After a long tenure at the helm of Y Combinator — during which a summer “bootcamp” for undergrads turned into a Silicon Valley institution, pioneering the “seed accelerator” model and inspiring a new league of tech-focused business incubators — Paul Graham announced last week that he will soon be passing the baton to the next generation. Taking the reins from Graham is Loopt co-founder Sam Altman, the YC grad whose company was one of the accelerator’s first investments and who later became its youngest partner.
With the accelerator’s 18th Demo Day right around the corner, Graham took the stage at The Launch Festival today to talk to Jason Calacanis about what his future at Y Combinator will look like — and to share some lessons learned after nine years spent guiding entrepreneurs through the mad science of startup creation and development. While departing a long-time role as the “don” of a Silicon Valley institution might seem like something that would only happen under duress (or at least something that would weigh heavily on one’s mind), Graham’s demeanor and his answers provided plenty of evidence to the contrary.
His exit is a willing one. To say the least. And if there were any duress, it appears to have provided a good excuse.
The conversation opened with Calacanis asking the YC co-founder a number of questions designed to elicit an explanation for why he and his partners are opting for a change of leadership. Graham said that while the new structure will “look the same to YC’s entrepreneurs,” it will feel very different for him personally.
In other words, aside from continuing to advise companies and hold office hours during the program, Graham will no longer be responsible for making the big decisions or dealing with all the “internal crap” that requires a fair amount of time and hand-wringing in most organizations, he said.
Basically, after nine years of being more or less the face of Y Combinator, which also meant being a lightning rod for criticism and for competitors, Graham seemed relieved to be stepping back from the spotlight. Doing so means “getting his brain back,” he said, and not having to spend so much mental energy agonizing over applications, business models, valuations, press outreach and so on.
A prime example of Graham’s current, almost world-weary perspective: When asked about the range of valuations for YC’s current batch, he got the distressed look of someone overwhelmed by too much data, replying, “Who was even in the most recent batch?” Clearly, keeping tabs on over 600 graduates and the time and energy that goes into scaling YC’s seed accelerator model has taken its toll.
With more free time on his hands, the logical assumption would be that Graham would use all the proprietary knowledge and data gained from his unique position at the center of Startup Hub U.S.A. to start his own business. Calacanis then asked him pointedly whether he had plans to work on his own startup in the future, and Graham gave a response that should be noteworthy for anyone thinking about taking the plunge into the world of entrepreneurship and technology startups.
“No, no. Never,” Graham said emphatically. “Building a startup hurts.”
It seems that the Y Combinator co-founder is also taking some of the advice that he and his partners have been dishing out for years. He explained that the YC team often tells founders that, if building a company doesn’t involve a certain degree of pain, then they’re “probably not trying hard enough.”
So don’t be expecting an Airbnb for dogs or a Stripe for Bitcoin anytime soon — at least not one with Graham’s name on the co-founding roster. While he may not be gearing up to launch his own startup, however, that doesn’t mean Graham won’t continue to make angel investments in those coming out of both YC and the outside.
Furthermore, another interesting reaction from Graham seemed to point to a different conclusion than the one that has implied mixed reactions to the choice over Graham’s successor. While there may very well be some anxiety and mixed reactions among YC’s network, Graham, for one, appeared confident — and not in a way that belied pretense. The Y Combinator co-founder said that he had actually been trying to convince Altman to take over for him for at least two years — since 2012. In this way, it almost seemed (at least to him) that choosing Altman to take the reins at YC was a foregone conclusion.
PG’s Tips For Entrepreneurs
When asked what he’s learned about the art of building a business and about startup founders themselves over the years, Graham’s answers were not totally unexpected for anyone who follows his essays, but are worth giving ink to nonetheless.
For starters, for any entrepreneurs who hope to one day pitch Y Combinator’s partners on their own business, remember to mind your pitch. In other words, prepare, make it interesting and get to the point. Graham said that, after thousands of founder presentations and pitches, he and the YC partners are now able to tell “within minutes” whether a startup will pass muster or not.
In fact, the YC team has developed their own silent messages to communicate to the other partners when a pitch is a snooze or in the process of bombing. So, probably best not to go into a pitch meeting at Y Combinator totally flying by the seat of your pants. Not to add more pressure, or anything.
Co-founders Are Key, And You Better Like Them
Another thing that Graham said that he’d seen proven out time and time again over his time at Y Combinator was the importance of having a co-founder. So, if you’re currently a one-man or one-woman show, you might want to start thinking about pulling yourself away from your computer screen, making some friends, and finding that catalog for mail-order co-founders.
Graham said that he offered similar advice to Dropbox CEO Drew Houston when he applied to Y Combinator in 2007. Houston listened and recruited classmate Arash Ferdowsi a couple of weeks later, and now look at them.
And it might go without saying, but the second key ingredient to the search for a co-founder? Find one you can actually stand. Building a big business is a long haul, and you’re going to be spending more than a few minutes with your co-founder, so find one that, even if you don’t send each other Valentine’s Day cards, you can see yourself working with over a long period of time. And not only working with, but sweating with, crying with and fighting with when they eventually try to dilute your shares.
Graham then gave an example from his experience at YC, when, during a pitch, he watched one founder roll their eyes at their co-founder as they spoke — an immediate red flag, he said. Even if the founders are brilliant, if it seems like they’ll spend more time fighting than working, or solving problems, then they’re not worth the investment.
Find Someone Who Rocks Where You Elicit Crickets
The third key quality to a successful leadership team, or co-founder relationship: Each has their own strengths. As smart and pretty as you may think you are, don’t look for your clone. Try to identify your weaknesses and find a co-founder who has those things in spades. This could be as simple as finding a technical co-founder if you’re more of a strategist and business-type, or it could be hiring someone who, if you struggle in this department, is an amazing networker or understands sales better than you do.
Dividing responsibilities is a great way to keep founding teams from stepping on each other’s toes during critical periods of business and product development, Graham said.
High I.Q. Isn’t Everything
Another noteworthy observation from Graham’s tenure at YC is that, in the early going, he and his partners put a premium on selecting for intelligence. Even if the business may have been half-baked, or lacked product-market fit, they were willing to overlook some of these deficiencies if the founders appeared to be whip-smart or had conspicuously high I.Q.s.
However, over time, Graham came to understand that a founder’s intelligence was often a poor indicator of how successful the startup would become. Principally, he said, just because someone is intelligent, doesn’t mean they can actually run a business and go out and execute.
“You can be surprisingly stupid if you’re sufficiently determined,” he concluded.
Key To High Growth: Start Small
Again, this may sound like old news to some, but its importance always seems to be worth re-iterating. In relating the ingredients or factors that are the secrets to — or most often point the way to — achieving that illusive hockey-stick-style growth curve, Graham said:
“Start with a small, intense fire.”
In other words, find a small number of people that want what you have or are making badly. In the beginning, Graham said, that number is going to be small, and that’s okay. Don’t be embarrassed. Graham related the example of Apple, which only produced a couple hundred units of Apple I, its first computer. However, Apple sold 175 of those 200 units within the first 10 months by finding and appealing to early computer hobbyists.
More so than identifying who you want your users to be, your ideal customer, you have to understand who your users actually are, and who is really clamoring for your product. “You’ve got to know who those first users are,” Graham explained, “and sit with them, spend time with them, focus on them — have a party with them.”
Your first goal is focusing on those first 50, 100, or 500 users, and make them really, really happy. If you can do that, you’re on your way, and you can go from there, he said. Graham gave the example of a YC company building a “better email client.” Knowing that he’s a perfect example of someone who spends a lot of time on (and is hamstrung by) email, they decided to use Sam Altman as their one and only beta tester. They know, Graham said, that Altman is a demanding enough user that if they can make him happy and “make him feel like he would be bummed out if they stopped working on it,” then they’ve passed that critical first stage.
Don’t Waste Time
Lastly, Silicon Valley and Startup Land tend to put a heavy emphasis on investors and fund-raising. And while building relationships with investors and venture capitalists is an unavoidable (and critical) part of building a business, what’s most important? Focus.
Founders, like everyone else, have a tendency to procrastinate and confuse their priorities. What’s more important, Graham said, is understanding that product development should most always take precedence. Entrepreneurs are always getting pulled in 17 different directions, so they really have to learn to focus — and not only to focus, but identify what’s important to focus on at that particular time. If you haven’t yet made those 10, 1,000 or 1 million early users happy to the point that they would weep if your product disappeared, then you should probably be focused on product and building that experience.
“You shouldn’t be grabbing coffee with a VC in the middle of day when you could be working,” Graham said. “Instead you should be doing the most important things, like, say, optimizing software.”