The Brains Behind Y Combinator: Startup Advice From Paul Graham

Business.com / Careers / Last Modified: February 22, 2017

Paul Graham, a founder of startup incubator Y Combinator, has some no-nonsense advice for startups.

Paul Graham is a founder of Y Combinator, which The New York Times characterizes as a “sleep-away camp for start-up companies.”

The same article calls Graham “an infectiously giddy and hyperarticulate programmer, investing magnate and essayist who, depending on whom you ask, is the closest thing the technology community has to either a Bertrand Russel or a P.T. Barnum.”

Twice a year, Y Combinator provides a relatively small amount of seed money to about 85 startups in return for a proportionate stake in the companies.

But the funding is the least of it (Y Combinator likens it to college financial aid that allows students to pay their living expenses while preparing to do their real life’s work); Y Combinator works with these companies for three months to refine their products and investor pitches, which are then presented in the culminating Demo Day presentation to an invite-only audience.

Since 2005, Y Combinator has funded over 800 startups with a combined valuation of over $30 billion, resulting in a network alumni community of over 1600 founders.

Related article: Built to Last: How to Lay a Solid Foundation for Your Startup

So what kind of advice does Paul Graham offer to fledging startups?

Use Your Startup to Solve a Problem

“The way to get startup ideas is not to try to think of startup ideas,” Graham advises. “It’s to look for problems, preferably problems you have yourself.”  He maintains the best ideas are usually something the founders want and can be built, even if the targeted users don’t know that they might want it yet (the Steve Jobs playbook).

Use Your Startup to Make Users Happy

Graham notes that he once tried to develop an online art gallery. The problem was that galleries didn’t want to be online—they want people to be physically present in a space to look at artwork and interact with artists. “Probably the biggest cause of failure is not making something people want,” Graham says. “The biggest reason people do that is that they don’t pay enough attention to users…they just build this thing.” Instead, startups should concentrate their energies on discovering, and then satisfying, whatever needs users have to make them “real, real happy.”

Related article:Let’s Get Real: Startup “Truths” Re-Examined

Launch Products Quickly

Nate Konty, the creator of the Draft app, writes that one of the best pieces of advice he got from Graham was to launch products as soon as you’ve got something that works. You can always add features based on user feedback later. But without a concrete product out there to show people, the longer you delay the more likely someone will beat you to market. Konty notes:

Most people talk about launching early and lean development. But they’re still screwing around, adding features and deciding how to align the text on their homepage. Give yourself 24 hours or one week. Cut every single thing that isn’t ready. Launch already.

Grow Your Startup

That seems to be the whole point of a startup, to grow. But you need to define realistic growth targets, stated preferably in terms of revenue or, if you’re not initially charging for a product or service, active users. Not just for the next quarter, but for the next week. A good weekly growth rate for a Y Combination startup is five to seven percent. Ten percent is exceptional; if you’re only creeping at one percent or falling a little short of your target, it means that something isn’t working that needs to get fixed.

Remember That Growth Equals Money

If you’re hitting your revenue goals every week, that’s good news—you’re making a little more money every week. What may be even more important for startups in particular is showing a track record of ever-increasing revenues, which gets the interest of investors. Most startups focus too much on thinking about clever pitches to convince investors to fund their ventures. The Huffington Post reports Graham’s advice that, “We tell them the best way to convince investors is to make a startup that’s actually doing well, meaning growing fast, and then simply tell investors so.”

Related article:7 Habits of Highly Unsuccessful Companies

Keep Learning Your Business

At the end of the day, the best way to learn about running a startup is to actually do it. What you’re doing should follow your intellectual curiosity, not some abstract business plan notion. In a Stanford lecture, Graham emphasized:

Larry Page is Larry Page because he was an expert on search and the way he became an expert on search was because he was genuinely interested and not because of some ulterior motive. At its best, starting a startup is merely an ulterior motive for curiosity…So here is the ultimate advice for young would-be founders reduced to two words: just learn.”

Image via Flickr

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