Paul Graham's classic talk at Y Combinator's Startup School 2008.

Paul Graham: We're on time. That is how stressful a startup is, man. You got to like remake a speaker's presentation at the podium like with the audience sitting there watching. Um, a demonstration of startups in action. All right. So, I'm make I'm using I'm using this new thing called 280 slides uh made by 280 North to make my presentation and it's not released yet. Um, and in fact, it's a good thing I had them standing around while it was being made because it didn't work. Um, but I'm sure it will work by the time it's released. All right. So, about a month after we started Y Combinator, we we sort of stumbled upon the the phrase that became our motto, make something people want. Um, and we've changed our minds about a lot of things since then. But if I were choosing again today, this is still the one I would choose. I don't think you can get it down to three words. Um, of course, if you could, I would be the first to try. Uh, another thing we tell startups, probably the second most common we thing we tell startups is not to worry too much about the business model at the beginning. Don't worry too much about money. Um, not because it's not important, but because it's so much easier than making something great. Well, a couple weeks ago, I realized that when you put these two ideas together, you get something strange. H make something people want, don't worry too much about making money. What you've got is a description of a nonprofit. All right. So, when something when you get a weird result like this, uh there's two possibilities. Either it's a bug or a new discovery. Either businesses are not supposed to be like charities and you've just proved by redu absurdum that one or both of the principle you started with is false or we've got a new idea. Um, and I think actually it's the latter because when I thought of this, a whole bunch of other things fell into place. For example, Craigslist. It's not a charity, but they run it like one, and they're amazingly successful. I haven't actually done this math, but I suspect that they make more money per employee than Google does. Right? When you look down the list of the most popular websites, the number of employees at Craigslist looks like a misprint, you know? I mean, that's very impressive. Now, they don't make as much money as they could, you know, because they don't concentrate that hard on making money, but most startups, frankly, would love to trade places with Craigslist. In Patrick O'Brien's novels, his captains are always trying to get the weather gauge of their opponents, meaning to stay upwind of them. If you're up wind, you decide when and if to engage the other ship. Well, Craigslist is effectively upwind of enormous revenues. They would have to face some challenges if they wanted to make more money, but they'd be like spin challenges, right? Not the kind of challenges you face when you're tacking up wind trying to force a crappy product on ambivalent customers by spending 10 times as much on sales as you do on development. So, I'd rather be in Craigslist position. I'm not saying that startups should try to end up like Craigslist. They're a product of fairly unusual circumstances. However, they are a really good model for the first phases. Google looked a lot like a nonprofit in the very beginning. They didn't have ads for the whole first year. Google at year one was basically the limit in the calculus sense of what a nonprofit index of the web would have produced. Right? They will be lucky if that weird thing they're doing over in France and Germany looks this good after a year. Um, back when I was working on spam filters, at one point I thought of making a a sort of a a a free web-based email service with really good spam filters, right? Not because I wanted to start another business, but just because it would be a good idea. But the more I thought about this project, the more I realized it would actually have to be a company to be done, right? And since I didn't want to start another company, I didn't do it. Um, but it was a realization to me to think that there were company there were ideas that to be done right had to be embodied as profit-making companies, right? Um, there are often companies that claim to be benevolent. But there are purely benevolent projects that if you did them right would have to look like companies. I think if you had a purely benevolent project to index the web, it wouldn't it couldn't really come out that much better than Google did. So notice the pattern here. Whichever direction you start from, you end up at the same place. Very successful startups often behave like nonprofits. And when you think about nonprofit ideas, surprisingly often, they'd make good companies. Well, how wide is this territory? Would all good nonprofits make good companies? Possibly not. Possibly not. Um, one reason Google's so valuable is that their users have money. If you behave benevolently towards people who have money and make them fall in love with you, then you can probably get some of it, right? Could you make money by behaving benevolently to people who have no money? Um, well, you might be surprised actually. Um, you might be surprised, you know, could you could you make money, say, in an extreme case by uh trying to cure a, you know, a deadly but unfashionable disease like malaria, right? Um, surely that wouldn't work as a startup idea. But think about this. Um, something like malaria must really be sort of a weight on the productivity of a of a region. Maybe if you could lift that weight off the people, you could benefit from the growth that would result. So, I am not suggesting this as a startup startup idea. Please do not apply um unless you're you have a really great idea. Um, all right. If you want to apply to cure malaria, we'd be we'd look at it. Um, I'm really not suggesting that as a serious idea, just to show how far this parallel between nonprofits and startups may actually extend, right? I mean, you might actually be able to make money by doing something like this. One way to tell how far an idea extends is to ask yourself at which point you'd be prepared to bet against it. Right? And the idea of betting against benevolence is really frightening in exactly the same way as predicting that some sort of technology could never be developed. You are just asking to be made a fool of yourself when you do that kind of thing because these are such powerful forces. Benevolence too. And powerful forces are a good thing to have on your side in a startup. So for example, initially I thought maybe this principle only applied to internet startups, right? Yeah, it applied to Google, but you know what about Microsoft? Surely Microsoft isn't benevolent. But when I think back to the very beginning, they were compared to IBM, they were like Robin Hood. When IBM produced the IBM PC, they thought they were going to make money by selling people hardware at really high prices. Microsoft had another idea. By gaining control of the PC standard, they enabled any manufacturer to to compete in this market. Prices plummeted and a lot of people got computers who otherwise couldn't have afforded them. It's just the sort of thing you'd expect Google to do. Well, Microsoft isn't so benevolent now. Now when one thinks of what Microsoft does to users, all the verbs that come to mind begin with f like frustrate and foist um and yet it doesn't seem to pay. Their stock price has been flat for years. Back when they were goo when they were Robin Hood, their stock price went up like Google's. Could there be a connection? You can see how there might be. When you're small, you can't bully users. So, you have to charm them. You can't say, "This is Vista, and we're not going to give you XP anymore. You're going to take it and like it, you know." Um, or switch to OSX. Yeah. Where were we? Got a little bit excited there. All right. All right. When you're small, you can't bully your users, so you have to charm them. Whereas, when you're big, you can maltreat them at will, and you tend to because that's less work. You grow big by being nice, but you can stay big by being mean. Just ask the record companies. You get away with it till the underlying conditions change, and then your victims all escape. So, don't be evil may actually be the most valuable thing that Paul Bukhite made for Google, more valuable than Gmail because it may turn out to be an elixir of corporate youth. I'm sure they find it constraining, you know. Um, but think how valuable it will be if it saves them from lapsing into the same laziness that Microsoft and IBM did. The curious thing is this elixir is freely available to any company that wants it. any company can adopt don't be evil as their motto, right? Google doesn't have a any kind of IP protection on this one. Um, the only catch is that people will hold you to it. So, I don't think you're going to see record labels or tobacco companies taking advantage of this new technology. Um, well, there's a lot of evidence that benevolence works. How exactly does it work? One of the advantages of investing in a huge number of startups is that you get a lot of data about what happens inside them. So, I figured out that there's three ways that benevolence will help your startup. Um, it improves your morale. It makes other people want to help you. And above all, it helps you be decisive. Morale is tremendously important to a startup. So important that that alone is almost enough to determine success. You will hear people describe startups as an emotional roller coaster. One minute you feel like you're going to take over the world, the next minute you feel like you're doomed. The problem with feeling that you're doomed is not just that it makes you unhappy. I could deal with that, right? Um the problem is that it makes you stop working. So the downhill parts of the emotional roller coaster are actually more of a self-fulfilling prophecy than the uphill parts. If feeling like you're gonna succeed makes you work harder, that will probably improve your chances of succeeding, right? But if feeling like you're gonna fail makes you feel like makes you feel makes you stop working, that practically guarantees that you will fail. Here's where benevolence comes in. If you feel like you're really helping people, you'll keep working even when you feel like you're doomed. Most of us have some amount of natural benevolence. The mere fact that someone needs your help makes you inclined to help them. So if you start building something, the kind of startup where users come back every day, basically you've built yourself a giant Tamagotchi, you've made something that you need to take care of. By the way, how is the server today? Is it is the response time good? Seriously, I haven't checked this morning, but I see that and I worry. God damn it. Um, Blogger is a famous example of a startup that went through very low lows and survived. At one point, they ran out of money and everyone left and Evan Williams came back the next day and he was the only one there, right? So, what keeps you going? What keeps you going in a situation like this? Well, one thing that must have kept him going was simply that users needed him, right? Beneath everything else like the hope of making money from a startup or the fear of looking like a failure to your friends, you have like this server with all these users that they need you and you know the response time has to be good. You can't let it just die. There are many advantages of launching quickly but the most important may be that as soon as you launch the Tamagotchi effect kicks in. Once you have users to take care of you're forced to figure out what they want and that information is actually very valuable. One of the unexpected side effects of helping people is that it makes you more confident and that turns out to be very helpful with investors. One of the founders of Chatterus which you can use you you you may now use the internet. Um this is just for startup school. Um, one of the founders told me that at one point the two of them had sat down and said that they decided that what they were building was so important that they were going to build it no matter what, even if they had to go back to live to move back to Canada and live in their parents' basement. Um, the funny thing was once they realized this, they stopped caring about what investors thought of them. They kept going to investor meetings, but they didn't care anymore whether investors gave him any money. Strangely enough, investors got a lot more interested because they could tell that these guys didn't need them. The chatteruses were going to do this startup with them or without them. That's what investors are looking for. That's even what we're looking for. Even though we're, you know, on the benevolent end of the spectrum, frankly, we're looking for startups that would do better with us, not startups that would die without us. Because, you know, frankly, if they're that close to dying, they'll probably die with us, too. If you're really committed and your startup is cheap to run, you become very hard to kill. And that I'm telling you, this should be your model for a startup, right? Not web van, Craigslist, and cockroaches. Um, that is really just about the most valuable quality you can have in a startup because practically all startups, even the most successful ones, come close to death at some point. In fact, you're lucky if it's only one point. So if doing good for the world gives you a sense of mission that makes you harder to kill, that alone may more than compensate but for whatever you lose by not choosing more selfish projects. Another advantage of being good is that it makes people want to help you. That too is an inborn trait that probably goes back before humans were really human. One of the startups we've funded, Octapart, is currently locked in a classic battle of good versus evil. They're a search site for industrial components. Sounds boring, but a lot of people need to search for industrial components. And before Octapart, there was no good way to do it. That, it turned out, was no coincidence. Octapart has built the right way to search for components. Users like it. They're growing rapidly. And yet for most of Octapart's life, the biggest distributor, Digike Key, everyone get that name, Digi Key, has been trying to force them to take their prices off the site. Octapart is sending them traffic for free, customers who buy things, and Digike Key wants to force them to stop sending them people. Why? Because their current business model depends on overcharging people who have incomplete information about prices. They don't want search to work. The octoparts are the nicest guys in the world. I mean, anyone who wears their hat like that is either a dangerous gang member or the nicest guy in the world. Um, maybe the guy on the right is a dangerous gang member. Um, they dropped out of the PhD program in physics at Berkeley to do this. They just wanted to solve a problem that they were encountering in their own research. Imagine how how great it would be if all the world's engineers could do part searches online. So when I hear that a big evil company is trying to stop them in order to keep search broken, it makes me want to do everything I can to help them. It just made it makes me spend more time on them than I do on most of the startups we funded. It just made me spend several minutes telling an entire room full of people how great they are. Why? Because they're good guys and they're doing a good project and I want to help them. If you're benevolent, people will rally around you. Investors, customers, other companies, and potential employees. In the long term, that may be the most important, the potential employees. I think everyone probably knows, especially in this room, that good hackers are much more valuable pound-forpound than mediocre ones. And if you can attract the best hackers to work for you like Google has, that is a huge advantage. The thing about the very best hackers is they tend to be idealistic. They're not desperate for a job. They can work anywhere, right? So, they get to pick and choose and they're going to choose the kind of things that make the world better. So, if you have a project that makes the world better, you're like a magnet for all the smart people to come and work for you. But the most important thing of all about being good is that it acts as a compass. One of the hardest parts about a startup is that there tend to be thousands of things to do and only two or three of you to do them. How do you decide what to do? Well, you got to decide because the one thing you can't do is vacasillate. Here's the answer. Here's the answer. Just do whatever is best for your users, right? You can hold on to that like a rope in a hurricane and it will save you if anything can. You just pull on that rope and it will guide you through everything you have to do. figure out what they want, make them happy, keep doing more of that, right? Um, it'll even give you the answer to questions it doesn't seem to be the answer to, like how to raise money from investors. If you're a good salesman, you could try to just talk them into it. But, you know, most hackers aren't that great salesman. The straightforward approach is just to go to investors through your customers. If you make something that users like enough to tell your f to tell their friends about you, that is a recipe for exponential growth. That's the traffic graph for Octopart. That's their actual traffic. Um they distinguish between human and non-human users. Uh that will convince investors. That's what they call the hockey stick. That's Christmas, by the way. Nobody buys components for Christmas presents. Being good is a particularly useful strategy for making decisions in situations where things change fast because it's stateless. It's like telling the truth. The trouble with lying, as I discovered when I was a kid, is that you have to remember everything you said in the past in order not to say anything that will contradict yourself. If you tell the truth, you don't have to remember anything. And that is a really useful property in domains where things change fast. For example, Y Combinator now has invested in 57 57 Oh, look, we got a little glitch there. Um, actually that kind of is a real reflection of what it feels like sometimes. Um, we've invested in 80 startups, 57 of which are still alive for some definition of alive. Um, the rest have died or merged or been acquired. When you're trying to advise 57 startups at once, it turns out that you have to have a stateless algorithm. You can't have ulterior motives because you can't remember them. So our rule is just try and do whatever is best for the startups, right? May not be optimal for us, but it'll be reasonably close. And frankly, you know, it's not because we're particularly benevolent, but it's just the only algorithm that works on that scale. It's the same reason probably that Google doesn't munch search results, right? It's just once they started like messing around with search results, how could they possibly scale that? Well, when you give a talk telling people to be good, you seem to be claiming to be good yourself. In fact, that's probably the reason most such talks happen. So, I want to say explicitly that I am not a particularly good person. Seriously, when I was a kid, I was firmly in the camp of bad. The way adults used the word good, it seemed to be synonymous with quiet. So, I grew up very suspicious of it. You know how there are some people that people talk about and say, "He's such a great guy, right?" People don't say that about me. Like, the best I get is he means well. So, I am not claiming to be good, right? I am like about average. At best, I speak good as a second language. So, please don't tune this out the way you'd automatically tune out someone standing up on a stage and telling you to be good. I'm not suggesting you be good in the usual sanctimonious goody two shoes way. I'm suggesting it because it works. It will work not just as a corporate a statement of corporate values, right? It will work as a guide to corporate strategy. It will work as a design spec for software. So don't just not be evil, be good. Thank you.

[Applause]

Paul Graham: Do we have time for questions? All right. Our clock tells me that I can fetch a question from memory and execute it. Um, so does anybody have a question? Gabbor. So there was a book written once here at Stanford called Built to Last and um it was looking at companies that make it really big and you know are successful and do good things and one of the things they had in common was that they all had sort of credos mission statement and it seems like you have one at at Cominator. How many startups that you found or fund have credos? How many startups have mods? Um, you know, Google does, doesn't it? Um, I think that's probably a good idea. I think you may be on to something. Maybe we should try and encourage people to make up mods. They barely have time, though. I mean, like if if if making up a motto makes you delay launching for a couple hours when you think of one, it's probably not worth it. Um, maybe after launching people can come up with mods. Yeah, inbox backwards didn't work really. Well, you could make a motto out of that. How about organizing the world's information? Good idea. We'll think about it. All right. Yes. Uh yeah, I I read on your website um which I go to frequently uh probably too frequently uh that um you recommend doing uh an undergraduate degree as opposed to a graduate degree because more wealthy people tend to have undergraduate degrees because they spend more time making money. I I I may have misread you. Most people don't simply get to choose between getting an undergraduate degree or a graduate degree. They have to do the undergraduate degree first. Right. Right. Well, what what I mean is what what I mean is uh well, I may have misqued you, but I mean the general idea there is uh is it better to start a startup first? And if I recall correctly, the answer was yes to that. But my question uh is should you even get the undergraduate degree or if you have a good idea, should you just like run with it and get the heck out of there and start making money? N it might not be such a great idea as you think. Um and you know also like it's not like okay so the question is you have a good idea and you're in college should you stay in college or should you just like go do the startup right because a lot of successful founders you know never finished college or never went to it stuff like that. That's a good point. Um but but uh for one thing like making money and doing startups is not the only thing in your life, right? Like you can have a lot of fun in college, maybe even learn something. Um so you know, you could there's no huge rush. You could just like hang out in college, learn stuff, meet people, have friends. Very likely that idea that you think is so great that it makes you want to drop out of school might not turn out to be that great. And it's certainly even more likely that if you wait till you finish school, there'll be some other idea you'll think of that will be even better, right? So, I wouldn't hurry. Don't hurry. Yes. Um, I've got to disagree with you firmly and vigorously. Um, most of the companies we work with, Apple, Cisco, Nokia, we do a lot of very intelligent people, very well educated. And I'll tell you what the top advisers from the guys from Apple and others said, and I agree. I've seen it in 15 years. The people who get undergrad degrees and graduate degrees work for people who drop out and do the business and execute. Yeah, maybe. No, uniformly at the top level. Uniformly. We can't be too down on school. I mean, we're at a university. It's great to go back and give some money and learn by teaching other people and endowed department but uniformly cuz school is always going to be there and you'll have better expertise and experience to apply in the research and have the passionate thing. Follow your passion. Yeah. Maybe school the parents, school everybody else. Follow your passion. Maybe. All right. Do you have a question? Yes. I have a question regarding ideas. Uh usually, you know, when I think about ideas, uh looking at stuff that's happening today, you almost end up coming up with ideas that somebody has already ran with or already is like halfway building a prototype for I guess what are some of the best things to and I think with ideas, the thing is that if you're going to think today, you're going to come up with something that's already done. How do you think about ideas? How do you think about stuff that is going to happen in three or three or four years? For example, you're in web 2.0. How do you think about what's going to happen in web 3.0? What kind of stuff you need to do? What are some of the material that you read? Is it just being in the right company? I mean, I think the best way to look for ideas is look for look for problems. Don't don't try and think of solutions. Just try and find good problems and let them drive the solutions. So, just look for stuff that seems broken, right? Like component search is broken. Um, so and and the octoparts noticed it because they had to buy a lot of components in their research. They they did applied physics with components. You know, if they'd been theoretical physicists, they would have just been like starting a website to buy legal pads. So, thank you. Yes. Um, why do you have so much emphasis on web 2.0 companies? like all your companies that are that are funded so far seem to be in the area of uh creating a web 2.0 application rather than like focusing on like fundamental problems like search or security searching for components isn't fundamental problems. Well, it is but uh some of that the project you have shown that is certainly it's very uh useful thing but there are other things that don't require a website uh like if you're building a pro program for like uh to make computers faster it doesn't require a website we have funded a bunch of companies doing infrastructure type stuff like databases they just tend not to be as well known um some of I mean the two database companies neither of them have actually launched yet because it takes so long to build stuff like that. But we do fund infrastructure stuff. Basically, we fund the stuff people apply with and everybody applies with some form of Facebook. So that's that's what we end up funding just or something involving independent music. A related question. Uh why do VCs fund the fund these kind of these kind of companies? I mean other VCs. Why do other VCs fund which kind of companies? these web two pointer kind of companies where probably they fund what what people apply with too, right? I mean, you got to you got to fund you got to you can only like um catch the fish that are floating down the stream. So, there are too many of them. You're saying are there? No, you're saying there are too many of them. I don't have a problem. All right. Is one more question? All right. One more question. We'll have one from this side. Um so I guess when you know thinking of which startups to fund this benevolence factor really comes into play. We do we try to we found that we try to fund people who do things we like. Um actually it was really self-indulgence at first. Um so what what other factors too if you want to just summarize besides benevolence evil I think any neutraliz. No, I mean really we look for people we look for people who seem like they're going to succeed, you know? I mean it's it's there's so many reasons it's good to fund startups that seem like they're going to succeed. I mean it would seem obvious to any other investor they should fund startups that were going to succeed, right? It's like you're playing a game of soccer. You want to kick the ball into that goal and not the one behind you. Um but uh it's there's like startups that succeed like if a startup has benevolent aims and it doesn't succeed, it's not going to achieve them anyway, right? So basically succeeding as founders is a limiting factor on how benevolent we can get. Um so you know we we just we really just try to fund the kind of founders we like and we think are going to succeed. And it turns out that they tend to do benevolent things because being good works, right? All right, on that note, thanks very much.