Decode SV Startup Success - Product Market Fit (Michael Seibel, Y Combinator) | UC Berkeley

just to get started yc is a startup accelerator um every year about um well actually every batch every six months about ten thousand to twelve thousand companies apply to yc uh this current batch we accepted about 200 of them they go through a three month program we help advise them we fund them and we help them raise additional money on demo day um one of the interesting things about yc is it was recreated because we felt like the venture funding world was built for fundraisers not builders and we thought that that was incorrect that like your ability to build an amazing powerpoint presentation or give an amazing talk really had little to nothing to do with your ability to build a great product um back in the day in the 90s and in the 80s it cost so much money to build a product that like the major filter for who should be funded was can you give a good presentation that changed in the 2000s suddenly building products became very simple and significantly easier and so then the power shifted from business people to engineers and yc was basically created as a product for engineers who wanted to start companies as opposed to douchebag business people um i am what i'm i'm i'm a poly sci major so i am a douchebag business person as well um the second thing that yc believed is that creating a startup is extremely emotionally taxing and it is far easier to do it with a set of peers so we invented the model of funding companies not one by one but in a batch so there was a large number of people with you who basically like you can cry on their shoulder when everything sucks because one of the things people don't say about startups enough is that everything sucks all the time like that is your life um sorry the cool thing about yc nowadays is that the second generation of leadership in yc the generation that i'm a part of were all yc founders so we basically got to add all of the things that we wish yc provided back when we were doing it in your position and so i'd love to kind of describe a couple of those things first we have startup school so basically all of the advice that we've ever given is in this online program that anyone can participate in for free with videos and blog posts and everything for free that you can get without even applying to yc all of the content is available online startupschool.org of course you know about the accelerator most people don't know about is a product called bookface so bookface is our internal social network for yc founders has about 4 000 members bookface has fun things like an investor database with up-to-date reviews on every single investor in the valley a directory of every single yc founder and where they work today because many founders even ones who aren't successful have gone on to become executives and have important roles in other companies it has a forum where you can ask any question about your startup and get answers from other alumni and it has deals which are provided exclusively for yc companies um things like hundreds of thousands of dollars of free credits massive discounts on basically every product you might want to use as a founder so we didn't have that when i was going through yc the first time way better this time after you do yc accelerator we have a program called the series a program and what's cool about this is that many first-time founders have never gone out and tried to raise five to ten million dollars and there are a lot of best practices that if you learn you are faster at fundraising you can fundraise from better people and it goes um you can raise more money and so we basically run a new batch for just those companies that are ready to raise a series a we help them raise um the companies participate in that batch about 85 percent of them go on to raise series ace the next program after that's the yc growth program these are for yc companies that are anywhere between 50 to 100 people and are growing really fast and have to deal with hiring policy hiring vps setting up a management team firing vps figuring out how to compensate sales people setting up second offices all of the boring stupid kind of company building stuff that you do after product market fit so what's cool about yc is that all of this stuff is under the yc kind of realm and all of it you get if you get into yc the early stage program the accelerator so there's no more you don't have to give us any more equity you don't have to give us anything else you get all this stuff these are all the things that we wish we had just to give you a sense of some stats so far we've funded about 2100 companies one of the things i jerk about is that most of those companies are dead or in the process of dying sorry that's the reality of startups we know a lot about what to do not to die based on seeing all those companies die figuring out how to win is often described as just figuring out how not to die long enough in the case of twitch that was definitely the case there are 4 000 alumni as i mentioned the combined valuation of yc companies is now over 100 billion dollars we funded 100 companies that are worth over 100 million and 17 that are over worth over a billion um so that's why see that's my little stick now let's get into advice first should i be a startup founder um honestly the answer for the general population is absolutely not it's a horrible horrible horrible thing to do how many of you are considering being a startup founder raise your hand great maybe you should reconsider um when i look at successful yc founders there are a couple things that really stick out the first is they have a strong desire to actually wanting to be running a startup they see the um end is running a startup they don't see the end as being rich or going to cool parties with rich people or any of the things that might come if you're successful they see the end as actually doing the startup bit and they don't really care deep down inside they wouldn't switch what they were doing even if they knew their startup was going to fail and let's be clear most startup founders kind of logically think their startup's going to fail because the success rate is extremely small so the first thing you have to ask yourself if you want to be a yc startup founder screw yc just any kind of startup founder is would you like to work on the problem that you're working on right now or the problem that you might want to work on or the company might want to work on for five to ten years and then have it fail is that sound like fun if not this might not be for you google is hiring and they're over there another thing that people think about is when am i the most motivated there are some people who are just generally motivated there are other people that when they're inside another company or when they have a boss or when they're inside of something that's too structured they're just not motivating they don't work hard if you're the kind of person that can work hard and really feel fulfilled at google you should work there if you're the kind of person where honestly working at a big company almost makes you a little sick to your stomach like that's when you should consider maybe this isn't for me maybe i should be a startup founder and i'll tell you like the google job is amazing like i hate when people on like non-startup jobs like they allow you to have a life they allow you to have like positive relationships you don't feel like you're gonna company's gonna die every day right it's like a very helpful healthy place to be they pay extremely well startups don't pay well like these jobs are great you have to be a little stupid and a little crazy to actually want to stick with a startup we see a lot of people at yc who think they want to do a startup and within like 12 months they realize it's actually not for me i think that if you want to do a startup and be successful for a long term you have to be anchored to something about that startup either the problem that the startup is solving or the people that you are working with there has to be something that anchors you to this thing when it's not going well now for me when we started twitch it started as this thing called justin tv which was an online reality tv show i had no interest in an online reality tv show in fact it's the dumbest idea you could have as a startup founder like none of you have found have ideas worse than an online reality tv show um but i got to do it with my best friend in the world justin khan and so the thing that kept me there day after day doing work that i didn't like and getting punched in the face was i got to work with my best friend i see a lot of founders who don't have that anchor so that when things are going not going well they give up so you have to think about what's going to be the anchor the best anchor is that you actually give a about the problem that you're solving that's the best anchor and maybe is a problem that you have or a problem your friends have or a problem that your family has or a problem in your community a lot of people like the kind of schtick that a lot of ec said are solve a personal problem what they're really trying to tell you is there should be something in your startup that you give a about when it's not working because it's going to be not working all the time so there should be something that you care about that's going to motivate you the last thing is this is not a resume item or career path if you like resumes and career paths go work at google i'm serious like we actually see this a lot on yc applications where it's like oh like i want to do a startup in my 20s because it's going to set me up for like getting a senior vp job at dropbox in my 30s and we're just like thank you for telling us why we should reject you the easiest application to read in the whole world this isn't about like these types of people who make good startup founders they don't fit into career paths they don't fit into like neat resumes they they don't care about having blue chip companies on their resume they don't think about their life as like working for someone else and working through someone else's system of hiring or raises or promotions like they think of actually wanting to do all that themselves and so if any of that kind of feels warm and comforting that idea of like working within someone else's system and kind of having this safety and security and free time go work at google so if there are any of you left who actually want to do a startup awkwardly a lot of the advice on how you get started is completely wrong i have this saying called an mba startup hyc we like to on mbas we have some mbas who've gone through and done well but we still like to on them um an mba startup i define as a startup in an industry that you have no personal connection to or understanding of where you think you found some arbitrage opportunity that everyone else in that industry is stupid and hasn't seen and when you put it in an excel spreadsheet it looks like it might be a billion dollar company that is a bad place to start a company first you've got no personal connection once you feel realize that your solution is wrong you're not going to be excited about keeping on working on it second of all the assumption that the people who in that industry are stupid is almost always wrong hilariously almost always it's you guys who are stupid like almost always and the big ass company that you're trying to disrupt is almost always the smart one um sorry um and three and i think like you know to be honest like most importantly um oftentimes it's not obvious that a company can get big when it started um you know when airbnb started i remember when they came to you know hang out with us and try to get help and i wasn't thinking oh man this could be the future of like this could disrupt the hotel industry this could be the future of how people vacation the reason why i enjoyed working with them as they were tenacious founders i thought the idea wasn't good you know ben from pinterest he went to school with me i remember seeing his product early on i remember being really really amazed by how tenacious he was at trying to solve this problem but i thought collecting photos on the internet was a dumb idea a lot of people thought that people streaming video games on the internet was also a dumb idea so like the ideas usually don't sound too good when they start and it's usually pretty hard to put them in excel spreadsheet and like spit out billion dollar outcomes so don't do an mba idea instead here's something to consider being in college means that you are in the place where most founders most young founders will find their co-founders so don't up this opportunity like literally your co-founders might be in the room or they might be in your dorm they might be in your apartment building and if you don't get a sense of who these people might be then you're going to have a really hard time connecting with them later because later on they're going to be spread across the world but right now they're all in one place so the first thing i always tell people is find friends you enjoy to brainstorm with that's step one friends you enjoy brainstorming with there are two type of people you can brainstorm with if i said um hey wouldn't it be cool if this room was painted orange right if you said no you're an idiot that would be a bad brainstorming partner right if you said you know orange is a little weird but like this room really has no color maybe like the background should be the diff the stage should be different so when people are looking up here instead of around right they basically continue the conversation with you as opposed to shut down the conversation you want to make sure you're identifying those types of people in your social group and you want to become more friends with them that can often happen in weird ways in college it can happen because you're planning a trip with them it can happen because you work in a student group with them but like you know these types of people and you know the opposite as well you know the people that nobody likes who just shut downs ideas once you have that group of people start talking about problems that you care about that you have a personal connection to in some way not solutions not products not ideas idea is kind of the scariest and worst word idea is a solution and i always tell founders start with problems and if you're brainstorming problems interesting problems that should be solved in the world with your friends that is the good starting point that is where a lot of magic can happen as opposed to saying to your friends here's this fully formed idea that's probably wrong what do you think about it it's a lot easier when you're basically brainstorming with people and together you start coming up potential solutions to the problem the next thing is that if there is a solution that's interesting don't put any process in front of starting to build you don't need to incorporate you don't need to you really don't need to do anything but start building you need to apply to accelerators you don't have to make a fundraising pitch start building figure out a simple first version that you can get out into the world and in front of customers this is a little counter-intuitive because oftentimes people say the first step in startups is to do customer development right well tricky but if the problem is one that you have or your friends have or your parents have your community has you've already done customer development right you already know potential first customers so it's a lot easier to start with problems that are in your community because the customer development has already begun your life has been customer development the next step is to launch your product and try to get some customers it's like really simple actually try to get some of those people where you know they have the problem to try to use your product at that moment you'll realize your solution is completely wrong and that's okay you didn't spend that much time building it you haven't incorporated you haven't raised money you don't have a lot of obligation you just started now you should be iterating your product you should go back to them after a week and say look we fixed it is it better now look we fixed it is it better now if you've signed up a couple users through that process who are actually using your product now is the time that perhaps you should consider incorporating and raising money this strategy is set up so that you have the maximum amount of leverage when you go in and fundraise because at this point with a launch product with a couple customers an investor is going to be slightly afraid of you what most early stage founders up on is they think to themselves i need money to get started and that puts all the leverage in my hands if i don't give you money you don't get your done that's horrible now investors love that they love to say yeah just come to me with your deck with your ideas you have to have anything right of course they say that because like that's what maximizes their leverage they're awkwardly not exactly on your side awkwardly um and so by making sure that you have product that you have customers that you have teammates that you're working with you're basically enabling yourself to get access to higher quality investors and you're kind of forcing them to choose whether they're going to invest in you much faster that almost always creates better results and by the way this is a trick for yc like this is the easiest way to get into yc um and it actually doesn't take it that much more time than going around and shoveling the pitch deck that nobody wants to see and spending six months raising money and failing so that is an order of operations for starting startups i'm not going to say that's how every single startup started it's clearly not but like when you're thinking about your path try to figure out like can i fit that and what advantages would it give me to fit a path that looks more like that and less like giving all the leverage to investors the next thing that we should talk about is now product market fit unfortunately founders really like to lie to themselves because doing a startup is really hard and the kind of newest and most in-vogue lie is for people to say i have product market fit yc companies do it all the time and i spend a lot of time telling them no you don't and i know because like we invested in you and i work with you every day and i'm telling you you don't very weird thing because if you don't know whether you have it you absolutely don't have it what i find funny is that a huge percentage of yc founders basically are getting punched in the face every day because they don't have product market fit but every once in a while someone will come to me and they'll say michael everything is blowing up like everything all at the same time like we're making more money than we thought but like all of our employees hate us our customers are hating us but they're using our product more than we ever thought like we need to hire everyone we don't have any time to do it everything's breaking and everything is working and they say you didn't tell me that it sucked when things go well and i say i'm sorry it sucks when things go well sorry that's that's the game product market fit feels like that overwhelming things are going overwhelmingly well like so well you're mad at it think about how good that has to be for you to be angry that your startup is growing right that's how good if you don't feel that angry you don't have product market fit and so what's interesting about product market fit is that the vast majority of companies never hit it and it's not correlated with fundraising you would be surprised we've done an analysis on yc companies that raised five to ten million dollars and died you know what the biggest cause of death no product market fit so like fundraising is not equivalent to it just having users isn't equivalent to it right it has to be everything breaking all at the same time and you feel horrible about it that's really the line so interestingly enough i really have to reset founders mindset and i have to really work with them and say look i hope that you have a really strong understanding of the customer and of the problem but you probably don't have any understanding of the solution that should be built to solve this problem most of the early phase of your company is going to be running experiments on the solution so don't fall in love with your product in the early stage because it's going to change a lot typically the entire time before you raise a series a which for most company means the entire time they're in existence is spent experimenting on their solution and holding their customer and their problem constant and the cool thing about doing this is that every experiment you learn if you hold those two things constant the customer and the problem we call this process iteration now iteration is nowhere near as popular a word as pivot pivot is a really shitty horrible thing that somehow has become very popular nowadays but it's just the sign of absolute failure repeated sorry if any of your pivoting i apologize um when you pivot most typically you hold the solution constant and you change the problem or the customer and the typical way it goes is my solution is this beautiful butterfly angel that of course is perfect it's just this the wrong customer so i should just change the customer or change the problem until i find a customer and problem worthy of my unique butterfly amazing solution right that's usually wrong almost always wrong so changing the customer and the problem i advise you do that only if you've been working for on something for two years i advise you pivot only if you're working on something for two years because like it's hard to figure out what people want even if you know their problem and you know who they are give yourself some time right this isn't easy if it was easy the big companies would be nailing it so if you don't give yourself enough time to iterate solutions and find what your customers want what will happen and what often happen is you pivot to some other customer and problem someone else serves that customer that old customer problem and they build a billion dollar company and you say i should have kept on working on that thing i was working on that happens in yc all the time because it's actually problems and customers are pretty easy to understand they're not easy to build solutions for but it's pretty easy to understand when someone's desperate for something and so like oftentimes you'll see companies come right after you they kept with it and bam you're not happy and those founders are really happy so um in this process the number one thing to do is not lie to yourself the number one thing to do is not make yourself feel good by lying to yourself that's why it's nice to have teammates that you actually enjoy working with that's why it's nice to have a problem you actually enjoy working on so you don't have to lie to yourself to say your solution is better than it is great solutions almost never have to be actually sold in the early days when we talked to startups about sales oftentimes we say sales in the early days is about telling as many people in your customer set about the problem and waiting for them to come screaming to you saying oh my god i have this problem so much i'm willing to use your shitty broken thing because my life is like ending like that's what sales feels like in early stage if you find yourself trying to convince someone that they have the problem you're doing it wrong if you find yourself trying to do something that feels like traditional selling you're doing it wrong in the early stage it's about filtering and trying to find the people who are so desperate that they use your crazy thing the next thing is don't cargo occult success this is a huge problem among startups and yc startups somehow with that product market fit it's actually not that hard to raise money especially if you're technical in the bay area so you raise a million or two million dollars and you think to yourself well if these smart investors gave me money maybe i have product market fit so then you're like well what are companies with product market fit do they start hiring they get an office they start doing all hands meetings they start speaking at conferences they start writing like fancy thought leader blog posts right holy you can spend that two million dollars in about a year and a half you wake up you don't have a product market fit no investor is going to give you five ten million dollar check your company dies this happens all the time with yc companies so it happens even more for non-yc companies this is a very common path cargo culting success successful companies are hiring new employees every week well we should be hiring new employees every week it's like no be honest with yourself understand whether you have success or not if you don't have success your mindset should be navy seals small interdisciplinary team with not tons of deep experience in any one area that's your mindset a team that doesn't require active management a team where if someone goes away another person can take over the role non-specialization no more than six people no more than eight people like that range is the kind of optimal range now people always think if we hired more people we move faster it turns out that above six to eight people you move slower as you hire more people because you have to introduce management so now the founders which typically some of the most talented people in the team are spending time managing and they're not spending their time talking to customers and building the sad part of this that of part of my job is that often i have to talk to these companies and i have to tell them that they have to lay off all those people they hired and that really sucks and the reason why they have to do that is because they basically bulked up their org so now they can't actually figure out the solution anymore because they're too busy trying to help people figure out their career development paths and running hiring processes and doing all these things that only post-product market fit companies should be doing so as i said before um failure sucks i often say most startup founders start out in the well that sucks once you get out of that unfortunately it still sucks and so let's be clear like if you don't if you're not doing the thing you really enjoy doing if you don't really want to be doing a startup if you don't really want to be working with this other person if you don't really want to be working on this problem you're not going to survive all the pain plain and simple you're not going to survive all the pain so there we go that's my happy go lucky talk about startups i apologize it wasn't extremely inspiring to end if i saw a little time great i want to tell some fun stories about almost dying but not um okay so the first one um the first one is kind of a classic one about my co-founder kyle so kyle vogt who's now the ceo of cruz and you know sold crews to gm for a billion dollars and is making self-driving cars back in the day he was co-founder adjusted tv twitch and he was the head of our video system um whenever our video system went down it was kyle's job to bring it back up so we're all living apartment together all four founders it's saturday and video is down kyle unfortunately is in tahoe on taking a break emmett my other co-founder who's still running twitch to this day is an amazing engineer but it doesn't know anything about the video system so basically he's sitting there slamming on his keyboard and looks up every minute at me and says get kyle right now because everything is down and we have about 35 million people who come to our site and they're seeing no video um also i'm not technical so i can't do about this so my job is to find kyle right of course bedroom not there cell phone he's not picking up now i'm like okay this is tricky right so i call one of his friends and i find out that he is actually at this address in this house in tahoe but i think to myself tahoe is like six eight hours away how the do i get him a message if he's not picking up his phone or his email or anything so um finally what dawns on me is pizza there's pizza everywhere right so i call up a pizzeria in tahoe and i say all right here's the deal i need to send one of your guys knock on the door and say the website's down because i figured that's like the easiest thing right and the guy who picks up the phone is like let me get my manager and like this is like minutes surpassing like this is bad right manager gets the phone what do you want what kind of pizza do you want it's like all right here's the deal i need to send a driver to this address tell the person the website's down and the guy's like what are you talking about so like two minutes later he kind of gets it and he's like but in order to send a driver out we need to put a pizza into the system so what pizza do you want i'm like hungry cheese pizza whatever right he's like unfortunately cheese pizza is below our delivery minimum minutes are passing right like horrible so i'm just screaming at him i'm like extra cheese pepperoni i don't care right so give him the credit card the guy goes pulls up in one of those like you know cars with a pizza top in front of kyle's house and he walks up um kyle sees it comes the door and the driver is like i don't know if this means anything to you but the website's down and kyle's like okay and then kyle's like is there a pizza and the guy's like no pizza so um one example of getting punched in the face constantly um here's another example so before we did twitch we had a site called justin tv and justin tv let anyone broadcast any video online 24 7. um and about 20 of our traffic was gamers at the time we didn't realize that could be a huge thing and about 20 of our traffic was people just streaming their own stuff like whatever from their room and about 60 of our traffic was people streaming illegal content movies video games premier league soccer we literally had the super bowl on justin tv illegally and so during the super bowl when it's like this can't be reproduced rebroadcast da i watched that on my website and i was like this isn't this isn't good so right before the beijing olympics nbc is getting a little worried about where the content's going to appear online so um the olympics start up i think on wednesday the friday before nbc hires a lawyer a law firm actually and they call us they call me on my cell phone and they say look the olympics are starting next week we think they're going to be on your website we don't like your website so on monday we're going to go to the courtroom in san francisco and the judge is going to shut your website down permanently and we're like what what do you mean and they're like this is just informational like this is what's gonna happen we're just calling you to let you know [Laughter] okay and and i'm just like i'm i'm i still am and asking and they're just like yeah i know like it's not going to be temporary shut down it's going to just it's going to be off the internet like forever um or like it's gonna be off the internet until you pay like millions of dollars of legal fees to like fix it and so i said okay um is there anything that we could potentially do to perhaps make it so that you don't you know shut our business off on monday and the lady's like no there isn't um it would just be impossible for you to do what you would have to do and i said well you just try us right every worst case scenario we can't do it just what could we do and she said well you'd have to build a whole separate site that would allow our team of content moderators to live monitor every single stream on your website and one click shut down any stream that had the olympics content and i thought to myself we could do that that's not that hard no one ever asked us in quite this way and threatened us quite like you have we are fairly motivated so she said well you'd have to have this by monday morning and i was like i think i'm we'll hit that date don't worry so i go back to the team i'm like well we're not doing anything this weekend we have to build you know uber content mentoration thing in like 24 hours um we built the whole thing we hand it to the lady monday morning she looks at it she tries it out she's like all right we're good and company alive and so literally that kind of can happen completely outside of your control and um you say that was not fun um i've got one more and i'll then take questions um so kind of one of the most tricky parts about twitch and justin tv um was in 2010 so in 2010 we had gotten um we had raised i don't know maybe about eight nine million dollars but we were running low on money and it became clear every month that investors did not want to invest in our website they didn't like live video they didn't like copyright content they didn't like our bandwidth bills they thought we sucked as people so they weren't going to give us any money and in about august 2010 things got bad we had about half a million dollars in the bank and we were burning about 250 000 a month so it was like okay things are about to be very very bad and we probably had about 50 employees at the time we were making about 750 000 a month we were spending about a million dollars a month around the site so we got together all the senior people at justin tv it was about 12 people and we had this really shitty conference room that was just like this like basically like walk-in closet we all pile in the closet we have a whiteboard and i'm saying okay here's this is the math we either have to we're either going to get to within 100k of breakeven and have five months of runway we're going to hit break even and survive or we're going to get profitable and never have to fundraise again outside of our control outside of our plan and i didn't know what my teammates were going to say they want to do and they all said okay we're going to get profitable and i was like okay well we need to figure out how to either make 250 000 more dollars a month or not spend 250 dollars more month and actually we probably need to figure out both so we sat down in that room for four hours and one side of the whiteboard we wrote down everything we could do to make more money um pre-roll video ads adding ads everywhere charging international users a subscription like netflix there are all kinds of things and then we did all the things we could do to cut costs you know optimizing our video server usage optimizing bandwidth usage all kinds of things and then we got to work and what was interesting is because we were transparent with all of our employees about exactly exactly how we were instead of people quitting they all gathered together and they all chipped in and we told everyone look if we somehow figure out how to end this year with a hundred thousand dollars of profit we'll take the whole company to hawaii and everyone was just like that's not gonna happen but you know great goal good yeah good management right [Laughter] so we all got to work and we had two things in our favor one everyone worked really hard and two um as many people know for advertising businesses the fourth quarter is always the best month in the year so we built all kinds of things we did all this work and we got profitable in october 2010 and we ended the year with a million dollars in profit and so we took everyone to hawaii the following march um during that time we sat down and we said we're not going to be satisfied with just this level of profit we need to figure out how to make this site something huge not just something that's alive and we came up with two ideas on how to do that one of them is called twitch and from that kind of death almost death that's when we started figuring out maybe these video gamers are the play if you look at the story of justin tv and twitch it's an eight year story from the beginning to year six we went from being worth zero to being worth 24 million from the last two years we went from 24 million to almost a billion dollars in value when we sold so when you think about what it takes to get this done six years of getting punched in the face and almost dying and then we figured something out so that's the kind of journey that is extremely typical that's unfortunately the story that is not told in the press about how this all happens but that's kind of how it happens and so if you're willing to kind of take that journey sometimes you find a twitch at the end of it sometimes you don't anyways thank you very much appreciate it any questions are we going to open up questions so we're going to start from here so for students who are through this class they will ask questions first and then we'll be involved um i mean you guys just saw brex right i would say um i would say this they're all different paths to becoming a successful company and interestingly enough nowadays there's so much money around that it's actually you start seeing paths where companies raise a lot of money and get really really high valuations but like they are still basically early stage companies and so you really can't be fooled by the billion dollar evaluation like i love brex i'm a shareholder i love the billion dollar evaluation but like their goal is to kill amex and they're nowhere close to killing amex it's just the very very beginning and so you know that's why you have to be very careful about this game because like sometimes investors get really excited but killing mx doesn't take two years uh it takes nobody two years to lamex it's gonna be a long journey good you mentioned um that if you if you just don't have customers beating down your door then you just don't have product market fit yeah what successful strategies have you seen for people not to not die who have like a couple of months to figure out how to get to that point the best way to not die as a startup is to stop spending money the biggest way that startups spend money is on people almost always so like the sad and awkward truth is like letting go of people is usually the thing that people do to give themselves more time and that's why i talk about this so much if you didn't hire those people you wouldn't have to let them go and you wouldn't have to put them through this horrible experience so that's a big one the other one is charging there are a lot of companies that get to you know ramen profitable that get to break even on a small amount of revenue and then they have time to figure things out in a weird way that's what justin tv and twitch did i mean we were prof we were you know at eight to ten million dollars of profit when you're doing it but basically like being just a little bit profitable even ten dollars profitable gives you time to figure things out so those are like the two best ways to give yourself time um strangely raising a lot of money is not a great way um oftentimes your investors kind of expect you to spend the money in a way that lines up with being a post-product market fit company um so you know raising five million dollars and saying oh well that'll give us enough time to figure it out oftentimes you find yourself spending that five million dollars really fast and not figuring things out let's do the first one first so what was the problem with justin tv this is something i've been thinking about a lot right because like how does the justification fit the narrative so i'd say is that like the thing that was my anchor was justin that was very clear and then i became really good friends with other crew co-founders and my anchor was making sure that our thing didn't die so that i could continue working with them and that they would continue being able to do the company justin's thing was actually really simple he wanted to be famous that was his problem how do i become famous and he never really put it that way but like you don't name something just in tv and make an online reality tv show they don't want to be famous so that was his problem and like by the way like you know you would argue maybe a stupid problem but you know twitch is making people famous every day i think that we changed the customer once the customer switched from justin who was wearing a camera on his head to the person online who wanted to be famous but honestly like the customer didn't change with twitch they were gamers on justin tv very very early we ignored them but they were always there um and so you know we were solving the same problem how do you become famous weirdly like even more so how can you become famous enough to make enough money that you can just do the thing that's making you famous and not have a day job like that problem kind of stayed constant and the customer changed once the customer changed within the first year and then didn't change again for seven years come back afterwards for second question good what do you do if you want to be a startup founder and you're not a software engineer um [Music] step one is become friends with software engineers honest but true there are a lot of people who try to go the outsourced engineering route and they almost always do two things spend a lot of three things spend a lot of money get shitty products and go to business so i don't advise that path i think one of the interesting things about not being too caught up in solutions is it basically allows you to find other teammates with complementary skills and then brainstorm solutions together and that's why i always tell people to start talking with problems so one be in college you got that there are a bunch of technical people how many people can write code in this room raise your hand boom they're hiding because they're not sure if they want to work with you but they're there and two like bring some interesting problems with them um once you're starting a company there's a ton of things to do the way that i kind of joined up with justin actually was that we were taking this road trip around the com across the country when they were just and then were going to start just in tv i was just on vacation with them and when we got to san francisco like they had this 50 000 check from paul graham founder of yc and like they were sleeping in like the basement of justin's cousin's apartment in like mountain view and i was like well this is horrible like why don't we find you guys a bank account to put the money in instead of a check in your wallet and why don't we find an apartment that you guys can live in so you're not living in a basement and at the end of like a week i had done that for them as kind of a gift because they're my friends and then like on the way back to the airport to fly home justin's like why don't you be a co-founder cause like we don't like doing the things like setting up bank accounts and finding apartments and i was like yeah you guys are really bad at those things um you know after we launched it was customer service it was press it was fundraising there are all kinds of other things there's a lot to do in a company you gave i think okay geared towards like software because you know the tools are really easy but then so i'm working on a hardware thing and yeah you're right yeah yeah yeah so this is what's so fun about hardware right like if you're trying to do a startup you're signing up for just like death right it's like basically assured death and now a a software startup if you're trying to do a hardware startup welcome to it's 10 times harder you chose that i didn't choose that i would never tell anyone to a hardware startup it's basically impossible um yeah i'll tell you a horrible story to make it worse right so one of my one of my partners um this guy named eric he was the founder of pebble pabo was like the world's first smart watch um pebble raised like over a million over 10 million dollars on kickstarter like was doing amazing he has sold a quarter billion dollars worth of start smart watches but in their last year of operation they misestimated how much sales they were going to do for the year they thought they're going to do 100 million dollars in sales and we did 82 million dollars in sales that gap of 18 million dollars killed their company dead right on 88 million dollars of revenue dead so um know that you're signing up for something ridiculously hard and just be cool with it and like what's the solution i don't know like you're definitely but like if you enjoy what you're working on right there are startups that do hardware that succeed don't get me wrong right cruz is effectively a hardware startup and it succeeds but like it becomes even more important that like this is kind of your life's work like you really give a like if you think it's just going to be kind of a good business like trust me it's not going to be good business it's not it's not gonna be easy it's it's not gonna be simple so like if you have a choice choose software if you don't have a choice just man you better love it um and then good luck because it's hard as and we still fun hardware companies don't get me wrong but like they almost all die but the software ones die too so it's fine good content i mean steve's a great friend of mine i don't hate steve but like one of the funny things that yc does is we fund competitors all day long all day long in fact when i went back through yc a second time i was doing social cam which was this video app for the phone i was a direct competitor in my batch and like what's funny is like competitors almost never kill you like usually what kills you is you're in a product market fit and you die right well usually it kills the competitors they don't have part of market fit and they also die um it's rare that like two companies get product market fit and fight each other out it happens lyft uber gusts those benefits but it's pretty rare um so often times when a yc company comes in for interviews that's competing with or when the company comes interviews competing with the yc company my first question is like how are you going to kill them and like maybe you will right steve better be on his game he knows it's a hard game so yeah cut when you joined justin tv yes so when i in court when i joined justin tv it was already incorporated it was incorporated about two months before um they basically issued new shares all of the found all of the kind of shares were vesting all for your vesting one year cliff so yeah yeah yeah that's standard by the way in the orange so um were there any moments where we got into fights and i maybe was no longer friends with my co-founders but i still wanted to do my startup yes there was a second and more unhealthy anchoring in my startup it was the only thing i had done after graduation so my entire ego and self-worth was inside of this company if this company failed my life grade would have been an f this is not healthy startups aren't that healthy but that was the other thing at the extreme base level was just like oh wow i'm six years in do i want a life grade of an f no keep this thing alive yeah kinda tricky you had one yeah so i want to ask how much money should i start up company how much money should a startup spend on marketing this is extremely variable on the startup what i will say is this like one thing that we kind of see is people over emphasizing facebook ads or advertising in general what i'll tell you is that like most startups find differentiated ways to get customers facebook ads are really not a differentiated way the problem with facebook ads is that they're facebook is really good at pricing them to perfection they're really really good at saying oh like this customer is worth five dollars for you we're going to charge you 4.99 to get access to them that's their business is to squeeze that and what's funny is they get better every single year so facebook ad rates go up every single year and like we're not making that many new people in the united states and so basically every year shit's more expensive so like be careful about spending money on marketing oftentimes marketing spending money and marketing is something that you do to accelerate growth versus create growth now in the extreme early days when you just want to have some people floating through sometimes this makes sense to spend on advertising and there are certain there's certain businesses where this is different but that's the general advice yeah uh the red what advice yeah usually it's just not big of a deal honestly if they're not using the work computer and they're working nights and weekends not in their office it's not that big of a deal um if they want a little bit more protection they can actually go to their company and they can do um what's called an ip assignment agreement where they can actually like tell their company hey here's some side projects i'm working on that i want to own but it's not that big of a deal there's one right behind you oh that's a great question so working at yc is actually weird working at yc is basically community service um which sounds weird but like i made a bunch of money right so like i don't really need to make more money in fact i have this extremely strong feeling now that i know a lot of rich people that making more money is going to make my life worse and like my kids up completely so i'm not really that interested in making much more money and but what i feel about the startup community and especially the startup community in the bay area is that like people believed in us when they shouldn't have and people helped us when they shouldn't have and like i'm from the east coast originally and like on the east coast people give back by like giving money to charity and going to balls but when like someone actually needs help who's like younger than them and maybe in their industry oftentimes they don't help them um oftentimes because they fear that they're gonna disrupt them or because they're stuck in some corporate setup whereas on the west coast especially in the bay area it's very different like people help each other especially people in the startup community they just kind of help each other because they're continuing this like giving back thing because someone helped them and so i got really lucky making money here like as i told you twitch wasn't our first idea and so for me yc's amazing because i get to give back to the community that gave me a lot and like one day i'll make money but takes when you start investing companies like close to day one it takes a really long time to make any money off of them so um that's why i do it why did i do a startup i mean i said a couple of things i think another one of the things that was interesting to me was that school wasn't very motivational i went to a fairly good high school and i had to work really hard to do well and to be kind of in the the group of the top 50 kids in the school and when i got to yale i was like this isn't harder than my high school um and that was really disappointing like one because my high school was a public school and yale costs tons of money and two because like you know i was like a poli sci major and so it was just like i'm sorry for anybody sci majors in here but ain't that hard and so sorry and so like i started realizing wow like that was the first time i realized oh i'm inside of this system where everyone around me is motivated to kind of run like a rat and i'm like what what are we where is the motivation like the people aren't smarter the classes aren't that great like what's going on and what got me weirdly were student activities and the only reason why was because you know they were purely relying on the student to succeed and so like that was motivational it's like oh they're real like you know yale there's like you know the lowest grade you can get is b minus like that's a joke it's like b minus like and it's funny because at yell like we'll be like oh yeah that sucked it completely failed b-minus you know it's a different place trust me and so like but in in a student group there were finally stakes there was something to lose you could win and you could lose it wasn't safe and i kind of realized that the only time that i really get up for something and really bring my a-game is when like something's on the line and when it's too safe i just i'm not motivated and so i found that constantly in my startup where i was like wow like you're getting punched in the face you're almost gonna die and they'd be like all right the game's on like let's get this done right like now i'm motivated you know before i was like oh ha ha whatever going like good grades back grades but now it's like oh 50 of your employees are going to be out of work if you don't nail this thing and now it's like okay let's get it done so that was for me uh right here uh so thanks again for coming and then also you said there's a lot of variables that determine like you know startup health and how long it can last how much would you say would like a lot to play a factor in that and there are any cases where like a company was about to die but because of sheer luck i will tell you about a company today um so long story short luck is a massive factor and anyone who tells you it's not a factor is just stupid um [Music] there is a company going through yc that went through yc sorry that was done pretty good but running low on money and unfortunately the founders are horrible fundraisers and they pitched about i don't know 25 or 30 vcs and they all said no and so it was looking like within the next six months they'd have to shut down they had one more vc that they could pitch and so they pitched them and the vc seemed like they were interested and so they got super excited um the vcs did some reference calls with us some reference calls with customers they seem like you're really interested it was time for a partnership meeting this is like the meeting before the the vc decides whether to invest or not the founders go into the partnership meeting to present to the whole partnership and they the bed and the partnerships like this company sucks and the partner wants to do the deals like what do i do um [Music] the partner wants to do the deal likes the company so much that despite the fact that they should bet on the pitch and there are all kinds of things that are wrong with the company he said screw it and he's offering them a term sheet today and he doesn't have to he knows he doesn't have to and he knows that like without that term she the company's dead and that company is going to keep on going so yeah luck is huge uh i'll tell you another story like that so our series a back in the day series a's used to be a lot smaller they're gonna raise like eight million dollars our series a was two million dollars um we had pitched everyone this live reality tv show you can imagine investors were like why the would we give you money for this so we pitched probably 50 vcs and um [Music] everyone said no and i remember that we wrote up on our whiteboard in our apartment which was also our office the offers that we thought we were going to get from vcs but we didn't get them so there were like three offers that we were like oh yeah these guys are definitely going to write a check and we wrote them down it's like you know these guys for this much these guys for this much and then like you know a month pass and they don't give us any money but we just forgot to erase them then um we met one investor who kind of didn't have a good name and we didn't really know them that well but we're like hey we need money so they want to come see our office slash apartment so they come by and they see what looks like three offers on the whiteboard we didn't know like we weren't even like like this was just whiteboards have on them all over right we had whiteboards all over the whole apartment we weren't even paying attention and so they start getting really excited and we're like why are they excited like like we're not that good of a company and and then we realized like hmm something's up right so then they offer us a term sheet and we're like they seem so excited maybe we can get a better offer so we're like hey we'll do it but for like a little bit more valuation and the vc is like yes and we're like yes and so we get the deal done and only after the deal gets done do we where we're walking around like cleaning up the apartment and we look at this whiteboard and we're like oh like that's why they gave us this offer because like they saw that up there that's really luck like super luck we were definitely going to be dead if that didn't happen so yeah i might look like smart guy but like have the right stuff on the whiteboard that's basically impossible look yep do you know people in china do you know people in china okay i mean so typically when people ask about finding co-founders um the first thing i say is make a list of the five people who have complementary skills that you really enjoy brainstorming with who you think would be amazing co-founders regardless of where they work or what they're doing with their life because oftentimes founders way overestimate how much their friends like their jobs i've seen this all the time it's like oh this person's at google they're never going to quit like most people hate google so like they might quit um make a list of those five people and then force each one of them to say no like sometimes founders talk themselves out of finding co-founders before they even ask the co-founder the other thing is make them a real offer don't make some like hey do you want to work together maybe you can be my contractor blah blah be like hey let's do this i want to give you 50 of this company let's try to make this happen if that doesn't work go get a job with really smart people and make new friends if it takes 10 to 15 years plus to make an amazing startup sometimes you need to take a one to two year detour to build up the friendships that you need to find the co-founder and like that's often okay it's often okay to take that little gap or go back to china hit up your friends china is an amazing place to create a startup and go to town ah good you mentioned series a startups you know uh i've been forgetting the market products you know like hiring people and stuff but what are the signs and then i assume that these are since they made a series a they had some clients you know you actually have the market because you have clients and you know you said that right you're breaking with success let me really really clear right like there's like you have some customers there's growing there's growing fast and there's success is painful right like the success is painful mark is typically the mark where your product market fit interestingly enough like when you hit the successes painful mark another way that you can tell is like usually you're not really for software companies specifically usually you don't really have to be worried about scaling in the early days as you thing grows scaling becomes more and more of a problem maintenance just keeping your current up becomes more and more of a priority as opposed to building new features and so there's this point where suddenly you're like new features we need to just keep this thing alive and like that's also a good moment where you realize okay there's something here um in the early days of justin tv how do we measure attention short answer we didn't we were stupid um you have to remember that when we started just in tv like modern analytics was just coming about like most people were using google analytics which is a horrible product um and like mix panel and heap and amplitude and all the kind of modern analytics platforms yc hadn't funded them yet they didn't exist um the best companies at that time had to build internal analytics products like google and facebook they did build internal analytics products to that work so yeah we were horrible at measuring retention early um we even after mixpanel came out we were still bad because we didn't believe in metrics driven development which was stupid so you know later on we used mixpanel that was great uh probably last two questions great come here start a patenting yes this is a common question so if you're doing a pharmaceutical company or a truly unique hardware company then patents are typically important post raising a seed round post raising that one to two million dollars rare that they're important in any other circumstance um the one thing you have to ask about your patents in other circumstances is do you have enough money to defend them they're not worth much if you don't have enough money to defend them last question what do we got here right there and even in a small country in europe which country so um 40 of the companies in yc are international and 60 of the founders in yc are not born in the united states um i definitely think it's possible to start companies not united states big however the vast majority of the billion dollar startups are founded in two places san francisco and beijing and unfortunately a lot of startup communities around the world are very good at gathering early stage founders and giving them a community but are not honest about how viable it is to build billion dollar companies where they are um a lot of people who kind of endorse these startup communities are kind of more pro the community than they are the founder and the startup so you kind of have to be careful in a situation where you're almost assured to die how much location risk do you want to have so that's something that i'd be thinking about what i've noticed about the valley that's different everyone talks about the competition for engineers here and i always laugh right because it's like imagine you're starting your company in tampa bay florida well there's lower competition for engineers but there are many fewer engineers right the people you want to hire aren't there but you don't have any so no hooray um i think the weird thing about the big technology companies in the bay area is that there are magnets for the best engineers in the world and some percentage of those engineers are not going to want to work at google and apple and facebook because those places suck and they're going to want to work at startups and you're going to be able to pick them up in addition as your company is growing and scaling you have to hire more and more experienced people and unfortunately the level of experience that people have outside of the barrier bay area is less the way that this translates to a startup founder that they don't really see is let's say that you're doing a b2b startup and you have to hire a vp of sales well if you're located in san francisco there might be 50 or 75 candidates that are qualified to be a vp of sales for your company if you're located in new york there might be 10. if you're located in atlanta there might be three that's harder there becomes a point where oftentimes it's none and you have to imp and you're if you're not in the area oftentimes there are no qualified candidates and you it locally and you have to import candidates so weirdly in the early days of a startup you don't feel these things right you can get the first couple engineers you get the designers that you can get that kind of initial team going but post-product market fit this is where the challenges start happening and this is where like you would love to overpay for this specialist that doesn't exist where you are but does exist here so those are the pros and cons we have lots of founders that just value being locally and it's extremely important for example we funded a company called paystack that does stripe for nigeria payment processing for nigeria and hopefully western africa and then all sub-saharan africa they have to be located in lagos like that is where their market is that's where all their customers are and so that's where they are there are all kinds of problems of being in lagos talent problems infrastructure problems so on and so forth um there's no money available so they raise their money out here they get a lot of their advice out here they probably have to open up an office out here but they have to be local so what i would say is that like when you're trying to figure out where to locate your startup you have to ask yourself like how is this going to be the best for my business like i would kind of take out preferences here personal preferences like you're going to have to be sacrificing personal preferences in your startups constantly you should be asking yourself you know why is iceland the best place to build my business not now but also five years from now and 10 years from now as it scales and if it is if it makes sense then great do it and then know that they're going to be issues and prepare yourself for solving them if it's not then like don't do it because you like iceland like maybe you're from there it's awesome you won't get to vacation there a lot because if you work in your startup too much but maybe you can retire there one day um but that's i think is the math that you should be thinking about in your head i do think that anyone who decides to not start their startup here should also be thinking what can i extract from this place because the bay area has got an abundance of startup resources so maybe you're not going to be here but can you extract funding from here can you check talent from here can you extract advice from here you should be trying to steal as much as possible if you're not going to physically be here all right one more shut it down that good co-founders typically are friends etc so uh i have a unique situation where my co-founder is about 12 years older than me and we have complimentary expertise are you friends that's fine so i would say this right like once again there's no perfect formula what i would say though is that like i do see some founders who create companies with strangers and who kind of make the argument oh this is like a talent and skill match so i should make company with a stranger and what i see unfortunately often happens is when something really bad happens in the startup that makes it seem like the startup's not going to succeed there isn't anything else holding the relationship between the two founders together and so they can fight and they can break up their startup dies and like one of the funny things that i've always seen about doing startups with my friends is that you know when you're in those tough times you don't want to quit because you don't want to let your friend down or when you're in this argument you don't say that thing that's going to like that final thing that's going to get your friend to basically be like you because it's your friend and so like sometimes when all you're doing is skating by the skin of your teeth like being there with your friend is the only thing that's getting you through um so that's the pro of having friends so people do it without their friends but that's why it's uh for me it's always been easier to do with my friends okay so thank you all so much what i'll say is this thank you my email is michael ycombinator.com i actually answer my emails that's why i'm here because they emailed me and i answered there was no special handshake or anything um if you want to do a startup i'm here to help regardless of whether you do yc or not i give my email to a lot of audiences like this and only about 10 answer and the only thing i'll tell you is that like if you're doing a startup you don't have to do it alone and if you need help you do have to be proactive about asking for it like if you're proactive about asking for help the startup community will provide if you're silent and quiet and you kind of think you have to do it by yourself the startup community won't provide so if now or in the future you now know me you now know someone at yc you can email me anytime thank you very much we're going to take a group photo

Channel: SCET Berkeley

Views: 31,836

Keywords: Silicon Valley, Y Combinator, Startup, UC Berkeley, Michael Seibel

Id: qypLB6fBvw4

Length: 77min 7sec (4627 seconds)

Published: Mon Mar 04 2019