Sam Altman - How to Succeed with a Startup

okay today I'm going to talk about how

to succeed with a startup obviously more

than can be said here in 20 minutes but

I will do the best I can the most

important thing the number one lesson we

try to teach startups is that the degree

to which you're successful approximates

the degree to which you build a product

that is so good people spontaneously

tell their friends about it startups

always ask us for the secret to success

they always want to believe it's

something other than this because this

is really hard to do but this is it if

you can build a product that is so good

people spontaneously tell their friends

about it you have done 80% of the work

that you need to be a really successful

startup if you think about the most

successful companies you know Google

Facebook whatever you probably found out

about them because a friend of yours

said you got to try this it's great so

this is the bar something that people

love so much they tell their friends

about it

one important indicator for a product

like that is a product it's simple to

explain and easy to understand if you

can't explain in a few words what you do

and if people don't if at least some

people don't say oh that's pretty

interesting

that's usually a mistake it's usually a

sign of unclear thinking or a need that

is not big enough

another thing that startups need to look

for is a market that is either started

to undergo or is soon going to under

grow exponential growth I think this is

actually related to one of the biggest

mistakes investors make when evaluating

startups investors always say well

what's your growth rate we care about

the growth rate investors will forgive

smallish revenue today if it's growing

quickly for some reason people don't

think about markets this way but if you

think about the most important startups

they are the ones that I start in small

markets that are growing very very

quickly 11 years ago the market for

iPhone apps is zero dollars it's not

huge and I think if you only think about

the TAM today you'll make a big mistake

what you really want to do is identify a

market that's going to grow every year

and be able to ride that up elevator a

really important thing to figure

figuring this out is learning how to

differentiate between real trends and

fake trends a real trend is something

that's actually going to happen in the

fake trend is not or at least not yet

and before

you make a big bet on a new platform you

want to make sure it's real now there's

an easy trick for this which I'll share

now real trends are ones where a new

technology platform comes along and the

early adopters use it obsessively and

tell the friends how much they love it

a fake trend is one where people may buy

the product but don't use it or at least

not enough so an example of a real trend

I already mentioned the iPhone I'll

mention that again when the iPhone first

came out many people were dismissive

because they only sold a million or two

million that year and they said well

this just doesn't matter but for the

people that had an iPhone they used it

for hours every day it became central to

their lives they loved it they told

their friends you've got to get one and

I think it was obvious then do people

pay an attention that something had

fundamentally shifted and we had a new a

new computing platform that was gonna

spawn huge businesses and it was a good

time to bet on mobile apps a fake trend

or at least a fake trend as of august

2018 I would say as VR I do believe VR

will be big someday but today most

people that I know that own a VR headset

use it never or very rarely and so

although a lot of people talk about it

and maybe even a lot of people buy them

there's not the intense usage per user

among the early adopters that I think

you want to see before you make a big

bet another thing that startups need at

least one evangelical founder usually

the CEO someone at the startup has got

to be the person that is going to

recruit sell the product talk to the

press

raise money and this requires someone

who can infect with enthusiasm the whole

world about what the company is trying

to do and someone who becomes the chief

evangelist for the company it's very

hard to succeed wildly without that it's

very hard to build a team at all without

being able to do that one thing that

helps for this is having an ambitious

vision you never want to be grandiose

that turns people off but you want to

let yourself grow more ambitious over

time and as long as you do that

organically people will respond

ambitious visions are exciting they're

fun to work on in fact I think in 2018

at least in Silicon Valley it's easier

to start a hard

startup than it is to start an easy

startup now this sounds paradoxical but

ambitious projects are interesting you

know in the current environment it may

be relatively easy to raise capital but

it's really hard to do everything else

there are so many startups it's so easy

to start one they all sound so promising

that that bringing together enough

talent in one organization is really

hard to do and if you're working on a

problem that you know maybe modestly

successful it's it's kind of easy to get

the first two people to join you can

give them a lot of equity but then it

gets really hard why is employee xx

gonna join why is this why does this

matter to the world why should someone

work on your startup versus any of the

other things they could do and picking

something that matters if you're

successful is a great way to do that and

so I think it's really important to

think about when you're starting a

company how is this going to evolve into

a vision that a lot of people want to

help with but a lot of people want to be

associated with because I think getting

talent and getting mindshare it is

really hard in the current environment

and people are interested in startups

that matter another thing that we've

noticed among our best Saunders again

and again and again is that they are

have a confident and definite view of

the future they may be wrong and so we

say it's good to be confident and

flexible but this idea that you are

confident in definite this is what I

think is going to happen or this is what

is going to happen and being relatively

sure of that having courage of your

convictions being a clear leader saying

we're gonna do this and that's why even

in the face of a lot of doubt that seems

to really correlate with success and

this comes back to having an ambitious

vision but the entire startup ecosystem

is best set up to support companies that

have a low chance of success but are

huge if they work and I think going for

something that is huge if it works will

attract the best people

not going to talk too much about the

team there are a lot of obvious things I

could say that have been said many times

by many people about you know you need

smart people who want to work really

hard and who communicate well these are

all really true but I'd like to mention

a few non-obvious things that we've

noticed that we don't hear people say as

much about the team you need to assemble

the note Khosla says that the team you

build is the company you build and I

really think that's true I've still met

only a handful of founders I think that

spend enough time on recruiting like

Mark Zuckerberg is famously one of them

but building a great team I think other

than picking the right market and

building a great product is the most

important thing you do all founders go

through a transition all successful

founders where you switch from building

a product to building a company and

building a company really is about the

team so you need to mist the whole world

will be telling you why you're gonna

fail as a start-up if you don't have

that internal fire of belief if you

don't have people who say you know what

we are gonna do this and it doesn't

matter what the haters say we're gonna

figure this out and there is you know

this problem it must be solvable if you

don't have the spirit of optimism on the

team it's very hard to succeed when the

world continues to punch you in the face

you need at least some idea generators

there are a handful of people in any

company that has gone on to be really

successful that I that I've been able to

work with who are just really good at

coming up with lots of ideas you don't

too many these people because that's

more ideas than a company can follow

through on but having some people within

a company that are just constantly

throwing out new ideas most of which

will be bad it turns out to be super

important to have on the team this

spirit of we'll figure it out is my

favorite thing to hear among early

startup team members a lot of things go

wrong the situations that startups win

in tend to be incredibly dynamic and so

this idea that even if I'm not qualified

on paper even if I haven't solved this

problem before even if this problem

feels like it's gonna kill the company

which many problems will feel that way

this spirit among the team of you know

what we've got the

people we need we're gonna figure this

out we're gonna get this done that's

super important another thing that I

love to hear from early team members is

I've got it so you know you hear in big

companies a lot of people say that's not

my department someone else is gonna do

that yeah or you know who this is really

bad this is gonna hurt us and you want

people who just step up and say I'll do

it I've got it don't worry about it you

want people to have a bias towards

action startups especially in their

early days often win by moving very

quickly you never get as much data as

you'd like you never have as much time

to deliberate as you'd like and you want

people who will are willing to act with

much less data than they'd like to have

with much less certainty and then if

they act then it doesn't work they adapt

really quickly and try something else we

talk also about the blessing of

inexperience we have seen many of our

startups do incredible things because no

one told them it was hard no one told

them they can't do it um there's a great

quote from Steve Wozniak about how all

the best things he ever did came from

having no experience whatsoever and

having no money and you know that

obviously is not always true but there

is a magic thing that happens with

startups especially in their early days

before they've learned they're not

supposed to be able to do certain things

and so I think as a start-up again

doesn't work to have everybody being

experienced but you can take more bets

than you normally would on inexperienced

but super high potential people that's

the end of a topic on on team one of the

most important jobs you have as a

founder is to never lose momentum and

this is a little bit depressing because

it means for the first few years you

never get to take your foot off of the

gas you never get to really rest we try

to be honest about this that startups

are not the best choice for work-life

balance at all but especially in the

early days startups survive on their own

momentum if you have momentum people

keep delivering results beyond what they

think they're capable of if you lose

momentum it's very difficult to get it

back and so continuing to make sure that

the startup has a cadence that the

startup keeps winning on a relatively

predictively short and predictable and

this is really important and it's up to

the founders to make sure that that you

don't lose ahold of this

another thing that we think startups

need is a competitive advantage over

time now this is something that sounds

so obvious I hesitated to even put it in

this is well discussed but we're seeing

more and more startups apply to YC and

when we ask them so what is the long

term monopoly effect here what is the

long term competitive advantage what is

you know where is the network effect in

this business they look at us like it's

the first time we've ever they've ever

heard this question all of the really

great businesses I know have an answer

to this question and in fact the better

they are the more they pretend not to

but this is something that you you want

to have a plan for another thing you

want to have a plan for is at least a

sensible business model you don't have

to have it all figured out at the

beginning but when we ask founders so

how are you ever going to make money and

they look at us like it's the first time

they've ever been asked that question

which happens more often than you would

think recently that's a bad sign too

again this one is so common that I

hesitate to put it in here

but when we ask a start-up how they're

gonna grow how they're gonna get users

and they look at us like it's the first

time they've ever heard that question

bad sign so some sensible idea to try

here first

Paul Buchheit once spent a bunch of time

looking one of the YC partners spent a

bunch of time looking at the traits of

our best founders and tried to distill

down what they were and he came up with

a frugality focus obsession and love

I actually I think that is really good I

don't know how much to add but I think

these are things that you should be able

to say about what you're doing and you

as a founder and finally I want to talk

about why startups get to be big

companies we've there are lots of

reasons I'm going to talk about a few

common ones here I think these trends

are valuable enough that as you evaluate

startup ideas you might do it's worth

thinking about if you fit into these

because it's really hard for startups to

beat big companies most of the time and

here are some areas where we see it

happening repeatedly

so I think one difference is if you are

a product manager at a big company and

you want to do something that sounds

sounds like a bad idea but is a good

idea you have to get everybody from your

boss sometimes all the way up to the CEO

to say yes so one no can kill you if

you're a start-up you can go to I see

demo day any number of the thousands of

investors can say yes and you get to

have a crack at it so it's a very

different mindset and for those ideas

that sound bad but are good because of

this phenomenon this one no versus one

yes startups can win in fact startups

usually do beat big companies in that

category of ideas so look look for ideas

that sound bad but are good and where

you are much more likely to get one yes

then someone in a big company is to get

all yeses another area where startups

usually be big companies aren't very

fast changing markets startups great

speed great advantage is an agility and

speed the more a market is changing the

higher the number of decisions you get

to make and the higher number of tweaks

to your product and your strategy you

get to make and you want to optimize the

number of those decisions that someone

has to make to compete with you because

a big company will make them on average

worse than certainly much slower than

you do so the speed of market evolution

gives you a lot more chances to compound

your advantage over a big company and

then finally startups usually win on big

platform shifts many people have

observed that startups companies

clusters those clusters usually come

after a big platform shift we'll stick

with the iPhone example here after

mobile apps became a thing many new

companies got started that are now quite

valuable and one of the reasons here is

you know most large companies work on

sort of an annual cadence at least and

when there's a huge platform shift they

are not good at making a big enough

strategic pivot the Battleship just

turns too slowly whereas a start-up can

say wow woke up this morning the world

is fundamentally different than it was

six months ago we're gonna go all in on

this new direction and so that's a way

that startups usually win or that that's

an area where startups usually win there

there are many others but thinking about

these three I think is is directionally

a good thing to do alright that's all

I've got for today Jeff thank you very

much for having me and for the class

you