this is gonna be part two of a talk i gave at the very beginning of startup school on evaluating startup ideas and the thing to know about both of these talks is we've been talking about them from the point of view of the investor basically it was helpful i thought to explain to founders how investors evaluate startup ideas and looking at that structure so that they can better understand their own ideas opportunities and then in this presentation present them better to the people that they want to get excited so a quick recap in the first
part i basically say a startup idea is a hypothesis for why your company is going to grow really quickly that hypothesis must compose of three different parts the problem the solution and the insight and the basic parts is your problem should be pretty big pretty pervasive have a lot of these characteristics to make it feel like there's a very big market that a lot of people have the problem the only thing you need to know about the solution is that you should not start with a technology you should start with a problem and lastly you're
looking to have something that's going to make your company unique and have some kind of unfair advantage what that we call an insight that will show why your company will grow faster than other companies i talked about five different types of unfair advantages that your company can have and kind of what are the benchmarks for meeting them now the thing to keep in mind about understanding and creating this startup idea is that i don't need you to do all the work to lay all of that out in detail that's stuff that you'll kind of want
to know or keep in mind but a really good investor will do that on their own they'll hear what you're talking about and extrapolate and so what i'm going to cover in this presentation is how do you package up that hypothesis how do you take all the things that you understand about your company and your startup idea and how i present it to an investor so that they can make a decision that's in your favor this is the yc startup application and basically this is the application all the questions that we asked that yc partners
will use to evaluate your startup so down here when you're filling out the yc application we actually link to a couple of things and one of them is how to apply successfully i can't tell because i read so many applications but it feels like founders are not reading that essay uh it was written by paul graham in 2009 and almost everything in there still holds to this day and people still make mistakes from it so i'm just going to like point out some stuff and really like punch it in here while i have your attention
so here's a quote from that essay basically we believe for every company that we will interview at yc we bet there's probably another company that's just as good as them out there but they messed up on the application and we didn't realize it we didn't invite them and basically the reason is because they didn't express their idea clearly that's it like you might think oh i didn't show off all that complex stuff about my startup idea and that's why they didn't pick me and i want you to know that's not true and so the first
thing i want you to keep in mind is i do not need you to sell me as a yc partner right a good investor so average investor what they do is they talk to you when you tell them about your idea and it feels like they're poking holes all the questions asked about what's all the reasons why this could go wrong a good investor does it the other way around they hear what you say and they imagine and they use their optimism and they use knowing that some kind of rare event has to happen for
you to become a billion dollar company and they try to imagine all those rare events that could possibly happen to you and then they pitch that path back to you and so we are really good at selling ourselves so you don't need to do that and the thing is you guys are kind of bad at selling things in the beginning right and what i need you to understand is that i'm trying to evaluate these three statements when i'm hearing your idea do i understand it am i excited by it do i like the team and
do i want to work with them surprise in your weekly updates when you do your group sessions these are the questions that we ask you to ask one another it's basically the questions that we're trying to figure out for ourselves and we're hoping that every week when you talk with other companies you are practicing getting feedback and understanding whether you're able to instill this in other people so your goal is just to be clear i will do everything else so back to the application these are the only two things we're going to focus on today
what do i put in the what's my company going to make how do i describe my company in a very efficient manner the first way to do this is to be clear the reason we focus on this is because a clear idea is a foundation for growth and what i mean by that is that the best companies in yc or around the world grow organically they grow by word of mouth what does word of mouth look like it looks like this it's basically i talk about your company what you're doing making etc and i'm the
most interesting person at the dinner table and i tell it to other people and those people want to tell other people that's it word of mouth is something where i remember what you do i talk about it enthusiastic and it spreads on its own marketing and advertising it's a tax i believe companies pay because they did not make something remarkable now before anyone can remember at the dinner table what you do they have to understand and so i have very simple rules for how to make things easy to understand this will sound familiar if you're
familiar with an essay i wrote on how to design a better pitch deck and i'm going to focus on basically saying that the way i talk about designing a pitch deck actually works for ideas and lots of other things and so the way i make things easy to understand on a pitch deck or a slide is to make it legible i make it simple and i make it obvious in today's presentation we're just going to focus on making your idea legible which is going to sound interesting right for clarity now in my essay i talked
about how at demo day when our startups are presenting to a room full of a thousand investors it's kind of an interesting audience number one the audience is filled with really old people they tend to not have very good eyesight as a result they all can't sit in the front row like you lovely people some of them have to sit in the way back and stand up and that means if you create a legible slide they have to be ones that even old people in the back row with bad eyesight can read now how does
that apply to a legible idea well basically you are designing a slide that democratizes the idea right and so people who are blind or people who are ignorant you're basically designing something for everyone in the room not just the ones in the first row so a legible idea can be understood by people who know nothing about your business that will make things very clear to the widest possible audience now this is super important because you will talk about your company more than anything else it is actually the thing that we are really great at at
y combinator we have our companies constantly practice talking about their startup startup school curriculum is designed around helping you constantly practice talking about your startup and this is because you are going to need a lot of people if you're going to become a billion dollar company so you are trying to find a co-founder you have to have a way of talking about your company clearly whether you're getting users or investors or employees or shareholders you have to get really good at this and you have to be able to do it quickly and efficiently here are
things to avoid that makes things not clear that makes your idea muddy the first is ambiguity right so that's like obviously the opposite of clear or straightforward something's a little abstract something can be interpreted in two ways and therefore it might take a question to understand what you do complexity so i have a very specific definition of complexity and so if you look at the root word simple and complex come from the same root and having to do with twists or braids things that are simple are ones that have one braid and things that are
complex have multiple braids they're intertwined with one another a simple idea is one idea that does not fold a complex idea are ideas that are intertwined so simplicity means you are not trying to mix a bunch of things in your description mystery um so this is an odd one but what i mean is anything where it's like i'm not gonna understand what is going on when you're talking about your company jargon is one obviously any words that i don't understand anything that's fake like indefinite pronouns so if you just use this etc and you don't
describe what those nouns are and then things that you just suggest but aren't explicit about and the last is ignorable and so what i mean by that is there is some language that we will just ignore so in ux design people will create a sort of blindness to things that they don't want to look at or they don't find to be of important value so for example ad blindness is a big one that people sort of understand and the thing is when you're talking about ideas there's a way of using language that is also easily
ignorable things that just won't stick in your head things like marketing speak there's probably lots of stuff that you heard about that mba speak we're kind of like puff yourself up talk that doesn't give any extra information and then buzzwords and so when you say certain types of words that as an investor i've heard over and over again or i will equate with zero information or value then i will ignore them and the result is parts of your pitch will end up being not even heard by me and therefore i will not remember them what
you want to do is be conversational a great pitch is one where you can tell it to your mom and she gets it she's proud of you right she's not going to shake her head and that means it's got to be conversational and that's really good for word of mouth because we talk in normal conversational speak we don't talk like an mba we don't talk like ceos all the time so it's best to talk conversationally again avoid jargon words that are only you understood or used by your industry no preamble we'll have some examples of
this but if you want to be clear let's go straight to what you want to talk about let's not have a winding path to eventually getting there and the last one this one's a big one it's being reproducible so when i hear your idea can i imagine it in my mind can i see what i would have to build to create your company if i don't have that then i have no picture in my head about what your company does and until i have that picture i can't ask any of the questions that helps me
understand if i'm excited about you or understand other nuances of your business to make things reproducible i need to know nouns i need to have objects that i'm going to imagine in my head and there's three types of nouns that i should understand from your startup idea first one is what are you making i should be really clear what is the problem and then who is the customer the two are kind of related to the market right but i should have these kind of three nouns in my head so let's go through some examples this
is says we are going to transform the relationship between individuals and information that sucks the thing is we see this all the time number one all the nouns that you have see see down here are abstract they're ideas i can't reproduce based off of this as zero informational value i still have to ask questions to answer the three nouns that i need to have this is a bad description for a company we will see stuff that starts like this when we ask describe what your company is going to make i don't even want to read
it but basically it starts talking about the story of the company or basically it's like in the beginning there was this problem and we're gonna go through this issue right and then there's these bad guys and they showed up but then who's gonna save us we're finally here to save and you're like i have to read another thousand applications that's not gonna work for me this is the description on the actual application that airbnb put to yc airbnb is the first online marketplace that lets travelers book rooms with locals instead of hotels it's concise it's
descriptive i understand what they're building i have a sense for what they're making and then i can start thinking about my other two ideas of whether i'm excited about it and then am i going to like this team here's dropbox synchronizes files across your or your team's computers the thing about this is it's refreshing but also there's no pretense they don't they aren't playing defense i see a lot of company descriptions where they're like i'm worried about this or i've gotten this kind of feedback and so they give up clarity to make themselves look bigger
and blow themselves up or make themselves try to look more interesting they're trying to protect themselves against something away ahead of time and the whole problem is usually what it ends up doing is it brings me farther away from you all that padding that you've put on yourself here's a description from a company in the current batch lumini is building x-ray vision for soldiers and first responders we don't have to go deep into the details i don't need to understand how they exactly do this etc this creates a foundation for my curiosity now i will
start from here to try to figure out oh how do you do this is this the right team to do this how far along are they do they have traction do they have customers i start going down the route of asking all the right questions based off this one description this is a good one here's another one so vahan in the current patch is building linkedin for the next billion internet users so doesn't perfectly connect me to what they're sort of making but i'm intrigued i'm excited about someone building into linkedin and i know it's
some kind of social network for business people and so now i'm curious about how i don't need you to answer how in the description but i understand what you're doing and then now i can start making questions in my head about like how would i evaluate whether this is working or successful or promising or not are this is the right team do they have a certain amount of traction etc it gets me on the right track now the reason i've used this example is because we have a lot of companies who try to use the
x for y and what i mean by that is like linkedin for whatever or uber for blank or airbnb for blank and so that x for y is super useful because it allows you to shortcut business model and some kind of complex behavior right and then attach it to some other vertical or something that you're trying to make work x or y is okay but most people abuse it or do it incorrectly so i'm gonna give you some tips first should you use x for y uh sorry for your legibility number one is x a
household name this should be like a billion dollar company right you can't use uh your uncle's like pet shoe store as the x for this because people don't know your uncle's pet shoe store and they don't know if it's successful or not right so everyone as many people should know about this as possible and for an investor it should be clear that it's a billion dollar company opportunity everyone has to agree that it is successful so you could have a really big x everyone knows about it but it's infamous right so the people don't think
it's successful so be careful of that does y want x so is it really clear why the target that you're going after wants this kind of model applied to it this kind of solution applied to it whether it's airbnb 4 or airbnb or uber 4 etc it should be really clear that that's a segment that's either missing it it's not being served well by the other one and also that those people want to have that kind of model and then the third one is y should be a huge market so if you're building uh x
for y and the last part doesn't sound like a really big business that's not going to work well for you right because what we want because you're essentially saying that you are something but that's a subset and what we want to make sure is that subset feels like it could be really really big if you choose a subset that sounds like it's going to be really really small investors won't be as interested it doesn't me it means that i'm worried that you will not have enough potential headroom to grow to become a billion dollar company
so here's an example that doesn't work so we had a company in the batch that started off by describing themselves as buffer for snapchat buffer is a nice company but definitely smaller than snapchat so don't want to do that all right so basic summary for this section lead with what not why or how you don't need all that other stuff that stuff gets in the way of your clarity for the most part i'll read like a thousand applications every single batch and it's a really hard thing to do basically even though it's my job it's
really really difficult to have that much focused attention across all these different applications so i need some empathy i need you to help me out and what we want is that when i bring up your application and i'm looking at it let's make our intimate time really pleasurable right let's make the time that i spend on an idea very efficient i'll look at it i'll understand really clearly i'll move around your application and be like oh i'm kind of excited maybe there's going to have this and i'll look at that part i'm like oh they
do have it that sounds awesome oh what about this oh that sounds awesome too what we don't want is media to go like i don't know what what are they talking about then i have to like go to your website i'm like don't know what they're talking about i don't know how this sort of works i go back to it i try to figure something else out i try to see if like some other partner might understand what you're doing etc super inefficient is there going to be room for me to get excited as a
result so to be efficient we need to be concise concise the best way i want to keep this in mind is to use some examples and so here's some things i need you to keep in mind yes i want you to be concise use as few words as possible and what i want you to understand is the concision is actually gives me secondary information about you as a team it lets me one know that you have thought deeply about your idea because you thought so deeply about it and because you've practiced talking about it so
much and you've gotten really good at getting people excited and understanding everything really quickly you probably have figured out how to do it in a short amount of time so it lets me know that this is a founder that has thought deeply about the idea the other thing about being concise it shows me that you are efficient and if you are efficient with your words then you're probably efficient with your thoughts that means you're probably also efficient with your actions and what that means is that i will start to believe that you understand what is
most important about your business you understand how to communicate it clearly and you might actually know how to always figure out the most important part of what to do about your company to make it grow to make it work etc so there's a minimum stuff that we want to have even though we're trying to be as concise as possible again i want to understand the nouns so if we're so concise that i can't understand these then your concision is too much the other is i want to get to this point when i read the concision
or this short version of whatever it is you're talking about because again i know there's like a hundred thousand reasons why your company is great but when i'm reading your application i'm only going to maybe remember two to three of them and so we have to try to make sure those most important ones come up to the top this is a real startup school company description it's an online e-commerce store i can picture what it is but again it's not a description that helps me get excited about it it doesn't help me lead to all
the other things i have to do now more work to understand why this is fast growing and his potential i also don't know based on this some nouns i don't know exactly who the customer is is it people that they're selling stuff to or are they making an e-commerce store for other shop owners just ambiguity security services this is most of the descriptions that we see on startup school it makes it really hard for us to understand it a meritocratic decision support system the thing is i want to know for what for whom i don't
even understand what the problem is that they're solving based off of this and so is it for is it because a lot of people have non-merit basically i have to ask so many questions in my head to figure out why did they get to this sort of description learn and sharing knowledge about data science and artificial intelligence sounds more like a mission i can't tell what the product is and how they're so we're going to go about it like i couldn't reproduce this if i had 10 companies build based off this description you'd have 10
very different products the other thing that's odd about company descriptions is you guys tend to capitalize and make proper nouns very weird words and phrases you should not do that it's not like a magazine title um and it makes me think sometimes you're emphasizing the wrong things like you're thinking the data science and artificial intelligence is the thing that's going to make me excited and the thing is like those are the buzzwords those are the solutions and it makes me worried that you haven't started with a problem let's give an example of like how to
adjust a description so here's a much longer one so our company will make low-cost and low-power consumption medical devices based on artificial intelligence and iot suitable for sub-saharan communities now relatively clear i can understand it reading it but it's not the most concise form of this and i feel like there's a lot of things get in the way and so when i work with companies to help shrink and reduce and improve their descriptions so that i will get the most out of it um i want to talk through the process the first thing i want
to do is just figure out what are the nouns in the description here we go our company medical devices for sub-saharan communities oh we're almost done right everything else that gets added on here whatever verb adjectives or average you want you want to be really careful you want to know like is it giving maximum punch for this right and so really the verb is going to be usually just you're making something etc um but usually it's going to be whatever the product like the verb is like the thing that we're making if we're thinking about
this in an active voice structure the subject the verb and then the object the customer the market the people we're going after everything else if we add anything back to this i really want to be really careful about why we're going to add back to it is that going to be the stuff that makes me excited so the artificial intelligence and iot suitable stuff that's like how they're one gathering the technology and i'm more worried that they're wanting to use buzzwords to describe it right hopefully that's like a secret weapon that you have but i
bet it's not the defining characteristics of whether this company is successful or not and then up here i see two modifiers for medical devices low cost low power consumption so low cost i can definitely see that's super interesting if you make a low-cost device in sub-saharan community then i'm like oh that's interest that's really interesting because that's like it's hard just to make something you know for developing countries but to make it so it's actually affordable for them that'd be interesting the low power consumption i can give or take there i'd have to know more
about the company to know whether that's actually crucial to understanding whether this company has an unfair advantage or not so if i was to redo this we come out to we create affordable medical devices for sub-saharan africa some people are going to be very screamish about this a lot of founders are worried it's like you're putting me in a box man it's too reductive my business is complex i do a lot of things and a lot of things make me great i want to tell you all of them and the thing is like you don't
have time and i know it as an investor there's no investor that thinks any business is like simple and easy i just don't think that from the default so you shouldn't be worried that i'm going to think something small of it and again you want to be careful of the defense on here once i get to this then i'll start asking the other questions it creates that foundation for curiosity all right we're pretty much here at the end the best way to help me and i would love for you to help me is to be
clear and concise thank you very much you