'll generally do best to follow that constraint wherever it leads rather than being influenced by some initial vision, just as a scientist is better off following the truth wherever it leads rather than being influenced by what he wishes were the case. When Richard Feynman said that the imagination of nature was greater than the imagination of man, he meant that if you just keep following the truth you'll discover cooler things than you could ever have made up. For startups, growth is a constraint much like truth. Every successful startup is at least partly a product of the imagination of growth.
Source: Paul Graham, Startup = Growth
MAKE USERS HAPPY.
Improving constantly is an instance of a more general rule: make users happy. One thing all startups have in common is that they can't force anyone to do anything. They can't force anyone to use their software, and they can't force anyone to do deals with them. A startup has to sing for its supper. That's why the successful ones make great things. They have to, or die.
Source: Paul Graham, The Hardest Lessons for Startups to Learn
GET VERSION 1 OUT FAST, AND THEN KEEP PUMPING OUT FEATURES.
The thing I probably repeat most is this recipe for a startup: get a version 1 out fast, then improve it based on users' reactions. By "release early" I don't mean you should release something full of bugs, but that you should release something minimal. Users hate bugs, but they don't seem to mind a minimal version 1, if there's more coming soon. [...] Of course, "release early" has a second component, without which it would be bad advice. If you're going to start with something that doesn't do much, you better improve it fast.
Source: Paul Graham, The Hardest Lessons for Startups to Learn
Product/Market Fit top
What is product/market fit?
BEING IN A GOOD MARKET WITH A PRODUCT THAT CAN SATISFY THAT MARKET.
Let's introduce Rachleff's Corollary of Startup Success: The only thing that matters is getting to product/market fit. Product/market fit means being in a good market with a product that can satisfy that market.
Source: Marc Andreessen, The Pmarca Guide To Startups, Part 4: The only thing that matters
Recruiting & Employment top
What’s a good recruiting strategy?
FOUNDERS SHOULD PROBABLY SPEND 1/4 TO 1/3 OF THEIR TIME ON RECRUITING.
A similar thing exists with employee hiring. It’s trickier to know what to do there. But traditional recruiters do not take the distribution problem seriously enough. They assume that people are always rational, and that by giving them information, people will make good decisions. That’s not true at all. And since the best people tend to make the best companies, the founders or one or two key senior people at any multimillion-dollar company should probably spend between 25% and 33% of their time identifying and attracting talent.
Source: Peter Thiel, Peter Thiel’s CS183: Startup - Class 9 Notes Essay
Scaling & Growth top
How do we grow?
RAISING MONEY LETS YOU CHOOSE YOUR GROWTH RATE.
Almost every company needs some amount of funding to get started. But startups often raise money even when they are or could be profitable. It might seem foolish to sell stock in a profitable company for less than you think it will later be worth, but it's no more foolish than buying insurance. Fundamentally that's how the most successful startups view fundraising. They could grow the company on its own revenues, but the extra money and help supplied by VCs will let them grow even faster. Raising money lets you choose your growth rate.
Source: Paul Graham, Startup = Growth
TO GROW RAPIDLY, YOU NEED TO MAKE SOMETHING YOU CAN SELL TO A BIG MARKET.
To grow rapidly, you need to make something you can sell to a big market. That's the difference between Google and a barbershop. A barbershop doesn't scale.
Source: Paul Graham, Startup = Growth
TO GROW REALLY BIG, MAKE SOMETHING LOTS OF PEOPLE WANT AND SERVE ALL THOSE PEOPLE.
For a company to grow really big, it must (a) make something lots of people want, and (b) reach and serve all those people. Barbershops are doing fine in the (a) department. Almost everyone needs their hair cut. The problem for a barbershop, as for any retail establishment, is (b). A barbershop serves customers in person, and few will travel far for a haircut. And even if they did the barbershop couldn't accomodate them.
Source: Paul Graham, Startup = Growth
Starting Up top
How should we get started?
DELIVER YOUR SOLUTION AS INFORMALLY AS POSSIBLE, STARTING WITH A VERY CRUDE VERSION 1, THEN ITERATING RAPIDLY.
Now people are saying the same things about Arc that they said at first about Viaweb and Y Combinator and most of my essays. Why the pattern? The answer, I realized, is that my m.o. for all four has been the same. Here it is: I like to find (a) simple solutions (b) to overlooked problems (c) that actually need to be solved, and (d) deliver them as informally as possible, (e) starting with a very crude version 1, then (f) iterating rapidly.
Source: Paul Graham, Six Principles for Making New Things
Team & Roles top
What kind of team should we build?
EFFECTIVENESS AS OPPOSED TO EXPERIENCE.
You look at a startup and ask, will this team be able to optimally execute against their opportunity? I focus on effectiveness as opposed to experience, since the history of the tech industry is full of highly successful startups that were staffed primarily by people who had never "done it before".
Source: Marc Andreessen, The Pmarca Guide To Startups, Part 4: The only thing that matters
ONLY HIRE PEOPLE WHO ARE GOING TO WRITE CODE OR GO OUT AND GET USERS.
We have three general suggestions about hiring: (a) don't do it if you can avoid it, (b) pay people with equity rather than salary, not just to save money, but because you want the kind of people who are committed enough to prefer that, and (c) only hire people who are either going to write code or go out and get users, because those are the only things you need at first.
Source: Paul Graham, The 18 Mistakes That Kill Startups
DON'T HIRE IF YOU CAN AVOID IT.
We have three general suggestions about hiring: (a) don't do it if you can avoid it, (b) pay people with equity rather than salary, not just to save money, but because you want the kind of people who are committed enough to prefer that, and (c) only hire people who are either going to write code or go out and get users, because those are the only things you need at first.
Source: Paul Graham, The 18 Mistakes That Kill Startups
PAY PEOPLE WITH EQUITY RATHER THAN SALARY.
We have three general suggestions about hiring: (a) don't do it if you can avoid it, (b) pay people with equity rather than salary, not just to save money, but because you want the kind of people who are committed enough to prefer that, and (c) only hire people who are either going to write code or go out and get users, because those are the only things you need at first.
Source: Paul Graham, The 18 Mistakes That Kill Startups