Blitzscaling Course Lecture 2.1 Stages of Growth of the Family Stage Startup (John Lilly and Sam Altman)

Original author: John Lilly and Sam Altman
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 Lecture Course by Reidi Hoffman, John Lilly, Chris Ye and Allen Blue CS183C “Blitzscaling”

Lecture 1: Introduction
Lecture 2.1: Startup Growth Stages, “Family Stage”
Lecture 2.2: Startup Growth Stages, “Family Stage”
Lecture 3.1. Michael Diaring. A bit from the history of entrepreneurship and management
Lecture 3.2. Michael Diaring. Questions and Answers with Reid Hoffman
Lecture 3.3. Michael Diaring. Questions and Answers with Reid Hoffman
Lecture 4.1. Ann Mura-Co: The Thunder Lizard Theory. Copyright value
Lecture 4.2. Ann Mura-Co: The Thunder Lizard Theory. Product, corporate and category value.
Lecture 4.3. Ann Mura-Co: Questions and Answers with John Lilly

Synopsis 2 of a lecture at Stanford University's CS183C Blitzscaling course, taught by Reid Hoffman, John Lilly, Chris Ye and Allen Blue. Errors and typos made by me. All this great stuff is wholly owned by Raid, John, Chris Ye and Allen.

This lecture was in the form of an interview with John Lilly with Sam Altman about the first stage of growth - the family stage. The following is a retelling of their conversation. Let me remind you from the last lecture that the family stage is the stage at which small teams create a product to match the market.

I. Interview with Sam Altman from YCombinator

John Lilly : What is YCombinator?

Sem Altman : YCombinator is an organization that finances startups, which is a great way to develop innovation around the world. We are currently investing in 250 companies a year through our core program, and we also launched the YCombinator Fellowship program, which we hope will help us expand our business and go far beyond current performance.

The goal of YCombinator is to create a company that helps startups get significant help where they could stay without it at all. We do this by providing effective advice, through contacts, as well as the community of our former wards. Since the foundation of YCombinator, we have invested in more than 2,000 companies, and among our wards quite close relations based on mutual assistance have been established.

John Lilly : How did you get into YCombinator?

Sem Altman : I left Stanford University to start my own company, Loopt. I started working on the company the day the first recruitment was announced at YCombinator, and I applied one day before the release of the applications.

At that time (2005), the startup world seemed unrealistic. It seemed that in order to attract investment, you should know the right people, know what to tell them, be a business person and have a business plan.

When I first contacted YCombinator, I knew that they were our people — Paul Graham was an engineer himself. They understood the value of the product and understood what we were doing. It took a couple of years for the guys from YCombinator to understand how special they are, but from the point of view of the startups of the first group, we knew from the very beginning that they are special.

John Lilly : Oh YCombinator has written an article entitled « YC - businesses with network effects » (YC Is A Network Effect Business ). What do you think of it?

Sam Altman: I have been asked this question many times. Today in the world there are about 2500 business accelerators. In all these accelerators - 8 billionaire companies were created by YCombinator and 100% of them came from there.

Investing is a business with a network effect, and even more so in the early stages. The value of our founders who left YCombinator lies to a greater extent in the network of our wards, and not only in our advice.

John Lilly : What does the YCombinator ward network consist of, and what do you think of this network?

Sam Altman: The first thing to understand is that we are the first investors for most of the companies that we finance. In relation to the first investors who believe in the idea, a strong attachment is formed. Over time, such loyalty decreases - strong attachment to a seed investor, good attachment to Series A investors, less attachment to B / C series investors, and no attachment to all public investors after an initial public offering. As soon as you help them place the shares, they will sell your shares in the first quarter.

John Lilly : What is the difference between taking control of YCombinator as a managing partner and creating something from scratch (for example, your experience at Loopt)?

Sam Altman: The main thing to understand is that I helped YCombinator from the very beginning. I was here when YCombinator just appeared, I was there when they received the first check, I advised the company in my free time, I became a part-time partner in 2011, and bought my company in 2012.

At that time, I decided to secede and create my own venture fund. For me, this was a turning point, because I realized that I did not want to be a traditional venture capital investor - I was not pleased to just invest.

I wanted to create new companies, and was looking for an opportunity to do this. I wanted to manage the company, and I chose the one that gave me such an opportunity, and YCombinator was perfect for me.

It was really difficult to accept responsibilities from a person like Paul Graham, but there was one more thing to understand - Ycombinator was still a relatively small company when I took control. I already knew the organization well enough and the transition went pretty smoothly.

John Lilly : Reid Hoffman often says that when Jeff Weiner took over LinkedIn in 2008, that was the second reason. Do you feel something like this with respect to YCombinator?

Sam Altman: When a new CEO / leader appears, I think this is always the second reason for the company. We are doing something that from the outside may seem like something completely different (we have significantly increased the number of startups that YC invests in; introducing a program for providing scholarships and grants, etc.), but in reality we have remained faithful to our mission. All we are trying to do is look for the best founders, and despite the fact that we do it a little differently, the goal remains the same.

II. Questions about Founder Teams

John Lilly : Change the subject and talk about what you think of startups - given that you face thousands of startups a year, what do you think of the initial startup team? What qualities must have the best founders?

Sam Altman : Several qualities in random order:
  • Clarity of views - the founder must be able to explain what they do and why they do it. If they cannot clearly explain this to us, it will be very difficult for them to assemble a start-up team, interest the press, and this also means that they do not think very rationally.
  • Decisiveness and dedication - we are looking for founders who do not accept failures and make the world cave in under them. When creating a company, a person faces a lot of problems, and if he is unable to solve them, his startup will not work. As for dedication, the best companies always focus on their mission.
  • Keen mind
  • The ability to do everything fast is not the same as decisiveness. We know that speed is a good start-up success in the early stages. We met with a large number of founders who are good on paper, but in life they lack this quality.

John Lilly : Back to your first point. How can you have a clear view if your original product has not yet formed?

Sam Altman : I will give you an example. Airbnb has changed several times, but each time they clearly understood what they were trying to achieve. The founders told a story about how their grandparents traveled and stayed overnight with locals on air mattresses, and it was much better than staying at a hotel. All hotels look the same - even first-class, while locals can give you a unique experience. Despite the fact that the implementation of their idea took a lot of time, the idea itself as to why they were working on it and what they needed to do in the near future was always extremely clear.

John Lilly: How do you rate these qualities in the new founders?

Sem Altman : Working with more than 20 thousand applications, we get a lot of data and are able to understand what questions should be asked in order to check such moments.

John Lilly : What do you think is the difference between single founders and teams of 2-3 people?

Sem Altman : YCombinator prefers the founding teams of 2-3 people, but not against singles. There are two main problems with single founders: 1) startups have too much work for one person, 2) it’s very difficult to psychologically manage a startup alone. Perhaps, but hard.

Finding a bad companion, on the other hand, is worse than none. We have seen this many times when the lone founder does not have a companion and he simply attracts the first person to the team. Nothing good comes of this.

In general, the best companies start with a team of 2-3 partners. If you look at billionaire companies, it is unlikely that there will be at least one of them, founded by a loner, or at least those who have not attracted at least one partner in the first 6 months from the moment the company was founded.

Another point that we understood: 3 companions is feasible, 4 companions is hard. In such cases, we have repeatedly observed how one of the founders leaves the team at the initial stage.

John Lilly : How do you tell the founders that they can't do it?

Sem Altman : All partners at one point reach conflict, sometimes they tell us about it, sometimes not. We try to help them overcome this period, but sometimes we all collectively report that the relationship is over, and both sides need to move on.

John Lilly : What do you think of the two-man teams? And also, what do you think of the differences between the team members?

Sem Altman : Differences in life experience are good, but differences in views are really bad. It's not about what product you create, but about the type of company you are building - how big your company should be, what work style it will use, what to do with the odds, what you think about hiring and culture in your company.

The greatest conflict that we have seen is not when people want different things, but when they want the same thing, but each for themselves. This includes situations where both want to be CEOs, when they both want their face on the cover of a magazine, etc.

Mutually complementary teams are a goal when people have the same vision for the company but bring different skills to it. A classic example is one strong businessman and one strong “techie” (Jobs and Woz). However, such a structure is gradually shifting towards two techies, but in this case there is a greater chance that a conflict will arise.

John Lilly : How do you help people hire workers?

Sam Altman : Hiring always carries risks - and it has become even more difficult in modern conditions.

From what we saw, the best startups hire little and slowly. Worst startups say, “look, people already work for us!” - the disadvantage of this behavior is the high monthly costs, greater organizational inertia, thoughts of employees about career paths, etc. Such moments are important, but only when you are ready to expand - when you are not ready, you don’t need them.

for instance
  • AirBnb hired their first employee in 9 months
  • Dropbox hired first employee after “long time”
  • Stripe hired their first employee in 10 months

The more people you hire, the higher the status of your company, but also the more difficult it becomes for you to do your job.

John Lilly : What do you think is the difference between starting a company in the San Francisco Bay Area and elsewhere?

Sam Altman : San Francisco Bay Area is the best place in the world to start a startup. If I wanted to create a new startup, I would do it here.

The only thing that complicates everything is expensive living. Startups in the early stages can get considerable benefits, while maintaining a low level of monthly costs, because if you are able to survive every month, you are more likely to succeed. The high cost of living all this complicates.

Another thing I've noticed is that the San Francisco Bay Area has become less diverse over time. We saw a large number of companies outside the region, and they were more diverse than here. We have a great national diversity, but practically no gender. At YCombinator, we have 50% female partners, and we are trying to achieve the most diverse set of founders.

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