Stanford 2014 Course- How to Start a Startup (Part A)

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Title: Stanford 2014 Course shared online: How to Start a Startup

(Part A)

  1. Welcome, and Ideas, Products, Teams and Execution Part I — Sam Altman, President, Y Combinator; Dustin Moskovitz, Cofounder, Facebook, Cofounder, Asana, Cofounder, Good Ventures
    • Why to Start a Startup
    • “There are much easier ways to become rich and everyone who starts a startup always says, always, that they couldn’t have imagined how hard and painful it was going to be. You should only start a startup if you feel compelled by a particular problem and that you think starting a company is the best way to solve it.”
    • “Good startups usually take ten years.”
    • “The hardest part about coming up with great ideas, is that the best ideas often look terrible at the beginning. …That’s how most great companies get started. Unpopular but right is what you’re going for. You want something that sounds like a bad idea, but is a good idea… Why now? Why is this the perfect time for this particular idea, and to start this particular company. Why couldn’t it be done two years ago, and why will two years in the future be too late?”
    • “One of the most important tasks for a founder is to make sure that the company builds a great product. Until you build a great product, nothing else matters. When really successful startup founders tell the story of their early days its almost always sitting in front of the computer working on their product, or talking to their customers. That’s pretty much all the time.”
  2. Ideas, Products, Teams and Execution Part II — Sam Altman, President, Y Combinator ;
    • to go on a vacation and that never works for founders. It’s sort of all consuming in this way that is very difficult to understand. … So what you do is you just keep going.
    • ” Cofounder relationships are among the most important in the entire company. .. looking for cofounders that need to be unflappable, tough, they know what to do in every situation. They act quickly, they’re decisive, they’re creative, they’re ready for anything”
    • “how much time you should be spending on hiring. The answer is zero or twenty-five percent. “
    • “There are three things I look for in a hire. Are they smart? Do they get things done? Do I want to spend a lot of time around them?”
    • “Mediocre founders spend a lot of time talking about grand plans, but they never make a decision. They’re talking about you know I could do this thing, or I could do that other thing, and they’re going back and forth and they never act. And what you actually need is this bias towards action.”
    • ” Boards add value to business strategy only rarely. But very frequently you can use them as a forcing function to get the company to care about metrics and milestones.”
  3. Before the Startup — Paul Graham, Founder, Y Combinator :
    • Startups are very counterintuitive and I’m not sure exactly why. the list of the counterintuitive stuff you have to remember to prevent your existing instincts from leading you astray. startups are so weird that if you follow your instincts they will lead you astray.
    • First: Work with people you would generally like and respect and that you have known long enough to be sure about
    • Second: What you need to know to succeed in a startup is not expertise in startups, what you need is expertise in knowing your own users. … the best way to convince investors is to start a startup that is actually doing well, meaning growing fast, and then simply tell investors so… the way to make your startup grow is to make something that users really love, and then tell them about it.
    • Third: counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may continue to work, if you go to work for a big company, depending on how broken the company is”
    • “fourth counterintuitive point, startups are all consuming. If you start a startup, it will take over your life to a degree that you cannot imagine and if it succeeds it will take over your life for a long time; for several years, at the very least, maybe a decade, maybe the rest of your working life. So there is a real opportunity cost here. “
    • “the fifth counter intuitive point: You can’t tell. I learned from experience to keep completely open mind about which start ups in each batch would turn out to be the stars. “.. “ Instead of trying to make a conscious effort to think of startup ideas, turn your brain into the type that has startup ideas unconsciously. In fact, so unconsciously that you don’t even realize at first that they’re startup ideas. “
    • ” One guaranteed way to turn your mind into the type to start up ideas for them unconsciously. Is to get yourself to the leading edge of some technology. To, as Paul Buchheit put it, “Live in the future.” And when you get there, ideas that seem uncannily prescient to other people will seem obvious to you. You may not realize they’re start up ideas, but you will know they are something that ought to exist.”
    • “but business school was designed to teach people management. Management is a problem that you only have in a startup if you are sufficiently successful. So really what you need to know early on to make a start up successful is developing products. … Honestly the best way to learn on how to start a startup is just to just try to start it.”
  4. Talking to Users, and Growing — Adora Cheung, Founder, Homejoy ; Building Product,
    • “what are the things that most people do incorrectly when starting a startup? The novice approach is thinking, “I have this really great idea, I don’t want to tell anyone about it. I’m going to build, build, build and then going to maybe tell one or two people and then I’m going to launch it on TechCrunch or somewhere like that, and then I’m going to get lots of users.”
    • ” You should be able to describe your problem in one sentence. And then you should think, “How does that problem relate to me? Am I really passionate about that problem?” And then you should think, “Okay it’s a problem I have, but is it a problem that other people have?” And you verify that by going out and talking to people.”
    • “If you are in a situation like mine where there is a service element of it then you should go and do that service yourself.”
    • ” You should be so obsessed that you want to know what everybody in that space is doing. And it is things like writing a list of all of the potential competitors, similar types of companies, and Google searching them and clicking on every single link and reading every single article from search result number 1 to 1000.”
    • “The second thing is identifying customer segments.”
    • “And lastly, before you even create a product or before you put code down, you should really storyboard out the user experience of how you are going to solve the problem.”
    • “Minimal viable product pretty much means what is the smallest feature set that you should build to solve the problem that you are trying to solve. “
    • “The best way to do that is by tracking customer retention. The number of people that came in the door today, the number of people who are coming back tomorrow, the next day and so forth. “
    • “You need to not try and automate everything and create software to have robots run everything. What you should do to really understand what you should build is manually do it yourself…. “In week one you should basically build as much as possible to get that one user. And then a week to build as much to get two users”
    • “I hate to keep harping on it but these are things that I see today with founders and something that I went through as well. And I think that unless you are building something that requires tens of millions of dollars just to start up there is really no point in waiting around to launch the product.”
    • “So there are three types of growth. Sticky, viral, and paid growth. Sticky growth is trying to get your existing users to come back and pay you more or use you more. Viral growth is when people talk about you. So you use a product, you really like it and you tell ten other friends, and they like it. That’s viral growth. And the third is paid growth. If you happen to have money in the bank you’re going to be able to use part of that money to buy growth.”
  5. Competition is For Losers – Peter Thiel, Founder, Paypal, Founder, Palantir, and Founder, Founders Fund :
    • “today’s speaker is Peter Thiel, Peter was the founder of PayPal, Palantir, and Founders Fund and has invested in most of the tech companies in Silicon Valley. He’s going to talk about strategy and competition. “
    • “you always want to aim for monopoly and you want to always avoid competition. And so hence competition is for losers,”
    • “there’s basically a very simple formula, that if you have a valuable company two things are true. Number one, that it creates “X” dollars of value for the world. Number two, that you capture “Y” percent of “X.” And the critical thing that I think people always miss in this sort of analysis is that “X” and “Y” are completely independent variables, and so “X” can be very big and “Y” can be very small. “X” can be an intermediate size and if “Y” is reasonably big, you can still have a very big business.”
    • “it’s generally not that good if you’re involved in anything that’s hyper competitive, because you often don’t make money. “
    • “I do think the extreme binary view of the world I always articulate is that there are exactly two kinds of businesses in this world, there are businesses that are perfectly competitive and there are businesses that are monopolies. There is shockingly little that is in between. And this dichotomy is not understood very well because people are constantly lying about the nature of the businesses they are in. “
    • ” I would say that the that one of the reasons the tech industry in the US has been so successful financially is because it’s prone to creating all these monopoly-like businesses..”
    • ” I think one of the sort of very counterintuitive ideas that comes out of this monopoly thread is that you want to go after small markets. “
    • “You want to be a one of a kind company. You want to be the only player in a small ecosystem. “
    • “all happy companies are different because they’re doing something very unique. All unhappy companies are alike because they failed to escape the essential sameness in competition.”
    • ” My sort of crazy, somewhat arbitrary rule of thumb is you want to have a technology that’s an order of magnitude better than the next best thing. “
    • “the scientists never make any money. They’re always deluded into thinking that they live in a just universe that will reward them for their work and for their inventions. This is probably the fundamental delusion that scientists tend to suffer from in our society…. We should ask is this a rationalization to obscure the fact that “Y” equals zero percent and the scientists are operating in this sort of world where all the innovation is effectively competed away and they can’t capture any of it directly…. . There is the classic Henry Kissinger line describing his fellow faculty at Harvard, “The battles were so ferocious because the stakes were so small,” describing academia”
    • “There are, in my mind, probably only two broad categories in the entire history of the last two hundred and fifty years where people actually came up with new things and made money doing so. One is these sort of vertically integrated complex monopolies which people did build in the second industrial revolution at the end of the nineteenth and start of the twentieth century. This is like Ford, it was the vertically integrated oil companies like Standard Oil, and what these vertically integrated monopolies typically required was a very complex coordination, you’ve got a lot of pieces to fit together in just the right way, and when you assemble that you had a tremendous advantage. This is actually done surprisingly little today and so I think this is sort of a business form that when people can pull it off, is very valuable.”
    • ” But so much of people’s identities got wrapped up in winning these competitions that they somehow lost sight of what was important, what was valuable…. this tremendous price that you stop asking some bigger questions about what’s truly important and truly valuable. Don’t always go through the tiny little door that everyone’s trying to rush through, maybe go around the corner and go through the vast gate that nobody is taking.”
  6. Growth: Alex Schultz, VP Growth, Facebook ;
    • transcripts
    • “growth, growth hacking or growth marketing. In my mind it’s just internet marketing using whatever channel you can to get whatever output you want, and that’s how I paid for college and that’s how I went from being a physicist to a Marketer - transitioning to the darkside of the force.”
    • “Retention is the single most important thing for growth. “
    • “So many times, I got to advise multiple startups. My favorite was working with Airbnb, but I’ve worked with Coursera, I’ve worked with other ones that haven’t done as well as those guys. But the one thing that’s true, over and over again is, if you look at this curve, ‘percent monthly active’ versus ‘number of days from acquisition’, if you end up with a retention curve that is asymptotic to a line parallel to the X-axis, you have a viable business and you have product market fit for some subset of market. But most of the companies that you see fly up, we’ve talked about packing and virality and all of this stuff, their retention curve slopes down toward the axis, and in the end, intercepts the X-axis.”
    • ” Different verticals need different terminal retention rates for them to have successful businesses. If you’re on ecommerce and you’re retaining on a monthly active basis, like 20 to 30% of your users, you’re going to do very well. If you’re on social media, and the first batch of people signing up to your product are not like, 80% retained, you’re not going to have a massive social media site. So it really depends on the vertical you’re in, what the retention rates are. What you need to do is have the tools to think, ‘who out there is comparable’ and how you can look at it and say, ‘am I anywhere close to what real success looks like in this vertical?’”
    • “Startups should not have growth teams. The whole company should be the growth team. The CEO should be the head of growth. You need someone to set a North star for you about where the company wants to go, and that person needs to be the person leading the company, from my opinion, that’s what I’ve seen. “
    • “Think about what the magic moment is for your product, and get people connected to it as fast as possible, “
    • ” Building an incredible product is definitely optimizing it for the people who use your product the most, but when it comes to driving growth, people who are already using your product are not the ones you have to worry about.”
    • “So for operating for growth, what you really need to think about, is what is the North star of your company: What is that one metric, where if everyone in your company is thinking about it and driving their product towards that metric and their actions towards moving that metric up, you know in the long-run your company will be successful.”
    • ” Just have a North Star (golden metric to optimize), and know the magic moment that you know when a user experiences that, they will deliver on that metric for you on the North Star, and then think about the marginal user, don’t think about yourself. Those are, I think, the most important points when operating for growth. Everything has to come from the top.”
  7. How to Build Products Users Love: Kevin Hale, Founder, Wufoo and Partner, Y Combinator
    • transcripts
    • “How do we make things that have a passionate user base, that our users are unconditionally wanting it to be successful, both on the products that we built and the companies behind them?”
    • “I feel like growth is fairly simple. It’s the interaction between two concepts or variables: conversion rate and churn. The gap between those two things pretty much indicates how fast you’re going to grow. Most people, especially business-type people, tend to look at this interaction in a very mathematical, calculated sort of way. “
    • “I want to talk about these things at a more human scale because in a startup when you’re interacting with your users, you have a fairly intimate interaction in the early stages, and so I think there’s a different way of looking at this stuff in terms of how we build our products. “
    • “… 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.”
    • ” To sum it up the average start up raises about $25 million, and the return for their investors is about 676%. Wufoo, raised about $118,000 total, and our return to our investors was about 29,561%.”
    • ” In startups, we have to do it at scale.”
    • “So we decided to start off by asking, “How do relationships work in the real world and how can we apply them to the way we run our business and build our product that way?”
    • ” two metaphors: acquiring new users as if we are trying to date them, and existing users as if they are a successful marriage.”
    • “When it comes to dating, a lot of the things that we uncovered, had to do with first impressions. … First impressions are important for the start of any relationship because it’s the one we tell over and over again, right? There’s something special about how we regard that origin story. … “
    • “My argument for people who are very good at product is that they discover so many other moments and make them memorable: the first email you ever get, what happens when you got your first login, the links, the advertisements, the very first time you interacted with customer support. All of those are opportunities to seduce.”
    • "”is this a quality item?” The two words for quality are atarimae hinshitsu and miryokuteki hinshitsu. The first one means taken for granted quality, which basically means functionality. The last one means enchanting quality. “
    • ” MailChimp. What they did was they redesigned all of their help guides so that they looked like magazines covers, and overnight basically readership goes up on all these features, and customer support for these things that help people optimize emails, goes down.”
    • “When it comes to long-term relationships, or marriages, the only research that we ended up having to read is the stuff done by John Gottman. He’s been featured in “This American Life,” Malcolm Gladwell’s books, etc. He’s a marriage researcher… John Gottman talks about the reason that we often break up with one another is due to four major causes. They are warning signs. He calls them the Four Horsemen: criticism, contempt, defensiveness, stonewalling…. Contempt is when somebody is purposely trying to insult another person. Defensiveness is not trying to take accountability, or trying to make excuses for their actions. Stonewalling is basically shutting down. Stonewalling according to John Gottman, is one of the worst things we can do in a relationship. “
    • “One of the surprising things he discovered is not that successfully married people don’t fight at all; turns out, everybody fights and we all fight about the exact same things: money, kids, sex, time, and others (“Others” are things like jealousy and the in-laws.) To bring this around, you can actually attribute every single one of these to problems to things you see in customer support when you’re building out your products, so Money - this costs too much, or I’m having trouble with credit cards. Kids - users’ client. Sex - performance, how long you’re up and how fast. Others - I said was jealousy or in-laws, so that’s competition and partnerships, anything weird happening there, people are going to write to you about.”
    • ”, we realized that there’s a big problem with how everyone starts up their company or builds up their engineering teams. There’s a broken feedback loop there. … what we’re trying to figure out is how we change software development so that we inject some values that we don’t talk about enough, like responsibility, accountability, humility, and modesty. We call this SDD (Support Driven Development). It’s a way of creating high-quality software, but it’s super simple; you don’t need a bunch of Post-it notes. All you have to do is make everyone do customer support…. What you end up having is you fix the feedback. The people who built the software are the ones supporting it, and you get all these nice benefits as a result.”
    • “Treacy and Fred Wiersema and in it they talk about the discipline of market leaders. They say there’s only three ways that you achieve market dominance, and depending on how you want to achieve that market dominance, you have to organize your company in a very specific way: best price, best product, and best overall solution. For best price, you focus on logistics, so Wal-Mart and Amazon. If you want to be the best product out there, you focus on R&D, Apple is usually a quintessential example of that. Best overall solution is about being customer intimate. This is the path that you see all luxury brands follow, … as well as the hospitality industry. What I love about this path towards market dominance is that the third one is the only one that everyone can do at any stage of their company. It requires almost no money to get started with it. It usually just requires a little bit of humility and some manners. “
    • “My feeling on marketing and sales, my feeling is marketing and sales is a tax you pay because you haven’t made your product remarkable. Word-of-mouth is the easiest kind of growth, and it’s how a lot of the great companies grow. Figure out how to have a story that people want to tell about your product where they are the most interesting one at the dinner table. And then that person is your sales person. That person is your sales force for you.”
  8. How to Get Started: Walker Williams, Founder, Teespring, Justin Kan, Founder, Twitch and Partner, Y Combinator ; Stanley Tang, Founder, DoorDash
    • transcripts
    • “So at the beginning, Doing Things That Don’t Scale; …Another thing about doing things that don’t scale is it also allows you to become an expert in your business, …”
    • ” And finally, it’s okay to do things that don’t scale. Doing things that don’t scale is one of your biggest competitive advantages when you’re starting out, and you can figure out how to scale once you have your demand.”
    • “At the beginning consumer demand was never a problem, even up until now. So for us it’s just about finding a need and just focusing on serving that demand. At the beginning competition doesn’t really matter.”
    • How to Get Started:
    • “You need to make sure that users value your product….I don’t recommend giving your product for free. “
    • “The easiest way to turn a user into a champion is to the delight them with an experience they are going to remember, so something that’s unusual or out of the ordinary – an exceptional experience.”
    • “You’re never going to get a better sense for your products than actually listening to real users. “
    • “There are three ways to talk to your customers. You can run customer service yourself…. The second step is to proactively reach out to current and churn customers. Churn customers are customers who have left…. Finally, the one I’m probably most OCD about is social media and communities. You need to know how people are talking about your brand. “
    • “The last one I want to talk about is finding product/market fit. What I mean by that is the product you launch with will almost certainly not be the product that takes you to scale. So your job in those early days of a startup is to progress and iterate as fast as possible to reach that product that does have market fit.”
    • “Before you think about press, one of the things you really want to consider is who you want to reach, as well as your actual goal. “
  9. How to Raise Money: Marc Andreessen, Founder, Andreessen Horowitz and Founder, Netscape; Ron Conway, Founder, SV Angel Parker Conrad, Founder, Zenefits
    • transcripts
    • “what made you decide to invest in a founder company? .. I have been doing this since 1994, right before Marc got out of the University of Illinois, so SV Angel and its entities have invested in over 700 companies. To invest in 700 companies that means we have physically talked to thousands of entrepreneurs and there is a whole bunch of things that just go through my head when I meet an entrepreneur.
    • “Literally while you are talking to me in the first minute I am saying “Is this person a leader?” “Is this person rightful, focused, and obsessed by the product?” I am hoping—because usually the first question I ask is “What inspired you to create this product?”—I’m hoping that it’s based on a personal problem that that founder had and this product is the solution to that personal problem. Then I am looking for communication skills, because if you are going to be a leader and hire a team, assuming your product is successful, you have to be a really good communicator and you have to be a born leader. “
  10. Culture: Alfred Lin, Former COO, Zappos and Partner, Sequoia Capital ; Brian Chesky, Founder, Airbnb