General The Y Combinator Startup School 2009 Summary Sunday, October 25, 2009

Y Combinator‘s Startup School 2009 was an incredible learning experience for new and experienced entrepreneurs alike. There are ten talks. Here are their key points.

Paul Graham, Founder, Y Combinator: What Startups Are Really Like Greg McAdoo, Sequoia Capital Jason Fried, CEO, 37signals: Funding and Charging for Your Product Chris Anderson, Editor-in-Chief, Wired: Freemium Paul Buchheit, Creator of Gmail and Friendfeed: What I’ve Learned Twitter Founders Biz Stone and Ev Williams: Q&A with Jessica Livingston Mark Zuckerberg, Founder and CEO, Facebook: Q&A with Jessica Livingston Mitch Kapor, Founder, Lotus: Startup Culture Tony Hsieh, CEO, Zappos: Delivering Happiness Mark Pincus, CEO, Zynga: My Startup Experience

Paul Graham, Founder, Y Combinator: What Startups Are Really Like

Below are some key points about his talk, but there are a lot more great soundbites in his transcript of What Startups Are Really Like.

in his research, people have sometimes said that in a co-founder, character is more important than performance

expect failure with deals.

be optimistic about things you can control. you can’t control deals, so don’t be optimistic about them.

having a founder is like you’re married but not fucking.

luck is a big factor in startups. founders/programmers are more surprised than normal founders because programmers are used to concrete cause-and-effect

sorry, guys: being a startup founder does NOT make you more attractive to women.

quitting your job to start a startup depends on the age. harder at 35 with wife and kids. but at 21, your entry-level job is useless anyway, so go start a startup.

Greg McAdoo, Sequoia Capital

the 70s and 80s economies performed just like the current economy: recession, unemployment on the rise, etc. however, Apple, Oracle, and many others came from it too

likewise, the 2001 crash spawned companies like A123, Rackspace, and Aruba and Zappos

it’s definitely possible to start a startup in a down economy, as some of the best businesses still around today started in recessions

the demand environment in a recession: your competition is less irrational in their purchases and doings

recessions create a lot of discipline.

in startups, you have to start small, and stay focused, especially in a recession.

good recession-era startups “buy the cash register early,” — they execute their pay business model earlier to generate revenues earlier and bank earlier

Re: “RIP Good Times”: it didn’t say that everything was fucked, but rather that you have to run your startup like other past recession winners, and cut and be lean

enterprise sales tip: promote and talk about the HARD DOLLAR ROI. it’s the most important thing to talk about. make them scared to reject your product. make them think “if my boss ever found out we could have saved 50% on software X, he would be pissed.” make them fear that the competition get the product in their hands and beat you out.

startups that gain revenue early are disciplined earlier, and get used to being an actual business earlier, and generally are better and more recession-proof

Jason Fried, CEO, 37signals: Funding and Charging for Your Product

the difference between a boostrapped and funded company is easy to understand.

the bootstrapped company starts off thinking: we need to make money.

the funded company starts of thinking: we need to spend money. these investors have given us x million dollars—we should spend it!

the funded company detracts away from doing final execution of the product and making revenues.

start as early as you can. you don’t become fantastic at piano by starting at 20 or 25. you do become fantastic at piano if you started at age 5.

price forces you to be good and better than the rest. the pressure of price is very, very good.

pricing your product will give an avenue for the people buying your software to give you feedback on it.

if a product is free, you don’t get that feedback.

if a product is free, it’s just “good enough.” people will take it and say it’s just “good enough” to use for free.

the most intimate transaction between people: money. I’m giving you this money earned by hard work because you offer something that I want.

funding is like crack. it’s an addiction with names like Series C. Don’t keep going back for more and more funding; it’ll make your addiction worse.

planning is GUESSING. figure out stuff as you go, because you never really know. plan some, but improvise a lot.

I promise you’ll still be using post-it notes in 20 years. Usefulness trumps innovativeness; usefulness stays while coolness deteriorates over time.

all the art in the world in one room won’t make a museum. the fact that it rejects 99% of art makes it a museum. apply this to software features.

37signals’ byproducts include Getting Real, the job board, and more. they have generated 37signals more than $1M in revenue. the job board itself has made $1.5 million.

“we apologize for any inconvenience we may have caused you” is the worst way to say “I’m sorry”

the best are everywhere, even outside Silicon Valley, don’t think you HAVE to be here. 37signals is based in Chicago.

sorry, failure is not a rite of passage. you don’t have to fail. failing once doesn’t prevent another. Fried thinks the idea of “you have to fail once” and having to “learn about failure” is ridiculous.

learning a lesson from failure is learning what not to do. learning what to do is a lot better than learning what not to do.

other peoples’ failures are other peoples’ failures. don’t worry about them.

anyone know how to sell things for free? you can’t. you can only sell things for money.

Chris Anderson, Editor-in-Chief, Wired: Freemium

freemium is a great way of marketing. 90% try 10% buy. digital freeloaders are affordable, too. the freeloaders are paid for by the paid users.

conversion from free to paid means loyalty. freemium conversions hold the lowest churn rates.

Club Penguin was free to play. children USE the service and SEE VALUE in it, and subsequently purchase the premium options. sold for $700 mil to Disney.

types of freemium: feature limited freemium. people already familiarized. ex. iPhone apps.

Anderson hates 30-day trials. ticking clocks discourage uptake. hmm.

capacity limited freemium. like Google or Flickr, for file storage limits. unfortunately doesn’t work for all products.

when Gmail launched, the Gmail free was more than Yahoo! Plus. Yahoo! shat themselves, but it turned out that they had experienced low churn in that period: subscribers tend to stay. not the least of which reasons is that your email is on the provider still.

Bill Gates didn’t crack down much on Chinese piracy because they were a developing country. they much rather would have people pirate their software than other peoples’ software, and Gates believed that they would pay later because of the then-majority of software being Microsoft. and—they did pay later and is now a huge market for Microsoft

(btw!) Jason Fried isn’t against Chris Anderson. 37signals products are all based on freemium. the idea is to charge $!

make sure you articulate the free deal clearly to the customer. communication is the risk.

Paul Buchheit, Creator of Gmail and Friendfeed: What I’ve Learned

“limited life experience + overgeneralization = advice”

Buchheit started working on Friendfeed at 30 years old

He worked at Google since 1999ish, after Intel, and did internships at Microsoft and Sun in college

working at Google was his best education he received from anywhere

after Google, he took a one-year retirement period to chill

however, he “wanted to do things that mattered” – and started friendfeed

it’s toxic to think that when you’re done with school, you’re done learning

are you in startups for the money? if so, when (that’s a when, not an if) the startup feels hopeless and the rollercoaster is at the low, you’ll give up easily.

if you’re into startups not just for the money, you’ll focus on external rewards and harder to give up

“if you really care about something, do it now.”

Twitter Founders Biz Stone and Ev Williams: Q&A with Jessica Livingston

Obvious was bored of Odeo and wanted to do something new. they weren’t passionately engaged in the product and rarely used it

motivation behind Twitter: two week hackweek at Obvious. they built, used it over the weekend, and they were passionately engaged

Twitter was incubated in Odeo, then spun out. Fred Wilson was first investor. they were lucky: they were able to choose investors

SXSW 07 was big: people started using it for afterparties

one guy said that one bar was crowded and to go to another one and posted it. before he got there, the line was out the door

they realized WOW – this product actually had users, people loved to use it too

some people said, it’s fun but it’s not useful. Ev responded: well, so is ice cream.

going public with Twitter a possibility, they’d like to go big

Mark Zuckerberg, Founder and CEO, Facebook: Q&A with Jessica Livingston

addressed the audience as “my people”

first social hack: making an online study tool that had people fill in notes for him to pass a final

first version of Facebook was about 10,000 LOC, release early release often worked really well for Facebook (employees push a lot)

definitely build something people want. Facebook wasn’t a business at start, was a tool and project

moving to Silicon Valley provided a lot of infrastructure for an early entrepreneur like himself

launched Facebook at the least receptive schools and they still caught on

Facebook is by definition is a naturally viral product: your friends are there. Lots of organic word-of-mouth happened at campuses.

Half of Dartmouth College joined in one night, probably due to an email that went out from the student government.

he says he never pitched Facebook a lot. Just got introduced to people because already had x00,000 users

“we used register.com, which was a mistake”

have to go through a lot of steps and iterate, no problem with mistakes, like being too perfect

Facebook was very focused on keeping the management technical, vs. nontech folks running the company

if a ‘technology’ company has a management that isn’t really technical, it’s not a tech company

keeping a smaller team means leverage. 300 mil users and 300 engineers. FB: a company composed of hackers. look elsewhere, and the ratio of engineers to users is incredibly different

cognizant of the fact that engineers tend to move around companies. Facebook is a place to learn; he’s cool with moves.

he talked with classmates about big industry trends. One was more data and interaction.

sometimes you shouldn’t listen to other people. Lots of people told him he had no experience etc

we’re trying to get the world to be more open. openness and transparency is going to be important in the future

not taking any risks is the riskiest thing you can do.

Values are worthless if they’re not controversial. What are you willing to give up for them?

Mitch Kapor, Founder, Lotus: Startup Culture

what kind of legacy do you want to leave? It’s about having impact.

startups see themselves as more open, less politicky, but they aren’t actually better in some ways

startups have more public humiliation and bullying than regular companies, says research

some startups value face-time more than productivity, and some value rumors as the best source of info

lots of tech startups see themselves as meritocracies. Research : “diverse teams are better”

inaction is an action, too. Both what you do and don’t do affects your startup’s culture

in startups, hold people accountable. Be serious about keeping a tight leash.

Angel investors are really disruptive. Characteristics: smaller chunks of money, more favorable terms, often entrepreneurs themselves

Tony Hsieh, CEO, Zappos: Delivering Happiness

sold LinkExchange because the culture with employees wasn’t good.

the list of core values of Zappos was really important to culture and the co. Wish they did it at first

“people tell us we should start an airline… or run the IRS”

Zappos has three C’s: Clothing, Customer Service (what they experience), Culture (and core values)

recommend Good to Great (Jim Collins) and Tribal Leadership (avail online at zappos.com)

“chase the vision, not the money–and the money will end up following you”

“what would you be passionate about doing for 10 years regardless of money made?”

Inspire employees: culture and greater visions. Came up with Committable (!) Core Values.

Zappos’ Committable Core Values are grounds for hiring and firing, very serious about it

one hire that goes against the core values is fine, but making a habit of letting it slide all the time is detrimental

more important to have core values and committing to them, rather than the specific values.

“vision and culture can inspire passion and performance” (yes!)

Zappos aims to deliver happiness to customers AND employees AND vendors

When Zappos employees leave, they often go and hang out with other Zappos employees.

Zappos recommends that 10%-20% of time outside of office w/ coworkers, and Tony said that it improves communication and happiness by 20-100%!

what is your goal in life? then ask why? then ask why again? and again? it all leads to HAPPINESS

happiness components: perceived control, perceived progress, connectedness, and higher vision/meaning

give bonuses every 6 months vs every 18. Equivalent but happiness higher

3 types of happiness: pleasure/rockstar, passion/flow (time flies), meaning/higher purpose (long lasting)

Mark Pincus, CEO, Zynga: My Startup Experience

Check out this writeup on VentureBeat too.