How to Start a Startup

[How to Start a Startup]

****

| Want to start a startup? Get funded by
Y Combinator. |

March 2005

*(This essay is derived from a talk at the Harvard Computer
Society.)*

You need three things to create a successful startup: to start with
good people, to make something customers actually want, and to spend
as little money as possible. Most startups that fail do it because
they fail at one of these. A startup that does all three will
probably succeed.

And that's kind of exciting, when you think about it, because all
three are doable. Hard, but doable. And since a startup that
succeeds ordinarily makes its founders rich, that implies getting
rich is doable too. Hard, but doable.

If there is one message I'd like to get across about startups,
that's it. There is no magically difficult step that requires
brilliance to solve.

The Idea

In particular, you don't need a brilliant
idea to start a startup
around. The way a startup makes money is to offer people better
technology than they have now. But what people have now is often
so bad that it doesn't take brilliance to do better.

Google's plan, for example, was simply to create a search site that
didn't suck. They had three new ideas: index more of the Web, use
links to rank search results, and have clean, simple web pages with
unintrusive keyword-based ads. Above all, they were determined to
make a site that was good to use. No doubt there are great technical
tricks within Google, but the overall plan was straightforward.
And while they probably have bigger ambitions now, this alone brings
them a billion dollars a year. [1]

There are plenty of other areas that are just as backward as search
was before Google. I can think of several heuristics for generating
ideas for startups, but most reduce to this: look at something
people are trying to do, and figure out how to do it in a way that
doesn't suck.

For example, dating sites currently suck far worse than search did
before Google. They all use the same simple-minded model.
They seem to have approached the problem by thinking about how to
do database matches instead of how dating works in the real world.
An undergrad could build something better as a class project. And
yet there's a lot of money at stake. Online dating is a valuable
business now, and it might be worth a hundred times as much if it
worked.

An idea for a startup, however, is only a beginning. A lot of
would-be startup founders think the key to the whole process is the
initial idea, and from that point all you have to do is execute.
Venture capitalists know better. If you go to VC firms with a
brilliant idea that you'll tell them about if they sign a nondisclosure
agreement, most will tell you to get lost. That shows how much a
mere idea is worth. The market price is less than the inconvenience
of signing an NDA.

Another sign of how little the initial idea is worth is the number
of startups that change their plan en route. Microsoft's original
plan was to make money selling programming languages, of all things.
Their current business model didn't occur to them until IBM dropped
it in their lap five years later.

Ideas for startups are worth something, certainly, but the trouble
is, they're not transferrable. They're not something you could
hand to someone else to execute. Their value is mainly as starting
points: as questions for the people who had them to continue thinking
about.

What matters is not ideas, but the people who have them. Good
people can fix bad ideas, but good ideas can't save bad people.

People

What do I mean by good people? One of the best tricks I learned
during our startup was a rule for deciding
who to hire. Could you
describe the person as an animal? It might be hard to translate
that into another language, but I think everyone in the US knows
what it means. It means someone who takes their work a little too
seriously; someone who does what they do so well that they pass
right through professional and cross over into obsessive.

What it means specifically depends on the job: a salesperson who
just won't take no for an answer; a hacker who will stay up till
4:00 AM rather than go to bed leaving code with a bug in it; a PR
person who will cold-call New York Times reporters on their cell
phones; a graphic designer who feels physical pain when something
is two millimeters out of place.

Almost everyone who worked for us was an animal at what they did.
The woman in charge of sales was so tenacious that I used to feel
sorry for potential customers on the phone with her. You could
sense them squirming on the hook, but you knew there would be no
rest for them till they'd signed up.

If you think about people you know, you'll find the animal test is
easy to apply. Call the person's image to mind and imagine the
sentence "so-and-so is an animal." If you laugh, they're not. You
don't need or perhaps even want this quality in big companies, but
you need it in a startup.

For programmers we had three additional tests. Was the person
genuinely smart? If so, could they actually get things done? And
finally, since a few good hackers have unbearable personalities,
could we stand to have them around?

That last test filters out surprisingly few people. We could bear
any amount of nerdiness if someone was truly smart. What we couldn't
stand were people with a lot of attitude. But most of those weren't
truly smart, so our third test was largely a restatement of the
first.

When nerds are unbearable it's usually because they're trying too
hard to seem smart. But the smarter they are, the less pressure
they feel to act smart. So as a rule you can recognize genuinely
smart people by their ability to say things like "I don't know,"
"Maybe you're right," and "I don't understand x well enough."

This technique doesn't always work, because people can be influenced
by their environment. In the MIT CS department, there seems to be
a tradition of acting like a brusque know-it-all. I'm told it derives
ultimately from Marvin Minsky, in the same way the classic airline
pilot manner is said to derive from Chuck Yeager. Even genuinely
smart people start to act this way there, so you have to make
allowances.

It helped us to have Robert Morris, who is one of the readiest to
say "I don't know" of anyone I've met. (At least, he was before he
became a professor at MIT.) No one dared put on attitude around
Robert, because he was obviously smarter than they were and yet had
zero attitude himself.

Like most startups, ours began with a group of friends, and it was
through personal contacts that we got most of the people we hired.
This is a crucial difference between startups and big companies.
Being friends with someone for even a couple days will tell you
more than companies could ever learn in interviews. [2]

It's no coincidence that startups start around universities, because
that's where smart people meet. It's not what people learn in
classes at MIT and Stanford that has made technology companies
spring up around them. They could sing campfire songs in the classes
so long as admissions worked the same.

If you start a startup, there's a good chance it will be with people
you know from college or grad school. So in theory you ought to
try to make friends with as many smart people as you can in school,
right? Well, no. Don't make a conscious effort to schmooze; that
doesn't work well with hackers.

What you should do in college is work on your own projects. Hackers
should do this even if they don't plan to start startups, because
it's the only real way to learn how to program. In some cases you
may collaborate with other students, and this is the best way to
get to know good hackers. The project may even grow into a startup.
But once again, I wouldn't aim too directly at either target. Don't
force things; just work on stuff you like with people you like.

[...]

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