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9 Key Lessons From Y Combinator

9 Key Lessons From Y Combinator

Y Combinator is widely recognized as the top startup accelerator in the world. For good reason. YC companies are now worth more than $400 billion in combined valuation, and that number is just going up each year.

Y Combinator companies consistently outperform the competition because the program equips founders with clear rules to follow at the early stage.

I’ve co-founded two YC companies and learned a lot in the process; here are my key takeaways.

1. Start Small

It can be easy to focus on big companies that you might be competing with in the first days of starting a company, but that’s a mistake. Big things have small beginnings. Every company starts as nothing more than an idea, but what makes companies get big is consistent compounding growth over a long period of time.

Growth rate is by far the most important factor in a startup's success. It’s what every venture capitalist values most when considering an investment, so you need to start thinking about growth immediately.

Focusing on growth rates instead of absolute numbers can be highly motivating. This is because the smaller you are, the easier it is to have a high growth rate. If you only have a few hundred users, doubling that number in a month is entirely doable, and that will start compounding pretty quickly.

As you get bigger, doubling every month might not be possible, but 20 percent monthly growth is usually sustainable for companies with strong product-market-fit, and 20 percent monthly growth works out to a ten X increase over a year.

I’ve personally seen this with my YouTube channel. The number of subscribers is still relatively small, but I’ve been growing the channel 20 percent per month on a very consistent basis, which is extremely promising.

Y Combinator is just three months long, and many enter the program with just an idea or basic prototype. Without fail, the companies that get the most attention on demo day have the highest growth rates. It’s way better to be a company that went from making $1,000 at the start of the program to $10,000 in just three months than be a company making a million dollars without any growth.

If you’re ever feeling like you’re in a David vs. Goliath situation, going up against massive competitors, just compare your growth rates. The biggest companies in the world aren’t growing 10x in a year, but you can if you build a great product that people love.

2. Build Mode

No job or college degree can fully prepare you for being the founder of a startup; they are all too specialized. Building a company from scratch requires bringing together so many different skills, but this is one of the hardest and most rewarding aspects of entrepreneurship.

Paul Graham says that “if you want to start a startup, it’s good to know about multiple, unrelated things. Startups often depend on 4 or 5 different kinds of knowledge, and it’s great if they can be all found in 2 founders.” It’s rare to start your company already knowing about all the relevant disciplines required to succeed, though, so that’s why it’s so important to get into build mode.

When I say “build mode,” I mean being willing to roll up your sleeves and learn the relevant skills to accomplish the task in front of you. You might be a great programmer, but no one will sign up for the app you built if you can’t figure out how to promote it. So you might need to learn how to write compelling blog posts or run digital ads before you can start growing.

When I started my first company, I wasn’t a very good programmer. I was able to throw together basic prototypes, but I didn’t have much experience actually growing a digital product. So I spent months coding and eventually got to a point where I was pretty comfortable writing Python. I’m still not an expert, but I know enough to be dangerous, which helps me manage engineers effectively.

My second time through Y Combinator was a little different. A few months before I started YC, I managed a large team at my previous company and had lots of support. My day-to-day mainly consisted of managing our large team, and I wasn’t in the “builder” mindset anymore.

The first company, Soylent, had scaled to over 50 employees, and it didn’t make sense for me to spend time writing code when I had a whole team of talented developers who were way better than me.

As soon as YC started, I focused on shifting back into build mode. Since I was comfortable programming, I spent time learning more about marketing and branding. I figured out how to produce video content, which is valuable when selling products online and eventually led to this YouTube channel.

You shouldn’t be afraid to learn new things when you’re working on a startup. You’re not going to be an expert, but learning about a particular discipline will help immensely when you eventually start hiring.

3. Avoid Distractions

Starting a company is a full-time endeavor. In some cases, you can get started while still working a 9 to 5 or finishing college, but once you start taking your startup seriously, you’ll quickly realize the value of focus.

When I went through Y Combinator, moving to the bay area was a requirement and one that I benefited from. I was completely broke, which meant living in a fun part of San Francisco was off the table. I wound up moving to a run-down house in Sunnyvale, which isn’t exactly a nightlife hub.

That was a huge benefit, though. With no distractions, I could focus entirely on learning new things, writing code, and testing startup ideas. I had tried to work from other places but never had much success. There are always fun events happening on college campuses, and working from a friend's house wasn’t productive for me either.

There is a lot of discussion about burnout in the tech world, but I don’t think that applies to the early days of a startup. If you’re working on a big idea that you’re passionate about, you shouldn’t burn out. When I started my first company, I spent plenty of late nights programming, but it didn’t feel like work to me. I enjoyed the process of learning and building new things I thought of.

4. Build Strong Relationships

Now, this is all a lot harder if you’re completely alone, which is why co-founders are so important. And lesson four is to focus on building relationships with your co-founders.

The experience of building a startup is extremely unique, and it can be hard to relate to if you haven’t done it before. This is why entrepreneurs love to work with venture capitalists who have started companies before. Having a team around you that feels the same way about avoiding distractions and just building is so important.

But you don’t need to be spending every waking hour working in front of a computer. Getting to know your co-founders on a deeper level is one of the most critical things you can do.

Ideally, you’ll already have experience working with your co-founders when you start your company, but it doesn’t matter if you’ve known each other for years or just a few months, you can always build a stronger relationship.

Understanding what motivates a person is vital to any good working relationship, and motivation is a complex and emergent property. Often, what drives a person to build a startup could trace back to their childhood or upbringing, and you usually don’t get to know someone on that level around the water cooler.

Not every conversation has to feel like psychoanalysis, but building trust between the co-founding team will pay dividends for years if it’s done right. Plus, one of the amazing things about bringing talented people together is that their experiences can cross-pollinate one another.

In that Sunnyvale house, we had people who had studied economics, biology, computer science, and electrical engineering. We had a great time just hanging out and talking about what we had each learned in college and trying to summarize complex topics succinctly.

Everyone has different life experiences, and sometimes great things can come out of combining disciplines.

5. Be Prepared To Iterate

Taking advantage of the unique situations startups offer requires being ready to iterate.

We tried dozens of startup ideas in that hacker house, and every time we iterated on our ideas, we got a little bit better. It’s always tricky to know when to stay the course versus when to change directions, but iteration doesn’t always have to be a binary choice.

You might have a crystal clear vision of what your product should look like, but if users don’t love it and you’re not growing, something needs to change. You can’t be afraid to iterate and course-correct as needed. In 2012, nothing was working for us.

We spent months building our first product, only to completely flop when we launched. So we increased our pace of iteration. The next product we launched in just three weeks. It failed again, so we decided to try and test a new idea every week.

By speeding up the pace of our iterations, we figured out what was required to get feedback on new ideas. Ask yourself: do you need to build the entire product before launching? Or would a landing page do the trick? Sometimes all you need is a blog post describing what you’re planning to build.

If there is a legitimate demand for your solution, people will comment on your post and encourage you to move forward.

6. Set Clear Deadlines

It’s useful to set clear deadlines. Y Combinator is itself essentially one big deadline: demo day. You need to get up on stage and present your company to hundreds of investors. Clear communication is a must, so you have to iron out exactly what the problem is and how you’ll solve it. You’re also expected to show some metrics, and they better be up and to the right.

YC has weekly dinners and meetings with partners, which should force you to start thinking about achievable milestones. You never want to show up with zero progress because you got distracted. Even if your latest iteration takes you in a different direction, that could still be solid progress if user satisfaction has increased.

One of the most significant benefits of Y Combinator is the competition. All the companies are on a level playing field: 3 months to deliver the most progress possible. You should have longer-term goals in mind, but thinking in weekly sprints can help keep you focused on what’s most important.

7. Choose The Right Goals

And at the early stage, there are only two things that are important: your product and your users. Every week you want to be making your product better in some tangible way and then increasing the number of users getting real value from your product.

That “real value” part is important. There are plenty of ways to game the stats and make it look like you’re growing when you’re not. It’s vastly more important to get a few dedicated users who love what you’re building instead of adding more and more users who are indifferent about your product.

There are tons of activities that feel like work, but actually do nothing to advance your company at the early stage. When you’re just a team of co-founders and an idea, you need to resist the urge to professionalize.

This can be quite tempting, because there is immense social pressure to fulfill a set of criteria for what “work” looks like. Things like an office, business cards, and fancy equipment will all make your company look more professional but might do nothing to improve your product.

If all of your friends work at big companies, they might think you’re a complete joke for spending all day coding in a run-down hacker house. Although that’s changed a bit over the last year. Getting an office or business card may make you feel like you’re more of a “real” company, but for many startups, the customer just doesn’t care about the company behind the product; they just want it to work.

Pretty much every YC company is a mess behind the scenes. No one has it all figured out from day one, so don’t stress over this. Every successful company goes through rough patches and has to work through complex issues. Entrepreneurship is never easy. But spending time and money trying to make yourself look more professional than you are is often a waste of time.

To be fair, certain businesses might need office space earlier than others or business cards to sell into enterprises at conferences, but you should think about whether what you’re doing will have an immediate impact on your startup.

8. Not All Advice Is Equal

You need to learn how to synthesize advice from different sources.

This one is a bit meta, but you have to develop a skill for assessing what’s actually relevant to your startup. It’s not uncommon to hear an amazing story from a unicorn founder during YC and think that you need to apply their strategy to your business, but this can be a mistake.

YC has lots of incredible partners, each with their own unique startup experiences. These experiences obviously affect the advice that they give and you need to figure out how to apply new ideas to your business specifically. No one will ever know your startup as well as you do, so you shouldn’t be afraid to discount a certain lesson about startups if you think it just doesn’t apply.

Now, startup advice comes in many forms. Some is extremely high level and battle-tested throughout decades. This is advice like “build something people want” or “pursue a big market.” Those recommendations are pretty hard to argue with since they are so useful. It would be very odd to try and build a startup based on the idea of “building something people don’t want,” - but hey, nothing’s impossible.

You want to be more discerning when it comes to tactical startup advice, like go-to-market strategy. The best way to launch a new startup is constantly evolving, so recommendations like “create a high-production-value video” don’t last too long. As soon as a specific growth strategy becomes widely known, it usually stops working. Once every startup is making launch videos, they lose their effectiveness.

9. Enjoy Yourself!

YC can be a bit like drinking from a firehose. You’re getting a constant torrent of feedback about what you’re building, and that can be intense at times. If you’re not doing well, you’ll know it. That’s why this last lesson is so important: Enjoy Yourself.

Startups are a long journey. Dustin Moskovitz, who co-founded Facebook, was once asked what it was like to be part of an “overnight success” like Facebook. I still love his answer; he said: "If by 'overnight success' you mean staying up and coding all night, every night for six years straight, then it felt quite tiring and stressful."

No matter how fast your company is growing, there will always be a ton of work. Often, the faster you grow, the more work you’ll have to do. There are always growing pains to work through, and you’ll be constantly inundated with challenges. That’s why it’s so important to try and find a problem that you love working on.

And I’m not just talking about the mission. My first company was in the education technology space, and I thought the idea of helping people learn would be highly energizing. The goal was exciting, but the day-to-day of trying to sell products to schools was completely unsatisfying for me. To be able to stay motivated for years, you need to love the mission, the industry, and the day-to-day.

This means you should never chase trends. Even if you see a particular type of company getting funded every month, you shouldn’t even think about starting a company in that industry unless you’re extremely passionate about the space and could see yourself thriving in that environment for years.

This post is also available as a YouTube video: