Archive | December 2014

How to Start a Startup Summary

Conclusion

If you are serious about starting a startup, you’ll be investing tens of thousands of hours doing it. Spending 15 to 150 hours now to learn some of the core principles could be the difference between success and wasting years of your life and hundreds of thousands (or more) of someone’s money.

Learning

Psychologist Carl Rogers said, “the only kind of learning which significantly influences behavior is self-discovered or self-appropriated–truth that has been assimilated in experience.”

Remembering

You can just watch the videos if you want, but studies say you’ll forget 50% of the material by tomorrow. And by next month you’ll have forgotten 80%. If you follow a few steps you can put the most important lessons in your long-term memory.

  • while watching a video, write down important points you want to remember
  • at the end, review each point; think about how it relates to an experience you’ve had; what examples did the speaker give; what were other details
  • now, take a blank sheet of paper and write down the important points from MEMORY (no peeking)
  • check what you wrote against your notes and if you missed any points get another blank sheet of paper and try again until you can write everything from memory
  • try to recall the points again in 1 day, then 3, then 1 week, then 1 month (or as needed)

Aha Moments

The deeper you get into the material (watching, learning, recalling, discussing with others, relating to your past experiences, creating new experiences) and researching the topics, people, and companies, then the more details you uncover and more connections you make, leading to a greater sense of understanding and mastery.

Knowing the material isn’t enough. You have to understand it well enough to know in which situation to apply each concept.

Readings

All Videos by Topic

Class Resources

Researching Startups and Founders

Bonus: Airbnb Case Study

Series

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Later-Stage Advice

Sam Altman, President, Y Combinator finishes up the series with a talk on a few topics relevant to startups after months 12 to 24. Management, HR issues, maintaining company productivity, and other mechanics to keep the company progressing to greatness.

Sam Altman – @sama

Notes

  • 00m23s – Later-Stage Advice
  • Management; HR; Company Productivity; Legal, Finance, Accounting, Tax; Your Psychology, Marketing and PR, Dealmaking
  • Post product/market fit stage; usually around 20-25 people
  • Warning: this is for months 12-24 (after product-market fit); a waste of time until you have something working
  • 1m10s – Management
  • Establish a Structure
  • need it at about 25 employees (before then none; everyone reports to CEO; totally flat)
  • every employee should have a manager, every manager should know their reports
  • know how to change the structure, add new people – just make it clear
  • clarity, simplicity in structure most important
  • Management Structure
  • avoid the temptation to have a “coolness” via lack of structure
  • but keep it light weight; don’t need complex matrices
  • 3m22s – First instantce of an important shift in founders job
  • early stages founders #1 job is to build a great product; then it becomes build a great company
  • 3m52s – Failure Cases
  • being afraid to hire senior peole
  • hero mode – extreme leading by example
  • bad delegation – not giving enough responsibility
  • not developing a personal tracking & productivity system
  • 7m33s – Codify how you do things
  • in early stage you can just people, “this is how we do it”
  • before it gets too late, put on wiki or something; get to write law
  • Codify why you do things (cultural values)
  • 9m00s – HR
  • It can speed you up
  • have a clear structure
  • performance feedback – simple and frequent
  • compensation bands tied to performance (feels corporate but keeps things fair; save you crazy negotiation)
  • equity – be generous; your investors will give you bad advice; distribute 3-5% per year
  • most successful companies end up giving lots of stock out to their employees
  • clear career path for people
  • 12m01s – Stock and Vesting
  • keep up with refresher grants
  • structures – 6 years, pyramid vesting, continuous forward vesting
  • get an option management system early
  • 13m19s – HR continued
  • 50 employee requirements; sexual harassment, diversity training
  • monitor for burnout (not sprint anymore, marathon)
  • hiring process: full-time recruiters; internal announcements (to get feedback from current employee reference)
  • new employee ramp-up
  • think about diversity early!
  • growth of your early employees
  • 16m29s – Company Productivity
  • small teams are usually productive, but need effort as company growths
  • one word: alignment
  • clear roadmap and goals: all employees can say the same top 3 goals; keep message simple and repeat constantly
  • figure out values early: will help people make right decisions
  • be run by the product, not process; ship every day
  • have transparency and rhythm in communication: weekly management meetings; all-hands meetings (at least monthly); quarterly and annual planning; offsites (successful companies do offsite retreats)
  • The Goal: goal of productivity is to create a company that creates a lot of value over a long period of time
  • Repeatable innovation and a culture of operational excellence is the hardest thing to do in business
  • 21m25s – Mechanics
  • Legal, Finance, Accounting, and Tax
  • clean books, accounting firms, audits: when needed, with outside help
  • collect your legal documents – easy to fix now if you’re missing something
  • FF stock in the B round: FoundersFund stock that can be liquidated by founders; has turned into bad sign when founder concerned with personal liquidity
  • IP, Trademarks, Patents
    • Month 11, Provisional, International
    • Trademarks, US and international
    • Domains, misspelling, and all TLDs
  • Financial Planning & Analysis (F, P & A)
    • CFO of PayPal made FP&A model top sheet was 1500 lines
  • Consider hiring a full-time fundraiser internally: after B round in anticipation of raising for C round and doubling valuation; better usually than hiring investment banker
  • Tax structuring: get expert advice to take full advantage of tax code; such as international structuring to reduce tax cost
  • 26m35s – Your Own Psychology (as founder)
  • your psychology: it keeps intensifying: highs are higher but lows are lower
  • Ignore the haters; this will increase the more you succeed
  • Long-term commitment; long-term strategy
  • Founders who make long-term commitment to startup are rare and therefore an advantage; build strategy for long-term
  • Monitor burnout and take vacation
  • Guard against losing focus: a symptom of burnout
  • Ignore acquisition interest: distracting; tempting; don’t start talks unless willing to sell at low number, which might happen; big offers wil come early
  • Startups fail when founders quit: sometimes you should quit; but biggest reason is mismanaging your own psychology and quitting when you shouldn’t
  • 31m05s – Marketing & PR
  • start thinking about this once your product is working – don’t ignore it: press will not save your startup
  • don’t outsource the key messaging: founders have to figure out message of company themselves
  • repeat the key messages again and again
  • get to know key journalists: PR firms will try to prevent you from doing this; but journalists want to talk to founders not PR firm
  • 32m48s – Deals
  • business development starts to matter at this point; not only can but should have ignored early on when still building product
  • build a great product first; nothing else will matter if you haven’t
  • develop a personal connection when trying to do a big deal
  • have a competitive dynamic: BATNA (have a plan B so you have alternative in mind while negotiating and aren’t backed into corner)
  • be persistent, persistent, persistent (see Tyler Bosmeny’s talk on sales and marketing #19)
  • ask for what you want: harder than it seems; just ask for it, even if it feels aggressive or overreach
  • 35m09s – The Process: get product market fit by talking to users and iterating to close gap
  • growth curve long (several years, typically): techcrunch spike, followed almost immediately by drop-off after novelty wears off; flattened curve; dip into crash of ineptitude; long trough of sorrow (in Airbnb case it was 1000 days); then wiggle of false hope (small up/down); until eventually growth takes off
  • 36m44s – Q&A
  • Is diversity important or not based on likeness?
  • want diversity of background (to avoid limiting monoculture) but not diversity of vision; you want to hire people who get along
  • 38m00s – How to track and productivity systems?
  • one paper for goals 3 to 12 month time frame; one page for short-term goals for the day; keep list of each contact and what you need to communicate work on with them
  • 39m01s – How to fail gracefully?
  • failure common and Silicon Valley very forgiving; be upfront and ethical; if failing tell investors; don’t totally run out of money; tell people early; shut down in a graceful way; give 2-4 weeks severance
  • 40m33s – How many immigrant founders have there been at YC?
  • in last batch 41% of founders born outside U.S. from 30 different countries
  • 40m56s – Other than Valley where are good places to start a startup?
  • Valley still best but maybe starting to weaken a little because the costs are increasing; Seattle, L.A., lots of places outside U.S.
  • 41m50s – When should founders think about hiring professional CEO?
  • never; the most successful startups are run by founders; best if founder plans to be CEO for long time for sake of building great company
  • 42m45s – What are most common mistakes?
  • covered here
  • 43m12s – Is there way to get involved with YC before being funded?
  • not really; other than working at a YC funded company and then getting a good recommendation from founders; no pre-startup; “don’t need to get to know us”
  • 44m01s – What criteria does YC use to select startup and has it got harder or has it changed?
  • need to see: good founders and good idea; has always been the case; the applicant pool has grown; but the a lot of the growth has been with people who probably shouldn’t be starting startup
  • 45m02s – If there is a market you are excited about but unfamiliar with, what path do you recommend?
  • jump in and learn as you go; or, go work at a company in the space for a year or two
  • 45m55s – will investors fund fewer YC companies?
  • no; investors like funding YC companies
  • 47:07 – when should group of founders raise seed round?
  • in general, nice to wait until idea is figured out and initial signs of promise before raising money; raising money puts pressure on company; can’t be in exploratory phase; wait to raise more than $100K-$200K or not even that, until things are working you’re way better off.

Additional Reading

Series

Sales and Marketing and How to Talk to Investors

Tyler Bosmeny, Founder and CEO, Clever
Michael Seibel, Partner, Y Combinator
Qasar Younis, Dalton Caldwell, Partners, Y Combinator

Tyler Bosmeny – @bosmeny
Michael Seibel – @mwseibel
Qasar Younis – @qasar
Dalton Caldwell – @daltonc

Notes

  • 0m11s – Tyler Bosmeny – Sales & Marketing: $0 – 1 Million
  • graduated withs statistics major, went to work for startup doing sales
  • started Clever with 2 cofounders to build product for schools
  • Clever: app platform for schools; 1 in 5 schools use; started 2012
  • sales key piece for growth of Clever.com
  • 1m38s – The Mystique (of sales): charming, well connected, perfect lines, golfers
  • 2m15s – The Reality: you are the salesperson, build or sell; pick founder to own this founder passion trumps sales experience
  • “build or sell, nothing else matters”
  • passion for idea and deep industry knowledge trumps sales experience
  • 3m28s – The Almight Funnel: prospecting, conversations, closing, revenue / promised land
  • 4m16s – The Mission (prospecting): find the innovators (2.5%); it’s a numbers game; reach out to > 100 companies; top 3 methods (your network, conferences, cold emails)
  • conference: go to where your users are
  • cold email: key is to not write too much
  • 7m30s – conversation: get on the phone and listen; best sales people spend more time listening than talking
  • ask questions: why did you take my call today, what is your solution today, what would your ideal solution look like
  • find out what prospect needs and understand their problem
  • Uber conference (https://www.uberconference.com/) will email you log of who did how much speaking
  • 9m37s – Religious Follow Up: boomerang for gmail
  • need to have unhuman willingness to followup and drive things forward
  • best case looks dismal; repeated no responses; constant back-and-forth; even from people who want to buy product
  • your goal should be to get people to a yes or no as quicly as possible; 1,000 maybes are difficult to deal with
  • be ambitious but focus on right prospects (getting to no better than long dragged out maybe)
  • 11m30s – Closing Traps: Redlines: final step is to send them an agreement; YC has open sourced their template; don’t quibble over minor points
  • 13m50s – Closing Traps: 1 More Feature: usually a polite pass; building it will not get you the sale; either: sign a conditional agreement, or wait to hear demand from more customers
  • 14m45s – Closing Traps: Free Trials; early on you need commitment, validation, and revenue; free trial gets you none of this; instead offer a 30 day cancellation period on an annual contract
  • once you’ve done enough sales, aks what can be scaled
  • 16m39s – Looking Forward: 5 ways to build a big business; flea, mice, rabbits – marketing; deer – inside sales; elephants – field sales (by Christopher Janz)
  • know where your customers fit and how much it costs you to sell to them (flea, mice, rabbits, deer, elephants)
  • 19m07 – Michael Seibel – How to Talk to Investors
  • Before the meeting (Michael); During the meeting (Dalton); After the meeting (Quasar)
  • pitch: simply describe company and then ask for money
  • 30 second pitch: this is your goto for any opportunity
  • 2 minute pitch: this is for people more interested, investors, employees
  • don’t need pitches longer than that (more opportunity to say something listener doesn’t like)
  • 21m44s – 30 second pitch
  • what does your company do? simple and straight-forward; assume no prerequisite knowledge; one sentence (mom test)
  • how big is the market? second sentence; look up simple numbers for market size (investors need general idea of potential)
  • how much traction do you have? (e.g. we launched x months ago, we are growing y% month, we have z users, revenue, etc.) if too early for numbers show how quickly company is moving (founded jan. beta by march, launch july)
  • 24m30s – 2 minute pitch
  • clear 30 second pitch (see above)
  • unique insight: secret sauce, competitive advantage (aha moment, 2 sentences; what will kill competition; what don’t other know)
  • how you make money: 1 sentence; don’t run away from questions (we’ll do this, that, says nothing); be clear and concise
  • team: call out accomplishments that have made money; how many founders (2-4 ideally); how many technical v. business (50/50 or more tech); how long have you known each other (at least 6 months professionally or personally; all working full time; how you met); 2 sentences (the more you talk about a bad thing the worse it looks)
  • the big ask ($$$): you have to know what you are talking about; are you raising on a convertible note or safe; what cap of safe is; how much money raising; what is minimum check size (use some jargon)
  • that’s 2 minute pitch; let them talk
  • 29m42s – When to Fundraise: Ideally at higher part of growth line but real world is at lower end of growth line
  • typically want to have traction, which is point of strength
  • want to be in position of strength, which happens when investors are asking to give you money; that is good time to go fundraising
  • if investors aren’t asking about giving you money, you should be doing things to get noticed; stealth mode doesn’t get the word out
  • have plan to launch and grow without getting lots of money; don’t want to be in position of we can’t do anything until you give us money–puts power into hands of investor
  • pitch to investors should sound like “this things is moving; we quit our jobs and are working full-time; if you want to jump on great; if not there are lots of angel investors”
  • show you have fully committed team working fast
  • 31m58s – How to setup investor meetings: warm intros; think parallel; 1 team member
  • pass on intro from someone who has passed on investing with you; that is kryptonite
  • fundraising is a sprint not a marathon; schedule all meetings in the same week
  • when setting up meeting schedule 3 weeks out and all investors on same week
  • one team member should be invested in fundraising full-time
  • 34m00s – Dalton & Qasar – investor pitch role playing; example of bad pitch
  • 38m45s – analysis: void common mistakes: make sure listener understands what you’re working on; know your numbers; for market size ideally build bottom up analysis; you should understand something that is counter intuitive; your team should be uniquely suited for this business; drive the conversation to a conclusion
  • know numbers; don’t name drop big company names that aren’t even related
  • 39m50s – investor pitch example of good pitch
  • 45m39s – analysis: Hallmarks of a good pitch
  • capture interest, tell an interesting story, engage with the listener
  • demonstrate insights and command of the market, passionate not dismissive
  • collaborative meeting more than an interrogation
  • actually ask for money
  • 46m53s – After the meeting
  • follow up (any response other than a check is a “no”)
  • work on creating deal heat (supply / demand)
  • due diligence on investors; know who you are selling part of your company
  • know when to stop (addicted to fundraising)
  • build your company – fundraising is not the end goal

Additional Reading

Series