#103 - Michael Seibel - Y Combinator  ## Metadata - Author: **Y Combinator** - Full Title: #103 - Michael Seibel - Category: #podcasts - URL: https://share.snipd.com/episode/ee420898-9add-4995-83dc-7cc820d1c32c ## Highlights - Why You Should Start a Startup Key takeaways: (* Michael Sible argues that there are certain people who are best suited to work on startups, as they have to take personal responsibility for failure., * He also argues that the odds of success for startups are low, but that this is a challenge that is worth taking on.) Transcript: Speaker 2 Hey, how's it going? This is Craig Cannon and you're listening to Y Combinators podcast. Today's episode is with Michael Sible, Michael's a partner and the CEO of YC. He co-founded Justin TV, which was in the winter 2007 batch in social cam, which was in the winter 2012 batch. In this episode, Michael and I go over five of his essays. They're linked up in the show notes and they are, why should I start a startup? One order of operations for starting a startup, the real product market fit, users you don't want, and why does your company deserve more money? If you have comments, you can reach out to Michael on Twitter at mwcybal. All right, here we go. All right, Michael Sible. So today we're going to do something different and talk about a few of the essays you've worked on in the past. I think these are maybe the past two years. Yes. So the first one is why should I start a startup? You start this essay by saying a lot of people ask themselves this question. They often mull over one or more of the following facts. One, the vast majority of startups are not successful. Two, for talented technical people, it's relatively easy to get a job and make a large salary. And three, large companies offer opportunities to work on very difficult problems that only often occur at scale. My answer to why you should start a startup is simple. There's a certain type of person who only works at their peak capacity when there is no predictable path to follow. The odds of success are low and they have to take personal responsibility for failure, the opposite of most jobs at a large company. Yes. Okay. Why did you write this essay? ([Time 0:00:00](https://share.snipd.com/snip/012e8fd9-da8c-4246-a639-312e0d22aadb)) - The 3 Types of People Who Shouldn't Start a Startup Key takeaways: (* There are two reasons why someone might be conflicted about starting their own business; because they don't have a good idea or because they don't have a team., * The advice that the speaker gives is that, for some people, starting their own business is a good idea, but for others it is not.) Transcript: Speaker 1 So I think that there are two reasons. One, I talk to a lot of smart technical people who I think sometimes feel like they should start a startup, but they're conflicted because they either don't know if they have a good idea, don't have an idea, don't have a team. And I think they're really trying to figure out like, what should I do with my life? You know, like what what should my real career path be? And when I first started giving people advice, I think that I really assumed that because you could start a startup, you should start a startup. You know, if you have the money to afford, if you have the time, if you have the ability, you should be doing it. I quickly realized working at YC, that's a bad idea. And I think what I quickly realized is that there's probably like three sets of people. Okay. There's probably the set of people who the only thing they can really do is work in a radically entrepreneurial job. Like literally, like they will not enjoy their life inside of a big company, inside a big bureaucracy. Like, and I think like back in the day, like those are the kinds of people who start small businesses. ([Time 0:01:40](https://share.snipd.com/snip/19a65c02-bfdf-442d-95f4-2960fd56e86e)) - The Benefits of Indie Hackers Key takeaways: (* Anyone who is thinking about whether they want to join a startup should be intellectually honest with themselves about their motivations., * There is a smugness among some people who feel like they know better than others when it comes to defining what is an A and what is an F.) Transcript: Speaker 1 Someone else defines what's an A and what's an F and then I optimize, right? And I don't think that there's any like moral judgment to be passed. Like I think that like if most people didn't feel that way, the world wouldn't work. So it's like a good thing. But there's a smug of people who feel like I want to make the rules. Yeah, I don't want to follow them. Yeah. And so I think that like when someone's thinking about whether they share a startup, they should really be intellectually honest with themselves about which of these groups they're in. And anyone who's trying to kind of guilt trip them into one group or another, right? Like it goes both ways. Like I in the past would guilt people to do a founder. A lot of people, parents will guilt trip them into being a big company or being a doctor or yadda yadda yadda. I just think like this is one of these things where you have to actually have some personal, you have to go deep and really understand. Speaker 2 Yeah. Did you ever read the book, the Emith? No, I haven't. Have you heard of this book? No, no, no. So I read it in college, so it's been a while. But basically the concept was a lot of people who are, you could say craftsmen. Yeah. So in our context, like a developer, often think that they want to become entrepreneurs, so they could do just their craft and just the way they want to. But they don't realize that as soon as they enter the entrepreneurial realm, most of their jobs no longer run. And so I think I think this is a common thing. And it's why these indie hackers are so like people love them so much. It's an interesting point. ([Time 0:04:34](https://share.snipd.com/snip/2add6b64-2dd6-458a-8f57-cfd45112fd13)) - How to identify bias in advice Key takeaways: • It is important to be honest with oneself when figuring out who one should be and what career track to take. • It is important to be careful about taking advice from biased people. Transcript: Speaker 1 Where does that happen? And like when I think about those moments for myself, like they never really happened in the truly structured things. Like in the K to 12 setting, I did final that stuff. Of course, right? I did all the classes and got all the grades. But it wasn't when I was like really like kicking in the high gear. So I think if you're like super honest, like when do you really kick it into high gear? That's when like you can start asking this question for yourself like, okay, who should I be? And what career track should I take? I think that like one tricky bit here is you have to be really careful about taking advice from biased people. So I eat everyone. Yeah, right? Like when I was giving founders this advice originally, I was so biased. I was like, well, I'm at YC. I want you to be a founder like you should be a founder, right? I was giving you advice. I was previously giving advice. I was very self serving. I think that like a lot of young people are looking for advice givers and are not doing a job of identifying bias. And so I see a lot of people who are generally believing the information that they get from either their peers or from companies that they work at. And like they don't realize those people are biased. ([Time 0:07:27](https://share.snipd.com/snip/89d6b541-a172-4369-90e1-56401cfed7e5)) - How to be a successful startup Key takeaways: (* Everyone has problems that they can solve with a product., * It's important to figure out what those problems are., * It's also important to figure out if the product is helping the person solving the problem.) Transcript: Speaker 1 And like, I felt my like douchebag investor, like go up. Speaker 2 It's like, yes, you should do that. Like that is a problem. Speaker 1 Like, even if you have solved that problem, you're going to be wildly successful. Like there are gajillions people who have that problem. It's ridiculously intense. It's like, and it was like interesting because in such a weird way, I feel like she had somehow condensed all of the startup advice that she'd been given and everything she read to go to this like wrong place. When I just asked her, what's the problem in your life? And she almost immediately got to like a place that could create real value. Now, like, how should she solve that problem? Okay. Yes. That's another question. But damn, like, it's a personal problem she has. And she sure as hell knows that if she makes a product, is it helping her? Yeah. And at least if it's helping her, she knows it's like halfway decent. So like that, I got to a really exciting place by just digging into like, what sucks for you? I think everyone can do that exercise. And I think that like the exercise can be informed by your work life or personal life. So many startups I see were created because they were doing something at work and they were like, this sucks. Why do I have to keep on doing this? I'm going to make this thing and then sell it to my job so that no one has to do this ever again. ([Time 0:19:19](https://share.snipd.com/snip/305e8c75-2024-45a6-b5c1-84a217d8c3a9)) - When Do You Really Find Product Market Fit? Key takeaways: (* Product market fit is not always easy to find, and can take time to develop., * To find product market fit, you should read and follow the advice of influential figures such as Mark Andreessen.) Transcript: Speaker 2 And they want to give the co-founder 10%. Yeah. Like, they're not actually in a better position. Speaker 1 So it's like, yes, I think that there, like one, and I mentioned the essay, there are counter examples. Like, there are people who do go from a contractor to a big company, but it's just, I would argue it's a harder path. And it's a path that's much more likely to lose you a lot of money. Speaker 2 Your own money. Speaker 1 Your own money. Take it away. Speaker 2 The real product market fit. Yes. This was a good one. Now that the other ones aren't great. Yeah. All right. I often talk to founders who believe they've found product market fit when they haven't. This is a huge problem because they start hiring people, increasing burn and optimizing their product before they've actually discovered what needs to be built. I'm writing this post to help you understand when you've really found product market fit. To start, read Mark Andreessen's on product market fit for startups. It has been the single most influential post for me as an entrepreneur and it was the first time I ever read the term. Here's how he defines the term. ([Time 0:29:29](https://share.snipd.com/snip/16bb9878-544d-4362-83a8-758658ce388e)) - Intellectual Convenience vs. Actual Product Market Fit Key takeaways: (* Product market fit is not a clear or easy to define concept., * To find product market fit, you need to first read and understand Mark Andreessen's post on product market fit for startups., * To determine if you have product market fit, you need to measure customer adoption and growth, and hire additional staff.) Transcript: Speaker 1 So it's like, yes, I think that there, like one, and I mentioned the essay, there are counter examples. Like, there are people who do go from a contractor to a big company, but it's just, I would argue it's a harder path. And it's a path that's much more likely to lose you a lot of money. Speaker 2 Your own money. Speaker 1 Your own money. Take it away. Speaker 2 The real product market fit. Yes. This was a good one. Now that the other ones aren't great. Yeah. All right. I often talk to founders who believe they've found product market fit when they haven't. This is a huge problem because they start hiring people, increasing burn and optimizing their product before they've actually discovered what needs to be built. I'm writing this post to help you understand when you've really found product market fit. To start, read Mark Andreessen's on product market fit for startups. It has been the single most influential post for me as an entrepreneur and it was the first time I ever read the term. Here's how he defines the term. The customers are buying the product as fast as you can make it or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company, checking and camp. You're hiring sales and customer support staff as fast as you can. Why do most people think they're there when they're not? Speaker 1 One, it's intellectually convenient too. ([Time 0:29:35](https://share.snipd.com/snip/00650d98-35f4-4b24-8384-32dc3ac19ad6)) - The Single Variable Problem Key takeaways: • It is important to focus on profitability when building a successful company. • It is important to focus on customer satisfaction and value creation when building a successful company. Transcript: Speaker 1 And is it profitable? Like people always want to forget the second one, right? Like money is piling up in the chank account. That's my definition profit. Speaker 2 Yeah. Speaker 1 Like literally, there are so many companies who are like the growth is killing us. Right. And I'm like, oh, oh, show me explain. And they're like, and they're scaling negative margins. Exactly. They're saying, hey, Craig, how about you pay 75 cents and I give you a dollar worth of value. Speaker 2 Yeah. Speaker 1 Craig, make that trade 17 times an hour. Yeah. Speaker 2 No, I love that the PV quote, where it's like they figure it out before you. Yeah. Let's figure that out. Because you're just burning VC money or your own money. Yeah. Yeah. The customer, the customer is a nose for those types of deal. Speaker 1 Because if you have the problem, like you really understand the value of the solution. So what's funny to me is that, you know, oftentimes founders will want to try to reduce this. Like I get this question so often. It's like, should I optimize for growth? Should I optimize for retention? Or should I optimize for profitability? And my answer is always the same. Speaker 2 Yes. Speaker 1 Like, what makes you think that building a successful company is a single variable problem? ([Time 0:34:19](https://share.snipd.com/snip/eb5da875-d405-4faa-9d49-9afb3ff906ef)) - The Single Variable Problem Key takeaways: • Growth is not always profitable. • It is important to focus on solving customer problems and building a valuable product. • It is important to focus on longterm sustainability and profitability. Transcript: Speaker 1 And is it profitable? Like people always want to forget the second one, right? Like money is piling up in the chank account. That's my definition profit. Speaker 2 Yeah. Speaker 1 Like literally, there are so many companies who are like the growth is killing us. Right. And I'm like, oh, oh, show me explain. And they're like, and they're scaling negative margins. Exactly. They're saying, hey, Craig, how about you pay 75 cents and I give you a dollar worth of value. Speaker 2 Yeah. Speaker 1 Craig, make that trade 17 times an hour. Yeah. Speaker 2 No, I love that the PV quote, where it's like they figure it out before you. Yeah. Let's figure that out. Because you're just burning VC money or your own money. Yeah. Yeah. The customer, the customer is a nose for those types of deal. Speaker 1 Because if you have the problem, like you really understand the value of the solution. So what's funny to me is that, you know, oftentimes founders will want to try to reduce this. Like I get this question so often. It's like, should I optimize for growth? Should I optimize for retention? Or should I optimize for profitability? And my answer is always the same. Speaker 2 Yes. Speaker 1 Like, what makes you think that building a successful company is a single variable problem? Speaker 2 Like, how could that be the case? Yeah. It's clearly not the case. Well, especially in the venture paradigm. Yes. ([Time 0:34:19](https://share.snipd.com/snip/5ad624a2-cd6c-4c33-b675-f120eb2f20fd)) - How We Survived and Thrived in the Face of Adversity Key takeaways: (* It is important to learn when to quit, as some companies can take a long time to succeed., * It is important to keep in mind the small things that can make a big difference, such as the introduction of webcams into laptops in 2006., * If you are willing to work hard, every year you can improve your chances of success.) Transcript: Speaker 1 I don't think it would have worked in 2006. I think looking back, silly little things matter. One of them was webcams. Yeah. Like webcams went from being something you had to buy extra to something that were built into every laptop. And it was like little things like that can change things. I think that though, how do we been talking to our users more? We could have gotten there sooner. Like I think we could have gotten there barely 2008, 2009. But you know, we didn't die. That was, you know, yeah, didn't die. I have another shot. Speaker 2 It's a big takeaway. Yeah. Yeah. Which is kind of a separate thing, probably separate, I say, but like learning when you should have quit maybe. Speaker 1 Like some people do hold on to things. Some people hold on to things. It's funny. Like I see it too. Some people hold on to things. On the flip side though, man, there are still some companies who like some companies take a long time. Yeah. Now there are some peers of ours who like now are really doing well, but just even longer than we did. And so man, there is a lot like if you're willing to put in the time and grind it out, like every year you don't die, like your chances of being successful go up. ([Time 0:41:22](https://share.snipd.com/snip/38502afe-190a-4ea1-91f3-13e1c2fbf2ba)) - The Importance of Hijacking in Early Stage Startup Key takeaways: (* When a startup opens its doors to the public, it can attract a variety of users with all sorts of problems., * Sometimes these users are helpful, but other times they are hijackers who try to take over the product.) Transcript: Speaker 2 Yeah. And then some companies sell too early and they could have been so cool. And then they die within big companies. Yeah. That happens. Table are trying to get paid. That happens too. Users you don't want. This one was contentious. Yeah. This was fun. Yeah. Let's bring it back. All right. When you're just getting started, many startups will take every user they can get. They have a strong idea of a problem and they want to attract as many users with that problem as possible. Unfortunately, when you open up the barn doors, you get all sorts of people with all sorts of problems. Some of them will try to hijack your product to solve a problem you didn't intend to solve. By and large, these hijackers are users you do not want. When does this happen to you? Thank you. Speaker 1 Justin TV was by definition hijacked. Like we built a product to allow people to live stream their lives. And within a year, it was being used to stream copper and content around the world. But absolutely the definition of hijacked product. And what's interesting is that I'm a little afraid of my phrasing here. I wish I didn't say that these hijack users are not users you want. Because it turns out that like sometimes they are. Yeah. It turns out that like, you know, the reason why we even had an inkling to do Twitch was because some percentage of the hijack users were video gamers. And like, it turns out that that could have been a much bigger community if we helped it and then eventually became one. So this kind of like users using your product for a whole variety of things. ([Time 0:42:47](https://share.snipd.com/snip/248fde88-5ddf-424d-9741-1e4ac9c5c6d5)) - The Importance of Understanding the Hijack Users of Your Product Key takeaways: • TV was originally designed to be used for streaming live content, but soon became used for other purposes, such as streaming copper and content around the world. • There are different types of users who use TV for different purposes, and it's important to study these users in order to determine the potential of the product. Transcript: Speaker 1 Justin TV was by definition hijacked. Like we built a product to allow people to live stream their lives. And within a year, it was being used to stream copper and content around the world. But absolutely the definition of hijacked product. And what's interesting is that I'm a little afraid of my phrasing here. I wish I didn't say that these hijack users are not users you want. Because it turns out that like sometimes they are. Yeah. It turns out that like, you know, the reason why we even had an inkling to do Twitch was because some percentage of the hijack users were video gamers. And like, it turns out that that could have been a much bigger community if we helped it and then eventually became one. So this kind of like users using your product for a whole variety of things. I like to think about it more like on a spectrum. Like there's the user who's using your product as intended. Yeah. Great. Makes feel good. Speaker 2 Maybe there's a business there. Maybe there is. Right. Speaker 1 There's the user who's using your product in interesting ways with potential. Right. Yeah. Study those users. Those users are very important. Video gamers, adjacent TV. There are users who are using your product with ways that it's extremely clear to you that there isn't long-term value. ([Time 0:43:31](https://share.snipd.com/snip/f9196e8f-eb2d-4311-b4db-1ad5beff3970)) - The Alternative Path to Success Key takeaways: (* It is easier to raise money if a startup has done well in its first two million dollars of funding., * Founders need to be honest with themselves about their goals and whether they deserve money at this point in their company's development.) Transcript: Speaker 1 You know, maybe you do, right? Maybe the next $2 million is going to get make it work, right? Maybe. I'm not willing to say it won't, but I think we should just like, well, it's certainly a lot easier to raise that money if you've done something for the first $2 million, you know, and I think sometimes founders, once again, sometimes founders kind of cargo cults, like they think, oh, well, we have this team. We built a team, right? We have this product, right? We've got a cool office. Yeah, we have a cool office. Like, look at what we've done, right? And it's like, nobody's grading you on those things. Like, those are means to an end, not an end. Like, you can't be like, oh, I'm an NFL coach. And look, we have a team. We have this amazing stadium, right? You should renew me, right? And it's like, well, the record of the team is like zero wins. Like, you can't get another contract if you have no wins, you know? Speaker 2 Yeah, moreover, if you, I mean, you might have all the MVPs, but if they can't play together, you know, then no wins, right? Speaker 1 And so I think that like, people like to confuse means for ends, because like, yeah, means are a lot easier to get. I can go out and get an office. I can go on higher, right? Solving people's problems, that's hard. Yeah. So, a lot of the time, I have to have these conversations with founders where I'm just like, look, like, what is an alternative path? Like, if you don't really deserve money right now, what is an alternative path? And like, the sad, but true fact is cutting burn and trying to get to break even ([Time 0:50:16](https://share.snipd.com/snip/2becf3ff-4123-4c2e-94d2-aa91e64a3d8d)) - How to Pitch an Investor: A Guide for Startups Key takeaways: • Justin TV founder, Justin Kan, had a lot of mistakes when he was starting the company. • However, when Justin TV finally broke even, Justin Kan realized that he was actually operating on the investors dime and that he needed to focus on what the investor wanted to hear. Transcript: Speaker 1 Sometimes I just think of Justin TV. I just had myself completely fooled. Like literally, I just can't like, I was out there pitching a site that like half of the usage was spreading copper and content. It was a public site. Like, like any investor could just before the meeting, go to our website and like in three clicks, see content we need the rights to. And then I would go and then try to pitch them on how I was going to be building our business, right? Like, I don't even know how I did it. Looking back, right? Like, you know, crazy. Speaker 2 You seem to have made every mistake. So many, many mistakes. Many of the mistakes. Yeah. Speaker 1 I like to write about things where I have personal mistake experience. But like, I will tell you that when we, when we broke even Justin TV, that was the moment of like infinite clarity. And what was weird is that like looking back, one of the things I see in other founders and I recognize in myself is that when you're operating on the investors dime, oftentimes you're Trying to optimize what the investor wants to hear. And oftentimes you're trying to structure your pitch and your strategy to what's going to get us more money. Because it turns out the investors really are your customer because they're the only one giving you the money you need to survive. ([Time 0:52:28](https://share.snipd.com/snip/f47a5542-ce8b-4b41-b18f-cc4e65ebd06e)) - YC's Series A Program: Helping YC Companies Grow Key takeaways: (* YC helps startup companies to raise Series A funding., * The difference between a startup company's Series A presentation at YC and at other startup events is that the startup company must demonstrate that it has created core leverage in order to be successful.) Transcript: Speaker 1 Yeah, I know. It's interesting. We have a series A program at YC and we help YC companies since to be like 12 to 24 months after YC prep for and raise series A. And at the kickoff meeting, it's very similar to the kickoff meeting at YC. Everyone goes around and circle says what they do. But the difference is that everyone says their revenue too. And it was so much fun to be the kickoff meeting for the series A because you'd hear some ideas like, oh, I'm doing yada yada yada. And like, you know, YC, we hear ideas all the time, you know, and it's like, yeah, okay. It's another idea. It's cool. Yeah. And then the fund is like, yeah, we're doing finally, dollars revenue. Speaker 2 And you're like, oh, that's different. Speaker 1 And then the next person's like, yeah, we're doing three and a half million dollars revenue. Next person's like, oh, we're doing four million dollars. And it's like so funny how an idea sounds better when like, there's a revenue number after it. And so what's so funny is that like, I think what YC is good out is that like, if you can create the business leverage, right, if you can make your business work, we can help you present that in the leverage maximizing way. And we can help you do a process that maximizes the leverage that you've created. But you have to create the core leverage. Like you got to do the work, right? Like you got to do the work, like you got to figure out the part that gets that usage. And then we can help you package it and sell it most effectively. ([Time 0:55:29](https://share.snipd.com/snip/315e76f1-7619-49bb-971a-37fd25a1b9bd))