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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