Lessons from working with 600+ YC startups | Gustaf Alströmer (Y Combinator, Airbnb)

1. 0:00 – 4:15

   Gustaf’s background

   1. GAGustaf Alströmer0:00

      If I drill down, like what makes companies fail, it's, it's, it's quite simple. It's just like, they don't talk to users, which means they don't find product market fit. And if they don't find product market fit, like nothing else really matters. And what mistakes do people make is like, is all, all about that. It's all about talking to customers and, and learning that you're building something that's actually useful. YC's like headline is, make things people want, and that's ... It's still true, and it's always gonna be true.

   2. LRLenny Rachitsky0:27

      (instrumental music) Welcome to Lenny's Podcast, where I interview world class product leaders and growth experts to learn from their hard won experiences building and growing today's most successful products. Today, my guest is Gustav Alstrimer. Gustav is a group partner at Y Combinator, where he's been for almost six years. Prior to that, Gustav was at Airbnb for over four years where he started the original Airbnb growth team, and where I was very lucky to get to work alongside him for a number of years. Gustav is also at the heart of YC's increased focus on climate tech, and in my opinion, is one of a handful of people who've had an incredible impact on the increasing amount of investment and people flowing into climate tech. We chat in depth about what's happening in climate tech, why things have shifted so much recently, what's new and exciting, and how to think about the space if you're hoping to make the jump. We also get deep into Gustav's experience working with over 600 startups over his time at YC. We talk about what are the most common mistakes that early stage startups and founders make, what advice YC partners give founders most often, the most common attributes of successful founders, the importance of having a technical co-founder and why that's the case, so much more. I guarantee you will leave this episode smarter and more inspired, and I can't wait for you to hear it. With that, I bring you Gustav Alstrimer after a short word from our wonderful sponsors. This episode is brought to you by Linear. Let's be honest, the issue tracker that you're using today isn't very helpful. Why is that it always seems to be working against you instead of working for you? Why does it feel like such a chore to use? Well, Linear is different. It's incredibly fast, beautifully designed, and it comes with powerful workflows that streamline your entire product development process. From issue tracking all the way to managing product roadmaps, Linear is designed for the way modern software teams work. What users love about Linear are the powerful keyboard shortcuts, efficient GitHub integrations, cycles that actually create progress, and built-in project updates that keep everyone in sync. In short, it just works. Linear is the default tool of choice among startups, and it powers a wide range of large established companies such as Versel, Retool, and Cash App. See for yourself why product teams describe using Linear as magical. Visit linear.app/lenny to try Linear for free with your team, and get 25% off when you upgrade. That's linear.app/lenny. This episode is brought to you by Eppo. Eppo is a next generation AB testing platform built by Airbnb alums for modern growth teams. Companies like Netlify, Contentful and Cameo rely on Eppo to power their experiments. Wherever you work, running experiments is increasingly essential, but there are no commercial tools that integrate with a modern grow team stack. This leads to wasted time building internal tools, or trying to run your experiments through a clunky marketing tool. When I was at Airbnb, one of the things that I loved about our experimentation platform was being able to easily slice results by device, by country, and by user stage. Eppo does all that and more, delivering results quickly, avoiding annoying prolonged analytic cycles, and helping you easily get to the root cause of any issue you discover. Eppo lets you go beyond basic click-through metrics, and instead use your North Star metrics like activation, retention, subscriptions, and payments. And Eppo supports tests on the front end, the back end, email marketing, and even machine learning clients. Check out Eppo at GetEppo.com, GetE-P-P-O.com, and 10X your experiment velocity.

2. 4:15 – 7:21

   What made Airbnb so special

   1. LRLenny Rachitsky4:15

      Gustav, welcome to the podcast.

   2. GAGustaf Alströmer4:17

      Thank you, Lenny. It's honestly so great to see you. I'm excited to be talking to you.

   3. LRLenny Rachitsky4:22

      I've been looking forward to this conversation for a while, ever since we booked this. We worked together at Airbnb for many years. I was really lucky to get to work with you before you moved on to bigger and better things at YC. And speaking of Airbnb, you once tweeted about how special an experience that was for you. And I think even more interestingly, how many of the people that have left Airbnb can't find another place that's as special. They just like, that bar has been set too high. And so my first question is just like, what do you think it was that made Airbnb so special? Why was it such an important experience for you and other people? And even more importantly, just what is it that you take from that experience that you bring to startups that you work with now?

   4. GAGustaf Alströmer5:02

      Yeah. It, it's funny. Like I think this year, in a couple of months, it'll be 10 years ago since you and me started Airbnb.

   5. LRLenny Rachitsky5:07

      Mm. Wow.

   6. GAGustaf Alströmer5:08

      And, uh, it was 2012. And the reason I tweeted that was I asked everyone that I met after, because I had this experience of like this was the highlight of my career up until then, at least being in a team like that. And I asked everyone, "Have you found anything better?" And like I haven't heard, besides maybe one or two people, I haven't heard anybody say that they've found something better, and they all miss that dearly. And I, I thought a lot about why that was the case, but I would say Airbnb did not feel like a normal job. It felt like more like a group of friends trying to just do something together, and we were friends, and we weren't like ... At least in the beginning, it did not feel like this was a job. It was sort of like a, an ongoing project and, and a assembly of amazing people. And I think in the end, we managed to build two things. Like a really successful company thanks to Joe and Nate and Brian to, for starting this. Like without them, like there would be nothing to build.And we also, I think... People don't like to use the word family, but I feel like that way 'cause when I go and meet with MB alumnis from that team, w- we have this very special bond that reminds me of close social connections more than anything else. Does not remind me of coworkers. And I've asked myself why this was the case. The best answer I have is probably, like, we brought in a special type of people. We had very diverse backgrounds. A lot of us was former founders. Not many of us were career people from the technology industry of the early days, not many of us. And I think that bar that we set, like, the first... I believe when I joined, there was probably five or seven PMs and there was, like, 30 engineers or something. And you joined a little bit before me. Those people set the bar or set the standard of what we are looking for afterwards, and I think it took a long time to change that narrative. I mean, eventually you have to hire people that only had big corporation careers, but I don't remember we did that for a long time. And when I sent my... I actually read my goodbye note recently and I... Like, the... By words there, still means a lot to me. And it means, sort of, like, you're trying to reflect on, on, on exactly these things of, like, building a great company that became successful and being part of this, sort of, family of, of, of really close, close friends.

3. 7:21 – 10:31

   How culture interviews and hiring founders contributed to Airbnb’s success

   1. LRLenny Rachitsky7:21

      So it sounds like, if you had to kind of, like, boil down what Airbnb did right, sounds like hiring was the main piece that impacted the way it turned out, just, like, the founders being very specific about the type of people they were hiring.

   2. GAGustaf Alströmer7:32

      Absolutely.

   3. LRLenny Rachitsky7:32

      Is there anything that's, like, I don't know, a takeaway there of just what you recommend to founders? Like, hiring, you know, people know, be very careful who you hire. The first, I don't know, 10 people will impact the culture long term. But I don't know, is there anything just, like, abstract a- away there of just, like, what to look for in that first batch of, of hires?

   4. GAGustaf Alströmer7:50

      It's a tricky one because, like... Li- like, I would like to say that all the things that we did were the, the, were the, were the cause of the outcome of this, but that's not really how the world works. Like, some of the things we did worked and some of the things that we did, did not work. And it's hard for us to actually dis- disentangle what those things are, but I think we can talk about the things that we did. First of all, we made sure we hired people that were really excited to be there, right? They wanted to build Airbnb and they were really excited to work on Airbnb. Like, that was the most important thing. There weren't... Of course people had other offers, but I think you can kind of figure out from those offers, um, are you excited to be here or not? So that was probably the, the first thing. The second thing, I think, is trying to understand the true motivations of the people that were there. Like, l- why are you here? And we did something we call culture interviews that I think the founders have written about or there, there's probably content online about this. We did a lot of culture interviews early on to try to figure out we got the people that were there, that mapped our core values and were really excited to work on Airbnb. And I think finally, I don't know how this happened, like, we did pick people from diverse backgrounds. Like, most startups don't have most of the PMs being former founders, but that... I th- I believe that was the case for the first, like, 10 or, or, or, or 12 or 15 PMs at Airbnb. A lot of us were former founders. And I think that that made a big difference for how you make decisions and how you get started on things. And I think... I actually see this a lot in the Airbnb founders. They really care about the time at YC and they tried to r- recreate YC inside Airbnb a couple of times, with, with demo day and with, with sort of, like, new products completely isolated from the rest, starting with doing things that don't scale and talking to customers. So I think that that experience, like, had a... Made a big impact on them. But it's, it's hard to, to say just, "These two things. Go an- go and apply these things." It, it's, it's actually kind of hard to say, "Well, that won't work at a... As Airbnb." It's... I think that's a real- a really tricky question to answer. The last thing I would say is, like, Airbnb had an incredible business model, an incredible business from early on and it was hard to, to fail. And what I mean by that is, it's hard to fail with a company. You can fail with individual things inside the company, but the company was still going to succeed. And I think we all felt that. And a lot of companies don't have the, the ability to, to sort of, like, take risks like Airbnb did early on, because they don't have something that's so obviously great.

   5. LRLenny Rachitsky10:18

      That's a really interesting point, that in the last piece, that you may have the most amazing culture and hire incredibly well, but if the company doesn't work out, it's not gonna be looked back as like, "Wow, that was really... That was an amazing experience, but we failed."

   6. GAGustaf Alströmer10:30

      Yeah.

   7. LRLenny Rachitsky10:30

      Yeah, that's interesting.

4. 10:31 – 13:17

   Motivations for starting companies

   1. LRLenny Rachitsky10:31

      So you mentioned YC, and this kind of is a good segue to where I want to focus most of our time. You mentioned that you've worked with over 600 companies at this point, which is absurd. Feels like it's... He gets a statistical significance on takeaways at this point, or of what works and doesn't work. So I have just a bunch of questions about your experience working at YC and all of these companies. The first is, I think about this quote that Elad Gil tweeted once and he wrote a... I think a post about it. Elad Gil is this, you know, legendary angel investor. He said that starting a company is an act of desperation. You're either desperate to change the trajectory of your career or you're desperate to make a bunch of money, you're desperate to achieve some kind of mission or build a specific product that you're just like, "I need this to exist." I'm curious if you agree with that sentiment, and then I have a, I have a follow-up question around that.

   2. GAGustaf Alströmer11:20

      Yeah. Actually, I haven't hea- heard it before, but you know me, I'm an optimistic person. I think it probably reflects on my, my view of this question, but I would say desperation sounds like a negative place that you're starting at. I actually think that most people that start companies start from a positive place. But the motivations, I, I, I agree with what he said, can be very diverse for successful founders, right? So we actually asked this in one of the early group office hours sessions. We asked them, "Why are you doing this?" And we don't want to hear answers like, "I found this niche of the market." Like, that's not the why. The why is like, why will you come in and work late after four years when you have no money left and, and, and everything's going to shit, right? Then the niche market is not the answer. There's something deeper than that.And we've learned that it, it varies a lot for people's motivations to start companies. Some of them just want to make some t- solve some technical problem that they feel really passionate about solving. Some of them want to prove themself in front of others or prove themself for, towards themself. Some have grand, really important motivations to change the world and they will say things like, "I want to give everyone water," or, "I want to solve climate change," or, "I want to democratize publishing." Like you can imagine any number of like really large ideas. And some people just want to start a big company and just want to like be successful. And it doesn't matter, in my experience, what your motivation is. I, I don't think either of these motivations... Like it sounds like some of them would be better than others. In my experience, it's not the case. The motivation will change over time to just running this thing, right? Like, like when something becomes big, it's hard to think every day about, like exactly why you got started because the motivation just like, it can be fun to work on boring things, because it's fun to build something big. Everything doesn't have to be shiny and, and, and big and grandiose, because there are many ideas that are, quote unquote, "boring". But they... Just the idea of running the company becomes the motivation eventually.

5. 13:17 – 14:13

   Why Gustaf helps founders understand their motivations

   1. GAGustaf Alströmer13:17

   2. LRLenny Rachitsky13:17

      That is really interesting that one of the main things you look for, it sounds like, when you're interviewing is how strong and durable is that drive to build this company. Is that what you're saying?

   3. GAGustaf Alströmer13:26

      It's actually kind of hard for screen for motivation, I would say-

   4. LRLenny Rachitsky13:29

      Mm-hmm.

   5. GAGustaf Alströmer13:29

      ... in interviews because the purpose of this kind of office hour question is to highlight why someone is there and highlight the diversity of reasons people are there, and sometimes even highlight to, from one founder to another co-founder why they are doing this. And they might have never talked about this. Actually, surprisingly often, founders have not talked about why they're doing this. And just knowing why someone is here really helps with conflict resolution, for example, really helps with sort of like understanding why someone is there on a certain day or, or, or something like that. So it's, it's not something we screen for as much as I think we try to help founders discover this among themself and really know this about themself, and I've just accepted that the motivations to start companies is widely diverse.

6. 14:13 – 16:03

   Reasons you should not start a company

   1. LRLenny Rachitsky14:13

      Do you ever discourage founders from starting a company when you see that maybe it won't be a durable kind of lasting motivation or whatever other reasons, just knowing how hard starting a company ends up being?

   2. GAGustaf Alströmer14:23

      It's a good question. I would say sometimes if someone doesn't have a motivation or don't know why they're doing this, they're doing this because they read that it would be an natural career step. So like a good reason to not start a company is to if you think of starting a company as a career step. Well, it is not, because if it's successful, it'll be your entire career. It'll be 10 years most likely. And if it's not successful, then it's not something that like people generally aspire to, to start s- non, non-successful startups. So I think people start companies because this is sort of like something they want to put on their resume. They have not understood what startups are or, or why you should do them. Sometimes you can screen and kind of figure this out, but sometimes people don't even know why they're starting a company when they get started and it kinda gets figured out along the way. And that's okay, so I don't want to discourage people who don't know exactly why they don't, why they started this company to, to start a company. Like they might figure it out along the way and find, find the true motivation sort of like after doing this for a little bit or finding that it's really fun. So I think I discourage people to start startups if there are so many other things that are important in their life that are more important than the startup. So if, if there are financial constraints or family constraints or relationship constraints and they are going to trump this, then yeah, you should think a second time perhaps, because startups are hard. They're much harder than a normal job, espe- like equally hard if they're successful or a failure, right? They're not actually... There's no middle way where like, "Oh, my company's doing great so I can chill." Does not, doesn't work that way either. So I, I don't really discourage or encourage people, I just want them to have all the information.

7. 16:03 – 20:45

   The magic that happens at YC office hours

   1. GAGustaf Alströmer16:03

   2. LRLenny Rachitsky16:03

      You mentioned YC office hours, and I had a question around this. I'm working on this piece where I'm interviewing a bunch of B2B f- founders of companies that are doing super well, and I'm, I asked them a few questions like, "How'd you come up with the idea? How'd you find your first few customers?" And it's shocking how many of them bring up a conversation in YC office hours as the most pivotal point that set them on the trajectory that they're on now. And I'm curious what, what happens in these office hours. What are the most common pieces of advice that you give or maybe most surprising pieces of advice that you give in these office hours so that people can get maybe a glimpse into these, these conversations you have?

   3. GAGustaf Alströmer16:43

      So at YC, we have two type of office hours, two of the common ones. We have regular office hours, which is usually a one-on-one or basically the founder's talking to me or me plus another partner, and they happen every week or every other week throughout the entire program, and they happen years after the program on a regular basis. Then we have group office hours, which is you and like six or seven other startups talking to us. And, and they ha- fill a little bit different purpose. So the goal of the regular office hour, I a- always ask the question, "What's holding you back from moving faster?" And we don't want to hear updates. We don't want to hear, um, strategy questions. We want to understand what's slowing you down or what's, what's holding you back from moving even faster. You generally have a specific goal, and I think that question like what's, what's slowing you down or what're holding you back crystallizes like the priorities. There are only so many things you can do as a startup and there are only, only so many things that matters at that stage. And by asking that question so we can start digging into, okay, what's the goal? What are the things that drives towards that goal? What are the things that's slowing you down towards that goal? And usually the founders don't know what's slowing it down so the conversation and, and us probing questions actually leads to us or them discovering what it is that's slowing them down. In the group office hour, it h- is a little bit different. Group office hour fills a couple of different purposes. One of them is...If I think back on the Paul and Jessica's motivation to start YC, this was a surprise to them, but, but starting a company is incredibly lonely. You can't really lean on your employees and say, "Hey, I'm feeling really shitty as a founder today, like everything is going to shit." Employees isn't, isn't gonna take that well. So you lean on perhaps your investors and, but they're not really available. But what you can lean on is other founders 'cause they're all in the same situation. And it's sort of like when you ask a founder the question, "How are things going?" It's so emotional for them to answer that question because there's, it's never going well, right? It's never like, "Oh, everything is going fantastic." Like they might say that-

   4. LRLenny Rachitsky18:43

      (laughs)

   5. GAGustaf Alströmer18:43

      ... but everybody knows, all founders when they look each other's eyes, they know that's not the answer. So founders have infinite number of problems that they're thinking about all the time, which is why they're allergic to the question, "How are things going?" But when YC started, we put all the founders in a group together in a room and they started learning that all founders, all companies are broken in some way, right? They're all having these massive problems and they're all feeling that anxiety when they hear the question, "How are things going?" And just hearing other founders explain their problems, perhaps solving their problems, is a really good way for yourself to both feel motivated to do it yourself and see how problems get solved when other companies are having similar problems. Nowadays because of the scale of YC, we group companies together that have the same problems or the same area that they're operating in. And the second thing that group office hours do well is accountability, right? We ask you, "What were your goals and what were your goals for the last two weeks? Did you hit them?" And then that gives founders accountability 'cause they, founders are competitive. They don't wanna look bad. They don't wanna come back after two weeks and say, "Nothing worked." Or like, or, or at least like, "We didn't learn anything." They wanna learn something and make progress, whether it's positive or, or n- negative. And group office hours to me is the most magical moment because it really creates this very intense three or four month period. And founders often come back to us after YC and say, "Hey, we wanna do that again." (laughs) We wanna have this really intense, like really productive period and we don't have a program exactly like YC, though we have other programs, but we don't have anything exactly that mimics ex- that, that experience. But we do encourage founders to continue with group office hours after YC. And many of them do, and many of them ad hoc continue to meet for years in this group setting where they ask the same kind of questions to each other, to hold themself accountable, to learn from each other, and to just have someone else to lean on. And, and I think this was unknown and, and somehow the world didn't know before that starting a company is super lonely and, and you have all this anxiety. And by just talking to other people who have the same problems, it's just like one of the best thing you can do.

8. 20:45 – 21:36

   Why founders in coworking spaces should schedule time to talk

   1. GAGustaf Alströmer20:45

   2. LRLenny Rachitsky20:45

      There's so many things that come up when you talk about this. One is I, I worked at a startup at one point and we worked in a coworking space and we joined the coworking space 'cause we're like, "Oh, we'll meet other founders. It'll be social. We won't be all alone." But it turns out everyone's just like heads down, headphones on. I just, I, I don't have time for anything. I just need to work. And it, it's ex- it's like a microcosm of that experience that even if you're surrounded by founders, no one has time to do anything. They're just, they're working.

   3. GAGustaf Alströmer21:09

      You gotta schedule it and force it and, and put the laptops on the floor and the phones on the floor and you just like sit there with a pen and paper. That's how you have to do it. And we tried to mimic that as much as we could over Zoom, but honestly the best experience of this was in person in a ring in Mountain View with no computers and everyone just paying attention to everyone. That was the best experience. And, um, yeah, that's what I remember is like one of the most meaningful parts of YC. I didn't have it myself when I did YC, but now everyone ha- has it.

9. 21:36 – 22:26

   Questions Gustaf asks founders

   1. GAGustaf Alströmer21:36

   2. LRLenny Rachitsky21:36

      The other thing this made me think about is someone tweeted once, "Don't ever ask a founder how, how they're doing or how it's going." (laughs) It just creates all this anxiety 'cause nothing's ever going great.

   3. GAGustaf Alströmer21:45

      Don't, don't, don't do it.

   4. LRLenny Rachitsky21:46

      (laughs)

   5. GAGustaf Alströmer21:46

      Everybody looks at each other's eyes and they know that the question, they're allergic to that question.

   6. LRLenny Rachitsky21:50

      That's hilarious. So just to summarize the, the questions you said you asked. The one is in the individual office hours is, "What's holding you back?"

   7. GAGustaf Alströmer21:58

      Mm-hmm.

   8. LRLenny Rachitsky21:58

      And then in the group setting, what was the question again that you ask?

   9. GAGustaf Alströmer22:01

      "What are your goals for the next two weeks and what were your goals for the last two weeks? And did you hit the goals? And if you didn't hit them, like, what came in the way of hitting the goals?" It's very simple. And that can uncover lots of problems that other founders are having exactly in the same way. And just by talking about the things that h- held you back or the things that allowed you to hit your goals and cover something material for the other seven companies sitting in that, in that, in that

10. 22:26 – 26:23

    Common reasons startups fail

    1. GAGustaf Alströmer22:26

       ring.

    2. LRLenny Rachitsky22:26

       If you kind of zoomed out a little bit and thought about the startups you've worked with, what would you say are the most common mistakes that early stage startups make broadly?

    3. GAGustaf Alströmer22:36

       There's so many. I mean, like this is, uh, how I initially learned about startups by going, searching for that, that on Google and landing on Paul Graham's articles 'cause he kept-

    4. LRLenny Rachitsky22:44

       Oh, wow.

    5. GAGustaf Alströmer22:45

       I, I think I've written many articles about this topic because it is so, it is so common. So this topic can go on forever, but if I take like the most recent experience I've had at YC, I would say startups fail one, because they don't talk to customers. And if you don't talk to customers or users, you don't actually know what's important. And if you don't know what's important, it doesn't matter what you build. It doesn't matter kind of what ideas you have in your head if you don't actually know what it is that you, you need to build and you don't validate with customers. That's where a lot of the failure stems from. And a lot of early YC for us, or early part of the program is us pushing and probing founders to be like, "Tell us about the conversations you've had with your customers. What did you learn? Can you show us the organizations or like all these questions?" Like, "What other software are they using? What are they paying for? What problems do they have? How are they descri- describing the intensity of that problem?" So that's what we spend a lot of time early on, on at YC. After that, I would say one of the commons mistakes inside YC... I'm, I'm not ta- talking about generally startups here. I'm talking inside YC. The second most common thing I see inside YC is people are just afraid to talk to customers. So once they, they're just not trying hard enough to, to, to get in front of customers. And I think this comes from technical people tend to think that software is just the solution to everything, but really what you should do, n- need to do is to talk to someone over Zoom or over phone or in person, even better.And people are just afraid of doing that, and they're afraid of being rejected, they're afraid of ... These are comments, people that wanna build good products are just really afraid of people saying no. The problem is, which anyone who hasn't done sales before they join YC, they realize this, is that if you take the average customer group in the world, 90% are not early adopters. It doesn't matter if you have something new and cool they're just not interested. They are not incentivized to take risks, risks in their job to try something new, they're just incentivized to not take risks and just continue what they're doing. And those 10% are the early adopters are the ones that you actually want to reach, but you, that means you have to reach 10 to, to find one and then con- convince that one person to get on the phone or a video call with you. And that takes work, and that takes a lot of work, and I think people don't really think of this. This is common knowledge, basic stuff for salespeople, but founders who had never done sales before just get surprised by the percentages and the, sort of like what it means to do this. If I think of like more generally outside of YC, so these are two kind of things I experienced within YC, but I think generally outside of YC, I would say the, the two most common problems, the same one is stop talking to customers; the, the other one is not being technical and not knowing what it takes to build a successful technology company. And it means having technical founders and it means being able to build the first prototype. And this is something we screen for when we interview people at YC and we're, aren't accepting a whole lot of team that don't know how to build or get their first prototype built themself because we know it is like a super common value pattern. And I can go on and on and on and on for this one, but honestly if I drill down, like, what makes companies fail, it's, it's, it's quite simple. It's just like they don't talk to users, which means they don't find product-market fit and if they don't find product-market fit, like, nothing else really matters. And what mistakes do people make is like, is all, all about that. It's all about talking to customers and, and learning that you're building something that's actually useful. YC's like headline is make things people want and that's, it's still true and it's always gonna be true.

11. 26:23 – 27:57

    Getting over the fear of rejection

    1. LRLenny Rachitsky26:23

       This is really interesting and good advice. It's interesting that, like talk to customers, people hear that all the time. They're like, "Of course we're gonna talk to customers. We're gonna do that, of course." And your, your experience is they know this but they just don't do it, partly 'cause they're afraid.

    2. GAGustaf Alströmer26:36

       Yes.

    3. LRLenny Rachitsky26:37

       Maybe also 'cause they think they already know what they need to build and like, yeah, we're good.

    4. GAGustaf Alströmer26:41

       And you have all these validators, right? So the people are validating that even if you don't talk to customers, YC accepted you. This investor i- invested in you. This investor said you were great, like blah, blah, blah. Like, all these different validations that you confuse with product-market fit, right?Like, we have to remind everyone on the first day of YC, none of you have product-market fit because you probably don't, right? Almost nobody has because people confuse this external validation with the thing that matters the most which is talking to customers and learning what matters and, and, and people just don't... It's, it's just like a thing that just keeps coming back. Some get really good at it and that, that is the source of successful startups is when you really get good at, good at this.

    5. LRLenny Rachitsky27:22

       It reminds me, going back to Airbnb, one of the most important moments in Airbnb history was Paul Graham telling the founders of Airbnb, "Where are your customers?" And they're like, "Oh, they're in New York." And he's like, "Why are you talking to me and not in New York right now talking to them?" And they talk about that all the time.

    6. GAGustaf Alströmer27:35

       Yeah. It's, it's absolutely true. I, I think he wrote the article Do Things That Don't Scale as, as a learning, like the, the learning there was the Airbnb founders doing the trips to New York and learning about how to build Airbnb, which is a very counterintuitive idea which is when you have to spend the most amount of time with your customers. And I think Airbnb is sort of like the, one of the best stories inside YC of, of, of doing this well.

12. 27:57 – 34:21

    The importance of solving for pain points and why you should watch users

    1. GAGustaf Alströmer27:57

    2. LRLenny Rachitsky27:57

       This also reminds me, I've been talking to a bunch of founders recently. I asked them, "How many customers have you talked to help figure out this idea?" So just the other day it was 150, uh, financial like CROs that they talked to before they actually started raising this round. Another company, actually two Airbnb guys that started, they talk- they actually like ran ads I think on LinkedIn to find specific people to talk to in that specific role and they talked to probably, uh, at least 100, maybe 200. So there's a strong correlation there.

    3. GAGustaf Alströmer28:26

       Yeah. I, I think that's the volumes that people don't expect, like they think they might have to talk to five, but I think you have to talk to like 25 to 50. That means you have to reach out to a lot more to be able to get to people that are potentially early adopters, and those ones you talk to are also the ones that become your customers. So like, you're already doing most of the sales by just doing this work anyway.

    4. LRLenny Rachitsky28:45

       Do you have maybe like one tactical tip you could share of just either getting over your fear of talking to customers or just like holding yourself accountable to actually doing it?

    5. GAGustaf Alströmer28:55

       Yeah. I tell this story, I actually told this story yesterday. So remember when you sign up for a service that's a cool service and you hear about in TechCrunch or something like that? And then you realize you already signed up a year ago, right? And then you're like, from the founder's perspective, you signed up to something you never used it. So the, so the founders who build those services, their, their in- inclination to think is that everybody hates me 'cause they signed up and they never used me. Th- they never u- never used the service. And the fear of that is, is the, basically the fear of rejection. So if I put my thing out there and most people use it and they will tell all their friends how shitty this thing is, you should never even sign up for it. That's the fear people have. But the truth is that people sign up for it and be like, "Oh, I'm busy. I got something else to do." And they actually don't remember or care. So whenever you sign up for something that you signed up a year ago, think of yourself as that is the common customer experience, which is that you just signed up for a lot of stuff you don't even remember. You don't, it just doesn't, like you never have this like, "I hate this thing" reaction. You always have this like, "I'm, I'm indifferent to this thing. I don't actually care to even like complete the sign-up flow or, or try it out," right? And I think that's the thing that people need to remember is that, that the worst thing that can happen to a startup is not that people hate what you're doing, it's that they're completely indifferent to what you're doing. Sorry, not the, not the worst thing but the most common thing that happens is people just indifferent. But it, it doesn't give you a second chance. Let's say it always gives you a second chance and you really need to internalize that, uh...People have busy lives and if people don't actually use what you sign u- what you're building, that's fine. You can reach out to them a, a year from now or six months from now or two weeks from now, and they probably will if you, if you make some improvements. And I think people just have this fear that if, if I get a lot of rejection that means everything is bad. But the rejection should be put in context to the early adopter idea, in that most people don't care, are not early adopters, don't want to dig into new things, and that the more narrow of a solution you have to a specific problem, the fewer people actually want to dig in. But that's where you have to start because you cannot build a whole thing right up front and, and, and make everybody loves you. That doesn't really work that way. Even Airbnb was like air mattresses or staying in someone's homes when they're home. Like, that was not the complete solution of Airbnb but there were early adopters who dug in and been like, "Yep, I like that. I like those two things. I wanna have people stay in my, in my living room on an air, air mattress." But that's not what Airbnb is about today and a lot of those things were unknown at the time. But I think people are just afraid of rejection and you just need to overcome that fear and just learn that, like, it's, there's nothing that's really that bad that can happen when people don't use a service or sign up and don't care. Like, it's not really that bad.

    6. LRLenny Rachitsky31:41

       It reminds me of a quote that I ai- that I love from Marc Andreessen that everyone's time is already allocated. They don't, they don't have space for your product right now. They already have plans-

    7. GAGustaf Alströmer31:50

       Totally.

    8. LRLenny Rachitsky31:50

       ... for their day. And it takes a lot to convince someone to, like, change their, like, pay attention to anything and I guess that just comes back to why it's so important that your product is solving a real pain and not just, like, a nice little toy that, you know, is, like, better than what's out there, but not so much better that you're like, "I need this right now." So, maybe just along those lines, do you have any, any thoughts on just, like, the importance of that pain and just, like, how critical that is?

    9. GAGustaf Alströmer32:15

       I actually recorded... I'm, I'm, I'm happy about these videos, but I recorded two videos on, uh, on YouTube as part of YC Startup School last, last fall, and you can a- watch them on YouTube right now. One of them is, is how to talk to users and the other one is h- h- how you sell, sell or how you do sales. And the one about talking to users, I think there's a, th- there's a difference in asking someone, "Do you have a problem with XYZ? Is this podcasting setup working for you?" And people say, "Yeah. It's kinda working." But if you are in podcasting setup experts and you watch people use some other thing that's really shitty, they might also think that it's pretty good. But you, you have to watch them do it and the best way for you to figure out what is the intensity of their problem is not to ask them, but to watch them or to watch them solve the, the thing that they do. You know how, like, a lot of non-technical people don't know how to automate things so they will do the same thing in, like, Excel, like, a million times, like, by just, like, tabbing 'cause that's the only thing that they know and they're not technical enough to write some kind of script to do it, and you just have to watch those people to just feel the pain. You can't actually ask them, "How difficult is it to do XYZ?" 'Cause they won't even know that it's that difficult to them. So, the best thing I've learned about how to discover the pain is to watch people, have them screen share, have them walk, walk you through their daily workflow about the area where you're doing some discovery. That is the best thing. And, and, like, I'll give you another example, right? So there's a bunch of YC companies that are doing EV charging for electric cars and, and they're like, "What are the problems in EV charging?" And I was like, "You know, just rent an EV and go and charge at all the non-Tesla chargers and see what, see what they say or, or see what you experience." And the truth is that it's just, like, garbage. (laughs) A lot of EV charging systems are just so shitty and the apps are, like, terrible. You just have to just use them yourself to know how bad it is.

    10. LRLenny Rachitsky34:13

        It's cool how often it just comes back to just, like, go do the thing, like, do, do things that don't scale. Uh-

    11. GAGustaf Alströmer34:19

        Yeah.

    12. LRLenny Rachitsky34:19

        ... classic, classic YC advice.

13. 34:21 – 37:42

    The value of having a technical co-founder

    1. LRLenny Rachitsky34:21

       I wanted to come back to something you mentioned that I wanna pull a thread on as the technical co-founder and being technical early on, just to kind of cover that. So I know YC looks to having a technical founder as an important variable when you're deciding to accept a company. Say someone doesn't have a technical co-founder, do you have any advice for what they could do? Like, what often can work?

    2. GAGustaf Alströmer34:41

       Yeah. I, I think the first thing is to understand the value of technical co-founder. So some people who are in this trouble or in the situation where they're, they have an idea of something they wanna build and they don't have anyone to help build them, building it, I had a friend Paul who gave this incredible quote. He said, "I have an idea for a song, I just need a musician to help me make it." Right?

    3. LRLenny Rachitsky35:01

       (laughs)

    4. GAGustaf Alströmer35:01

       That's kind of similar to how it is with engineering. And if you th- if you view output of engineering as like, "I just have an idea for a song, I just need someone to actually make it for me," then you're not valuing software engineering or mechanical engineering or any engineering s- skillset, like, deep enough, right? The truth is that the engineering part is the really hard part. And the first thing I would say is you need to learn how to value the engineering piece. And let me give you an example of how you don't do that. You apply to YC and you have 90% for yourself and 10% for the engineer. Like, that's... You're basically saying that, like, "Oh, the engineering part of this company is only worth one-tenth of me. I'm the non-technical person." So that, that to me is a signal that you're not really valuing, value engineering. Okay, so how do you go and, go out about, uh, find someone? Well, the truth is that there are a lot of technical fo- co-founders. The tech, technical people they also want to found business co-founders. They don't want to do the other part, they don't want to do sales and they actually don't really care that much about fundraising, they just want to sol- solve the problem. And that's fine and we built something called co-funding matching with those funders can meet. But if you don't, if you want to participate in that, you can just start by asking the best technical people that you know, "Are you interested in starting a company with me?" You know? Same thing wi- with rejection, many of them will just say, "No. I have a great job. I'm really happy," but some of them will, will have thought about starting a company for a while and was hoping that someone would come and ask them to do that. So, you have to kind of, like, remove your fears and go and ask the best people.The reason you want to have a technical co-founder and not a hired engineer or not a hired contracting team is because so many of the decisions you're gonna make are technical, and so many of the iterations you're gonna make relies on engineering. And if you don't understand that, you won't actually make the right decisions anyway. It's not like startups you ha- have an idea for a product, you build a product and you're done. There's infinite number of iterations in that process. And then finally, I would say a lot of people learn how to code themself, right? So there are a lot of places online where you can learn the skill set that you... takes to build a prototype. You might not be the best engineer so there are many successful startup founders who are not the best engineers 'cause they, they stop coding when they hire three or four engineers. That's fine. But you need to be sufficiently good that you understand the value of engineering and the... and you understand that the best way to solve most of the problem is with software. And there are a lot of founders who just, for whatever reason, study something else. Like, that doesn't have to be a conscious or very precise reason that you had when you were like, 18 or 19, and then you're 25 and you're like, "I wish I had code," and then just learn to code, and they learn how to code. Like, it's like, not, not that more difficult than that.

14. 37:42 – 40:46

    How founders without technical expertise have succeeded

    1. GAGustaf Alströmer37:42

    2. LRLenny Rachitsky37:42

       Have you ever seen a startup work out if they had a contracting firm, like engineering firm build the product? Like, does that ever work or were you just like, "No, do not ever do this"?

    3. GAGustaf Alströmer37:53

       Basically I can't, I can't recall any specific ones where people have a contracting firm, but I recall founders where, let's say you had two non-technical founders, but they valued engineering and they were... had an ability to build a team of great people that were not co-founders and they gave them equity and they, and they became successful. There are many examples of that, I would say, but I don't remember any specific examples where like you had a contracting team building the whole thing. And I think the reason for that is it takes more than just sort of like writing a spec to build a product. You can't actually spec yourself to a great product. You have to just like, be part of the iterations yourself. And, and, and that's why I think like someone being the engineer, having the idea of what the iteration looks like and just doing it is, is, is how you do things. And I think that the cases where I've seen non-technical founders make this work is that they have a, a really good engineering teams who feel like they're founding team. They might not be co-founders per YC's def- definition of having 10%, but they feel like they're the founding team.

    4. LRLenny Rachitsky38:52

       This reminds me of a story of just a recent podcast interview I did with the CPO of Calendly. She talked about how when Calendly started, they actually had a Ukrainian dev team build the first product, and not only did they help them build the first product, they actually ended up driving the first... all the growth initially because they saw Calendly and started using it within their firm and then everyone-

    5. GAGustaf Alströmer39:15

       Wow.

    6. LRLenny Rachitsky39:15

       ... that they knew started using it and spread within Ukraine and actually continue to work with that firm. Like, they're still the eng team for Calendly, or some part of it.

    7. GAGustaf Alströmer39:22

       Wow.

    8. LRLenny Rachitsky39:24

       Yeah.

    9. GAGustaf Alströmer39:24

       Wow, that's cool. I mean-

    10. LRLenny Rachitsky39:25

        There's our success story.

    11. GAGustaf Alströmer39:26

        ... I would say it's certainly the case in some countries people have other jobs while they start the startups. So like the engineers, like if you... Like in, in Ukraine for example or in Eastern Europe it's very common that if they start their own startup they actually have a full-time job as a contractor while they're starting the startup 'cause that's how you pay the bill, 'cause often you can't raise money.

    12. LRLenny Rachitsky39:44

        Ah.

    13. GAGustaf Alströmer39:44

        And that's, that's fine too.

    14. LRLenny Rachitsky39:46

        Amazing. Just, that's, that's some hustle. (instrumental music) This episode is brought to you by Pando, the always-on employee performance platform. How much do you love the performance review process? Mm, yeah. It's time-consuming, subjective, biased, and there's rarely any transparency. With a rapid shift to distributed work, it's a struggle to create the structure and transparency that you want to help your employees have the highest impact and growth in their careers. Pando is disrupting the old paradigm of performance management, including a continuous employee-centric approach so employees stay engaged, see their progression in real time, and know exactly when and how they can level up. With Pando, managers can leverage competency-based frameworks to effectively coach and develop their teams and align on consistent growth standards, resulting in higher quality feedback and higher performing teams. Visit pando.com/lenny for more info and get a special discount when you sign up and reference this podcast. That's pando.com/lenny.

15. 40:46 – 44:57

    Attributes of the most successful founders

    1. LRLenny Rachitsky40:46

       I want to zoom out a little bit and ask another big question and see if you have... what answer you have for this. If you just think about the most successful startups in YC or even just the companies you've worked with, if you had to pick just like one or two attributes of what's most common across successful companies, what would, what would that be?

    2. GAGustaf Alströmer41:04

       I would say the most common reason that I've seen founders succ- succeed or companies succeed, it comes down to the founders and characteristics of those individuals.

    3. LRLenny Rachitsky41:13

       Hmm.

    4. GAGustaf Alströmer41:14

       The most important characteristics of those individuals are they're really determined to win and they don't give up when things are hard and they have an internal motivation that's just really infectious to people around them, which is how they end up building really good teams around them. People are actually gonna want to go and work for them, and I have numerous examples of people like this where they, the CEO or one of the founders are just like, just really inspirational people. The second thing I would say is they are technical, right? So like, like that's kind of like they're technical enough and like if I would grade companies on a scale of like technical to less technical, more technical founders are more successful, uh, more likely to succeed I would say. And then I would say they figure how to talk to users and move fast early on. So they don't wait for permission from their investors or from YC or from someone else to, to make progress. They're like, every day or every week there's continuous progress and they're not doing this for someone else, they're doing this for the customers. There's no one else that's like actually the... They're not doing this for the investors, that's for sure. The investors just are like in the way more, more or less and, and they're just naturally focusing on the customers. Finally what I would say is the skill that's really attributed to great founders is excellent communication skills. So the ability to...... communicate really complicated ideas clearly, to enjoy the communication part, right? Enjoying communication is often kind of correlated with enjoying doing fundraising, which is an important part of some companies' success. Not all of them, but for some of them. And, and, and I would say communication and storytelling is part of the same arc, right? And those are part of the same thing that actually motivates people around you. If you can communicate why you're building, what you're building and why it's important to the world, tell the story about that, that can motivate people around you to just want to follow you. A- a- and I think it's rare that I've seen founders succeed where the founder isn't in some way an inspirational person or someone that is a good communicator. Like, most of the time, like, you, you at least have respect or you have... You, you somewhere know that they're going to succeed, right? And that is what inspires you to be around them or be on their team.

    5. LRLenny Rachitsky43:32

       That is a really cool list. So just to kind of summarize. One, they have the strong will to win and with that, they're inspirational. They kind of pull people along and get people really excited.

    6. GAGustaf Alströmer43:42

       Yeah.

    7. LRLenny Rachitsky43:42

       Two is, they're more likely to succeed if they're technical and can build the thing. Three, they figure out how to talk to customers. Don't wait, just start doing it. And they're just, like, obsessed with that versus, like, what investors want them to do and they kind of don't want to talk to the investors. It's to make time for the customers. And then excellent communication skills, which kind of comes back to the first there, of like, they're able to storytell and get people excited. Is that right?

    8. GAGustaf Alströmer44:06

       Yeah. I would say those are... Th- those are the att- attributes of successful things. To be a super successful company, there's something else that ha- have to happen and those things are not things you can put on a list, because they're... They are the outliers, right? Like, if you look at like startups on a typical YC batch, there'll be a couple of billion-dollar companies. Those are the outliers. They all almost certainly have all the things that we talked about. And many other companies in the batch will have that too, but then what makes someone a true outlier is something that is unknown. That's why so many investors said no to Airbnb when they went out trying to raise money, because there was... That was an outlier idea. Like, it was an idea that was not logical and did not make sense to most people, and those kind of ideas, like the ones that end up succeeding, often don't make sense to people and there's something... There's some reason that they h- that no one has done this before, because they're just not natural next step of the world.

16. 44:57 – 46:59

    Why it’s hard to predict success and how YC advises against failures

    1. LRLenny Rachitsky44:57

       That's a great segue to a question I've been meaning to ask, which is, how good are you at predicting in a batch which startups are gonna be the monster hits? So maybe, like, you and then just generally YC. Like, how good are you all at knowing what's going to work out, like, is going to be the next Airbnb or Dropbox?

    2. GAGustaf Alströmer45:14

       I think the truth is that we're not, not, not very good at knowing what's going to succeed. We're not... Certainly, we cannot figure out who's going to be, be the really successful company in the batch. Li- like, that's not possible. What we're good at is knowing what failure looks like. And what we sometimes like to tell founders at the beginning of, of the batch is like, "If you fail, please do it in some new, exciting way, not one that we've seen a hundred times."

    3. LRLenny Rachitsky45:36

       (laughs)

    4. GAGustaf Alströmer45:36

       Because we have seen people fail for an- a large number of reasons and, and the best way for us to make... To sort of like, not predict, but like the best way for us to make more companies succeed is to tell them how they might fail, right? Like, be very direct and honest with them and say, "You need to do these three things. These things are likely going to lead that you won't succeed," right? And if- if we do our job well, most people get that feedback and they're on the track for succeeding. Now, which of those companies end up becoming the best? There are so many things that are uncorrelated to being the best, and it's the things that people don't... Like, "I'm in a hot industry. I was written up on TechCrunch. Like, there's investors who are talking to me." Like, you'd be surprised how many of the things I just mentioned are uncorrelated to outlier success, right? And that's why it's so hard to, to actually do this. And I think people really want these questions to be answered. People really want to believe that you can pick really great companies at the seed stage. But everything I've learned from the plus of 600 companies that I've worked with is that, it's just not that, that easy and it's maybe not even possible, and certainly not possible when you talk about like finding the outlier companies. I- I don't think it's that, that easy. And if it was easy, then we would accept a lot fewer companies. We just accept those ones. But it's just

17. 46:59 – 50:03

    Indications of potential for success

    1. GAGustaf Alströmer46:59

       not that easy.

    2. LRLenny Rachitsky46:59

       Do you have a sense of which ones are, like, likely to work out better than others or is it just like, "We have 150, really unclear, but one of these hopefully"?

    3. GAGustaf Alströmer47:09

       One good, good indicator is if each new office hour, there is really exciting new stuff, right? We're not talking about the same thing we talked about two weeks ago or four weeks ago. They've already done that stuff, right? Like, "Oh, I was trying to sell to these three customers." "Well, they already bought it. I'm now actually talking to seven others. And- and now we are talking about a different price and different product, 'cause they're like, they want more of what we're doing," right? If I'm experiencing that and that's like a consistent trend, then when people draw this revenue graph or like this like 10% weekly growth rate kind of situation, those are the companies that we attribute that to. It's like, "I- if you're able to make that progress on that short amount of time scale, you're on track to do something well." Now, a lot of other things have to go well for you to be... Ultimately be able to succeed, but progress on this like weekly or biweekly time scale is a really good indicator of someone who'll succeed. To me, a much better indicator than, "I am in this market," or, "I'm talking to this investor," or something like that. Th- those are much worse indicators of someone succeeding than, "I'm making progress and it's- it's pretty fast clip."

    4. LRLenny Rachitsky48:17

       Interesting. And so what I'm hearing is, at the beginning of a batch, we're just like in a bet on a bunch of companies that have a lot of potential, founders technical maybe, they have the strong will to win all these things. Through the batch, you're looking at the companies that are exceeding your expectations week to week in terms of progress that they're making.

    5. GAGustaf Alströmer48:34

       I mean, so- sometimes it could be different reasons that people are not making progress, but if you're making continuous progress, and I think Paul and Jessica said this, this was true early days in YC. If you are...... hitting your goals and you're making progress, like, continuously. If that continues, like that's a really strong correlation to some success. But again, going back to the question, can we predict who's gonna be the best ones? No, and that's why we really focus on trying to make people not to fail. Especially good teams can't fail. Like, if you have a really talented team who's really technical and know how to build a product, but they make some other basic mistakes, like not talking to customers or something like that, or trying to build everything all at once, I feel like it's our responsibility to make sure they don't make the basic mistakes that we've seen many times. We need to help them at least make some spectacular mistake that we haven't seen before. But then, that's a high potential team. If someone is on a good track for a decent, a decent idea, but they're still early, that's, that's really good. Good potential.

    6. LRLenny Rachitsky49:30

       I have kind of a fun question that I wanted to try, which is kinda connected to this idea around attributes of successful founders and companies. So I have this founder friend named Flo, and he was asking me recently, "If you had to think about the most successful founders, which attributes do they have?" And he kinda gave me this list, and it's kinda like two ends of a spectrum. So I thought it'd be fun to just go through this list and see, in your experience, which end of the spectrum, if any, are associated and correlated with the most successful founders. Does that sound good?

    7. GAGustaf Alströmer50:01

       Sure, sure. Let's do it.

18. 50:03 – 51:11

    Speed vs. quality

    1. GAGustaf Alströmer50:03

    2. LRLenny Rachitsky50:03

       Okay. So the first is speed versus quality. Is there an end of the spectrum where you find that most successful founders are either speed-focused or quality-focused?

    3. GAGustaf Alströmer50:11

       Sometimes founders ask us this question, "What should I focus on, growth or retention?" And the answer is, they're asking us for permission to not do one or the other. The truth is you, to succeed, you have to do both. I would argue that speed versus quality, there's different level of speed and different level of quality at different stage of the company. But the truth is that you always have to move fast and you have to understand what the meaning of quality is, right? So I think, I actually don't see that as a spectrum, but I would say if you move fast with talking to customers, you'll build something that have potential of having quality 'cause you know a lot about the problem. I think when people think about quality, they often think about, "What is my personal definition of quality?" I have a bar of quality, but quality to me of a good product idea, a good startup idea, has more to do with what the customer would think is valuable. And if you move fast by talking to customers and having customer learnings and know the problems, then you will actually come up with something that's high quality. So they're not at a spectrum.

19. 51:11 – 52:48

    Confidence vs. humility

    1. GAGustaf Alströmer51:11

    2. LRLenny Rachitsky51:11

       All right. Let's try another one. Confidence versus humility, as a founder.

    3. GAGustaf Alströmer51:16

       I don't think that they're on a spectrum.

    4. LRLenny Rachitsky51:18

       (laughs)

    5. GAGustaf Alströmer51:18

       I think that learning to predict confidence as a founder is critical, going back to this communication piece of motivating people around you, right? I wouldn't wanna join an, uh, a company where the founder's completely not confident in their own idea, right? 'Cause that is gonna shine through, and the investor isn't gonna wanna invest in someone who's completely not confident in that idea. So learning to first build your own confidence for what you're working on, and then predicting that confidence to the people around you, I think, is critical. And a lot of people will have doubt around you. And if you're not predicting that confidence, there's not clear that anybody else will, if you're the founder. Like, you're the one who's have to do it. And I think that you can predict that confidence while having a strong sense of humility towards the people around you. But I think when it comes to startups, learning to have that confidence is an important piece of the early days, right? And especially if you're building something that's very difficult, that takes a lot of work and a lot of money, predicting the confidence that you will succeed is critical for everybody that's doubting you. And those doubting you is a lot of people around you, right? And you just need to, like, have an unnatural amount of confidence to prove them wrong. And, and I think that, that, again, this is not on a, on a spectrum with humility. In fact, the most successful founders are often the most... Like, you cannot inspire people around you if you don't have a strong sense of humility. People don't actually wanna spend time with you, which means they want to work for you or invest in you. So these are, again, you need both, but they serve different purposes when you get started.

20. 52:48 – 54:36

    Execution and tactics vs. strategy

    1. GAGustaf Alströmer52:48

    2. LRLenny Rachitsky52:48

       Tough gig, this founder life. You gotta, you gotta be everything. (laughs) Let's see if there's a, a big difference in this next one. Execution and tactics versus focusing on strategy and kinda higher level stuff, like how deep do founders go that you find that are most successful?

    3. GAGustaf Alströmer53:02

       So this one, actually I have a strong opinion about. I think that the reason that we talk about strategy a lot is because it goes back to business school. And business school, the origin of business school was to teach people to join the corporate world. And in the corporate world, strategy matters, right? So like when you join a big company, you're employee number 2,010-something, then you probably might have a business school, like, job, where thinking about corporate strategy is an important thing. When you are a small startup, strategy does not matter, because there's not that much to strategize about. Maybe later on it might be fruitful to think about strategy, but strategy kind of assumes that you can do multiple things at the same time, which small startups cannot. They can just do one thing at the same time. So execution is the thing that matters for, for companies. And whenever someone wants to have a strategy conversation, it assumes that they don't understand the priorities. A- and the priorities is always a list from one, like from top to bottom, where there's one thing that's more important than the others. And you can't really str- you can't really have a strategy session about, about like the other things, 'cause there's only one thing to work on. So to me, there's a clear answer here is that good founders are executional oriented, and they just continually have one priority of what they're trying to go for, and then just hitting that priority all the time, and then new priorities will co- will come up, and you don't really have time to have a discussion about company strategy. Company strategy also assumes that you have product-market fit, is you already have something that's working. If you don't have that, then getting, getting to people wanting your product, that is your strategy. You don't have any other strategy.

21. 54:36 – 56:27

    Autocratic vs. collaborative-driven founders

    1. GAGustaf Alströmer54:36

    2. LRLenny Rachitsky54:36

       Awesome. Okay. Hmm. We found one that's quite different, one end of the spectrum of the other. How about autocratic and kinda like, I don't know, I think of Steve Jobs, like, versus kinda consensus collaborative driven, if this is a spectrum at all, and then where do you find founders might fit that are most successful?

    3. GAGustaf Alströmer54:53

       I don't know if I haven't answered that question because I think when you work at early stage, it might look different than when you work at late stage. And I, I don't spend a lot of time with founders that have thousands of employees and, and hearing how they are in the... Like, I, when I talk to those founders, I talk to them one on one and I only hear from their perspective. So I don't actually know how they are appearing in a large corporate setting. But when you're a small company, you're three people or five people or 10 people, you cannot be an autocratic decision-maker. Like, the founding team have a founding team decision-making dynamic. That could look different. Sometimes it's like everybody decides together on everything, and sometimes you say, "I have my area of expertise and you have yours, and we, we split it up, the decision-making." And, and either of those things are fine, I think. You just have to have a process so you don't rehash every decision after you made them, like, a million times. And I, I, I would say, like, the thing that matters the most at that point is to be willing to adhere to the process that you and your founding team have come up with. And your individual nature could be different, or in a different role and different company. But for a startup to work out, you have to have a, like a specific process on how you make decisions, and those are on a very short sprints, like weekly or biweekly, and everyone needs to feel good about decisions after the fact. At least they feel good about the process. And I don't think that you can just decide. That's the... You can also be fully collaborative, everyone gets to decide about everything. So small startups kind of agree on how they decide together. So like, after that, everyone just follow the process. That's usually how things work out.

22. 56:27 – 59:03

    Why you should focus on product first

    1. GAGustaf Alströmer56:27

    2. LRLenny Rachitsky56:27

       Okay, I got one more. Cares more about the product or cares more about the distribution and growth strategy?

    3. GAGustaf Alströmer56:33

       Well, there's a lot of kind of assumptions built into that, I would say. Because caring about the product, to me, is caring about the customers. And sometimes when we... I mean, if I would say something like, "Oh, great founders care about the product," a lot of founders misinterpret that as in my personal perception of the product, or my ideas of what the product is. And that's wrong. The right perception there is the expectations or the use of the product from the customers. So if, if you're meaning focus on the product or cares about the product in that sense that your customers care about, then absolutely, I think that's a really, really critical, im- important thing to have early on. Like, talking to users, doing things that don't scale. Once you get big, if you don't figure out a scalable distribution strategy, you won't succeed. And those are different for different companies, but they're not doing the things that don't scale. Like, doing things that don't scale is not a scalable strategy.

    4. LRLenny Rachitsky57:30

       Hmm.

    5. GAGustaf Alströmer57:30

       Eventually, something specific will, will be the things that work for you. If you're lucky, people will talk about your product and you'll have organic growth. But in many cases, that's sales, that is some kind of, like, consumer distribution strategy. And you can't start with that. I've, I've seen a lot... And this is where I had to, like, reset my thinking coming from a growth team joining YC, is you can't start a startup at the... with a growth team mindset, because that is just scalable things all the time. And really what you need to go back to is doing things that don't scale and un-scale your, your, your way of thinking about customers. But it's really useful to have the growth, the growth mindset once something is working, right? Once you have thousands of people signing up for your thing every day, well, how do you get to 2,000? Well, that's actually... That's probably something that looks more like this thing that a growth team would do or a distribution team would do. And I would, I would say everyone has different experiences of this based on their ex- prior experience, right? So if you work for a company that was infinitely successful, then you won't care so much about this. If you work for Google, you'll never even think about this, 'cause, like, distribution is just like the website. But if you work for a really small, shitty product, then you think a lot about distribution, 'cause that's natural to you on how you succeed. So I think, at the end of the day, talking to customers m- matters the most. That is what it means to care about a product to me. And then distribution is something that you will definitely invest a lot in once something is working.

    6. LRLenny Rachitsky58:53

       Awesome. All right. I have probably 100 other questions I want to ask along these lines, but I want to make sure we get to another topic, which I know is near and dear to your heart, which is climate tech.

23. 59:03 – 1:02:16

    The economic incentive for investing in climate tech

    1. LRLenny Rachitsky59:03

       So my understanding is you're instrumental in pushing YC to focus on climate tech as a focus area. I believe you led the charge on their initial request for startups, I think is the term, where you all put out, like, "Here's who we want to fund." And I think you've mentioned you funded a couple dozen climate tech companies in the last few batches. Is that all generally correct?

    2. GAGustaf Alströmer59:24

       First request for startup was actually, um, Sam Altman and, and a few other folks that was kind of the, the one who drove that. The second one that we kind of wrote into our actual request for startup, I wrote that one. It was carbon removal specifically focused on. And then naturally, the people that apply with climate tech ideas get in my reading queue of applications, and I read them and I interview them. Not all of them, but many of them. I think today we funded over 130 plus companies that are focused on climate tech in some way or another.

    3. LRLenny Rachitsky59:54

       Wow.

    4. GAGustaf Alströmer59:54

       And the, the trend line is that really ambitious people want to start companies in, in this area. Some of them want to start the companies because the climate tech is the number one problem, but they don't view this as a nonprofit. And I want to really kind of make this dist- distinction. Pe- people somehow think that, like, starting a climate tech company is doing good for the world, but it probably doesn't have a lot more than that. The truth is that the world have decided, because climate is the... one of the biggest problems that we're facing, if not the biggest, we've decided that we're going to stop doing the things that we're doing, and we're gonna change our entire energy system and change all the things that we do that emits carbon, and we have just dec- Like, governments have decided this. This is already... The question is how it's gonna happen, but this decision has been made. And in that transition, we're talking about trillions of dollars of money moving from things that cause climate change to things that don't. Like, a- as... The scale of this transition is not something we've seen recently. Li- like, software is not that big in comparison. It actually is much smaller than this decition- transition. So-I think if you look at something like Tesla, which now has a, I don't know, $600-$700 billion market cap, that's just one company that currently provides like a couple of percent of all the cars in United States, n- new car sold. And that is already one of the biggest companies in the world and has now the biggest, the richest person in the world. We've only seen the beginning of this. And the, the, the economical motivation beh- behind the decisions that people are making are just as strong as, "I want to fix climate change," because this is just a really good business. This change have attracted a large set of software founders, the people that you and me know, that like listen to this podcast, that said, "My skills is relevant here. There are a lot of things that I can do. A- and if not, I can learn those things." But most importantly, the skills of- of wanting, working for startups is really, really critical t- to join- join this trans- transition. And a lot of them have started companies or joining companies. And I used to get, I still get an email every week from some accomplished software engineer who asked me, "Which software company should I work for to fix climate change?" And I've gotten those emails for two or three years now. And this- this- this thing just attracts like really, really ambitious people. And it's not stopping. It- it's accelerating. And I feel lucky to work with so many of these great founders, 'cause they are, like uniquely interesting people.

24. 1:02:16 – 1:04:59

    The clean-tech bubble of 2008

    1. GAGustaf Alströmer1:02:16

    2. LRLenny Rachitsky1:02:16

       I've noticed exactly the same thing, of just how many smart, driven, amazing people are like, "I just want to move to a climate tech company. Like that's all I'm looking for now." And just to give you credit, I feel like you were ahead of the curve on the shift that started to happen and pushed YC to focus on this, uh, really early. I- I always think like, man, I know Gustaf, and I feel like Gustaf has made like such a massive impact on the investment and focus in startups on climate. And so, I just want to give you huge props for doing that and being so at the forefront of a lot of this.

    3. GAGustaf Alströmer1:02:50

       Thank you. Uh, I mean, sometimes I- I would- I'd say, I'd say that like, it matters to someone who has the credibility of YC start accepting these companies. Like it- it does matter. And people... Like, I remember when I spoke to Diego from Pachama in 2018, when he was starting Pachama, we were white boarding at YC. He was a YC alumni starting a different company. And he... The- the word climate tech did not exist. And- and- and people were unsure if investors would fund companies like these. And Pachama's raised $60 million and have, I don't know, lots of inve- lot- lot- lots of big customers, lots of employees, and it's clearly doing really well. But I think at the time of 2018, it was kind of unknown. And one of the reasons it was unknown is we had this previous, uh, bubble, clean tech bubble in like 2008, 2009, 2010, that didn't work out because of a number of specific reasons. And people, investors were just afraid of funding things because they had some scar tiss- tissue or scar- scars from like the previous, this previous thing that happened. Now, that turned around like upside down. Li- like, the number of new in- investors that are investing in climate tech is as big of a trend as any other trend we've seen in the last, in the last like decade or two decades. Like, there's just e- enormous focus on the investing side. And mo- most recently, me and- and an- another guy, David Rusenko, wrote this request for startup, a new updated, very detailed list of, and I- I hope we can post it in the show notes, uh, a very detailed list of- of ideas or areas where we think you might be worth looking, if you want to start a company. Now, we don't know what good ideas look like. Like, like we don't know. But we can tell you like where all the areas of opportunity exist, where you should go and look for good ideas. And we wrote this bec- in response to all these people that come to us and say, "I want to work on climate tech. I don't have a good idea, 'cause I don't have any specific experience in this- in this stuff." And then we're just like, "Don't work on these three things, but go and work on any of these like 25- 5- 5 directions." And, um, it already has generated good response. I think it will gene- generate mo- more response. But I think it's important for YC to sort of like tell the world that we fund these things. And that's always been the mo- the reasons we had requests for startups is to let people know that these are things that we actually want to fund.

    4. LRLenny Rachitsky1:04:58

       Actually

25. 1:04:59 – 1:06:51

    Why you don’t need to be super-scientific to work in climate tech

    1. LRLenny Rachitsky1:04:59

       moderated a panel a couple weeks ago that, uh, this organization called the Climate Draft put together of PMs that are in climate tech. And the... A lot of the questions were just like, "What do I need to have... What kind of background do I need to get to move into a climate tech startup, to start a climate tech company?" And it's interesting, every single one again and again just said like, "Like your actual regular PM skills is all we need." Like, there's a lot of people already at the company that are experts in the science. And like, that's okay if you have no experience. They just need the business experience, how to operate, how to execute, like standard stuff that PMs learn. And so, would you agree with that, that like you don't need to have this deep background in science and climate to move into the space?

    2. GAGustaf Alströmer1:05:41

       Yeah. I would say if you are working on a- a software company and even some of the hardware companies, that's- that's probably generally true. Absolutely. And it's much more valuable to have that background than to have the specific domain expertise background. Like, th- those are com- complementary. But as a PM, having the s- solid PM background is the m- more valuable piece, uh, piece, I would say. Being a competitive PM coming from a really good culture of product management, knowing what good looks like, like that's invaluable to some of these companies. 'Cause they haven't... In the past, they weren't able to hire these people. So that's- that's the... I agree with that 100%. In terms of founders, I've seen everything, right? I've seen people having some domain expertise, starting a company and really succeeding. I've seen people who had no e- domain expertise and learned everything they need to know. Maybe they partnered up with someone who had good domain expertise and then succeeded. I've seen all of it. And I actually think that can succeed in- in either of these categories. You don't need the deep expertise. It depends really on- on the area you're in. But you... Like someone like Pachama, like Diego and Tomas did not have expertise in forests besides the personal experience. He just had a willingness to solve the problem. And- and it really worked out for them.

26. 1:06:51 – 1:12:27

    Areas of climate tech and promising companies

    1. GAGustaf Alströmer1:06:51

    2. LRLenny Rachitsky1:06:51

       You mentioned you have this list of areas you're excited about. I know we'll share it in the show notes, but is there any you want to highlight, just like here's areas you're most excited about and want to fund, and/or are there companies you want to mention that are super interesting and super cool in the space that people should know about?

    3. GAGustaf Alströmer1:07:04

       We wrote the list and we are highlighting companies in each of the categories. I don't know if I want to highlight any specific categories, but I can, I can talk about some of the, the things that we have funded in the past that has re- real, real legs. So here's how I think, generally think about climate tech. So we have to decarbonize all the things we do to, uh, that emits emissions. And that means we have to change a bunch of things in the world. Change transportation, change energy, change homes, all of these things. Or change how we heat and, and, uh, heat homes, for example. And then there is carbon removal. And carbon removal is sort of like, well, even if you do all of the stuff really well, it's probably not gonna be enough. And because there's an opportunity and there's, like, some, some evidence to suggest that we can actually remove carbon from th- at- atmosphere in some way or another, a lot of companies are also working on this at the same time. I would say we need to do both and they're not in conflict, and we probably are going to need to do both. Well, we certainly have to need- need to do the first one. And on the decarbonization side, there's infinite number of categories of our society where we emit a lot of carbon, right? So I'll give you an example. Shipping is a really big deal. Like, a lot of carbon emissions come from freight ships around the world. That's not an, it's not an obvious solution how you would solve that because the kind of oil that they run on is really cheap and it's a very low margin business, and they don't have a whole lot of incentives to change besides what is coming down regulatory. So it's not a national solution where someone could be cool, someone will build like a Tesla for ships and it would just work out. But the two companies that we funded in that area, one of them is Seabound, who is building carbon capture and removal for ships, and the other one is FleetZero, who build electrical ships. And, and electrification is on and again and again and again and again, and whenever it's being applied, turn out to be a more efficient way of, of doing whatever thing that you were previous doing with the combustion engine. It, it is almost no maintenance, it's cheaper to build, the batteries are more expensive, uh, it's cleaner and it fits like the carbon goals you have. There's just a bunch of benefits there. But that, it has limitations, and usually the limitations on electrification has to do with batteries. It's like, how far can you go? Another category is what I call the, uh, which is a very important, kind of critical one, which is the carbon accounting and sort of like the recommendation systems that help big company account for the carbon that they have, and they are giving some recommendations of what to do. So I'll give you three examples. We funded Unravel Carbon, which is carbon counting software in S- in Singapore, focusing on Asia, and probably the leading one there. Uh, there's a company called Carbon Chain, which is focused specifically on supply chain and shipping and r- raw materials, stuff like that, out of UK, and then there's Senai here in, in the Bay Area. And, and who knows how this market's gonna play out, but this market has, carbon accounting has customer demand right now, right? So all the large companies of the world have either, either promised the government or promised their shareholders or promised the public, or maybe even their employees, they're going to decarbonize. And they don't always have an idea how to do it, and these software platforms is like the plug and play, "This is how you do it." And then I'll give you two examples of things you can go into if you're not, if you're not, if you don't have any specific domain expertise and you're just a good software engineer. There's a company called Enode. They are basically building Plaid for EV chargers and Plaid for home energy system. So if you wanna, uh, i- if we imagine that the future of all homes or future of all charging of EVs is gonna be a bunch of energy appliances that are run by small computers, right? They are. They're all Wi-Fi connected. You can connect to them and do things, tell them to turn on, turn off, turn on when it's cheap, turn off when it's whatever, right? Like all these different things that are valuable for the energy grid. Then you need a software platform to connect with all of them, and that's what Enode has been building. Another related company is called Static. Static is the Airbnb for EV charging in India. And the reason that you need something like that is so you don't have Tesla charging, you don't really have public charging in general, and people don't have outlets in their garage and they don't have garages. So you need to build a new bottom up EV charging system or platform, and that's what Static has been doing. And they're actually building now public em- charging infrastructure as well, but they have their own app. So if you use a Static app, it'll direct you to all the Static chargers. And I believe that they are the biggest or the fastest large, fastest growing EV charging network in India, which is the second biggest country, if not the biggest country, in the world right now. So the potential of these ideas, even that they are doing well now, is just infinite. Like, such an enormous market. And, and, and if you succeed in one of these things, I don't think we're gonna have as many gas, as many gas stations as we have today and different networks. We're not gonna have the same in EV charging. It's gonna be a lot more consolidated around the use experience of the end user and the app they open to, to do this stuff. So I'm pretty convinced that there's real big opportunities for software entrepreneurs to figure this out. There's some companies in the current batch that are focused on this too. The final one I would mention is, is Heart Aerospace. We have Heart Aerospace and Wright Electric and a few others focused on aviation. And aviation is another big, difficult to kind of, uh, decarbonize, and Heart and Wright are focusing on battery electric planes. So they're basically like basic making commercial airplanes that fly on batteries and fly on electric motors, and it's, it's incredible to see.

Episode duration: 1:25:35