From Startup to Scaleup | Sam Altman and Reid Hoffman

thank you all for coming here you're everyone here is an important part of our of our joint network this event started with a kind of a funny set of accidents first Sam had this brilliant idea teaching a startup class at Stanford and getting a bunch of different founders to come and talk about kind of the key elements and you know you got this you got me to give some talk on how to be a great founder I think I remember was that one and then I went wow that's a really good idea and part of how innovation I said well you know startups one part skinny lup's the other thing and so we did a similar class with teaching blitzscaling which is a theme of a book that I'm working on with Chris yeah who's in the audience somewhere and so we did a Stanford class as well where we got a bunch of different folks and and then saying when I started talking about this and we said look actually in fact this is not just that kind of a good Stanford topic but this is actually a good topic for essentially our network and for the businesses because you really only build something amazing if you hit the scale problem right it's not just a hey you invent right and then and then hey it's easy after that you know we hit the oil and you know we just pump out the oil there's actually in fact a lot of innovation a lot of hard work and a lot of skill and craft that goes into scaling and if you fail you fail and so then Sam called me and said hey we should do an event like this and we should start doing this as a regular basis and I said oh that's a great idea and so here we are here we are so I thought I would open a little bit with some of the blitzscaling stuff and then we'll just kind of kick back and forth right okay so oh and then the other thing by the way actually one other little housekeeping thing the stage conversation including the QA is essentially going to be published right so it's public so anticipate that being public the hallway conversations are private right so don't tweet or otherwise publish anything in the hallway conversations unless you have permission from the person you're talking to so with that one of the key things that I think is interesting is you say well why is it that Silicon Valley produces so much of the technological impact in the world and you know we tend to tell ourselves still classically this kind of startup story of well we're inventive and we venture capital and we import a ton of talent here and the venture capital stuff all works but actually in fact it's the fact that we intersect technology invention with business invention where that business invention includes such things as network effects new business models and so forth and then in seeing those we realize certain of those businesses are super important and we move really fast to establish that business model and that's one of the reasons why you'll find that most people in the valley all say network effects as something super important and one thing that actually in fact I think is a fun hobby in case any of you would like to to do this is occasionally when I'm feeling impish I will actually impact ask people well what's Network effects because a lot of people will use the term and actually don't actually in fact know what it is don't know how to measure it don't know the different kinds of network effects don't know like like what network effects on growth network effects engagement Network effects and revenue network section and a bunch of these sorts of things and yet those the reason why we're obsessed with network effects is we know that's the kind of thing that causes us to scale now until part of the whole thing is a whole set of different techniques and I'll go through some of the different blitzscaling areas of kind of hiring but maybe one of the things we start with is how you've been scaling YC actually because the fellowship and the class the MOOC and everything else because it's not just it's not just that we we kind of advise the stuff in practice you practice this stuff well you know it gets super recursive because one of the things that we did was start our continuity fund because we realized this problem to scale ourselves we realized that if we didn't start a growth fund that could help companies who have had their initial idea start to work then we weren't going to be able to produce as many impact companies as we can which is really why we started our own growth stage fund it invests mostly in YC companies we sometimes invest anon YC companies that the idea was can we to to scale we need to do two things one is fund a lot more companies but two is build a practice that in the same way we work with founders to figure out their initial idea teach them how to scale companies and so we've tried to build this thing basically to scale YC we need to scale companies and that I think has been one of the most important inventions we've had in the last year we've also tried to go in the other direction so right now we're teaching a MOOC which is kind of a third version of that Stanford class back in Stanford where we are advising 3,000 startups at once I think this is probably a world record for number of startups concurrently advised by one program in next year we think we can scale that to 10,000 and this is you know teaching people a lot of the YC experience about how to start a company uh and I think this is really important right that there are well as Reid said not everyone knows what network effects are but our version of the network effect is the bigger we can make our community the more we can get people feeling loyal to our community helping each other that's our network effect and the thing that I really try to do in terms of scaling YC is make sure we want to compete with other firms you manage to do very well but most venture capitalists that have to compete have a tough time of it spend a lot of time thinking about it and we like to be the only people that are sort of didn't really matter in our own space and so for us scale is an answer to that problem and the more we can scale them more founders who can help the bigger we can make our network that's that's really powerful we've done a lot of other things around the edges but you know kind of the the big strategy is very simple it's had a very big top of the funnel and get to the most promising new founders at the very start of their career thinking about a start-up get the best one of those into our program I build a program with real network effects and then have this continuity fund to help invest in these come some disco and so one of the key things I think to understand about scale is kind of the what got you here won't get you there and so classically the too much of the advice that's given to entrepreneurs is example when you're 20 people hire your scale executives so that when you're you know at thousands and so forth you have all those people baked it in place and very rarely are the right people that when you're executives at 20 or 50 are the right people for executives when you're a thousand or 500 some of them grow with it but most often acts in fact you need to trade around and so part of the thing about thinking about scale the right way is to think about dynamism to think about the fact that you're refactoring your org is you're going and that you need to be anticipating that you're refactoring your org you need to be anticipating that you know for example you're looking you're set up folks hopefully if you've done it well you've got a bunch of a well cohesive strong a players but a players at this stage are not necessarily the same as a players in the next stage and you have to be one managing your connectivity with those folks in a way that if you're promising this person that they're going to be head of product or head of sales or head of marketing or head of engineering forever and that goes away then when you break you break them or you may actually still want them in the org what you watch you want to be promising as things like you will actually have a seriously important role in this organization forever you will be a major contributor your job will increase you will learn things but not necessarily unless you're pretty sure there will be you will be in charge of assumption and so that changed because when you change the scale of an organization you're moving from when you're 1020 people you're all doers couple of you are managing to but you're basically all doers when you move to 50 100 150 200 250 you move from doers to manager doers to managers and doers to you know managers and managers otherwise execs right and that's changing the whole dynamic and so you have to anticipate in scale that you're changing around the way that your company she works is kind of a key thing and you need to be anticipating that that will be coming I had a funny example of this late last year someone was writing a story about YC and then they wrote something about how you know we just had our second major reorganize oh they're saying we're not moving fast enough and they meant it as way too chaotic and it's this and I stand by my read of it but I think like the amount of dynamism that the the startups that really scale well have always looks a little chaotic on the outside it's just because there's constant shuffling and new people in and people who aren't working out out the very best founders that we've worked with one of the things that they always evaluate their people on is how good have they been at training their replacements how good are they at you know on a moment's notice being able to move to a next role because most founders are very bad at this and most people are very bad at this you know most executives will not do this and you know there's a story of Facebook at one point that they tied like 50% of executives bonus to how good of a job they were doing at having replacements ready to go and being ready to move into a new role and I think if you don't really incentivize that you never get enough of that culture in place and if you're going to be blitzscaling you're going to just be moving people around and reorganizing constantly yeah and part of the those two corollaries with sandwiches illustrating on a dynamism so one of them is is that actually the chaos isn't just external its internal right and so tenderly what happens is people complain about the cows internally which by the way makes sense operational efficiency nobody else and you have to condition the organization to say when we're scaling really fast there will be chaos like we're trying to constantly manage it but we don't manage to zero chaos until we're actually in a relatively stable place and so expect that work collaboratively collaboratively with each other and make that happen that's one part of the correlation so it's not just external looks at chaos it's internal it really is chaotic and and you have to just like wrong way to address that is to like say okay my team says they don't want chaos I'm going to try to manage out all the chaos yes you know it's okay to have a little bit less and that's a noble thing to shoot for but the trade-off you know people that run these perfectly non catechol organizations somehow never build great companies yes so the trade-off is we're going to accept a little bit of chaos in exchange for a shot at one of these massive great companies and founders just have to sell that to their p.m. and it's a management dynamic you Castle up you you do some solidity castle go up you do some solidity it's that dynamic the second part and this is one of the really key things that I learned from my first startup this was kind of a classic entrepreneurial mistake it's called social net I kind of approached with this with what you know actually I always kind of make vaguely and teasing comments of MBAs this is classic MBA thing which is like Oh hire the people who have the experience with that job get the CV of it you know put that TV and you know make that happen and so I literally had like job description to history and was optimizing for that and it's a total fail as you get to scale because the real thing you need is to have the people who learn and to adjust one part of that is learning and adjusting through what's the needs of the business what's your product market fit how is that working the other parts of the learning and adjusting is the whole organization is going to change shape and so if you don't optimize for people who are learners who will go into that your host and so this is actually part of when I got to PayPal and was you know kind of when Peter and Max and I were going on walks about like how to first build what was first called build link then convinced then PayPal we were doing these walks and I said no no don't look for oh I've got you know 10 years experience QA look for someone who learns fast they need to have basic skills because like learning it from scratch too difficult but look that learning curve and look for team sports and look for other kinds of things and for those of you who know Peter you know he was particularly worked at the team sports thing but later turned out to be right libertarian sorry that was that open see the individual achievement playing chess is what matters not the interesting yeah I'm sorry I just fried through that I think I know it's an interesting point you my version this is you want to hire for values first steps to second and singles third and I think the problem with most executive recruiters is that they reverse that order yeah as your skin and so if you say I need to hire a CFO able to bring you people with you know twenty years of experience with the CFO at vaguely similar companies but unfortunately it's usually like twenty years of the exact same year of experience over and over again and they probably can't learn and adapt it's something really changed and things are really going to change if you're trying to scale fast you really need someone who is aligned with the values of the company so that when things change or when they have to make a decision they'll make the one you would make if you can't be in there or they will be a good player a good team player and go do that thing you need someone who has high aptitude because the role is going to constantly shift and the speed the ability the rate of learning the rate of improvement dominates skills and then you know skill specific skills experience obviously matter but for me it's third on the list speaking of YC continuity Ali who runs our continuity fund had never had any venture job before and it's done a fabulous job same thing is true for a lot of the other people that that we hire I think if you if you free yourself from this sort of the traditional model of how you hire executives in a non growing very static company and think that in a scaling company you have to slip the priority of skills you you end up or the priority of attributes you end up with a very different team but it's the one that works and the very best companies take this exceptionally far yeah I in how much they're willing to hire a non traditionally qualified executive yes and actually I mean there's a bunch of different parts of hacks on this is one of the things that I should learn from when Sean Parker and Zuckerberg hired Kohler from LinkedIn and you know I was talking to Kohler about this the thing they put them in is they put he's as generalist and they put him in a recruiting role first I was like look this is the most major thing and so we're not hiring a traditional recruiter we're hiring a really smart generalist and that was actually one of the things that really helps set the initial talent team and culture as it scaled and it was that kind of thing about thinking which are the things that you most need to solve and then getting the generalist into it because one of the things that you do need to eventually as you scale hire specialists but they seem you look at as you move from startup to scale-up is you always have generalists the generals it's important for learning changing the organization adapting adapting product market fit tack on new markets going global etc but you still very selectively add in specialists but when you have someone who says look I am just a you know kind of a network engineer you're like okay great that's when we know that what we need from you is network engineering for the entire tour of duty the entire length of time here and that's fine the rest of it you're trying to have generalist as much as possible and matter of fact actually another like part of the that was our learning from social and another of the the person who first did that well LinkedIn is in the audience Lee Hauer was our first like okay utility player make sure you can tackle any problem that we that we we throw at you so I'm gonna move to culture we have a great talk from Jason Kilar who will be up after us and is a one of the world-class folks on culture so I won't I don't think we should go overland depth but I think it's worth touching quickly I recently did I'm doing this podcast series on masters of scale with June Collins coming out I think it's May 3rd and it's kind of heavily edited thing on these different themes of kind of what are the different theories of what it takes to scale and I had a conversation green Hastings where you know I asked him I said look you know there's two theories of thought in in Silicon Valley one theory is that culture eats strategy and a culture is the dependent thing for how you really build great companies and then the other theory is that actually culture is the historical explanation for successful companies right that when you have a successful company you look back and say you know that culture that was really great and Reid looked at me and said something I normally say other people so this is kind of funnel of kind of a funny embarrassing moment in the in the in the interview which was he says well both like duh you're looking at us right that's the right answer right what the clever go ask some questions it wasn't what is so clever in terms of the answer but I do think the things that the theory that's pro culture is that that again when you look at the the traits of you're going to be moving up at such a fast rate that you're going to be having chaos you're going to be reorganizing fairly consistently and as you reorganize especially managerial roles that resets a bunch of patterns and you'll have some chaos in that how do you keep a high performance wrong company and culture is in part the answer to that because if you're only culture is top-down hierarchy and messaging and communications that comes to the top that culture won't survive as you really balloon the organization instead you want to horizontal accountability you want it so that everybody is keeping everyone else accountable to the culture that we're in and cultures are not like there is the good culture and the bad culture cultures are defined by an organization some cultures are engineering culture some cultures are high IQ cultures some cultures are collaborative teamwork cultures there's a different set of things you're emphasizing and that should be dependent on your organization the problem you're solving the problem is it doesn't just end there you actually you have to play good strategy and everything else and so the thing that when people frequently cell culture too much as they say once you have good culture everything else follows because you hire the right people you play the right way together and that's how of course extremely important but if you don't get the business model on the strategy right how do you guys teach culture it why see what's the or what's the particular way that you guys angle you know I think there are so many different kinds of cultures that can work and I'm certainly believer that you have to have like a great business and a great culture and there they can be somewhat orthogonal but also if you put you know one business's culture like if you took you know if you take one business's culture and throw it into another successful business it might be disastrous so they really do somehow have to fit together the general framework that I think about when building when adding people to a team which is I think what defines culture is what what is going to be this person's net effect on the output vector of the organization and there are people who are brilliant and can get a lot of work done themselves and would add to the vector in that sense but they piss everybody off so much them a net negative effect because they make other people less productive there are people who are moderately intelligent and moderately productive but have a hugely positive impact on what they get everybody else to do and I think like one version of culture is are you good at only bringing are you good at bringing in people that have a positive net effect on the output vector which screens out sort of just looking at people in a vacuum I think though that it's really easy to sort of use in Silicon Valley in the current environment it's really easy to use culture as an excuse for underperformance and so you have people say you know we drink a lot of green tea we all go to yoga together were we're super nice to each other and we have this wonderful culture and they don't understand why people don't want to come work there or come and leave and are productive and the answer is the culture that matters I think to the best people is one way they can just come and be really productive and be around really other great people and if you have a culture which is which looks good on the surface but somehow rejects super talented people or is just it's covering up for constant in fighting I think that can be a real problem I think one of the one of the things went on in the current twenty seventeen Silicon Valley is it's very easy to get entitled employees it's very easy to get entitled people at a company everyone want like everyone's to work exactly I want they want to be really rich right now if a company's not going look good and good liquid next year they're going to go somewhere else like we looked once assitant the average tenure of employees at companies in San Francisco and I sort of couldn't believe it had been training down down down I couldn't believe it was going to get any lower and manage to subsequently get lower and so you know this idea of how important it is to have people that are going to join a company and stay there for five or ten years sounds like a crazy thing to say because no one does that anymore and yet somehow at the best companies that does still happen I think if you think about what do we have to do to get the best people to stay at our company for five or ten years and then go make advance a culture which one of the things that is included in that is wild success for the company and the mission that people care about that's really important but but getting people who are there for that and not there for the green tea which is like and I think an easy way people think about culture in the wrong way at the beginning is super important you need to create an environment where really great people will want to come work with each other and not have to deal with the crop that they do at most companies just in case anyone's under illusions although I think there are a few people here culture isn't benefits culture isn't you know food it isn't kombucha right you know etc unfortunately that's what boards tell you when they come ask you going yeah you know but it's not that right what what it is is how are you holding each other accountable to the mission in to the way you work and the way that you have high performance and one of the things that I think is super important for this is actually in fact I think too few organizations follow and what Hastings did in terms of creating a culture deck now the thing that's interesting is is that the reason this deck got there and I actually think every company should do some version of that and some version of publishing it the reason Hastings did this is they first started with kind of studying how people bounce out they like I interviewed and hired were the good people and then they came in when the people came in and they said hey we're not a family we're not here here forever we're actually a team and we should basically kind of say if you have adequate performance we give you a generous severance package and have you leave I do that immediately and people say well you ate I thought I was joining a family and I said well okay well let's define what it is and I wrote it and I said well how do we shake the funnel of people coming in what's publishing and then of course after publishing it it actually really helped a whole bunch of people understand like oh that that kind of culture and should I work there and that's really I really like the fact that they're that they're shaped that way that that that particular way of playing that particular sports theme that's the sports theme that's the right kind of thing for me and I think many more organizations should actually be much more explicit about that because they don't talk about like oh we have cafeterias and then we have volleyball court that's not the culture deck right as a way of doing the traditional problem we see a lot of these you know value statements and culture ducks and the problem is they're only valuable to the degree they are different from what other companies say yes so most of the ones we see because we suggest that every company right goes out and it's like we value integrity we value being a team player you excellent be excellent because and so I think this is a worthwhile exercise and it's good to do but only to the extent that what you say is different from what other people would say and trying to figure that out is really important and what honestly what most companies find when they do this or what many companies find is that they have nothing to say it wouldn't be in sort of the macro expanded template of what a culture is what a good culture is and that is often a wake up call you know and people don't think about that and and the when I talk to folks I'm trying to get them to sharp in the mind is what what filter would have a player's working with other companies in yours which a players do not want working in your company right and what is that and that and that that shows you that you begin to have something that's a kind of an edge in the culture and begins to approach the uniqueness now another part of scaling is hiring change so and classically in your first 10 20 50 hundred hundred and fifty people founder CEOs interview everybody right because part of the way they try to help the culture say is they say they're doing that check but in fact you know anneal butchery when I was talking to this I think they he and Dave Duffield interviewed everybody up to five hundred because they were the final culture interview they presume that everyone had done the skills and other kinds of things and they were they are you the right fit and that's super important but you're hiring changes as you scale that the process again what got you here doesn't get you there because now you need to start hiring a bunch more people you need to be trusting people in the rest of your organization to hire well you need to be systematizing more like one thing is you begin to get from the call it the hundreds into you know early hundreds in the late hundreds you'll actually start having onboarding classes like when you kind of say okay we hire people and then all fifteen people start at the same day so that we we train them on our company in the same pattern in order to make that efficient in sorta and that's part of this whole hiring process so you also not only have to think about org but also how you're hiring what's the way you're doing it and that it's scale self is a scalable process not just from sourcing and from interviewing but also all the way into integrating alright so that's another way to look at kind of the culture and hiring one I'm going to shift topics to communications within the company classically when you're at an early stage the you're all in the same room communication is easy almost like like on All Hands is we just happen to all be in the same room at the same time and that's how it works did you begin to to to to build and part of that is that begins to shift to everyone has a complete dialogue to be on the same page and you have to start changing the pattern at which information is being both expected and communicated and I actually found a sheryl sandberg anecdote to be particularly like it's not exactly of the communications pattern but it's the kinda communications pattern that shows you like when she started at google she celebrated everyone's birthday like on the day and so everyone go this is a really actual place because we celebrate each of our birthdays well then you move to a 500-person organization and you're having birthday celebrations you know basically every day right and that begins to get too much and so and so then they moved to telling birthday celebrations per month everyone who's who's whose birthday was in April this is the birthday celebration the whole thing and kind of doing that but then the people at the first part thought ah this used to be special it used to be personal it used to be kind of closely connected and now right it's not so special anymore and so that's the kind of thing when you're planning for dynamism the same thing isn't true in terms of corporate communications because how you as leaders in the organization speak to folks you know long going to be able to talk to everyone no longer is everyone going to be able to ask you a question and you need to start figuring out and also by the way there's now a whole bunch of information certain key risks executive decisions that not everyone is going to know and you have to condition to this is still a great place even as that's changing and then also the structure of those communications and that's actually an important thing about thinking about the change of leadership I don't know if there's anything on and calm stuff you won't add certainly when you get to the stage where people that were used to knowing everything don't know everything that I think more early employees leave over that than anything else and it's it's really tough to say what to do about that these people that have gone from being sort of absolutely in the inside to not um that leads to a huge amount of turnover and I think it's worth thinking proactively is this someone special not that I'm going to somehow include them in the executive team but that is I don't think people talk about how much of an effect that has on our early employees but in my experience when you really talk to someone about why they're leaving you know someone to join this employee five of the super successful coming now is 500 people that's almost always a huge part of the reason and I think sometimes you can address it sometimes you can't I have a hack so that was important and actually I hadn't realize I'm actually not spoken about this hack before I think it's an important thing when I realize this in early days LinkedIn what I did is I arranged a a regular lunch with some of those key contributors in kind of some different lunch groups and just where we had lunch and could talk about the company so they still felt that they had a an inside conversation wouldn't be they know everything I wouldn't sit down with all comer briefed you about everything but there's a conversation about how like I'm thinking with the company what the risks are what kind of challenge was doing what are they seeing what's going on with the culture and so forth and that actually I think gave longer yeah cuz of the special thing even as the organization got a lot better I can't I'm not 100% sure who told me this I think it was Brian Chesky he used to spend her still does spend like 20 of his 39th a month taking key Airbnb employees that don't report him out to dinner and it's just like let's talk I'll tell you about stuff and he's super up and he'll talk about a lot and I think like that level of commitment like I'm going to take 20 in my 30 nights a month and use it to sort of keep close to early people who otherwise somehow feel out of the sometimes still out of the loop is is huge the other thing are in communication that people get wrong as you scale and we're supposed to go to questions I'll make this a short point is how much of the time or how much time you have to spend repeating the same message so a lot of people like want to say at one all-hands once here's the company's strategy they assume everyone's going to remember that and they know what I can talk about it and every nervous laughter of exalter I feel good you just have to keep doing it and one of the things that founders will often say to us is even though they knew that advice it's like it's like the rule and software like no matter how long you think it will take it's going to take longer like even if you know you're supposed to do this a lot you won't do it enough all right so I'm going to say one very quick thing and then we're going to go to questions although we can keep talking if you like but we have about eight eight nine minutes for questions the other key thing is to decide when you really need to hit the gas because part of what the blitzscaling stuff is you actually deploy capital in a fast and inefficient way in order to get to scale and/or global scale and sometimes that's competition sometimes it's market opportunity sometimes that's critical mass density and networks but one of the key things is what are the different judgment points at which you're hitting the accelerator on scale and then trying to anticipate that in good ways and there's you know those tend to be the variables and what you think about it but that's another thing to think about in the scale every none so with that yeah um people are always tempted to do this half way and I think like you should that the entire company should be aligned like are we are we in the mode where we are testing are we no we're trying to make things work are and testing growth channels in which case we can do something but we're still going to try to be really efficient conserve capital hire reasonably slowly or are we in the mode where we got things to work and we know what to do and we are now going to like spend money at an unreasonable rate on because there's this time period and I think it's really dangerous to be in the middle zone and it's also really dangerous to have some people in the company think you're in one or some people think you're in the other it's a sort of a subset of this question that if you go out around the company and ask everyone for their top three priorities almost no company or to explain the company's mission almost no company can do that and everyone say the same thing but it's like are we in hyperscale mode or not it's very rare that one company has a cohesive opinion on that and that they all flip at the same time Thanks so you you talk about we gotta be prepared for a change in chaos as we scale but what are the keys stabilizing elements are the invariants that keep the organization together as you scale well so one as we mention is culture another is the question generally speaking changes admission or really bad for the mission should also be there so to some degree everyone is we're in service the mission not we have this role in a specific organization and then generally speaking changes the strategy are very expensive they frequently happened visits etc okay but it tends to be the this is the investment thesis instead of hypotheses that were that we're testing out right what tends to not be as much as is like okay this is what the exact org structure is these are what the exact team structure is sometimes your go-to-market may go from from at like for example if you're an enterprise business may change from the we're getting our initial customers to we're really scaling out sometimes it may be the example one of the things that LinkedIn did is we royality but then we also move to SEO is a component we add that in a strong thing and that will change but those are rare changes in terms of the chaos I don't know what you you know I people like winning people like the lighting customers people like it if there's just it's like math demand this huge upward draft behind what you're doing I one of the reasons I think why trying to hyper scale a company that is not that that is not winning sales is because without that then all of these problems of people having their turf stepped on and you know the occasional bad hire you have to get out people have a lot of time to like think about how long have you but those things make them and if things just keep getting better and there's like more opportunity than you can possibly take on and that everyone's constantly has like new expanding roles and so they don't get caught up in these turf wars then it works but I think this is one of the reasons it's so important to not slip into hyper scaling mode until you're pretty sure the product is working because without without this natural updraft of like a market that is desperate for your product feeling that like everyone is winning everyday and the company is doing just fantastically well then all of the things that go wrong when you try to blitzscale can break the company so I think the key thing for me is don't try to do this until you're confident you have this updraft yeah and I think by the way there's a slight bit there's a slight kind of a softer mod which is obviously winning keeps a lot of focus on it which is really good the the the possibility of playing the game to win is really what you must always have like if you lose that good things begin to break just how you stop blitzscaling I feel like financial discipline of such a hallmark of some companies that could give it up for six months eighteen months however long it may be and then to come back to it seems like it might be hard brutal in fact right I mean it is one of the things where you always have to know you ultimately you have to get to a rational comparable business where you're actually in fact working on efficiency you all companies ultimately get back to that in some way now you can have such a geyser of money that you have many parts of your company that are that are not working efficiently we all see a few of those iconic companies okay but generally speaking you'll need to get back to efficiency the question is is that one of the key things I am both startup and scale-up is solve problems at the time don't try to pre solve them it's like the hiring thing don't try to hire that scale executive from that giant company X when you're thirty people because that that scale executor probably doesn't notes do a 30 person organization unless the you know unique talent similarly say we know we're going to need to be operational efficient we know we're going to need to be you know focus on operating margins and how costs work and have scale works and everything else in a capital efficient model but not yet right will you be thinking about it like this piece this piece this is how we refine to it this is how I get to it but you don't you don't need to start that problem the very beginning when you're in a blitz scaling circumstance and it's brutal to change yeah I think it's important to say you know for the leader the company what you're willing to overpay for and why so it may be that you know it's really important to get to a network effect what's really important to sort of yeah you know turn up marketing enough so that you're in enough people's minds because you need people to sort of all at once decide this product is ok but that's for a short period of time the one mistake that I think companies really making this is they decide that they need a lot of people they can't get them and so they're going to just like double salaries or triple so they're just going to like start way overpaying for people and that's the one that seems impossible to turn back down in practice but if you can stay disciplined on that and just say for short Pete of time we're going to overspend in these areas for this reason because we need to get to scale before the business starts to work I think you can generally then unwind that or rein it in somewhat that's very hard and frequently one of the questions that can be in consumer internet especially enterprise needs to identify this earlier than consumer and consumers sometimes will overly obsessed with operating margins early when it's actually in fact get to scale then obsessed with our front emergence because if you're not at scale your operating margins don't matter right so scale first now it's not that you stop thinking about operating margins but you but you kind of go when do we actually expect take that as one of our primary projects or really working on its as you get to scaling and by sequencing it out and getting people to know hey we will be working on this we will care about this it's not that it's irrelevant we do not work on it now then then the that can make the brutal change a little easier you

Channel: Y Combinator

Views: 74,453

Keywords: YC, Y Combinator

Id: PB64IQrkID8

Length: 41min 2sec (2462 seconds)

Published: Wed May 31 2017