When it comes to the world of tech start-ups and Silicon Valley, you’ll struggle to find a more respected and influential start-up incubator than Y Combinator. Founded in 2005 by Paul Graham, Jessica Livingston, Trevor Blackwell and Robert Tappan Morris, it has helped some major companies get off the ground and find a workable business model. Y combinator alums include Dropbox, Airbnb and Reddit.
Getting into Y Combinator, as you might expect, isn’t easy. Two batches of around 50 to 100 start-ups are accepted every year. That might seem like quite a lot, but it’s estimated that the incubator receives between
1 000 and 2 000 applications for every intake, with only 3% of start-ups actually making the cut. And even if you get in, you’re expected to move to Silicon Valley for three months to work closely with the folks at Y Combinator. For many start-ups, especially international ones, this can be difficult to do. Not only is it expensive, but moving a whole business to San Francisco can be impractical. So, while many founders would love to grow their businesses with the help of Y Combinator, few can actually achieve this dream.
However, even if you can’t attend Y Combinator personally, you can still learn a lot from the incubator. According to Sam Altman, the current president of Y Combinator, about 70% of what the mentors discuss at the incubator is specific to the start-ups they deal with, but the other 30% is generic and applicable to all, and this info has been made available to the public.
Y Combinator, along with some very prominent and influential guest lecturers, hosted a series of lectures at Stanford in 2014, and these sessions were recently released in podcast form. Every lecture is incredibly dense, packed with fantastic advice and insights. It is definitely worth listening to every single one in its entirety. You can find the episodes on podcast platforms like iTunes, or you can visit startupclass.samaltman.com for videos of the lectures, as well as annotated transcripts and other resources.
There’s nowhere near enough space here to discuss all the info provided, but below you’ll find some of the most interesting tips and lessons from the various lectures. Specifically, we’ll be looking at the counter-intuitive insights that are only gleaned from years in the trenches.
1. A great idea doesn’t look like a great idea
“The hardest part about coming up with great ideas, is that the best ideas often look terrible at the beginning. The thirteenth search engine, and without all the features of a web portal? Most people thought that was pointless. Search was done, and anyway, it didn’t matter that much. Portals were where the value was. The tenth social network, and limited only to college students with no money? Also terrible. MySpace has won and who wants college students as customers? Or a way to stay on strangers’ couches. That just sounds terrible all around.” — Sam Altman, Y Combinator President.
Lesson: The obviously ‘great’ ideas are already taken. As Altman says: “If they sounded really good, there would be too many people working on them.” So, you want something that doesn’t seem like a truly great business idea at first. This means facing a lot of risk and rejection, but it also provides great opportunity. The alternative, argues Altman, is a clone of an already-existing idea with a small or made up differentiator, and these businesses don’t tend to last.
2. Looking for a great idea is not a great idea
“The way to get start-up ideas is not to try to think of start-up ideas. If you make a conscious effort to try to think of start-up ideas, you will think of ideas that are not only bad, but bad and plausible sounding. Meaning you and everybody else will be fooled by them. You’ll waste a lot of time before realising they’re no good. The way to come up with good start-up ideas is to take a step back. Instead of trying to make a conscious effort to think of start-up ideas, turn your brain into the type that has start-up ideas unconsciously.” — Paul Graham, Y Combinator Founder
Lesson: Great start-up ideas tend to pop up when you’re not actively trying to start a business. A lot of great companies, like Google, Facebook and Apple, were not started as businesses, but purely as side projects that interested the founders. So, follow your curiosity and don’t search too hard for an idea. The truly great ones are almost never obvious start-up ideas.
“The very best ideas almost always have to start as side projects because they’re always such outliers that your conscious mind would reject them as ideas for companies,” says Graham.
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3. Competition is for losers
“You want to be a one-of-a-kind company. You want to be the only player in a small ecosystem. You don’t want to be the fourth online pet food company. You don’t want to be the tenth solar panel company. You don’t want to be the hundredth restaurant in Palo Alto. Large existing markets typically mean that you have tons of competition, so it’s very, very hard to differentiate. The first very counter-intuitive idea is to go after small markets; markets that are so small people often don’t even think that they make sense. That’s where you get a foothold, and then if those markets are able to expand, you can scale into a big monopoly business.” — Peter Thiel, entrepreneur and venture capitalist.
Lesson: Many successful, high-growth companies started out catering to markets that appeared small and unpromising at first. Facebook didn’t start off as a social media platform for the globe, it started off catering to a single university — a tiny market. Too many start-ups wade into a saturated market purely because the size of the market is tempting. A better idea is to find that small market that is ready to explode. What industry will be massive ten years from now?
4. Grow big by thinking small
“My philosophy behind a lot of things that I teach in start-ups is, the best way to get to $1 billion is to focus on the values that help you get that first dollar to acquire that first user. If you get that right, everything else will take care of itself. It’s a sort of faith thing.” — Kevin Hale, Y Combinator Partner.
Lesson: Large-scale, long-term success depends on creating a product or service that truly surprises and delights your customers. The problem is, you can’t do this if you’re too focused on the big picture. If you’re too worried about building a R1 billion business, you’re not taking the time and effort to think about the individual customer experience. So, don’t look at customers as numbers on a spreadsheet, even if your business is already hugely successful. And, if your business is still new, do whatever’s needed to delight the customer, even if your approach seems unscalable. Stay true to the approach that bagged you that very first sale.
5. Do things that don’t scale
“The lesson that I’ve been learning lately is that you want to do things that don’t scale as long as possible. There’s not some magical moment; it’s not Series A, or it’s not when you hit a certain revenue milestone, that you stop doing things that don’t scale. This is one of your biggest advantages as a company, and the moment you give it up, you’re giving your competitors that are smaller and can still do these things an advantage over you. So as long as humanly possible, as long as it is a net positive, you need to spend time talking to your users, you need to move as fast as possible in development, but don’t give it up willingly; it should be ripped from you.” — Walker Williams, founder of Teespring.
Lesson: Don’t worry too much if your actions aren’t scalable. View it as an advantage. The longer you can do things that don’t scale, the bigger your advantage over the competition. There will come a time when you’re too big to do these things, but don’t fret over it in the early days.
6. You get funding if you don’t need funding
“I was so frustrated from this experience of having tried for two years to raise money from VCs and I sort of decided, to hell with it. You cannot count on there being capital available to you. This business that I started seemed like one that maybe I could do without raising money at all. There was enough cash flow, it seemed compelling enough that I could do that. It turns out that those are exactly the kinds of businesses that investors love to invest in and it made it incredibly easy.” — Parker Conrad, founder of Zenefits.
Lesson: Finding funding isn’t easy, especially if your company is hanging on by a thread and desperately in need of a cash infusion. The safest way to build a business is to bootstrap and become cash-positive as quickly as possible. The fact of the matter is, investors will be more attracted to a business that has proven its business model and is making money. Launch as cheaply as possible, get some traction, make some money, and then go to investors when you’re ready to scale.
7. Growth is as much about retention as acquisition
“My contrarian viewpoint is, if you’re a start-up, you shouldn’t have a growth team. Start-ups should not have growth teams. The whole company should be the growth team. The CEO should be the head of growth. Mark Zuckerberg is a fantastic example of that. Back when Facebook started, a lot of people were putting out their registered user numbers. Mark put out monthly active users, as the number he held everyone to internally, and said we need everyone on Facebook, but that means everyone active on Facebook, not everyone signed up on Facebook, so monthly active people was the number internally, and it was also the number he published externally. It was the number he made the whole world hold Facebook to, as a number that we cared about.” — Alex Schultz, Head of Growth Marketing at Facebook.
Lesson: Growing your company isn’t as simple as signing up new customers. Sure, this is important, but ultimately, retention is more important than acquisition when it comes to long-term success. You want people to stick around and continue doing business with you, so, right from the beginning, focus on retention. Make that one of the key metrics that you track and use to evaluate the business. Even if you are landing new clients at an impressive rate, it doesn’t bode well if retention is a problem. Retention says a lot more about the viability of your start-up than new acquisitions do.
Y Combinator’s events are known for their high-calibre guest speakers, including Facebook founder Mark Zuckerburg and Zappos founder Tony Hsieh. In 2014 Y Combinator hosted a series of lectures at Stanford. These have recently been released in podcast form.
How to Start a Startup can be downloaded from iTunes or for videos of the lectures, go to startupclass.samaltman.com
Beauty Of Failure: The Art Of Embracing Rejection
In this piece I will try demystify failure, and look into why it should be embraced and not feared.
“Chaotic”, “uncertain”, and “rollercoaster” are three words that would effectively describe almost any entrepreneurial journey. If death and taxes are certainties in life, then failure and taxes are the only two guarantees in business.
If failure is (to some degree at least) inevitable, why should we fear it? In this piece I will try demystify failure, and look into why it should be embraced and not feared.
1. It’s Part of the Job
We can start by separating failure into two different categories – micro and macro-failure. If a macro-failure can be considered as the overall failure and shutdown of the business, micro-failures can be seen as the day to day events that go wrong – that potential client that hangs up on your cold call; the sales pitch that gets the soft-no response of “we’ll call you”; the product launch that no one pitched up to. As Mark Manson puts it, business (as in life) is just a process of becoming less wrong over time.
Everything is a hypothesis that needs to be tested, and the process of business is applying the learnings from each hypothesis – each micro-failure – to be less wrong next time to move the business forward.
As Seth Godin says, “The cost of being wrong is less than the cost of doing nothing”. Embrace being wrong. Rejection and failure are part of the job.
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2. Opportunity to Refine
There is one undoubted truth about every failure – and that is, each failure gives an experience to dissect and learn from. The Roman Emperor Marcus Aurelius had a similar view; that to one person a situation is good, and to another, that same situation is bad – Only perception decides.
As an entrepreneur, it is important to adopt this stoic thinking of managing your perceptions. Look at situations rationally, and perceive rejections as opportunities to refine the product that the market really needs – not the product you are forcing on your market.
3. With each Failure, Fear it Less
One of the great things about rejection or failure, is that the more often you are exposed to it, the less you fear it. In fact, micro-failures can become such a common part of an entrepreneur’s day, that you stop even noticing them as failures at all.
You may look back on a day with multiple rejections from prospective clients as a normal day on the path to building a business. The goal is to get to that point as quickly as possible.
4. One Less Avenue
In the beginning, any failure will elicit a strong emotional response, however, when it becomes embraced as part of the journey, as crazy as this sounds, you may even get excited for the next rejection or micro-failure.
Why? Because each micro-failure takes away one possible path you could go down in your business. Entrepreneurs tend to be highly ambitious, highly idealistic people. This may result in wanting to do too many things, take the business in too many directions simultaneously, and run before walking.
The beauty of failure is it re-clarifies the path, stops the entrepreneurial mind from getting carried away, and brings everything back into perspective. What’s better than pursuing 1000 potential clients? Pursuing 999 higher potential clients.
Eliminate avenues that aren’t right for your business as quickly as possible so that you can spend time on providing best possible product or service for the ones that are right.
5. Practical Tip to Embrace Rejection
So with all this theoretical talk out of the way, how do we get over that fear of failure to see the beauty of it? Start by watching Jia Jang’s TED talk of 100 Days of Rejection: https://www.ted.com/talks/jia_jiang_what_i_learned_from_100_days_of_rejection. The talk genuinely impacted my life. I have since implemented an annual (and much less impressive) 10 days of proactive rejection in my life. The goal is for 10 days, to do anything in any aspect of life that you would do if you weren’t ruled by fear. Ask yourself today, “what would I do if I wasn’t scared?”
The goal is to actively seek rejection to remove the power of fear from damaging your business’s potential.
Finally, I believe we should get our heads around the idea of celebrating our failures. Go for a drink as a team and give a toast to that failure even more than if it was a success. After all, if life is more about the journey than the destination, surely we should celebrate and cherish every event of the journey along the way?
Every event that happens will be critically important in forming the empire of a business that you are building. Take a step back, see the big picture, and smile whenever it doesn’t go as planned. See the beauty of failure.
6 Resources For Start-ups Looking For Funding
Here are 6 online resources that can help you pay the bills and grow your business at the same time.
Anyone who has ever considered starting their own business, or is currently in the process of doing so, knows that every little bit helps when it comes to making ends meet. Part of the charm of start-up culture is the low-budget creative atmosphere that seems to continually fuel innovation. But, eventually you’re going to have to keep the lights on and water running, and you can’t do that with creativity alone.
Whether you are a business that is just starting out, or already well on your way, there are plenty of online platforms that offer start-ups advice and funding opportunities. Here are 6 online resources that can help you pay the bills and grow your business at the same time.
At one point it seemed that anyone with a clever idea could make a video showing why the world should invest in the next big thing. While a lot of crazy projects have gotten funded over the years, utilising a crowdfunding platforms like Kickstarter continues to be a viable way to get your project off the ground. Of course, if you want to reach your funding goals, it’s best that you have already done your market research, have a solid plan, and treat crowdfunding like a global VC.
Visit Kickstarter here.
Those who are new to the start-up world might not know exactly where to start when it comes to looking for funding. While the freelance economy has grown immensely in the last 5 years, it’s important to know where to look.
Platforms like Toptal offer a wide range of freelance professionals that specialise start-up funding. Start-ups seeking a consultant on Toptal can also rest easy knowing that they carefully screen each candidate, ensuring they have the necessary professional background and experience to guarantee a successful project.
Visit Toptal here.
If you couldn’t already tell by the name, appbacker is definitely worth checking out if you are a start-up working in app technology for both Android and Iphone. The platform helps people discover different apps through the crowdsourcing model. Investors can scroll through apps from around the world, and if they like what they see, they can choose to invest. Funding incentive is based on an investor’s ability to purchase an app at the wholesale price, eventually making a profit once the app starts flying off the shelves in the official app store.
Visit Appbackr here.
Investors are more likely to invest locally, which is why Gust is an attractive option for start-ups around the world, as they represent over eighty countries worldwide. Founded by a team of investors and lawyers, Gust knows their way around the start-up world.
With portals for both start-ups and investors, the platform seamlessly connects those seeking funds and those looking to invest. Start-ups can create a profile on Gust, and also have access to tools and tips to help them regulate finances and legal matters.
Visit Gust here.
Not just for investment, although that is a major part of the platform, AngelList is also a great place to find start-up jobs as well as recruitment. Those start-ups that are looking to expand can greatly benefit from this feature, while also getting their name out there to potential investors.
Their syndicate platform, led by technology experts make room for those who are looking to invest the chance to apply to a lead or directly invest in a fund.
Visit AngelList here.
From top corporations to big name accelerators, Seedrs aims to simplify the funding process for investors. Providing a vast network of investors from 48 different countries, who tap into an additionally impressive network of start-ups, there is plenty of room for collaboration on this platform. Seeders also encourages investors and start-ups to continue their relationship after the transaction is made. Their online and offline networks aim keep both start-ups and investors in the loop.
Depending at what stage of development your company has currently reached, exploring various funding options available to you is a worthwhile endeavour. Rather than blindly pitching investors, investigating each potential platform, whether it’s crowdfunding or a hiring a freelance funding expert, will save you time and resources so you can focus on the right type of investment based on your needs.
Visit Seedrs here.
Picking Your Lane: Maximising Your Chances Of Success And Happiness
How do you choose? What do you prioritise? What’s right for me is almost certainly not right for you.
Most entrepreneurs start businesses out of necessity. They do what they have to. They don’t think far ahead. They fight fires every day. They are the foundation of every economy all over the world. Some succeed, some fail, few shoot the lights out. Some are happy, some are not.
For me, there’s nothing more thrilling than building a business. Seeing your ideas turn into reality. Seeing your team exceed your expectations every day. Seeing your customers’ lives improved by your products.
But, entrepreneurship is not for the faint-hearted. You pour blood and sweat and tears into your business. You get more than your fair share of punches in the nose. It’s hard, but if you’re lucky and you persevere, the rewards are great.
So, how do you maximise your chances of getting into the ‘happy and shooting the lights out’ club?
Picking the right lane – figuring out what you’re going to do – is probably the most important decision you’ll make. Once you’ve figured that out, you can get down to the nitty gritty of picking your team and building your business.
But, how do you choose? What do you prioritise? What’s right for me is almost certainly not right for you.
The Sweet Spot Model, which has been drifting around the web for years, provides great guidance. If you do what you love, the hard yards won’t feel like work. If you do what you’re good at, you’ll beat or (even better) outstrip the competition. If you provide something the world needs, you’ll feel a sense of purpose. If someone will pay for it, you have a business.
When I co-founded Simply, I wanted to tick all 4 boxes AND work from Cape Town AND be extremely flexible (so I could prioritise family health).
I worked on three different ideas: A GIS-platform for solar and other utilities; a transaction platform for stokvels; and a cheeky online life insurance play.
The life insurance play quickly emerged as my best choice (it helped that my partners are top actuaries J):
- What I’m good at – doing start-ups, connecting people and teams, and using technology and data to solve business problems.
- What I love – working with people I like and trust to build businesses that solve hard problems and make the world a better place.
- What the world needs – most adult South Africans have one or more funeral policies. Few have life or disability cover and policies are often very expensive. There’s a clear need for simple, convenient, well-priced life, disability and funeral cover.
- What someone will pay for – the market we’re targeting is huge – nearly R7.5Bn of new premium is written annually.
With the stars lining up, we pressed the go button in early 2016. It’s now twelve months since we launched to market and early signs are good:
- Our innovative, online products – Family Cover, Domestic Cover and Group Cover – have been well received and are improving all the time.
- We have an amazing, engaged team – inspired by the purpose of protecting vulnerable people.
- We’ve sold more than 4 500 policies to date, providing more than R2.5Bn of cover to more than 20,000 people.
- We’re based in Cape Town, working hard and having fun, and I seldom miss a swimming gala, netball game or opportunity to go mountain biking.
While picking the right lane is no guarantee of success, it definitely helps stack the odds in your favour. You’re going to need all the help you can get. So, take the time to pick your lane. I bet it’ll be worth the effort.
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