Paul Graham: Listener Favorite
EPISODE 165
Paul Graham is a programmer, writer, investor, and co-founder of the influential startup accelerator and seed capital firm Y Combinator. In 1995, he and Robert Morris started Viaweb, the first software as a service company. Viaweb was acquired by Yahoo in 1998, where it became Yahoo Store.
Y Combinator is an American technology startup accelerator launched in March 2005. It has been used to launch more than 3,000 companies, including Stripe, Airbnb, Cruise, PagerDuty, DoorDash, Coinbase, Instacart, Dropbox, Twitch, Flightfox, and Reddit.
Paul is the author of On Lisp, ANSI Common Lisp, and Hackers & Painters. He has an AB from Cornell and a Ph.D. in Computer Science from Harvard.
SHOW OUTLINE
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
ADDITIONAL READING: By Paul Graham
TRANSCRIPT
Mike Parsons: [00:00:00] And welcome to the moonshots podcast. It's episode 165. I'm your co-host Mike Parsons. And as always, I'm joined by the man himself, Mr. Mark Pearson, Freeland. Good morning. Hey, good morning, Mike, what an amazing exciting year we've already had so far with our entrepreneurs series. And now looking forward into a couple of pretty amazing entrepreneurs that you and I and our listeners are digging back into isn't that right?
It's absolutely true. We are pulling out some listener favorites and I couldn't think following the entrepreneur series of two bigger heavyweights two people who have so much to teach us, mark, where are we starting this well today, Mike and our listeners and show 165. We're digging into Paul Graham, founder of Y Combinator and Mike, I think it's fair to say.
In fact, maybe it's an understatement to say how. Intrinsic and [00:01:00] pivotal. Paul Graham has actually been not only in the lives of many entrepreneurs himself, but also all of us. And there's a chance that maybe some of our listeners, we don't actually realize how instrumental he's been in the lives and the brands that we have all around as so true.
I think that there's a very good chance that every single one of our 50,000 listeners have actually are actually right now using a Y Combinator product. And they might not even know that programs behind it, but there it would be impossible. Let's look at the list of companies that Paul Graham has helped create Stripe Airbnb.
Just there, I think we'd have 80% of the listeners are using one of those two products. But then if we didn't get them, maybe they're into a little bit of crypto, so we've got Coinbase. Dropbox a bit of a classic file sharing. And just to top it off, read it, these are [00:02:00] just some of the ways.
3000 companies that have been through the Y Combinator program. And Paul is the founder of Y Combinator. And we get to learn from him today. This is very cool. It's one of, he's one of those individuals, Mike, that has so much experience that even reading his work and he's got essays online, he's got a great book.
That's out hackers and painters, big ideas from the computer age, as well as the tips and tricks that we're going to listen to in today's episode, there's so much we can learn from him that even just listening to his voice, telling some experience and some case studies and stories, we can glean so much from that because his experience is so significant in the world of entrepreneurship.
It's quite amazing how much. Intrinsic value. He's probably brought to those 3000 companies. [00:03:00] And the list that you just read out is like you say, 80% of our listeners, including you and I are using his products day-to-day today. Nobody used them. So what better way to learn about entrepreneurship after our entrepreneurship series, then digging into Paul Graham of Y company.
Yeah. And he really brings us such an enormous variety of insight and wisdom that we're going to have for you today in this show, we're going to talk about the art of building an entrepreneurial idea, coming up with a product or a service, but also equally what it takes as a leader and as a team.
And these are very moonshot topics. And we really believe that you not only need to have a great product, but you need to grow and improve yourself as a leader, as someone who is a collaborator. And you know what Paul Graham has got, what wisdom for us in both of these areas. So what a treat hammer. Yeah, [00:04:00] an absolute trade.
And I can't wait to get started. I think it is now time for us to delve into the world of Y Combinator, the most successful tech accelerator on the planet and their founder, Paul Graham, let's jump in and listen to the wisdom that he has to share with us. Chad, where do we want to kick this one off?
We've we've got lots of really great clips from Paul. Just going to start with one where he's trying to simply describe what Y Combinator does.
Paul Graham: 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 the counterintuitive stuff, not the obvious stuff. And then what counter-intuitive means is it sounds wrong. And so they go with their gut and do the wrong thing instead. And then hopefully [00:05:00] catch the mistake in time.
Chad Owen: It's probably not what you thought of when you thought of the Harvard of startups, right?
Mike Parsons: He's quite folksy, isn't he's almost like the Warren buffet of startups, just very folksy and quite sensible. The 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, they collective wisdom is all about doing the right things in the right order of a startup, because you have such limited resources that they're constantly reminding founders of this is what you should be doing now.
And 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. Y [00:06:00] 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, I really think that's at the core of what he's talking about. Why see does,
Chad Owen: yeah. I think a coach of mine has framed it in the way of helping me see around the next corner. So I'm I'm stuck in my alley and I've got my blinders on and I'm looking straight ahead. Yeah. But yeah the advantages 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 as you said the hundred billion dollar plus combined valuations, that startups that have gone through Y Combinator speak to the value. That forward-thinking, but that is not the only piece of advice that Paul has to share with us. We've got so many more another one, I think, [00:07:00] many listeners to the show, myself included Mike, we often, I don't know, wring our hands.
It ha how do we know if we have a good idea? How do we come up with a good idea? It's so often it's about I'll for lack of a better word, that light bulb Eureka kind of moment as true to Paul's farm, he has a bit of a different idea about how we should go about getting our startup idea.
The
Paul Graham: way 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 [00:08:00] ideas unconsciously. In fact, so unconsciously that you don't even realize at first that their startup.
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 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 idea startup ideas and the source of them.
Mike Parsons: I think it's what the learning in, in, in [00:09:00] Paul's wisdom there is that so often. People take standard problems, frame them in a very startup way and they are absent of real passion. They're often almost does grabbing the next problem for a cool new idea and to try and get funding. And what I have the Uber for dog treats idea
that's okay because I have the Airbnb of this and that, and the Kickstarter of whatever the truth here is he's trying to dig at.
There's gotta 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 before it eventually builds this natural momentum where it [00:10:00] becomes a product or a company.
And I think that's what he was poking at there. Don't you Chet? Yeah. I love
Chad Owen: how he takes it back to first principles. If you just sit and try to think of startup ideas, you're going to fail because it's already been thought of, and it's not as simple of a process to just invent something.
Even though my Uber for a dog treats may actually be a billion dollar idea. It's interesting. And I think I'm curious to hear from you, Mike 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 the massive companies or media empires that many of the people have profiled has started.
I'm curious if we can come up with some as kind of evidence of. Paul's maximum
Mike Parsons: here. Yeah. Yeah. So there's two people that immediately come to mind. The first [00:11:00] of which is Warren Buffett, because he had a hobby of stock investing at the age of 11. So that's definitely in terms of very relevant, adjacent, what I think is also interesting and it's not so much hobbies, but side projects, Richard Branson goes out into the world and experiences things and goes geez, that sucks.
Maybe there's 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 actually this really sucked. I think we could do it. I think that's also very much the spirit in which Paul is talking about stuff that you're interested in, things that matter to you.
Chad, when you think about all the people that we've studied, who comes to mind, your mind may be Elon Musk. He seems to be always tinkering on new sort of paradigms and science and tech.
Chad Owen: I actually can't, I'm going through our list. I can't find one [00:12:00] that didn't start as a hobby or side project. So we have Yvon Chouinard of Patagonia, right?
He's a self-effacing dirt bag. He just wanted to go out and climb and he created his own forge in the back of his van to make his own climbing gear. And true now it's multi-billion dollar
Mike Parsons: company, Eric Reese. He just took his own failure and made it into a book. And let's see, going down to Bill Gates he bugged his parents to get him into a school where he'd have access to computer.
Chad Owen: And he was working on on computers at a very early age in, in, 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
Mike Parsons: yes. Yes. And even, I'm just looking through the list, Joe Gabby, maybe it wasn't so much a hobby, but it just a way of making rent.
They got together and rented out their apartment. I [00:13:00] think that the lesson here is they all came from hobbies or life experiences or personal situations rather than sitting in a boardroom and just randomly coming up with ideas. And I think this is the big takeout our audience can take that we can take from Paul Graham.
And what's really interesting is how. Pull starts to it, 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? No.
Chad Owen: And you don't have to do it.
It's at age 18 or 19 and have to be a Harvard dropout. Many of the clips on today's show or from a talk that he's giving to Stanford students, so these are undergraduate students that are in the entrepreneurship [00:14:00] program there at Stanford, and it gives them some very. You would think it advice they don't, or 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 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.
Paul Graham: 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. [00:15:00] And he has not stopped to catch his breath. Every day 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.
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 a hundred meters in the Olympics, like they walk up to them and they're going like, and 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 [00:16:00] good. 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 twenties 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.
All right. 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 [00:17:00] 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's work.
There are advantages to serendipity and among other things, it gives you more options to choose your life's work from w such wise advice like be careful what you wish for. I think it's really what Paul's telling is here, Chad. Yeah. You talks about Larry Page and mark Zuckerberg, not being able to live the lives, maybe that they might've wanted in their twenties.
Mike Parsons: And I don't think many startup founders really think about that. When they are idolizing guys like that, I think they, they dream of having that impact in the world. And they'd probably romanticize that lifestyle, but the truth is, and I know this from firsthand experience, I did two startups in San Francisco.
They were [00:18:00] very different, very, they are totally all immersive when compared to 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? Yeah. Yeah.
Chad Owen: I think this cautionary tale. Often just left out of the narratives. It, I think it's pretty obvious to us today that the reaction to Elon Musk public breakdown was just as, as Paul described, right? No one cares Elan 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 it's hard to feel bad for mark Zuckerberg when he has to go in front of Congress and answer ill informed questions by senators. [00:19:00] These entrepreneurs have created the beds in which they lie, but I don't 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 mentioned in your own experience that have to be made. I think what Paul is saying is if you're doing a startup, you're committing to the startup first and foremost, it's just going to take, it's going to be a priority and just take
Mike Parsons: all your time.
Yeah. And you S you firsthand saw when I was doing, when we met, I was doing my first startup in San Francisco. And you saw the epic workload that that created for me.
Yeah. But the intensity, it was such an intense two years or so, wasn't it? Yeah. It was worth it for all the learnings and experiences. But I think you went into that startup much wiser than the bright eyed bushy tailed, 20 year olds in the Stanford.
Yeah. Yeah, [00:20:00] absolutely. Let's hope.
Let's hope. So the next thought that I think really helps us at the Genesis of a startup. And this one is one that is 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 customer's problem.
Paul Graham: 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 startups.
He succeeded despite being a complete newb at startups. Facebook was first incorporated as a Florida, LLC. [00:21:00] Even you guys know
Chad Owen: better than that. He succeeded
Paul Graham: despite being a complete new, but 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 after re re rent a nice office in Soma and hire a bunch of their friends is gradually realize how completely fucked 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. Has this really [00:22:00] funny term, I think that he and everyone else on the Y Combinator team coined called playing house. Yeah. Yeah.
Chad Owen: So going through the motions of what you expect startups to do I think the television show on HBO, Silicon valley does this perfectly, like it's, they're not really founding a company they're like acting as if they were founding a company going through the motions and he is just pointing us to your favorite Maxim, which is just focus on the user, focus on the user focused on the user.
Mike Parsons: Yeah, it is. This has to be so 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 minutes, the three months, what is Mike being talking about the most, it would be succeed through understanding your users.
Because if you understand [00:23:00] your users, you will 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 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 we're 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 increase.
Gains for them so that 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. You mean I [00:24:00] have to go out and find users for my Uber dog.
You can be your own you can be your own first customer. So Bella can tell you if you got the right trade seminar. Yeah.
Chad Owen: 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 just because I know how focused you are on not only focusing on the customer, but you actually bring in customers as soon as possible. I've seen you bring in consumers to test out ideas when it's just an idea in a founder's mind. There's no technology, there's no web app. It's just an idea on a post-it note and firsthand what you and I have both witnessed in those sessions.
Mike Parsons: These ideas that we thought were good, totally sucked. As soon as the users got one, look at them, just one look at them. And the point here is that [00:25:00] we will assume something that customers want and you can't guess you have to know, you have to test and learn 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 pot 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 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 program the tick of approval is enormous. Isn't it? Chad? Yeah. [00:26:00] It's 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 Gibeah from Airbnb and drew to Houston from Dropbox.
The other practical thing is after graduation, they have demo day. They present to a room full of investors, and I think every single startup has a follow-on investment round coming out of Y Combinator. I know there, there are even some investors. From 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 a hundred, 250 grand into each of the companies, because they're like, Hey, if they've been selected and then nurtured by Paul Graham and [00:27:00] his team chances are succeed. So that's what it means. So let's now listen is really cute. Cause it's a bunch of Swedish guys.
They're getting the call and they're going to hear that Y Combinator wants to invest. 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. It is a nightmare. You guys need to have a good take on it and good product built already. So we're excited you do. The, a couple of things first off you're aware of our standard deals.
Yeah. Yeah. We read them all yeah. Great. So it's 120,000 for [00:28:00] 7%. Perfect. Okay, great. Yeah. So that'll just be orientation. Get you guys set up with the system and start talking about the address and all that. Okay. Then I'll see you on Thursday. Great. Bye bye. Sure. It's fine. Yeah.
Yeah what's really interesting. You mentioned it too. The 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.
This is where it all started. I wanted
Chad Owen: to take a moment. You'd mentioned it a little bit at the top of the show, Mike, but Paul graham.com 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 [00:29:00] haven't brought a book of his to 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.
Some that come to mind that he's talking about some of the principles here in some of the clips we shared, or do things that don't scale. If you type that into a 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
Mike Parsons: essays@paulgraham.com.
Yeah I would say you could spend a month going through startups school.org because they will do everything from getting started, finding co-founders through key things, such as growth people and culture. They've got a massive section on product a, which is really awesome and right through to [00:30:00] second stage and investing and growing the business.
And it's all there for free@startupschool.org. If you want to build a new product, You would be crazy not to go visit this it's full of goodies. Okay, Chad, so we've got our head straight on, on where to get the idea from be careful what you wish for, make sure 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 key warning signs, if a, 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? It's a
Chad Owen: theme that has come up time and time again on the show, but it's. The [00:31:00] importance of the people that you recruit, hire, retain partner with co-found with as Paul says, he says there is magic in your team. People
Paul Graham: you've been friends for a while have worked 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 means the only thing holding them together as the startup. And another thing about startups that we've learned, absolutely. I'd 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 more. Founders together besides the startup and this startup is worthless, then there's nothing holding the founders together anymore. And they just quit and go off and do other things. Whereas if they're close friends, [00:32:00] they will keep working on this 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 a worthless, even though it seemed it was doomed. And that every startup has a point where it seems like it's tuned. And so oddly enough,
Mike Parsons: mistakenly
Paul Graham: continuing to work out of misplaced loyalty to your pal is a good thing. Yeah. Because eventually
Chad Owen: things
Mike Parsons: get better.
Eventually things get better if you stick together as a team. It's 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 a music. Band is 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 idea itself of let's do an Uber for dog treats. This will [00:33:00] 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. You're good buddies. Yeah. I would be very curious to back test successful startups with this kind of rule in mind.
Chad Owen: And certainly Brian Chesky and Joe Gibeah absolutely fit this mold. They were roommates and they needed help paying rent. So they hosted a San Francisco conference goers on air mattresses. That is an idea that could. Come from I'm sure, like late night cartoon watching over pizza and beer kind of thing.
They can only happen if in that kind of like friends, a sitcom kind of environment same with obviously Larry and Sergei from Google. And this starts this big theme for early success. Apart [00:34:00] from getting to know your users, you need to get to know yourself as an individual and the team around you.
Mike Parsons: In fact, 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. One thing has changed is that we look more at the entrepreneur than the idea, right?
Paul Graham: 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 form 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: That's a really interesting how they changed the [00:35:00] application forms to learn more about the founders, as opposed to the ideas. Cause you would think it's they want to invest in the best ideas because those will have the highest likelihood of success. But clearly that's not the
Mike Parsons: case. Good for them for learning.
And isn't it interesting because so much of the time the conversation is around the idea. Whether you're talking about 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 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. [00:36:00] So let's jump straight into him talking about startup success, given how fast innovation seems to be happening across the country.
What does startups these days need to do to. A successful exit, whether it's an IPO or just building a great
Paul Graham: business, they have to make something that actually makes people's lives better. Like it's funny how straightforward it is. People often think that business requires some sort of trickery.
You have to corner the market in something or something like that. But actually what you have to do is you have to make people's lives better. And the amount of value that you create is this sort of rectangle where one side is the number of people on the other side is how many how much you make their life better, big rectangle, big value.
You're rich.
Chad Owen: It's really that simple. Huh? If only I still think my Uber for dog trays could make people's lives better.
Mike Parsons: It's on the table. It's on the table. Nothing is dead, but we should just take a moment here. [00:37:00] This one is where he's talking. This is the outcome of it. 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. 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 of 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 want to give you this interesting example, Chad. If you think about which apps you're prepared to pay for the real threshold is when you pay five or 10 bucks for an app on your [00:38:00] 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. If people use your app once and throw it out, if people are not prepared to pay for your product and watch your nose, you're not making their lives better inside of that, you haven't found a problem with solving it.
Chad Owen: This wisdom from. I don't think there's really anything new certainly it goes way back into the philosophical traditions Jesus's golden rule. And even further back beyond that, of if you're seeking to create more value in the world it will come back to you in the frame of start-ups it's we [00:39:00] create we make people's lives better.
And then they pay us. It's a little twisted because of the investment VC world, where oftentimes I feel like there's a lot of bloated valuations and companies taking money just to take money. And they they don't have functioning business models, but for the companies that are going to last they're truly providing more value than anyone else in the marketplace.
I 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 this company delivers anything anywhere to you CA those kinds of services, I'm like, really do we need that? But last night my wife had some really great news from work and we wanted to celebrate, and she was like, oh, man, I really want Shakespeare.
For those of you that don't know, it's a great burger joint here in the New York city area. And others started by Danny Meyer and the great restaurant tour, just[00:40:00] big, huge craving, but for us to go there and back in the cold, it would have taken us over an hour and a half. And we just wanted to have our shake shack and watch our Netflix.
So I got on the app store, got the the delivery app and I was more than happy to pay the service and delivery fee to get that, that shake shack. That's a small example of the startup truly making my life better. But as you said I was willing to pay for it.
Mike Parsons: Absolutely. I, we could have walked there and back or written a bike or something, but we were willing to pay for that convenience.
And inside of that, you put a value on your time and said I could rescue that time and inconvenience. Weathering a New York January, winter.
And you're like, okay, so how much extra do I pay? Yeah, sure. That's worth it. And then that's where there's this service major life better because they solved a problem that's worth solving and this [00:41:00] architecture of solving problems we're solving so that you can make people's lives better. 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 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 is one of the most powerful ideas that we can.
From pole and it's make people's lives better. How powerful is that, Chad?
Chad Owen: Yeah, there's a bit of a gotcha 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 in a vacuum, not [00:42:00] close to the customers and an essay that I mentioned by Paul and he 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 print the label that contacts the driver to do the GPS to find the optimal route sort of thing. You can do it in a much more manual or as you. And I say often a concierge type manner.
And so here's Paul in some ways advocating against building too much of the. Baking it into much and doing things much more in a manual fashion.
Paul Graham: A lot of this things that we teach startups, Y Combinator or UTeach startups, Y Combinator, I'm retired. I don't know if you know that that a lot of things you guys teach startups is are things that I get myself and didn't realize that they were actually common startup lessons.[00:43:00]
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. Did you guys do manual stuff? 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. And they would say, yeah.
And they would say 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 and so we'd ah, we can't get anyone to use our software, but at least they're willing to let us use it for them.
Mike Parsons: So important. What I find. This idea of manually. [00:44:00] I think we just need to break that down a bit. What he's talking about is often you might have a web page up, 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 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 spend so much time building the perfect automated product that 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 automation in the background. That's okay. Because you might learn some important lessons which will change how you think [00:45:00] about the, if you will, the backend of the product.
Does that make sense?
Chad Owen: Yeah. People would be really surprised at how many startups started as email capture forms and spreadsheets
Mike Parsons: and the other, the sort of knock on effect, which is a real positive here. She 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 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 product's going to roll out when you actually have no real idea about some of those complications that you're going to run into. Yeah.
Chad Owen: I think much of what you and I experienced when [00:46:00] we were working together with companies launching new business lines or trying to create new products or web apps, there's a difference between it. Like 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.
Versus kind of leaving some breadcrumbs and letting their experience emerge 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 putting together this nice, pretty shiny. We have logical flows for every single app potential action that the user may take kind of thing.
And yeah it's optimizing for learning versus optimizing for like polished newness. And that's really what I'm taking away from know manual may be ugly, but you're going to learn a whole lot more and save [00:47:00] time as opposed to being very prescriptive and having something nice and pretty and polished.
Mike Parsons: Yeah. I totally agree. The danger. 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 violent agreement. It's all about, get something 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 business. To succeed. And frankly, this is just one of the many challenges that startups face. Isn't it, Chad? There's so many challenges.
There's so many obstacles along the path, things that might not only present challenges, but [00:48:00] things that might even kill us off. It's funny. As you were just speaking, I figured out how I'm going to test my Uber for dog treats idea and take Paul Graham's advice. Okay. Come on and tell us. So the wrong thing to do would be to go on to Upwork and hire a programmer and build my app and right.
Chad Owen: So that's not what I'm going to do. So I think I'm not actually going to test out this idea, but I think this a thought experiment might be useful for me in the audience. I think what I'm going to do is 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, cause I know they're all in the neighborhood, so they're like within walking or biking, I'm going to go and negotiate a deal with the pet store that I get a slight discount on on pet treats and that yeah, I'll just be getting texts throughout the day and I'll [00:49:00] 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 build an app.
How does that
Mike Parsons: sound? I'll be an advisor investor, or just advocate, number one, you put me down, Chad, I'm
Chad Owen: starting my Y Combinator application right now. Download it, go to the website and download it now. But seriously the
humorous side, I'm curious of your critique and how I'm applying the advice.
I,
Mike Parsons: I think you are taking 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 to get out of your office and you're going 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 [00:50:00] 20 times, you might seriously discover a real need in the market. Yeah unfortunately I'm realizing that there are the bark boxes of the world and the chewy.com, 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 ideas is probably not going to give you a fake, brilliant idea.
Chad Owen: I think
Mike Parsons: you've proven that out, but 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.
I clipped from [00:51:00] pole is really important. He's talking about what truly kill startups. So let's have a listen to Paul Graham.
Paul Graham: 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 that users look at and they say, yeah, that's the back button.
Mike Parsons: We'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 its best. What do you do to try to when do you know to fish or cut
Paul Graham: bait? The first iteration may not be very good, but as long as you get it out there very quickly, it doesn't matter if it's not great, because you start the conversation with users and users will say, oh like this, but I wish you would use such and such.
And then you do such and you repeat that process 200 times or so. And then you have something really good.
Chad Owen: Yeah, it's the inverse of his make, make [00:52:00] things that make people's lives better. If you don't do that then you're going to die.
Mike Parsons: Yeah. The the threshold, once again, you can see how important the three investors that we've covered so far, Warren Buffett Ray Dalio and now program, they all have very straightforward ideas or principles.
These they're almost like mantras aren't they build a product that makes people's lives better. These 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 going to 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 business paradigms. Their [00:53:00] business matches the business principles.
They're all very clear. Aren't they chat.
Chad Owen: They have to be there. All of them are evaluating hundreds, if not thousands of potential ways to use their capital and someone like Warren buffet has lots and lots of life and business experience. Maybe not as codified in programmatic or algorithm. Rural investment roles as Ray Daleo, but it's interesting to see 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 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 a hundred startups going through Y Combinator in any given year, just the sheer numbers of opportunities that he and the team had to sift through, like necessitates that they have [00:54:00] these fairly simple rules that they can apply to deciding whether the founding team is worth investing their time and their money in the the question I'm thinking about is, okay, what do we do, Chad, you and I, and our listeners, what do we do?
Mike Parsons: If we can see that pattern in our investor 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 what's the call to action? What do we have to do in order to be successful in the way they are? What do we, what behaviors do and habits do we develop because of this insight? [00:55:00] So
Chad Owen: you and I do not have billions of dollars or even millions. And let's be honest.
I don't know an interesting way that I'm thinking about it is that every idea or project that you and I have right now, or even potential clients. 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, et cetera, and begin to create some of our own rules.
I'm probably going to steal a lot from people that we've that we've discussed. But yeah, maybe just come up with a couple of rules for myself. It's you know what, with new clients, it really is about having a good rapport with them and an open, transparent communication. 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 like the [00:56:00] little investment vehicles that I'm evaluating.
Mike Parsons: And I think that like creating your little rules or your checklist or your manage. Is a really powerful thing to write down, right? Like variety in the way I actually do it.
Chad Owen: This might be a helpful framework. I learned it from a client of mine. You just choose, I might've even shared this on the show. I can't remember. It's blank, even over blank. So for me, like when it comes to my creative projects or just projects, period, I am optimizing for creation even over consumption.
Mike Parsons: Tell us more about that. Expand on that for
Chad Owen: us. One way it's manifested is I deleted the YouTube app from my phone and I've blocked it from my lab. Because I want to be. So for all my projects is here, I want to be more creative and I want to generate more things,
Mike Parsons: more podcasts
Chad Owen: or more [00:57:00] 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 the one that jumped out. So it's a really simple way for you or for me and for you and our listeners to just set your priorities straight. So like which one to choose, and it can just be your hit list or your bullet point list of yep.
I'm hitting all of these. And yeah, it's a go no-go three out of four is ago, two out of four.
Mike Parsons: 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? It sounds like a very interesting little frame. I
Chad Owen: just, I picked it up working with a client.
They they're a management consultancy that helps install those kinds of rules and strategies inside of large organizations to actually help them with decision-making. That is, yeah, that's what I'm stealing it from, but
Mike Parsons: I don't know this. So one of the things that I [00:58:00] do is in my to do is to app, which is my task management app and list app.
I write down all the matches that I think are really essential truths just to having a good day. So things like active body active mode. Focused 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.
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 when I'm traveling or whatever, I'll actually read through those, just to remind myself 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 Paul Graham of Y Combinator, from how we start ideas through genuine interest, almost hobby pursuit of them and [00:59:00] going right into this real obsession with uses and with your co-founders, 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 solve a problem, you'll, it'll be all over before, you know it, and whether you are greatly successful or it's a miss, this thing will take over your life.
And I think in Paul Graham, we've found somebody who's got such a spectrum of wisdom and he shares so much of it online@startupschool.org and on his own blog. I think we've been very fortunate to learn his lessons. And I think that Chad, just to 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 [01:00:00] that we've seen in successful.
The clarity of their mental models. They know what they do. They know what they don't do. Warren buffet famously says I don't invest in tech because I don't understand it. 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?
Chad Owen: Yeah. It's been fun to profile these investors, I think because they're so 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 the investor rules, principled person of sports, it would be him.
But yeah, there's an interesting rigor to their work that I think a lot of us can learn from. So it's been really fun to, to learn from them, but the series is not over. We have a, another investor. Know, [01:01:00] former startup guy that we're going to be profiling on our next show, Peter teal and his PayPal, the PayPal mafia, and his fund with 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 PayPal as a founder, but the big thing is if you want to talk about investment creds, he was the very first investor in Facebook.
Mike Parsons: So enough said what a fantastic 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 [01:02:00] we've mentioned in this show.
I can't wait to do Peter till I'm really pumped to chat because as we just said, the clarity of their mental models and their rules and principles, that really is what is separating these investor types. Yeah.
Chad Owen: Yeah. And 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 send to us@helloatmoonshots.io.
And also the the ratings that you've left on the iTunes store. Every every ratings give know it gives us a boost and spreads the show. So thank you in advance for doing that.
Mike Parsons: 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 to everyone. It has been wonderful to [01:03:00] continue our investor series and that's it for the show on moonshots podcast. Thanks again, everyone. That's a
Chad Owen: wrap.