PAUL GRAHAM

y combinator

episode 46

The Investor series moves to the heart of Silicon Valley with Paul Graham. Paul is an author and co-founder of Y Combinator the world's leading startup accelerator. He's been involved in many startups including Airbnb, Stripe and over 1,900 others.

We have also just published a new analysis of Paul’s best startup ideas.

Show Clips

INTRO

• What YC Does

A BLOCK

• How to Get Startup Ideas

• A Startup Will Take Over Your Life So Wait

• Succeed Through Expertise in Users

• We Want To Invest  The Call

B BLOCK

• The Magic In A Team

• The Founder Is More Important Than The Idea

• How Does A Startup Succeed

• Early Lesson of Do Things Manually

• What Kills Startups

READING

Paul Graham: Hackers & Painters

TRANSCRIPT

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Mike Parsons 0:10

Hello and welcome to the moonshots podcast. It's Episode 46. I'm your co host, Mike Parsons. And as always, the man from Brooklyn himself. Mr. Chad Owen is on the line. Good evening, Brooklyn. Hey there, Mike. I'm excited to continue. Our investor series here this week are right in the middle of it. Me too, man like these investors. I mean, they it's all about the way they see the world and I thought Warren Buffett and Ray Dalio were both such titans of that sort of traditional Wall Street kind of mindset and how they've been so successful. Was was really very inspiring. But now I think it's fair to say where

Chad Owen 1:00

jettisoning ourselves from the east coast and we are traveling rocketing across to the west coast. Now, Chad Yeah, back over Omaha in fact over right over Warren's head to the wild, wild west, so to speak of Silicon Valley and Y Combinator, one of one of Silicon Valley's most prestigious incubators, if you will, co founded by our subject today, the venerable Paul Graham, huh. Yeah. And he is, he's really remarkable because he himself, I would think of him as one of the few sort of very geeky guys with high emotional intelligence. Like he's very attuned to people, teamwork, collaboration, skills, culture, and that sort of thing. Meanwhile, he's super bright as an investor and I think quite a remarkable chap and

Mike Parsons 2:00

Let's not forget, he has created a Y Combinator, which is called the Harvard for startups. And these guys, Chad, I mean, they are a powerhouse of the startup startup ecosystem, aren't they? Yeah, Paul has a really interesting history as an engineer and programmer, you know, kind of creating or helping create and improve languages like Lisp. I even learned and doing research for the show, like one of his early co founders have an early venture of his was the first hacker to ever be prosecuted by like federal anti hacking laws in the 80s.

Chad Owen 2:37

Like, these are the kinds of you know, guys that he's hanging out with and there's a cool, you know, rebellious, counterintuitive nature to him that I think is really refreshing and part of like, why he's been so successful with Y Combinator, you'll hear in many of the clips in today's show how kind of his acting counter to maybe your instincts, and how you think

should work has actually served him and the startups in Y Combinator very, very well.

Paul Graham 3:05

Yeah. So we're gonna be talking a lot about pole and a lot about Y Combinator in this show. And for those of you who are not so familiar with Y Combinator, or maybe you've just heard of them, but you don't know how significant they are. I mean, there's three kind of facts that I would call out. They've invested in nearly 2000 startups, their community of founders that have been through their program as well in excess of 4000 people. The valuation of their portfolio of startups is our massive hundred billion dollar portfolio which includes Reddit stripe, Dropbox and one of my favorites. Airbnb have all spent their formative early days with Paul Graham at Y Combinator. I mean, you know it I think, Chad it's it's pretty safe to say when anyone gets accepted into the Y Combinator program. It is such a tick of approval, isn't it?

Chad Owen 4:05

Yeah. Yeah. And one thing I wanted to mention too is if you go to startup school.org, you'll find so much information and learnings that have come from the startups that go through Y Combinator. I think, Paul and the the Y Combinator team, Sam Altman, and others are doing a great job of sharing the learnings because I think they rightly believe that if if we can figure out how to start better startups, it'll just make the world a better place.

Paul Graham 4:31

Yeah, yeah. And once again, I love it when experts or organizations openly share their knowledge. So a big thumbs up not only to startup school.org, but also Paul Graham calm where he shares a lot of his thoughts about how startups can be successful. And we're going to go through two big parts of all of this knowledge and wisdom from Paul Graham. We're going to talk about about, you know, where you kind of get the ideas from how to get things started, if you will. And then the second half of the show, we're going to really look at what it takes to be successful. So it's a bit more of the down the track part of the process. And there's going to be lots of tips and suggestions, ideas for anybody looking to create a new company, or building your product, this show is for you. I just remind everybody, all these links that we're mentioning, and there will be a lot in this show, you can head over to moonshots.io can get not only all the info about this show, you can dig up some of the other investors in this series, and plenty of other innovators. So Chad, where do we want to kick this one off? Well, we've, we've got lots of really great clips from Paul just gonna start with one where he's kind of trying to simply describe what Y Combinator does.

What Y Combinator does is tell founders things that they ignore, right? So we tell people don't hire too fast. And then they go off and hire too fast. And then they come back later and say, Oh, I wish we'd listened.

But like,

all the things we tell people, we tell people the counterintuitive stuff, not the obvious stuff. And then what counterintuitive means is, it sounds wrong. And so they go with their gut and do the wrong thing instead. And then, hopefully catch the mistake in time.

Chad Owen 6:29

It's probably not what you thought of when you thought of the Harvard of startups or Hey,

Paul Graham 6:35

he's quite folksy, isn't he's almost like the Warren Buffett of startups, just very folksy and quite sensible. The, you know, the thing for me that he's really this is why I was thinking about it as he was talking is his wisdom and the team around him that collective wisdom is all about doing the right things in the right order. Have a startup because you have such limited resources that they're constantly reminding founders of this is what you should be doing now. And in from my personal experience of my own startups, helping other startups, what is so true is that your passion for your idea that you're working on can often distract you take you off course. And the role of a Y Combinator, or a coach or an advisor is always about asking questions and challenging founders to think about what are they working on the bright thing now? And I really think that's at the core of what he's talking about why yc does. Mm hmm.

Chad Owen 7:47

Yeah, I think a coach of mine has framed it in the way of like, helping me see around the next corner. So I'm kind of I'm stuck in my alley, and I've got my blinders on and I'm looking you know, straight Straight ahead. Yep. But yeah, the advantage of having that third party is they can help you see around corners and maybe even the next corner to see things that you maybe haven't thought about. And, you know, as you said, the the hundred billion dollar plus combined valuations of startups that have gone through Y Combinator can speak to the value of that, that forward thinking, but that is not the only piece of advice that Paul has to share that so many more. Another one, I think many listeners to this show myself included, like we often, I don't know, wring our hands that have, you know, how, how do we know if we have a good idea? How do we come up with a good idea? You know, it's so often it's about, you know, for lack of a better word, that light bulb Eureka kind of moment. And you know, as true to Paul's forum, he has a bit of a different idea about how we should go about getting our startup ideas. The way

Paul Graham 8:57

to get startup ideas is not to try to think of startup ideas. I've written a whole essay on this. And I'm not going to repeat the whole thing here. But the short version is that if you make a conscious effort to try and think of startup ideas, you will I think of ideas that are not only bad, but bad and plausible sounding, meaning you and everybody else will be fooled by them, and you'll waste a lot of time before realizing they're no good. The way to come up with good startup ideas is to take a step back, 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. This is not only possible, Yahoo, Google, Facebook, and Apple all got started this way. None of these companies were even supposed to be companies at first. They were all just side projects, the very best ideas almost half to start a side project because they're always such outliers, that your conscious mind would really reject them as ideas for companies. Okay, so how do you turn your mind into the kind that has startup ideas unconsciously? One, learn a lot about things that matter to work on problems that interest you. Three with people you like and respect. That third part, incidentally, is how you get co founders at the same time as the

Unknown Speaker 10:23

idea.

Unknown Speaker 10:24

Huh?

Paul Graham 10:25

startup ideas and the source of them. I think it's what the learning in in in Paul's wisdom there is that so often, people take standed problems frame them in a very startup way. And they are absent of real passion. They're often almost dis grabbing the next problem for a cool new idea to try and get funding and what we write but

Chad Owen 10:57

I have the I have the Uber for dogs Trade idea.

Paul Graham 11:03

That's okay because I have the Airbnb of this and that and the Kickstarter of, of what ever. The the truth here is he's sort of trying to dig at there's got to be this deep, profound curiosity and interest in the subject matter that made it a hobby and what he didn't say but I think he inferred is you've probably worked on this for years and years and years before it eventually builds this natural momentum where it becomes a product or company. And I think that's what he was poking at there. Don't you check?

Chad Owen 11:40

Yeah, I love how he takes it kind of back to first principles of like, if you just sit and try to think of startup ideas, you're going to fail because, you know, it's already been thought of and it's not as simple of a process to just invent something even though my Uber for dog treats may actually To be a billion dollar idea. It's It's interesting. And I think I'm kind of curious to hear from you, Mike, like which of the founders, entrepreneurs, innovators that we have profiled on this show? Like, which ones of them do you feel like it started as a hobby as a side project and grew into, you know, the massive companies or media empires that many of the people we've profiled to start it? I'm kind of curious if we can come up with some as as kind of evidence of Paul's maximum here. Yeah, yeah. So So there's two people that immediately come to mind the first which is Warren Buffett because he had a hobby of stock investing at the age of 11. Right. So so that's definitely in terms of very relevant adjacent. What I think is also interesting, it's not so much hobbies, but recite projects.

Paul Graham 12:53

Yeah, Richard Branson goes out into the world and experiences things and goes well Geez, that sucks. Maybe they A business that could solve this. And that's almost a hobby like approach in that he's not sitting in a room, waiting for ideas to come, he goes out into the world does stuff and says, hmm, actually, you know, this really sucks. I think we could do it better. I think that's also very much the spirit in which poll is talking about stuff that you're interested in things that matter to you to chair when you think about all the people that we've studied, who comes to mind you your mind? Maybe Elan Musk, he seems to be always tinkering on new sort of paradigms and science and tech.

Chad Owen 13:35

I actually can't I'm going through our list. I can't find one that like didn't start as a hobby or side project. So we have Yvonne shannara to Patagonia, right? He's a self effacing dirtbag. He just wanted to go out and climb. And he, you know, created his own forage in the back of his van to make his own climbing gear and true now it's a multi billion dollar company, every Korean

Paul Graham 14:00

He just took his own failure and made it into a book. Right?

Chad Owen 14:04

Mm hmm. And see going down to I mean, Bill Gates, you know, he bugged his parents to get him into a school where he'd have access to computers. And, you know, he was working on on computers at a very, very early age in the Computer Club. Yeah, I'm going through all of these and really can't find many of them that didn't create these huge empires based on on side projects or, or hobbies.

Paul Graham 14:31

Yes, yes. And even even, I'm just looking through the list, Joe gebbia. Maybe it wasn't so much a hobby, but it's just a way of making rent. They they sort of got together and rented out their apartment. Mm hmm. Sort of, I think that the lesson here is they all came from hobbies or life experiences, or or personal situations, rather than sitting in a boardroom and just randomly coming up with ideas. I think this is the the big take out our audience can take that we can take from from Paul Graham. And what's really interesting is how Paul starts to, you know, at this Genesis moment, he's got a lot of other rules for us. And I thought it was really interesting Chad that he's also like, you don't have to be the guru, the subject matter expert Do you

Chad Owen 15:29

know and you don't even have to do it. It's at, you know, age 18 or 19 and have to be a Harvard dropout. Many of the clips on today's show are from a talk that he's giving to Stanford students. So these are undergraduate students that are in the entrepreneurship program. They're at Stanford, and it gives them some very, um, you would think it advice they don't or, you know, aren't willing to hear but I think there's some wisdom to it. Essentially, startups are Like a huge commitment, often young people can maybe lose sight of that commitment and really just kind of want to do the new, sexy, shiny thing. So here's Paul's real advice about what it's like to run a startup and maybe some of the trade offs that come with it.

Paul Graham 16:18

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's a real opportunity cost here. It may seem to you that Larry Page has an enviable life, but there are parts of it that are definitely unenviable. The way the world looks to him is that he started running as fast as he could at age 25. And he has not stopped to catch his breath since everyday. Shit happens within the Google empire that only the Emperor can deal with. And he as the Emperor has to deal with it. If he goes on vacation for even a week, a whole backlog of shit accumulates. And he has to bear this uncomplainingly, because number one as the company's Daddy, he can never show fear or weakness. And number two, if you're a billionaire, you get zero actually less than zero sympathy, if you complain about having a difficult life, which has the strange side effect, that the difficulty of being a successful startup founder is concealed from almost everyone who's done it. People who win the hundred meters in the Olympics, like they walk up to them and are going like, right, Larry Page is doing that too. But you never get to see it. Starting a startup could be a component of a good life for a lot of ambitious people. But this is just part of a much bigger problem that you're trying to solve, how to have a good life, right? And those starting a startup could be a good thing to do at some point. 20 is not the optimal time to do it. There are things that that you can't There are things you can do in your early 20s that you cannot do as well before or after, like plunge deeply into projects on a whim that seem they're like they'll have no payoff or travel super cheaply, with no sense of a deadline. In fact, those are really just isomorphic shapes in different domains. For unambitious people, this sort of thing can be the dreaded failure to launch but for the ambitious ones, it's a really valuable sort of exploration. And if you start a startup at 20, and you're sufficiently successful, you will never get to do it. Mark Zuckerberg will never get to bum around a foreign country. Alright, he can do things that you can't do, like charter jets to fly him to foreign countries, really big jets. But success has taken a lot of the serendipity out of his life. He Facebook is running him as much as he's running Facebook. And while it can be really cool to be in the grip of some project, you consider your life Work.

There are advantages to serendipity. And among other things, it gives you more options to choose your life's work from.

Hmm. Such wise advice, like, be careful what you wish for. I think it's really what Paul's doing is huge. Yeah.

Chad Owen 19:22

Yeah. You know, he talks about Larry Page and Mark Zuckerberg not being able to live the lives maybe that they might have wanted in their 20s

Paul Graham 19:31

Yeah, and I don't think many startup founders really think about that. When they are idolizing guys like that. I think they dream of having that impact in the world. And they probably romanticize that lifestyle. But the truth is, and I know this from firsthand experience, I did two startups in San Francisco. They were very different. Very They are totally all immersive when compared to, you know, I was working in a big ad agency prior to that. And the lifestyles are so different. So it does take over your life, whether you're going to be successful, or whether you're going to fail. It doesn't matter. It still takes over your life, doesn't it?

Chad Owen 20:21

Yeah. Yeah. I think, you know, this cautionary tale is often just left out of the narratives. I mean, it I think it's pretty obvious to us today that well, the reaction to Ilan Musk, you know, public breakdown was just as, as Paul described, right, like, no one cares, Ilan, that you have such a hard life and you're working 120 hours you chose that life when you decided to run like four different companies trying to disrupt giant, multi billion dollar industries. And, you know, it's hard to feel bad for Mark Zuckerberg when he has to go in front of Congress. And, you know, answer ill informed questions. Bye bye. Senators, but you know that, you know, these entrepreneurs have created the beds in which they, they live, but I don't, you know, I didn't choose this clip to discourage you and me, Mike and our listeners from starting things, but there are some sacrifices as you, as you mentioned, in your own experience that have to be made if, like, I think what Paul's saying is like, if you're doing a startup, you're committing to the startup first and foremost, and like, it's just gonna take, it's gonna be a priority and just take all your time.

Paul Graham 21:28

Yeah, yeah. And you you firsthand. So when I was doing when we met, I was doing my first startup in San Francisco. And I mean, you saw the epic workload that that that created for me.

Chad Owen 21:43

Yeah, it meant that I didn't see you.

Paul Graham 21:46

Yeah, but but the intensity, it was such an intense two years or so wasn't it?

Chad Owen 21:53

Yeah. But you know, it was worth it for all the learnings and experience and you know, but I think you went into that stuff. much wiser than the bright eyed, bushy tailed 20 year olds in the Stanford editorial.

Paul Graham 22:06

Yeah, yeah, absolutely. Let's hope, let's hope so that the next thought that I think really helps us at the genesis of a startup. And this one is one that is very, very meaningful to me, which is put the customer put users at the center of what you're doing. If you're going to solve a problem in the world. Make sure that it's a problem that you and your customers know, feel and experience. And this next clip we're going to play is all about getting into this notion of the an expert in your customers problem.

What you need to know to succeed in a startup is not expertise in startups. What you need is expertise in your own users. Mark Zuckerberg did not succeed in Facebook because he was an expert in start He succeeded despite being a complete noob. At startups. I mean, Facebook was first incorporated as a Florida LLC.

Even you guys know better than that.

He succeeded despite being a complete noob at startups because he understood his users very well. In fact, I worry, it's not merely unnecessary for people to learn in detail about the mechanics of starting a startup, but possibly somewhat dangerous. Because another of the characteristic mistakes of young founders starting startups is to go through the motions of starting a startup, they come up with some plausible sounding idea. They raise funding at a nice valuation. They rent a nice office in Soma, hire a bunch of their friends, and then the next step

Unknown Speaker 23:50

after

Paul Graham 23:53

rent a nice office in Soma and hire a bunch of their friends is gradually realize how completely They are because while imitating all the outward forms of starting a startup, they have neglected the one thing that's actually essential, which is to make something people want,

Chad Owen 24:09

um, has this really funny term? I think that he and everyone else it on the Y Combinator team coined called playing house. Yeah, yeah. So going through the motions of what you expect startups to do. You know, I think the television show on HBO Silicon Valley does this perfectly. Right. It's they're not really founding a company. They're like acting as if they were founding a company kind of going through the motions. Yeah. And he is just pointing us to your favorite maximum, which is just, you know, focus on the user. Focus on the user focus on the user.

Paul Graham 24:48

Yeah, it is. So as I mean, this has to be so I I'm working with a portfolio of 10 founders. On 10 separate startups at the moment. And the if you want to, if you put them all in a room and say for the last three, Mike, three months, what is Mike been talking about the most, it would be succeed through understanding your users. Because if you understand your users, you'll find a problem, then you'll find a problem and work out how to solve it. And if you have that, then you can build a business and a product around that. And without that, what I really what I really notice of the law, my entire career is most people start with a business idea, and not with a problem to solve. And they're almost backwards engineering, from a business model or a way to make money all the way back to is there actually a problem worth solving. And I think this is the best advice that Paul can give us. Be an expert in your users and the pains that they experienced the gains that they're looking for, and find out how you can relieve some of those pains and create gains for them. So that, you know, not only will you build a product that they want, that you can have a startup and a business that thrives. I truly believe this is the starting point of it all, huh?

Chad Owen 26:17

You mean I have to go out and find users for my Uber dog site.

Paul Graham 26:24

You can be your you can you can be your own first customer. So Bella can can tell you if you got the right treats or not.

Chad Owen 26:33

I'm sure the founders you've been working with didn't just say Oh, yeah, Mike's talking to us about customers. They're probably telling you to shut up about talking about customers so because I know how how focused you are on not only Yeah, focusing on the customer, but you actually bring in customers as soon as as possible. You know, I've seen you bring in consumers to test out ideas when it's just an idea and a founders mind. There's no Technology. There's no web app. It's just an idea on a post it note

Paul Graham 27:04

Yeah. And and and firsthand. What you and I have both witnessed in those sessions is ideas that we thought were good, totally sucked. As soon as users got one look at them, just one look at them. And the point here is that we will assume something that customers want. And you can't guess you have to know you have to test them to get your way there. And when you do, everything becomes far more tangible, but also the path and the journey towards a great product, a great company becomes more straightforward. But I did find one last clip in this origin part of the startup journey and I wanted to indulge us a bit here, Chad, I managed to find a recording of a startup that had applied to Y Combinator. This is Is them getting the call from Y Combinator to say that they're going to be accepted into the program that they want to invest? And I think the background to this is that if your startup gets accepted into Y Combinator is program. The, the the the tick of approval is enormous, isn't it, Chad?

Chad Owen 28:23

Yeah, it's you know, while the monetary investment may not seem like a whole lot, you're getting access to all of the Y Combinator team and Paul Graham, you're getting access to all of the other startup founders in your cohort and the entire alumni network of people like Joe gebbia, from Airbnb and drew to Houston from from Dropbox.

Paul Graham 28:47

Um, the the the other practical thing is after graduation, that demo day they present to a roomful of investors and I think every single stock has a follow on investment round coming out of Y Combinator. I know there there are even some investment firms, some VCs that have a policy of trying to invest just across the entire cohort, but they don't discriminate. They just try and get, you know, 100 250 grand into each of the each of the companies because they're like, hey, if they've been selected and then nurtured by by Paul Graham and his team, chances are we'll succeed. So that's what it means. So let's now listen is really cute because it's a bunch of Swedish guys. They're getting the call. And again, a here that Y Combinator wants to invest.

Unknown Speaker 29:42

calm. Hey, this is Aaron Harris from yc How are you? I'm doing fine. How are you? I'm doing well. Thanks. I wanted to say thanks for coming in and chatting with us today. We really like meeting with you and we'd like to fund you for the next batch at yc and Yeah, likewise, we really enjoyed the chat for you guys as well. And we're extremely happy that you guys are going to find us. Awesome. Yeah, I've seen the process that you're talking about is a nightmare. You guys seem to have a good take on it and good product built already. So we're excited to see what you do. The couple things. First off, you're aware of our standard deal terms. Yeah, yeah, we read them all. So yeah, great. So it's 120,000 per 7%. Perfect. Okay, great. Yeah. So that'll just be orientation. Get you guys set up in the system. Start talking about the effects and all that. Okay. Well, then I'll see you on Thursday. Great. Sure. It's fine.

Chad Owen 30:50

I could never get so make.

Paul Graham 30:56

Yes. So what's really interesting you mentioned it too. Deal terms are very simple, they get a small bit of the company, they invest a small bit of cash. And whilst that might be small, the impact, and the opportunities that come from getting into Y Combinator are huge. And this all comes back to these lessons that we've been talking about so far from Paul Graham is where it all started. I wanted

Chad Owen 31:24

to take a moment. You've mentioned it a little bit at the top of the show, Mike, but Paul Graham calm is a collection of all of his essays that he's been writing for years now, I actually haven't gone all the way back to the beginning of his archive. So while I haven't brought a book of his to review here on the show, I can recommend every single article that I've ever come across or essay, I should say, on his website, I mean, some that come to mind that he's talking about some of the principles here and some of the clips we've shared are like, do things that don't scale. If you type that into Google, his essay pops right up. And there's so many other fantastic essays that he's written. And I just, I want to be sure that if you're at all interested in what we've been learning from Paul thus far, you really have to go and check out his essays at Paul Graham calm.

Paul Graham 32:19

Yeah, I would, I would say you could spend a month going through startup school.org because they will do everything from getting started finding co founders through key things such as growth, people in culture, they got a massive section on product, which is really awesome. And right through to kind of second stage investing and growing the business and it's all there for free at startup school.org if you want to build any product or company, you would be crazy not to go visit this. It's full of goodies. Okay, Chad, so we've kind of been Got our heads straight on on where to get the idea from Be careful what you wish for. Make sure you know what, what customers are looking for that kind of frames the first half but now it's let's get down to business isn't it? Let's go build a team. Let's find out what it takes to succeed, what things you need to be doing at the beginning of the company. And I think some some key warning signs if of startups and if they're going in the wrong way, that's all ahead of us in the second half of the show. Chad, where should we start the getting down to business section? Where do we want to kick off?

Chad Owen 33:37

Well, it's a theme that has come up time and time again on the show, but it's really the importance of the people that you recruit, hire, retain, partner with CO found with, as Paul says that he says there is magic in your team

Paul Graham 33:57

people who've been friends for a while, have work together on things. So they actually know one another's capacities. What we don't like is people who only came together for the purposes of doing this startup. And the reason is that, that means the only thing holding them together is the startup, right. And another thing about startups that we've learned, actually, I probably already knew this from doing our own is that almost every startup has some point where it seems like the startup is doomed, and worthless. And there's no point anymore in continuing to work on it. And so if there is nothing holding this founders together, besides the startup in the startup is worthless, then there's nothing holding the founders either anymore, and they just like, quit and go out and do other things. Whereas if they're close friends, they will keep working on the startup, even though it seems worthless in order not to let the other one down. And it turns out, they were wrong. It wasn't worthless, even though it seemed it was doomed and that every startup has a point where it's seen Like it's doomed and so, oddly enough, mistakenly continuing to work out of misplaced loyalty to your pal is a good thing. Yeah. Because eventually things get better.

Eventually, things get better if you stick together as a team. I mean, it's so so true. And one of the things that comes to my mind, Chad is that the learning here is what Paul Graham is telling us is, guys, this is like a sports team. It's like, it's like a music band. It's like a rock band. You got to have a bunch of guys who fundamentally like hanging out together, working on stuff together. That is the binding glue. The the idea itself of let's do an Uber for treats. This will not hold you this will not bind you together, no matter how good that idea is. What will bind you together is that you guys relate to each other. You connect to each other Uh, you're good buddies.

Chad Owen 36:02

Yeah, I, I would be very curious to kind of back test successful startups with this kind of rule in mind. And certainly Brian chesky and Joe gebbia, you know, absolutely fit this mold. They were roommates him they needed help paying rent. So they hosted San Francisco conference goers on air mattresses. You know, that is an idea that could only come from I'm sure like late night cartoon watching over pizza and beer kind of thing. Right? You know, that. They can only happen, you know, if you know, in that kind of like friends sitcom kind of kind of environment.

Paul Graham 36:40

Hmm. Same with, obviously Larry and Sergey, from Google. And this starts this big theme for early success. Apart from getting to know your users. You need to get to know yourself as an individual and the team around you This whole orientation towards people is, in the words of Paul Graham, what we're about to hear that the founder themselves, these things are more important than the actual startup idea. So let's have a listen to Paul Graham, really pinpointing the importance of founders.

Unknown Speaker 37:22

Well, one thing has changed is that we look more at the entrepreneur than the idea, right? We've learned that what you're funding at the stage, we're funding people like the beginning. The founder is more important than the idea a lot more important. So on our application forum, you know, we used to have all these questions about the idea. Now we have a lot fewer questions about the idea and a lot more questions about the founders and the relationship between them.

Chad Owen 37:52

Hmm, it's that's a really interesting how they changed the application forms to learn more about the founders. As opposed to the ideas, because you would think it's like, well, they want to invest in the best ideas, because those will have the highest likelihood of success. But clearly, that's not the case.

Paul Graham 38:10

Well, good, good for them for learning. And isn't it interesting, because so much of the time that conversation is around the idea, whether you're talking about, you know, interviews, press investment meetings, it's often about the idea. But what he's really suggesting is that founders teamwork and a focus on end users come before that. And I think this is the big takeaway focus, know your users know your founders, and the other things will come. And I think if we work really, really, really hard success can be there. And what's interesting is we've got this other clip, where Paul really sets up how a startup can succeed. So let's jump straight into him. Talking about startups success.

Unknown Speaker 39:03

So given how fast innovation seems to be happening across the country, what are startups these days need to do to have a successful exit whether it's an IPO or just building a great business, they have to make something that actually makes people's lives better. Like, it's it's funny how straightforward it is. People often think that business requires some sort of trickery. You have to like corner the market and something or something like that. But actually, what you have to do is you'd have to make people's lives better. And the amount of value that you create is the sort of rectangle where one side is the number of people and the other side is how many you know how much you make their life better.

Unknown Speaker 39:38

big rectangle, big value. You're rich.

Unknown Speaker 39:42

It's really that simple, huh?

Paul Graham 39:45

If only if only,

Chad Owen 39:47

I I still think I still think my Uber for doctors could make people's lives better.

Paul Graham 39:54

It's on the table jab with nothing is dead. Yeah, but but we should just take a moment here. Like this one is where he's talking. This is the outcome of if you focus on your users, if you're, as Paul said, if you're an expert in your users, then you will have a product that makes people's lives better. And I cannot emphasize this enough. I mean, there must be a problem, you must have a solution. Your user must experience real pains and frustrations. And you've got ways of not only relieving those pains, but also making these things called gain creators like helping them get the job done, being the person that they want to be. And Paul frames it in this idea here, make people's lives better. If you make enough of a difference in improving people's lives, they will be prepared to pay for it. And I I want to give you this, this interesting example, Chad. If you think about which apps you're prepared to pay for the real threshold is when you pay 500 10 bucks for an app on your phone, or when you really pay for bespoke content, or a course, is because it makes a meaningful contribution in either helping you learn or entertaining you. This is the threshold of which all products can make people's lives better how they can succeed. And it's the litmus test your product if people use your app once and throw it out, if people are not prepared to pay for your product, then what you'll know is you're not making their lives better. inside of that you haven't found a problem worth solving. Yeah,

Chad Owen 41:38

it this wisdom from Paul, I don't think is really anything new. I mean, certainly it goes way back into the philosophical traditions, you know, Jesus is golden rule and even further back beyond that of if you're seeking to create more value in the world, you know, it will come back to you In the frame of startups, you know, it's like, well, we create, you know, we make people's lives better, and then they pay us. It's a little twisted because of, you know, the investment VC world where oftentimes, I feel like there's a lot of kind of bloated valuations and companies taking money just to take money, and they, you know, they don't have functioning business models, but for the companies that are gonna last, you know, they're truly providing more value than anyone else in the marketplace. I have just a funny example, from last night. I have always poo pooed all of the delivery startups. I don't want to name names, but if you know that this company, you know, delivers anything anywhere, you know, to you, okay, you know, the kinds of service I'm like, really? Do we need that? But last night, you know, my wife had some really great news from work and we wanted to celebrate and she was like, oh, man, I really want Shake Shack. For those of you that don't know Shake Shack. It's a great burger joint. They're in the New York City area and others started by Danny Meyer, the great restaurant tour, just the, you know, big huge craving, but for us to like, go there and back in the cold that, you know, would have taken us over an hour and a half. And we just wanted, we just wanted to have our Shake Shack and watch her Netflix. So I got on the App Store got the delivery app, and I was more than happy to pay the service and delivery fee to get that, that Shake Shack. So, you know, that's a small example of the startup, you know, truly making my life better. But as you said, You know, I was willing to pay for it. Absolutely. I you know, I, we could have walked there and back or ridden a bike or something, but, you know, we're willing to pay for that convenience.

Paul Graham 43:44

Yeah. And and inside of that you put a value on your time and said, Well, I could rescue that time and inconvenience So, you know, weathering a New York, January, winter and you're like okay, so How much extra do I pay? Yeah, sure, that's, that's worth it. And then that's where this service major life better because they solved a problem that's worth solving. And this architecture of solving problems were solving so that you can make people's lives better. And to me, this is the essence of startup. And the way in which you get there is you have great founders, and you spend a lot of time with your founders, a lot of time with your customer, and you will get there. Everything else is a distraction in the beginning and early stages. So business modeling something to death, working out, you know, a 10 step marketing program, forget it, build something that makes such a difference that your customers will go and sell it on your behalf to other customers. This, this is one of the most powerful ideas that we can get from from from Paul, and it's like, make people's lives better. I mean, how powerful is that, Chad?

Chad Owen 44:58

Yeah, there's a bit of Gotcha in in that too, because you can take that too far and put your head down and only build, you can try to over optimize the product in, you know, in a vacuum not close to the customers and an essay that I mentioned by Paul and he, he kind of elaborates on it here in this very next clip is you don't have to build the app for the thing, if, in the case of this delivery service, you don't have to have the app that places the order that automatically prints the label that contacts the driver to do the GPS do to find the optimal route sort of thing. You can do it in a much more manual or as, as you and I say, often kind of a concierge type manner. And so here's Paul, in some ways, kind of advocating against building too much of the product, or you know, baking it into much and doing things much more in a manual fashion.

Paul Graham 45:55

A lot of this things that we teach startups, why can't Or you teach startups at Y Combinator. I'm retired. I don't know if you know that. But a lot of things you guys teach startups is are things that I hit myself and didn't realize that they were actually common startup lessons. So one of them is doing things very manually for your early customers. Like it's so important to get early customers that if you have to do a ton of manual stuff, that's okay. You'll learn a lot from it.

Unknown Speaker 46:27

Did you guys do manual stuff? Oh,

Paul Graham 46:29

yeah, totally. And we thought, oh, we're doing it wrong. This is so lame. And in fact, it was exactly the right thing. We made an online store builder. You could build a store on the internet and sell stuff. And we would go to would be would be customers and say, Would you like to use our easy Online Store Builder? And they would say no. And we would say, but you want an online store, right? And they would say yeah, and they would say well Well, what if we use, we would say, What if we used our software for you to make an online store? And then you could have it? Would that be good? And they'd say, All right. And so we'd like I can't get anyone to use our software, but at least they're willing to let us use it for them.

So, so, so important what what I find this this idea of manually, I think we just need to break that down a bit. what he's talking about is often you might have like a web page job, you'll be promising a service. But there's lots of manual work happening in the back that in the long term, or even at that point may appear to the customer to be sort of automated, but it's actually happening manually. Don't worry about the fact that it's not automated. And what he's trying to advise against here is don't do what Eric Reese talks about what he did in his $40 million mistake. They spent so much time building the perfect automated product, they deferred actually having anything at all in front of a customer. So when they finally got it there, they had over engineered this thing that nobody wanted. So where this is really coming from is get something up fake some of the the automation in the background, that's okay. Because you might learn some important lessons which will change how you think about the, if you will the back end of the product. Does that make sense?

Chad Owen 48:27

Yeah, I think people would be really surprised at how many startups started as email capture forms and spreadsheets.

Paul Graham 48:39

And the other the sort of knock on effect, which is a real positive here as you start to really understand the business flows inside of your product, and how it really works and how it actually you might find that there's some simple workarounds, or what I also find is that a lot of founders really Realize that something is way more complex than they first thought. And this is so important because then you don't make all these big guesses and assumptions about how the products gonna roll out when you actually have no real idea about some of those complications that you're going to run into.

Chad Owen 49:19

Yeah, I think much of what you and I experienced when we were working together with companies launching new business lines or trying to create new, new new products or web apps, there's a difference between it's, it's, it's a bit of a fine line, but you can often be too prescriptive in what you're trying to force the user into, or the customer into, versus kind of leaving some breadcrumbs and letting their experience emerge kind of over time. So in in that mode, you're much more responsive to actually what the customer is doing in real life, as opposed to like putting together the Nice, pretty shiny, we have logical flows for every single potential action that the user may take kind of thing. And yeah, it's it's optimizing for learning versus optimizing for, like polished ness. And that's really kind of what I'm taking away from. Manual may be ugly, but you're gonna learn a whole lot more and save time, as opposed to being very prescriptive and having something nice and pretty unpolished.

Paul Graham 50:30

Yeah, I totally agree. The danger that Paul is pointing out here is don't build this enormous first generation product in the absence of customers. And this is where if you had Paul Graham, and Eric Reese in a room, they would be in filing agreement. It's all about get something and out quick, learn, iterate, and work iteratively towards the perfect product, don't try and bake it the first time, because what you'll do is you'll just make the mother of all assumptions that will make it very hard for your, for your business to succeed. And, and frankly, this is just one of the many challenges that startups face, isn't it, Chad? I mean, there's so many challenges. There's so many obstacles along the path, things that might not only present challenges, but things that might even kill us off, right? Mm hmm.

Chad Owen 51:29

It's funny, as you're just speaking, I figured out how I'm going to test my Uber for dog treats idea and take Paul Graham's advice.

Unknown Speaker 51:38

Okay, come on, tell us.

Chad Owen 51:40

So the wrong thing to do would be, you know, to go on to Upwork and hire a programmer and build my app and right, so that's not what I'm going to do. So I think I, I'm not actually going to test out this idea, but I think this thought experiment might be useful for me in the audience. I think what I'm I'm going to go to the dog park and pass out business cards with my phone number on it. And whenever they need dog treats, they're just going to text. And then every time because I know they're all in the neighborhood, right, so they're kind of like within walking or biking distance, I'm going to go and negotiate a deal with the pet store that I get a slight discount on, on your pet treats. And that, yeah, I'll just be getting texts throughout the day. And I'll hop on my bike and go and deliver them. And if there's enough demand, maybe then I'll take some of the proceeds and and build an app. How's that? Okay, I'm sure I'll be

Mike Parsons 52:37

an advisor investor or just advocate number one, you put me down Ted, I'm starting my Y Combinator application right now. Download it,

Chad Owen 52:46

good website and download it now.

But seriously, the humor humorous side I'm kind of curious of your critique and how I'm applying the advice I was giving.

Paul Graham 52:58

I think you Are ticking many of the boxes for not only him, but many of our sort of innovators and entrepreneurs that we've studied, which is, you're going to get out of PowerPoint and get out of your office, you need to go do something and try it. And I think that is not only going to get the approval of Paul Graham, but many of the other people that we've had on the show, so good job, Chad, report back. And if you do that test about 10 or 20 times, you might seriously discover a real need in the marketplace. Yeah, well, unfortunately, I'm realizing that there are the bark boxes of the world and the chewy coms where many if not all of these needs can be met. But going back to what Paul was saying about how to come up with startup ideas, just sitting and thinking of of ideas is probably not going to give you a fake brilliant I think he's proven proven that but The The, the wisdom of Paul is not only inspiring us to really focus on the team to focus on your customers, and really get into it. He's also got some really powerful thinking. And this is really the warning, the watch out sign that He has for us if we're if you so if you're listening to this, and you're thinking about a product, or maybe you've just started working on a product, this next clip from Paul is really, really important. He's talking about what truly kill startups so let's have a listen to Paul green.

They make something that users don't like. They make dog food the dogs do not like to eat. That is the killer of all startups. They build something the users look at, and they say,

Unknown Speaker 54:49

yeah,

Paul Graham 54:51

that's the Back button. Well,

Unknown Speaker 54:54

I'll talk more about that because I want to know as an investor, what do you do obviously, every company's first iteration is not It's best. What do you do to try this? When do when do you know to, to fish or cut bait?

Paul Graham 55:06

Well, the first iteration may not be very good. But as long as you get it out there very

Unknown Speaker 55:11

quickly, it doesn't matter if it's if it's

Paul Graham 55:14

not great, because you start the conversation with users and users will say,

Unknown Speaker 55:18

Oh, well, I sort of like this, but I wish you would use such and such. And then you do such and such. And you repeat that process 200 times or so and then you have something really good.

Chad Owen 55:28

It's kind of the inverse of is make, make things that make people's lives better. If you don't do that, then then you're gonna die.

Paul Graham 55:36

Yeah, as the the, the threshold. Once again, you can see how important the three investors that we've covered so far. Warren Buffett, you know, Ray Dalio, and now Paul Graham, they all have very straightforward ideas or principles. These they're almost like mantras, aren't they, you know, build a product that makes people's lives better. You know these, you know, Ray Dalio even calls them principles. He wrote a book about these principles. Isn't it interesting? how clear all three of them have been about what works and what doesn't. And in this case, Paul Graham, was really clear about this is what failed. This is what's gonna get you on the fast track to failure. I think there's really interesting insight of how clear they are on their investment thesis, or their their business paradigms, the business matches the business principles. They're all very clear, aren't they, Chad?

Chad Owen 56:38

Well, they have to be there. All of them are evaluating hundreds, if not thousands of potential ways to use their their capital. And someone like Warren Buffett has lots and lots of life and business experience, maybe not as like codified and programmatic or algorithm rhythmic rule investment rules as Ray Dalio, but it's interesting to see like as you're framing it Mike like Paul Graham's not very different from them because he's not investing in fortune 500 companies he's investing in, in founders that have an idea for maybe what could become a big company. But I'm sure they get thousands and thousands of applications they probably have between 50 and 100. You know, startups going through Y Combinator in any given year, just the sheer numbers of, of opportunities that he and the team had to sift through like, necessitates that they have these fairly simple rules that they can apply to deciding whether the founding team is worth investing their time and their their money in.

Paul Graham 57:45

Yeah, the the, the question I'm thinking about is okay, what do we do, Chad, you and I and our listeners, what do we do if we can see that Hatun in our investors series that all of these in successful people have these very clear principles of what works and what doesn't. And they certainly seem to have this as a checklist for every opportunity or idea that they look at. And this is what has optimized their success. So what's the call to action? What do we have to do in order to be successful in the way they are? What What do we what behaviors do and habits do we develop? Because of this insight? Hmm.

Chad Owen 58:37

So you and I do not have billions of dollars or even even millions and let's, let's be honest, yeah, your dollars. Yeah, I don't know. An interesting way that I'm kind of thinking about it is that every idea or project that you and I have right now or even potential client or potential customer, we can begin to look in our past, see what worked and what didn't work when it came to successful projects, great client engagements, etc, and begin to create some of our own rules, I'm probably going to steal a lot from, from people that we've, that we've discussed. But yeah, maybe just come up with a couple of rules for myself. It's like, you know what, with new clients, it really is about having a good rapport with them and an open transparent communication, right. So I just came up with a rule off the fly and how I can help ensure successful client engagements going forward. So it's almost like my own ideas, projects and clients and customers are kind of like, the little investment vehicles that I'm waiting and I think that

Paul Graham 59:48

like creating your little rules or your checklist or your mantra is really, really powerful thing to write down, right. Like, we're Write it down.

Chad Owen 1:00:01

Yeah. It's in the way actually do it, this might be a helpful framework. I learned it from a client of mine, you just choose, I might have even shared this on the show. I can't remember. It's blank, even over blank. So, so for me, like, when it comes to my creative projects, or just projects period, I am optimizing for creation, even over consumption. Hmm.

Paul Graham 1:00:29

Tell us more about that expand on that for us.

Chad Owen 1:00:33

One way it's manifested is I deleted the YouTube app from my phone and I've blocked it from my laptop, because I want to be so for all my projects this year, I want to be more creative and I want to generate more things when there's more podcasts, or more episodes with you or anything. So I'm optimizing for creation, even over consumption. So that's, and I have several other ones like that, but that was kind of the one that that jumped out. So it's It's like, a really simple way for you, for me and for you and our listeners to just kind of set your priorities straight. So like can you know, you know which one to choose? And it can just kind of be your hit list or your bullet point list of like, yep, I'm, I'm hitting all of these. And so yeah, it's, it's a go No, go three out of four years ago, two out of four

Paul Graham 1:01:20

kind of thing. And if our listeners want to find out more about this idea of blank, even over blank, where can they go to to find out more about it sounds like a very interesting little framework.

Chad Owen 1:01:30

I just I picked it up working with a client, they they're a management consultancy, that helps install those kinds of roles and strategies inside of large organizations to actually help them with just decision making. That is, yeah, that's even know where I'm stealing it from. But I don't know this. I don't know the source.

Paul Graham 1:01:48

So one of the things that I do is in my to do list app, which is my task management app and list app, I write down all the mantras that I think are really essential trees just to having a good day. So things like active body active mind, focus on things that matter, do your most important work first, I'm just reading from them as they are here. A good day starts with a good sleep from the night before, you know, I've actually got all of those hundreds of them written down here for and I just go and if I have a moment, I'll just, you know, when I'm traveling or whatever, I'll actually read through those just to kind of remind myself, you know, even be relentless is one of the things that is in there. And what's really interesting is that there is a ton that we can learn from pole pole Graham of Y Combinator, from how we start ideas through genuine interest, almost hobby like pursuit of them. And going right into this real obsession with users and with your co founders. The Because those people will give you the ideas, those ideas will become great products, those products can become a great business. And along the way, keep in mind that if you make something that doesn't have a problem, you'll it'll be all over before you know it. And whether you're a greatly successful or it's a myth, this thing will take over your life. And I think in Paul Graham, we've found somebody who's got, gosh, such a spectrum of wisdom. And he shares so much of it online at startup school.org. And on his own blog, I think we've been very fortunate to learn his lessons. And I think that, you know, Chad, just to kind of zoom out a bit more. I think what we've seen here is he's got these clear ideas, these mental models, these mantras, and this has been one of the big themes that we've seen in successful people, the clarity of their mental models, they know What they do? Well, they know what they don't do. Well, Warren Buffett famously says, I don't invest in tech because I don't understand it. I mean, this once again, we are seeing, regardless of the business of the person, there are these essential rules that we're uncovering that drive innovation and entrepreneurship, don't you think? Hmm.

Chad Owen 1:04:21

Yeah, it's been fun to profile these investors, I think because they're so kind of rules based and very analytical in how they approach things. It's not to say that there haven't been, like Bill Belichick comes to mind like if there was ever, you know, the investor rules, principled person of sports, it would be

Paul Graham 1:04:41

him.

Chad Owen 1:04:42

But yeah, there's an interesting rigor to their work that I think a lot of us can can learn from. So it's been really fun to to learn from them. Yeah, but the series is not over. We have a another investor, former startup guy,

Paul Graham 1:04:57

that we're going to be profiling on. On our next show, Peter teal, and his PayPal, the PayPal mafia and his fund the Founders Fund. So I'm really excited to round out our investors series talking about Peter. He is super, he is one of the smartest guys when it comes to entrepreneurship and innovation, obviously has great pedigree, you know, PayPal as a founder. But, you know, the big thing is, you know, if you want to talk about investment creds, he was the very first investor in Facebook. So enough said, What a fantastic way to wrap up the investor series on our next show. I've loved doing Paul Graham, Chad, and I think I really want to remind our listeners to head off to moonshots.io to get all the show notes, all the links to all the different things and ideas that we We've mentioned in this show, I can't wait to do Peter teal, I'm, I'm really pumped to chat because like, as we just said, the clarity of their mental models and their rules and principles, that really is what is separating these these investor types. Mm hmm.

Chad Owen 1:06:17

Yeah. Yeah. And, you know, this is our first show 2019 Mike and I have so much in store for you the listener, we really appreciate all the feedback and emails that you sent to us at hello@moonshots.io. And also the the ratings that you've left on the iTunes store, you know, every every ratings, get, you know, gives us a boost and spreads the show. So thank you in advance for doing that.

Paul Graham 1:06:44

Absolutely. All right, Chad, let's get you off into the night in New York. I have to enter into the morning here in Sydney. It's been a lot of fun and can't wait to do the next show with you and our audience. So thank you, too. Everyone, it has been wonderful to continue our investor series. And that's it for the show on moonshots podcast. Thanks again everyone. That's a wrap

Transcribed by https://otter.ai