Y Combinator Startup School Notes

These are my notes from the last startup school that Y Combinator put on. I also have some notes from past startups schools they did when they were one day events. (1, 2, 3, 4) Lots of great inspirational and actionable content there and below.

How and Why to Start A Startup

Dustin Moskovitz:
It is important to know why you want to start a startup.
In order to (get through six rounds of funding/become a unicorn) you need a truly great idea that is defensible.
You need to have a better strategy than your competitors.
You need to be really, really lucky because there are a lot of things that can get in your way and a lot of them are out of your control.
It is getting harder over time (to get through the rounds of funding).
It is getting harder to disrupt incumbents. They are not the slow-moving giants they were ten years ago and are getting better at taking advantage of their position.
You can still join teams as Google or Facebook today and do something that reaches a billion people.
The media tends to talk about success cases and ignore failures.
You are a role model. If you take your foot off of the gas then so will your team.
The best reason for starting a company is that “you can’t not do it”.
You can be entrepreneurial within an existing company.
Work with someone you have known a long time. Discuss as many details as you can so that you are on the same page. Those discussions get more difficult over time.
Sam Altman:
You don’t want to write off wild ideas about the future.
In most of the world (outside of Silicon Valley) people will mock you (for having those wild ideas).
Silicon Valley has a culture of paying it forward.
You have to get the idea right.
Idea first; startup second.
A bad cofounder is way worse than no co-founder.
Startups are really hard. Determined people are what make it work.
You want to start with a small number of users that really love you.
If you don’t get a great product (your startup) isn’t going to work.
You need to find a small number of users to help you build a great product.
You need to find exactly what people like about (your product).
Ask people if they would recommend (your product) to someone else. If not, why not?
Ask people if they have paid you (for your product). If not, why not?
If it is a paid product charge (your first users).
Your growth strategy needs to be ongoing.
You want to get to know your users really, really well.
Make it one of your top goals to build the fastest iterating company that the world has ever seen.
Almost no-one makes a very long-term commitment to a project. If you (do it) you will do very well.
Stay small. Once things are working you can get very big.
Resist the urge to hire mediocre people. The team you build is the company you build.
Have a clear mission. You need to be an evangelist for this mission.

Startup Mechanics

Kristy Nathoo
The entity is independent of the founders.
Investors can only really invest in C-corps.
Startups should incorporate in the U.S. because the vast amount of capital available to startups is in the U.S.
You don’t have to be physically in the U.S. while incorporating.
The state most startups incorporate in is Delaware.
One option (to incorporate) is to just use a lawyer. This is a great option if you want to do something not standard or if you want a high-touch experience. This option usually costs $3,000 to $5,000 plus filing fees.
Assigning equity is a really, really important process. It creates discussion between the founders. It ferrets out issues early that could potentially become big problems down the road.
It is important to get (equity) right and that all founders think it is fair.
(When assigning equity) think forwards not backwards.
They way you buy your shares as founders is through the “Stock Purchase Agreement”. You usually buy your shares for a few dollars that you deposit into the company bank account.
Vesting protects (from bad situations).
If you don’t file your 83(b) election then you can end up with huge tax liabilities.
Pre-money is the valuation before the investor puts any money in.
Post-money is the valuation after the investor puts their money in. The amount of the valuation before the investor put the money in plus the amount that was invested.
If you are doing a priced round then you need to hire a lawyer to help you do that.
SAFE = Simple Agreement for Future Equity
You usually wouldn’t have a cap and a discount.
You need to keep working with your investors until the money is in the bank.
When you are hiring people you do need to pay them.
Early employees are usually being paid above minimum wage and below market rate. Giving them shares is what compensates them for the reduced cash they are being paid.
Know your key metrics in the company.
Preferred shares have rights that common shares do not such as liquidation rights (they get their money back prior to the common shares see money).

How to Get Ideas and How to Measure

Stewart Butterfield
People are very ego-laden in (feature) discussions.
Focus on new user experience.
Every one of your complaints is an opportunity for improvement.
Don’t explain by malice what can be explained by ignorance.
Have awareness of your own limitations.
Adam D’Angelo
You don’t need to make a product that will appeal to everyone immediately. You need to make a product that appeals to some people more than anything else.
Do something that is easy for you but difficult for existing companies.
Measurement can turn a vague idea into a good idea.
You don’t want to build a fad. You want to build something that is going to last.
You need to measure your existing users.
Make sure you are measure percent growth per week.
You want to focus on stuff that will cause the product to grow in the short-term as well as the long-term.
One of the most important advantages of a startup is that you can iterate faster than a big company.
With metrics you get more in touch with reality. That can be painful.

How to Build a Product I

Every company is really different and there are a lot of different paths you can take. (Steve Huffman)
Angry users will often become your most loyal supporters if you can turn them around. Find those users and treat them well. (Steve Huffman)
Tiny issues can really matter to your users. (Emmet)
You won’t know what the one-day fixes are unless you talk to your users (Steve)
Pick your top five to seven user interactions and log those. You don’t need to log everything. (Emmet)
Your users don’t care about your tech. (Steve)
Fix everything one at a time. (Emmet)
Talk to your users first and then have an idea about the product. You do not talk to your users to validate your ideas. You talk to your users to generate your ideas. (Emmet)
The goal of talking to users is not to learn what features to build. It is to really get to know your users. (Emmet)
The best product ideas are the ones your users are doing anyway and you just grease it a little bit. (Steve)
It is really obvious when you have product/market fit. (Emmet)

How to Build a Product II

Aaron Levie
Enterprises want a lot of predictability. They don’t want their technology to change at the same rate that it does for (consumers).
Their strategy is to build a company for the enterprise that operates like a consumer company.
It does not matter the industry. Companies of all sizes have realized the opportunities of moving to the cloud.
Every single company is going to have to upgrade the technology they use and the business models they have.
Every single company is being disrupted in every way they are looking at the market.
Start with something insanely simple and focus on expanding it over time.
Focus on one thing you are going to do better than anybody else.
Make sure you are benefiting from a major technology tailwind.
Don’t create unnecessary headwinds for yourself.
Your product should literally sell itself (viral adoption).
Sales should be use to close big deals not drive product adoption.
Listen to your customers but don’t build just what they ask for. You’ll be pulled in a lot of different directions by a lot of different customers.
AI and cheap computing together are the powerful force right now.
Anything that is not a core competency you need to make sure you are using the best-in-class outside solution for.
The moment the market catches up and commoditizes something you are good at you need to get away from that part of the market as fast as possible.

How to Build a Product III – Jason Lemkin, Solomon Hykes, Tracy Young & Harry Zhang

Have an understanding of why a company is going to talk to you. What is the problem you are solving for them. (Harry)
It is easy to get our friends to try out our software. It is incredibly difficult to get our friends to pay for our software. (Tracy)
Consulting can be helpful but get out of it as fast as you can because it is too distracting. (Solomon)
As founders so much of our jobs is learning on the spot. (Tracy)
You need to hire good managers. (Harry)
You want people who have already done it once before. You cannot discount experience. (Harry)
Something that is true of all startups is that you have focus and you have speed. (Solomon)

How to Build a Product IV – Jan Koum

Messaging is the killer app for the smartphone. There is nothing else you do more with a smartphone than communicate.
The world in Silicon Valley is very different than the world outside.
Our destiny is in our hands. We can’t worry too much about our competition. We need to spend our time thinking about our product and our users.
When you offer people something that is cheaper and easier they will use it.
If you are going to raise and you need money you are probably not going to get the terms you want.
You don’t want to raise money when it is too late.
Early on focus on localization.

How to Get Users and Grow – Alex Schultz

The single most important thing in growth is retention.
Use monthly active (as your metric). It is important that you have skin in the game and people keep coming back to your product every month.
What you’re looking for in a retention curve is one that flatlines (above zero).
If the whole team isn’t clear about what the goal is then they will be in conflict.
Having a clear goal that your company looks to drive is really, really important.
Understand what is going on. Look at all of the data you have. Talk to your users.
Data, when used in the right way, gives you empathy with your users.
If you build the right metrics you are optimizing for the users.
Use A/B tests.
Data helps you make decisions faster.
Ask your friends first for your first 100 customers.
(Ad) targeting matters.
A good plan violently executed on this week is better than a great plan next week.

How to Invent the Future I – Alan Kay

If you want to make money don’t bother with a startup–create an industry. You’ll get trillions instead of billions.
There is a factor of a thousand between doing invention over innovation. In other words, not going incrementally from the present.
Learn the rules like a pro so you can break them like an artist.
The best way to predict the future is to invent it.
Startups have vastly more resources for doing new things that any venture capitalist.
The company quarterly cycles are really antithetical to long range thinking,
Pick an idea that is worth dedicating your life to.
Fund people–not projects. If you are going to do that you must have the very best people.

How to Invent the Future II – Alan Kay

Being clever doesn’t do it.
Every once in awhile you might have an outlaw thought.
Our beliefs project out.
Traditional cultures think they are in reality so they react strongly to other people’s versions of reality.
The natural state of humanity is to be crazy.

How to Find Product Market Fit – Peter Reinhardt

The biggest problem that startups have today is building something that no one wants.
You need to solve a specific problem that customers have today, here, now.
The market always wins.
80% of startup founders fail to find product/market fit.
Finding product/market fit is an emotional grind.
It is important pre product/market fit to spend as little as possible, save as much as possible, and extend your runway as much as possible.
Until you find product/market fit you should only be spending your time talking with customers and iterating.
Be interested in category leaders. They are often a thousand-times the size of their competitors.
(Becoming a category leader) comes down to building a platform. It allows other businesses to build their business on top of your business.
You’re not a platform until you have $100MM in revenue.
You’re no more likely to (find product/market fit) the second time around if you fail the first time around.
If you at all are questioning if you have product/market fit or not–you don’t.
It is really clear if you have something that is transformative for your customers or not.
The problem isn’t having good ideas the problem is killing the bad ideas quickly enough.
The size of the business problem has almost nothing to do with the amount of code written.
You don’t know how much value you are delivering until you start asking for money.
If you are solving a real business problem people are going to be happy paying for it.
(Talking with customers) is more about listening and digging than about pitching.

How to Think About PR – Sharon Pope

Without product innovation, PR is not an option.
How you get great PR results is by creating an amazing product.
(Early stage founders) should not hire a PR person. Reporters like hearing from founders.
You’re a better spokesperson and founder if you follow the news.
Story always trumps relationships.
Lead with the what (you do). Not the why.
Make it conversational.
If everything is a priority, nothing is a priority.
It is nice to get a warm introduction to a reporter.
Provide your own visuals.
If you have an important story to tell you really want (to make it) an exclusive story. You want a reporter who is willing to spend a lot of time with you and working on the story. (Steven Levy)
The big part of news is that it is new and nobody has talked about it yet. That is big for reporters.

Diversity & Inclusion at Early Stage Startups

The best founders sign up to solve big problems. (Kat Manalac)
You create an ecosystem (when founding a company) with its own culture and structure that is modeled on your personality and belief as founders. (Kat Manalac)
“Diversity and inclusion” mean different things to different companies and people. (Kat Manalac)
Diversity is not a codeword for gender and race. It can mean different backgrounds, education… (Kat Manalac)
If you want to build a diverse team you have to think about it deliberately. (Kat Manalac)
Inclusion is about building a culture where everyone can feel safe and people don’t have to fear having tough and awkward conversations. (Kat Manalac)
The more diversity you have the more pathways you have to solving a problem. (Kat Manalac)
When the cause isn’t your own it can feel really uncomfortable to speak out on its behalf. (Jennifer Kim)
If you see something, say something. The standard you walk past is a standard you accept. (Jennifer Kim)
Women may not be minorities but they are minorities in tech. (Jennifer Kim)
There is no one-size-fits-all solution. (Cat Perez)

How to Raise Money, and How to Succeed Long-Term – Jess Lee, Aaron Harris, & Ali Rowghani

How to Raise Money
It is almost irrational to start a company because the odds are so against you. You need to have a lot of grit. (Jess Lee)
A lot of times people spend time pitching a solution when they don’t understand the problem. The problem should be so crystal clear that the solution flows from it. (Jess Lee)
On average it takes eight years for a great company to exit. (Jess Lee)
You can’t kick someone off the cap table. (Aaron Harris)
You hurt your company’s chances by raising too much money too fast. You’re setting up hurdles. (Aaron Harris)
Try not to take office space at your investor. It inhibits culture. (Aaron Harris)
How to Succeed Long-Term
There is no way around learning to be a great leader if you want to succeed.
Simplicity of communication is vital.
You can get better at communication.
Clarity of thought always precedes clarity of language.
Great leaders have exceptional personal integrity.
Integrity means standing for something bigger than yourself.
Always try to optimize for trust.
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The Realities of Running a Business in 2017

TMBA396: The Realities of Running a Business in 2017
Date: 2017-07-06
Link: Tropical MBA
Tropical MBAIf you want to change your life–if you want to go from cubicle to wealthy–you need to seek out horizons and industries and places in the world that have a dynamic quality and are changing.
Take your skillsets you developed professionally and focus them on areas of growth.
It can still take a long time to make your business a reality.
It takes a long time to build anything that is sustainable.
The people that are going to win at the end of the day are the people that are going to keep coming back and doing the hard things.
It is harder than ever to hire A players.
If you don’t know about a functional area of your business it is easy for somebody to come in and BS you.
A superpower is something you get energy from or don’t get tired from.
Stick to your superpower and hire around yourself.
Find the thing you want to do–that gives you energy in life–and find a way to do it for other people.
Whatever you are doing for free you love and is likely one of your superpowers.
Don’t pigeonhole your superpower.
You need to have an interview process that digs into the past results of (the person you are interviewing). People talk a big game but you need answer, “Was this person responsible for big results in the past?”
There is a difference between being a founder and being an owner in a business.
Business is still in in-person relationships.

Should You Quit Full-Time Entrepreneurship?

TMBA395: Should You Quit Full-Time Entrepreneurship?
Date: 2017-06-29
Link: Tropical MBA
An online membership community is the holy grail of passive revenue.
When you are your own employer–when you are the master of your own destiny–when things don’t work out you have nobody to blame but yourself.
Just because somebody gets a job doesn’t mean they are going to do that for the rest of their life.
Don’t let your ego get in the way. Don’t let labels (job, entrepreneurship) get in the way.
There are plenty of business owners that don’t have an entrepreneurial bone in their body.

What Happened to Technorati?

TMBA394: What Happened to Technorati?
Date: 2017-06-22
Link: Tropical MBA
You will starve doing travel writing as a career.
When you can create revenue is solves a lot of problems and gets a lot of attention.
CEO is a really, really lonely job.
Raise your hand and take on the task that is not part of your job responsibility. You’ll get noticed and they will start coming to you with all of the hard tasks and challenging tasks. The next thing you know you will get promoted because you are the dependable one.

How to Pitch

TMBA393: How to Pitch
Date: 2017-06-15
Link: Tropical MBA
Tropical MBA(Open up your cold email) with an introduction and some social proof.
Be clear about what you want.
Pay attention to how (your recipient) operates.
If you are going (an email) pitch then imagine how successful you would be if you did it face to face.
Take the time to understand who you are talking to.
Don’t tell people why it is going to work–show them.
There is a virtue about being clear about what you want.
Understand relevance–understand your audience’s key triggers. Understand what part of their life or business you are intersecting with.
What is the key contraint your target is experiencing at that intersection?
Have respect.
Show appreciation.

Breaking Up is Hard to Do

TMBA391: Breaking Up is Hard to Do
Date: 2017-06-01
Link: Tropical MBA
It is really important to separate ownership from your role in the business.
A lot of the things that keep people on the same page are the random trivial moments–the spontaneous things that come up when you are around people a lot.
To launch a business that is scalable it is easier to do it with a partner.
Maintaining a relationship over the long haul is a big challenge.
There are a lot of things that are painful about running businesses.

How to Get Better at Sales

TMBA390: How to Get Better at Sales
Date: 2017-05-25
Link: Tropical MBA
Tropical MBASelling starts by communicating with people.
A lot of times if you are having a hard time selling something it is because the product is confusing and needs to be simplified.
The first question(s) when selling is what am I selling and how is it going to help people?
What you focus on the most becomes real to you.
Stop hanging out with Internet marketers.
The only way to do your value proposition is to think about what your client is going to get by delivering to their customer.
Increase your price 20% every time you make a pitch.
Make one appointment per day with your prospective market.
Make a direct offer to your market for your service that is relevant, provides a specific service with a benefit, that is time-sensitive, and has a level of scarcity.
Question 1: What do you want?
Question 2: Why is it important?
Question 3: What is stopping you?
Question 4: Here are a couple of things that might help. Which of these things do you think are a great idea?
Question 5: What is it worth to you?
Question 6: If I can show you an investment (or fee) that will make that pay for itself is it okay if I can show you how we can work together to put that into place?
Make an invoice go to the client that they need to pay to get started.
The two most common objections are, “I need to think about it” and “I don’t have the money.”
“I need to think about it” is a clarity issue.
Money should not be an obstacle. If people are committed to an idea enough they will find the money.
You are going to need to ask people on average seven times to make the purchasing decision.

How Can I Get Started on My Own Business?

TMBA389: TMBA Mailbag: How Can I Get Started on My Own Business?
Date: 2017-05-18
Link: Tropical MBA
Tropical MBAIf your goal is to develop a successful business then you need to develop habits that help you do that.
Can you consistently take action towards your goals? That is all that counts in business.
The clearest path to developing your own ideas is to go work for someone developing similar ideas.
A lot of the same problems that existed at your job still exist when you are an entrepreneur.
If you feel like you are missing a business idea what you are actually missing is relationships.
Some of the most successful people never went to school.
Do not give yourself any other option than to succeed. Keep that as your mindset.
You can’t make people take action.

Why We Need Strong Towns

TMBA388: Why We Need Strong Towns
Date: 2017-05-11
Link: Tropical MBA
Learning things you don’t know leads you to questioning things you do know.
When we build things now we do it on the back of debt. (for governments, for families, for future generations)
If your city is not growing you’re dying.
The investments that actually build wealth in a place are the ones that get to the core of quality of life.