Oct 13, 2023·edited Oct 13, 2023Liked by Daniel Vassallo, Louie Bacaj
The arguments against what you're saying remind me a lot of the arguments against self-publishing on Amazon, etc. years ago.
Trad pub authors (and the industry itself) lambasted self-published authors on every topic from quality to them not publishing 'real' books, but it slowly dawned on everybody that self-publishing was not only possible, but easier and more profitable with more upside for a broader spectrum of writers. And the gatekeepers (the industry that hoarded and controlled the profits and distribution) were left scrambling to adjust. Weirdly, many still believe they need 'permission' from agents and trad pub houses to publish 'real' books.
Agreed, as someone with mediocre success, I think people overestimate the value of a 'community' like YC. Why trade a percentage of your company to venture capitalists when you can just... not, and do retain full ownership between you and your partners?
It may be worth it if you're pretty sure you've got something and "just need $300,000" (or whatever they pay you) to fund it. I'm not discounting that some things DO require that kind of money to start (e.g., hardware/robotics companies), but I think a lot of people fall into it just for the prestige, something to make their startups ambitions seem more real (backed by YC!). Distribution is free, you don't need YC or anyone to give you 'permission' to build a company. That said, there are plenty of rules, but the information isn't secret, in fact, it's often available for cheap or free.
I've missed the Small Bets newsletter, great to see you're publishing it again!
Ergodicity is one of those concepts I had to hear about multiple times before it truly hit home. But once it did I started seeing it everywhere. Such an important idea for thinking about the world and about business strategy!
I was intrigued learning about the "ergodic" systems, until the middle of the essay, where you start mischaracterize several of YC's advice to founders and their actual viewpoints.
They don't believe that startup ideas "brainstormed" ideas at all - they have published explicit video advice "How to get startup ideas" that directly contradict this.This really harms your credibility - it tells me you don't actually read in detail what YC stands for.
You're also using YC as clickbait, as your arguments are not YC specific, but addressing the business model of any general accelerator program. Moreover, the analogy of "digging for diamonds" or bust is inaccurate - especially that you arbitrarily chosen $1 billion dollar valuation as "success". 50% of YC startups raise series A funding, and many can be sustainable. In fact, Paul Graham himself even advices founders to be as frugal as possible to be "ramen profitable", and tell founders to survive. They don't incentive founders to raise more money than they need.
You have an interesting point, but you overstayed your welcome by going into a topic you don't actually understand.
I noticed that too. I think the article brought up a good (and real) point that YC does use these young founders as fodder to find gold, but the author definitely does mischaracterize YC’s viewpoint on generating startup ideas. At least from what I’ve read from YC on the topic.
Paul Graham founder of YC: "Why do so many founders build things no one wants? Because they begin by trying to think of startup ideas. That m.o. is doubly dangerous: it doesn't merely yield few good ideas; it yields bad ideas that sound plausible enough to fool you into working on them."
That whole essay is a brainstorming process. Look, did Paul Graham go for a long walk and came up with Airbnb? Did he sit under the shower for an hour and thought of Dropbox? Did he do all the things he mentions in the essay and came up with Stripe?
No of course not. Because he lacks imagination. Not because he has a disability; we all lack imagination. All those ideas came to him from the outside; from random chance encounters. One minute Stripe was nowhere on his radar, the next minutes it was a lightbulb moment.
That’s the inconsistency I’m describing. You can only engineer good ideas as much as having a good idea generator. All the thinking about real problems and what users want is merely a selection criteria for those ideas, not the source of the ideas.
Why do you describe YC founders as "fodder to find gold", when they're getting 125K liquid money for equity that has almost zero present value? They're ENABLING the founders to dig for gold while still being able to afford rent and food. Without seed investments the founders would be digging for gold with their own money, drinking soylent every meal.
Life in general is a numbers game. For example a study found that musicians on average released 32 songs before they landed on a hit song. Thats almost 3 albums and most musicians would give up on the first one.
On the other hand, I see many people who like to play the "Startup game". This is a game where your company doesn't need to be successful for the founder to reap the benefits:
Start a startup with popular concept/person/accelerator/VC
I agree with the sentiment but I feel like you shouldn’t use YCs definition of success ($1bn+) for the metric. I think anyone in small bets would consider any multimillion dollar exit is success so I’d imagine YC is batting a bit higher than 1%. Unless you’re not allowed to exit under 1bn for some reason
Of course, but what usually happens is this: If you have a business that is not moving in the direction of a $1B exit, you're going to be pressured to pivot. And since you won't want to let your investors down and since it was hard to get into the program, you'll often comply. And even if you were to go ahead with a $50M exit, usually almost no one makes any significant amount of money. It's a deal done in desperation, and everyone is diluted to the brim.
Got it yeah true. Have had friends turn down good exits for themselves that would give them the money to live comfortably for decades of more swings but wouldn’t have earned investors the 10x they wanted so they continued to plod along. Something like they wouldn’t be able to raise again with a new company if they have a history of early exits. I’d take it and run haha
Hold up, so you're saying that since only 50 startups became worth $1b, the founders of startup #51 who exited for marginally less than that wasted their time?
The median startup exit is ~50 million. How many YC startups have cleared that bar?
You're saying that YC forces you to pivot if you're not on track for $1b. Does the data confirm that?
I enjoyed your article, but I don't agree with your characterization of the military. You said, "The military wants to recruit expendable soldiers who will go out to the battlefield risking their lives and limb for the collective, while the generals with all the medals sit in an air conditioned room giving orders."
I don't think that's what the military wants. I think the military wants to recruit the most intelligent, capable, and driven people so that we can outperform our foes. Our next war will not be won by expendable soldiers. It will be won by highly trained, high performing individuals with a passion for doing their part to continue our free society.
I think you should rethink your claim about what the military wants and update your article.
The arguments against what you're saying remind me a lot of the arguments against self-publishing on Amazon, etc. years ago.
Trad pub authors (and the industry itself) lambasted self-published authors on every topic from quality to them not publishing 'real' books, but it slowly dawned on everybody that self-publishing was not only possible, but easier and more profitable with more upside for a broader spectrum of writers. And the gatekeepers (the industry that hoarded and controlled the profits and distribution) were left scrambling to adjust. Weirdly, many still believe they need 'permission' from agents and trad pub houses to publish 'real' books.
Agreed, as someone with mediocre success, I think people overestimate the value of a 'community' like YC. Why trade a percentage of your company to venture capitalists when you can just... not, and do retain full ownership between you and your partners?
It may be worth it if you're pretty sure you've got something and "just need $300,000" (or whatever they pay you) to fund it. I'm not discounting that some things DO require that kind of money to start (e.g., hardware/robotics companies), but I think a lot of people fall into it just for the prestige, something to make their startups ambitions seem more real (backed by YC!). Distribution is free, you don't need YC or anyone to give you 'permission' to build a company. That said, there are plenty of rules, but the information isn't secret, in fact, it's often available for cheap or free.
Loved how you broke down the VC funding model, makes so much sense this way. Glad I’m following the small bets pathways to having a business
Agreed- the analogy helped so much.
I've missed the Small Bets newsletter, great to see you're publishing it again!
Ergodicity is one of those concepts I had to hear about multiple times before it truly hit home. But once it did I started seeing it everywhere. Such an important idea for thinking about the world and about business strategy!
Made me think about YC, in a totally different way. Thanks for the awesome insight. Subscribing you for more great ideas.
This mirrors my experience. A couple threads to tug.
Brainstorm then find product fit is why so many fail. If brainstorming doesn't include product fit, it's just silly.
Good ideas do come from network effects but as you said, beware the network.
Fail early fail often is your pivot. It's YC letting founders burn all their time and resources. It also is dumb. (I wrote about that part here)
https://www.polymathicbeing.com/p/fail-early-fail-often-or-maybe-not
I was intrigued learning about the "ergodic" systems, until the middle of the essay, where you start mischaracterize several of YC's advice to founders and their actual viewpoints.
They don't believe that startup ideas "brainstormed" ideas at all - they have published explicit video advice "How to get startup ideas" that directly contradict this.This really harms your credibility - it tells me you don't actually read in detail what YC stands for.
You're also using YC as clickbait, as your arguments are not YC specific, but addressing the business model of any general accelerator program. Moreover, the analogy of "digging for diamonds" or bust is inaccurate - especially that you arbitrarily chosen $1 billion dollar valuation as "success". 50% of YC startups raise series A funding, and many can be sustainable. In fact, Paul Graham himself even advices founders to be as frugal as possible to be "ramen profitable", and tell founders to survive. They don't incentive founders to raise more money than they need.
You have an interesting point, but you overstayed your welcome by going into a topic you don't actually understand.
I noticed that too. I think the article brought up a good (and real) point that YC does use these young founders as fodder to find gold, but the author definitely does mischaracterize YC’s viewpoint on generating startup ideas. At least from what I’ve read from YC on the topic.
Check out the transcript for https://www.ycombinator.com/library/8g-how-to-get-startup-ideas
It's perfectly consistent with what I wrote.
Paul Graham founder of YC: "Why do so many founders build things no one wants? Because they begin by trying to think of startup ideas. That m.o. is doubly dangerous: it doesn't merely yield few good ideas; it yields bad ideas that sound plausible enough to fool you into working on them."
https://paulgraham.com/startupideas.html
That whole essay is a brainstorming process. Look, did Paul Graham go for a long walk and came up with Airbnb? Did he sit under the shower for an hour and thought of Dropbox? Did he do all the things he mentions in the essay and came up with Stripe?
No of course not. Because he lacks imagination. Not because he has a disability; we all lack imagination. All those ideas came to him from the outside; from random chance encounters. One minute Stripe was nowhere on his radar, the next minutes it was a lightbulb moment.
That’s the inconsistency I’m describing. You can only engineer good ideas as much as having a good idea generator. All the thinking about real problems and what users want is merely a selection criteria for those ideas, not the source of the ideas.
Why do you describe YC founders as "fodder to find gold", when they're getting 125K liquid money for equity that has almost zero present value? They're ENABLING the founders to dig for gold while still being able to afford rent and food. Without seed investments the founders would be digging for gold with their own money, drinking soylent every meal.
Life in general is a numbers game. For example a study found that musicians on average released 32 songs before they landed on a hit song. Thats almost 3 albums and most musicians would give up on the first one.
On the other hand, I see many people who like to play the "Startup game". This is a game where your company doesn't need to be successful for the founder to reap the benefits:
Start a startup with popular concept/person/accelerator/VC
=> Raise money
=> Spend it all to get recognition
=> Profit from personal brand building
=> Close the startup
=> Repeat
I agree with the sentiment but I feel like you shouldn’t use YCs definition of success ($1bn+) for the metric. I think anyone in small bets would consider any multimillion dollar exit is success so I’d imagine YC is batting a bit higher than 1%. Unless you’re not allowed to exit under 1bn for some reason
Of course, but what usually happens is this: If you have a business that is not moving in the direction of a $1B exit, you're going to be pressured to pivot. And since you won't want to let your investors down and since it was hard to get into the program, you'll often comply. And even if you were to go ahead with a $50M exit, usually almost no one makes any significant amount of money. It's a deal done in desperation, and everyone is diluted to the brim.
Got it yeah true. Have had friends turn down good exits for themselves that would give them the money to live comfortably for decades of more swings but wouldn’t have earned investors the 10x they wanted so they continued to plod along. Something like they wouldn’t be able to raise again with a new company if they have a history of early exits. I’d take it and run haha
Hold up, so you're saying that since only 50 startups became worth $1b, the founders of startup #51 who exited for marginally less than that wasted their time?
The median startup exit is ~50 million. How many YC startups have cleared that bar?
You're saying that YC forces you to pivot if you're not on track for $1b. Does the data confirm that?
I enjoyed your article, but I don't agree with your characterization of the military. You said, "The military wants to recruit expendable soldiers who will go out to the battlefield risking their lives and limb for the collective, while the generals with all the medals sit in an air conditioned room giving orders."
I don't think that's what the military wants. I think the military wants to recruit the most intelligent, capable, and driven people so that we can outperform our foes. Our next war will not be won by expendable soldiers. It will be won by highly trained, high performing individuals with a passion for doing their part to continue our free society.
I think you should rethink your claim about what the military wants and update your article.
you must be in the military
Interesting perspective