How to Be a Great Founder with Reid Hoffman (How to Start a Startup 2014: Lecture 13)

so when I looked through the syllabus to this class and thought about what I could possibly add that would be useful in addition to the very skills one of the things I've been thinking about has been how do you think about yourself as a founder how do you think about what the skill set is and what are the things that you should be thinking about in terms of am I ready how do I get ready is it the right thing for me these sorts of things so let's start with the perception of what a great founder is and classically you know this tend to be Steve Jobs Bill Gates Elon Musk Mark Zuckerberg Jeff Bezos and it's an image of founder as superwoman or Superman right who is has this like panopticon of skills and I can use the word panopticon cuz I'm here at Stanford but the it's things like I know how to do product market fit I'm great a product I'm great at strategy I'm great at management I can fundraise right I can do all of these different skills and part of what you're looking for in a great founder in the kind of theory of the founder as super person is I'm looking for someone who is awesome at all these things they're there they are well-rounded they're diverse they can bat on all skills and you know part of how I found this kind of emphasized in my own the beginning of my own entrepreneurial journey as I remember reading an article that said you know Bill Gates who is smarter than Einstein right and you're like well look go Gates is pretty smart and is very accomplished but I'm not quite sure smarter than Einstein attacks rephrase that even bill would want to be actually next to and it's partially because I think is this image of founder as super person which is that a great founder is someone who can do anything you know jump over tall in tall buildings in a single bound you know all of these sorts of things and the reality right is a founder as someone who deals with a ton of different headaches and a no one is universally super-powered generally speaking you hope to have a couple of superpowers some things that are unique edge to you some things are unique the problem you're trying to solve some things that may help you give an edge because actually competitive differentiation and competitive edge is super important but but it's not it's not actually in fact a function of of genius and matter of fact frequently it's very hard to tell the difference between madness and genius because usually the result to play out and sometimes when you're dealing an uncertain environment you may even the genius and later be thought to be a mad person or you may be a mad person and you turn out to be lucky in your later thought to be a genius so it's actually kind of a challenging set of like how do you think about you know these sets you know what is the whole set of skills and when us mere mortals you know come into this kind of battle what is the way right way to think about it and so you know when I thought about this question of how is one a great founder you know part of what you get to is oh I'm actually this is probably the slide that poor people on this may even a suboptimal choice for people on video but it's like these are all skills that are super important right these are all things that you say well okay this is this is really really important to do and you must in fact actually do this well and it begins to look like a superhuman pact and so what I did is I decided to take a subset of these and focus on some of the interesting things to think about what is it that actually makes a great founder because it's actually not that you score 10 out of 10 all these you know you'd be the entrepreneurial Olympiad but you you are actually is best at all of these things so let's start with teams so one way to kind of I think talk about exploding the kind of the myth of the super founder is that actually in fact usually it's best to have two or three people on a team rather than a solar founder it's not a solar founders don't actually play out and they can successfully but most often two or three people is actually in fact a much there when I look at these things as an investor I say you know what is a good composition of a project and I and founders that are likely to succeed it's usually there's two or three of them and the reasons are because for example we've already talked about the fact that there's this very broad set of skills there's a whole set of question about how you adapt your company in order to be successful and if you actually have two or three founders you have you have different skills you can compensate because by the way everyone has weaknesses you can compensate for each other's weaknesses you can in the diversity of problems that you encounter as a founder that you can actually attack them so one of the things that I I suggest when you when you look at essentially a founding team is to have a real high preference for having co-founders having a high degree of trust for those co-founders because one of the things by the way part of the whole entrepreneurial thing is there's lots of ways to die one of the ways to die is you get a year down the road with your co-founders and then you're going through a messy divorce okay and that's a that's a that that is a not always but frequently fatal and so and then also the diversity of kind of tasks that you're trying to do it and actually okay yes I would like to say that will be suboptimal from a view point of being able to look at the slide the next thing is location and so frequently I've heard told to me it's like Oh Silicon Valley aggregates all of this super talent which it does in terms of like what what actually in fact it's if the reason like Silicon Valley startups are so successful is because all of these great people immigration which is hugely important for for talent and founders and health you know emigrate here and that's part of the reason now it's actually if you think about it from basic math even if you take something that the Silicon Valley is super strong at which is essentially software skills in the last two decades not all of the great software people move here not all of them can move here there many of them in various other parts of the world and and so why do I put choice of location as one of the things that comes down to thinking about whether or not your great founder well the reason is is because what great founders do is seek the net works that will be essential to their problem and their task and they realize it isn't just about like kind of like I am super person I can do this anywhere I can do this you know in you know the Antarctic etc it's in order to be successful I have to go to where the strongest networks are for the particular kind of problem or the particular kind of thing I'm doing and Silicon Valley by the way is super good at some kind of task some places that you essentially try to solve certain kinds of problems but it's not good at all of them let me take you know kind of two examples so one is Groupon I don't think Groupon could have ever been founded here even though it's a software product it actually even generates a network which you know obviously a lot of the great networks are here and and uses a kind of Internet technology as a mobile product and everything else all of which we have a lot of great skills here in Silicon Valley and the network's are really good one of the things that's central for Groupon for its early days was having massive sales forces and massive sales forces strengths and weaknesses of networks tend to go together Silicon Valley tends to be pretty adverse to plans that involve like oh we're going to rent a 25 story building and in 20 of those stories we're going to have floors of salespeople and that's how we're going to get our thing going that kind of plan here tends to not get a lot of interest tends to get a lot of criticism tends to not have talent aggregate to it tends to have finance fears talk about things like capital efficiency and network effects and other kinds of things that are that are key here and so it's actually not a surprise that actually in fact Groupon required was required to be actually in Chicago which is really good at this as a way of actually kind of getting going and showing that even software startups can be in other places but even if you begin to think about it you say okay well what kinds of of you know other kinds of startups would someone be an idiot to move here to do think of someone worth doing a fashion startup not fashion all up parse mark which is you know a mobile you know marketplace acceptor which are a bunch of things are good here but like I'm designing a new fashion company and I'm going to come to Silicon Valley to do it that's actually not such a great idea right and that hosted the fashionably might be a great idea but you want the network's to support what you're doing and so part of the reason why where should I locate my startup is a test for thinking about a migrate founder is because part of what happens when you're actually founding a company is you're going i will go to where it successful this to do to be because the metaphor that i prove something use for entrepreneurship is jumping off a cliff and assembling airplane on the way down and the reason is because it's hard it has a quasi mortal exit while you which your default dead until you're taking every possible a chance to actually win and so great founders go look i'll move to what the network is and that network is you know this graphic is frequently Silicon Valley but it protects startups for mobile for networks for marketplaces you know this is a really good place do it for a bunch of other things you should think about whether or not it's a different location now here's something that you know it's very in vogue very conventional to say you're contrarian these days and so let's talk a little bit about what contrarian is actually in fact is so it's actually pretty easy to be contrarian it's hard to be contrarian and right and in particular when you're thinking about is my idea contrarian or contrarian enough its how does a smart person actually disagree with me right is because if you can't think of a smart person who isn't like ignorant or just crazy ears enough but is a smart person who is somewhat expert in Assen or thinks that your idea has some serious challenges then it actually isn't contrarian like so control and contrarian is also is always actually there's a lot of things that Sam and I talked about at startup school is contrarian is actually relative to an audience right so when you want to be when you're when you're thinking about contrarian in terms of like a really good contrarian idea it's like okay what would other states consumer internet good consumer internet people think is actually in fact not yet a good idea and part of when you think about contrarian is to say okay what's the way that what do I know that other people don't know because it isn't just say oh I'm brilliant and other people aren't and that's reason why contrarian thing is right that's a very bad test might happen to be true of course lightning could also strikes in the field but you know so think a lot about like what is it that I know that other people don't know so for example in the very early days of LinkedIn part of what I advise all founders to do is go talk to every smart person will talk to you and give you feedback so it LinkedIn I walked around I said here's my idea what do you think two-thirds or more of my network including some of the very very smart people all thought I was nuts and the reason why I thought it was nuts was because they said well look at the network products only valuable with a bunch of people in it first person no value and by second person second person first person it no value for either them they already know each other when do you when do you actually begin to deliver on your use case which is like 500k to a million people right and so you're never going to get decide it's never going to grow now what I knew that the critiques the critics didn't know was that I could think of a set of different ways by which people attend look it's pretty easy to say look I believe in the vision of this or I think it's interesting or I think a product like this exists or I'm going to play around with it and I can you leverage those sets of interests to grow the network to get to enough size that you could begin to deliver on the value propositions in which LinkedIn had and that was the specific thing that I knew that the critics one thing about and so when you think about being contrarian you have to think about how is it the smart people let's agree with me they disagree with me from a position of intelligence I and there's something that I know that they don't know that actually in fact will play out to be true now in this case in general as a as a founder it's good to be contrarian in the real sense and like now the other last part on the contrarian Asst is to think about there's a lots of different ways to be contrarian so for example a frequent one will be like oh yeah that's a good small idea but actually not optimal its large or you know actually in fact you can assemble the talent or while most consumer internet startups tend to the electric sample is another LinkedIn example tend to be only successful to rocket ships I a gradual compounding curve can actually be very very valuable LinkedIn never had its rocket ship moment it was it was kind of compound year by year but that in the consumer internet tends to be a atypical to the pattern so here you begin to get to a bunch of sorts of problems that essentially Sounders run into which is like well should I be doing the work or should I be recruiting people and delegating the work and classically the answer to this is actually in fact you need to do both right and in fact not only do you need to do both you need to do sometimes one at 100% and sometimes the other 100% and sometimes even though this is not so good at math both at 100% and so what you'll see is this is actually classic when you begin thinking about what is a great founder is you navigate what is apparent paradoxes so another one that I frequently talk about is you've got to be both flexible and persistent and the reason for this is entrepreneurs are frequently given the advice to you know have a vision stay firm against adversity you know realize that you you have a vision that is controlling what other people think and just stay on track get through the difficult time to get there the other piece of advice given with equal vigor is listen to data listen to customers a pivot be flexible right part of the thing this comes out to being in terms of being a great founder is to say well when should I be persistent when should I be flexible and the vehicle that I most often use for this is you should have on a project you're doing like a company an investment thesis that essentially says why you think possibly contrarian why you think this is potentially a good idea it should include what you know that you think other people don't know and then as you're going into the battle field you go is you know am I in fact increasing confidence in my investment thesis or decrease in confidence in my investment thesis because I've found increasing confidence then hope stay on track you know be persistent and by the way sometimes even with adversity your confidence can increase if it's decreasing that doesn't mean jump out PayPal LinkedIn Airbnb a whole bunch of startups driving up I've been part of have had months where you were like oh my god this why did we ever think this was a good idea kind of a valley of the shadows moment example and PayPal was you know August two thousand we're burning twelve million dollars in one month the expense curve was exponentiating we had no revenue decrease in confidence however we say okay what do we do in order to fix that and that gives you your immediate action plan another one is should you have belief or should ya fear right should you have you know could it should you essentially go well no no I I have this vision of the way the world should be and I should ignore everything else and I should just what that well again part of what being a great founder is is being both able to hold the belief to think about where it is you want to be doing and why don't want to be going but also be smart enough that you're essentially listening to criticism negative feedback competitive entries where you kind of go on okay is this changing my investment thesis is changing what I'm planning on doing it doesn't mean lose confidence you have the confidence but you also essentially have the peril again in this kind of thing of how do you put these two things together should I focus internally build a product ignore the world ignore competitors control shows focus externally should I be recruiting should I be meeting people should I be gathering network intelligent again the answer is both and the reason why I'm focusing on these kind of it's is both rather than either/or is because part of what makes a great founder is the ability to to be flexible across these lines to sometimes be ninety percent one way sometimes be eighty percent the other way the executing the judgment on what is the current problem look like how is it that what I'm trying to solve this that I should say this is what we should be doing and how should I be dividing the work and part of when you think about these things as you say like this is another one is kind of classic as people say well I'm completely motivated by data it's what customers said to user groups you know I've a lot of entrepreneurial methodologies lean other kinds of things we talked about is like gather the data be guided on the data well actually in fact data only exists within the frame of a vision you're building to hypothesis of where you're moving to and the data can even be negative and you can think well actually in fact this negative data means I need to change or alter the way that I'm thinking about something but I actually keep on a specific vision about what I'm doing and by the way sometimes even when you have that specific vision you don't necessarily actually ever end up at that big vision that you were thinking about so for example you know at PayPal we distributed these t-shirts that said the new global world currency right well actually in fact one of the times I know Peters been here one of the jokes I told Peter is like well actually we do have this new world global currency what we're trading in is dollars you may have heard of it it's existed for a while right we're essentially a master merchant for that now of course this message is what might be happening with Bitcoin although now has the whole love of topic there however the key thing is is that vision of saying we are creating a kind of a universal network that allows anyone to to pay anyone to become a merchant to bring the electronics into the speed of commerce at any business that is being transacted that vision kept it true north but we say well first we think we're going to have a banking model then we think we're going to have you know a debt model oh no we're going to have a master merchant model and how does that actually play out so you're always combining the vision and the data and the data is within the framework of the vision and sometimes of course what you learn changes your vision now this is one of the ones that I actually think we saved this special picture for one of the ones that I think is quite key is that normally entrepreneurs founders are thought about as having like they're risk takers right there they're they worth everyone else cowered in fear from this notion of risk they boldly go out now that's true you have to be a risk taker you have to be thinking about how I make a really coherent bet on risk because in fact the only really big opportunity is the only contrarian opportunities smart people disagree with you on happen to be one that have risk associated with them on the other hand part of the skill set that you're beginning to apply how you think about risks as an entrepreneur is you're beginning to think about like how do I take intelligent risk how do I take a focused risk that if I'm right about that one thing okay then a bunch of other things break my way and once I start doing that I try to figure out how to make my my on shot possibility as high as possible eg how I minimize other risks how do I essentially take this risk in an intelligent way that doesn't just go oh yeah risk risk to the wind who cares but let's go and so this kind of combines that you know this image which I think is the best of the of the of the images we found for this yet is kind of the sense of how to think about now back to what I was saying in terms of having an investment thesis part of having an investment thesis is you chart it out it's kind of a list of bullets you say like example an early LinkedIn it was like look everyone is actually going to be benefited by a public professional network everyone will realize including companies that it's better to have it play out this way the initial set of adoption will come from essentially people who like visualize the role this way or willing to play with it and then eventually the mass market will come on as they begin to have a network that it's already delivering a value proposition to them that's what kind of an investment thesis can look like and then you know you got economics so like initially recruiting and then and then broadening other things you have that investment thesis and you say is my investment thesis increasing or decreasing in confidence do I think that the data that I gets in the market while I talk to smart people how does that how does that change my confidence in it and this is actually how you essentially minimize risk so for example very early very early days in PayPal the part of what happened is they said oh okay well we're going to do cash on mobile phones will the cash on palm products because it's really easy we have to realize the cash and Palm Pilot wouldn't work even before we launched the product because basically what happened is I went in and said to max and Peter I said look here's our challenge our challenge is we're this room probably remember what Palm Pilots are they were like early PDAs and so if we lived in were what was Palm Pilot Central and the whole use case was splitting the dinner tab and how many people at everyone at the table would have a Palm Pilots budget in a tab zero to one in every single restaurant so you could even just by thinking it through you realize like the direction you're on is going to hit a minefield and you need to pivot and that's what Max Levchin came up with the idea saying actually in fact we could sync by emails we get email payments as the backbone of this we're like ooh that's a good idea and of course that's what the whole thing kind of pivoted into and that's part of thinking through minimizing the risks as you're actually executing here's another one's kind of classic which is well should I have this long-term vision or should I be solving local near-term problems and again the answer is both it's these paradoxes and the question is if you jump between them you should always have a long-term vision in mind because if you actually completely lose your your directions eventually you'll find yourself in some field there's not a good path out of but if you're not focused on solving the problem at immediately in front of you your host right and so part of the question about how you put these things together is you say okay short-term what's the thing I need to be doing today having made progress today have made progress this week but is it largely on path so I'll give you an example of how this plays out in terms of financing or term strategy so people frequently think product strategy is fundamental to how startups like I have a product idea that's the thing I'm a founder actually in fact the next level down on strategy is usually product distribution whether it's consumer Internet or or enterprise or anything else because actually in fact no matter how good your product is if it doesn't get to customers you're hosed so usually you have to have product distribution is more fundamental than the actual what the product is and the one below it is financing and the reason by financing is if you run out of money and the whole effort goes away even if you have a really good idea doesn't work so frequently when you're executing on a good strategy you're actually in fact when I'm raising money this fund raising I'm thinking about the next fundraising I'm thinking about how I'm set up for it I'm establishing relationships that would be key to that and I'm I'm not executing like oh the only thing matters is I get to the next is get to the next fundraiser because you have this business that you're building but I'm thinking that is the core strategy in terms of how I'm executing and frequently you're thinking about okay how does my product distribution work such that the financing works well and that's kind of how you architect these things together so how do you know if you might be a great founder well it's you should have some super powers it's generally speaking on software useful to be a good product person it's useful to have good skills about kind of leadership of bringing networks in of persuading people and it's useful to be able to and this is kind of the most fundamental is recognized whether or not you're on track or not to have both that belief but also paranoia about am i tracking against my investment thesis and when you do that the right way and you're learning and you're assembling people and you're assembling networks around you that's generally speaking how you end up being a great founder now classically and I deliberately put up five white men mail pictures is classically you have a kind of a these are the ICONic founders but in fact founders can be very diverse they can be extraordinarily talented at different areas because there's different kinds of entrepreneurial companies there's different kinds of problems they're trying to solve and I don't just mean diversity in terms of classic you know kind of gender race etcetera diversity and age diversity and experience you know jack ball was a was a teacher before he got into that that's the kind of thing that you can that you should think about and so the the question is is how you cross uneven ground how you assemble networks around you how you get people to assemble this is a constantly changing problem to face when you are trying the sounded company and so I think the thing that I was trying to get people to think about with this is to say there's not one skill set there's an ability to learn and adapt an ability to constantly have a vision is driving you but to be taking input from all sources and then to be creating networks around you and that's essentially what makes a great founder and you were ability to do that while crossing uneven ground in a fog which is kind of the the way that entrepreneurs you don't really know but you always know this is gonna work no unless you're crazy right although sometimes crazy works so with that I will now go to a few questions but it was kind of this mindset a founder is which is kind of key and if there's no pressure okay okay how many things how you started early are the life is different aesthetics for getting the right early adopter that you knew with expecting your investment pieces really help it takeoff engine the every third of pages that ships that same challenge so one of the really fundamental things is to is to think about product distribution as key and for LinkedIn we had a couple things going for us so one the web was boring in 2003 that basically what happened is everyone I thought the consumer net was over and so people were renewing clean tech and enterprise software and everything else there's a much harder problem now because everyone thinks the Internet and mobile is interesting and so breaking through the noise is really key so the strategy we use would work we just actually set up send out some invitations to group people and then tune the mechanism to have and did PR to get people like one of the decisions we made early that was right was to say should we only allow it as invite only or should we allow cold sign ups the reason we should allow cold signups is because the people who are super enthusiastic about this weren't necessarily the people we know so they would sign up and spread it that sort of thing where all the kind of decisions we made now that challenge is much harder because the challenge when you think about product distribution is is how are you competing for potential customers or potential members time and what do they think what do they have to believe in back in 2003 was like well a professional network that's potentially a good idea what the hell I'll play with it there's not a lot of other things for me to look at today there's tons of things and so your strategy day when you're looking a product distribution has to be what is my really decisive edge what is the hack that I know that other people don't know so thank you how many killed you know he put on da bomb just like a carton our chief so how do I know someone's a good founder or not well it's not I'm a huge believer in references usually I only ever actually know a hundred seven times in this case I only meet with someone when they come to me through a reference so one of the things by the way is that thing is I after this I have to run off because I have a meeting I need to get to if you want to actually get time and attention we find a reference it's not a pitch to using LinkedIn it's a question of this is how you sort out ton you can find out like Sam knows me let the throat Sam onto the bus all right yeah and so a reference to me is in fact the way that I do this and so for example what I meant with the Airbnb guys part of the reason why I could interrupt them two minutes into the pitch and say I'm going to make you an offer to invest I want to hear the rest of the pitch because I think what you're doing here is is magical and awesome was because I'd already had references on them like that was only two minutes not even 30 minutes because I already knew about them before coming in and by the way by and large that some version out is true of most of the great investors and it's that it's that network that's really key I think it was a question over here to here it's costing or we are sensitive insight is a strong signal for great honest can you say another sentence so being still pieces out of all right off Nils down three concise well I would definitely say that the ability to say coherently what you're targeting and to articulate something that isn't trying to boil the ocean or a Swiss Army knife approach but is like one focus like what people write about this and it works that is actually pretty important to big to being able to judge the founder because if you don't have that level of clarity you're not going to be able to assemble the network behind you you're not gonna be able to get investors not going to get employees you have to be able to articulate a very clear mission about what you're doing and insight is helpful although a little bit of this depends on the stage it is always if I find I find myself attracted to founders who to analyze the problem a good way but but frequently I've seen great founders who do not present good analysis but have an instinct about what they're doing and see you more chart will tell what's going on around them when they can head like five years of life out again wrap up guys like what would your going be like keep like a link Donnell be original oh why how do I keep persistence when because actually LinkedIn went through you know let's see for those who remember we were we were treated as the is a is the is a little alternative to French sir then to myspace been to Facebook right so we had a lot of different like we are the little teeny one next to these two these respective giants each of the time ultimately for me when I was thing about LinkedIn this gets back to the investment thesis as a mechanism I continued to believe the action fact the right economic system design for every individuals life and for organizations lives have public professional profiles but that that that world is the way the world should be everyone's much better off with it and we are getting closer to that than everyone else it may be that it hasn't taken off as fast as I like it may be that the general world is going oh the social stuff is really interested in we don't like we can only get in the news in the fall in the summer of 2003 by saying we were friends sure but for business which is completely collect nonsensical once you begin on you're going to look at the thing but it's like okay we'll cover you because it's friendship but for business and that was important to begin to get people to pay attention to us and so the confidence was that world I still have confidence believe that it should exist and no one is getting closer to it than we it's taking us maybe longer than I hope to get there but that's okay so okay when you do it wrong what do you use how do you think is going to be really good and you know it seems to be able to move between these opposing forces yep and on paper seems like they're going to go at it what is it makes you get wrong about on that looks good for contribution well to some degree you can only fully cross these kind of minefields back to going and doing it so you're going to be wrong about your hypothesis the kinds of things that frequently get you wrong get get wrong or when you think that a person because they like for example one of the tests that I forget to use an interaction is I push on the idea some and what I'm looking for is both flexibility and persistence I'm looking for know I have conviction and what I thinking and I'm arguing it but I'm listening to what you're saying and I'm adapting to the concerns and whatnot of how you think about that sometimes you'll find someone who says look I've learned to mimic that behavior so I've learned to say for example I learned to look look like I'm reasoning with you and I look like I'm I'm thinking about the challenge you bring up but actually in fact I'm ignoring you and ignoring me that might be fine ignoring the world in general is usually disaster and so those are the kinds of things that in the measurement you can see essentially getting wrong but but usually the kind of thing like most often the kind of reference questions I ask founders is like adaptability like one of the phrases that I frequently look for infinite learning curve because each entrepreneurial pattern is to something very unique and new and can you learn the new one right is way of doing it and so like does the learning break down or there's some major skill set is there an ego issue that gets in the way like well I must be the grit like everyone everyone must adulate me and that will cause you to behave wrongly in adapting with the problem those kind of things I think I have one last question the woman under that key and the most effective will make sure that partnership and you're evaluating heavy a great co-founder co-founding team how to evaluate and how to think about co-founders so the first thing is it's super important that you collaborate really well that was the kind of the point I was making during the team the the initial part of it because if you in fact don't have pretty good serious trust you know kind of a way of of it's 150 I'm so tanned right Oh - ha no no I'll keep going sorry I misread the time so I I will have time for more questions sorry I was trying to be very good be on so okay let me give a little bit longer answer to the steps so the key thing is when you're thinking about founders founders that founders is do you have a diversity of the necessary strength to cross the whole range of strengths that would be useful frequently you need one technical founder at least frequently you need to have someone who is who is going to be dedicated to the business side fundraising these sorts of things that kind of classically skillset when you think about the two to three and usually it cuts some composition across them and that's kind of like what you think of its founders one when you're thinking about a founding team when you when you get the next level deep for example one of the things that people will classify to tell you is like people don't invest in a husband-and-wife team and actually that look that adds a little extra Freight to it and everything else does you know the personal dynamics also upset what's going on I actually think of what you're looking for is do they collaborate well do they help each other get to truth right so for example I am most heartened what I'm talking to a team that when they're when they're reasoning to each other they're not like oh we're just all singing from the same things that go but did you think about this or what about this is a challenge but you're navigating the field of battle which has a bunch of risks like for example one of the things that was pretty common in PayPal is Max who who invented the fraud systems and everything else would frequently come into Peter's office Peter seal Max Levchin and say look here are some things they're going to kill us and let me focus you on them okay so it's not like we're all just kind of saying all yes we're all singing our Kumbaya but we are adjusting to what is truth and what's the problem we solve what's the problem the short term what's the problem in a long term and how we tackling it and that composition with their team that collective problem solving that collective learning is the kind of thing that actually usually makes great teams thank you for Reforma collection I didn't call you to justice we actually multiplied hops that we end up wonderfully trained to do I actually know how to verify to be Palestine given the status table my vision help me in here and is among the public comment reviewing or heartful assigned for the vision to mark whether come here today in colleges or any stuff different founders different areas how do you identify them so the talk was aimed at kind of what is unique about the mindset I think of founders that is great sounder across all all founders that's that part of what this was attempting to say look because there are differences so for example in software speed to market speeds to learning is really key in hardware if you screw it up you're dead right so accuracy really matters right because if you if you build and ship the wrong thing you're hosed so generally speaking is an investor and this is part of the reason why a lot of investors you know have a certain set of things that they then learn pretty well and try to reapply to they try to understand a domain well enough to be able to identify which of the founders in this domain that really matter and if we're investing in this domain how do we do that well and so there are attributes that are unique per domain so for example you know like like if but one of the classic ones is how good must you be at operational efficiencies in terms of margins cost controls etc you're dealing in the world of atoms including even in commerce you've got to be really good at that you're doing a digital gaming like a like a single extra up doesn't matter all right so and and so you look for that kind of fits and proclivities and part of the beginning of this is it's not actually in fact that it's one person who's good at everything I would be like one of the funniest conversations I had with with with a guy a friend of mine who works for me I first start up social net if he looks at me and he said lead I would never hire you to be a manager of McDonald's oh my god wouldn't either terrible at that right and so it's the skill set that fits but also the whole point of this is actually navigating a set of things that look like paradoxes sometimes being heavy on one sometimes heavy on the other and being having a right judgment at the moment in terms of what you're doing and that's what comes to be more Universal like you think a little bit about how new whether I stand or we top do it you know companies acting like you're evil so the question is basically how do you know when to pivot part of the reason why having investment thesis and your confidence and rest in pieces and being pretty clear on that is generally speaking the answer that I give people is if your confidence is unmeasured for a fairly long time or is decreasing because unmeasured for a very long time should be decreasing and it's decreasing and then you go into intense mode where you're trying to figure out what kinds of things you would do that would increase your confidence right and that's failing that's a seriously good time to think about pivoting right and and you might have a theses on can we raise money you might have pcs on will what's the pattern by which the product distribution are growth or you know viral imitation or SEO or anything else will work and it's like well I tried these three things and the fourth thing doesn't seem as good as these three and the next two things that I think about he we've been worse that begins to decrease your confidence and that's when you sing about pivoting a frequent mistake when it comes to pivoting is wait until you've essentially that crashed into the wall and everything is dead and you can't make any you can't maneuver anymore and that's that's you waited way too loud now now in terms of personal career goals and so forth you know part of the thing that I would say that is one of the things that I'd meant to talk to you during the slides that since I've misread the time I I rushed through it a little bit one of the classic questions is balance and I actually think founders have no balance but one of the funniest conversations I ever had was with the governor of Colorado it was like we're going to attract really great entrepreneurs here because we have this balanced lifestyle like like literally if I ever hear a founder talking about oh this is how I have a balanced life and to where they're not committed to winning right and so the only really great founders are like I am going to literally pour everything into doing this now it only may be for a couple years I may do this for a while and go to walking but while I'm doing this I am unbalanced at this thing it's obviously you don't take breaks not to say you don't you know go on dates or whatever else but you're super focused on this because it's really hard and there's lots of ways to die that's reason why the jumping off the cliff metaphor is one of the ones I classically use so just ends up give you like the define on certain opportunities with others illness 30p overall how efficient do you think these stars ecosystem is that identifying okay so how good is the startup ecosystem and identifying contrarian opportunities let's see just kind of challenge because the moment it kind of actually becomes in vogue it's less contrarian I think mixed sometimes because part of what makes a great investor is an ability to go look I take this radical shot I take this radical top shot I take this radical shot and there's enough people or investors there's usually someone if you can find your way to them Network finding a way through Network sometimes difficult some tons of noise hard to get the signal on the other hand is sometimes things that are just kind of like you know totally crazy like one of the funny things is you know a benchmark was the only one that would fund eBay you know if you talk to most of the people in the valley a year 18 months ago that Bitcoin they would have told you like what bit what do I have no idea what it is and by the way still unclear how Bitcoin will play out although I think the fact that there will be a distributed trust system on cryptocurrency is I think almost certainly going to exist in the world and the real question is is Bitcoin the first or last cryptocurrency first is the ones the new features last because it's a lot has network section is already going and so I think it's pretty good with it frequently what happens is people think they're contrarian because they're doing something they think is in a unique stop unique combination I'll give you two examples and hopefully the founders of these people who sent me these cool I get about 30 pitches symphony a day but I don't basically don't look at and let's referral unless something in the title makes me laugh in which case I look at it mostly is comedy and I'll share to comedy one one of them was wearable diapers which was the you know you have the computer monitoring you know whether or not the kid is you know taking a pee or poop and they let you know and you're like if you're that far away from your child and this kind of thing is probably a bad sign of other things and then the other one was kind of customized ecommerce bongs you're like oh I got a contrarian idea yes you do but not the highway right so anyway so you know you bet so I think generally speaking the system is pretty good at it in the back that ahead of time I'm good how do you think most creative market Berkeley creating market versus covering them yeah so this is actually it's a challenging question the the freaking like visit and it's a good follow on the contrarian thing like frequently there's this classic thing of oh does the market exist yet is that because it's going to be huge or non-existent the good news is it's usually one or the other right and so that means going after something that most people don't think is a market but you have a reason to believe it is actually sometimes frequently a good bet however it can sometimes completely flame out one of the things you're doing when you're testing your investment thesis is what would lead me to think whether or not there's a market there or not because you know at the beginning nor no market and so the it is of course conceptually possible to create markets people think that there's a new need for this sort of thing on the other hand the problem is is how do you get fast adoption if people don't even know that they wanted as a category right so they say well but people they just realize like a classic entrepreneurial misfire a classic one is if people just realize once it exists they'll realize that they really love it and the vault but line up and droves for it well there's a few entrepreneurs Steve Jobs one of them who can do that most the time it doesn't work out that way and so you have to say what in your investment thesis why is it that you think when you're thinking about a market that isn't already existent that you know that other people don't know on the contrarian basis that leads you to think that market should exist right and so for example a micro one with LinkedIn was action in fact Declassified means of recruiting was in fact an exercise of newspapers and exercise of information age and actually recruiting direct to people it's part of what the networked age and the Internet and that's actually in fact how recruiting should go now it was relatively easy to validate that but you know that's the kind of thing where you think about this potentially new market yeah last question when do you go home long enough so accommodation want to think for example when you got the PayPal link for example how long do you use it was a lot group of people so how do you know okay I trust these people enough to stumble so to reach up I'm repeating the question in part because rates as recorded in everything else make sure that people hear it but the question is basically is how do you know that you trust them on well enough to be a co-founder there's a whole bunch of different variables to go into it and look there's one of the risks that you take and you kind of get to a thesis of do I think that I know them well enough now I'll parallel one thing that I think there's a parallel here that I think is super useful so one of the things I tell my portfolio company CEOs or founders when they're thinking about hiring a CEO is I think that the only way to do this is when you get down to the people that you're thinking you may hire the CEO you spend 20 plus hours with them right where you go into as much depth in a conversation about anything you think as a possible difference of opinion belief work style so you've identified all this upfront so that your your your jet it's not that you have a contract it's not like oh we're signing a contract this is how we do it but we've established the conversation we've we've gone to all the parameters we've had a conversion about what we might agree with the disagreement one of the things that I frequently think is worth covering is almost like kind of a divorce like why would we want a divorce what would lead me to say this isn't working right and to cover that upfront as part of it because then at that point when you get into the field of battle which is hugely stressful you go through valley shadow and lemon you've at least got the basis that we already conversed about a wide variety of things we set up essentially some expectations about what you know how we might be playing together and if it begins they're very off that it's relatively easy to bring it up in a way that you're problem-solving and that's the kind of thing I think you frequently you should be fairly confident that you have that level of trust for me frequently it's to have a set of robust conversations that's but I was like like if something comes up laters like what we talked about this inversion we can we can bring that up so anyway with that thank you [Applause]

Channel: Y Combinator

Views: 69,534

Rating: 4.9034481 out of 5

Keywords: YC, Y Combinator, Startup, Lecture, Stanford, Class, Sam Altman, How to start a startup, startup school, reid hoffman, linkedin, founder, advice, how to be a great founder, how to be a founder

Id: pkAum45ubWc

Length: 49min 58sec (2998 seconds)

Published: Mon Apr 17 2017