It is an exciting time to be an entrepreneur in America. It seems like everyday I meet a new person or reconnect with an old friend who is bucking the gravity of a conformist career path for the liberation of a freelance lifestyle. One friend I’ve played in a few bands with just sold one of his songs to Toyota Motors for a web commercial. Another is starting a New York themed wine bar in Buenos Aires. One friend is starting a spa-inspired hearing aide retail store. Another friend combined art and motion detection algorithms to create an interactive display at a children’s hospital in New Jersey.
Not to mention the other Y-Combinator companies. The Y-Combinator teams are creating businesses around revolutionary perspectives on old businesses and youthful insight into future markets. As I’ve mentioned before, this is one smart group of people. As each Y-Combinator funded team officially releases, we will dedicate a blog post to their ideas, business plan, and the people bringing the two together.
After recognizing that more and more of my friends are skirting the corporate lifestyle, I started to think about the motivations and circumstances that have led them on this less traveled path. I can think of four.
A common perspective among young entrepreneurs is that we are undervalued by mainstream industry. We are dollar-cost averaged down. Our contribution to the company’s success is averaged together with coworkers balancing a wife, two kids and a mortgage.
At this age, working for someone else does not make sense. Our effort is two standard deviations above the mean. The average employee wants to work eight hours a day; we are happy to work 15. The average employee takes a one-hour lunch; we eat at our desk for 15 minutes, reading Reddit. Large companies expect average effort. Why work there until you want to give average effort?
There is another reason that motivated college graduates skirt mainstream industry. When working for large companies, they are not vested in the success of the company. Nowhere was this more evident for me than at NASA. If I create an image processing algorithm that reduces the computational demand of a particular Mars rover by a factor of two, I do not see any boost to my career path.
You can guess what pay grade someone is in simply by knowing the number of years they have been working. Why go above and beyond?
Maybe if NASA could find a way to incentivize and attract young smart employees the United States could put matter into space for less than $10,000 per pound. Given China’s newly announced space ambitions, hopefully the competition will drive our government to establish effective incentive systems.
Starting your own company is liberating. We are in charge of our own destiny. No big company’s compensation package can compete with that motivator.
We were originally calling our first product Xobni Statistics. It sounds boring in retrospect. One night I told Adam and Drew that I liked Google Analytic’s user interface. Drew commented, “I like the interface and the name.” Adam and I looked at each other and within five seconds our company’s first product became Xobni Analytics. The change would never have been as smooth, or even possible in a big company. They would have held a couple of meetings as the suggestion got passed up the chain of command. And even then, one of the middle managers might have killed it, because someone in the marketing department said they had already printed the brochure.
Nowhere in the world does there exist a fertile entrepreneurial environment like that of America. Our friend Paul Graham wrote a popular article about why Silicon Valley is in America.
Along a similar line of thought, Guy Kawasaki wrote a blog post which compared the American entrepreneurial environment to that of Japan. What struck me most was the cultural stigma surrounding failure in Japan. Failing once can taint your name and dim your future career options. I am glad that America does not treat failure this way.
One of the greatest failures of my college career was coming up 2% short of victory in the undergraduate student government vice-presidential elections. At Penn State, a school of over 40,000 students, this is a prestigious position: face time with university policy makers, interactions with state government officials, full tuition stipend, and the responsibility of a hefty student activities fund. Had I grown up in Japan, I might not have risked repeated failure for fear of tainting my future prospects.
I mark the failed campaign as one of my greatest learning experiences. I learned how to speak in front of large audiences, form a terse argument, garner publicity, manage a large team, and it was my introduction to guerilla marketing. Our society’s acceptance of failure encourages people to take risks and learn from their mistakes.
It will be interesting to see how all these friends fare over the next few years. Some will stumble and retreat to the consistency of corporate America. Others will succeed and grow their companies to the size of a company none of us would want to work for. Then we can quit and start new companies again.
During the spring of 2005 I worked on a company named Swift Ride Technologies. I was taking a light load of classes at MIT and working with one cofounder, Greg Duffy, who was also a student.
This company was our first foray into the world of companies trying to hit it big. I had been operating a small online shareware company for seven years at that point, and we had both done consulting. But this was different.
Although we had some of the indicators of a good startup previously mentioned, we made several serious mistakes.
As students, we could only put in 30 or 40 hours per week. There is such an infrastructure cost in startups that dedicating only this small amount of time won’t get you to escape velocity. We could have worked at this level for five years and had little to show for it.
I spent way too much time focusing on the business side of the company. The advantage for me was that I got to learn about the startup world. I interfaced with 2 core advisors, 5 ancillary advisors, 10 hardware design vendors (4 were Taiwanese), 3 potential customers, gave Powerpoint pitches to about 25 people, and picked up 18 business books. I built a financial model with several worksheets, detailing plans for expenses, staffing, unit sales, share allocations, and so on.Why? Because they were sexy.People always want to focus on the sexy thing when they’re learning something new, as opposed to the fundamentals. Aspiring comedians want to learn the punch lines, instead of focusing on good delivery. Upcoming technologists want to learn an array of languages, instead of development fundamentals.
The down side was that the code suffered. The fundamentals weren’t there, so the sexy things didn’t matter.
It required us to develop hardware, and we had to reach a critical mass of users before it would work. Both of these are non-starters, especially for cofounders with little street credibility.
The distance was a killer. It was like having a football team in which the offensive and defensive players practice on different sides of the world. Greg and I had a clear delineation of disjoint responsibilities, but it hurt us at game time.First, it meant that we were less excited. We couldn’t see each other working. We couldn’t jump up and down together in joy when something good happened.It also meant that we couldn’t collaborate on the small, tactical decisions. The importance of these small decisions add up over time.
We each had one more semester of school left before we could graduate. Our families wanted us to graduate. So we would have pressure to put the project on half throttle even if we were successful after working through the summer. The pressures were similar to those that a married person, or parent, might have.
But the bits were flipped in the wrong direction, and the startup sank without a trace in late April, 2005. Greg is now working at another startup in Dallas; he got in on the ground floor. They have since raised substantial funding.
I am now working on Xobni. We seem to have these five bits flipped in the right direction, but I’m still not sleeping well at night. There are 100 other things we’re trying to nail down. They might be less significant bits, but we still have years to go.
Many people have been asking, “What is this Y-Combinator thing?” Today we are hoping to answer that question without breaking the Y-Combinator vow of secrecy, which rivals that of the Priory of Scion.
Y-Combinator is a company that starts companies. Although the name sounds like “incubator” Y-Combinator is not one. Y-Combinator functions as a support structure for fledging companies. Yes, they do provide investment, but more importantly the investors give a blend of valuable advice and industry connections that only comes from years of hard work and gray hair.
Possibly more important is the support and interactions each team has with the other Y-Combinator teams. They are great people. Paul, Trevor, Robert, and Jessica have effectively assembled 20 of the brightest and most motivated people from the top engineering departments in the country. There are a few non-engineers interspersed among the companies, but after talking to them I’m convinced they too could have successfully aced courses in stochastic control, differential equations, and machine learning.
Y-Combinator has two offices: one in Cambridge, Massachusetts and one in Mountain View, California. The Cambridge office building is unassuming from the exterior; actually it is unassuming from the interior too. But it’s cool! Once the home of an orchid botanist, the gray cinder block building has a bright solarium suspended over a huge great room that is perfect for our weekly meetings.
Every week we have a meeting consisting of dinner and a presentation. Last week’s meeting was truly inspiring. I was unable to attend the meeting, but I was able to watch the meeting via webcam from DC. The speakers were Y-Combinator funded companies from the past. It was great to see how well they were all doing. Some companies were profitable (a web 2.0 rarity), some were probably being flown around in private jets, and all seemed to be on a vector towards success.
The speakers were unique because they gave specific tactical advice on things like web security, hiring, negotiations, investors, and web hosting. Often speakers give grand visions and cliché advice – MBA speak. We appreciate the sincere and actionable information they shared with us.
I would like to share more details of what was said, but Paul has sworn us to secrecy. If you want to learn the secret Y-Combinator handshake, join the upcoming Winter Founders’ Program.
The sign has been there for a while (Bryan made it). We had to change our passwords from “xobnirules” before posting this, though.
Today we were thinking back to the first days of “Team Xobni.” At that point we were not even sure we liked the name “Xobni.” Now we love it! I can’t tell you how many times someone has asked me, “What’s your company’s name?” I respond “Xobni.” “What?” Then I explain, “It’s the word inbox spelled backwards.” After I say that, I never have to tell them again.
Adam and I met by chance in the summer of 2005. I posted a roommate ad on Craigslist. We decided to live together. Adam was an intern at Vecna and I was an intern at NASA Goddard. Each day after work we would bounce technical problems and business ideas off each other. Six months after Adam and I had gone our separate ways he came to me with the idea which became Xobni.
The first week in the life of Xobni was spent in a single room in the East Campus dorm at MIT. Adam was living there for his first semester of grad school. I had flown up from D.C. for a week, as a trial, just to see how we would work together. We worked great together.
We meant to take a picture of our “office” for that first week. I wish we would have. We had 2 laptops, 4 monitors, 2 desktops and 4 servers crammed into a 12ft by 12ft dorm room. I was sleeping on a couch we had stolen from the common area. Empty Hot Pockets containers were strewn across the floor.
Our sleeping schedule led us to a nocturnal existence by the third night. It was at this point that we started resenting the fact that Boston Market wasn’t open for dinner at 4:00am. We were working so hard it wasn’t uncommon for us to comment that eating, showering, and making trips to the bathroom were “distractions.”
Now that nearly 2 months have passed, we’ve fallen into a sustainable groove. We have begun to meet the great group of hackers who make up this year’s Y Combinator SFPs. We’ve also become active with other entrepreneurs in the Boston area. I passed up my plans to travel the Pacific Rim for the opportunity to start Xobni. I would do it again in a heart beat. I can’t wait until we release Xobni Analytics.