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Y CombinatorWhere Do Great Startup Ideas Come From? – Dalton Caldwell and Michael Seibel
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CHAPTERS
- 0:00 – 1:24
Three Common Themes Across Airbnb, Coinbase, and Stripe
Michael Seibel introduces the question of where great startup ideas come from and the three YC companies to unpack. He lays out three themes: timing against a dominant preexisting product, ideas most people thought were horrible, and opportunities bigger than the founders knew.
- •Case studies are Airbnb, Coinbase, and Stripe
- •Each had a preexisting competitor but room for a 10X better product
- •Founders and investors thought the ideas were bad or too hard
- •Each opportunity turned out far bigger than the founders realized
- 1:24 – 3:43
Airbnb: Existing Products and Why They Fell Short
Dalton Caldwell explains that VRBO and CouchSurfing already existed and Airbnb looked like a third-rate entrant. Michael Seibel argues the incumbents were weak because they didn't facilitate payments and charged hosts to list.
- •VRBO and CouchSurfing came first; Airbnb wasn't the originator
- •Existing products didn't handle payments, creating trust friction
- •VRBO charged hosts upfront, though hosts are what win the market
- •Seibel says Airbnb nailed the timing
- 3:43 – 5:13
Airbnb: Solving Their Own Problem and Using Their Own Product
Seibel describes how Airbnb began when Joe and Nate needed rent money during a San Francisco conference, around the time of the '08 crash. Using their own product also taught them the need for payments, as in Brian's story of forgetting money and being mistaken for a fraud.
- •Founders needed rent money and rented space during a conference
- •The '08 crash made people realize their property was an asset
- •Insight about payments came from using their own product
- •Brian's story of being seen as a fraud led to in-site payments
- 5:13 – 7:33
Why Investors Thought Airbnb Was a Bad Idea
Caldwell and Seibel recall the criticisms of Airbnb. Staying in a stranger's home seemed unappealing, and charging money was seen as uncool when the advice was to build the network first.
- •Renting a room with the host home seemed scary, especially to investor types
- •CouchSurfing's communal ethos made being commercial seem in poor taste
- •Conventional advice was to grow huge and charge later
- •Seibel notes Twitch grew once it added direct payments, which was seen as dumb then
- 7:33 – 10:12
Coinbase: The Bitcoin Landscape Before It
Caldwell sets the context of 2011-2012, when buying Bitcoin involved money orders to foreign countries and unreliable exchanges like Mt. Gox. Seibel notes Coinbase wasn't the first mover but the existing options were so bad that a 10X better product was within reach.
- •Buying Bitcoin around 2011 was hard and felt like a scam
- •Mt. Gox went down often, was hacked, and people lost money
- •Seibel calls portable online gold 10X better than gold
- •Brian saw the chance to fix a bad experience
- 10:12 – 12:30
Coinbase: Criticisms and an Undercounted Insight
Caldwell lists why people dismissed Coinbase: a tiny, bubble-like market, fraud associations, regulatory obstacles, and the impossibility of a bank deal. Even Brian's YC application emphasized P2P transfers rather than simply buying Bitcoin, which turned out to be enough.
- •Bitcoin was seen as a tiny market, a bubble, and linked to fraud
- •Bank deals and US exchanges were extremely hard
- •Brian's YC application focused on P2P transfers
- •The simple buy-and-sell product was enough for a huge company
- •Brian had an impossible time raising money on demo day
- 12:30 – 14:41
Stripe: How Hard Accepting Credit Cards Used to Be
Caldwell describes setting up merchant accounts before Stripe as like applying for a mortgage, and says he immediately wanted Stripe when it came out. Seibel recounts Authorize.net taking three months and a 30-page contract at Justin.tv and Twitch.
- •Merchant accounts required paperwork, faxes, personal guarantees, and fraud checks
- •Caldwell was among the first 100 Stripe customers
- •Seibel's team took three months to accept cards via Authorize.net
- •Stripe wasn't the first mover either
- 14:41 – 16:31
Stripe: A Peer Problem and Building for Developers
Seibel notes the Stripe founders saw their YC peers struggle with payments, a hint for people looking for ideas. Their go-to-market centered on developers, with beautiful documentation and a beta invite program that created buzz.
- •Founders saw smart technical friends complaining about the same problem
- •Seibel says recurring complaints from peers can signal a real problem
- •Stripe asked what a programmer would want
- •Great docs and website were widely copied
- •Beta invites made access feel like a favor
- 16:31 – 18:28
Stripe: Most Expensive Product and the Criticisms
Seibel says Stripe was the most expensive product in the market and people still desperately wanted it. The criticisms included two teenagers entering the heavily regulated banking space, the need for a bank deal, and PayPal's presence.
- •Stripe priced higher than competitors, yet demand stayed strong
- •Skeptics asked what two teenagers were doing in banking
- •Regulation and the need for a bank deal seemed impossible
- •PayPal seemed a quarter step away
- •YC was known for funding third-rate knockoffs
- 18:28 – 19:32
Being Contrarian and Doing the Hard Work of Execution
Seibel says the overarching theme is that all three founders had to be contrarian, since most experts would have told them they were stupid. Caldwell adds that talk is cheap and these founders had to execute and build products people loved.
- •Founders had the problem and experience, and the opportunity was obvious in hindsight
- •Eight of ten experts would have called them stupid
- •Execution was the hard and expensive part
- •The products handled hundreds of millions of dollars and couldn't lose it
- 19:32 – 20:56
Takeaways: Ignore Incumbents, Experts, and Early Market Math
Seibel sums up three takeaways: don't worry about existing products if users hate them, don't heed experts who aren't users, and be careful with initial market math. He says 10X better products open up use cases founders can't foresee, so market size estimates often turn out wrong.
- •Existing products that users hate shouldn't deter you
- •Experts without the pain of the problem shouldn't be heeded
- •Be careful pretending to know the market size
- •Founders later told investors the market was bigger than thought
- •A tiny-market objection would have killed all three companies
