How Do Billion Dollar Startups Start?

every founder looks at Airbnb and just imagines Airbnb in the early days must have been something special and actually they kind of all look the same for Founders just starting out they think that the trajectory and the growth graph of all the successful startups looked like this you know just like constantly up and to the right and they don't see the early early days it might be hard to imagine but the founders of companies like Airbnb stripe and Dropbox at one point or another looked IND distinguishable from other startups getting started in their time we

like to put companies on a pedestal as if they were great from Day Zero but it isn't actually like that it's actually the tens of thousands of decisions along the way that made them great every company no matter how successful it becomes has to start somewhere and that is what you'll hear about today Jared I would love to hear about solugen I really like those guys I've talked to him a few times but I was not in the interview so what what was that interview like so solugen produces industrial chemicals primarily hydrogen peroxide for a

long time it was like just hydrogen peroxide and now they make other stuff so like hydrogen peroxide the the same stuff that you buy in like a drugstore that you put on like a cut or something that's what they make and they had invented a new process for making hydrogen peroxide that uses a new organic Catalyst and you don't need like massive heat and massive temperature and it won't blow up on you and because they had this process scale down they were able to start making really small quantities talk about humble beginnings I remember the

solagen interview um because it was a really fun one I this was back when interviews were so in person and if you remember back in the old iners days of interviews when people had like Hardware problems they would actually bring them to interviews and so it was great if it was food yeah we would eat they bring in hydrogen peroxide they literally brought in hydrogen peroxide um so they showed up to this interview and we're like sitting in this room and the hydrogen peroxide guys walk in and they literally have a beaker of hydrogen peroxide

which I think at the time was like most of the hydrogen peroxide they had ever produced and during the batch basically their goal was to figure out how to sell like bottles of hydrogen peroxide because they wanted to generate revenue and to prove that this was a real business so rather than trying to like raise aund million do to build like a giant facility they're they literally set up shop in their garage and they would just start making bottles of hydrogen peroxide and selling them to anybody who would buy a bottle of hydogen peroxide today

they actually have this huge plant in Houston that ships out like tanker truck fulls of hydrogen peroxide like every day in the interview what what did they say that convinced you well the cool thing thing was one these guys clearly had like great backgrounds to be doing this they they were definitely experts in this um but unlike some of the academic science folks that we interview from time to time these guys were doers they like they weren't waiting for anyone's permission to go do the thing they had like made the hydrogen peroxide and brought it

in and they were like trying to find somebody to sell it to they they clearly had like a bias for action it's the doer mentality that applies to any kind of startup idea and interviews um and also the willingness to admit that you may not have all the answers you may not be able to think all the steps ahead of how you build a big company but you're down for the ride like you're ready to do it and you're signed up for the for the journey and you'll figure it out later you have to be

comfortable with this idea that you know you're going to do a thing and you're going to work really hard at it and you don't really have all the details worked out but that's okay one of the best lessons I've learned in my career is to not worry too much about what it's like at the top of the mountain the most important thing is to decide that you're going to make it there and to take that first step on the journey and sometimes that first step means building a demo before you even have any customers one

company I wanted to talk about is Captivate IU they uh did I see in Winter 18 and they build software that helps help Sal sales team figure out the compensation so if you have lots and lots of salespeople it turns out is quite complex math that goes beyond my Excel skills to to figure that out and uh they had built some demo software one of the founders build a demo but they no customers and really nothing else and that's how every company starts right and every founder looks at Airbnb and just imagines Airbnb in the

early days must have been something special and actually they kind of all look the same and then they convinced us that there are only two major players in the space in the US and they're both big and they're both pretty bad wow so they convinced us that like if we just become better than these two players we can win the space yeah I think that's another mistake Founders make where they sort of say there's no competition it's you know it's like blue ocean or whatever and the reality is that's an indication no one wants to

thing whereas if you've got these huge incumbents that making tons and tons of money and haven't innovated in decades actually that's perfect because it's like a demonstration that people actually pay for this software yeah and and and this is one of those companies where everything they kind of said at the interview turned out to be true right and so the normal state of a company when it applies to YC I I think back to my application I was working with two friends in a bedroom in London we' Cobble together this janky prototype like we Leed

some friends into using it we had no Revenue in fact we were losing money on every single transaction and that's pretty normal right even earlier I think YC's today is going back to to sort of the origins of YC of funding people earlier and earlier so a lot of people I interviewed this batch I'm sure it's the same with you haven't even quit their jobs yet and they've got an idea and perhaps that idea is something they'd worked on their previous job a tool they' built or a problem they'd identified and they've recruited a couple

of uh co-founders to come along to the interview but really it's there's there's not much there yet you're really looking more the the quality the founder than the progress of the business that's a big point for all startups don't be afraid to Pivot many of the most successful companies initially pitched ideas during their interview that didn't work out that isn't necessarily a sign of failure what's most important is that you have the drive to keep trying until you do finally land on the right idea so what type of people have the perseverance to keep grinding

until they've made something people want next up Diana and Michael will talk about one common trait of the best early stage Founders to be best in the world this this aspect of the best people at the top of their careers they're actually very not well-rounded they're very quirky people for a good reason yes and that's what makes them outlier like by definition if you're average then it's like okay you're not going to build a great company because building a successful large Company by definition you're going to be out of multiple standard deviations out of the

norm yes you have to go all in and I think that a lot of young people have never been it's never been communicated to them that the strategy that got them to this school that got them The Meta job that got them the IV League degree is not going to be the strategy that actually gets them to be successful as a startup founder and I'd argue not all careers are this way I'm sure there are other careers where that kind of hedging strategy is still a great strategy but in our game so few people win

like the problem is like so few people turn any amount of their like paper stock value into real cash that like you have to be lucky and really good some of this may seem like it's outside of your control but that's not necessarily the case you can create your own luck by staying being determined and shutting out all other distractions in your life as you'll hear from Harge and Pete you just have to keep at it here's like another interesting case is amplitude which is now like a public company um offering an analytics product and

we interviewed the founder Spencer and Curtis uh in 2011 now so it's been kind of like a while and they applied to YC with this idea that was uh a mobile app on your Android phone that would was voiced to text so basically the idea was hey if I want to text while I'm driving I'll talk into the phone and it will like send my texts for me and we we didn't think the idea had any legs at the time because we like well like Google's just going to do this they're really good at this

and like we we had Paul buight the founder of Gmail early Google employee in the interview just like hammering on Spencer saying like Google this Google is so great at this um like there's no like how are you guys going to win and Spencer was just so like so intense in like his comebacks and just like determined to like work on this idea we were like we don't agree with like this idea but this is the kind of like intense person you want like they're almost irrationally intense in how attached they are to the thing

that they're working on you want to fund people like that and it took amplitude I think a year and a half after YC to find the idea but once they did obviously like really took off yes um and so there's almost like a sort of like an obstinance about like the best founders where they're just whatever they're working on they don't do it at like 60 or 70 or even 80% they're always just like 100% like committed and have high conviction in what they're doing yes and then they just need to get in the right

direction and they're like basically Unstoppable yes yeah it's a good reminder that uh some of these Founders came into YC with like actually objectively bad ideas right like there were the brex founders who I think were working on like a VR startup at the time the segment Founders I think when they when they did YC they're working on like an edtech segments are really another great example like segment ultimately was bought by twio for like3 billion dollar um and they also went to like developer tools and API Services they applied to YC with this idea

it was to let professors who are giving a lecture like pull their students and like no one wanted this like it had zero traction and we like again we pushed them like you guys are really smart you're great Engineers why don't you work on something that's like technically hard versus this like very obviously student idea and they were just obstinate like and but they weren't like obstinate without Direction they were like what we are really passionate about is fixing education and we think this is a really good place to start and like we're inspired to

work on this mission of fixing education and so we were like okay like again they have this intensity and they have this like thing that they're really committed to and eventually again they figured it out with the segment idea but it took them a while this is what happens when you have that like obstinance like if you're in the wrong direction you can like get dug into it for a while even longer yeah even longer right like that's just that's like maybe that's like the yin and yang of it like cuz if you're only ever

doing things like 60% of the time like you then just risk like always kind of being in a 60% safe you may be seeing a pattern here the key attributes that come up time and again are grit and determination if you give 100% then you increase your chances of being in the right place at the right time for things to take off even if it's not your first second or even third idea next up we've got Brad and Nicola talking about how many of the top Founders were clear and concise with their pitches from day

one one company that comes to mind that I had the Good Fortune to interview that has gone on to be pretty successful is a company called Jeeves uh they are a digital bank for startups based outside the US and when we interviewed them it was uh two founders with pretty much the exact idea that they have now which is pretty impressive but it it was really an idea and a lot of homework but not much actual action just yet so how did they convince you I mean were you impressed by them like how did that

go yeah so I went back reread the application the other day and the one thing that jumped out to me from the application itself was that it was very clearly written the language was very plain and simple in the application and it was also pretty succinct so we have a question in the application about um how much progress have you made so far and I think they literally just had two sentences we've completed a deal with our first bank partner and are ready to start onboarding initial customers that was it now in my mind reading

that I that's the answer okay great that's what they've done so far and it's very easy though for Founders that are applying to YC to just do like paragraph after par first I did this then I then I right right get into pitch mode and so looking back at that I immediately you know that jumped out that would jump out to me today someone just very confidently and succinctly saying this is the most noteworthy part of what I've done makes sense but that's the application how about the interview itself it's interesting because they came in

and they you know they were well spoken um we CLE got what they were working on it all came across very clearly but they were also pretty upfront about things that they did know and didn't know and they you know they didn't try to like razzled Dazzle us with like fake traction or anything like that um it was pretty clear that they didn't know yet what the actual usage was going to look like or what the demand was going to look like they had a few early customers they were excited about that they'd signed up

maybe since applying but before the interview but there were many question marks but I would say and this is one of the qualities that I think is kind of common among the companies that go on to become big they didn't hide that stuff in the interview they were pretty upfront about it and that put the you know the ball in our court after the interview to say okay there's a lot of question marks here do we want to go forward and fund it it wasn't the most obvious idea uh to to fund it based on

the interview wasn't like a slam dunk oh my gosh this is incredible but the founders yeah but we were pretty impressed with the founders and that they had the confidence to talk about the business and what they're working on in that way and we thought it would be a pretty good experience and one of the cool points about that that I think a Founder listening to this can take away is that all of those things are in your control you can write succinctly if you choose to you can say a little bit less and just

the highlights about your business if you choose to you can be very forthright and very confident about what you have done and haven't done if you choose to it feels like the the best Founders when they come to interview they don't pitch us right they engage in the conversation they answer our questions like as clearly as they can yep and uh and don't try to hide anything that's right I think that's kind of like the thing here yes there's a classic PG essay about how to convince investors where paraphrase this roughly the most convincing way

to talk to investors is just to plainly tell them what you're working on and help let them like build the model and understand it themselves that's what we want as interviewers like we want to engage and get to know the founders understand who they are what they think how they think right and that's the only way to do that is to have a conversation and not be the target of a pitch whereas a repat stuff have stuff that don't always make sense yes and with the GS Founders we definitely sensed all right we had a

real conversation with them it was only 10 minutes long but it felt real it felt genuine felt like an actual like working conversation and we think this could be a big thing if it's successful there's a lot of question marks but let's let's do it a lot of times we as group partners aren't totally sure about an idea at the interview stage it's really about identifying these key traits the same ones we've seen time and again in the most successful Founders next up Serbian Aaron will talk to you you about why you should avoid trying

to follow in the exact footsteps of successful Founders that came before you a lot of our early stage Founders they look at these hyper successful Founders in their current state where they are now after they've had this success what do you think the risk is of doing that well I think that for Founders just starting out they think that the trajectory and the growth graph of all the successful startups looked like this you know just like constantly up and to the right um and they don't see the early early days when they applied with a

different idea they had no product they tried something and nobody wanted it and so what you end up seeing the stories that you read in the press and in the media has this like PR gloss over it where they're only showing the positives only showing the good stuff and not showing a lot of the negatives and all of the like super difficult times that they had to go through in order to get to that point to able to tell their story I like to talk a lot about like when founders are going through a tough

time Imagining the story that they want to tell in 10 years and how boring it would be if everything was just up and to the right and successful the whole time you wouldn't learn anything yeah there was no challenge right and so when you think of those challenges like it just makes the story that much more interesting and memorable I totally agree one thing that this reminds me of is one of our more successful healthcare companies recent successes is called nourish and they just close a really meaningful series a from a brand name investor and

it's all over the news uh but they spent the whole batch pivoting and even after you know they pivoted five times before they found the right idea and now they're taken off and the team was always promising the team was always great but yeah it wasn't always roses truly legendary startups aren't just born that way they are forged through difficult decisions uncertainty mistakes and and pain I'm proud to say the group Partners at YC are some of the most experienced people in the world at helping Founders get to product Market fit we can do it

not just because we've been there we can also do it because we've directly worked with more 0o to1 startups than anyone on the planet thanks for watching and we'll see you on the next episode of office hours