Billionaires Build

****

****

****

| December 2020As I was deciding what to write about next, I was surprised to find
that two separate essays I'd been planning to write were actually
the same.The first is about how to ace your Y Combinator interview. There
has been so much nonsense written about this topic that I've been
meaning for years to write something telling founders the truth.The second is about something politicians sometimes say � that the
only way to become a billionaire is by exploiting people � and why
this is mistaken.Keep reading, and you'll learn both simultaneously.I know the politicians are mistaken because it was my job to predict
which people will become billionaires. I think I can truthfully say
that I know as much about how to do this as anyone. If the key to
becoming a billionaire � the defining feature of billionaires �
was to exploit people, then I, as a professional billionaire scout,
would surely realize this and look for people who would be good at
it, just as an NFL scout looks for speed in wide receivers.But aptitude for exploiting people is not what Y Combinator looks
for at all. In fact, it's the opposite of what they look for. I'll
tell you what they do look for, by explaining how to convince
Y Combinator to fund you, and you can see for yourself.What YC looks for, above all, is founders who understand some group
of users and can make what they want. This is so important that
it's YC's motto: "Make something people want."A big company can to some extent force unsuitable products on
unwilling customers, but a startup doesn't have the power to do
that. A startup must sing for its supper, by making things that
genuinely delight its customers. Otherwise it will never get off
the ground.Here's where things get difficult, both for you as a founder and
for the YC partners trying to decide whether to fund you. In a
market economy, it's hard to make something people want that they
don't already have. That's the great thing about market economies.
If other people both knew about this need and were able to satisfy
it, they already would be, and there would be no room for your
startup.Which means the conversation during your YC interview will have to
be about something new: either a new need, or a new way to satisfy
one. And not just new, but uncertain. If it were certain that the
need existed and that you could satisfy it, that certainty would
be reflected in large and rapidly growing revenues, and you wouldn't
be seeking seed funding.So the YC partners have to guess both whether you've discovered a
real need, and whether you'll be able to satisfy it. That's what they
are, at least in this part of their job: professional guessers.
They have 1001 heuristics for doing this, and I'm not going to tell
you all of them, but I'm happy to tell you the most important ones,
because these can't be faked; the only way to "hack" them would be
to do what you should be doing anyway as a founder.The first thing the partners will try to figure out, usually, is
whether what you're making will ever be something a lot of people
want. It doesn't have to be something a lot of people want now.
The product and the market will both evolve, and will influence
each other's evolution. But in the end there has to be something
with a huge market. That's what the partners will be trying to
figure out: is there a path to a huge market?
[1]Sometimes it's obvious there will be a huge market. If
Boom manages
to ship an airliner at all, international airlines will have to buy
it. But usually it's not obvious. Usually the path to a huge market
is by growing a small market. This idea is important enough that
it's worth coining a phrase for, so let's call one of these small
but growable markets a "larval market."The perfect example of a larval market might be Apple's market when
they were founded in 1976. In 1976, not many people wanted their
own computer. But more and more started to want one, till now every
10 year old on the planet wants a computer (but calls it a "phone").The ideal combination is the group of founders who are
"living in
the future" in the sense of being at the leading edge of some kind
of change, and who are building something they themselves want.
Most super-successful startups are of this type. Steve Wozniak
wanted a computer. Mark Zuckerberg wanted to engage online with his
college friends. Larry and Sergey wanted to find things on the web.
All these founders were building things they and their peers wanted,
and the fact that they were at the leading edge of change meant
that more people would want these things in the future.But although the ideal larval market is oneself and one's peers,
that's not the only kind. A larval market might also be regional,
for example. You build something to serve one location, and then
expand to others.The crucial feature of the initial market is that it exist. That
may seem like an obvious point, but the lack of it is the biggest
flaw in most startup ideas. There have to be some people who want
what you're building right now, and want it so urgently that they're
willing to use it, bugs and all, even though you're a small company
they've never heard of. There don't have to be many, but there have
to be some. As long as you have some users, there are straightforward
ways to get more: build new features they want, seek out more people
like them, get them to refer you to their friends, and so on. But
these techniques all require some initial seed group of users.So this is one thing the YC partners will almost certainly dig into
during your interview. Who are your first users going to be, and
how do you know they want this? If I had to decide whether to fund
startups based on a single question, it would be "How do you know
people want this?"The most convincing answer is "Because we and our friends want it."
It's even better when this is followed by the news that you've
already built a prototype, and even though it's very crude, your
friends are using it, and it's spreading by word of mouth. If you
can say that and you're not lying, the partners will switch from
default no to default yes. Meaning you're in unless there's some
other disqualifying flaw.That is a hard standard to meet, though. Airbnb didn't meet it.
They had the first part. They had made something they themselves
wanted. But it wasn't spreading. So don't feel bad if you don't hit
this gold standard of convincingness. If Airbnb didn't hit it, it
must be too high.In practice, the YC partners will be satisfied if they feel that
you have a deep understanding of your users' needs. And the Airbnbs
did have that. They were able to tell us all about what motivated
hosts and guests. They knew from first-hand experience, because
they'd been the first hosts. We couldn't ask them a question they
didn't know the answer to. We ourselves were not very excited about
the idea as users, but we knew this didn't prove anything, because
there were lots of successful startups we hadn't been excited about
as users. We were able to say to ourselves "They seem to know what
they're talking about. Maybe they're onto something. It's not growing
yet, but maybe they can figure out how to make it grow during YC."
Which they did, about three weeks into the batch.The best thing you can do in a YC interview is to teach the partners
about your users. So if you want to prepare for your interview, one of the best
ways to do it is to go talk to your users and find out exactly what
they're thinking. Which is what you should be doing anyway.This may sound strangely credulous, but the YC partners want to
rely on the founders to tell them about the market. Think about
how VCs typically judge the potential market for an idea. They're
not ordinarily domain experts themselves, so they forward the idea
to someone who is, and ask for their opinion. YC doesn't have time
to do this, but if the YC partners can convince themselves that the
founders both (a) know what they're talking about and (b) aren't

[...]

Original source