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.

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