5 – Idea

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Summary: YC wants to fund startups that will succeed and play important roles in the internet / technology / society. Also, recognize that they have probably seen a bunch of teams apply with your exact idea. Act accordingly.

While the team is probably the part that YC thinks about most, obviously what you’re working on is important as well. Here are some things to think about when writing about your startup / product is.

1) Success

“We want to fund founders that are going to be successful. If you can convince us you’re going to be, you have a good chance.” – Sam Altman (How to Get Into Y Combinator)

YC wants to fund startups that will succeed.

This might sound obvious, but it’s actually a really important point. However much you might want to do a startup or have an innovation you want to bring into the world, YC is NOT a charity. PG is not your rich uncle, here to help you pursue your dreams of being an entrepreneur. They are in the business of funding winners.

In interviews, PG is very critical of the fact that most investors / venture funds fail to make returns. As an engineer / hacker, he finds this absolutely intolerable that they are wrong so frequently. Check out this exchange with Andrew from Mixergy:

Andrew: Really? Really!? So you still consider yourself bad at it?

Paul Graham: Oh god yes, we think of ourselves as just utterly terrible at picking these teams.

Andrew: Why? What’s bad about it?

Paul Graham: Because our choices are always wrong! That’s why. We have tons of evidence of how bad we are.

Andrew: What are your percentages of bad companies to good ones, would you say?

Paul Graham: At least a third are just disastrous, you know. In the venture business generally a lot of the investments are failures. Even a venture fund which has a lot more at stake and spends a lot more on effort in due diligence than our ten minute interviews. Even a venture fund half the investments will be failures.

So everyone in the venture business is bad, right? And maybe if we had more experience in the venture business we would take this badness for granted and think “oh well, actually we’re really good if only half of our investments are failures”, but we’re not in the venture business so it seems intolerable. [emphasis mine]

Paul Graham Mixergy Interview

I have previously speculated that YC is trying to figure out how to fund a high proportion of people who they can turn into winners. In other words, I thought that they probably aren’t thinking they can just find a few 10xers or 100xers and make up their returns.

If the founders themselves can be off by like many orders of magnitude about the exit, it’s stupid to even think about it. You just want to fund people who are good and some of them will go public and some of them will just like explode on the starting line and there’s not much you can do about them. – Mixergy interview again

PG’s comments on this section:

I had previously written: “They truly would love to have every single company they fund be a “winner” even if there weren’t as many mega companies.”

This is the exact opposite of what we think. We’re looking for outliers. That’s why we like to fund crazy ideas. There’s nothing we like better than funding an idea that has a small chance of succeeding, but will be huge if it does.

Of course, once we accept a startup, we want it to succeed. But that is a separate question.

I think PG sees startups either win or lose in the long run and if they win, the multiple (on how big that win is) is mostly up to chance. Since they are investing at the same rate as the founders, as long as founders, it will be sold at many many X their investment.

So take a good hard look at your idea/product/startup.

Do you think this is going to work? No, I mean o you really think this is going to work? Do you have good reason to believe that you can REALLY make this awesome idea into a great company?

You’d better or else spend some time doing something – prototyping, customer development, exploring other ideas – until you are really sure. Because otherwise how the hell are you going to convince the partners, who don’t even know what’s in your head?

 2) High impact

We’d be delighted to get an application that answered the question “What are you going to make?” with

A new search engine to compete with Google.so long as this was followed by

We know that sounds impossible, but we think we can get a toehold initially by…Wouldn’t you be interested at this point? Even if the plan had only a 1% chance of working, it would be worth backing.

Paul Graham (How to Apply to YC)

After optimizing for success, YC wants to fund companies that really make an impact on the world – that capitalize on big opportunities that have emerged in society. They want Y Combinator to a engine of progress for the world. You can see this in their Requests for Startups List – the way they have identified problems that they want to “fix” – like dating, news and “the problem” of Hollywood.

Here are some of the interesting and BIG problems that YC is looking to solve. Notice how they discuss markets and the size / magnitude of the problem or opportunity. This should give you good clues into how to write your own app:

RFS 5: Development on Handhelds

There seems a reasonable chance that handheld devices will displace laptops as development machines in the same way that laptops displaced desktops. What would it take? Maybe you could do it mostly with existing hardware. Maybe you’d have to make significant innovations in input and display devices.

The real test is whether you can create an acceptable development environment on something small enough that you’d be willing to use it as a phone. Whatever the solution turned out to be, the result would end up being useful to more than just developers.

RFS 5 – Y Combinator

Don’t worry too much about hard numbers about the market, it just needs to feel relatively big. Most market sizing numbers are kind of BS and they know it. Note that in none of their Requests for Startups or their older Ideas We’d Like to Fund post do they include numbers.

Some of the best YC companies really are doing some amazing things – Airbnb is changing the way people travel, Dropbox is changing the way people collaborate, Weebly now powers something like 12% of the inernet, Heroku is a godsend for millions Ruby (and now Node.js, Java, etc) developers everywhere who just want to deploy and not worry about server issues. If you can give YC the feeling that there might be a way for you to turn into those kinds of companies, that would be good.

3) Concrete

The fact that they are interested in funding “big ideas” does not mean you should describe your idea as “fixing banking” (unless of course you are super baller and Simple). You’ve got to be concrete about what exactly you are doing now – and then make the case for why this could lead to something big.

Write as if you were explaining to a smart friend. Be specific about the problem you are trying to solve and how exactly your product will do it. It’s ok to talk in stages – “first we will build X to do Y, and over time we can turn that into a Z that does A, which is a bigger problem/market”

It’s ok if your current thing does not sound super impressive/powerful/fully featured. YC understands that innovations often starts off looking ugly and even toy-like.

When you and the TechCrunch trolls make fun of startups launching their initial version, you’re like someone making fun of Dell when it was just Michael Dell assembling computers, or Microsoft when it was just a pair of undergrads writing a Basic interpreter. How could such companies possibly grow huge? PG – (HN Thread on Vid.ly)

Having said that, you still want to make your work sound as impressive as possible. If you have brand name clients, write them out! If you have really cool technology, flaunt it! If you have tons of signups, say so. And if you don’t, be honest about it but explain why that’s ok for right now and how you’re taking advantage of what you have done/sold/achieved so far.

4) Your idea is not original

 “ ‘X is terrible, we’re going to make a version that doesn’t suck’ doesn’t cut it but is surprisingly common.  How specifically are you going to make it better?  I’m looking for clear and concise answers–that tends to be a sign of good founders.” – Sam Altman (http://samaltman.com/how-to-get-into-y-combinator)

There are only so many ideas. I mean, your idea has probably even been tried by someone already – take a browse at http://springwise.com to see what I mean.

PG and the YC partners have probably seen/heard/thought about some version of your idea numerous times over the course of reviewing tens of thousands of applications and having countless discussions with founders and investors.

The more general and consumery it is, the more times they’ve seen it. Which means if you haven’t seen a YC company doing it, you’d better wondering why. What makes your team/product/traction/distribution strategy SO GOOD that they have to fund your version of this idea? Better say something insightful that demonstrates your unique ability to succeed. Do some research, talk to customers, have something concretely legit to show.

This is really important so take the time to think it through. I used to be of the mindset that you should just “figure things out’ as you go along and it’s not important to know everything about your problem space before you get started.

Now, I do think that both for yourself and for impressing potential investors (like YC). You want to have a thesis when approaching your startup:

“Not only does X suck in these specific and important ways, but all previous attempts to solve X sucking have failed for these 3 reasons. Now, new technologies or social trends have created an opportunity for us to solve this problem using this new approach Y which we have experience/expertise in.”

5) Make Something People Want

The YC moto is “Make something people want”. This is so important that there is actually a shirt that you get if your company gets acquired, you get a special shirt that says “I made something people want.” PG believes that if you can make something people want, everything else falls into place and you can succeed.

7. Something your company needs that doesn’t exist. Many of the best startups happened when someone needed something in their work, found it didn’t exist, and quit to build it. This is vaguer than most of the other recipes here, but it may be the most valuable. You’re working on something you know customers want, because you were the customer. And if it was something you needed at work, other people will too, and they’ll be willing to pay for it.

So if you’re working for a big company and you want to strike out on your own, here’s a recipe for an idea. Start this sentence: “We’d pay a lot if someone would just build a …” Whatever you say next is probably a good product idea. – #7 from Ideas We’d Like to Fund

A lot of people think that YC is filled with consumer internet-y startups. I think some of the earlier and more well known YC companies started off in this mold: Reddit, DailyBooth, Loopt, Posterous, are all kind of consumer oriented startups. However, I believe that there are many more YC startups that serve business clients (or directly make money through product/service sales). These include Dropbox, Airbnb, Weebly, Stripe, HelloFax, MinoMonsters and others.

More on this in the next section, but basically, if you can show (ideally via some kind of traction) that you are building something that some group of people REALLY want, then you are in a good place.

 


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