Paul Graham’s greatest advice for startuppers
For anyone thinking of starting a company, Paul Graham’s essays are must reads. Here is a list of my favorite ones, with some key insights.
Many people became famous by starting successful companies. Mark Zuckerberg, Bill Gates, Steve Jobs are all household names. It is much more unusual to become famous in the startup ecosystem, by investing in, or otherwise supporting startups—but Paul Graham did just that.
As the founder of Y Combinator, Graham created a new paradigm for early stage startup funding, and became a legend among startup founders.
His fame was helped by his generosity with his thinking. From 1993 to 2020, he published 188 essays on his website, totalling some 500k words, or about 1000 pages. Some of them have been among my must-reads for a long time, but I recently took it upon myself to read and summarize all of them, in the quest for new nuggets of wisdom.
This is a personal selection of my favorite of his essays (Paul prefers that word to “article” or “post”, and he will tell you why). I don’t pretend these are the objective “best”, simply those that have had the biggest impact on myself, at this moment in my life. I definitely encourage anyone who find these interesting to go through the rest of Paul’s content in search of further insight.
Also, this selection is of essays about the world of startups. If you are more interested in learning about writing, wisdom, or having kids, among others, definitely check PG’s content on those topics.
My selection is presented with no particular order except for a categorization. I have retained essays:
Enjoy!
1. On startups and their operation
These essays all talk about different aspects of how an early stage startup should be run: what to prioritize, what to watch out for.
These are all must-reads for a variety of people: startup founders, early employees, intrapreneurs, investors, and many more. If you plan to start something new, regardless of how you call yourself, do yourself a favor and read these.
Do Things that Don’t Scale
“The need to do something unscalably laborious to get started is so nearly universal that it might be a good idea to stop thinking of startup ideas as scalars. Instead we should try thinking of them as pairs of what you’re going to build, plus the unscalable thing(s) you’re going to do initially to get the company going.”
Selecting these nineteen top essays was a long and arduous process. But if I had to choose only one, it would have been very easy: Do Things that Don’t Scale. This is the single most important thing I’ve read about running a startup, and the one I’ve shared most with other founders.
At its core, its advice is all in the title: do things that don’t scale. And yet it takes a full essay to explain why you should do such a counterintuitive thing. Startups are all about growth, about getting huge! Surely scalability should be a core concern?
Well no. Startups are all about growth, yes, but exponential growth often defies our intuitions. If you have a 10% weekly growth, you will do 1420% in a year, so you’ll be on a path to become huge. But if you currently have 100 users, a 10% weekly growth requires you to get 10 new users, this week. In a couple of weeks you’ll need to add 20 per week, and so on. These are not big numbers, for which you’d need a massive scalable infrastructure: this is something you can do manually.
But not only is it possible early on to do by hand things that you will have to automate down the road, it is critical that you do so to learn: you will only be able to do a successful outreach campaign if you have first spoken with tens of users and understood their pain.
You can also start by doing by hand things that you intend to automate in your software. Sure, copying and pasting data in the back-end of your application is not scalable, but by doing so you will learn what is actually needed by your users. If you spend a couple of days doing by hand something that your users don’t need, you can simply stop. But if you spend a couple of weeks or months automating it, this is a lot of scarce resources you will have wasted.
So, while you should hope for your company to become huge, don’t get distracted thinking about scalability now: find out what your users need. If you nail that question, you will have the resources to cope with scale when that problem arises.
Startup = Growth
There is a lot of talk about growth in the world of startups. Paul Graham goes one step further in Startup = Growth by pointing out that growth is actually what defines a startup. Not its young age, not its small size, but growth. As such, growth should be the first and last thing on the founders’ minds. The perfect summary of the essay is actually provided in the essay itself, so here you go:
“If you want to understand startups, understand growth. Growth drives everything in this world. Growth is why startups usually work on technology — because ideas for fast growing companies are so rare that the best way to find new ones is to discover those recently made viable by change, and technology is the best source of rapid change. Growth is why it’s a rational choice economically for so many founders to try starting a startup: growth makes the successful companies so valuable that the expected value is high even though the risk is too. Growth is why VCs want to invest in startups: not just because the returns are high but also because generating returns from capital gains is easier to manage than generating returns from dividends. Growth explains why the most successful startups take VC money even if they don’t need to: it lets them choose their growth rate. And growth explains why successful startups almost invariably get acquisition offers. To acquirers a fast-growing company is not merely valuable but dangerous too.”
Default Alive or Default Dead?
The first question Paul Graham asks startup founders is: is the company default alive or default dead? Meaning: can they make it to profitability with the cash they have, right now? If the answer is yes, the company is “default alive”, and you can start planning about the future. If not, the company is “default dead” and the right course of action is working to save it—often by cutting costs.
This is an important one, and one that founders should start asking early rather than late (after 8-9 months of operation already, according to PG). Many startups are “default dead”, but the founders think they will just raise money to keep operating. This is a bad idea:
“Here’s a common way startups die. They make something moderately appealing and have decent initial growth. They raise their first round fairly easily, because the founders seem smart and the idea sounds plausible. But because the product is only moderately appealing, growth is ok but not great. The founders convince themselves that hiring a bunch of people is the way to boost growth. Their investors agree. But (because the product is only moderately appealing) the growth never comes. Now they’re rapidly running out of runway. They hope further investment will save them. But because they have high expenses and slow growth, they’re now unappealing to investors. They’re unable to raise more, and the company dies.”
Moreover, Paul Graham points out that having lots of people does not help when your goal is to find what you users really want, and in many cases it’s a drawback. So stay lean, and grow only when you need to—and can do it sustainably.
Ramen Profitable
When you know that you should work to be default alive, the question becomes, what does that mean? When can a company be considered default alive?
For a normal company, this means profitability, which means covering the company’s expenses and payroll. For a startup, it doesn’t need to be this way. A startup can be “ramen profitable” when it can generate enough cash to cover the living expenses of the founders. That can be a couple of thousand dollars per month.
Once you have reached this stage, you are default alive. You are not comfortable, but you don’t need to raise money to keep operating. It will remove the stress of fundraising because you will know you will live, no matter what, and it will put you in a much stronger bargaining position.
This also means that you’re serious about keeping expenses low, which is something investors like, since ballooning expenses are one of the main startup killers.
As the man himself tells it:
“Traditional profitability means a big bet is finally paying off, whereas the main importance of ramen profitability is that it buys you time”
The 18 Mistakes That Kill Startups
The title says it all. In this one, Paul Graham lists… key mistakes that kill startups. But as he himself states:
“In a sense there’s just one mistake that kills startups: not making something users want. If you make something users want, you’ll probably be fine, whatever else you do or don’t do. And if you don’t make something users want, then you’re dead, whatever else you do or don’t do. So really this is a list of 18 things that cause startups not to make something users want. Nearly all failure funnels through that.”
It’s worth checking out the entire essay, and the list. If you are running a startup, I would go one step further and recommend you print this out and go over it periodically, perhaps once per month or quarter. Reflecting on it will not be a waste of time, and may prevent you from doing a costly mistake.
2. For startup founders
These are the essays about what it’s like to start a startup. Read them if you are running a company, or, especially, if you are considering starting one. It’s hard to convey the toll startups take on their founders, but these essays do a great job of giving perspective.
Before the Startup
This essay is derived from one of Paul Graham’s lectures at Stanford, so you can also choose to watch the video (below).
In it, he goes over what you should (and shouldn’t) do in college if you’re interested in starting a startup. As with his points on startup ideas, below, there is no “trick”. It’s not a matter of “study business and minor in CS and you’re good to go”, the truth is much more complicated.
“The way to succeed in a startup is not to be an expert on startups, but to be an expert on your users and the problem you’re solving for them”
There is no recipe for startups: if there were, all good ideas would already have been exploited. So the recipe is not to be an expert on entrepreneurship, but to be an expert in your field, whatever that field may be. Work on interesting problems, and especially try to work in fields other than what you’re studying: this is where your studies will allow you to find non-conventional solutions.
Also, PG stresses how all-consuming startup life is, and how nothing can teach you whether that’s something for you: you’ll have to try.
What We Look for in Founders
Paul Graham founded Y Combinator, and Y Combinator in turn funded over 2000 companies, so all in all the YC team saw a lot of founding teams. This essay breaks down what they are looking for in founders. It’s worth reading it through, but the list of top criteria is enlightening in itself: Determination, Flexibility, Imagination, Naughtiness, and Friendship.
Notice something? Indeed, intelligence didn’t make the cut. Here’s why:
“[Determination] has turned out to be the most important quality in startup founders. We thought when we started Y Combinator that the most important quality would be intelligence. That’s the myth in the Valley. And certainly you don’t want founders to be stupid. But as long as you’re over a certain threshold of intelligence, what matters most is determination. You’re going to hit a lot of obstacles. You can’t be the sort of person who gets demoralized easily.”
“A year ago I noticed a pattern in the least successful startups we’d funded: they all seemed hard to talk to. It felt as if there was some kind of wall between us. I could never quite tell if they understood what I was saying.”
The top quality of the successful founders supported by Y Combinator turns out to be resourcefulness: they will do whatever they need to to get to their ends. Paul Graham compares that to the relative difficulty to talk to the less successful entrepreneurs and concludes that both are linked: the resourceful hear what you say and will chase down all of its implications.
As I mentioned before, Do Things that Don’t Scale is the most influential thing I’ve read on startups, and the one I shared the most. What struck me when reading A Word to the Resourceful was when I remembered the number of founders to which I had to share it or at least point back to it several times…
The Top Idea in Your Mind
I had initially rejected this one for my list, but saw myself getting back to it so often that I had to add it. It starts with a simple premise: we all know that the shower is a great place to have good ideas, as are many other moments that may seem idle. The thing is, the ideas we have in these moments can only be about the one thing that occupies the top spot in our mind.
The consequence of this is that founders (or those who aren’t Elon Musk, I guess) should make sure to keep one and only one top thing on their mind at any time. This means that, when you have to raise funds, you should stop working on anything else and raise full-time until you’re done and you can get back to growing your company.
This essay also helped me understand why I was so ill-at-ease with entrepreneurs who told me they kept a side job next to their startup. “It’s not a big deal”, they invariably tell me, “I still have plenty of time to dedicate to my company!” That may be so, but if the startup needs to share founders’ brain cycles with other jobs, it will not be the top thing on the founders’ minds, and they will therefore miss all of the insights you get by idly thinking about your project. And in that case, their efficiency growing their startup would suffer much more than the time lost to the other job may have foretold.
“I’d noticed startups got way less done when they started raising money, but it was not till we ourselves raised money that I understood why. The problem is not the actual time it takes to meet with investors. The problem is that once you start raising money, raising money becomes the top idea in your mind. That becomes what you think about when you take a shower in the morning. And that means other questions aren’t.”
3. On startup funding
These essays are must reads if you are raising funds, or planning to start a company that will need to do so. It is very, very hard to understand the investors’ perspective when judging a company, and the risks associated with fundraising. Paul Graham’s essays about this are the very best resources I’ve been able to find.
How to Fund a Startup
This essay is a great overview of the different sources of funding a startup can use, along with the considerations each different type of investor will have when evaluating your company. Although it is slightly dated, and doesn’t cover some of the innovations Y Combinator itself brought to the field later on, it is a great overview and a place to get started before going into specifics.
Here’s what Paul has to say about funding, in general:
“I think it would help founders to understand funding better—not just the mechanics of it, but what investors are thinking. I was surprised recently when I realized that all the worst problems we faced in our startup were due not to competitors, but investors. Dealing with competitors was easy by comparison.”
How to Raise Money
How to Raise Money focuses on one particular stage of the funding of a startup: when you have a working prototype or a beta product, and you are looking for anywhere between a couple of hundred k to a couple of millions to reach your next milestone. This is the first round where you will usually stop dealing with angels and start working with institutional investors, who are a very different sort of people. As Graham notes:
“To founders, the behavior of investors is often opaque — partly because their motivations are obscure, but partly because they deliberately mislead you. And the misleading ways of investors combine horribly with the wishful thinking of inexperienced founders. At YC [...] we witness a constant series of explosions as these two volatile components combine.”
Since so much about fundraising is counterintuitive, PG recommends imposing yourself external constraints, to avoid being led into the wall by your intuition. This essay is a series of such rules you should adopt when you raise or plan to raise funds, to maximize your chances of success.
How to Convince Investors
One of the counterintuitive things about VCs is that they don’t care if you have a modest success. They want you to have a chance, however small, of becoming huge. To get there, you need, in the words of Paul Graham: a) formidable founders, b) a promising market, and c) some evidence of prior success.
He emphasises the need to stick to the truth and not try to bullshit your way to funding. Just be a domain expert and explain why your company has a shot at owning a big piece of a big market. The very last sentence of the essay is its best summary:
“So here’s the recipe for impressing investors when you’re not already good at seeming formidable:
i. Make something worth investing in
ii. Understand why it’s worth investing in
iii. Explain that clearly to investors”
A Unified Theory of VC Suckage
Lots of people feel VCs suck, for a variety of reasons. Here Paul Graham explains why it is so. In short, it comes from their structure: VCs operate funds, and get paid as a proportion of the assets they manage, so they want the fund to be as large as possible. But since any given partner in the fund can manage only so many deals, it means that each deal has to be large.
Take the example of Softbank and their monster $100b fund. If they had been signing $1m checks, they would have had to manage 100’000 startups. That’s not feasible, so they decided to shower a couple of companies with vast amounts of money.
This leads to some of the core sucky characteristics of VCs:
They take very long to make up their minds. But since so much is at stake, they can’t help but be paranoid
They want to control you (by taking board seats or even replacing you as CEO), since they fear losing their investment
The large rounds force high valuations, which in turn reduces your options for an exit or a new round in the future
“I realize now that [VCs are] not intrinsically jerks. VCs are like car salesmen or bureaucrats: the nature of their work turns them into jerks.”
Subject: Airbnb
On a lighter note maybe, and to help cope with the inevitable rejection that comes with fundraising, this essay is an exchange of emails between Paul Graham and Fred Wilson about a tiny Y Combinator startup called AirBNB. Fred Wilson ended up not investing in the company.
It shows, on the one hand, how even one of the very best investors can miss one of the very best deals. It also shows one of the lesser known phenomena in the startup world: investors convincing other investors to invest in companies. As Paul Graham says it:
“It’s an interesting illustration of an element of the startup ecosystem that few except the participants ever see: investors trying to convince one another to invest in their portfolio companies. Hundreds if not thousands of conversations of this type are happening now, but if one has ever been published, I haven’t seen it.”
4. On getting startup ideas
Now this is the big question, really the million dollar question, in a very literal sense: how do you get an idea for a startup? I know I’ve had lots of (mostly late-night) discussions about this before starting a company of my own.
Paul Graham doesn’t give an easy “trick” to solve this conundrum, and indeed argues not only that there is no trick, but that the idea is not, in fact, the million dollar aspect of the startup: its execution is.
By the nature of the subject, there is a lot of overlap between these essays, though each one presents a different angle on the problem, and all of them should be must reads if you’re in college or in a corporate job and you are thinking about starting a company someday—only you don’t yet know what it will do.
The gist of it is: you don’t think up startup ideas, you notice them. And the best way to notice startup ideas is to live in the future, and look at what is missing.
How to Get Startup Ideas
This essay is the core of Paul Graham’s ideas on startup ideas. As mentioned in the intro: you don’t “think up” startup ideas, you “notice” them.
What does it mean? Well most of the biggest startups started on a problem the founders wanted to solve for themselves: Drew Houston forgot his USB stick so he thought he really needed to make his files accessible on-line, and he created Dropbox. Bill Gates really wanted to program the Altair in something else than machine code so he built a compiler for it, which became Microsoft.
The implication is that, to find good startup ideas, you should be looking for problems, especially problems you have yourself. If you start by looking for a startup idea, chances are you’ll solve a problem no one has.
This means, in turn, that you should focus on learning about some field, and not entrepreneurship. Entrepreneurship is the easy part you can learn later on: the hard one is becoming a master of one domain, so that you can see problems no one else does. In short:
“Being at the leading edge of a field doesn’t mean you have to be one of the people pushing it forward. You can also be at the leading edge as a user. It was not so much because he was a programmer that Facebook seemed a good idea to Mark Zuckerberg as because he used computers so much. If you’d asked most 40 year olds in 2004 whether they’d like to publish their lives semi-publicly on the Internet, they’d have been horrified at the idea. But Mark already lived online; to him it seemed natural.”
The Bus Ticket Theory of Genius
The Bus Ticket Theory of Genius goes one step beyond How to Get Startup Ideas by exploring the psychology and motivations of people who move their fields forward. Paul Graham’s explanation for it is that they are people who have a true passion for what they are doing: they are not doing it to impress or to get rich, but for its own sake.
By doing it for its own sake, this means that they will be able to go further than others, by exploring paths that seemed unpromising to others.
Paul Grahm’s recommendation to get there is to cultivate your interests, wherever they may lie. In particular, if you love something that’s difficult, or more difficult for other people than for you, you should keep at it: this is a field where you could have an edge by your intrinsic passion.
This is, for Paul Graham, the missing ingredient for success:
“Everyone knows that to do great work you need both natural ability and determination. But there’s a third ingredient that’s not as well understood: an obsessive interest in a particular topic.”
Schlep Blindness
This essay has a simple but profound insight: people overlook problems that involve lots of tedious and/or difficult work. And it’s not that people consider them and then reject them: they simply never register on their radar:
“Probably no one who applied to Y Combinator to work on a recipe site began by asking “should we fix payments, or build a recipe site?” and chose the recipe site. Though the idea of fixing payments was right there in plain sight, they never saw it, because their unconscious mind shrank from the complications involved.”
Since these difficult ideas are so often overlooked, they may be the most valuable ones. There aren’t many ways to overcome this, however. One is ignorance: not knowing the difficulty of something may lead you to pursue it regardless. Another may be to rephrase the question you ask when evaluating startup ideas: instead of asking “what problem should I solve?” ask yourself “what problem do I wish someone else would solve for me?” This way, you may be able to look through the schlep and see the idea for what it is.
Organic Startup Ideas
According to Paul Graham, there are two kinds of startup ideas: the “organic” ones and the others. Organic startup ideas refer to concepts that solve a problem that you, as a founder, have ; the other ones are concepts that solve other people’s problems.
While there are startups which achieved great success by solving other people’s problems, that is harder than solving your own: you risk coming up with a problem that no one has, whereas if you solve your own problem, your product has at least one user, and probably many more.
Furthermore, many successful startups weren’t intended as companies at all, in the beginning. Apple was the computer Steve Wozniak wanted to have. Facebook was the facebook Mark Zuckerberg wanted Harvard to build.
With that in mind, Paul Graham’s advice is to focus on building something useful, rather than “creating a company”. If you succeed, how to turn that into a company should become obvious.
“So if you want to come up with organic startup ideas, I’d encourage you to focus more on the idea part and less on the startup part. Just fix things that seem broken, regardless of whether it seems like the problem is important enough to build a company on. If you keep pursuing such threads it would be hard not to end up making something of value to a lot of people, and when you do, surprise, you’ve got a company.”
Ideas for Startups
People ask Paul Graham how to get startup ideas a lot, and if you’ve read the summaries of the previous couple of essays you should by now know that he won’t give you a straight answer, because he doesn’t think that’s a good question. This essay outlines why people make this mistake.
PG’s hypothesis is that people think having startup ideas should be hard, because making a successful startup is hard, and a startup is the implementation of an idea. But that last part is wrong. Most companies end up nothing like the initial idea, they pivot until they find a successful market. So the initial idea is not what your company will be doing, it is rather the question on which you’re working. What the answer to that question will look like, nobody knows.
The way to find startup ideas, instead of looking for startup ideas, is to find a problem that you find intolerable and feel must be solvable. And then solve it. And the best way to solve a problem is to redefine it:
“The way to kill [Windows] is to redefine the problem as a superset of the current one. The problem is not, what operating system should people use on desktop computers? but how should people use applications? There are answers to that question that don’t even involve desktop computers”
This essay was written in 2005, a full two years before the introduction of the iPhone, so this last quote seems prescient as hell. And no one would have come up with a full-formed idea of a touch-screen phone in 2005. Rather, some people at Apple must already have been working on how applications will be used in the future… and the rest is history.
Wrapping up
What amazes me, after having done the work of reading all of Paul Graham’s essays, is how often I quote them, and send links to friends. It seems like there hardly is any discussion about starting companies for which there isn’t a great companion on paulgraham.com. I hope you found these excerpts interesting, and by all means encourage you to go through the full essays, and the ones I haven’t been able to feature here.
