Why to Not Not Start a Startup

[Why to Not Not Start a Startup]

****

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

March 2007

*(This essay is derived from talks at the 2007
Startup School and the Berkeley CSUA.)*

We've now been doing Y Combinator long enough to have some data
about success rates. Our first batch, in the summer of 2005, had
eight startups in it. Of those eight, it now looks as if at least
four succeeded. Three have been acquired:
Reddit was a merger of
two, Reddit and Infogami, and a third was acquired that we can't
talk about yet. Another from that batch was
Loopt, which is doing
so well they could probably be acquired in about ten minutes if
they wanted to.

So about half the founders from that first summer, less than two
years ago, are now rich, at least by their standards. (One thing
you learn when you get rich is that there are many degrees of it.)

I'm not ready to predict our success rate will stay as high as 50%.
That first batch could have been an anomaly. But we should be able
to do better than the oft-quoted (and probably made
up) standard figure of 10%. I'd feel safe aiming at 25%.

Even the founders who fail don't seem to have such a bad time. Of
those first eight startups, three are now probably dead. In two
cases the founders just went on to do other things at the end of
the summer. I don't think they were traumatized by the experience.
The closest to a traumatic failure was Kiko, whose founders kept
working on their startup for a whole year before being squashed by
Google Calendar. But they ended up happy. They sold their software
on eBay for a quarter of a million dollars. After they paid back
their angel investors, they had about a year's salary each.
[1]
Then they immediately went on to start a new and much more exciting
startup, Justin.TV.

So here is an even more striking statistic: 0% of that first batch
had a terrible experience. They had ups and downs, like every
startup, but I don't think any would have traded it for a job in a
cubicle. And that statistic is probably not an anomaly. Whatever
our long-term success rate ends up being, I think the rate of people
who wish they'd gotten a regular job will stay close to 0%.

The big mystery to me is: why don't more people start startups? If
nearly everyone who does it prefers it to a regular job, and a
significant percentage get rich, why doesn't everyone want to do
this? A lot of people think we get thousands of applications for
each funding cycle. In fact we usually only get several hundred.
Why don't more people apply? And while it must seem to anyone
watching this world that startups are popping up like crazy, the
number is small compared to the number of people with the necessary
skills. The great majority of programmers still go straight from
college to cubicle, and stay there.

It seems like people are not acting in their own interest. What's
going on? Well, I can answer that. Because of Y Combinator's
position at the very start of the venture funding process, we're
probably the world's leading experts on the psychology of people
who aren't sure if they want to start a company.

There's nothing wrong with being unsure. If you're a hacker thinking
about starting a startup and hesitating before taking the leap,
you're part of a grand tradition. Larry and Sergey seem to have
felt the same before they started Google, and so did Jerry and Filo
before they started Yahoo. In fact, I'd guess the most successful
startups are the ones started by uncertain hackers rather than
gung-ho business guys.

We have some evidence to support this. Several of the most successful
startups we've funded told us later that they only decided to apply
at the last moment. Some decided only hours before the deadline.

The way to deal with uncertainty is to analyze it into components.
Most people who are reluctant to do something have about eight
different reasons mixed together in their heads, and don't know
themselves which are biggest. Some will be justified and some
bogus, but unless you know the relative proportion of each, you
don't know whether your overall uncertainty is mostly justified or
mostly bogus.

So I'm going to list all the components of people's reluctance to
start startups, and explain which are real. Then would-be founders
can use this as a checklist to examine their own feelings.

I admit my goal is to increase your self-confidence. But there are
two things different here from the usual confidence-building exercise.
One is that I'm motivated to be honest. Most people in the
confidence-building business have already achieved their goal when
you buy the book or pay to attend the seminar where they tell you
how great you are. Whereas if I encourage people to start startups
who shouldn't, I make my own life worse. If I encourage too many
people to apply to Y Combinator, it just means more work for me,
because I have to read all the applications.

The other thing that's going to be different is my approach. Instead
of being positive, I'm going to be negative. Instead of telling
you "come on, you can do it" I'm going to consider all the reasons
you aren't doing it, and show why most (but not all) should be
ignored. We'll start with the one everyone's born with.

1. Too young

A lot of people think they're too young to start a startup. Many
are right. The median age worldwide is about 27, so probably a
third of the population can truthfully say they're too young.

What's too young? One of our goals with Y Combinator was to discover
the lower bound on the age of startup founders. It always seemed
to us that investors were too conservative here—that they wanted
to fund professors, when really they should be funding grad students
or even undergrads.

The main thing we've discovered from pushing the edge of this
envelope is not where the edge is, but how fuzzy it is. The outer
limit may be as low as 16. We don't look beyond 18 because people
younger than that can't legally enter into contracts. But the most
successful founder we've funded so far, Sam Altman, was 19 at the
time.

Sam Altman, however, is an outlying data point. When he was 19,
he seemed like he had a 40 year old inside him. There are other
19 year olds who are 12 inside.

There's a reason we have a distinct word "adult" for people over a
certain age. There is a threshold you cross. It's conventionally
fixed at 21, but different people cross it at greatly varying ages.
You're old enough to start a startup if you've crossed this threshold,
whatever your age.

How do you tell? There are a couple tests adults use. I realized
these tests existed after meeting Sam Altman, actually. I noticed
that I felt like I was talking to someone much older. Afterward I
wondered, what am I even measuring? What made him seem older?

One test adults use is whether you still have the kid flake reflex.
When you're a little kid and you're asked to do something hard, you
can cry and say "I can't do it" and the adults will probably let
you off. As a kid there's a magic button you can press by saying
"I'm just a kid" that will get you out of most difficult situations.
Whereas adults, by definition, are not allowed to flake. They still
do, of course, but when they do they're ruthlessly pruned.

The other way to tell an adult is by how they react to a challenge.
Someone who's not yet an adult will tend to respond to a challenge
from an adult in a way that acknowledges their dominance. If an
adult says "that's a stupid idea," a kid will either crawl away
with his tail between his legs, or rebel. But rebelling presumes
inferiority as much as submission. The adult response to
"that's a stupid idea," is simply to look the other person in the
eye and say "Really? Why do you think so?"

[...]

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