This essay is getting a surprising amount of hate, and I must confess that my first impression on reading it was that it sounded an awful lot like a Robert Kiyosaki book [1]. But then I followed the two links in the essay [2] [3] and that put it into perspective: the thing that Paul learned from his users is that they are looking for The Answer, the formula, the procedure for how to succeed, and there is no such formula. It's like Goedel's incompleteness theorem, except that it's not a theorem. People come to YC and buy Robert Kiyosaki's books hoping to find an Answer that simply doesn't exist.
The difference between Paul and Robert is that Paul is up-front about this while Robert is cagey and deceptive and makes his money by stringing people along thinking that The Answer can be found by buying one more of his books. But I think a lot of the hate here is driven by disappointment that Paul is honest, and that his answer is that there is no Answer. It can be frustrating to hear that (which is also something that Paul explicitly points out).
And the whole thing with VC is that they've somehow figured out how to make money while being wrong 90% of the time. With those sorts of numbers, are you really doing much better than random chance?
I think your main goal is not finding who knows the Answer, but to identify who's lying about it. With those sorts of volumes of money you're going to attract fraud, and fraud can quickly break "throwing darts at a board" as a selection strategy.
If you can just select for people who are earnest and aren't lying to themselves too energetically, you can call it a day.
They are not wrong 90% of the time. They place correct bets on correct companies, 90% of which will fail. This does not make them wrong, it makes them excellent gamblers. If I'm getting 100:1 odds to roll snake-eyes (two 1's), that's a great bet, and a correct one, and I am not wrong to take it, even though I'll lose money the vast majority of the time.
VC isn't just about placing "correct bets." This article pitches it as actually the opposite: what happens after the bet is more important than before, so fund lots of them and help them.
But even more generally outside of the YC-model VCs compete on their networks and influence as well. The more connected you are, the better you'll do - it's a feedback loop.[0]
Look at the evolution of VC companies. If the skill was just "making correct bets" wouldn't that look like making fewer, but likely larger, bets over time? You grow, on the other hand, if you have some significant influence on the odds or can't tell the odds between companies you select that well. If "success" is 1/10 odds, and "phenomenal success" is 1/100, and you don't think that you are capable of digging deeper to instead find just the ones with 1/20 phenomenal odds, you have a better shot of huge returns if you place 100 bets instead of 10. Then you get more knock-on influence of having a bigger network over time, too!
Of course, trying to control the odds is a classic old gambler move too, but if you're caught doing it in a casino "excellent gambler" may not be the label they apply to you.
[0] to a certain type of tech enthusiast, the huge political aspects here are very frustrating.
Yeah, I think it's a combination of some of this stuff is common knowledge now, rather than surprising, and people were looking for concrete examples of mistakes startups made (so they can avoid it themselves)
Rather, this is an essay about what was surprising to him about startups in YC. And I think it's fair to say that these were all surprising, and I wouldn't have inferred them if someone told me about YC as an idea back in 2005.
Or put in another way, if someone came to you and told you about the idea for creating YC back in 2005, when the only model of investing in startups was how large institutional VCs and angels invested in startups, would you have been able to tell them the following insights about how it would work and what the value add of the advice is? Remember, when YC started, lots of people thought 7% for $15k (I know they give more now) was a joke.
- Most startup problems are the same, but in different forms. It makes advising tractable for a single person to do.
- Advising a lot of startups in batches has the advantage of learning about all these problems faster.
- And yet, startup advising has to stay individualized (presumably to keep things concrete), so in order to scale, they had to shard. Limit was somewhere between 60 and 80 per individual advisor.
- Identifying problems and ranking their severity are two different skills. You'd think they're the same, but they're not. As an advisor, if you can help startups do only these two things, it'd go a long way. Lots of advisors try to help with other things, but these are the two most important, because if a startup died, all other problems are moot.
- Despite this, founders don't listen to advice about how not to die. And they don't listen because the advice is counterintuitive. It's like how there are more skiing instructors than running instructors. Skiing is more counterintuitive.
- A big headwinds to advising startups on how not to die is that due to the educational system, founders have all learned how to hack the system. The skills that got them to where they are stops working when trying to build a company.
- Beyond helping startups not die, advisors likely know less about the product/strategy in any domain, but they can increase focus, which increases speed of iteration, which indirectly helps startups with their product/strategy through iterative greedy algorithm.
- A follow-on value-add of YC is the alumni network. Like clusters of painters in Paris during the impressionist period or musicians in Vienna, and Xerox Parc, lots of great work is done when great people do it in clusters along side each other. At the time, people thought the price of independence of is loneliness, but turns out it's not true.
My first impression was that the title was somewhat vague, but it was actually just very literal. This is what PG himself has learned from his users, not an essay on how to learn from users or how to build a successful startup.
I had to run before I finished, but to wrap it up:
Going back to the initial set up of the piece, he was trying to help startups get into YC. Basically he was helping them sell themselves to YC, by having them answer “explain what you learned from users”
If it’s any effective at all, then by answering this question, you can make your startup very compelling to YC. Would it work? One way to judge that is to apply it to what he knows (YC) and see if it’s appealing to startups both now and back in 2005.
So the complaint about how this piece feels sales-y is missing the forest for the trees, because that’s the point of the exercise!
By the very nature of the intent of the question, of course it’s going to sound like a sales pitch for YC. That’s the whole purpose of the exercise to begin with. It’s a question, when answered, begates a sales pitch for getting into YC.
> and people were looking for concrete examples of mistakes startups made (so they can avoid it themselves)
Is this even possible or useful? I mean there are obvious things but they're so obvious and generalized as to be seemingly useless when you are at a serious stage in starting a company. It kind of reminds me of when people talking about something being "priced in" in the market as a related concept.
> Paul learned from his users is that they are looking for The Answer, the formula, the procedure for how to succeed, and there is no such formula
I agree, I also think this is the message that YC sells to founders. You are giving up a lot of equity for access/membership to an organization that will make you successful (Im clearly summarizing a bit). It's a bit of a MLM scheme (not that they are ripping you off) but if you get into the club the other members will help you be successful and, then it will repeat every batch constantly filling the pool with new members and the network continues to grow. And it works for the most part, so do MLMs for the most part. Most companies in the US, if successful are around for about 20 years, extremely successful maybe 40, the few rare last longer. YC is getting to the 20 year mark and maybe some of the rough edges are starting to show, cracks in the foundation as the original people that powered the machine start to move on.
Indirectly, YC quite possibly are ripping most founders off financially, even though the average company return is high (power-law — few winners and many losers[1]). It is hard to find good figures, because we have reliable dollar estimates for the companies that win, but a paucity of information about the founders that lose, or what individual founders made[2].
When YC only selects the best 1 of ## applicants, it is hard to remove selection bias from any later analyses of returns for founders.
Value and opportunity-cost are messy, so measuring the returns for “loser” founders is really difficult. I am unsure if founders’ own self-assessment would be trustworthy information.
It is good to be skeptical, I but I would counsel anyone to avoid becoming deeply cynical and missing out on the value because you don’t like the messenger. I learn as much from arseholes like Thiel, as I do from Paul Graham who appears to me that he is one of the good guys (disclaimer: I haven’t met Paul, & I disagree strongly with some of his theses).
Rich Dad Poor Dad is a very worthwhile book IMHO - it costs you a few dollars and a few hours. I read it and later became a moderately successful founder. I think that book had some positive influence on that success: my guess is that I got high $10’s of thousands value for $10’s of input. In particular the idea of designing a money machine, versus selling hours for dollars. Good knowledge is like that: you can get 1000x return or more. Of course that is offset by the other shit I have read that didn’t give good return ($0 return is OK, highly negative returns from crap knowledge is the real risk).
The difference between Paul and Robert is that Paul is up-front about this while Robert is cagey and deceptive and makes his money by stringing people along thinking that The Answer can be found by buying one more of his books. But I think a lot of the hate here is driven by disappointment that Paul is honest, and that his answer is that there is no Answer. It can be frustrating to hear that (which is also something that Paul explicitly points out).
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[1] https://www.amazon.com/Rich-Dad-Poor-Teach-Middle/dp/1612680...
[2] http://paulgraham.com/lesson.html
[3] http://paulgraham.com/before.html