Sam Altman's second lecture in the Stanford CS183B course, focusing on assembling the team and executing the vision.

Key Themes

Team

• Cofounders: Choosing cofounders is the most important decision. You want someone you have a history with.
• Relentlessly Resourceful: The number one quality to look for in early hires.

Execution

• Focus: You can only do a few things well. Focus on growth and product.
• Intensity: Startups win by moving fast. Speed is your main advantage over big companies.
• CEO Role: The CEO's job is to set the vision, hire the team, and keep money in the bank.

Full Transcript

Uh, before I jump into today's lecture, I wanted to answer a few questions. People emailed me saying they had questions about the last lecture they ran out of time for. So if you have a question about what we covered last time um, I am welcome to answer it now starting with you. Can you use the mic feed? Uh, it should be on. Can you not hear me? No? Maybe you can ask them to turn on. Ah, hopefully it will come on. Anybody else? Yes?

Ah, so one question that was submitted online was um, how do I identify if a market has a fast growth rate now, and also for the next ten years. All right, so the question is how you identify markets that are growing quickly. Um, the good news about this is is this is one of the big advantages students have. Um, you should just trust your instincts on this. Um, older people have to basically guess about the technologies that are sort of that young people are using, right? Because young people get older and they become the dominant market. Um, but you can just watch what you're doing, what your friends are doing. And um, you will almost certainly have better instincts on fast-growing markets than anybody older than you. And so the answer to this is just trust your instincts. Think about what you're using more, think about what you're using, what you're seeing people your age begin to start using. Um, that will almost certainly be the future. Maybe I can do one more question on the last lecture before we start.

Um, this isn't really last lecture, but another online is, how do you deal with burnout while still being effective and remaining effective? Yeah. Sure. Um, so the question is how you deal with burnout as a founder. Uh, this, the answer to this is just that it sucks and you keep going. Um, unlike a student, where you can sort of throw up your hands and say, you know what, I'm really burned out. I'm just gonna like get bad grades this quarter. Uh, one of the hard parts about running a start up is that it's real life. And um, you just have to get through it. Uh, the canonical advice is like go on vacation or whatever. Um, that never works for founders. It's sort of all consuming in this way. It's very difficult to understand. So what you do is you just keep going. Um, you rely on people uh, it's like really important. And founder depression is this serious thing. And you need to have a support network. Um, but the way through burnout is just to address the challenges, address the things that are going wrong, and you'll eventually feel better. All right, so, last week we, or last lecture we covered the idea and the product, um, and I want to just emphasize that if you don't get those right, none of the rest of this going to save you. Um, today, we're gonna talk about how to hire ah, and how to execute. Hopefully you don't execute the people you hire. Um. Sometimes.

Co-Founders

Uh, so, first, I wanna talk about co-founder. Um, co-founder relationships are among the most important in the entire company. Um, and everyone says that you need to watch out for tension brewing among co-founders, and address them immediately, and that's all true. And certainly in YC's case. The number one cause of early death for start ups is, is co-founder blow ups. But for some reason a lot of treat choosing their co-founder with even less importance than they put on hiring. Um, don't do this. This is one of the most important decisions you make in the life of your start up, and you get treated as such. And for some reason, students are really bad at this. They just pick someone, they're like I wanna start a business, you wanna start a business, let's start it, start it together. Um, there are these, like, co-founder dating things, where you're like hey, I'm looking for a co-founder. We don't really know each other, let's start a company. And this is like crazy. Um, you would never hire someone like this, and yet people are willing to choose their business partners this way. Um, it's really, really bad. And choosing a random co-founder or choosing someone you don't have a long history with. Choosing someone that you're not friends with. So that when things are really going wrong, you have this sort of past history to bind you together. Um, usually ends up in disaster.

We had one YC batch where nine of about 75 companies added on a random co-founder between when we interviewed the companies and when they started, and all nine of those teams fell apart in the next year. Uh, the track record for founders that don't already know each other is really bad. Um, a good way to meet a co-founder is in college. If you're not in college and you don't know a co-founder, the next best thing I think is to go work in an interesting company. If you work at Facebook or Google or something like that, um, it's probably almost as co-founder Rich at Stanford. It's better to have no co-founder uh, than have a bad co-founder, but it's still bad to be a solo founder. Um, I was just looking at the stats here before we started. For the top, and I may have missed one cause I was counting quickly, but I think, but for the top 20 most valuable YC companies um, all of them have at least two founders. Uh, and we probably fund at a rate of something like one out of ten solo teams. Uh, so best of all, founder you know, co-founder you know. Um, better than that or not as good as that but still okay, solo founder. Random founder you meet. Uh, again students do this for some reason. Really, really bad.

Uh, so as you're thinking about co-founders and people that could be good, there's a question of what you're looking for, right? And at YC we have this public phrase. Um, and it's relentlessly resourceful. And everyone's heard about it. And I think that really is a very good description for what you're looking for with co-founders. Um, you definitely need relentlessly resourceful co-founders. Um, but there's a more colorful example that we share at the YC kickoff. Um, Paul Gram started using this, and I've kept it going. Um, so you're looking for co-founders that need to be unflappable, tough. They know what to do in every situation. They act quickly. They're decisive. They're creative. They're ready for anything. Um, and it turns out that there's a model for this in, in pop culture. And it sounds really dumb, but it's at least very memorable. And we've told every class of YC this for a long time, and I think it helps them. Um, and that model is James Bond. Um, and again it sounds crazy but it, it, uh, it will at least stick in your memory and, and, you need someone that behaves like James Bond more than you need someone that is you know an expert in some particular domain.

As I mentioned earlier, you really want to know your co-founders for a while, ideally years. This is true for early hires as well. But incidentally, more people get this right for early hires, than they do for co-founders. Uh, so again, take advantage of school. Um, in addition to relentlessly resourceful, you want a tough and a calm co-founder. Uh, there are all the obvious things like smart. But everyone knows that you want a smart co-founder. Uh, most people don't prioritize tough and calm well enough. Especially if you feel like you yourself aren't, you need a co-founder who is. Um, if you're not technical, and hopefully most people in this room are, you really want a technical co-founder. There's this weird thing going on in start ups right now where it's become popular to say, like you know what? We don't need technical founders, we're gonna hire people, We're just gonna be great managers. Um, that doesn't work too well, in our experience. In a software, people really should be starting software companies. Media people should be starting media companies. Um, so and in the YC experience, two or three co-founders seems to be about perfect. Um, one obviously not great, five really bad, four works sometimes, but uh, two or three I think is what to target.

Hiring

Okay, the second part of how to hire. Um, try not to. So one of the weird things that you'll notice if you start a company is that everyone asks you how many employees you have. And this is the metric people use to sort of judge how real your start up is and how cool you are. Um, and if you say you have a high number of employees, they're really impressed. And if you say you have a low number of employees, then you sound like sort of this little joke. Um, but actually it sucks to have a lot of employees and you should be proud of how few employees you can have. Lots of employees ends up with things like a high burn rate, meaning that you're losing a lot of money every month, complexity, tension, slow decision making. The list goes on but it's nothing good. So you want a culture where people work hard and pay attention to detail and focus on the customer and are frugal um, you have to do it yourself there is no other way. You cannot hire a COO and have them, you know, do this while you go off to conferences. The company just needs to see you as like this maniacal execution machine.

As I said in the first lecture, there's like a hundred times at least more people with great ideas. Than people that are willing to put in the effort, um, to execute them well. Ideas by themselves are not worth anything. Only executing well is what, what adds value, or what creates value. A big part of execution is just putting in the effort. Um, but there is a lot you can learn about how to be good at it and so we're gonna have I think three classes that just talk about this. Uh, so the CEO, people have asked me a bunch of times like the jobs of the start up CEO. And there are probably more than five but, you know, here are five that come up a lot in the early days. Um, the first four, I think everyone thinks of as CEO jobs. Set the vision. Raise money. Evangelize the company to people you're trying to recruit. Existing employees, partners, press, customers, everybody. Hire and manage the team. Um, but the fifth one is setting the execution bar, and this is not something that most founders get excited about. Probably think about themselves doing that I think is actually one of the critical CEO roles. And no one but the CEO can do this.

Um execution gets divided into two, two key questions. One can you figure out what to do? And two can you get it done? Um so I wanna talk about two parts of getting it done. Assuming that you've already figured out what to do. Um, and those are focus and intensity. Ah, so, so focus is critical. Um, one of my favorite questions to ask founders is what they're spending their time and money on. Um, this reveals almost everything about what founders think is important. One of the hardest parts about being a founder. Is it there are 100 important things competing for your attention every day. Um, and you have to identify the right two or three, work on those and then ignore or delegate or defer the rest. And a lot of these things that that founders think are really important, you know. Interviewing a lot of different law firms, going to conferences, recruiting advisors, whatever, they just don't matter, right? And what really does matter, varies with time but. it's an important piece of May Day advice. You need to figure out what the two or three most important things are and then just do those. And you can only have two or three things every day, because everything else will just come at you. You know fires of the day, and if you don't get really good at setting what these two or three priorities are every day. Um, you'll never be great at actually getting stuff done.

This is really hard for founders right. Founders are people that get excited by starting new things. Unfortunately, the trick to great execution is to say no a lot. You know, you're saying no 97 times out of 100, um, and most founders find that they have to make a very conscious effort to do this. Most startups are not nearly focused enough. They work really hard, maybe, but they don't work hard on the right things. And you'll still fail. Um, one of the great and terrible things about starting a startup is that you get no credit for trying. You only get points when you make something that the market wants. So if you work really hard on the wrong things. Uh, no one will care. So then there's this question of how do you figure out what to focus on each day? And this is where it's really important to have goals. Most good founders that I know uh at any given time have a small number of overarching goals for the company. Everybody in the company knows. Could be things like ship a product by this date. You know, maintain this growth rate, get this certain engagement rate, hire for these key roles, get this deal done. But anybody could tell you in the company every week, what are our, what are our key goals? And then everybody executes based off of that.

The founder really does set the focus. Um, whatever the founder cares about, whatever the founders think are the key goals. Um, that's going to be what the whole company focuses on. And, and the best founders repeat these goals over and over far more often than they think they should need to. They put em up on the walls, they talk about them in one on one's, all hands meeting every week. Um, but it keeps the company focused. One of the keys to focus on why I said I think. Co-founders in different places struggle is that you can't be focused without really great communication. Um, even if you only have say four or five people in a company. A small communication breakdown is enough for everybody to be working on slightly different things. Um, and then you lose focus and the company just scrambles.

I'm going to talk about this a little bit more later. Um, but growth and momentum are something you can never lose focus on. Uh, growth and momentum are what a start up lives on. And you always have to focus on maintaining these. You should always know how you are doing against your metrics. You should have a weekly review meeting every week and you should be extremely suspicious if you're ever talking about. We're not focused on growth right now, we're not growing that well right now, but. we're doing this other thing, you know. We don't have, we don't have a timeline for when we're gonna ship this cuz were focused on this other thing. We're doing a rebrand, whatever, almost always a disaster. So you wanna have the right metrics and you want to be focused on growing those metrics and having momentum. Um, don't, don't let the company get distracted or excited by other things.

Um, a common mistake is that company's gets excited by their own PR. It's really easy to get PR with no results and it feels like your actually really cool. But in a year, you'll still have nothing, and at that point you won't be cool anymore. And you'll just be talking about these articles from a year ago. That oh, you know, like these Standford students start this new startup, it's gonna be the next big thing. And now you have nothing, and that sucks. Um, and then, as I mentioned already, be in the same space. Ah, this is like, I think this is pretty much a non starter. Remote co-founding teams is just really really hard. It slows down the cycle time more than anybody ever thinks it's going to.

Intensity

The other piece, besides focus for execution is intensity. Um, startups only work at a fairly intense level. Um, a friend of mine says that the secret to startups is extreme focus and extreme dedication. You know you can like a have a startup in one other thing, you can have a startup in a family but you probably can't have many other hobbies. Startups are not the best choice for work life balance. And that's sort of just, the sad reality. There's a lot of great things about a startup, but this is not one of them. They are all consuming in a way that is difficult to explain. You, you generally need to be willing to outwork your competitors. The good news here, uh, why that's hard to see um, is that a small amount of extra work on the right thing. Makes a huge difference. One example that I like to give is thinking about the viral coefficient for a consumer web product. How many users how many new users each existing user brings in. If it's .99 the company will eventually flatline and then die. Uh, and if it's 1.01 you'll be in this happy place of exponential growth forever. Um, so this is just one concrete example of where a tiny bit of extra work is the difference between success and failure. And, when we talk to successful founders they tell stories like this all the time. You know, just outworking their competitors by a little bit, was what made them successful.

Um, so you have to be really intense, you know, this only comes from the CEO, this only comes from the founders. Uh, one of the biggest advantages that startups have is execution speed and you have to have this relentless operating rhythm. Um, Facebook has this famous that says, move fast and break things. Um, but at the same time, they manage to be obsessed with quality. And this is why it's hard. It's easy to move fast or be obsessed with quality. Um, the trick is that you have to do both at a start up. Um, you need to have a culture where people have very high quality standards for everything the company does but still move quickly. Ah, Apple Facebook and Google have all done this extremely well. It's not just about the product um, it's about everything they do. They move fast and they break things and they're frugal in the right places. But they care about quality everywhere. Um, you know you don't buy people shitty computers if you don't want them to write shitty code. You really have to you do have to set a quality bar that runs through the entire company.

Related to this is that you have to be decisive. Um, indecisiveness is a start up killer. Mediocre founders spend a lot of time talking about grand plans but they never quite make this decision. You know, they're, they're talking about well I could do this thing that sounds great or I could do this other thing. And they keep going back and forth and they don't act. Now what you actually need is this bias towards action. Um, the best founders work on things that seem small but they move really quickly, uh, they get things done really quickly. Every time you talk to the best founders, they, they've got new things done. In fact, this is the one thing that we learned best predicts success of founders in YC. If every time we talk to a team they've gotten new things done that's the best predictor we have of the company will go on to be successful.

Part of this is that you can do huge things by, in incremental pieces. If you just keep knocking down small chunks one at a time. In an year you look back you've done this amazing thing. On the other hand if you disappear for an year. And you expect to come back with something amazing all at once it usually never happens. You have to pick these right sized projects. You know even if you're building this crazy synthetic biology company. Um, most people would say well I have to go away for an year, I can't do this incrementally. There is almost always a way to break it down, into smaller projects.

Um, so speed is this huge premium, right? The, the best founders usually respond to email, the most quickly. Um, they make decisions the most quickly. They're generally quick in all these different ways. Um, and they just have this do whatever it takes attitude. They also show up a lot. Um, they come to you know, they come to meetings they come in they meet us in person. Um, one piece of advice uh, that I have. It's always worked for me is that they get on planes in marginal situations. Um, how we doing on time? I'll tell a quick story here. Uh, when I was running my own company um we found out that we were about to lose a deal. And it was sort of this, this critical deal from the first big customer in the space. Uh, and it was gonna go to this company that had been around for years before we were. Um, and they had us, like, all locked up. So we called. We said, hey we have this better product. You gotta meet with us. They said, you know what. We're signing this deal tomorrow. Sorry. Um, we drove to the airport. We got on a plane. Um, we were at their office at 6AM the next morning. We just sat there. They told us to go away. We just kept sitting there. Um, finally one of the junior guys decided to meet with us. Um, finally after that, one of the senior guys decided to meet with us. They ended up ripping up the contract and sell their company. Um, and we closed the deal with them about a week later. Uh, and I'm sure that had we not gotten on a plane, had we not shown up in person, that would not have worked out. Um, and so you just sort of like, you show up, you do these things, you know. Uh, it's, when people say get on planes in marginal situations they usually mean it. Um, all right.

Six minutes, so. I'll skip that part then.

Momentum

I mentioned this momentum and growth earlier. Uh, once more, that momentum and growth are the lifeblood of startups. Um, this is the probably in the top three secrets to executing well. You want a company to be winning all the time. If you ever take your foot off the gas pedal, things will spiral out of control, snowball downwards. Um, a winning team feels good and keeps winning. A team that hasn't won in a while gets demotivated and keeps losing. So always keep momentum is this prime directive for managing a start up. Um, if I can only tell founders one thing about how to, how to run a company, it would be this. For most start, software startups, this translates to keep growing. For hardware startups it translates to don't let your ship date slip. Um, this is what we tell people during YC, and they usually listen, everything is good. Um, what happens after the end of YC is that they get distracted on other things. And then growth slows down. And somehow after that happens, people start getting unhappy and quitting and then everything falls apart.

It's hard to figure out a growth engine because most companies grow in new ways. Um, but there is this thing about if you built a good product, it will grow. And so getting this good, this product right at the beginning is the best way to not lose momentum later. If you do lose momentum, most founders try to get it back in the wrong way. They give these long speeches about vision for the company and they try to rally the troops with, with speeches. Um, but employees in a company where momentum has sagged don't wanna hear that. Um, you have to save the vision speeches for when the company's winning. When you're not winning, you just have to get momentum back in small wins. Um, a board member of mine used to say that sales fix everything in a startup, and that is really true. So you figure out where you can get these small wins, and you get that done. And then you'll be amazed how all the other problems in a startup disappear.

Uh, another thing that you'll notice if you have momentum sag is that everyone starts disagreeing about what to do. Fights come out when a company loses momentum. Uh, and so a framework for that that I think works is. That when there's disagreement among the team about what to do, then you ask your users and you do whatever your users tell you. And you have to remind people like, hey, stuffs not working right now we don't actually hate each other. Um, we just need to get back on track and everything will work. And if you just call it out, if you just acknowledge that um, you'll find that things will get way better.

To use a Facebook example again, when Facebook's growth slowed in 2008 Mark instituted a growth group. They worked on very small things to make Facebook real faster. Uh, all of these things by themselves seemed really small, but they got the, the curve of Facebook back up. Um, it quickly became the most prestigious group there. Um, Marcus said that it's been one of Facebook's best innovations. Um, according to friends of mine that worked at Facebook at the time. It really turned around the dynamic of the company. And went from this thing where everyone was feeling bad and the momentum was gone, back to a place that was winning. So a good way to to keep momentum is to establish an operating rhythm in the company early. Where you ship product and lauch new features on this regular basis. Uh, where you're reviewing metrics you know, every week with the entire company. Uh, this is actually one of the best things your board can do for you. Um, boards add value to business strategy only rarely. Um, but very frequently, you can use them as a forcing function to get the company to care about metrics, and milestones.

Um, one thing that often disrupts momentum and really shouldn't is competitors. Competitors making noise in the press, I think probably crushes a company's momentum more often than any other external factor. Um, so here's a good rule of thumb. Don't worry about a competitor at all. Um, until they're actually leaving you with a real, shipped product. Uh, press releases are easier to write than code, um, and that is still easier than making a great product. So remind your company of this, and don't, this is sort of a founders rule, is not to let the company get down because of the competitors and the press. Um, this great quote from Henry Ford that I love. The competitor to be feared is one who never bothers about you at all. But goes on making his own business better all the time. These are almost never the companies that put out a lot of press releases, and they bum people out.

Should we move on to this section... You know what, we'll cover this in a later lecture. I will talk about, uh, finance dealmaking and distribution. Are there any questions? Okay, so on Tuesday, Paul Graham is going to speak. See you then. Thank you.