This is probably the single most discouraging thing I've ever read about startups, but at least it's honest. Entitlement? "Naughtiness"? I think after Google, the idea got out there that it's possible to succeed by just being good. Technically and morally. This sounds like a return to status quo. Not saying he's wrong. He's almost certainly right, it's just depressing.
Combined, the message is: focus on the high bits of good. If someone establishes a clinic in a poor country and saves people's lives, I'm not going to hold it against them if they do it with supplies that fell off a truck.
I actually have read those. I admit, part of my reaction was purely personal. I want to found a company so much it hurts. I'm smart, resourceful, creative, and determined. But I wouldn't say I'm used to getting my way, and breaking rules -- even in service of a higher goal -- makes me very nervous. (Think Hermione Granger.) So reading this was like getting hit in the gut. Not that it will stop me, but it highlighted how important the emotional aspects to founderhood are and how far I still have to go.
I've seen this trap with a lot of people who did well in school. For 12 formative years you're rewarded for performing tasks to spec and following rules, and you grow up and find that the things you really want to do involve transcending all the traits that got you where you are. That's the element of Google I'm referring to, I suppose. They make almost a cult of academic success, and for some people that was a kind of shining hope. And you, frankly, fit right into that. So to hear you say that guts might matter more in the end than brains hurts, even though I know you're right.
Google is at least a little naughty. Remember, at the dawn of the Internet, there was quite a bit of ambiguity with regards to IP rights. Many newspapers sent out Cease and Desists just for deep-linking to their articles. There was still quite a bit of presumption about how much control of use copyright gave you.
Google walks into this minefield and says "You know, we're going to crawl and cache everything, then exploit the data in it for our own selfish commercial purposes." And it worked!
Yeah, Google and the other 20 search companies at the time. I don't think this became an issue before search became reasonably good, when they didn't have a choice but follow through.
I also think Google broke and still breaks rules, just your example is not very good. Interesting that this reply of yours is upvoted over paul, pg and tlb in this thread.
Following all the rules does not make you a good person. In fact, rule following and obedience to authority is what enables large scale evil. See http://en.wikipedia.org/wiki/Milgram_experiment for a famous demonstration.
The thing I've never understood about philosophy is that why are ethics and good/evil considered to be properties of people as opposed to systems? It seems like all the social science research points to the conclusion that the intrinsic nature of a person, if such a thing even exists, has almost nothing to do with their behavior.
So you would think that there would be dozens of papers that analyzed the trolley problem from the point of view of what makes an algorithm ethical or unethical, but this doesn't seem to be the case. (E.g. why not imagine a universe where the people on each track had to somehow bid via differing auction mechanisms as to which direction the train went, why even imagine a person at the switch at all?)
Great point. Although the YC universe has plenty of obedience-to-authority elements as well -- think of how many times people on HN invoke "the rules" to shut down discussions about the TSA.
On the other hand, Hitler, Stalin, Mao, etc, broke a few rules too. So I am not sure that championing rule breaking is going to help improve society.
More likely, what's actually needed is a balance. And, interestingly, the kind of person that makes a good entrepreneur is probably on the psycopathic side of normal. A very nice article in the Guardian made this point at the weekend - http://www.guardian.co.uk/books/2011/may/21/jon-ronson-how-t...
In a morally-flexible environment, it's easy to confuse the two.
For example
- Zynga selling offers (for credits) with very fine print that signs you up for paid services. And the fine print is so convoluted/tiny most people don't read it. Helping or hurting consumers?
- Facebook hiring a PR firm to highlight questionable privacy practices by Google. Helping users or hurting Google?
- Subprime mortgages. Helping or hurting homeowners?
It's the whole circle-jerk that tech and web have become. Why on earth is Techcrunch hosting a business conference where hosts can fellate big Silicon Valley success stories. On TWiT, they used to talk about tech; now all they talk about is VCs and angel investors.
Tech is so hopeless ingrained with the speculative investment market, they've adopted the worst biproducts of it.
I understand the positive qualities of being Kirk-esque and creating one's own rules (see Kobayashi Maru). I also understand the qualities of being single-minded in purpose, determination and the will to succeed. These are qualities needed to survive in the uncertain, risky and scary environment of an entrepreneur.
However, I wonder when we begin to cross the fine-line between naughtiness, white-lies, small-rule breaking and moral flexibility to privacy-violating, scamming, propaganda spreading and even law-breaking actions.
In a world where one will do anything to win, it seems all too easy to fall by the wayside towards morally-questionable deeds.
I think that you're zooming into this too much and missing the point.
Think about the difference between success in the military versus success in a small business. In the Army, a protocol faux pas or a single ill-considered statement can implode your career path. Understanding of and adherence to the rules is job 1.
In a startup mode, you can ignore conventions/rules, because those things are often not relevant to a tiny company. That doesn't mean that you have carte blanche to rob a liquor store -- but it does mean that you don't need approval from a VP to fill out a 4 page expense report to buy a bottle of booze for a client.
I feel 'naughtiness' represents disregard for the status quo, rather than a commitment to immorality. The obedient drone regards law-breaking as immoral, whereas the independent thinker would ask why the law exists.
They are now, but were they at the start? I remember a PG essay where the google guys were held up as an example of how even those developers with amazing potential can still be hesitant at the beginning, unsure of whether they want to or even can run a company.
"There's nothing wrong with being unsure. If you're a hacker thinking about starting a startup and hesitating before taking the leap, you're part of a grand tradition. Larry and Sergey seem to have felt the same before they started Google, and so did Jerry and Filo before they started Yahoo. In fact, I'd guess the most successful startups are the ones started by uncertain hackers rather than gung-ho business guys."
You're saying it like faith is involved. Success is a combination of many factors, including but not limited to talent, luck, education, environment, persistence, social skills and ability to adapt.
Some people are born with some of these factors, but the truth of the matter is that persistence matters most and if you are persistent most other things can fall into place or be balanced by other factors.
Lots of people are as smart as the Google founders, lots of people have similar educational background. Superstar co-founders, much as athletes, are people too. The major difference between them and you is that they continuously try to do the best they can do and do not quit when the going gets tough.
"There are some people who just get what they want in the world. If you want to start a startup you have to be one of those people."
Think of it this way. As children we all needed to compete for the attention and resources of our parents, otherwise we would have starved. So typically the oldest child uses the strategy of being charismatic, in order to manipulate the parents into paying attention to it. The the second child comes along, but by this point there is no way it's ever going to out compete the oldest child on the axis of charisma, because the oldest child just has too much of a head start. So the second child often acts kind of sickly and pathetic, again as a different strategy for manipulating the parents into providing attention and resources.
The point is that in order to succeed in a startup, you need to be well versed in a variety of these strategies in order to get other people to help you. Otherwise you're not going to get any of the resources you need, because you're way too small and pathetic to be worth caring about based on any intrinsic measure of worth.
The people that Paul is describing when he says 'People that get what they want...' and the 'Naughtiness', are people that win in things that they try. the naughtiness implies that they do whatever it takes to get their, even if they ride the edge of moral good.
They want these types of people because they have the highest chance at success when failure is the norm.
I'm not sure what the concern about "naughtiness" here is. There's a difference between being somewhat devious and being evil. I think what Paul is getting at is that you need to be willing to pounce on any opportunity to capitalize for your startup. It is a competition after all. Great article overall.
The closest the is the anti-trust settlement, but the reporting around that is kind of murky. I've never seen a proper report of exactly what it related to.
The others are arguably good. For example, the Schneier article is about how Google has a interface to Gmail to allow it to retrieve data when it receives a warrant. That was what got hacked, but I think saying that makes it evil is a pretty long stretch.
Google got their first investment before they existed - they couldn't cash the cheque because the company it was made out to, Google, didn't exist at the time.
Intelligence and strong entitlement don't match. Show me a real genius who has strong sense of entitlement. Salesmen have it. Certainly PG doesn't have it.
Has YC had the time to see the results of their naughtiness though? Scribd seems like a poor product based on my run-in with it this morning and the comments of a few people saying how bad it was. But personally I haven't really used it. And Dropbox had a lot of hype at first until it was realized that their security wasn't so secure after all. I see these types of things as being naughty because its somewhat underhanded, cutting corners, etc. Could the naughtiness cost them in the end? Perhaps. I guess we will see.
It's interesting to see pg's opinion about what is important in founders evolve over the years. When I applied to YC in late 2008, I was told by alumni that YC was "looking for smart people." Although he's talked about discipline and determination as early as May 2004 in his essays those words were most commonly found next to the words "talent," "skill," or "smart," as if the two qualities were equally important.
Now it seems that YC has learned empirically that determination is the more important predictor of success (see intro to The Anatomy of Determination).
A concern for YC might be: with this new emphasis on determination, it might become the next thing applicants try to "fake" to get accepted?
Maybe they've figured out that there are plenty of smart people, but not as many truly determined people. Determination then becomes the limiting factor once smartness has been established.
This reminds me of Outliers when Gladwell talks about concert violinists.
"All of the violinists had started playing at around age five, and they all played about two or three hours a week during the first few years. However, around the age of eight, an important difference began to emerge in the amount of hours they each practiced. By age 20, the stars in the group had all totaled 10,000 hours of practice over the course of their lives; the “good” students had totaled 8,000 hours; and the future music teachers just over 4,000 hours.
What the research suggested was that once you have enough talent to get into a top music school, the thing that distinguishes one performer from another is how hard he or she works."
Being in Silicon Valley, I meet smart entrepreneurs all the time. Many of them come from places like Stanford. I think many pass the basic threshold of intelligence. In fact, this is more than passing considering that it doesn't take an elite education to create a good company IMO.
Obviously, not all these people succeed and so the other factor behind success is likely to be what you said: determination.
I think pg in his essays is saying something stronger, which is that determination is actually more important than intelligence.
And although I tend to agree, let me play devil's advocoate for a moment.
"We learned quickly that the most important predictor of success is determination."
A more important predictor of success could be, ambition. It's different from determination because with ambition you need to make it big, but with determination you just have to have it.
Determination is the wrong thing because to make a startup succeed you have to want it, but you also have to want to make it big.
In fairness, pg touches on this when he says,
"I don't know if it's exactly right to say that ambition is a component of determination, but they're not entirely orthogonal. "
According to the interview, pseudo-determination happens often within a ten minute interview. Yes, they're looking for people with that quality but I don't think that's their goal.
They simply don't have enough data yet for an accurate model of recruiting.
It's amazing how much you can do when you start unbreaking things.
Edit: That was excessively brief. So many parts about the whole investment cycle were broken. Some are marginally less broken now. Having a negotiation between a fresh engineering graduate who does not know what "pre-money valuation" means and the principal of a firm with 9 figures under management, and expecting that negotiation to produce an equitable or efficient outcome, is broken. Contacting angels serially is broken. Using who has attended a dinner party with your buddies as the most efficient screening method available for predicting skill with conversion rate optimization is broken. Investment outcomes where the company succeeds and founders do not end up rich is broken. The work culture in Silicon Valley is insanely broken. etc, etc
YC has unbroken some of these. It turns out that an application process and a few weeks with a team scalably works as a decently efficient proxy for success. It turns out founders can be taught what pre-money valuation means and when they know this they get screwed less often. It turns out that spending half of one's time raising money is, as expected, just a deadweight loss.
Your comment made me look at YC as an extended extremely thorough onsite interview, and it really clicked. But then I remembered that YC companies pitch demo day to a bunch of relative strangers-to-the-teams, not the YC investors themselves. Or do Demo Day investors get quality time with the teams during the season?
Of course YC is overall a mix of interview and internship and summer camp and summer classes and more. The above is an attempt to think through one of the threads.
This is a good point, but to your original point: "invest in me just because I impressed PG (plus more good reasons that may be true but the investor cannot see)" does not fall into your category of "unbreaking things" like the rest, especially at the start of YC. By now YC has certainly built institutional credibility, but even that can be broken if one day PG turns evil and sells out the brand like Pyrex or show or a grade-inflating college.
That's definitely true, but what that doesn't accurately capture is the time / mentorships and introductions that the YC team invests in all of their startups.
"The total value of YC companies is now around $3 billion — YC has invested a total of around $5 million."
Damn, that's a good return, if you assume all positions were held and an 8% stake taken then that should yield $240 million, or an ROI (CAGR) of 116% since 2005. (This assumes the 5 million was all invested in 2005).
Anyone have a good metric to factor dilution from future rounds?
Given that you can achieve 12x return on equity within YC, the obvious follow-on is: can YC itself scale, or does it depend on the few individuals currently running it for its success?
I know other YC-a-like organisations have started up elsewhere: have any of them been running long enough to get any idea of long term success yet?
Dropbox, the startup that most easily came to pg's mind, began with a single founder, who didn't already have a relationship with his co-founders. It was also a great idea, well-worked out from the beginning. Not undermining the five points, just saying that they're more guidelines.
It's crucial to look at the founders, because that's what does the work. Just as Catmull says of movies, a successful startup is made of many creative ideas; also, many implementation challenges, flexible adaptations and tests of determination that is very hard for one person to handle.
A startup is an on-going process, not a one-off event.
So at roughly a stake of 6% which YC takes, at a total $3 billion valuation, YC's stake is worth $180 million, from an investment of just $5 million.
Not a bad payoff, surely to make a lot of Angels and VCs very envious.
I think what Mr. Graham is saying is not only natural, but inspiring. Firstly success and opportunity generates itself, and the best way to generate that is to look for patterns. So if people like us are successful, then in looking for more success, we should look for people like us. Secondly, the fact that 'naughtiness' is one way to look outside of the status quo, doesn't diminish all the other ways of looking for solutions. Mr. Graham celebrates 'naughtiness', other 'like us' traits could include tenacity, perseverance, team oriented, data driven, and humility. So this is not about following the rules versus not following the rules, it's about being able to distinguish between necessary, even essential rules and problematic rules. Today Mr. Graham exhorts us to celebrate naughtiness in our quests, tomorrow we can celebrate mischievousness. There's plenty of time, and plenty of traits to success.
Meh... Y Combinator is a potential source of start-up funding. Just as important, Y Combinator is not exclusive of any other source of funding. The difference between YC and other sources of funding is that YC funds a lot of companies twice a year rather than on an as-needed basis so the whole process is very eventful.
As YC funds more companies, the value of the "We're a YC company" branding diminishes faster. Whatsmore, there's some curious economics in how YC companies do business with other YC companies. If the bulk of customers of YC companies are other YC companies, then you what you have is basically just a pyramid scheme. It's also kinda lame to hear Paul Graham play favorites and talk about how great Sam Altman is all the time.
Most YC companies sell their initial product to other YC companies (whether it is consumer or enterprise) because that is what everyone does when they start out: sell to people in their personal social circles -- that's who you have access to as a nobody with no sales force that is just initially developing a product. This is hardly a conspiracy; as with all products sold to friends and family, the initial customer set will give the product a shot, but won't continue to use it long just because a friend sold it to them. YC companies that are successful break out of this initial customer base and sell to people outside the YC network. This is a must for any company that wants to grow past its founders.
The YC brand has improved over time drastically despite the increase in companies. When I started in the first YC batch, there were only 8 companies but the only angels that could bother to show up to demo day were just some of PG's friends. Now, demo day is a who's who of SV investors, even though they have to sit through 5x as many presentations!
I know you think you have a better way of running an accelerator and that is fine. At the same time, you can't look at someone who is successful and diminish their success with mere words. If you have a point to prove, do it with your own success and point out the flaws in this model through your model that is contradictory to his, but until such a time, please applause.
Very good point about the economics of YC companies doing business with each other, and I would extend that to their investors' circles as well. It's worked so far ...
Aside from the visual violation, nobody should hide their digits under socks in spring/summertime. All feet look good; nothing a good pedicure can't fix.
It was a deliberate choice. When packing for a trip to NY and thinking about what you're going to wear onstage, one does not "accidentally" wear socks with sandals. Pg is a very smart guy - clearly he knows what the impact would be.
I think it has more to do with maintaining a kind of legitimacy/authenticity within the hacker community than anything else. It's just good business sense to be the opposite of what geeks don't like/understand: VCs in suits. When you're in the business of funding businesses, you want to be approachable.
This is probably the single most discouraging thing I've ever read about startups, but at least it's honest. Entitlement? "Naughtiness"? I think after Google, the idea got out there that it's possible to succeed by just being good. Technically and morally. This sounds like a return to status quo. Not saying he's wrong. He's almost certainly right, it's just depressing.
You may find it helps clarify matters to read the article Charlie is referring to:
http://www.paulgraham.com/founders.html
and also this:
http://www.paulgraham.com/good.html
Combined, the message is: focus on the high bits of good. If someone establishes a clinic in a poor country and saves people's lives, I'm not going to hold it against them if they do it with supplies that fell off a truck.
Thanks for the reply.
I actually have read those. I admit, part of my reaction was purely personal. I want to found a company so much it hurts. I'm smart, resourceful, creative, and determined. But I wouldn't say I'm used to getting my way, and breaking rules -- even in service of a higher goal -- makes me very nervous. (Think Hermione Granger.) So reading this was like getting hit in the gut. Not that it will stop me, but it highlighted how important the emotional aspects to founderhood are and how far I still have to go.
I've seen this trap with a lot of people who did well in school. For 12 formative years you're rewarded for performing tasks to spec and following rules, and you grow up and find that the things you really want to do involve transcending all the traits that got you where you are. That's the element of Google I'm referring to, I suppose. They make almost a cult of academic success, and for some people that was a kind of shining hope. And you, frankly, fit right into that. So to hear you say that guts might matter more in the end than brains hurts, even though I know you're right.
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Google is at least a little naughty. Remember, at the dawn of the Internet, there was quite a bit of ambiguity with regards to IP rights. Many newspapers sent out Cease and Desists just for deep-linking to their articles. There was still quite a bit of presumption about how much control of use copyright gave you.
Google walks into this minefield and says "You know, we're going to crawl and cache everything, then exploit the data in it for our own selfish commercial purposes." And it worked!
I think you give too much credence to this "ambiguity".The idea that copyright could forbid deep linking was always absurd.
Also, don't forget about Google Books.
http://en.wikipedia.org/wiki/Google_Book_Search_Settlement_A...
Yeah, Google and the other 20 search companies at the time. I don't think this became an issue before search became reasonably good, when they didn't have a choice but follow through.
I also think Google broke and still breaks rules, just your example is not very good. Interesting that this reply of yours is upvoted over paul, pg and tlb in this thread.
Following all the rules does not make you a good person. In fact, rule following and obedience to authority is what enables large scale evil. See http://en.wikipedia.org/wiki/Milgram_experiment for a famous demonstration.
The thing I've never understood about philosophy is that why are ethics and good/evil considered to be properties of people as opposed to systems? It seems like all the social science research points to the conclusion that the intrinsic nature of a person, if such a thing even exists, has almost nothing to do with their behavior.
So you would think that there would be dozens of papers that analyzed the trolley problem from the point of view of what makes an algorithm ethical or unethical, but this doesn't seem to be the case. (E.g. why not imagine a universe where the people on each track had to somehow bid via differing auction mechanisms as to which direction the train went, why even imagine a person at the switch at all?)
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Great point. Although the YC universe has plenty of obedience-to-authority elements as well -- think of how many times people on HN invoke "the rules" to shut down discussions about the TSA.
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On the other hand, Hitler, Stalin, Mao, etc, broke a few rules too. So I am not sure that championing rule breaking is going to help improve society.
More likely, what's actually needed is a balance. And, interestingly, the kind of person that makes a good entrepreneur is probably on the psycopathic side of normal. A very nice article in the Guardian made this point at the weekend - http://www.guardian.co.uk/books/2011/may/21/jon-ronson-how-t...
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Conversely, breaking all the rules almost always makes you a bad person.
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You're confusing naughtiness with evil. Naughtiness has to do with breaking conventions, evil with hurting others.
If you followed PG's record, you'd know how strong an advocate he is that startups be good.
In a morally-flexible environment, it's easy to confuse the two.
For example - Zynga selling offers (for credits) with very fine print that signs you up for paid services. And the fine print is so convoluted/tiny most people don't read it. Helping or hurting consumers?
- Facebook hiring a PR firm to highlight questionable privacy practices by Google. Helping users or hurting Google?
- Subprime mortgages. Helping or hurting homeowners?
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As G. K. Chesterton said, "break the conventions and keep the commandments" -- http://www.chesterton.org/wordpress/?page_id=8
It's the whole circle-jerk that tech and web have become. Why on earth is Techcrunch hosting a business conference where hosts can fellate big Silicon Valley success stories. On TWiT, they used to talk about tech; now all they talk about is VCs and angel investors.
Tech is so hopeless ingrained with the speculative investment market, they've adopted the worst biproducts of it.
I think you are confusing TWit with Twist..
Twit is Leo's tech shows..which are still tech focused. Twist is Jason Calacanis' shows which have a VC/Angel 50% focus.
I understand the positive qualities of being Kirk-esque and creating one's own rules (see Kobayashi Maru). I also understand the qualities of being single-minded in purpose, determination and the will to succeed. These are qualities needed to survive in the uncertain, risky and scary environment of an entrepreneur.
However, I wonder when we begin to cross the fine-line between naughtiness, white-lies, small-rule breaking and moral flexibility to privacy-violating, scamming, propaganda spreading and even law-breaking actions.
In a world where one will do anything to win, it seems all too easy to fall by the wayside towards morally-questionable deeds.
I think that you're zooming into this too much and missing the point.
Think about the difference between success in the military versus success in a small business. In the Army, a protocol faux pas or a single ill-considered statement can implode your career path. Understanding of and adherence to the rules is job 1.
In a startup mode, you can ignore conventions/rules, because those things are often not relevant to a tiny company. That doesn't mean that you have carte blanche to rob a liquor store -- but it does mean that you don't need approval from a VP to fill out a 4 page expense report to buy a bottle of booze for a client.
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I feel 'naughtiness' represents disregard for the status quo, rather than a commitment to immorality. The obedient drone regards law-breaking as immoral, whereas the independent thinker would ask why the law exists.
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The Google founders were more than simply good. They were determined to be #1. Most people aren't.
They are now, but were they at the start? I remember a PG essay where the google guys were held up as an example of how even those developers with amazing potential can still be hesitant at the beginning, unsure of whether they want to or even can run a company.
<edit>
I think this is the quote I remember...:
from http://paulgraham.com/notnot.html
"There's nothing wrong with being unsure. If you're a hacker thinking about starting a startup and hesitating before taking the leap, you're part of a grand tradition. Larry and Sergey seem to have felt the same before they started Google, and so did Jerry and Filo before they started Yahoo. In fact, I'd guess the most successful startups are the ones started by uncertain hackers rather than gung-ho business guys."
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You're saying it like faith is involved. Success is a combination of many factors, including but not limited to talent, luck, education, environment, persistence, social skills and ability to adapt.
Some people are born with some of these factors, but the truth of the matter is that persistence matters most and if you are persistent most other things can fall into place or be balanced by other factors.
Lots of people are as smart as the Google founders, lots of people have similar educational background. Superstar co-founders, much as athletes, are people too. The major difference between them and you is that they continuously try to do the best they can do and do not quit when the going gets tough.
Those words don't have quite the right connotations, try the following edits:
"There are some people who just get what they want in the world. If you want to start a startup you have to be one of those people."
Think of it this way. As children we all needed to compete for the attention and resources of our parents, otherwise we would have starved. So typically the oldest child uses the strategy of being charismatic, in order to manipulate the parents into paying attention to it. The the second child comes along, but by this point there is no way it's ever going to out compete the oldest child on the axis of charisma, because the oldest child just has too much of a head start. So the second child often acts kind of sickly and pathetic, again as a different strategy for manipulating the parents into providing attention and resources.
The point is that in order to succeed in a startup, you need to be well versed in a variety of these strategies in order to get other people to help you. Otherwise you're not going to get any of the resources you need, because you're way too small and pathetic to be worth caring about based on any intrinsic measure of worth.
The people that Paul is describing when he says 'People that get what they want...' and the 'Naughtiness', are people that win in things that they try. the naughtiness implies that they do whatever it takes to get their, even if they ride the edge of moral good.
They want these types of people because they have the highest chance at success when failure is the norm.
I'm not sure what the concern about "naughtiness" here is. There's a difference between being somewhat devious and being evil. I think what Paul is getting at is that you need to be willing to pounce on any opportunity to capitalize for your startup. It is a competition after all. Great article overall.
Google is "good"?
http://www.schneier.com/essay-306.html
http://money.cnn.com/2005/08/05/technology/google_cnet/
https://www.recordedfuture.com/ ( Google and In-Q-Tel both major investors )
http://thestockmarketwatch.com/stock-market-news/recent-even...
http://xsreviews.co.uk/2011/05/google-to-lose-500m-to-antitr...
Could keep going for a while. My point is simple: It is easy to forget the "bad" when everyone focuses on the "good"
Which of them is evil?
The closest the is the anti-trust settlement, but the reporting around that is kind of murky. I've never seen a proper report of exactly what it related to.
The others are arguably good. For example, the Schneier article is about how Google has a interface to Gmail to allow it to retrieve data when it receives a warrant. That was what got hacked, but I think saying that makes it evil is a pretty long stretch.
Google got their first investment before they existed - they couldn't cash the cheque because the company it was made out to, Google, didn't exist at the time.
Intelligence and strong entitlement don't match. Show me a real genius who has strong sense of entitlement. Salesmen have it. Certainly PG doesn't have it.
Has YC had the time to see the results of their naughtiness though? Scribd seems like a poor product based on my run-in with it this morning and the comments of a few people saying how bad it was. But personally I haven't really used it. And Dropbox had a lot of hype at first until it was realized that their security wasn't so secure after all. I see these types of things as being naughty because its somewhat underhanded, cutting corners, etc. Could the naughtiness cost them in the end? Perhaps. I guess we will see.
It's interesting to see pg's opinion about what is important in founders evolve over the years. When I applied to YC in late 2008, I was told by alumni that YC was "looking for smart people." Although he's talked about discipline and determination as early as May 2004 in his essays those words were most commonly found next to the words "talent," "skill," or "smart," as if the two qualities were equally important.
Now it seems that YC has learned empirically that determination is the more important predictor of success (see intro to The Anatomy of Determination).
A concern for YC might be: with this new emphasis on determination, it might become the next thing applicants try to "fake" to get accepted?
Maybe they've figured out that there are plenty of smart people, but not as many truly determined people. Determination then becomes the limiting factor once smartness has been established.
This reminds me of Outliers when Gladwell talks about concert violinists.
"All of the violinists had started playing at around age five, and they all played about two or three hours a week during the first few years. However, around the age of eight, an important difference began to emerge in the amount of hours they each practiced. By age 20, the stars in the group had all totaled 10,000 hours of practice over the course of their lives; the “good” students had totaled 8,000 hours; and the future music teachers just over 4,000 hours.
What the research suggested was that once you have enough talent to get into a top music school, the thing that distinguishes one performer from another is how hard he or she works."
Being in Silicon Valley, I meet smart entrepreneurs all the time. Many of them come from places like Stanford. I think many pass the basic threshold of intelligence. In fact, this is more than passing considering that it doesn't take an elite education to create a good company IMO.
Obviously, not all these people succeed and so the other factor behind success is likely to be what you said: determination.
I think pg in his essays is saying something stronger, which is that determination is actually more important than intelligence.
And although I tend to agree, let me play devil's advocoate for a moment. "We learned quickly that the most important predictor of success is determination."
A more important predictor of success could be, ambition. It's different from determination because with ambition you need to make it big, but with determination you just have to have it.
Determination is the wrong thing because to make a startup succeed you have to want it, but you also have to want to make it big.
In fairness, pg touches on this when he says, "I don't know if it's exactly right to say that ambition is a component of determination, but they're not entirely orthogonal. "
According to the interview, pseudo-determination happens often within a ten minute interview. Yes, they're looking for people with that quality but I don't think that's their goal.
They simply don't have enough data yet for an accurate model of recruiting.
> "YC has invested a total of around $5 million"
It's incredible to think of the value that has been added to so many companies for the price of a single large series A.
It's amazing how much you can do when you start unbreaking things.
Edit: That was excessively brief. So many parts about the whole investment cycle were broken. Some are marginally less broken now. Having a negotiation between a fresh engineering graduate who does not know what "pre-money valuation" means and the principal of a firm with 9 figures under management, and expecting that negotiation to produce an equitable or efficient outcome, is broken. Contacting angels serially is broken. Using who has attended a dinner party with your buddies as the most efficient screening method available for predicting skill with conversion rate optimization is broken. Investment outcomes where the company succeeds and founders do not end up rich is broken. The work culture in Silicon Valley is insanely broken. etc, etc
YC has unbroken some of these. It turns out that an application process and a few weeks with a team scalably works as a decently efficient proxy for success. It turns out founders can be taught what pre-money valuation means and when they know this they get screwed less often. It turns out that spending half of one's time raising money is, as expected, just a deadweight loss.
Your comment made me look at YC as an extended extremely thorough onsite interview, and it really clicked. But then I remembered that YC companies pitch demo day to a bunch of relative strangers-to-the-teams, not the YC investors themselves. Or do Demo Day investors get quality time with the teams during the season?
Of course YC is overall a mix of interview and internship and summer camp and summer classes and more. The above is an attempt to think through one of the threads.
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This is a good point, but to your original point: "invest in me just because I impressed PG (plus more good reasons that may be true but the investor cannot see)" does not fall into your category of "unbreaking things" like the rest, especially at the start of YC. By now YC has certainly built institutional credibility, but even that can be broken if one day PG turns evil and sells out the brand like Pyrex or show or a grade-inflating college.
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That's definitely true, but what that doesn't accurately capture is the time / mentorships and introductions that the YC team invests in all of their startups.
Ok, double that 5 million then to 10 million (a very generous assessment of their time). It's still an incredible return.
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Video: http://www.ustream.tv/recorded/14928956
Thanks. What about the PG "office hours" that was supposed to happen? It sounded like it'd be really interesting to watch.
The video puts the quotes into a much better context.
You can directly download the video file at http://ustream.vo.llnwd.net/pd14/0/1/14/14928/14928956/1_819...
"The total value of YC companies is now around $3 billion — YC has invested a total of around $5 million."
Damn, that's a good return, if you assume all positions were held and an 8% stake taken then that should yield $240 million, or an ROI (CAGR) of 116% since 2005. (This assumes the 5 million was all invested in 2005).
Anyone have a good metric to factor dilution from future rounds?
We assume (probably conservatively) that we'll end up with 2% after dilution.
Given that you can achieve 12x return on equity within YC, the obvious follow-on is: can YC itself scale, or does it depend on the few individuals currently running it for its success?
I know other YC-a-like organisations have started up elsewhere: have any of them been running long enough to get any idea of long term success yet?
Hey, there's a nice photo of the interviewer and interviewee shoes in there !
Dropbox, the startup that most easily came to pg's mind, began with a single founder, who didn't already have a relationship with his co-founders. It was also a great idea, well-worked out from the beginning. Not undermining the five points, just saying that they're more guidelines.
It's crucial to look at the founders, because that's what does the work. Just as Catmull says of movies, a successful startup is made of many creative ideas; also, many implementation challenges, flexible adaptations and tests of determination that is very hard for one person to handle.
A startup is an on-going process, not a one-off event.
So at roughly a stake of 6% which YC takes, at a total $3 billion valuation, YC's stake is worth $180 million, from an investment of just $5 million. Not a bad payoff, surely to make a lot of Angels and VCs very envious.
They have less than 6% of most of the most valued companies. They suffer dilution when these companies raised money. YC doesn't do follow-on rounds.
Then again the companies will probably be worth even more by the time they reach liquidity.
I think what Mr. Graham is saying is not only natural, but inspiring. Firstly success and opportunity generates itself, and the best way to generate that is to look for patterns. So if people like us are successful, then in looking for more success, we should look for people like us. Secondly, the fact that 'naughtiness' is one way to look outside of the status quo, doesn't diminish all the other ways of looking for solutions. Mr. Graham celebrates 'naughtiness', other 'like us' traits could include tenacity, perseverance, team oriented, data driven, and humility. So this is not about following the rules versus not following the rules, it's about being able to distinguish between necessary, even essential rules and problematic rules. Today Mr. Graham exhorts us to celebrate naughtiness in our quests, tomorrow we can celebrate mischievousness. There's plenty of time, and plenty of traits to success.
Consider the stats at the end of the article for a moment.
The total value of YC companies is $3 billion. While, the total amount invested by YC is $5 million.
Very impressive results when you consider that YC takes about a 6% stake for its initial investment. Congratulations to all involved.
Determination, Flexibility, Imagination, Naughtiness, Friendship
http://www.forbes.com/forbes/2010/1108/best-small-companies-...
ndiff
Everyone loves to hate on MBA's it seems. Have there been any yc companies started by mbas?
yes - there are a few. See Custora and Fivestars Card
5 million seems like an incredibly low figure. Just goes to show the power of smart money.
Meh... Y Combinator is a potential source of start-up funding. Just as important, Y Combinator is not exclusive of any other source of funding. The difference between YC and other sources of funding is that YC funds a lot of companies twice a year rather than on an as-needed basis so the whole process is very eventful.
As YC funds more companies, the value of the "We're a YC company" branding diminishes faster. Whatsmore, there's some curious economics in how YC companies do business with other YC companies. If the bulk of customers of YC companies are other YC companies, then you what you have is basically just a pyramid scheme. It's also kinda lame to hear Paul Graham play favorites and talk about how great Sam Altman is all the time.
Most YC companies sell their initial product to other YC companies (whether it is consumer or enterprise) because that is what everyone does when they start out: sell to people in their personal social circles -- that's who you have access to as a nobody with no sales force that is just initially developing a product. This is hardly a conspiracy; as with all products sold to friends and family, the initial customer set will give the product a shot, but won't continue to use it long just because a friend sold it to them. YC companies that are successful break out of this initial customer base and sell to people outside the YC network. This is a must for any company that wants to grow past its founders.
The YC brand has improved over time drastically despite the increase in companies. When I started in the first YC batch, there were only 8 companies but the only angels that could bother to show up to demo day were just some of PG's friends. Now, demo day is a who's who of SV investors, even though they have to sit through 5x as many presentations!
I think you're just being bitter because you got rejected by YC, and now trying to deal with it by saying "Well, YC's not that great anyway".
With the value of YCs portfolio companies over $3 Billion, it's ridiculous to make the allegation that YC is some kind of pyramid scheme.
I know you think you have a better way of running an accelerator and that is fine. At the same time, you can't look at someone who is successful and diminish their success with mere words. If you have a point to prove, do it with your own success and point out the flaws in this model through your model that is contradictory to his, but until such a time, please applause.
Very good point about the economics of YC companies doing business with each other, and I would extend that to their investors' circles as well. It's worked so far ...
Would love to hear more about things you've learnt about rejecting companies which later go on to be successful beyond rtm marking harshly.
"we’re not looking for people who did what they were told in life.” seems like a useful heuristic beyond just start ups.
I like that idea of treating raters as candidate black-box predictors.
PG!!! Socks & sandals? Nooo... ;)
Aside from the visual violation, nobody should hide their digits under socks in spring/summertime. All feet look good; nothing a good pedicure can't fix.
is there a video of this interview?
Is the sandals with socks thing some sort of deliberate middle-finger? In NYC on a stage, no less.
It was a deliberate choice. When packing for a trip to NY and thinking about what you're going to wear onstage, one does not "accidentally" wear socks with sandals. Pg is a very smart guy - clearly he knows what the impact would be.
I think it has more to do with maintaining a kind of legitimacy/authenticity within the hacker community than anything else. It's just good business sense to be the opposite of what geeks don't like/understand: VCs in suits. When you're in the business of funding businesses, you want to be approachable.
Birkenstocks with socks is okay: http://www.gq.com/style/style-guy/shoes/200309/birkenstocks
Birkenstocks are never OK.
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I can't tell if you're talking about this as if it actually means something or not.
I like the video every time Paul Graham says "I dont know" "I dont know". Seems like a good guy. He's a kid himself, I like it.