> The main problem is that companies stop doing what they were doing during YC—instead of relentlessly focusing on building a great product and growing, they focus on everything else. They also work less hard and less effectively—the peer pressure during YC is a powerful force.
I'm curious about why there's no consideration of the possibility that perhaps such a high-intensity pace is simply not sustainable on a personal level for most people.
If they considered that, they'd also have to consider whether the ridiculously high-intensity pace during their incubator directly contributes to that post-YC slump.
There's no reason why Y Combinator can't simultaneously be great for the businesses of those capable of working sixteen-hour days indefinitely, and toxic for the businesses of everyone else.
If the pace isn't sustainable for a given person, that person probably shouldn't be trying to do a startup. This might seem a bit blunt, but I think it's probably true. There are many other options to bring the same financial and "impact" success that a startup provides and the expected value of these options is probably higher than creating a startup given an aversion to the high-intensity pace.
If 'startup' is defined by the pace, then you're correct. But do we all have the goal of making a successful startup, or of earning more money from your own idea? If the latter, there's an argument for a business model that allows a more humane pace. It may just not be compatible with many investors' models.
A lot of people can't run a 4:45 mile, but if you expect to be competitive at a world class level in a marathon, you'd better be able to hold that pace for 26.2 miles.
Or rather, demanding that in order to be allowed to run the marathon they have to do 3 mile in 3 minutes sprint... one right after the other with no rest in between.
This seems like a failure of YC - if companies that have gone through the program are consistently forgetting the lessons it has taught as soon as they leave, maybe they're not being taught correctly?
That said, I'm not surprised. YC is a rare opportunity, and people will absolutely punish themselves for the duration of their stay in YC to get the most out of it. Few people can maintain that kind of pressure longer term. I don't think that's a weakness, I think it's just being human.
Of course it's a failure of YC. There is a 0% chance YC has all this stuff right. It would be depressing to them if they did: that would mean there were no further opportunities to improve the outcomes for YC companies.
I think it comes down to discipline. Not doing what you know you need/should do is a discipline issue. There is probably a lot of incentive to do what needs to be done during YC when everyone is watching, and preparing for demo day.
I have to disagree with a lot of people who seem to be saying that "working hard" necessarily means torturous 100 hour weeks.
I don't think the measure of working hard is counting how many hours you're at the office. I think the signal of working hard is how often you let yourself get into your comfort zone and coast.
I think working hard means pushing yourself out of your comfort zone - continuously. It means forcing yourself to ask the hard questions about your business you're scared to ask. It means figuring out how to do things you're not good at, like hiring or selling. It means identifying the most important problem for your company today, and tackling it, even if it's not what you want to be doing.
I'd guess that during YC, the partners and the community act as a force to keep people asking the hard, honest questions about their business. And I'd guess that after YC, without those outside forces, people revert to their default comfort zones, with things that feel nice. Getting press feels nice. Going to conferences feels nice. But what's true early is true later too: it's the work that doesn't feel nice that usually matters most.
You could spend 40 hours a week in the office doing the right things, or 100 hours doing the wrong ones. One of those will lead to growth, the other one won't. And it doesn't have to do with the hours.
"So how can startups avoid this slump? Work on real work."
Simply working hard does not guarantee any path to success, at least in the world of startups. You can work extremely hard, do no "fake work", and have really great product and the vast majority of startups will still fail. You need a great deal of luck as well, ie. #rightplacerighttime, and that's something that isn't admitted by VCs whatsoever.
One common theme from the YC CEOs I've talked with (maybe 8-10 - small sample size, etc.) is that post-YC they don't know the basics of sales (what a purchase order is, etc.). It would not surprise me if this was part of the reason.
I contest those are not "real challenges" in the way you are implying. Sure they might be on the mind of inexperienced founders because they are suddenly relevant and novel, but they are also quickly solved by bringing in experts or firms. These are superficial challenges and only become "real" if they are snowballing with more fundamental issues (lack of growth, money, market fit)
IMO, that's almost like saying "Building the app isn't a 'real challenge' because we can contract it out to IBM."
Yeah, you can hire "experts", but it's expensive. Having some basic knowledge of how things work can postpone hiring experts until the company can actually afford it. Want an expert HR person or an expert shipping/receiving guy? That's $150k each per year.
I mentioned this in a post just yesterday. The way YC (and VC in general) encourage companies to scale quickly at all costs increases dependence on VC money because it encourages companies to spend extra money getting things done/ready quickly, when they may not really need to.
HR, billing, marketing, sales, etc. are just as much a part of a company as the product, and "Hire experts to do it" may not be the best advice when starting out.
What a contentless article, "Work harder! Grumble grumble grumble." We all know that none of these VC "gurus" are actually cleverer than the rest of us, but yet we give them an audience for empty posts like this because their job is (hilariously) to maintain the VC guru image.
I just don't get why these "insightful advice" posts ever gain traction.
> At the end of a YC batch, the general consensus among the partners is that about 25% of the companies are on a trajectory that could lead to a multi-billion dollar company. Of course, only a handful of them do. Most go on to be decent or bad.
Pure hubris.
> The main problem is that companies stop doing what they were doing during YC—instead of relentlessly focusing on building a great product and growing, they focus on everything else. They also work less hard and less effectively—the peer pressure during YC is a powerful force.
No, the problem is that it's difficult to build a large company. High growth is easy in the beginning when you're going from 0 to $100,000, but try going from $100,000 to $100,000,000. "Fake work" isn't what prevents the vast majority of companies from doing this.
I think there's also a theme around young founders, the ability to work as a team when the going gets tough, hubris, and the fame that comes with being in YC.
During YC, you're in a very controlled environment - everyone around you is working hard, you have a deadline, you don't have money, and you just focus on building, etc. Once you leave YC, suddenly, a few things happen (I've seen this with exactly 2 start-ups so apologies for extrapolating):
1. You suddenly have a lot more money, and simultaneously lose the very guided structure you had at YC
2. A lot of YC founders are young, haven't worked in teams with different personality types, etc before and they have to learn how to manage people and each other
3. Because growth is the only thing they've been taught to look for at YC, at the first sign of any slowdown in growth (which could be natural and acceptable, or due to some other reason), they start freaking out and churning. This further exacerbates point 2 and they start stressing out their team and each other
4. There's a bit of a personality cult around YC founders right now - I recently attended a YC party in an apartment in a fancy high-rise in SF and it's amazing how many hanger-ons that were there fawning over the founders. It was a very SF start-up version of a celebrity night-club in LA/NYC. This unfortunately builds on the narrative of infallible YC founders who are building great billion dollar companies, etc
I guess where I'm going with this is that in addition to just growth, folks need to be taught how to work in teams, how to gear up to build a longer term, sustainable company, and to appreciate that they can and will make mistakes, but they need to handle that with grace and maturity.
> and it's amazing how many hanger-ons that were there fawning over the founders. It was a very SF start-up version of a celebrity night-club in LA/NYC
Lol... I think your YMMV on what you encounter here, maybe I just know the boring founders that could care less about social status. In fact I think the ones who care about social status are by and large the ones who don't actually get accepted.
I think it's super interesting to hear that they're developing software to automate traction updates. It would be so cool to be able to "gem install yc" into your Rails app (or whatever) and then have hooks that will automatically keep them abreast of user growth and engagement.
It provides really interesting opportunities for them to be proactive about giving help at the right time. For instance, they'll be able to setup rules for notifications e.g. when you're having a slowing rate of growth, or to send congratulations when you've had a strong month etc.
I imagine one of the problems in investing in so many companies is that you aren't always aware of problems before it's too late. By using software to collect metrics about their portfolio companies, they can systematize how to become aware of and help out companies where they can make a difference.
What if it were a daily and weekly internal email that hooked into your existing analytics or database?
I'm working on an alpha for a product called Growth Report that does just that. It's not "gem install yc" but it's pretty close. Interested to try it out with FieldDay?
YC is a coaching environment. Imagine if you took a professional soccer team and removed the coaches for a month. They would start loosing and if they didn't you would find that one of the players had taken on the role of a coach. This is almost certainly what is happening here.
It might be long enough for some, but not the others. Startups need to have majority of things right even before getting into YC and then improve more under YC mentoring.
Raising money is not fake work if you don't know how you are going to pay your team in 6 months, or 3 months, or next month. Twice I have taken out a second mortgage on my house to pay my team, its not a good idea.
Press seems to be a necessary evil, again I have made the best product on the market, only to go unnoticed because of lack of press coverage. Its not like 99.9% of the press are out looking for a great product, they are being lead by the PR agents.
I agree raising money and getting press are "non productive work" as far as product advance goes. But so are things like washing the dishes in your house, they don't help you get more work done that day, but it is a needed part of the system.
So maybe y-combinator should take those two VERY important survival aspects over for the 25% of companies that they feel are the unicorns. For another 10% they will make sure they have enough money for the next year, and that they will get the press they need. Seems like a natural extension....
Agree with the first part, less so the second. YC is (rightly) worried about signalling risk. If they exposed who they thought the 25% were, the other 75% would struggle to get funding.
I'm surprised how many people here seemed to have missed the point of the article.
What the author is talking about is how there are a lot of fun things one can work on that could be useful at some point in the future. But probably not within the next week or month. Instead, the author is saying to focus on the things that will without a doubt be useful within the near future (<month).
Seems like it would be a simple inexpensive investment (probably completely outsourced) for YC to set up fortnightly (down from Tuesday dinners/weekly) dinners for founders of a single batch to come and report updates to each other.
I recall reading somewhere that YC batches are now split into clusters because there are so many companies in each batch. Maybe these dinners can be cluster specific as well.
As the companies grow in size, they can democratically decide to reduce frequency to monthly - I can see how changes would be slower as the companies become larger.
Edit: To clarify, this is purely a peer group - no YC presence needed. Have to do it this way to scale.
I believe this could be a problem in general, but I keep thinking about a recent high profile failure from YC - Homejoy. They had a number of problems with their platform, but from what I've gathered through the press/blogs is that they focused too much on (geographical) growth after their $38mm round at the expense of fixing issues with quality and their business model (costing them retained users and continued local market growth). I think this is an outlier to Sam's theory, but it also provides some food for thought.
This pre-investment spike for startups reminds me somewhat of the pump and dump marketing tactics of a more mature company looking for a sale or an IPO. I've been in companies that have done this: go overboard trying to game some unsustainable metric, such as top line traffic, until you don't have to anymore. If you have done digital marketing for awhile, you can come up with dozens of ways to "grow" your metrics that appear sustainable on the surface but have some kind of catch that makes it impractical long term.
"At the end of a YC batch, the general consensus among the partners is that about 25% of the companies are on a trajectory that could lead to a multi-billion dollar company. Of course, only a handful of them do. Most go on to be decent or bad."
"You have to keep up a high level of intensity for many, many years."
Don't take this the wrong way /u/sama, but could it be that perhaps business models are the problem and not founders not grinding away for years on "real work"? 90% of startups fail [1] [2]. I am highly suspect of the idea that this is caused by teams not being committed or working on "fake work". More likely, markets shift, business models aren't viable, and so forth. This is not a case of people "not giving it their all".
EDIT: Its been proven scientifically that people encounter diminising returns past 40-50 hour work weeks. [3] Don't encourage grinding harder. Encourage finding where to exert the most leverage, and hiring best people you can hire today. Quality people + automation leverage (your software) + quality marketing is a solid formula (but not a guarantee) for success. Luck, while no one wants to admit it, is a non-insignificant component of success ("right place at the right time").
I agree. Perhaps some of the root cause here is a faulty premise. The idea that "25% of the companies are on a trajectory that could lead to a multi-billion dollar company" feels wildly optimistic to me. (And I say that with full respect of YC and the top-teir companies in the program.)
Strong early growth is a very positive sign. But growth is a funny thing and can be hard to sustain. The true market test may come later... from when you are trying to grow a $50 million dollar business into a $500 million dollar business.
> The idea that "25% of the companies are on a trajectory that could lead to a multi-billion dollar company" feels wildly optimistic to me
The key word in that sentence is "could", not "will". I'm pretty sure after all these years YC have enough experience and data to identify the "could"'s. But they're still just "could"'s. Doesn't seem "wildly" optimistic to me, just optimistic, based on previous track records.
It would be interesting to put together a list of these "good idea, but poor execution" ideas. It would probably be a good list of things to try again.
In the world of business, good ideas are literally priceless - in that they have literally no value. Good ideas aren't even that important to a business. Good execution is what matters. Even sub-optimal ideas can be billion dollar businesses. I still think that the basic idea behind twitter is only mediocre, but it is so excellently executed that it is a joy to use. The same applies for pinterest. They are just not great "ideas." But the execution is phenomenal.
Let's put it another way. When you say:
>It would be interesting to put together a list of these "good idea, but poor execution" ideas.
I read:
>It would be interesting to put together a list of these "execution plans but poor execution" ideas.
There is absolutely no way to separate out the "good idea" from the "good idea but poor execution" because business is the art of execution.
yes and no. If as a game you were given eight years to read and learn (but not take with you) whatever documentation you wanted about technical knowledge (only), and then sent back to New York in 1860 with $1,000,000 in 1860 bills and the goal of the game is to make as large a fortune as you can in 20 years... then it should be obvious to anyone that the ideas you would have are incredibly valuable...literally priceless. They represent without exaggeration trillions of dollars of research over 155 years.
You can patent entire industries and fundamental advances. The hard part is just choosing what to focus on, that you can actually do in 1860 starting with $1,000,000 and maybe the patent system (though it's probably unfair that you're using a time machine - this is likely quite immoral as you're not the true inventor of anything.)
And then doing it.
In other words: the outcome of the game is about execution. But what you're executing is idea. The two go hand in hand. You have a real chance to become worth 2015$ 1 trillion within the 20 years - or generate a one-million fold return on the million. You can be worth as much as entire continents. But you have to do it right.
For starters, you have to be someone whose brain can ship those technical ideas back to 1860 in one piece. This is quite similar to someone with an idea today. Not everyone qualifies.
While you are mechanically correct, your ideas would absolutely be hugely valuable, you have the benefit of already knowing what macroeconomic trends and historical events will happen.
Put another way, you could probably make exactly the same amount of money, if not more, with a "back to the future 2" scenario where you had zero ideas, but had a chart of various events that you could wager on or invest based on.
When we look at it from that perspective, it's only execution - can you correctly execute about the information you already have.
Soooo - yeah, it's not a great analogy. In general, having a perfect knowledge of what happens makes for bad analogies.
Well, I said you can only use technical knowledge. If you really want to be anal about the analogy then the game is you can only dictate technical knowledge to someone in 1860 (or I guess show them diagrams, but only of technical things - you are not allowed to talk about anything else) and give them starting capital. Then how well you do at the game depends on the ability of the person you picked to...execute. (As well as understand the technical knowledge they've been dictated/shown) It's not hard to understand what I'm getting at. But if you pick someone who can't understand the ideas, you won't do well at the revised game.
Why this is a workable analogy is because this really is similar to the position that founders with technical ideas are in. They have this vision that something can more or less work - but even if it does they still have to execute on it. That's my point.
Everything you dictate in this revised game is 100% guaranteed to work, because you're reading it straight out of technical manuals for the scientists who build these things today. But that still doesn't make a company that manufacture these things pop out of thin air. You can transfer a very large part of a $1 trillion in R&D back in time -- the ideas; but you won't suddenly have a company as a result. Someone still has to make it all and sell it all.
As an example, even if Babbage had invented modern transistors, he didn't "almost" create Intel and IBM. These companies as such are quite separate from the idea.
Luck and timing no doubt play a very important role in addition to simply poor execution. Also even excellent execution doesn't take into account how the market will respond to what you are making or trying to sell which can't always be determined prior to actually going through the motions.
Don't you feel the least bit of reservation selling young kids on the idea that they're likely to create a "multi-billion dollar business" by running through a grist-mill of a program that -- by your own admission -- isn't sustainable for most of them?
The vast majority will not achieve that goal (you don't need them to, either -- for sustainability, all you need is a few winners), and in the process, I can't help but feel that they're stunting their career, technical, and personal growth by approaching critical period of their lives with the belief that your economic model of the universe applies equally to them.
We try to be up front that they have a high chance of failure. But I truly believe that there is nothing better for their career, technical, and personal growth than doing a startup they're passionate about (we try to filter out the people that want to do a startup for a resume item).
Also, one of the advantage of YC is that if the startup doesn't work out, founders have made a lot of connections in the network and can usually find something interesting to do next.
As I've said before, I think the actual risky path is not pursuing what you really want to do and then spending the rest of your life regretting it.
I had an idea 5 years ago for a company. When I had built the right experience and the legal environment changed to support the business I left my job and pursued it relentlessly.
We added a few people (part-time) raised a little money, but ultimately we couldn't get the product market fit we needed to feel comfortable that we could grow and keep our integrity (we were a financial product). A few weeks ago I shut down the business and I'm about to find something new.
The fact that I lost a year of income is completely irrelevant vs the regret I would have faced had I never made the leap. Even without YC my network has strengthened considerably and I learned more in a year than I thought possible.
I have read a ton, watched all the startup school videos, talked to a lot of founders and tried to understand how to do this well. The fake work problem is real and even while paying extreme attention to it, often times I would waste a few hours doing something that would not increase the probability of success.
Code and talk to customers. It's so, so crucial.
Starting a fast growth company is not for everyone, but for those that want to do it, YC's information is gold. Thanks for everything you guys have put out.
My impression of YC's marketing is an appeal to hubris (and often, the hubris of youth). Most will fail, but none believe it will be them, and in the process, they position themselves outside of an environment in which they'd otherwise have access to people with technical and sustainable business experience from which they can learn what (and what not) to do.
I'm a lot happier having spent 10 years building a sustainable company doing what I really want to do, than I ever was at exciting startups during the v1 .com bubble.
Getting to that point, however, required putting in a lot more than 3 months -- or 3 years -- of backbreaking effort.
sama's response is correct. There's no real downside to doing YC when you're young. If you succeed, you get rich. If you don't, you can probably find work at another YC company that is succeeding. If you can't, then having YC on your resume will probably help you land a job at another startup. No YC founder will ever go hungry.
There's a long, long road between not "going hungry" and maximizing your individual potential, and anyone that survived the first .com bubble unscathed knows that the latter has far more lasting power.
I don't think it's fair to use the term slacking here. At worst they're people who focus on the wrong things and don't prioritize their resources optimally. Considering the number who burnout, they're likely working very hard, just not on the things that will matter in the end.
I also think it's real and sometimes hard work, like migrating from Angular to React which could make a company grow immensely, especially if even more time is invested in blogging about the process.
I don't think migrating from Angular to React is real work. If it takes a long time, it's probably best to stay with Angular. A failed company using Angular is the same as a failed company using React. Better to spend your time iterating on the product and acquiring customers. If you succeed you can always migrate later. It will cost more, but you will have more resources too. Doing something like that in an early stage startup just has too high of an opportunity cost. It's exactly the kind of fake work Altman is talking about.
I was hoping you were being sarcastic. The trouble with sarcasm is it's indistinguishable from foolish sincerity, which abounds on the interwebs. Without facial or voice cues, there's no way to know. That's why you have to use the /sarcasm tag.
The median age of YC founders is 30. These aren't the pliable, simple-minded children of your caricature. Many of them are accomplished entrepreneurs who understand power law dynamics perfectly.
Further, I think nearly every founder who has gone through YC would report that, succeed or fail, they are net-benefited by the experience. Rather than stunting an individual, the exercise of founding a startup is probably one of the best ways to rapidly increase your skill-set over a short time frame.
I would agree with you that attempting a startup is a net positive career, and even life, experience.
I would disagree that you should grind away for it on years. If YC is confident that hustle/effort is the problem, they should be hiring engineers directly, pay them market rate, and keep all of the equity in their projects to themselves instead of having founders shoulder the risk.
I think a lot of your replies and central argument is very thoughtful, but the one thing to consider is that successful startups are the result of unreasonable exertions of will, unreasonable amounts of luck, and an unreasonable amount of risk.
If it were reasonable, I don't think the value created would be so great.
While I don't disagree with your points on a macro, startups are very specific entities, and their success is contingent upon founders (and team members) who are willing to do unreasonable things. And also be extremely lucky.
The people he's telling to grind are those that have millions in funding. So you work hard, pay yourself, and if it fails you had a great job and a great experience, and you can go get a better job than you could have when you started.
Sure, you worked harder than someone who has a boring 9-5, but you're not turning yourself an indentured servant until the end of time. Your only risk is the additional time/effort.
Isn't it easier to take risks when you are younger?
So even if it's not sustainable, wouldn't it be better advised to do something with fewer chances of success early one in life ?
Comparing those numbers to the 5 and 10 year survival rate of more typical small businesses (50% and 33% respectively[1]) puts this into perspective.
This suggests that creating a business with the intent of not exiting, but retaining and growing it gives better odds. While a more typical small business has its own stressors and certainly can have long hours, in my experience the level of intensity is much more sustainable.
The down side - you're much less likely to walk away with large sums of money. On the up side, you're much more likely to create a sustainable venture that has a lot more success paths than the binary 'get acquired or go public' routes available to vc-funded startups.
Many of those small businesses that survive are simply the founder buying themself a job of some sort.
It's no surprise that someone who starts a landscaping or property management company, where the prime thing being sold is hours of labor, would have a higher 5/10 year survival rate than a company selling bits, ads, or other types of digital engagement.
Small businesses are defined as 1-500 employees - I suspect that includes a fair range of company types. Lumping them together as a single thing strikes me as a bit disingenuous.
This shows all business types following roughly the same trend. 'services' [which would include software and property management] have the lowest 5 yr survival rate at 36% and mining the highest at > 50%.
This is data is from the 2010 census, examining businesses started in 2005 - likely a different methodology than the SBA used. This which probably accounts for the discrepancy from my SBA stats in the original post.
It's also arguable that Internet businesses tend toward a few winners take-all scenario and that drastically increases the tech start-up failure rate. Whereas there are 150,000 convenience stores and 72,000 pizza restaurants in the US.
The number of businesses that can be supported in the physical world is dramatically higher than for Internet services. Why? Geographic restriction and franchising.
There are going to be two dozen major cloud hosting companies, and maybe 50-100 smaller players. There are 7,000 frozen yogurt shops.
>you're much less likely to walk away with large sums of money
It would be great to have data on this. How many SMB owners make a few hundreds $K a year, for many years, ending up making a lot more than a very successful/lucky early employee making a couple of $M in one shot after many years. Especially in the software field.
1st article relies entirely on startup accelerators for stats, which means 92% of companies that enter startup accelerators fail, which is a totally different statistic.
2nd article just links to other articles on fortune which don't have anything to back them up.
I'm open to a debate on this. What's the failure rate only of startups that go through YC?
"Y-Combinator’s success is undeniable: the program has produced 37 start-ups worth over $40 million each in the past five years. In its first six years, 72 percent of Y.C.’s 249 start-ups raised money after Demo Day, and today, the average value of a Y.C.-financed start-up is $22.4 million. However, these statistics also reveal a grimmer reality: 93 percent of the 511 companies accepted by Y-Combinator have failed. Even more alarming, only 3 to 5 percent of the companies that apply to Y-Combinator are even accepted, meaning that only one in every 200 companies that applies to Y.C. eventually succeeds."
EDIT: Please disregard this post. Left for historical purposes. sama notes that the stats are inaccurate.
EDIT 2: The citations in that link I mention above are from nytimes and business insider. They might be accurate, if a bit old, but require verification. Treat them appropriately.
I don't know where that statistic came from but it's nowhere close to accurate. Less than half of the startups we funded in the first 5 years of YC have died.
Also, he average valuation of all YC startups through w2014 (i.e. with enough time to have raised a first round) is now over $100MM.
What were the causes of failures for those YC alums that did fail? (Again, not trying to be combative whatsoever. I'm genuinely curious, if you're able to provide the data without compromising YC from a business perspective).
According to Wikipedia, their best-known funded companies are: Dropbox, Airbnb, Coinbase, Stripe, Reddit, Zenefits, Instacart and Weebly.
Dropbox - Not public, probably not profitable
Airbnb - Not public, might be profitable, lots of legal questions.
Coinbase - Not public, raised $100m+, no idea if it's profitable
Stripe - Not public, raised almost $200m, almost certainly not profitable
Reddit - Acquired by Conde Nast (private), might be profitable.
Zenefits - Not public, probably not profitable, raised ~$500m
Instacart - Not public, not profitable, raised ~$300m
Weebly - Not public, might be profitable
So I'd say their track record isn't great on that front. I don't know of any meaningful ($1bn+) IPOs of YC companies (not to say that they don't exist). The fact that I had no idea what Weebly was until a moment ago probably means it's not one of their success stories. I suspect DropBox will IPO at some point, but after Box's IPO, they have an uphill battle to prove that they won't be the same dud. Coinbase I had forgotten existed, so I'm really curious what their deal is (especially considering their valuation is so high, I wonder if they can support it anymore).
Calling Dropbox having an uphill battle to prove their valuation is quite an understatement.
Box is trading at about 6x their forward revenue in valuation, versus cloud industry's 10-12x average, and during the last Dropbox round it was rumored it was valued at 40X its forward revenue.
Meanwhile Box is winning major partnerships and customers left and right and the market still hates it, I really wonder how Dropbox is gonna tell their story considering their vast consumer user base is a liability instead of asset when it comes to profitability.
"Less than half of the startups we funded in the first 5 years of YC have died."
But how many were successful, in the sense of paying back their investors? The most likely outcome of most VC investments is a "zombie", a company which can pay its own operating systems but is a net loss to investors. The usual VC stats are that about 10% are wins, 20% go bankrupt, and the rest drag on for years in zombie mode.
I can't reply to sama's comment below, for some reason, but I would be interested to hear the median valuation of all YC backed startups. My hypothesis is that number tells a very different story.
>Its been proved scientifically that people encounter diminising returns past 40-50 hour work weeks.
Sure, but I don't think there have been any studies that find negative returns after 40-50 hours.
If we are optimizing for maximum returns, rather than maximal efficiency, you would advocate for increasing hours worked until the result of one hour of work was zero.
Many activities have diminishing returns after a certain amount of work (oil drilling, distance running, mining bitcoin, etc.), but it doesn't mean that the rational decision is to stop when the point of diminishing returns is reached.
The cited research claims total overall productivity of working 60 hours a week starts showing a deficit to working 40 hour weeks, after about 4 weeks.
Programming in particular has negative effects after the point of being tired. You make mistakes, you commit bad code, you have to maintain bad code for the lifetime of hte product.
That one grind where you kept pushing could keep affecting the productivity of the whole engineering team for the next 2 or 3 years. I've seen it happen. A lot.
I would assume doing strategizing or negotiating when tired could equally have devastating long-term effects on the business side.
Work as long as you want, just don't work tired. It isn't worth it.
The diminishing returns affect all future hours, not the marginal hour. If you're tired all of your work will suck until you recover. That marginal hour might damage your ability to work more than the gain from working that one hour.
> Its been proved scientifically that people encounter diminising returns past 40-50 hour work weeks
In the average case.
People who build billion-dollar businesses are not the average case.
That isn't to say everyone should grind super hard. People should, however, have the self-awareness to recognize whether or not they are capable of high levels of achievement. Few people are.
Travis Kalanick is grinding super hard. Are people going to call him average when Uber fails? Elon Musk is grinding super hard, but he has different market and regulatory forces to contend with (no one stops you from going to space or making batteries and electric cars, everyone is going to stop you from breaking transportation and labor laws).
Being "superhuman" doesn't make you terribly more likely to succeed.
"Travis Kalanick is grinding super hard. Are people going to call him average when Uber fails?"
He'll be long gone before Uber fails. They're probably going to dump all of the liability onto the public markets, he'll probably resign to focus on other projects or some such, and leave some MBA schmuck to deal with the mess.
How many hours can someone, average or not, work before they start making more bad decisions than good ones? The problem with 50 hour+ work weeks is at some point, depending on the individuals outside life, they enter a period of sleep deprivation.
Is it a characteristic of most successful founders that they can make good decisions in high stress situations while sleep deprived?
"Interns working five or more extended-duration shifts per month reported more attentional failures during lectures, rounds, and clinical activities, including surgery and reported 300% more fatigue-related preventable adverse events resulting in a fatality."
I am always surprised that letting residents work such long hours is acceptable given the risks involved. Does anyone want to operated on by someone who is late into their third back to back shift?
If the choice comes down to having a sleep deprived surgeon do your surgery, versus not having the surgery, then some people will choose the sleep deprived surgeon.
Some people might, but it does not seem too common for a resident surgeon to tell a patient before cutting them open something along these lines: “Hay good fellow I haven’t slept for 48 hours and I can hardly tell which end of the scalpel to hold - do you want me to operate or not?”
Well there is this slight issue. Actually the bigger problem is that AMA allows surgeons to keep their license without spending a reasonable amount of time in hospitals. There are enough surgeons trained to ensure that hospitals are always staffed with well rested people, they just aren’t willing to work when they are actually needed.
There is no need to import doctors (the USA does do a lot of this anyway). All that is needed is to make part of the registration process that you have to x number of hours in a hospital outside of 9 to 5 (surgeons though tend to start earlier). You just set x to whatever is required to ensure that you don’t have residents working 100 hour weeks.
I don't want to put words in Sam's mouth, but I read his point as referring to the patterns of thinking and behavior applied by the founders more than hours worked. I equate "intensity" with "focus," as I've seen (and been a part of) many startups that have lost focus after achieving a modicum of success and taking their foot off the gas.
After the startup curve, the focus has to be about Revenue. And in a simple way, there's a formula, and activity outside of this formula is a lot of the 'fake work' Sam mentions.
Revenue = Value x Sales Activity x Conversion Rate x Retention
The specific approach will differ depending on your size, your vision, funding or bootstrapped etc, but the fundamentals are the same.
Value: Covers getting your business model right. Volume x Margin, Product-Market fit kind of thing. It's essentially a hypothesis you're taking into Sales activity and refining.
Sales Activity: Includes lead generation, but I don't like to put 'Marketing' as a separate heading because blogging and chatting to bloggers is the easiest way to feel busy and achieve nothing. Are you getting in front of clients?
Conversion Rate: And how many of your clients are actually buying? Track this! Segment it when you can! [channels the power of Danielle Morrill] "Know your numbers!"
Retention: Obviously depends on the business model, but ongoing or repeat clients are lovely. In a recurring revenue business, churning a client for every new one you bring on board wastes all the previous steps.
How about backing these assertions with real data? Can YC show that companies are more likely to flatlines post-YC vs. while being coached? Or is that simply due to fast growth being hard to sustain? A careful statistical analysis of the growth of their companies, given the large sample they have, could have made this an interesting post rather than just a smug one...
We felt this coming out of 500 Startups B12. We were a team of four, we had limited analytics in place, we were ranking horribly for SEO, accounting was a mess, and we were doing a ton of things that didn't scale which we needed to now scale. Post demo day we had to worry about fundraising, then recruiting, hiring, and now training--and in some cases firing, and starting all over again. If we get this iteration wrong we're doomed to fail. Basically we needed to add a whole new level to our pyramid and we need to find people we can delegate tasks to do that the process scales and so everything has come to a grinding halt for a few months. If you raise more money quickly it may be possible to attract more & better talent at the top of the funnel and run this process more quickly but it's been a massive growing pain for us.
> Burnout seems to almost always affect founders whose startups are not doing well...
There doesn't seem to be an obvious causation here. I could totally see either causing the other, or there being a common cause of both. Seems weird to just assume burnout is a result of doing poorly.
One can easily gain momentum by simply adding mass, which is completely the wrong metaphor. Let's end the practice of misusing the word "momentum" in business. Use "velocity" or simply "speed".
My favorite fake work is "I am doing research." It is also the most important work one can do prior to making decisions, however it just gets to one point where you have to admit to having enough data to move forward.
I agree and disagree with this point. The absolute worse thing a startup can do is to "flip"/"redo" their code base, in an attempt to clean it up. We learned that the hard way last year. That said, going through code and occasionally cleaning a class or two in order to achieve a desired feature can save time while debugging, usually a lot.
This is like most things in life, taken in moderation = good for you, but the extreme might kill you (or in this case, your startup).
Bullshit fake work is way worse than strictly time-boxing work. A focused 20-40h/wk is a lot more effective than 100h/wk of working on 90% bullshit, particularly because the bullshit reduces your per-hour marginal productivity as much if not more than real work, so you're not even getting just 10h of real work. And because 90h of bullshit this week means, due to sunk cost fallacy, prior commitments, etc., you're basically going to have to spend at least 50h the next week on similar bullshit.
Yep. Time tracking software is quite good at proving this. When one becomes disciplined in tracking "focused work", it becomes obvious that these mythical 60-100 hour work weeks are nonsense.
The article should have been titled "never lose momentum". Burnout is always a big thing. And distractions are even bigger. And complacency is fall of many.
This is emblematic of many cynically dismissive comments in this thread.
The article is about the difference between real work (that moves a startup forward) and fake work (that does not). People often work very hard at the wrong things, so Sam's advice has nothing to do with "work harder". "Work smarter" might have been closer, if we're going to pick a half of that cliché. To take a post that is clearly trying to help save founders from a lot of unnecessary work, and twist it into something sick, is pretty uncharitable.
I keep thinking about adding the Principle of Charity to the HN guidelines. What good comments would be ruled out if we did this? It would certainly rule out many bad ones.
Sorry, but I am cynical about the article and its motivations.
A venture capitalist isn't generally going to be satisfied with one of their investments discovering they prefer running as a lifestyle business instead of a potential multi-billion dollar company.
The VC has an interest in the aggregate success of their portfolio more than particular startups within it. Advice is going to be oriented towards that goal - they'd rather have 99 failures and 1 Facebook over 100 $1M sustainable lifestyle businesses.
"Work as hard as you did in YC" is great and all, but I really don't think it's possible for most folks long-term.
YC is not a VC. More importantly, YC is especially known for not blocking founders' wishes or interests. This has been true since forever and is one thing that attracted me as a founder to YC. It may be hard for you to believe, but YC was started by deeply decent people who understand all too well what being a founder is like, and Sam is squarely in that tradition.
I'm not saying you can't be cynical or feel what you feel. I'm saying that cynicism also should have a bar to clear. Painting everything black leaves everything black for everyone. That's intellectual vandalism. It wrecks the discussion in its vicinity, and ultimately wrecks the community, because people who don't like wet black paint all over everything will just leave.
What is the minimal bar that cynicism should clear? Addressing a strong version of what it's critiquing, rather than lazily picking a weak version in order to get straight to sniping. That's the Principle of Charity, and it's basic to intellectual honesty. Why should cynicism get a free pass just because of how it feels? If you had considered that bar before commenting, you couldn't have posted what you did.
I don't at all mean to pick on you personally and I hope I'm not coming across that way. This is a systemic question and I care about its systemic effects on HN. What you posted was no worse than what many people post, and that's the problem.
Of course it's a cliché—that's my point: if you must reduce this to a cliché, "smarter" would have been fairer than "harder". (What I originally wrote was "you picked the wrong half of the cliché," but I edited that out as too abrasive.)
Sam's article is far from trivial and far from condescending. What he wrote about is real and huge. Part of the difficulty of talking about it is that, when you put it into words, it sounds like a truism. Who would choose "fake work"? You'd think no one. Yet in practice, lots do. Not doing it is much, much harder than it sounds.
It's fine for someone not to know the problem well enough to appreciate this distinction. What's not fine is to rush for an excuse to call things "trivial and condescending". The difference for HN is important—basically the difference between a drinkable well and a poisoned one.
Real, huge and pretty vague. I'd almost say the author wasn't being charitable to the founders.
He says "I tell founders to consider how directly a task relates to growing. Obviously, building and selling are the best."
Well, many of the complaint list he has are arguably orientated towards building and selling. So I could be charitable and say he's trying to say that they're doing much of what they need to be doing but doing it wrong.
Well, that's the nature of all work and isn't greatly helpful or insightful. In detail, exactly, how is one supposed to scale if your technical debt and demo is a mess? How do I do PR correctly? How do I hire and build a team capable of rapid expansion? How do I know how much money is enough or wasting my time (my part-time accountant says we have enough money for 4 weeks...)? What do I do when a certified letter comes in from another company claiming patent infringement and I'd catagorized hiring a lawyer an obviously low requirement? Why is cult-of-personality always a bad thing (let's see a study on startup success between milquetoast founders and media savvy personalities)? Personalities make all the difference in the business world.
Which is why this opinion piece is given the gravitas that it is. But I'd honestly be more charitable to the founder in the trench and consider that YC is doing a poor job of preparing founders for... reality.
I'm using the word "charitable" in the specialized sense of "replying to the strongest form of an argument", as described by the link upthread.
Your comment isn't flippant (well, at least not until the wild non sequitur at the very end). That puts it on the right side of the most important line. I still don't think it counts as charitable, though, because your criticisms don't engage the meat of the post. I was hoping to write a detailed reply about that, but alas there's no time.
Momentum is definitely a big thing. When you get a little bit, everything seems to feel a little bit easier. Your morale and confidence peak, it's easier to stay motivated and focused, and the sky even seems bluer. OK, maybe not that last bit, but you know what I mean.
We were in a place like that towards the end of last year. We got invited (finally, after several applications) to the CED Tech Venture Conference, which was an important chance to raise our visibility, meet investors, etc., and I had speaking engagements lined up at All Things Open, Tri-JUG and an NCTA event. In the span of 2 months we had 4 big chances to be "out there" getting our name out, and we had some really cool new stuff ready to demo... life was good.
And then two weeks after All Things Open, I find myself on the back of an ambulance, being rushed to the hospital with a heart attack. Talk about your momentum killers. :-(
After that, things went into something of a tailspin. Obviously there was a period of time when I couldn't have cared less about startups, business, or even technology. I was just happy to be alive, and was focused on bike riding, diet, and cardiac rehab. But all through that, I figured it would be easy enough - eventually - to step back into working on Fogbeam and get things moving again. As it happens, it hasn't been quite so easy.
I mean, don't get me wrong... I'm back. Definitely, absolutely, 100%, back. But I can only say that as of maybe sometime in the past month. But there was a 9 month gap in there where I really just wasn't in the right place mentally to focus on this. It's hard to explain, as I was back to normal physically within a couple of months, but the mental recovery was actually the harder part, and getting back to where I am excited about technology and excited about building a company took a LOT longer than I expected.
I had a little false start back in Feb., when I wrote some code, did some stuff, and thought I was back on the horse, but it didn't last. It's been discouraging to deal with all this, and even more so very exactly because all of this happened when we did have some momentum going. Now I find myself wondering what it's going to take to get that back.
I guess there are a lot of things that can kill your momentum: the "fake work" that sama talks about, dealing with fundraising, dealing with acquisition talks, whatever. But from my personal experience I'll just throw in "health issues".
I'm sure you guys get (or will get) tired of hearing about this from me, and I am generally not the preachy type but I'll reiterate this again: pay attention to your health. No, really, do it. It's super easy to assume you're indestructible and immortal, and to push aside concerns about health. I know, I lived that. And the younger you are, the easier it is.
But trust me, it's not a good idea to blow that stuff off, no matter how young you are. Don't say "I'll wait to get back in shape once we have our exit". I mean, there probably won't be an exit if you're dead; and if there is, you won't exactly benefit from it. And remember, on things like heart disease, the artery damage that leads to heart attacks and the like, can begin really young. Even as young as your teenage years. So no matter how busy you are, or how old you are, NOW is the time to start eating right, lose weight, quit smoking, whatever it is you need to do.
True, but look at the bright side... you have an opportunity, if you take it seriously, to take the measures that can help prevent you from experiencing what I did. The thing about heart attacks, is that they are very preventable. OK, if you're 65 and have smoked your entire life, and weigh 500 lbs, you may not be able to reduce your odds a lot. But even then, you can reduce your risk of a heart attack somewhat. At 37, assuming you're in even halfway decent shape, you can improve your odds quite a lot by doing a few simple things:
1. stop smoking if you smoke.
2. lose weight
3. eat a healthier diet.
4. improve your lipid profile if it's off (talk to your doctor about this)
5. lower your blood pressure if it's high (again, talk to your doctor. Also, see: lose weight, and exercise more)
6. If you're diabetic, manage that. (Talk to doctor, lose weight, exercise more)
7. Exercise more.
8. (possibly) take a fish-oil supplement. There is at least some research showing that fish-oil can actually reverse existing atherosclerosis. And while it's not definitive on that point, almost everybody agrees that fish-oil is good for you. Even my cardiologist recommended it, while he was neutral / ambivalent on all of the other dietary supplements I asked him about.
9. It's even less certain, but consider supplementing COQ10, Aged Garlic Extract, and/or Resveratrol. There are varying levels of evidence to support using each of these. Don't take my word for it though, look up what's out there and judge for yourself. IANAD (Doctor)
10. Read two books: "Cholesterol Clarity" and "Keto Clarity" both by Jimmy Moore and Eric C. Westman. Consider their advice.
Is it really the case that out of this startup batch that "25% of the companies are on a trajectory that could lead to a multi-billion dollar company"? I haven't really looked at this batch, but I highly doubt that 25 out of the current batch have that ability, just on common sense and past performance.
This is an excellent blog: "Focus on growth and never lose momentum. Momentum cures everything. "
I have one question: What to do if your growth flatlines even if you work super hard? How to approach that problem? (I know that there is no simple solution for this - but what would general approach to solve lose of momentum).
I would think at this stage it is all about growing. In fact, even well established companies like Facebook are still trying to grow. I can't imagine Zuckerberg's Internet.org movement was created for the sole purpose of bringing internet to underprivileged areas of the world; he wants to spread Facebook's influence to those regions as well. And at the very end all investors want to see is growth and a high ROI.
More seriously, if you're taking a company through the investment/VC pseudo-Ponzi pipeline, you have to grow. Otherwise, early investors don't get an exit.
OK, lets break that down more though - Imagine this scenario: You are a founder, you go YC, you grow a bit, but end up with a company that is settling down into a lifestyle company, while it still satisfies you personally. The early investors (YC) push for an exit, but they are a minority of the shareholders. Certainly, you are grateful to them, and have learned much. But at the end of the day, the growth and big exit is a goal of a minority, not you personally.
I understand completely why this is a problem for YC. I just don't see it as being such a problem for the founders.
Maybe if YC is their /only/ investor? I'm not familiar with how YC's initial investment is structured. But your scenario won't exist for many (close enough to all?) startups who have investors. What likely happened is the startup either:
1) raised their money in a priced round. It's therefore unlikely they have unilateral control of the board.
or
2) didn't do a priced round but went with convertible notes. Those initial investments are now interest-accruing debt on their balance sheet.
In either of those scenarios there's going to be immense pressure to not let the business get comfortable.
YC's standard deal (at least according to their FAQ) is for 7% equity. So I think it is quite likely that YC startups do hold the majority interest.
As for other scenarios, I can't really speak to that - I personally have never been with a company that accepted any deal that included loss of control. I'm sure it happens, it just doesn't match my experience.
Y'all are some cowards with the downvotes on this. The failure of startup people to recognize that the entire VC complex is a machine designed for making a tiny sliver of people even wealthier is embarrassing given how smart the world thinks they are.
Some of us recognize it...and I wasn't being judgmental. It's just that, well, you're either under the bus or driving it. Not much room left for riders anymore. :(
ouch. :) And yet what you're saying is true, even for those who are avoiding said pipeline as long as possible! @sama is right... growth and momentum are inextricably linked, and I've found @ userify that days with good numbers (and there are more of those these days!) keep us plugging through the harder days.
With momentum and growth, all things are possible. Without either, nothing is possible, and it messes with your mind. These are the days that you start messing with side projects and taking your eye off the ball.
It's all about building a growth machine on some meaningful axis (users, server, revenue, whatever) and figuring out what makes it grow fastest. Cashflow is derived from that. That's really all it is. Funding, hiring, even the technology itself: all just sideshows. Growth first.
The corollary: build something that helps you track your numbers. My thing literally just emails me a CSV with a new line appended every day. If it ever gets too unwieldy, I'll do something more sophisticated but for now it's a few hundred lines of python that helps me track trends etc in a spreadsheet. (I'd love to see a startup that can do API POST'ed metrics for $10/mo!)
Userify is growing at 50% monthly, but it's still not fast enough. Growth is everything, and the measurement of that growth is critically important. It doesn't need bells and whistles.. just get it done.
"Stay focused on building a product your users love and hitting your growth targets."
How can you grow without a product users love? Say your retention rate is nowhere where it needs to be yet, isn't it counterproductive to work on getting more users when you those users won't stick around?
A lot of comments seem to be making a horrible comparison between "relentlessly focusing on building a great product and growing" and working long hours. There is no rule that says you must spend 120 waking hours in the office to be relentlessly focused on building a great product and growing the business. In fact, if anything sama is pointing out that people are wasting time with work that does not focus on building a great product or growing.
A member of a YC batch seems to have only a few obligations. There was occasional office hours which help to keep the batch on track with objectives to reach product or growth excellence. They have social events, which are good for learning and more general. They have a few demo type activities which are, again, around product and grown excellence. The rest of the time they work on... product and growth excellence. Do they have to work on things more than 40 hours a week? No. Is there a time clock where they share their hours? No.
Granted they are often out of their normal environment and very excited so they do work more than 40 hours. But that is a choice not a requirement. There are many examples of founders who bring spouses and children and find time during their batch for having great family experiences and good work/life balance.
The issue seems to be when they get home. They no longer spend 40 hours working on growth and product excellence. They work on marketing themselves. They work on raising more money. They work on PR. They lose the product and grown momentum.
We need to stop turning this into a conversation about how "start up founders must give up work/life balance to succeed". No one is suggesting that. What is being suggested is that you take what you learn in a 3 month period and use it after that three month period. Don't work longer, work smarter.
Edit: If the down voters would care to discuss why they object to this opinion, do feel free.
Are there statistical differences in slumping rate between pure-software startups vs domain-specific startups that use software as a tool? Numbers, please. Thanks.
don't you think part of it is, startups that are not clearly hotshots that are going to raise a ton of cash quickly end up needing to focus on fundraising, and, as an investor, I would expect significant adverse selection on those startups that didn't land big time backers right away
Something about "startups fail because they simply don't listen to us, get confused, and stop working" feels wrong coming from the President of YC. It bothers me that there's no institutional or personal responsibility being taken. It also bothers me that the risk the founders took isn't being acknowledged - that all the failures are being placed back on the founders' shoulders. YC selected these founders from thousands in an incredibly selective process. Why is Sama crapping on alumni? Wouldn't you want your president going to bat for you and defending your efforts?
I don't think he's doing that at all. He merely observed a negative pattern that many startups tend to fall into by default, and warned people about that pattern. The tone of the post is clearly "it's easy to make this mistake, don't make it", not "if you make this mistake you're an idiot." The latter interpretation is perhaps the least charitable you could have picked.
I do think there is a kernel of truth in your comment. YC tests a lot of assumptions and tries a lot of things. Many of the tests work out, some don't. This means that at some point they've necessarily given founders bad advice that people then went on to execute on. I think that's something worth acknowledging explicitly (e.g. "hey, we thought this was right but it turned out to be wrong; sorry"). But there is a huge gap between that, and what you referred to as "crapping on alumni".
I know that Sam knows 100 times what I do about failing startups, and that some probably do fail for this reason. But I think this meme that "your startup probably failed just because you stopped trying hard enough" is awful.
Even Sam says IN THIS ARTICLE that "Also, very small startups can grow by sheer force of will, even with a bad product." Looking at the TechCrunch reviews, I think probably half of these companies will turn out to be pretty bad products in hindsight that could never have gone anywhere.
I wouldn't say that any of these are bad based on TechCrunch; I mean more that there were something like 3 products that sell machines that sell food, and there's a chance in 10 years we'll say "there was no way that a food-machine product could have become a large business". And regardless of how hard they all work, I don't think it's possible that there will be 3 different "billion-dollar businesses" here.
First I agree with you that I don't get a lot of YC startups, including the food selling machines at their current state. I do think that one of the more inefficient aspects of life is how humans handle food, from producing, transporting, storing to cooking/eating. There are just too much waste in every step of that chains. More depressingly, this is waste that doesn't necessarily go back to support the environment like the salmon leftover from the bears. Improving efficiency in any step in this chain is huge for humankind, and potentially worth a lot of money too. I don't know if the YC food startups have that goal in mind, or they are more going for the "oh this is cool" aspect.
I'm curious about why there's no consideration of the possibility that perhaps such a high-intensity pace is simply not sustainable on a personal level for most people.