Startup2Startup

Y Combinator has occasionally been criticized as lacking commercial focus. Their mantra “make something people want” says nothing about a business model. But Paul Graham and Jessica Livingston clearly demonstrated at the November Startup2Startup dinner (photos by Nandor Fejer) that they’ve always been about building solid businesses. The only difference now is that they’re stressing monetization a bit earlier. In fact, four companies in their recent “cycle” have already reached positive cash flow – admittedly on bare bone costs (Paul defined this as “ramen profitability”).

The first step to building a solid business is getting the product right. As Graham explains “get product right and there is a lot of room to make mistakes.” In my experience with Xobni and Dropbox (both Y Combinator startups) this focus has greatly facilitated our marketing job. Both were instilled early with a culture of trying to understand users. It is not unusual for Y Combinator startups to show their website to Starbucks customers and ask “would you use this?” Graham encourages startups to apply this intelligence by making every word on the front page of their website count, either explaining what the application is or causing people to do what you want them to do. Even if they don’t necessarily call it marketing, Y Combinator is clearly very savvy about customer development.

Beyond laying a strong marketing foundation, Graham also described how Y Combinator companies all help and protect each other. Dave McClure, who moderated the discussion, joked that Y Combinator sounded a bit like a “startup union.” Graham concurred warning that you don’t want to piss off a Y Combinator company, and noted the growing Y Combinator alumni network numbers over 250 people and more than 100 startups.

So how do aspiring entrepreneurs gain acceptance into the exclusive Y Combinator community? It starts with an application and then the most promising groups are invited for interviews. Surprisingly the final decision is made after only a 10 minute interview. Y Combinator prefers teams with either 2 or 3 founders, noting those startups appear to perform better on average than those with only a single founder, or 4 or more. Partner Jessica Livingston describes the ideal founders as relentless, determined – even a bit crazy, or at least less subject to peer pressure. You have to be willing to keep trying new things and refuse to die. Paul Graham adds that you need to be clear in your own head about what you are doing and be able to explain it to people.

And the reward for entry into Y Combinator? Beyond the cash ($5,000 plus $5,000 per founder), Y Combinator startups receive critical guidance and VC introductions often needed for “success” – which Graham defines as the “founders getting rich” or a “significant exit”. While his preference is for building great companies that keep rolling the dice, he admits that it sometimes makes sense for first-time entrepreneurs to opt for an earlier exit.

Following the inspiring interview of the YCombinator partners, the Startup2Startup participants broke into round table discussions. Topics progressed from funding strategies to non-founder salaries. While the focus is on helping rookie entrepreneurs, even the startup vets gain valuable new insights and relationships from Startup2Startup dinners.

Our speakers for November will be Paul Graham & Jessica Livingston, of Y Combinator and Startup School. Paul will be speaking on what makes startups succeed. Jessica will also speak about her book Founders at Work and offer her thoughts on successful startup founders.

Paul Graham, Y Combinator
Paul Graham is an essayist, programmer, and programming language designer. In 1995 he developed with Robert Morris the first web-based application, Viaweb, which was acquired by Yahoo in 1998 and later became Yahoo! Stores. In 2002 he described a simple statistical spam filter that inspired most current filters. He’s currently working on a new programming language called Arc, a new book on startups, and is one of the partners in Y Combinator.

Paul is the author of On Lisp (Prentice Hall, 1993), ANSI Common Lisp (Prentice Hall, 1995), and Hackers & Painters (O’Reilly, 2004).
Paul has an AB from Cornell and a PhD in Computer Science from Harvard, and studied painting at RISD and the Accademia di Belle Arti in Florence.

Jessica Livingston, Founders at Work
Jessica Livingston is a founding partner at Y Combinator, a seed-stage venture firm based in Cambridge, MA, and Mountain View, CA. She is also the author of Founders at Work, a book about startup entrepreneurs.

Jessica was previously VP Marketing at investment bank Adams Harkness. In addition to her work with startups at Y Combinator, she organizes Startup School.
Jessica has a BA in English from Bucknell.

Our speakers for October are Reid Hoffman & Matt Cohler. Reid is Chairman and President, Products at LinkedIn, and formerly EVP at PayPal. Matt is a General Partner at Benchmark Capital, and formerly VP Product at Facebook. Reid & Matt will speak about social networks and platforms, and the emerging social web. Given the current market conditions, we’ve also asked them to speak about building startups in tough times, noting LinkedIn and Facebook as two examples of great companies started during the previous 2001-2004 “dotcom depression”.

Reid Hoffman, LinkedIn
Reid Hoffman is founder and Chairman at LinkedIn, and was the founding CEO for its first four years before moving to his current role as President, Products in February 2007. While CEO, Reid built the company to over 9 million members and profitability. He now drives product and business strategy for LinkedIn.

Prior to LinkedIn, Reid was Executive Vice President of PayPal, where he was in charge of business development, corporate development, international & government relations, and banking/payments infrastructure. While at PayPal, Reid was instrumental to the acquisition by eBay and was responsible for partnerships with Intuit, Visa, MasterCard and Wells Fargo. Prior to PayPal, Reid held management roles at both Fujitsu and Apple. Reid currently serves on the Board of Directors for SixApart and Mozilla Corporation. He graduated with distinction from Stanford University with a BS in Symbolic Systems and from Oxford University with a Master’s degree in philosophy.

Matt Cohler, Benchmark Capital
Matt Cohler is a General Partner with Benchmark Capital. He has extensive experience working with consumer Internet companies, and has held senior management roles at Facebook and LinkedIn. Matt joined Facebook in early 2005 and recently served as Facebook’s VP Product Management, where he helped drive strategy, organizational growth and product direction. Matt is now a special advisor to Facebook.

Previously Matt was VP and General Manager at LinkedIn, where he was a member of the company’s founding team. Before LinkedIn, he was a consultant in McKinsey in Silicon Valley and also worked in Beijing for AsiaInfo. Matt holds a BA from Yale University and graduated with honors and distinction.

Mike Cassidy gave the keynote at our last Startup2Startup event. Mike preached speed as an integral part in creating over three quarters of a billion dollars in value from the three startups he’s founded (Xfire, Direct Hit, and Stylus Innovation).

He highlighted four main benefits of speed: beating the competition to a product, increasing morale, generating buzz, and generating advantageous investing terms. Most of his companies started off bootstraped and prototyped within weeks, and expected to launch within 4 months. He spoke of locking down office space while picking up funding. His biggest hit, DirectHit, sold within 500 days of launching.

When Cassidy spoke about business deals and financing he also touched on flexibility. He suggested getting all the decision makers and following a strategy of if/then contracts that make deals a no brainer if both sides meet metrics. He also spoke about aiming your first deals at secondary players more willing to get in on something new. Don’t waste your time on clients that don’t have a history of dealing with startups. And put a time table on closing deals. The prospect of closing a deal declines drastically with each passing day.

A corollary to Mike’s push for speed, was experience. Mike highlighted how most of his startups consisted of employees he’d had experience with. For people he didn’t know, his companies would hold one day hirings, where they’d interview the candidate, huddle to talk over the prospect, and have an offer out by the end of the day. Also, when you have a new employee, make sure they’re prepared for their first day.

Mike tempered his push for speed with a pop quiz question to the crowd over whether launching soon and iterating was a better strategy than taking your time. Mike moved quickly in each case (3.5 months), but acknowledged not all startups have the ability to iterate on their products in the wild.

After the speech, the mix of entrepreneurs and venture capiltalists at the tables swapped stories and advice.

Speed is an essential quality of any startup looking to take on and usurp its incumbents. Speed to market, speed to funding, speed to hiring and firing all contribute to the success of a young company.

The speaker for our May Startup2Startup dinner will be Mike Cassidy, a veteran of 3 successful startups. Mike’s talk is titled “Speed: The Ultimate Startup Weapon”, and he’ll speak on how to compress your business creation and product launch to just over 3 months.

Mike is no stranger to speed. He’s raised 7 rounds of venture capital for his 3 businesses totaling over $40M, which were later sold for more than $600M altogether. Five of the rounds involved getting a signed term sheet on the same day the presentation to the VC firm was made.

Mike Cassidy has been co-founder and CEO of three start-ups: Xfire, Direct Hit, and Stylus Innovation. Xfire is an IM and P2P service for online gamers that lets them play with their friends more easily, and has over 9M registered gamers in more than 100 countries. Viacom/MTV acquired Xfire for $110 million. Direct Hit was a revolutionary Internet search engine whose customers included MSN, Lycos, AOL, and dozens of others. Ask Jeeves acquired Direct Hit for $500 million. Stylus Innovation’s flagship product was the award winning computer telephony software Visual Voice.

Mike is on the Board of Advisors of Jazz at Lincoln Center and is on the Visiting Committee Board of the MIT Media Lab. Mike studied jazz piano at the Berklee College of Music. Mike has a BS and MS in Aerospace Engineering from MIT, and he graduated from Harvard Business School.

Hello, world. This is Dave McClure, and this is the first blog post for Startup2Startup.

For some time now, I’ve been meaning to put together a monthly dinner event for startup entrepreneurs in the style of the old Round Zero meetings that ended in 2001 / 2002 after the dot com crash. Of course there are already plenty of great technology & entrepreneurship events in the SF bay area, but i wanted to create a unique new group focused on:

1. connecting great people, specifically to introduce old hands & new talent
2. in-depth monthly conversations on one (1) notable tech or entrepreneur topic
3. sharing experiences openly, with the explicit goal of helping new startups

After spending close to twenty years in Silicon Valley working on startups and technology, i’m still fascinated by all the great stuff that keeps coming down the pipe. And i’m always impressed by the generosity and enthusiasm of most geeks & entrepreneurs who are willing to share their experience — both positive & negative — and how they keep trying to build a better mousetrap.

Given how brave (and stupid) those of us are who attempt to launch a new startup, i thought it would be helpful to have a regular conversation where we learn about a new topic of interest, get to know the next generation of entrepreneurs, and share the success & mistakes of the past generation. With luck, perhaps the new folks will at least avoid a few of the same piles we’ve stepped in previously.