Y Combinator is one of the biggest startup accelerator programs in the world. This hub has been responsible for some of the biggest brands we see today. From Reddit, DoorDash, Stripe, and Heroku to Airbnb, Optimizely, Zenefits, and Dropbox, this accelerator program has overseen over 1,400 startups. The current President of Y Combinator, Sam Altman, shares a lot on startup growth and his lessons from his 9 years of working with startups.
He heads a company that has guided startups to total valuations of over $80 billion. In 2015 he was named by Forbes as the top under 30 investor. Sam Altman clearly knows a lot about the startup life. His philosophies, guides, and tips are what startups apply to Y Combinator for. And we lay them bare below to build on this good knowledge:
1. Dominant Brands Can Crush You
Altman advises startups to tread carefully when attempting to compete with big brands. These brands have regulatory advantages and they can execute many things on a massive scale. A startup’s mistake is to try to compete with such a brand.
Most of the time, these brands can attract the best talent in the market. Essentially they have the very best engineers and they hire at scale too. Their data is significantly powerful. The computational advantages they possess to analyze and execute on this data are immeasurable.
Instead, Sam Altman advises startups to target where these big brands are weak and go at them really hard. If you target where they are not performing very well there is a chance that if they do not decide to tackle the problem, then you will win some users who have that as a pain point.
2. A Few Users who Love Your Product can Make a Big Difference
There are two ways of going through the early phase of a startup. The first one is to go the tough vertical way and the second one is to go the horizontal shallow way.
The vertical way is where your target is to gain a few users that really love your product while the horizontal way is to get thousands of users who only like it.
The difference is that when users love your product it makes it really hard for them to move to another competitor. If anything were to happen to your company or product, these are the users who would vouch for you the most.
On the other hand, users that only tend to like your product but are not staunch believers will move to the next competitor as soon as they notice better quality out there. They do not care whether you succeed or fail.
Y Combinator advises their startups to go the vertical way in the early stages. If you can find 100 users that truly love your product or service, then it becomes very easy to iterate things without worrying about whether the users will stay. Growth becomes possible because you get a lot more honest feedback than users who just outrightly cancel their accounts and leave.
3. Do you know the Secret to an Unbeatable Business?
The question that Sam Altman keeps asking startups is, “if you win will you manage to stay the winner?”
This is important because why would you struggle to get to the point where you are the best in the industry only to come back tumbling down like a piece of cake?
It is important to build a business that will last its time. A business that stays at the top for as long as imaginably possible.
There are several examples around the world of such companies. For instance, Google got to the top of the search engine and advertising business after some amazing growth. Despite massive efforts by other search engines to reach them and companies like Facebook targeting their advertising business, Google is still the biggest advertising company in the age of the internet and its search engine still the most loved and number one worldwide.
Another example is Apple. Steve Jobs went through a lot trying to get this company off the ground in its early years including getting fired from Apple before he was hired back. When it eventually got up, it has stayed up even in the absence of its late founder. The iPhone is the most bought mobile phone in America and Apple the second biggest company in the world.
It doesn’t make sense to not mention Amazon. This is the world’s biggest online retailer. While it has always been big for the past decade, it really became of age this year. The company’s founder, Jeff Bezos, is now the richest man in the world with a net worth of $181.6bn. Amazon recently announced a minimum wage increase for their hundreds of thousands of employees. This company is at the top but there is not a single company that can get to it anytime soon.
Facebook started off as a small idea in a hostel in Harvard. Mark Zuckerberg didn’t expect it to become big enough to rival the biggest social network at the time known as MySpace. As the company grew it seemed almost mystical how MySpace faded. Within no time, Facebook became the biggest social network ever. And in its wake, the death of MySpace swiftly followed. Today there are other social networks that have sprung up.
Twitter is doing very well with over 300 million monthly users. Pinterest has over 200 million monthly users. However, these numbers are nothing compared to Facebook’s over 1.5 billion daily users. Instagram now has a billion users per month but at the time it was acquired by Facebook it had about 300 million monthly users. Google Plus is kind of non-existent.
There are several other examples like Reddit, Airbnb, PayPal, Salesforce, and so forth.
This begs Altman’s question to startup founders, can you stay at the top once you win?
4. It’s Important to Hire Incredibly Well
According to the President of Y Combinator, the biggest cause of death for most startups is by suicide. It is never a case of murder. Startups are always trying to die by themselves.
Founders are on the spot for causing those deaths. Their biggest mistake; hiring the wrong people. Their second biggest mistake; taking too long to fire under-performing employees.
Mark Zuckerberg hired his first employees based on three determinants; one is that they were smart. Secondly, they got things done. Lastly, they made Mark want to spend time with them.
These vices govern how Y Combinator teaches startups to hire. The employees have to fit into the culture. One of the reasons Mark considered these three determinants and especially the third one is that at one point or another he would need to report to a member of his team. He needed to report to someone who would be easy to talk to.
Getting your hires right is essential for the success of your startup. If you do get a hire wrong, the right thing to do is to fire them as fast as possible. When someone under-performs in a startup which obviously has very little resources, they cost the startup valuable time and money. Startups should never tolerate this. The most successful companies have founders that know when to call it quits with an employee who is doesn’t play well in the team.
Additionally, once your winning startup team starts to grow you need to build a clear and simple employee structure. Altman recommends not complicating this. When you have grown to about 20-25 employees, a clear structure of reporting and working is essential otherwise things become chaotic.
5. Founders should be Frugal, but within Reason
Before going further into this, it is important for startups not to be overly frugal to the extent that the team and the company suffer.
However, one of the biggest qualities of profitable startups is that they manage to control their costs. This ensures that money is spent only on the things that are most needful.
Additionally, spending less means you are able to turn a profit faster because your expenses are minimal.
The startups that are overly spendthrifts only have one way to survive. They rely on investor funding. It might be possible that you get millions of dollars in funding, however, you have a moral duty to spend the money wisely to further the company. Otherwise, you end up spending the money too fast, go broke and your company dies.
6. Focus and Intensity can Drive Success
Sam Altman’s experience working with over 1,400 startups to date is that the startups with a bigger sense of focus and work intensity manage to grow faster. Logically this makes every bit of sense.
After launching your product, you get a couple of users on and they begin to provide feedback. The function of your startup team is to execute on this feedback. If you can maintain the focus on the prime goal, and implement the feedback faster it means you are able to push the updates faster.
This means you leave that level of changes and users again give you feedback to build upon your most recent update. Again, with focus and intensity, you act on the feedback and release another version of the product.
Essentially what happens is that as you gain more users, get more feedback and release more updates to the product you are bettering the product. You are also keeping and gaining more users. You are growing in revenue and hiring more. This is a compounding effect that means the faster you can iterate on the user feedback and release it the faster you grow and the faster you see the gains.
In comparison, a startup with less focus and intensity launches the first version of the product. They get users and receive great feedback. However, they take 3 months to act on that feedback. Before they release the new version, early users have probably gotten tired of complaining and left. They have to get other early users for the updated service. There is no growth because the focus and intensity are lacking.
Successful startups, according to Altman, iterate and tweak things from customer feedback as fast as possible. If it can be done in an hour or two, why should you take a week on it? The faster you iterate, the faster your process of growth.
7. Take Notes on Ideas
Sam believes that ideas are great things to have. Most people have a dozen or more of them. However, here is what you need to know about ideas:
- Some ideas are dead on arrival. You cannot create a market that does not want to exist. You will be drained beyond belief.
- Ignore naysayers. There will always be people looking to telling you how silly your idea is. However, the only way to find out is to go out there and test it. The world does not cultivate a proper growing ground for new ideas. And people are instinctively opposed to any little change. Silicon Valley has managed to change that mindset. From the first moment you talk about it, people here will tell you to try your idea and see if it works. However, around the world, it is easy to get a no from a lot of people initially.
- The best ideas are pegged on the founders having experienced the problem. When you have experienced the problem you get to interact more with the solution beforehand. You understand the major issues and know when to build what. The solution feels personalized.
- Obviously good ideas are all taken and some big companies already built brands around those. Sounds-like-a-terrible-idea ideas are mostly really good ideas. Outrightly bad ideas are bad ideas. Do not complicate these. Airbnb is one of those sounds-like-a-terrible-idea startups. I mean, “who would want to go sleep in a stranger’s house, right?” Well, turns out millions of people do and millions of hosts are offering their homes for that.
8. Founders Must Execute
Execution matters the most than having a gazillion billion dollar ideas. What is the point of having so many ideas if you do not make them happen?
Founders need to be focused on execution. This is one of two most important roles they play on a day to day jobs. The other role is to listen to users or customers.
The logic is to listen first then execute fast.
On a daily basis, founders have to understand that every minute they spend not executing on the product and feedback they are wasting time and money.
So execute, listen, execute again, listen again, execute again. It never stops. Figure out what needs to be done and get it done.
You do not need to be an expert founder in startups to be a successful founder. What you need is to be an expert listener and a serial expert in understanding and acting user data.
9. Launch Your Product Right Away
Do not wait for your product to be perfect to launch it. It is better to launch an imperfect product, gain early users and then listen to their feedback and actually build a product based on what customers want.
It happens a lot that founders invest so much time and money into a product and it ends up being a disappointing unwanted one. The only way to find out if your product has a market is to launch it. The concept of the Minimum Viable Product (MVP) applies here.
Sam Altman advocates for this MVP strategy which was coined after the Lean Startup Principles. The general idea is that the MVP is the first version that lacks a tonne of features but it solves the core problem behind which the idea is based.
After releasing the MVP, the process of listening and tweaking begins.
Some startups seem to wait for the perfect product in order to launch. In the process, they build features that users won’t need. Building more features on to a product or service has never been the goal. It should not start now. Is your most vital feature ready to ship? Then ship it.
10. You should Fire Bad Customers
This is not heard of a lot. However, some customers are not healthy for startups. They can cost you more time, money and labor than they have paid for. At a time when many businesses are already battling crippling losses due to the COVID-19 pandemic, the last thing you want to do is hang onto customers who are costing you more money than they’re paying you.
It is good to let go of stubborn customers or users who cost a lot and do not offer the same in terms of revenue or learning.
Before Twitch grew to become the biggest gaming streaming site online, it had focused on people trying to stream copy written content. These users were not turning out to be the right ones. Twitch changed its strategy to focus on gaming broadcasters and let go of the other market base. In a few years, they were acquired by Amazon for $970 million.
11. Don’t Attempt Growth With Poor Market Fit
Just in case your product has not managed to find its right market, do not attempt to invest in growth. There are various ways to invest in growth including PR strategies, advertising, and marketing, SEO, etc. However, for such startups, these strategies should not even be considered.
Chances are that if you attempt to grow your company at this point, you will only have a high churn rate, low retention rate, and huge costs in marketing and advertising. If your churn rate is high, then your profits are low. If your profits are low, you cannot afford the marketing costs for much longer. Eventually, you burn out. Find the market fit first then attempt growth methods.
12. Do a Few Things Very Well
Successful startups do not try to do everything. Those that try that fail. The best startups do less very well and avoid doing a lot more than they can chew.
There is an obsession with big deals in the startup world. However, as Sam Altman has seen in his experience at the startup accelerator, these deals rarely end well for startups.
Big deals are pushed by big companies who can survive a fallout between a startup and their deals. Additionally, such deals cost more for startups to take up. Eventually, if they don’t pay off, as most do, the startup is left reeling from humongous costs that can take it to the ground.
Aside from that, the addition of more and more features onto a product or service is also another attempt at doing everything. It is important to find out what customers want. However, don’t just build out every feature. This is where setting a company’s goals and objectives is important. Maintain the focus and only build features that underlie your core values and improve the experience of the core feature.
While building these features, Sam Altman recommends that startups follow the 90/10 rule. This is building 90% of the essential features using 10% of the time/money/effort required. This strategy makes you more efficient, ensures your bootstrapping journey continues and keeps you out of startup debt and overrunning costs.
To avoid doing everything and keep the focus, pick one or two metrics that help your startup measure success. These metrics can inform your growth, the features you build, and the way you shape your company’s message.
Sam Altman has overseen several startups to great strides and growth. The concept of startups is that it is a tough road. However, following this definitive guide to successful companies will get you closer to the goal you actually want to achieve.
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