29 Lessons from Paul Graham & Y Combinator – Advice for Startups

Hacker News was originally recommended to me by this crazy Czech guy named Jan Sramek. Jan flew in from London to New York and happened to be in my training class when I first started working at Goldman.

Jan, who is currently one of the founders of a stealth mode startup in Switzerland called Erudify, was sort of an oddity to us. Not only had Jan already written a Self Help Book by the ripe age of 22, but he also seemed to have an entire PR team lauding all these wild feats and accomplishments he had achieved in the UK during his undergrad years.

I knew he was a pretty smart guy and I would always pick his brain about what he was reading, thinking, etc.  One day I asked him if he knew any good blogs to read. I was bored and looking for some good stuff other than mashing refresh on the WSJ website and Bloomberg over and over again.

That happened to be one of the most fortuitous questions I’ve ever asked in my life. Not only did Jan recommend Tim Ferriss’s blog to me but he also shared Hacker News.

I still remember sitting at my desk as all the blog posts and news stories on Hacker News filled my head with entrepreneurial daydreams. Meanwhile I was stuck sitting there 14 hours a day with my eyes glued to the markets.

Since Y Combinator runs Hacker News, I instantly wanted to read the book “The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups” as soon as I heard about it.

Launch Pad is a quick read and I definitely recommend it for anyone interested in startup life or wanting to learn more. I learned a ton about Y Combinator and a bunch of its companies (Rap Genius and Code Academy are two that I discovered – and both kick ass).

Below are all of my Kindle highlights (29 in total) from the book.  I wanted to share them to give you a taste of what the book is like.

The twenty-five-year-old had the most advantages, which included “stamina, poverty, rootlessness, colleagues, and ignorance.”

If you’re not fully focusing on your product to the exclusion of all else, you’re wasting your time.

“There’s so much luck involved with startups you increase your odds of success by swinging the bat multiple times. Each time you do something that isn’t swinging the bat, you theoretically decrease your odds of success,”

No one asked ‘Should we fix payments, or build a recipe site?’ and chose the recipe site. Though the idea of fixing payments was right there in plain sight, they never saw it, because their unconscious mind shrank from the complications involved. You’d have to make deals with banks. How do you do that? Plus you’re moving money, so you’re going to have to deal with fraud, and people trying to break into your servers. Plus there are probably all sorts of regulations to comply with. It’s a lot more intimidating to start a startup like this than a recipe site. When Patrick Collison was asked what he thought about Graham’s point about the intimidating nature of a big problem, Collison politely dissented, arguing that what should be emphasized was that addressing a hard-to-solve problem is actually not as hard as everyone thinks: founders and employees alike are inspired to work harder than if they were taking on the mundane. [Referencing Stripe]

One’s environment is critically important to one’s productivity.

“Here’s how to generate new ideas. Three things. One: founders are target users. Two: not many people could build it, but founders are among them. Three: few people realize it is a big deal.”

“Ask yourself: ‘What do I wish someone would start a startup to do for me?’” says Graham. “The next best thing: something for someone else that you know is a problem.”

The best kind of thing to work on – and I appreciate this is going to be somewhat abstract or higher-level advice – the thing you want to work on is, there’s this need that’s really clear and you can just launch some shitty site and people just start using it.

Friends can mislead, Taggar says. His advice: address what businesses need, not what consumers say they would use.

“One of the big things they focus on is ‘proxy for demand.’ Which basically means when looking at some new idea, they want to see what people are doing at the moment? What kinds of crappy solutions are they hacking together at the moment.” They’ll ask founders who are building a product what their future users are doing right now. “If the answer is, ‘No one is really doing it at the moment’—a lot of people think that’s a good answer, but it’s not. Because it means they’re not desperate for it.”

“If you’re not embarrassed by the first version of the product you’ve launched, you’ve launched too late.”

He suggests that startups set a specific weekly target for growth, which can be measured in terms of revenue or users or something else, but should be essential to the startup. Anything that is not directly related to that metric is to be pushed to the wayside.

“I’m always a fan of, rather than trying to do huge, radical releases of stuff, just test out theories, the easy, simple way, and just see if anything starts happening,”

“The gold standard of weekly revenue growth is 10 percent a week. That’s insanely high. That works out to 142x a year.”

This is a strange question to pose, because, in startup life, commitment comes in only one size: total.

“They don’t fuck around, right? The startups that succeed, they don’t go to meet-ups, they don’t run around talking to boards of advisers, they just write code and talk to customers, right?” This is Graham’s oft-repeated mantra, too. Write code and talk to customers.

“We did it because we want their software to be good,” he explained. He mocked the “professional” notion that work and life are supposed to occupy separate spheres. In a startup that begins in an apartment, the founders work odd hours, wearing the most casual of clothing. They look at whatever they want online without worrying whether it’s “work safe.” The cheery, bland language of the office is replaced by wicked humor. And you know what? The company at this stage is probably the most productive it’s ever going to be.

In the YC universe, business schools are deemed so useless that no one bothers to expend any energy in remarking upon their irrelevance to software startups. The only question relating to formal education that does draw attention is whether to finish or even go to college.

Only to the basic YC tenets: work on code and talk with customers; launch fast and iterate; focus on one measurable weekly goal.

“The way to get really big returns is to do things that seem crazy,” he wrote in 2007, “like starting a new search engine in 1998, or turning down a billion-dollar acquisition offer”—a reference to Facebook.

“It will all come to what they feel in their gut about you guys as founders. If you seem”—he pauses again—“you know, fearsome, like you’re going to take over the world, then they’ll think, ‘OK, these guys are going to take over the world, and there’s definitely a world here for them to take over,’ right?”

The transition that makes people seem more confident, more resourceful, and tough—right?—that’s what you get out.

The YC User’s Manual tells founders that even in the very best case, when an investor is paying close attention, information equivalent to only four or five sentences will be absorbed from a presentation seen for the first time. One of the sentences should be a genuine insight, something that will surprise—“If a statement is not surprising, it’s probably not an insight,” the manual says. Investors may remember far less of the presentation than this, however. A single noun may be all that sticks in the mind afterward. “Something to do with chat.” “Something to do with databases.” The manual says about a third of the startups on Demo Day will do no better than this.

A lot of things broke. But a lot of things always break. So we’re going to fix the things that break.” He tries out a joke: “And then more things will break.

In YC’s portfolio “the number one company is worth more than the next 199 companies combined, while number two is worth more than the next 198 combined, and so on.”

[To be a billion dollar company] “One: you really need a huge market. And two: you need founder-market fit.”

“Just focus on one of three things: One, be cheaper. Two, focus on a niche. Or, three, be 10x better than the other products out there.”

“The point of this story is that you guys need to have this kind of swag. You need to suck people, and especially investors, into your own reality.” He heads into the conclusion. “So, what have we learned? One. You’ve got to put yourself out there and meet people, even if it’s awkward. Two. You’ve got to hug your cofounders and love your batchmates. Three. Experts aren’t going to help you solve your problems. Four. You’ve gotta have swag.”

“Smart people by definition have odd ideas.”

Hope you enjoyed and as always – hit me up on Twitter.

 

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Matt Bodnar

Matt loves to focus on making deals and big picture strategy. He sets out each day to give more than he takes from every interaction and produce as much value as possible for his partners and the people he works with. As a partner at Fresh Hospitality Matt invests in and operates businesses across the restaurant value chain including agriculture, production, retail distribution, real estate, technology and restaurant operations. Matt previously worked as an import/export consultant in Nanjing, China and spent several years on the Interest Rates Desk at Goldman Sachs before returning to his family roots in Nashville.

3 thoughts on “29 Lessons from Paul Graham & Y Combinator – Advice for Startups

  1. A common message here that also correlates with what I’m being taught in my entrepreneurship class is the need for failure in some cases. People by nature learn so much more from failure than success. You could take 5 low-cost risks with high potential rewards that all fail. Learning from these failures only increases the probability of that sixth risk turning into a high-value success that more than pays for all the previous failures.

  2. I wish luck wasn’t such a big factor in startups. I’d like to pursue entrepreneurship at some point in my life but I don’t like that thought of a great idea potentially going to waste because of bad luck.

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