Lecture 1 - How to Start a Startup (Sam Altman, Dustin Moskovitz)

welcome um can they turn this on maybe all right uh people here in the back can you guys hear me is the mic on no uh maybe you can ask them to turn it on maybe we can get a big ah there we go all right maybe we can get a bigger Auditorium we'll see so welcome to cs1 183b I'm Sam Alman I'm the president of Y combinator 9 years ago I was a Stanford student and then I dropped out to start a company uh and then I've been an investor for the last few so

at YC um we've been teaching people how to start startups for 9 years most of it's very Hands-On and specific to the startups but 30% of it is pretty generally applicable and so we think that we can teach that 30% in this class and even though that's only 30% of the way there uh hopefully it'll still be really helpful we've taught a lot of this at YC already um but it's all been off the Record and this is the first time that a lot of what we teach in YC is going to be on the

record so we've invited some of our best speakers to come and give the same talks they give at YC um we've now funded 720 companies and so we're pretty sure that a lot of this advice is pretty good we can't fund every startup yet but we can hopefully make this advice very generally available guest speakers are going to teach 17 of the 20 classes and only teaching three uh counting YC itself every guest speaker has been involved in the creation of a billion plus dollar company so the advice shouldn't be that theoretical um it's all

been it's all from people who have done it all the advice in this class is geared towards people starting a business where the goal is hyper growth and eventually building a very large company much of it doesn't apply in other cases and I want to warn people upfront that if you try and do these things in a lot of big companies or non-st startups it won't work it should still be interesting I I really do think that startups are the way of the future and it's worth trying to understand them but startups are very different

than normal companies so over the course of today Thursday I'm going to try to give an overview of the four areas that you need to excel at in order to maximize your chances of success a startup and then throughout the course the guest speakers are going to drill into all of these in more detail so the four areas you need a great idea a great product a great team and great execution these overlap somewhat but I'm going to have to talk about them somewhat individually to make it make sense you may still fail uh the

outcome is something like idea times product time execution time team times luck where luck is a random number between 0 and 10,000 uh literally that much but if you do really well on the fours you can control you have a good chance at at least some amount of success one of the exciting things about startups is that they are surprisingly even playing field young and inexperience you can do this old and very experienced you can do this too and one of the things that I particularly like about startups is that some of the things that

are bad in other work situations like being poor and unknown are actually huge assets when when it comes to starting a startup before we jump in on the how I want to talk about why you should start a startup I'm somewhat hesitant to be doing this class at all because you should never start a startup just for the sake of doing so there are much easier ways to get rich and everyone who starts a startup always says always that they couldn't have imagined how hard and painful it was going to be you should only start

a startup if you comp feel compelled by a particular problem and that you think starting a company is the best way to solve it the specific passion should come first and the startup second in fact all of the big successes we have at YC followed this so for the second half of today's lecture Dustin movitz the co-founder of Facebook and Asana is going to take over and talk about why to start a startup we're so surprised by the amount of attention that this class got that we want to make sure we spend a lot of

time on the why okay so the first of the four areas a great idea it's become popular in recent years to say that the idea doesn't matter in fact it's almost uncool to spend a lot of time thinking about the idea for a startup you're just supposed to start throw stuff at the wall see what sticks and not even spend any time thinking about if it'll be valuable if it works and pivots are supposed to be great the more pivots the better um so this isn't totally wrong things do evolve in ways that are difficult

to predict and there's a limit to how much you can figure out without actually getting a product in the hands of users um and great execution is at least 10 times more important and 100 times harder than a good idea but the pendulum has swung way out of whack here a bad idea is still bad uh and the pivot happy world that we're in today feels really suboptimal great execution towards a terrible idea will get you nowhere there are exceptions of course but most great companies start with a great idea not a pivot if you

look at successful pivots they almost always are EP pivoted into something the founders themselves wanted not a random madeup idea Airbnb happened because Brian chesky couldn't pay his rent but he did have some extra space in general though if you look at the track recet of pivots they don't become big companies I myself used to believe ideas didn't matter that much um but I'm very sure that's wrong now the definition of the idea as we talk about it is very broad it includes the size and the growth of the market the growth strategy for the

company the defensibility strategy and so on when you're evaluate an idea you need to think through all these things not just the product if it works out you're going to be working on this for 10 years so it's worth some real upfront time to think through the long-term value and the defensibility of the business even though plans themselves are worthless the exercise of planning is really valuable and totally missing in most startups today long-term thinking is so weere anywhere but especially in startups that it's a huge Advantage if you do it remember that the idea

will expand and become more ambitious as you go you certainly don't need to have everything figured out in a path from here to World Domination but you really want a nice kernel to start with you want something that can develop in interesting ways as you're thinking through ideas another thing that we see young Founders get wrong all the time is that someday you need to build a business that's difficult to replicate this is an important part of a good idea I want to make this point again because it's so important the idea should come first

and the startup should come second wait to start a startup until you come up with an idea you feel compelled to explore this is also the way to choose between multiple ideas if you have several ideas that all seem pretty good work on the one that you think about most often when you're not trying to think about work but we hear again and again from Founders that they wish they had waited start a startup until they came up with an idea that they really loved another way of looking at this is that the best companies

are almost always Mission oriented it's difficult to get large groups of people to the extreme levels of focus and productivity that you need for a startup to be successful unless the company feels like an important Mission and it's usually really hard to get that without a great founding idea a related advantage of mission oriented ideas is that you yourself will be dedicated to them it takes years and years usually a decade to create a great startup if you don't love and believe in what you're building you'll likely to give up at some point along the

way there's no way I know of to get through the pain of a startup without belief that the mission really matters a lot of Founders especially students believe that their startups only going to take 2 or 3 years and then after that they'll work on what they're really passionate about that almost never works good startups usually take 10 years a third advantage of mission oriented companies is that people outside the company are more willing to help you you'll get more support on a hard important project than a derivative one when it comes to starting startups

in many ways it's easier to start a hard startup than an easy startup this is one of those counterintuitive things it takes people a long time to understand it's difficult to overstate how important being Mission driven is so I want to emphasize it one last time derivative companies companies that copy an existing idea with very few new insights don't excite people and they don't compel the teams to work hard enough to be successful Paul Graham is going to talk about how to get startup ideas next week it's something that a lot of Founders struggle with

but it's something I believe you can get better with it better at with practice and it's definitely worth trying to get better at the hardest part about coming up with great ideas is that the best ideas often look terrible at the beginning the 13th search engine and without all the features of a web portal most people thought that was pointless search was done and anyway didn't matter that much portals were where the value was at the 10th social network and limited only to college students with no money also terrible Myspace had won and who wants

college students as customers or a way to stay on Strangers couches that just sounds terrible all around these all sounded really bad but they turned out to be good if they had sounded really good there would have been too many people working on them as Peter te is going to discuss in the fifth class you want an idea that turns into a monopoly but you can't get a monopoly in a big big market right away too much competition for that you have to find a small Market in which you can get a monopoly and then

quickly expand this is why some great startup ideas look really bad at the beginning it's good if you can say something like today only the small subset of users are going to use my product but I'm going to get all of them and in the future almost everyone will use my product here's a theme that's going to come up a lot you need conviction in your own beliefs and a willingness to ignore others naysaying the hard part is that this is a very fine line there's right on one side of it and crazy on the

other but keep in mind that if you do come up with a great idea most people are going to think it's bad you should be happy about that means they won't compete with you this is also a reason why it's not usually dangerous to tell people about your idea the truly good ideas don't sound like they're worth stealing you want an idea about which you can say I know it sounds like a bad idea but here's specifically why it's actually a great one you want to sound crazy but you want to actually be right and

you want an idea that not many other people are working on and it's okay if it doesn't sound big at first Common mistake among Founders especially first time Founders is they think that the first version of their product the first version of their idea needs to sound really big but it doesn't it needs to take over a small specific market and expand from there that's how most great companies have started unpopular but right is what you're going for you want something that sounds like a bad idea but is a good idea you also really want

to take the time to think about how the Market's going to evolve you need a market that's going to be big in 10 years most investors are obsessed with the market size today and they don't think at all about how the Market's going to evolve in fact I think this is one of the biggest systemic mistakes that investors make they think about the growth of the startup itself they don't think about the growth of the market I care much more about the growth rate of the market than its current size and I also care if

there's any reason that it's going to top out you should think about this um I'd prefer to invest in a company that's going after a small but rapidly growing Market than a big but slow growing one one of the big advantages of these sorts of markets um these small but rapidly growing markets is that customers are usually pretty desperate for a solution and they'll put up with an imperfect but rapidly improving product and a big advantage of being a student one of the two biggest advantages um is that you probably have better intuition about which

markets are likely to start growing rapidly than older people do another thing that students usually don't understand or at least takes a while um you cannot create a market that doesn't want to exist you can basically change everything in a startup but the market so you should actually do some thinking to be sure or at least as sure as you can be that the market you're going after is going to grow and be there there are a lot of different ways to talk about the right kind of market for example surfing someone else's wave or

stepping into an up elevator or being part of a movement but all of this is just a way of saying you want a market it's going to grow really quickly it may seem small today it may be small today but you know and other people don't that it's going to grow really fast so think about where this is happening in the world you need this sort of a Tailwind to make a startup successful the exciting thing is there are probably more of these Tailwinds now than ever before as Mark andrion says software is eating the

world um it's just everywhere they're like so many great ideas out there um and you just have to pick one and find one that you really care about another version of this that gets down to the same idea is Sea's famous question why now why is this the perfect time for this particular idea and to start this particular company why couldn't it have been done two years ago and why will two years in the future be too late for the most successful startups we've been involved with they've all had a great idea great answer to

this question and if you don't you should be at least somewhat suspicious about it in general it's best if you're building something that you yourself need you'll understand it much better than if you have to understand it by talking to a customer to build the very first version if you don't need it yourself and you're building something that someone else needs realize that you're at a big disadvantage and get very very close to your customers try to work in their office if you can and if not talk to them multiple times a day another somewhat

counterintuitive thing about good startup ideas is that they're almost always very easy to explain and very easy to understand if it takes more than a sentence to explain what you're doing um it's almost always a sign that it's too complicated it should be a clearly articulate articulated Vision with a small number of words and the best ideas are usually either very different from existing companies in one important way uh like Google being a search engine that worked just really well and none of the other stuff of the portals or totally new like SpaceX any company

that's a clone of something else that already exists with some small or madeup differentiator like we're going to be X beautiful design or we're going to be y for people that like red wine instead um that usually fails so as I mentioned um one of the great things about being a student is that you have a very good perspective on new technology um and learning to get good at having new ideas takes a while so start working on that right now um that's one thing we hear from people all the time that they wish they

had done more of when they were a student the other is meeting potential co-founders um you have no idea how good of an environment you're in right now for meeting people that you can start a company with down the road uh and the one thing that we always tell college students is more important than starting any particular startup is getting to know a lot of potential co-founders so I want to finish this section of my talk um with a quote from 50 this is um this is from when he was asked about Vitamin Water um

I won't read it it's up there uh but it's about the importance of thinking about what customers want and thinking about the demands of the market um most people don't do this most students especially don't do this if you can just do this one thing if you can just learn to think about the market first you will have a big leg up on most people starting startups uh and this is something this is probably the thing that we see wrong with YC combinator apps most frequently is that people have not thought about the market first

and what people want first so for the next section I'm going to talk about building a great product um and here again I'm going to use a very broad definition of product it includes customer support and copyright explaining the product anything involved in your customer's interaction with what you built from them to build a really great company you first have to turn a great idea into a great product this is really hard but it's crucially important and fortunately it's pretty fun although great products are always new to the world and it's hard to give you

advice about what to build there are enough commonalities that we can give you a lot of advice about how to build it one of the most important tasks for a Founder is to make sure that the company builds a great product until you've built a great product almost nothing else matters when really successful startup Founders tell the story of their early days it's almost always sitting in front of the computer working on their product or talking to their customers that's pretty much all the time they do very little else and you should be very skeptical

if your time allocation is much different most other problems that Founders are trying to solve raising money getting more press hiring Business Development Etc these are significantly easier when you have a great product it's really important to take care of that first step one is to build something that users love and YC we tell Founders to work on their product talk to users exercise eat and sleep and very little else all the other stuff I just mentioned PR conferences recruiting advisers doing Partnerships you should ignore all of that and just build a product and then

get it as good as possible by talking to your users your job is to build something that users love very few companies that go on to be super successful get there without first doing this a lot of good onp paper startups fail because they merely make something that people like making something that people want but only a medium amount is a great way to fail and not understand why you're failing so these are the two jobs something that we say at YC a lot is that it's better to build a small number it's better to

build something that a small number of users love than a large number of users like of course it'd be best to build something that a small number of users love but opportunities to do that for V1 are rare and they're usually not available to startups so in practice you end up choosing either the gray or the orange you make something that a lot of users like a little bit or something that a small number of users like love a lot and this is a very important piece of advice build something that a small number of

users love it's much easier to expand from something that a small number of people love to something that a lot of people love then from something that a lot of people like to a lot of people love if you get this right you can get a lot of other things wrong if you don't get this right you can get everything else right and you'll probably still fail so when you start on a startup this is the only thing you need to care about until it's working okay sure so you have a choice in a startup

the best thing of all worlds would be to build a product that a lot of people really love um in practice you can't usually do that because a big company if there's an opportunity like that Google or Facebook will do it so there's like a limit to the area under the curve of what you can build and you can either build something that a lot of users like a little bit uh or you can build something that a small number of users love a lot and like the total amount of Love is the same it's

just a question of How It's distributed um and there's like this law of conservation of how much happiness you can put into the world with the first product of a startup um and so startups always struggle with which of those two they should go and they seem equal right because the area under the curve is the same um but we've seen this time in again that they're not and that it's so much easier to expand once you've got something that some people love you can expand that something that a lot of other people love but

if you only get ambivalence or sort of like weak enthusiasm and then try to expand that you'll never get up to a lot of people loving it so the advice is uh find a small group of users and make them really love what you're doing does that make sense all right one way that you know when this is working is that you'll get growth By Word of Mouth um if you make something people love uh people will tell their friends about it this works for Consumer products and Enterprise Products as well when people really love

something they tell their friends about it and you'll see organic growth if you find find yourself talking about how it's okay that you're not growing um because there's a big partnership that's going to come save you or something like that it's almost always a sign of real trouble sales and marketing are really important and we're going to have two classes on them later but if you don't have some early organic growth then your product probably isn't good enough yet a great product is the secret to long-term growth hacking you should get that right before you

worry about anything else it doesn't get easier to put off making a great product if you try to build a growth machine before you have a product that some people really love you're almost certainly going to waste your time breakout companies almost always have a product that's so good that it grows By Word of Mouth over the long run great products win don't worry about your competitors raising a lot of money and what they may do in the future they probably aren't very good anyway very few startups die from competition most die because they themselves

fail to make something users love they spend their time on other things so worry about this Above All Else another piece of advice to make something that users love start with something simple it's much much easier to make a great product if you have something simple even if your eventual plans are super complex and hopefully they are you can almost always start with a smaller subset of the problem than whatever you think is the smallest and it's hard to build a great product so you want to start with as little surface areas possible think about

the really successful companies and what they started with think about products that you really love they're generally incredibly simple to use and especially to get started using the first version of Facebook was almost comically simple the first version of Google was just an ugly web page with a text box and two buttons but it returned the best results and that's why users loved it the iPhone is far simpler to use than any smartphone that ever came before it and it was the first one that people really loved another reason that simple's good is because it

forces you to do one thing extremely well and you have to do that to make something that people [Applause] love the word fanatical comes up again and again when you listen to successful Founders talk about how they think about their product Founders talk about being fanatical in the way they care about the quality of the small details fanatical in getting the copy that they use to explain the product just right and fanatical in the way they think about customer support in fact one thing that correlates with success among the YC companies is the founders that

hook up pagro duty to their ticketing system so that even if a user emails in the middle of the night when the founders are asleep they still get a response within an hour um companies actually do this in the early days these Founders feel physical pain when the product sucks and they want to wake up and fix it they don't ship crap and if they do they fix it very very quickly and it definitely takes some level of fanaticism to build a great product you need some users to help with the feedback cycle um but

the way to get those users is manually you should go recruit them by hand um don't do things like buy Google ads in the early days to get initial users you don't need very many you just need ones that will give you feedback every day and eventually love your product so instead of trying to get them on Google AdWords just find a few people in the world that will be good users recruit them by hand Ben Silverman uh when everyone thought Pinterest was a joke recruited the initial Pinterest users by chatting up strangers in coffee

shops he really did he just walked around Palo Alto and said will you please use my product um he also used to run around the Apple Store in Palo Alto and he would like set all the browsers to the Pinterest home page real quick before they caught him and kicked him out um so then when people walked in there they're like oh what is this um this is an important example of doing things that don't scale if you haven't read Paul Gram's essay on that topic you definitely should so get users manually and remember that

the goal is to get a small group of them to love you understand that group extremely well get extremely close to them close to them listen to them and you'll almost always find out that they're very willing to give you feedback even if you're building the product for yourself listen to outside users and they'll tell you how to make a product they'll pay for do whatever you need to make them love you make them what you're doing because they're also going to be The Advocates that help you get your next users you want to build

an engine in the company that transforms feedback from users into product decisions then get it back in front of the users and repeat ask them what they like and what they don't like and watch them use it ask them what they pay for ask them if they'd be really bummed if your company went away ask them what would make them recommend the product to their friends and ask them if they've recommended it to any yet you should make this feedback loop as tied as possible if your product gets 10% better every week that compounds really

really quickly one of the great advantages of start of software startups is just how short you can make the feedback loop it can be measured in hours and the best companies usually have the tightest feedback loops you should try to keep this going for all of your company's life but it's really important in the early days the good news is that all of this is doable it's hard it takes a lot of effort but there's no magic the plan is at least straightforward and you will eventually get to a great product great Founders don't put

anyone between themselves and their users the founders of these companies do things like sales and customers support themselves in the early days it's critical to get this Loop embedded in the culture in fact a specific problem that we always see with Stanford startups for some reason is that the students try and hire sales and customer support people right away and you got to do this yourself it's the only way you really need to use metrics to keep yourself honest on this um it really is true that the company will build whatever the CEO decides to

measure if you're building an internet service ignore things like total registrations don't talk about them don't let anyone in the company talk about them and look at growth in active users activity levels cohort retention Revenue net from motor scores these things that matter and then be brutally honest if they aren't going in the right direction startups live on growth it's the indicator of a great product so this about wraps up the overview on building a great product I want to emphasize again that if you don't get this right nothing else we talk about in the

class will matter um you can basically ignore everything else that we talk about until this is working well on the positive side this is one of the most fun parts of building a startup so I'm going to pause here I'll pick back up with the rest of this on Thursday and now we're going to have Dustin talk about um why you should start a startup thank you for coming Justin sure uh but yeah so Sam asked me to talk about um why you should start a startup there's a bunch of reasons you might have um

and uh there's a bunch of common reasons that people have that I hear all the time for for why you might start a startup um it's important to know like what reason is yours because some of them only make sense in in certain context uh some of them will actually like Lead You astray you may have been misled by the way that uh Hollywood or the likes to romanticize entrepreneurship so I want to try and like illuminate um you know some of those potential fallacies so you guys can can make the decision in a clear

way uh and then uh I'll talk about the the reason I like best for actually starting a startup uh it's very related to a lot of what uh Sam just talked about um but surprisingly I don't think it's the most common reason uh usually people have one of these other reasons um or they just want to start up you know start a company for the sake of starting a company um so the the four common reasons uh just to enumerate are it's glamorous um you know you'll be you'll get to be the boss uh you'll

have flexibility especially over your schedule um and you'll have the chance to have you know bigger impact and make more money than you than you might uh by joining a later Stage Company so okay so uh you know you guys are probably pretty familiar with this concept when I wrote the medium post which a lot of you guys read a year ago uh I felt like the story in the Press was a little more unbalanced uh you know entrepreneurship just got romant sythesized quite a bit um you know the movie with social network came out

had a lot of sort of like bad aspects of of you know what it's like to be an entrepreneur but mainly uh sort of painted this picture of like there's a lot of partying and you kind of moved from like one brilliant insight to another brilliant Insight um and really made it you know seem like this like really cool thing to do um and I think the reality uh is just you know not quite So Glamorous there's sort of there's an ugly side to uh being an entrepreneur uh and also just more importantly uh what

what you're actually spending your time on is is just a lot of hard work uh Sam mentioned this but you're basically just sitting at your desk heads down focused um answering customer customer support emails doing sales figuring out hard engineering problems um so it's really important that you kind of like go in with with eyes wide open uh and then also it's it's really uh quite stressful um this has been a popular Topic in the Press lately uh The Economist actually ran a story just last week called like entrepreneurs Anonymous and shows like a Founder

kind of like hiding under his desk um and talking about like founder depression um this is like a very real thing like you know let's be real this if you start a company it's going to be extremely hard um why is it so stressful so a couple reasons um one is you've got a lot of responsibility uh so uh people in any kind of career have fear of failure it's kind of just like a dominant part of the psychology but when you're an entrepreneur uh you have fear of failure on behalf of yourself and all

of the people who decided to follow you uh so that's really stressful um in some cases these people are depending on you for their livelihood even when that's not true they've decided to devote the the best of your years of their life to following you um and so you're responsible for the opportunity cost of their time uh so that's a big deal um and you're always on call uh if something comes up uh maybe not always at 3: in the morning but for some startups that's true uh but if something important comes up you're going

to deal with it that's kind of the end of the story doesn't matter if you're on vacation doesn't matter if it's the weekend um you kind of always got to be on the ball and always be in a in a place mentally where you're prepared to deal with those things um and then uh a sort of special example of that is is uh or this kind of stress is fundraising uh so seen from The Social Network This Is Us partying and working at the same time somebody's spraying champagne everywhere um you know uh so the

social network spends a lot of time kind of painting these scenes uh Mark's not in the scene the other thing they spend all their time on is kind of like painting him out to be a huge jerk um this computer yeah oh okay so this is an an actual scene for um see I'm going to move this just a little oh no this will work this work this will work okay on the PDF as well yeah okay okay cool uh this is an actual scene from pal Alto um spent a lot of time at this

desk just kind of heads down in Focus uh Mark was still kind of a jerk sometimes but in this more like fun lovable way and not a like sociopathic scorn lover way um so this is him like signaling his intention to you know just be focused in keep working not be social um so then there's also the scene sort of demonstrating the like brilliant Insight moment uh it's kind of like straight out of a beautiful mind literally sto that scene um so they like to paint it is you just kind of like jump from one

of these moments to to the other moment with like parting in between but really we just at that table the whole time so interestingly if you compare this to the other photo Mark is in the exact same position but he's wearing different clothes this is definitely a different day um so cool so that's what that's what it's actually like in person um and I just covered this bullet up here this is the economist article I was talking about a second ago um so another form of of uh stress is just like unwanted media attention uh

so part of it being glamorous you get some positive media attention sometimes it's nice to be on like the cover of time and like be the person of the year um it's maybe a little less nice to be on the cover of people with like one of your wedding photos uh depends who you are some people would like that I'd really hate it um but when valleywag like you know analyzes your lecture and just tears you apart like you definitely don't want that nobody wants that um and then one thing I almost never hear people

talk about is you're just a lot more committed um so if you're an employee of a startup um and you know things are stressful it's not going well you're unhappy you can just leave uh for a Founder uh you can leave but it's it's very uncool uh pretty much a black eye in the rest of your career um and so you really are committed uh you know for 10 years if it's going well uh probably more like 5 years if it's not going well um so 3 years to figure out that it's not going well

and then if you find like a nice landing for your company another two years at the acquiring company um and if you leave before that again it's not only going to harm yourself financially it's going to harm all your employees so you pretty much don't um so if you're lucky and you have a bad startup idea you fail quickly um but most of the time it's not like that all right moving right along um so uh and I should say I I've had a lot of this stress in my own life uh especially in the

early years of Facebook um you know I just got really unhealthy I wasn't exercising had a lot of anxiety actually like throughout my back like almost every six months like when I was like 21 22 which is like pretty crazy um and so if you do start a company um make you know be aware that you're going to have to deal with this and you have to actually manage it it's actually like one of your core responsibilities uh Ben Horowitz likes to say like the number one role of a CEO is managing your own psychology

it's absolutely true make sure you do it um so another reason uh so people uh especially if they've already had a job at another company you tend to develop this Narrative of like okay like the people running this company are idiots they're making all these stupid decisions they're spending their time in in these stupid ways uh I'm going to start a company and I'm going to do it better I'm going to like set all the rules um it's a pretty attractive idea um makes a lot of sense uh if you've read my medium post you

know it's coming I'll give you guys a second to read this quote um cool so this this really resonates with me um and one thing I'd point out is uh you know the reality of these decis decisions is pretty Nu nuanced uh the people you thought were idiots probably weren't idiots they probably just had like really difficult decision in front of them and people pulling them in multiple directions um so the most common thing I have to uh spend my time on and and focus my energy on as as a CEO is like the problems

that like other people are bringing to me the the other priorities that people create um and it's usually in the form of a conflict uh people want to go in different directions or like customers want different things and like I might have my own opinion about that um but really the the game I'm playing is like who do I disappoint the least um and like just trying to like navigate all all these difficult situations um and even on a day-to-day basis I might come in on Monday and like have all these you know Grand plans

for like how I'm going to improve the company and what I'm going to spend my time on but then if like an important is threatening to quit that's what I'm spending my time on that's my number one priority um so a subset of your the boss is you have flexibility uh you have control over your own schedule this is a really attractive idea so here's the reality another full live in quote um so this this really res resonates with me as well um and some of the reasons for this again you're always on call so

maybe you don't intend to work uh all parts of the day but you might not get to control which ones um your a role model this is super important so if you're an employee of a company um you might have some good weeks you might have some bad weeks some weeks when you're you're low energy maybe you want to take a couple extra days off um that's really bad if you're you're an entrepreneur like your team will really uh signal off what you're bringing to the table and so if you take your foot off the

gas so will they um and uh you're always working anyway so if you're really passionate about an idea it's just going to like pull you to to keep working on it um if you're working with great investors if you're working with great Partners they're going to want to be working really hard they're going to want you to be working really hard uh and again you're going to want to work really hard um so some uh some companies like to tell the story about you can have your cake and eat it too you can have like

4 day work weeks maybe if you're if you're Tim Ferris maybe you can have a 12-h hour work week um it's really attractive idea uh and it does work in a particular instance which is if you want to like actually have a small business or go after a niche market then you're a small business entrepreneur that makes total sense but as soon as you get past like two or three people uh you really need to step it up and and be full-time committed um cool so this is the big one uh so this is the

the one I hear the most um especially like candidates applying to a sauna um they tell me you know I'd really like to work for for a much smaller company or start my own because uh then I have a much bigger slice of the pie I'll have much more impact on how that company does um and I'll have more Equity so I'll make more money as well so let's examine when this might be true um so I'll explain these tables uh they're a little complex but let's focus on the left first um so these this

is just explaining Dropbox and Facebook these are their current valuations um and this is how much money you might make as uh employee number 100 coming into these companies um especially if you're uh like an exper a relatively experienced engineer like you have like 5 years of of Industry experience you're pretty likely to have an offer that's around 10 basis points um so if you joined Dropbox a couple years ago the upside you'd have already locked in is about 10 million there's plenty more growth from there if you leave in the company um if you

joined Facebook a couple years into its existence you made $200 million this is a huge number uh and if you um even if you joined Facebook as employee number 1,000 so you joined it in like 2009 uh you still made $20 million that's a giant number uh and that's how you should be benchmarking when you're thinking about what might I make as an entrepreneur so moving over to the table on the right uh these are two theoretical companies you might start um so Uber for pet sitting pretty good idea um if you're if you're really

well suited to this you might have a really good shot at building a $100 million company uh and then your share of that company is pretty likely to be about 10% um this certainly fluctuates some Founders have a lot more than this some have a lot less but after multiple rounds of dilution uh multiple rounds of option table uh uh option pool creation you're pretty likely to end up about here um if you have more than this I'd recommend Sam's post on like the equity uh split between Founders and employees you probably should be giving

out more um and then uh but uh so basically if you're extremely confident about building this $100 million business which is a big ask um it should go without saying that you should have a lot more confidence in Facebook in 2009 or Dropbox in 2014 then you might um for a startup that doesn't even exist yet um then this is worth doing so if you have a $100 million idea and you're pretty confident you can execute it I would consider that uh if you think you're the right entrepreneur to build Uber Uber for space travel

that's a really huge idea2 billion idea uh you're actually going to have a pretty good return for that you should definitely do that um this is also only the value after four years and this idea probably has legs uh so definitely go after that if if you're thinking of building that you probably shouldn't even be in this class right now you just go and go and build that company um so why is this uh Financial reward in and impact uh I really think that Financial rewards very strongly correlated with the impact you have on the

world um if you don't believe that uh let's talk through some specific examples uh and not think about the equity at all um so why am I joining uh late Stage Company actually provide you a lot of impact you get this Force M multiplier they have an existing massive user base if it's Facebook it's a billion users or if it's Google it's a billion users um they have existing infrastructure you get to build on that's also increasingly true for new startups thanks to like AWS and all these like awesome uh independent service providers um but

you you usually get some like proi proprietary technology and it's all maintained for you it's a pretty great place to start uh and you get to work with a team and they'll help you just leverage your idea into something great so a couple specific examples uh Brett Taylor came into employee around or came into Google as around employee number 1500 uh and he invented Google Maps this is a product you guys probably use every day I used it to get here um and it's used by hundreds of millions of people all around the world didn't

need to start a company to do that did happen to get a big Financial reward um but the point is you had massive impact um my co-founder Justin Rosenstein joined Google a little later after Brett uh he was a PM there um and just as a side project he ended up prototyping uh chat used which used to be a standalone app uh as integrated into Gmail like you see it in the upper right there um and before he did that like people didn't even think you could do chat over Ajax or chat the browser at

all uh and he just kind of like demonstrated it and showed it to uh his team and then they made it happen and again this is this is probably a product most of you use maybe every day uh and then perhaps even more impressively shortly after that J left he became employee around number 250 at Facebook um and he led a hackathon project along with uh people like Andrew Bosworth and leam Perman uh to create the like button so this is one of the most popular elements anywhere on the web totally changes how people use

it uh and again didn't need to start a company to do it and almost certainly would have failed if he had tried because he really needed the distribution of Facebook to make it work so important to to keep in mind the context for uh what kind of company you're trying to start and like where will you actually be able to make it happen um so what's the best reason so Sam already talked about this a little bit but basically you can't not do it you're super passionate about this idea you're the right person to do

it you've got to make it happen so how does this break down um so we're getting close to the end here on I doing have time sweet perfect um so uh this this is sort of like a word play uh you can't not do it in two ways one is you're so passionate about it that you just like you have to do it you're going to do it anyway um and this is really important because you'll need that passion to get through all of those like hard parts of being an entrepreneur that we talked about

earlier um you'll also need it to effectively recruit candidates can smell when you don't have passion um and they're enough entrepreneurs out there who do have passion that they may as well work for one of those uh so this is sort of like table Stakes for being an entrepreneur um your subconscious can also tell when you don't have passion and that'll be a huge problem um and then so the other way to interpret this is the world needs you to do it um so this is sort of validation that the idea is important it's going

to make the world better so the world needs it um if it's not if it's not something the world needs go to something the world needs new time's really valuable um there are plenty of good ideas out there maybe it's not one of your own maybe it's an existing company but you may as well work on something uh that's going to be good um and then the second way to interpret this is the world needs you to do it you're actually well suited to this problem in some way um if this isn't true um it

may be a sign that um your time is better spent somewhere else uh but also just best case scenario if this isn't true you out compete the team for which it is true and you just end up with like a suboptimal outcome for the world that doesn't feel very good um so drawing this back to my own experience um uh at ass SAA you know Justin I were kind of like reluctant entrepreneurs um uh before we founded a sauna so we're working at Facebook we're already working on a great problem um and we would basically

work all day long on our normal projects and then at night we would keep working on this internal task manager uh that was used internally at the company uh and it was just because we were like so passionate about the idea it was so clearly valuable that we couldn't do anything else um and it's some point we had to have the hard conversation of like okay well what does it mean if we don't actually start this company uh pretty we were able to see the impact it was having on Facebook we were pretty convinced it

could be really valuable for the world we're also pretty convinced nobody else was going to build it uh the problem had been around a long time and we just kept seeing sort of incremental solutions to it so if we didn't go out with the one that we thought was best we thought there'd be a lot of value left on the table um and yeah so we just couldn't couldn't stop working on it um and literally the idea was like beating itself out of our chest like forcing itself into the world uh and I think that's

the feeling you should really be looking for when you start a company that's how you know you have the right idea um so I'll go ahead and stop there I'll put some recommended books up here but won't narrate them and maybe that's the end of the class yeah yeah thank you um maybe DUS can stick around for a few minutes if you have questions for him and uh see you Thursday thank you