Startup Playbook
Part I : The Idea
Starting a startup is not in fact very risky to your career—if you’re really good at technology, there will be job opportunities if you fail. Most people are very bad at evaluating risk. I personally think the riskier option is having an idea or project you’re really passionate about and working at a safe, easy, unfulfilling job instead.
To have a successful startup, you need: a great idea (including a great market), a great team, a great product, and great execution.
It’s important to let your idea evolve as you get feedback from users. And it’s critical you understand your users really well—you need this to evaluate an idea, build a great product, and build a great company.
It’s important to let your idea evolve as you get feedback from users. And it’s critical you understand your users really well—you need this to evaluate an idea, build a great product, and build a great company.
We greatly prefer something new to something derivative. Most really big companies start with something fundamentally new (one acceptable definition of new is 10x better.) If there are ten other companies starting at the same time with the same plan, and it sounds a whole lot like something that already exists, we are skeptical.
What if you don’t have an idea but want to start a startup? Maybe you shouldn’t. It’s so much better if the idea comes first and the startup is the way to get the idea out into the world.
It’s better not to try too actively to force yourself to come up with startup ideas. Instead, learn about a lot of different things. Practice noticing problems, things that seem inefficient, and major technological shifts.Work on projects you find interesting. Go out of your way to hang around smart, interesting people. At some point, ideas will emerge.
Part II : A Great Team
Mediocre teams do not build great companies. One of the things we look at the most is the strength of the founders. When I used to do later-stage investing, I looked equally hard at the strength of the employees the founders hired.
What makes a great founder? The most important characteristics are ones like unstoppability, determination, formidability, and resourcefulness. Intelligence and passion also rank very highly. These are all much more important than experience and certainly “expertise with language X and framework Y”.
Founders that are hard to talk to are almost always bad. Communication is a very important skill for founders—in fact, I think this is the most important rarely-discussed founder skill.
Cofounder breakups are one of the leading causes of death for early startups, and we see them happen very, very frequently in cases where the founders met for the express purpose of starting the company.
A quick note on equity: the conversation about the equity split does not get easier with time—it’s better to set it early on. Nearly equal is best, though perhaps in the case of two founders it’s best to have one person with one extra share to prevent deadlocks when the cofounders have a fallout.
Part III: A Great Product
If you do not build a product users love you will eventually fail. Yet founders always look for some other trick. Startups are the point in your life when tricks stop working.
A great product is the only way to grow long-term. Eventually your company will get so big that all growth hacks stop working and you have to grow by people wanting to use your product.
Understand your users as well as you possibly can. Really figure out what they need, where to find them, and what makes them tick.
You also need to break things into very small pieces, and iterate and adapt as you go. Don’t try to plan too far out, and definitely don’t batch everything into one big public release.
Simplicity is always good, and you should always keep your product and company as simple as possible.
The best founders seem to care a little bit too much about product quality, even for seemingly unimportant details. But it seems to work. By the way, “product” includes all interactions a user has with the company. You need to offer great support, great sales interactions, etc.
Part IV: Great Execution
at least a thousand people have every great idea. One of them actually becomes successful. The difference comes down to execution.
The fantasy of hiring an “experienced manager” to do all this work is both extremely prevalent and a graveyard for failed companies.
The only universal job description of a CEO is to make sure the company wins. You can do this as the founder even if you have a lot of flaws that would normally disqualify you as a CEO as long as you hire people that complement your own skills and let them do their jobs.
Part IV: Great Execution / Growth
If you’re growing, there are new roles and responsibilities all the time, and people feel like their careers are advancing. If you’re not growing, it feels like you’re losing, and people are unhappy and leave. If you’re not growing, people just fight over responsibilities and blame.
For anything you consider doing, ask yourself “Is this the best way to optimize growth?”
You should set aggressive but borderline achievable goals and review progress every month. Celebrate wins! Talk internally about strategy all the time, tell everyone what you’re hearing from customers, etc. The more information you share internally—good and bad—the better you’ll be.
it turns out that it’s good if you’re growing fast but nothing is optimized—all you need to do is fix it to get more growth! My favorite investments are in companies that are growing really fast but incredibly un-optimized—they are deeply undervalued.
A related trap is thinking about problems too far in the future—i.e. “How are we going to do this at massive scale?” The answer is to figure it out when you get there. Far more startups die while debating this question than die because they didn’t think about it enough.
Another trap is getting demoralized because growth is bad in absolute numbers even though it’s good on a percentage basis.
Part IV: Great Execution / Focus & Intensity
If I had to distill my advice about how to operate down to only two words, I’d pick focus and intensity. These words seem to really apply to the best founders I know.
They are relentlessly focused on their product and growth. They don’t try to do everything—in fact, they say no a lot (this is hard because the sort of people that start companies are the sort of people that like doing new things.)
As a general rule, don’t let your company start doing the next thing until you’ve dominated the first thing. No great company I know of started doing multiple things at once—they start with a lot of conviction about one thing, and see it all the way through
While great founders don’t do many big projects, they do whatever they do very intensely.
Great founders listen to all of the advice and then quickly make their own decisions.
As Paul Buchheit says, find ways to get 90% of the value with 10% of the effort. The market doesn’t care how hard you work—it only cares if you do the right things.
When you find something that works, keep going. Don’t get distracted and do something else. Don’t take your foot off the gas.
Part IV: Great Execution / Jobs of the CEO
A CEO has to 1) set the vision and strategy for the company, 2) evangelize the company to everyone, 3) hire and manage the team, especially in areas where you yourself have gaps 4) raise money and make sure the company does not run out of money, and 5) set the execution quality bar.
You should also adopt a “do whatever it takes” attitude—there will be plenty of unpleasant schleps. If the team sees you doing these things, they will do them too.
The CEO doesn’t get to make excuses. Lots of bad and unfair things are going to happen. People who let themselves make a lot of excuses usually fail in general, and startup CEOs who do it almost always fail.
No first-time founder knows what he or she is doing. To the degree you understand that, and ask for help, you’ll be better off. The best way to do this is to find a mentor—reading books doesn’t seem to work as well.
It’s important that you distort reality for others but not yourself. You have to convince other people that your company is primed to be the most important startup of the decade, but you yourself should be paranoid about everything that could go wrong.
Be persistent. Most founders give up too quickly or move on to the next product too quickly. If things generally aren’t going well, figure out what the root cause of the problem is and make sure you address that. Although you don’t want to be obstinate beyond all reason either – this is another apparent contradiction, and a hard judgment call to make.
One mistake that CEOs often make is to innovate in well-trodden areas of business instead of innovating in new products and solutions. Do what works in the well-established areas [HR, marketing, sales, financing, PR, etc.], and focus your creative energies on the product or service you’re building.
Part IV: Great Execution / Hiring & Managing
My first piece of advice about hiring is don’t do it. The most successful companies we’ve worked with at YC have waited a relatively long time to start hiring employees. Employees are expensive. Employees add organizational complexity and communication overhead. There are things you can say to your cofounders that you cannot say with employees in the room. Employees also add inertia—it gets exponentially harder to change direction with more people on the team. Resist the urge to derive your self-worth from your number of employees.
Don’t compromise on the quality of people you hire. Everyone knows this, and yet everyone compromises on this at some point during a desperate need. Companies that start off with mediocre early employees almost never recover. Trust your gut on people. If you have doubt, then the answer is no.
Value aptitude over experience for almost all roles. Look for raw intelligence and a track record of getting things done. Look for people you like—you’ll be spending a lot of time together and often in tense situations.
Speaking of managing, try hard to have everyone in the same office. Nearly all of the most successful startups started off all together.
Fire quickly. Fire people who are toxic to the culture no matter how good they are at what they do. Culture is defined by who you hire, fire, and promote.
Part IV: Great Execution / Competitors
First-time founders think they are what kill 99% of startups. But 99% of startups die from suicide, not murder.
Worry instead about all of your internal problems. If you fail, it will very likely be because you failed to make a great product and/or failed to make a great company.
99% of the time, you should ignore competitors. Especially ignore them when they raise a lot of money or make a lot of noise in the press.
99% of the time, you should ignore competitors. Especially ignore them when they raise a lot of money or make a lot of noise in the press
In the words of Henry Ford: “The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.”
Every giant company has faced worse competitive threats than what you are facing now when they were small, and they all came out ok. There is always a counter-move.
Part IV: Great Execution / Making Money
If you have a free product, don’t plan to grow by buying users. That’s really hard for ad-supported businesses. You need to make something people share with their friends.
If you have a paid product with less than a $1,000 customer lifetime value (LTV), you generally cannot afford sales.
Experiment with different user acquisition methods like SEO/SEM, ads, mailings, etc., but try to repay your customer acquisition cost (CAC) in 3 months.
Watch your cash flow obsessively. Although it sounds unbelievable, we’ve seen founders run out of money without being aware it was happening a number of times
Part IV: Great Execution / Fund Raising
You should raise money when you need it or when it’s available on good terms. Be careful not to lose your sense of frugality or to start solving problems by throwing money at them. Not having enough money can be bad, but having too much money is almost always bad.
The secret to successfully raising money is to have a good company. All of the other stuff founders do to try to over-optimize the process probably only matters about 5% of the time.
Investors are driven by the dual fears of missing the next Google, and fear of losing money on something that in retrospect looks obviously stupid. (For the best companies, they fear both at the same time.)
It is a bad idea to try to raise money when your company isn’t in good enough shape to attract capital. You will burn reputation and waste time.
When investors tell you no, believe the no but not the reason. And remember that anything but “yes” is a “no”—investors have a wonderful ability to say “no” in a way that sounds like “maybe yes”.
The first check is the hardest to get, so focus your energies on getting that, which usually means focusing your attention on whoever loves you the most
Great board members are one of the best outside forcing functions for a company other than users, and outside forcing functions are worth more than most founders think. Be willing to accept a lower valuation to get a great board member who is willing to be very involved.
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