It was surprising-- slightly frightening even-- how fast they learned. The weekend before the demo day for investors, we had a practice session where all the groups gave their presentations. They were all terrible. We tried to explain how to make them better, but we didn't have much hope. So on demo day I told the assembled angels and VCs that these guys were hackers, not MBAs, and so while their software was good, we should not expect slick presentations from them.
The groups then proceeded to give fabulously slick presentations. Gone were the mumbling recitations of lists of features. It was as if they'd spent the past week at acting school. I still don't know how they did it.
Perhaps watching each others' presentations helped them see what they'd been doing wrong. Just as happens in college, the summer founders learned a lot from one another-- maybe more than they learned from us. A lot of the problems they face are the same, from dealing with investors to hacking Javascript.
I don't want to give the impression there were no problems this summer. A lot went wrong, as usually happens with startups. One group got an "exploding term-sheet" from some VCs. Pretty much all the groups who had dealings with big companies found that big companies do everything infinitely slowly. (This is to be expected. If big companies weren't incapable, there would be no room for startups to exist.) And of course there were the usual nightmares associated with servers.
In short, the disasters this summer were just the usual childhood diseases. Some of this summer's eight startups will probably die eventually; it would be extraordinary if all eight succeeded. But what kills them will not be dramatic, external threats, but a mundane, internal one: not getting enough done.
So far, though, the news is all good. In fact, we were surprised how much fun the summer was for us. The main reason was how much we liked the founders. They're so earnest and hard-working. They seem to like us too. And this illustrates another advantage of investing over hiring: our relationship with them is way better than it would be between a boss and an employee. Y Combinator ends up being more like an older brother than a parent.
I was surprised how much time I spent making introductions. Fortunately I discovered that when a startup needed to talk to someone, I could usually get to the right person by at most one hop. I remember wondering, how did my friends get to be so eminent? and a second later realizing: shit, I'm forty.
Another surprise was that the three-month batch format, which we were forced into by the constraints of the summer, turned out to be an advantage. When we started Y Combinator, we planned to invest the way other venture firms do: as proposals came in, we'd evaluate them and decide yes or no. The SFP was just an experiment to get things started. But it worked so well that we plan to do all our investing this way, one cycle in the summer and one in winter. It's more efficient for us, and better for the startups too.
Several groups said our weekly dinners saved them from a common problem afflicting startups: working so hard that one has no social life. (I remember that part all too well.) This way, they were guaranteed a social event at least once a week.
I've heard Y Combinator described as an "incubator." Actually we're the opposite: incubators exert more control than ordinary VCs, and we make a point of exerting less. Among other things, incubators usually make you work in their office-- that's where the word "incubator" comes from. That seems the wrong model. If investors get too involved, they smother one of the most powerful forces in a startup: the feeling that it's your own company.
Incubators were conspicuous failures during the Bubble. There's still debate about whether this was because of the Bubble, or because they're a bad idea. My vote is they're a bad idea. I think they fail because they select for the wrong people. When we were starting a startup, we would never have taken funding from an "incubator." We can find office space, thanks; just give us the money. And people with that attitude are the ones likely to succeed in startups.
Indeed, one quality all the founders shared this summer was a spirit of independence. I've been wondering about that. Are some people just a lot more independent than others, or would everyone be this way if they were allowed to?
As with most nature/nurture questions, the answer is probably: some of each. But my main conclusion from the summer is that there's more environment in the mix than most people realize. I could see that from how the founders' attitudes changed during the summer. Most were emerging from twenty or so years of being told what to do. They seemed a little surprised at having total freedom. But they grew into it really quickly; some of these guys now seem about four inches taller (metaphorically) than they did at the beginning of the summer.
When we asked the summer founders what surprised them most about starting a company, one said "the most shocking thing is that it worked."
It will take more experience to know for sure, but my guess is that a lot of hackers could do this-- that if you put people in a position of independence, they develop the qualities they need. Throw them off a cliff, and most will find on the way down that they have wings.
The reason this is news to anyone is that the same forces work in the other direction too. Most hackers are employees, and this molds you into someone to whom starting a startup seems impossible as surely as starting a startup molds you into someone who can handle it.
If I'm right, "hacker" will mean something different in twenty years than it does now. Increasingly it will mean the people who run the company. Y Combinator is just accelerating a process that would have happened anyway. Power is shifting from the people who deal with money to the people who create technology, and if our experience this summer is any guide, this will be a good thing.
[1] By heavy-duty security I mean efforts to protect against truly determined attackers.
The image shows us, the 2005 summer founders, and Smartleaf co-founders Mark Nitzberg and Olin Shivers at the 30-foot table Kate Courteau designed for us. Photo by Alex Lewin.
Thanks to Sarah Harlin, Steve Huffman, Jessica Livingston, Zak Stone, and Aaron Swartz for reading drafts of this.
Ideas for Startups
(This essay is derived from a talk at the 2005 Startup School.)
How do you get good ideas for startups? That's probably the number one question people ask me.
I'd like to reply with another question: why do people think it's hard to come up with ideas for startups?
That might seem a stupid thing to ask. Why do they think it's hard? If people can't do it, then it is hard, at least for them. Right?
Well, maybe not. What people usually say is not that they can't think of ideas, but that they don't have any. That's not quite the same thing. It could be the reason they don't have any is that they haven't tried to generate them.
I think this is often the case. I think people believe that coming up with ideas for startups is very hard-- that it must be very hard-- and so they don't try do to it. They assume ideas are like miracles: they either pop into your head or they don't.
I also have a theory about why people think this. They overvalue ideas. They think creating a startup is just a matter of implementing some fabulous initial idea. And since a successful startup is worth millions of dollars, a good idea is therefore a million dollar idea.
If coming up with an idea for a startup equals coming up with a million dollar idea, then of course it's going to seem hard. Too hard to bother trying. Our instincts tell us something so valuable would not be just lying around for anyone to discover.