Paul Graham (Y Combinator) and Dmitry Kalayev (IIDF accelerator) about the reasons for the success and failure of startups



    We are starting to publish new format materials on the IIDF blog - in order to compare approaches to the development of startups in the USA and Russia, we will conduct cross-interviews during which famous entrepreneurs, investors and IT experts from the two will answer the same questions countries. The first issue presents the views of the founder of the famous accelerator Y Combinator and director of the acceleration and educational programs of the IIDF Dmitry Kalayev.

    In preparing the material used in a blog post by Paul Graham ( 1 , 2 ) and an interview with Gigaom , of The Information Part and Inc.com , as well as open data collected on the Internet. Earlier we published a translation of a fresh lecture Paul as part of a course from Ycombinator at Stanford.

    Have you ever had a case when you refused a startup, and it subsequently became successful and famous?

    Paul Graham: This happens all the time, we even have a list. Definitely, there were times when we refused people who subsequently made us regret our decision. I will not name the company names, but there certainly were.

    We usually do not store information about why we refused a particular team, but we record interviews with startups and our discussions after them on video. We need to somehow study these notes, although I’m not sure that they are all safe - we could lose some.


    Paul Graham

    You just need to understand that the startup we refused does not disappear - it can be funded by other clone accelerators Y Combinator. It’s not our clones who give money to everyone, but they are the ones who fund many.

    Dmitry Kalayev:Honestly speaking, I don’t remember this at once, but there was an interesting case of the company organizing apartment cleaning (iChisto) - we planned to take the guys to the accelerator, but right before the start of the program they came to us and reported that they had raised $ 300 thousand from another investor. We reacted to this normally, but, in my personal opinion, the team early attracted such money, because it did not yet have a clear idea of ​​how and what to spend it on. And so that we do not have time to take someone, and then bite our elbows - I do not remember this.


    Dmitry Kalayev

    Does it happen that you take the startup team to the accelerator “in advance” only because you liked the founders, whose idea may not be the best?

    Paul Graham: A classic example of this situation is Airbnb. We generally did not like the idea of ​​this project, but really liked the founders. And now it's a global brand like Apple. Now, no one even knows why they have such a name, millions of people use the service.

    When the guys just presented us their project, they were very energetic and creative - for example, they said that in order to make ends meet during the 2008 presidential campaign in the USA, they had to sell corn flakes with portraits of politicians Barack Obama and John McCain. Y Combinator partner Jessica Livingston listened to them and said: "We need to give these guys money."

    This is one of those famous stories when people were almost defeated, but did not give up and were successful. They were heavily in debt, they had to sell cereals with portraits of politicians (they sold them for $ 30 thousand, by the way) - they were designers and created beautiful boxes.



    They demonstrated not only energy, but also ingenuity in a difficult situation when the end was so close. Most people in their position would give up.

    Entrepreneurs not only did not give up, but were able to get out of a difficult situation very beautifully and with the quality inherent in the founders of successful startups. Therefore, we decided that despite the fact that their idea was "not very" (then we did not like it), the guys will be able to come up with something else, the main thing is to give them finances.

    Dmitry Kalayev:We absolutely certainly did this sometimes during the first sets for the accelerator, but in the future, however, this practice was reduced. Still, if there is no product that can already be taken and sold, then for three months of the program it is very difficult for the team to grope for the market and test hypotheses. Talent is important, but there must be a product with which you can go to customers.

    Is there any evidence of how many startups that participated in the program subsequently closed?

    Representatives of Y Combinator do not provide official statistics on dead startups, but enthusiasts collect this information on their own. According to their data , it was closed around 45 companies financed since 2006. As of May 2013, Y Combinator has invested in more than 500 companies.

    Dmitry Kalayev: Usually, the accelerator kit includes 30-40 startups, of which two or three subsequently close, well, maybe four projects, that is, about 10%. If we talk about the reasons, then one of the most common is the difference in the positions of the founders (I know examples of three teams where the founders simply could not work together).

    The second reason is that “debit with credit” simply does not fit. That is, relatively speaking, attracting a client costs 150 rubles, and you can earn on it no more than 100 rubles, and nothing can be done about it.

    Those teams that have learned to earn even a little money in the future may not show explosive growth, but they manage to stay afloat.

    How many startups need money at the beginning of their activities?

    Paul Graham: There should be enough money so that the two founders have enough to develop the project during the year. If the company develops successfully, it will be able to attract much more, so the first investors will not fail.

    Investors begin to worry about money when a startup doesn’t do well. Imagine a situation where a couple divorces, in which each of the spouses does not have special resources. Now think about what happens if one of the two people is a millionaire.

    The second side will have more reasons to complicate and lengthen the divorce process. Very often money is to blame. We thought that maybe we would be able to reduce the chances of a startup failure by reducing the amount of initial funding. People will not feel much pressure - if they fail to attract money from us, the “lost” amount will still not be so great. I think this is a good policy, and now we are investing about $ 100 thousand in each startup.

    Dmitry Kalayev: Now the numbers have changed, but before the sharp fluctuations in the dollar exchange rate, the average figure was about $ 50 thousand angel investments in the early stages. Our investments were approximately within these limits. Such an amount is enough to test demand for 3-4 months and understand whether it is possible to sell the product.

    Only companies that operate in the current market are taken to the accelerator, or do those who want to form the market from scratch have a chance?

    Paul Graham: Investors want to invest in startups that can grow into industry giants. The probability of this may be small, but it must be different from zero. Investors do not want to give money to projects that are not going to take over the world. If you were Bill Gates at the beginning of the road and told investors that you want to “continue to create programming languages ​​for microcomputers,” you would not go far.

    We do not give money to everyone who sends an application. We finance only those who are good enough. I don’t think that they lie to us - everyone wants to conquer the world, and most of them really can do it. Although there are funny cases when startups prepare a presentation for Demo Day without consulting with us. Then we get situations like: “We make software, and software is a multi-billion dollar market. If we capture 1% of it, we will already earn billions. "

    Dmitry Kalayev:A company that fell into the acceleration program should have the potential to earn in a couple of years from $ 10 million and above. Ten million is the minimum threshold. Whatever the ingenious idea, until in my practice I have not seen products that could not be replaced in any way. Accordingly, even if the startup team claims complete uniqueness, we can find a more or less competitive product and analyze its market results. To some extent, these are all virtual calculations, but they have a certain connection with reality.

    Why are there few girls among the founders of startups?

    Paul Graham: The problem is that girls are less involved in technology. Conditional Mark Zuckerberg starts messing with computers and programming as early as 10 years old, by the time he launches Facebook, he is already a real “hacker” and looks at the world accordingly - looking for weaknesses and trying to improve them. As a rule, girls did not do anything similar in the previous ten years of their lives, so their view of things is different.

    The situation is gradually changing, as the nature of startups is changing - technology is becoming more accessible, and a successful startup can now be launched not even by a programmer, but by a designer. Accordingly, there are more and more female entrepreneurs - now you can not write all the code from scratch, but use a service like Heroku. When we launched startups in the 90s, we were surrounded by buzzing servers, and this attracted less women.



    Dmitry Kalayev: Indeed, the girls-founders are significantly less. For all the time, we had, if I am not mistaken, only three startups, where the founders were girls. Among them, for example, a project selling educational games for children " Two palms". But the vast majority of companies run guys. In my opinion, psychologists agree with this, women are generally less risk averse and love stability. I think this is having an effect.

    But is there any data on how many applications are submitted to the accelerator, and how many of them are satisfied?

    Y Combinator does not disclose information about submitted applications, but in discussions on the Internet figures appear at the level of more than 2000 applications in each set (about 3% of them are satisfied).

    Dmitry Kalayev: The figure is constantly changing, but it is within the range of 400 to 650 applications, of which we satisfy 40-50. 20-25 startups get into the accelerator itself - not everyone to whom we make an offer, as a result, can take part in the program for various reasons. Someone corny loses a passport and cannot come, someone decides not to participate in the program, there was a case when the founder broke his leg.

    Why are all these startups coming to you?

    Paul Graham: It's funny, just recently talked to Jessica about why we, on the contrary, is so hated, especially by investors. In general, reputation is potential energy.

    For example, an unknown brand of clothing produces its products in factories in third world countries. The conditions there are terrible and some media writes an article about this. And everyone will say, “so what, don't all fashion brands do that?”

    Another thing is a company like Nike. Their things are also produced in factories in Asia in the same way, but it is perceived differently. “Nike has people working in factories for 20 hours!” - This topic is becoming central to the media, and everyone considers it their duty to speak out about the inadmissibility of such an approach. And all because the reputation of this company is potential energy.

    Startups love us, but not investors. If the startup team asks the investor if they should apply for Y Combinator, they will probably hear a negative answer.

    Dmitry Kalayev: In general, we are working to ensure that as many startups as possible go to us - for example, we travel around the country and talk about ourselves. Half of our teams represent the regions - we work a lot there, in addition, there are very few investors, almost none at all. Therefore, the choice, frankly, is not so great. In addition, IIDF is one of the few representatives of the industry that actively invests, and the path to getting into the fund's investment portfolio is quite transparent.

    How do you feel about clone projects?

    Paul Graham: Without much sympathy. Many combiners have copied Y Combinator (TechStars, Y Europe, Seedcamp, BoostPhase, Basecamp, etc.). They did not copy everything to the smallest detail, but that is not even the point. No matter who copied whom, people are important. For example, we have funded several hundred projects - the amount of knowledge that is accumulated in the heads of the founders of these companies is simply unsurpassed.



    Dmitry Kalayev: On the one hand, copying is good, because both the potential audience and the business model of the project are clear. On the other hand, if in Russia there is a big player who has occupied a significant share of the market, and they want to copy it, as they say, “head on”, then here the answer is rather negative.

    An example - a variety of travel start-ups often come to us who swear that they can do everything better than Ostrovok or Anywayanyday. But in order to check whether this is so, tens of millions of dollars need to be invested in them, the risks are very high, the cost is high, so this is not very attractive.

    How should startups approach promotion?

    Paul Graham: The most important thing to remember at the initial stage is the startup CEO should be involved in promotion and sales. The founders do not engage in direct communication with potential customers for two reasons - shyness and laziness. They are uncomfortable with the fact that most people can reject their offers.

    However, in order not to fail, at least one of the founders of the project is required to engage in sales and marketing personally. And no, the hiring of a sales manager is not considered to be a “personal solution to the issue”. At the initial stage, only the founders sell, and only later it is possible to attract a dedicated employee.

    Dmitry Kalayev:It is necessary to select channels that can be scaled. You can scale advertising in social networks or context, and you cannot scale a conditional article in Vedomosti - you got there, and the next time you can get in a couple of years (and there are no guarantees). It is worth working with those channels that allow you to increase your presence.

    The second point - you need to consider the cost of attracting a client using a specific channel. If startups want to go stand with a stand at a fashion show for 50 thousand rubles, then they will be able to attract a maximum of 2-3 customers in this way - the cost of such consumers will be several tens of thousands of rubles, which can not be called a good indicator. Such channels should be avoided.

    You saw a lot of entrepreneurs in your life. What character traits do you need in order to succeed?

    Paul Graham: The main thing is to be sociable. You will never succeed in creating a successful project if you are an unsociable bore. People are drawn to each other. Of course, work on business development is not as easy as simple communication, but there is no choice - either you stop being an unsociable bore, or you lose and go to work for someone else, instead of creating a startup.

    Being a bore for a long time will not work - this character trait will sooner or later lead the company to failure.

    Another important thing, which always comes as a surprise to everyone - when working on a startup, you will have to work hard much more than at office work. Not everyone can handle it. At the same time, the boundaries of people's abilities are very different. Someone can grow much faster and achieve greater heights than another person. In fact, even we cannot always discern this talent, although this is our job.

    No one can predict success for sure. We at Y Combinator are probably a bit more accurate in forecasts than anyone else - we just have a lot of startup data we've been collecting for years.

    Dmitry Kalayev:Firstly, determination, in the good sense of obstinacy and willingness to punch walls with one’s forehead - creating a new company from scratch is a difficult task, so without this, nowhere. On the other hand, there must be some flexibility - an entrepreneur must understand when he is faced with a wall that cannot be penetrated, and begin to think about how to get around it. Sometimes it happens that an entrepreneur's approach is ineffective from the outside, but he does not listen to advice and continues to do what does not work - a critical look at his actions should also be.

    I love professionalism - when you talk with a person, and he demonstrates deep knowledge in his field (average check, promotion channels, competitors) - this is very pleasant and good, because it shows that the entrepreneur knows what he is faced with.

    And the last - the willingness to take responsibility. An entrepreneur is a person who tells everyone what to do, rather than blindly following advice. This must be remembered.

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