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|  **Want to start a startup?** Get funded by Y Combinator.  
  
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October 2006  
  
In the Q & A period after a recent talk, someone asked what made startups
fail. After standing there gaping for a few seconds I realized this was kind
of a trick question. It's equivalent to asking how to make a startup succeed —
if you avoid every cause of failure, you succeed — and that's too big a
question to answer on the fly.  
  
Afterwards I realized it could be helpful to look at the problem from this
direction. If you have a list of all the things you shouldn't do, you can turn
that into a recipe for succeeding just by negating. And this form of list may
be more useful in practice. It's easier to catch yourself doing something you
shouldn't than always to remember to do something you should.   
  
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.  
  
**1\. Single Founder**  
  
Have you ever noticed how few successful startups were founded by just one
person? Even companies you think of as having one founder, like Oracle,
usually turn out to have more. It seems unlikely this is a coincidence.  
  
What's wrong with having one founder? To start with, it's a vote of no
confidence. It probably means the founder couldn't talk any of his friends
into starting the company with him. That's pretty alarming, because his
friends are the ones who know him best.  
  
But even if the founder's friends were all wrong and the company is a good
bet, he's still at a disadvantage. Starting a startup is too hard for one
person. Even if you could do all the work yourself, you need colleagues to
brainstorm with, to talk you out of stupid decisions, and to cheer you up when
things go wrong.  
  
The last one might be the most important. The low points in a startup are so
low that few could bear them alone. When you have multiple founders, esprit de
corps binds them together in a way that seems to violate conservation laws.
Each thinks "I can't let my friends down." This is one of the most powerful
forces in human nature, and it's missing when there's just one founder.  
  
**2\. Bad Location**  
  
Startups prosper in some places and not others. Silicon Valley dominates, then
Boston, then Seattle, Austin, Denver, and New York. After that there's not
much. Even in New York the number of startups per capita is probably a 20th of
what it is in Silicon Valley. In towns like Houston and Chicago and Detroit
it's too small to measure.  
  
Why is the falloff so sharp? Probably for the same reason it is in other
industries. What's the sixth largest fashion center in the US? The sixth
largest center for oil, or finance, or publishing? Whatever they are they're
probably so far from the top that it would be misleading even to call them
centers.  
  
It's an interesting question why cities become startup hubs, but the reason
startups prosper in them is probably the same as it is for any industry:
that's where the experts are. Standards are higher; people are more
sympathetic to what you're doing; the kind of people you want to hire want to
live there; supporting industries are there; the people you run into in chance
meetings are in the same business. Who knows exactly how these factors combine
to boost startups in Silicon Valley and squish them in Detroit, but it's clear
they do from the number of startups per capita in each.  
  
**3\. Marginal Niche**  
  
Most of the groups that apply to Y Combinator suffer from a common problem:
choosing a small, obscure niche in the hope of avoiding competition.  
  
If you watch little kids playing sports, you notice that below a certain age
they're afraid of the ball. When the ball comes near them their instinct is to
avoid it. I didn't make a lot of catches as an eight year old outfielder,
because whenever a fly ball came my way, I used to close my eyes and hold my
glove up more for protection than in the hope of catching it.  
  
Choosing a marginal project is the startup equivalent of my eight year old
strategy for dealing with fly balls. If you make anything good, you're going
to have competitors, so you may as well face that. You can only avoid
competition by avoiding good ideas.  
  
I think this shrinking from big problems is mostly unconscious. It's not that
people think of grand ideas but decide to pursue smaller ones because they
seem safer. Your unconscious won't even let you think of grand ideas. So the
solution may be to think about ideas without involving yourself. What would be
a great idea for _someone else_ to do as a startup?  
  
**4\. Derivative Idea**  
  
Many of the applications we get are imitations of some existing company.
That's one source of ideas, but not the best. If you look at the origins of
successful startups, few were started in imitation of some other startup.
Where did they get their ideas? Usually from some specific, unsolved problem
the founders identified.  
  
Our startup made software for making online stores. When we started it, there
wasn't any; the few sites you could order from were hand-made at great expense
by web consultants. We knew that if online shopping ever took off, these sites
would have to be generated by software, so we wrote some. Pretty
straightforward.  
  
It seems like the best problems to solve are ones that affect you personally.
Apple happened because Steve Wozniak wanted a computer, Google because Larry
and Sergey couldn't find stuff online, Hotmail because Sabeer Bhatia and Jack
Smith couldn't exchange email at work.  
  
So instead of copying the Facebook, with some variation that the Facebook
rightly ignored, look for ideas from the other direction. Instead of starting
from companies and working back to the problems they solved, look for problems
and imagine the company that might solve them.  What do people complain
about? What do you wish there was?  
  
**5\. Obstinacy**  
  
In some fields the way to succeed is to have a vision of what you want to
achieve, and to hold true to it no matter what setbacks you encounter.
Starting startups is not one of them. The stick-to-your-vision approach works
for something like winning an Olympic gold medal, where the problem is well-
defined. Startups are more like science, where you need to follow the trail
wherever it leads.  
  
So don't get too attached to your original plan, because it's probably wrong.
Most successful startups end up doing something different than they originally
intended — often so different that it doesn't even seem like the same company.
You have to be prepared to see the better idea when it arrives. And the
hardest part of that is often discarding your old idea.  
  
But openness to new ideas has to be tuned just right. Switching to a new idea
every week will be equally fatal. Is there some kind of external test you can
use? One is to ask whether the ideas represent some kind of progression. If in
each new idea you're able to re-use most of what you built for the previous
ones, then you're probably in a process that converges. Whereas if you keep
restarting from scratch, that's a bad sign.  
  
Fortunately there's someone you can ask for advice: your users. If you're
thinking about turning in some new direction and your users seem excited about
it, it's probably a good bet.  
  
**6\. Hiring Bad Programmers**  
  
I forgot to include this in the early versions of the list, because nearly all
the founders I know are programmers. This is not a serious problem for them.
They might accidentally hire someone bad, but it's not going to kill the
company. In a pinch they can do whatever's required themselves.  
  
But when I think about what killed most of the startups in the e-commerce
business back in the 90s, it was bad programmers. A lot of those companies
were started by business guys who thought the way startups worked was that you
had some clever idea and then hired programmers to implement it. That's
actually much harder than it sounds — almost impossibly hard in fact — because
business guys can't tell which are the good programmers. They don't even get a
shot at the best ones, because no one really good wants a job implementing the
vision of a business guy.  
  
In practice what happens is that the business guys choose people they think
are good programmers (it says here on his resume that he's a Microsoft
Certified Developer) but who aren't. Then they're mystified to find that their
startup lumbers along like a World War II bomber while their competitors
scream past like jet fighters. This kind of startup is in the same position as
a big company, but without the advantages.  
  
So how do you pick good programmers if you're not a programmer? I don't think
there's an answer. I was about to say you'd have to find a good programmer to
help you hire people. But if you can't recognize good programmers, how would
you even do that?  
  
**7\. Choosing the Wrong Platform**  
  
A related problem (since it tends to be done by bad programmers) is choosing
the wrong platform. For example, I think a lot of startups during the Bubble
killed themselves by deciding to build server-based applications on Windows.
Hotmail was still running on FreeBSD for years after Microsoft bought it,
presumably because Windows couldn't handle the load. If Hotmail's founders had
chosen to use Windows, they would have been swamped.  
  
PayPal only just dodged this bullet. After they merged with X.com, the new CEO
wanted to switch to Windows — even after PayPal cofounder Max Levchin showed
that their software scaled only 1% as well on Windows as Unix. Fortunately for
PayPal they switched CEOs instead.  
  
Platform is a vague word. It could mean an operating system, or a programming
language, or a "framework" built on top of a programming language. It implies
something that both supports and limits, like the foundation of a house.  
  
The scary thing about platforms is that there are always some that seem to
outsiders to be fine, responsible choices and yet, like Windows in the 90s,
will destroy you if you choose them. Java applets were probably the most
spectacular example. This was supposed to be the new way of delivering
applications. Presumably it killed just about 100% of the startups who
believed that.  
  
How do you pick the right platforms? The usual way is to hire good programmers
and let them choose. But there is a trick you could use if you're not a
programmer: visit a top computer science department and see what they use in
research projects.  
  
**8\. Slowness in Launching**  
  
Companies of all sizes have a hard time getting software done. It's intrinsic
to the medium; software is always 85% done. It takes an effort of will to push
through this and get something released to users.   
  
Startups make all kinds of excuses for delaying their launch. Most are
equivalent to the ones people use for procrastinating in everyday life.
There's something that needs to happen first. Maybe. But if the software were
100% finished and ready to launch at the push of a button, would they still be
waiting?  
  
One reason to launch quickly is that it forces you to actually _finish_ some
quantum of work. Nothing is truly finished till it's released; you can see
that from the rush of work that's always involved in releasing anything, no
matter how finished you thought it was. The other reason you need to launch is
that it's only by bouncing your idea off users that you fully understand it.  
  
Several distinct problems manifest themselves as delays in launching: working
too slowly; not truly understanding the problem; fear of having to deal with
users; fear of being judged; working on too many different things; excessive
perfectionism. Fortunately you can combat all of them by the simple expedient
of forcing yourself to launch _something_ fairly quickly.  
  
**9\. Launching Too Early**  
  
Launching too slowly has probably killed a hundred times more startups than
launching too fast, but it is possible to launch too fast. The danger here is
that you ruin your reputation. You launch something, the early adopters try it
out, and if it's no good they may never come back.  
  
So what's the minimum you need to launch? We suggest startups think about what
they plan to do, identify a core that's both (a) useful on its own and (b)
something that can be incrementally expanded into the whole project, and then
get that done as soon as possible.  
  
This is the same approach I (and many other programmers) use for writing
software. Think about the overall goal, then start by writing the smallest
subset of it that does anything useful. If it's a subset, you'll have to write
it anyway, so in the worst case you won't be wasting your time. But more
likely you'll find that implementing a working subset is both good for morale
and helps you see more clearly what the rest should do.  
  
The early adopters you need to impress are fairly tolerant. They don't expect
a newly launched product to do everything; it just has to do _something_.  
  
**10\. Having No Specific User in Mind**  
  
You can't build things users like without understanding them. I mentioned
earlier that the most successful startups seem to have begun by trying to
solve a problem their founders had. Perhaps there's a rule here: perhaps you
create wealth in proportion to how well you understand the problem you're
solving, and the problems you understand best are your own.   
  
That's just a theory. What's not a theory is the converse: if you're trying to
solve problems you don't understand, you're hosed.  
  
And yet a surprising number of founders seem willing to assume that someone,
they're not sure exactly who, will want what they're building. Do the founders
want it? No, they're not the target market. Who is? Teenagers. People
interested in local events (that one is a perennial tarpit). Or "business"
users. What business users? Gas stations? Movie studios? Defense contractors?  
  
You can of course build something for users other than yourself. We did. But
you should realize you're stepping into dangerous territory. You're flying on
instruments, in effect, so you should (a) consciously shift gears, instead of
assuming you can rely on your intuitions as you ordinarily would, and (b) look
at the instruments.  
  
In this case the instruments are the users. When designing for other people
you have to be empirical. You can no longer guess what will work; you have to
find users and measure their responses. So if you're going to make something
for teenagers or "business" users or some other group that doesn't include
you, you have to be able to talk some specific ones into using what you're
making. If you can't, you're on the wrong track.  
  
**11\. Raising Too Little Money**  
  
Most successful startups take funding at some point. Like having more than one
founder, it seems a good bet statistically. How much should you take, though?  
  
Startup funding is measured in time. Every startup that isn't profitable
(meaning nearly all of them, initially) has a certain amount of time left
before the money runs out and they have to stop. This is sometimes referred to
as runway, as in "How much runway do you have left?" It's a good metaphor
because it reminds you that when the money runs out you're going to be
airborne or dead.  
  
Too little money means not enough to get airborne. What airborne means depends
on the situation. Usually you have to advance to a visibly higher level: if
all you have is an idea, a working prototype; if you have a prototype,
launching; if you're launched, significant growth. It depends on investors,
because until you're profitable that's who you have to convince.  
  
So if you take money from investors, you have to take enough to get to the
next step, whatever that is.  Fortunately you have some control over both
how much you spend and what the next step is. We advise startups to set both
low, initially: spend practically nothing, and make your initial goal simply
to build a solid prototype. This gives you maximum flexibility.  
  
**12\. Spending Too Much**  
  
It's hard to distinguish spending too much from raising too little. If you run
out of money, you could say either was the cause. The only way to decide which
to call it is by comparison with other startups. If you raised five million
and ran out of money, you probably spent too much.  
  
Burning through too much money is not as common as it used to be. Founders
seem to have learned that lesson. Plus it keeps getting cheaper to start a
startup. So as of this writing few startups spend too much. None of the ones
we've funded have. (And not just because we make small investments; many have
gone on to raise further rounds.)  
  
The classic way to burn through cash is by hiring a lot of people. This bites
you twice: in addition to increasing your costs, it slows you down—so money
that's getting consumed faster has to last longer. Most hackers understand why
that happens; Fred Brooks explained it in The Mythical Man-Month.  
  
We have three general suggestions about hiring: (a) don't do it if you can
avoid it, (b) pay people with equity rather than salary, not just to save
money, but because you want the kind of people who are committed enough to
prefer that, and (c) only hire people who are either going to write code or go
out and get users, because those are the only things you need at first.  
  
**13\. Raising Too Much Money**  
  
It's obvious how too little money could kill you, but is there such a thing as
having too much?  
  
Yes and no. The problem is not so much the money itself as what comes with it.
As one VC who spoke at Y Combinator said, "Once you take several million
dollars of my money, the clock is ticking." If VCs fund you, they're not going
to let you just put the money in the bank and keep operating as two guys
living on ramen. They want that money to go to work.  At the very least
you'll move into proper office space and hire more people. That will change
the atmosphere, and not entirely for the better. Now most of your people will
be employees rather than founders. They won't be as committed; they'll need to
be told what to do; they'll start to engage in office politics.  
  
When you raise a lot of money, your company moves to the suburbs and has kids.  
  
Perhaps more dangerously, once you take a lot of money it gets harder to
change direction. Suppose your initial plan was to sell something to
companies. After taking VC money you hire a sales force to do that. What
happens now if you realize you should be making this for consumers instead of
businesses? That's a completely different kind of selling. What happens, in
practice, is that you don't realize that. The more people you have, the more
you stay pointed in the same direction.  
  
Another drawback of large investments is the time they take. The time required
to raise money grows with the amount.  When the amount rises into the
millions, investors get very cautious. VCs never quite say yes or no; they
just engage you in an apparently endless conversation. Raising VC scale
investments is thus a huge time sink — more work, probably, than the startup
itself. And you don't want to be spending all your time talking to investors
while your competitors are spending theirs building things.  
  
We advise founders who go on to seek VC money to take the first reasonable
deal they get. If you get an offer from a reputable firm at a reasonable
valuation with no unusually onerous terms, just take it and get on with
building the company.  Who cares if you could get a 30% better deal
elsewhere? Economically, startups are an all-or-nothing game. Bargain-hunting
among investors is a waste of time.  
  
**14\. Poor Investor Management**  
  
As a founder, you have to manage your investors. You shouldn't ignore them,
because they may have useful insights. But neither should you let them run the
company. That's supposed to be your job. If investors had sufficient vision to
run the companies they fund, why didn't they start them?  
  
Pissing off investors by ignoring them is probably less dangerous than caving
in to them. In our startup, we erred on the ignoring side. A lot of our energy
got drained away in disputes with investors instead of going into the product.
But this was less costly than giving in, which would probably have destroyed
the company. If the founders know what they're doing, it's better to have half
their attention focused on the product than the full attention of investors
who don't.  
  
How hard you have to work on managing investors usually depends on how much
money you've taken. When you raise VC-scale money, the investors get a great
deal of control. If they have a board majority, they're literally your bosses.
In the more common case, where founders and investors are equally represented
and the deciding vote is cast by neutral outside directors, all the investors
have to do is convince the outside directors and they control the company.  
  
If things go well, this shouldn't matter. So long as you seem to be advancing
rapidly, most investors will leave you alone. But things don't always go
smoothly in startups. Investors have made trouble even for the most successful
companies. One of the most famous examples is Apple, whose board made a nearly
fatal blunder in firing Steve Jobs. Apparently even Google got a lot of grief
from their investors early on.  
  
**15\. Sacrificing Users to (Supposed) Profit**  
  
When I said at the beginning that if you make something users want, you'll be
fine, you may have noticed I didn't mention anything about having the right
business model. That's not because making money is unimportant. I'm not
suggesting that founders start companies with no chance of making money in the
hope of unloading them before they tank. The reason we tell founders not to
worry about the business model initially is that making something people want
is so much harder.  
  
I don't know why it's so hard to make something people want. It seems like it
should be straightforward. But you can tell it must be hard by how few
startups do it.  
  
Because making something people want is so much harder than making money from
it, you should leave business models for later, just as you'd leave some
trivial but messy feature for version 2. In version 1, solve the core problem.
And the core problem in a startup is how to create wealth (= how much people
want something x the number who want it), not how to convert that wealth into
money.  
  
The companies that win are the ones that put users first. Google, for example.
They made search work, then worried about how to make money from it. And yet
some startup founders still think it's irresponsible not to focus on the
business model from the beginning. They're often encouraged in this by
investors whose experience comes from less malleable industries.  
  
It _is_ irresponsible not to think about business models. It's just ten times
more irresponsible not to think about the product.  
  
**16\. Not Wanting to Get Your Hands Dirty**  
  
Nearly all programmers would rather spend their time writing code and have
someone else handle the messy business of extracting money from it. And not
just the lazy ones. Larry and Sergey apparently felt this way too at first.
After developing their new search algorithm, the first thing they tried was to
get some other company to buy it.  
  
Start a company? Yech. Most hackers would rather just have ideas. But as Larry
and Sergey found, there's not much of a market for ideas. No one trusts an
idea till you embody it in a product and use that to grow a user base. Then
they'll pay big time.  
  
Maybe this will change, but I doubt it will change much. There's nothing like
users for convincing acquirers. It's not just that the risk is decreased. The
acquirers are human, and they have a hard time paying a bunch of young guys
millions of dollars just for being clever. When the idea is embodied in a
company with a lot of users, they can tell themselves they're buying the users
rather than the cleverness, and this is easier for them to swallow.   
  
If you're going to attract users, you'll probably have to get up from your
computer and go find some. It's unpleasant work, but if you can make yourself
do it you have a much greater chance of succeeding. In the first batch of
startups we funded, in the summer of 2005, most of the founders spent all
their time building their applications. But there was one who was away half
the time talking to executives at cell phone companies, trying to arrange
deals. Can you imagine anything more painful for a hacker?  But it paid
off, because this startup seems the most successful of that group by an order
of magnitude.  
  
If you want to start a startup, you have to face the fact that you can't just
hack. At least one hacker will have to spend some of the time doing business
stuff.  
  
**17\. Fights Between Founders**  
  
Fights between founders are surprisingly common. About 20% of the startups
we've funded have had a founder leave. It happens so often that we've reversed
our attitude to vesting. We still don't require it, but now we advise founders
to vest so there will be an orderly way for people to quit.  
  
A founder leaving doesn't necessarily kill a startup, though. Plenty of
successful startups have had that happen.  Fortunately it's usually the
least committed founder who leaves. If there are three founders and one who
was lukewarm leaves, big deal. If you have two and one leaves, or a guy with
critical technical skills leaves, that's more of a problem. But even that is
survivable. Blogger got down to one person, and they bounced back.  
  
Most of the disputes I've seen between founders could have been avoided if
they'd been more careful about who they started a company with. Most disputes
are not due to the situation but the people. Which means they're inevitable.
And most founders who've been burned by such disputes probably had misgivings,
which they suppressed, when they started the company. Don't suppress
misgivings. It's much easier to fix problems before the company is started
than after. So don't include your housemate in your startup because he'd feel
left out otherwise. Don't start a company with someone you dislike because
they have some skill you need and you worry you won't find anyone else. The
people are the most important ingredient in a startup, so don't compromise
there.  
  
**18\. A Half-Hearted Effort**  
  
The failed startups you hear most about are the spectacular flameouts. Those
are actually the elite of failures. The most common type is not the one that
makes spectacular mistakes, but the one that doesn't do much of anything — the
one we never even hear about, because it was some project a couple guys
started on the side while working on their day jobs, but which never got
anywhere and was gradually abandoned.  
  
Statistically, if you want to avoid failure, it would seem like the most
important thing is to quit your day job. Most founders of failed startups
don't quit their day jobs, and most founders of successful ones do. If startup
failure were a disease, the CDC would be issuing bulletins warning people to
avoid day jobs.  
  
Does that mean you should quit your day job? Not necessarily. I'm guessing
here, but I'd guess that many of these would-be founders may not have the kind
of determination it takes to start a company, and that in the back of their
minds, they know it. The reason they don't invest more time in their startup
is that they know it's a bad investment.   
  
I'd also guess there's some band of people who could have succeeded if they'd
taken the leap and done it full-time, but didn't. I have no idea how wide this
band is, but if the winner/borderline/hopeless progression has the sort of
distribution you'd expect, the number of people who could have made it, if
they'd quit their day job, is probably an order of magnitude larger than the
number who do make it.   
  
If that's true, most startups that could succeed fail because the founders
don't devote their whole efforts to them. That certainly accords with what I
see out in the world. Most startups fail because they don't make something
people want, and the reason most don't is that they don't try hard enough.  
  
In other words, starting startups is just like everything else. The biggest
mistake you can make is not to try hard enough. To the extent there's a secret
to success, it's not to be in denial about that.  
  
  
  
**