Lecture 2 - Team and Execution (Sam Altman)

1. SASam Altman0:03

   Uh, before I jump into today's lecture, I wanted to answer a few questions. People emailed me saying they had questions about the last lecture that we ran out of time for. So if you have a question about what we covered last time, um, I'm welcome to answer it now, starting with you.

2. SPSpeaker0:15

   Can you use the mic, please?

3. SASam Altman0:16

   Uh-

4. SPSpeaker0:17

   It's on.

5. SASam Altman0:17

   It should be on.

6. SPSpeaker0:18

   Okay.

7. SASam Altman0:18

   Can you not hear me?

8. SPSpeaker0:19

   We can't.

9. SASam Altman0:19

   No?

10. SPSpeaker0:19

    No.

11. SASam Altman0:21

    Maybe you can ask them to turn it on. Uh, hopefully it'll come on. Anybody else? Yes.

12. SPSpeaker0:32

    Uh, so one question that was submitted online was, uh, how do I identify if a market has a fast growth rate now and also for the next ten years?

13. SASam Altman0:40

    All right. So the question is how you identify markets that are growing quickly. Um, the good news about this is this is one of the big advantages students have. Um, you should just trust your instincts on this. Um, older people have to basically guess about the technologies that are sort of, that young people are using, right? 'Cause young people get older, and they become the dominant market. Um, but you can just watch what you're doing and what your friends are doing and, um, you will almost certainly have better instincts on fast-growing markets than anybody older than you. And so the answer to this is just trust your instincts. Think about what you're using more. Think about what you're using, what you're seeing people your age begin to start using. Um, that will almost certainly be the future. Maybe I can do one more question on the last lecture before we start.

14. SPSpeaker1:24

    Um, this isn't related to the last lecture, but another question online is, uh, how do you deal with burnout while still being effective and remaining productive?

15. SASam Altman1:31

    Yeah. Sure. Um, so the question is how you deal with burnout as a founder. Uh, this, the answer to this is just that it sucks, and you keep going. Um, unlike a student, where you can sort of like throw up your hands and say, "You know what? I'm really burned out. I'm just gonna like get bad grades this quarter," uh, one of the hard parts about running a startup is that it's real life, and, um, you just have to get through it. Uh, the canonical advice is like go on vacation or whatever. Um, that never works for founders. It's sort of all-consuming in this way that's very difficult to understand. So what you do is you just keep going. Um, you rely on people. Uh, it's like really important, and founder depression is this serious thing, and you need to have the support network. Um, but the way through burnout is just to address the challenges, address the things that are going wrong, and you'll eventually, uh, feel better. All right. So last week we, or last lecture we covered the idea and the product. Um, and I wanna just emphasize again that if you don't get those right, none of the rest of this is going to save you. Um, today we're gonna talk about how to hire, uh, and how to execute. Hopefully you don't execute the people you hire. Um-

16. SPSpeaker2:40

    [laughs]

17. SASam Altman2:41

    Sometimes. Uh, so f-first I wanna talk about co-founders. Um, co-founder relationships are among the most important in the entire company. Um, and everyone says that you need to watch out for tension brewing among co-founders, um, and address it immediately, and that's all true. And certainly in YC's case, the number one cause of early death for startups is, is co-founder blowups. But for some reason, a lot of people treat choosing their co-founder with even less importance than they put on hiring. Um, don't do this. This is one of the most important decisions you make in the life of your startup, and you need to treat it as such. And for some reason, students are really bad at this. They just pick someone. They're like, "I wanna start a business. You wanna start a business? Let's start a startup together." Um, there are these like co-founder dating things where you're like, "Hey, I'm looking for a co-founder. We don't really know each other. Let's start a company." And this is like crazy. Um, you would never hire someone like this, and yet people are willing to choose their business partners this way. Um, it's really, really bad. And choosing a random co-founder or choosing someone you don't have a long history with, choosing someone that you're not friends with so that when things are really going wrong you have this sort of past history to bind you together, um, usually ends up in disaster. We had one YC batch where nine of about seventy-five companies added on a random co-founder between when we interviewed the companies and when they started, and all nine of those teams fell apart the next year. Uh, the track record for founders that don't already know each other is really bad. Um, a good way to meet a co-founder is in college. Uh, if you're not in college and you don't know a co-founder, the next best thing I think is to go work in an interesting company. If you work at Facebook or Google or something like that, um, it's probably almost as co-founder rich as Stanford. Uh, it's better to have no co-founder, uh, than to have a bad co-founder, but it's still bad to be a solo founder. Um, I was just looking at the stats here before we started. For the top, and I may have missed one 'cause I was counting quickly, but I think that for the top twenty most valuable YC companies, um, all of them have at least two founders. Uh, and we, we probably fund at a rate of something like one out of ten solo teams. Uh, so best of all, founder you know, co-founder you know. Um, better than that, or not as good as that but still okay, solo founder. Random founder you meet, uh, and again, students do this for some reason, really, really bad. Uh, so as you're thinking about co-founders and people that could be good, um, there's a question of what you're looking for, right? And at YC we have this public phrase, um, and it's relentlessly resourceful, and everyone's heard of that. And I think that really is a very good description for what you're looking for with co-founders. Um, you definitely need relentlessly resourceful co-founders. Um, but there's a more colorful example that we share at the YC Kickoff. Um, Paul Graham started using this, and I've kept it going. Um, so you're looking for co-founders that need to be unflappable, tough. They know what to do in every situation. They act quickly. They're decisive. They're creative. They're ready for anything. Um, and it turns out that there's a model for this in, in pop culture, and it sounds really dumb, um, but it's at least very memorable. And we've told every class of YC this for a long time, uh, and I think it helps them. Um-

18. SPSpeaker5:58

    What?

19. SASam Altman5:58

    And that model is James Bond. Um, and again, this sounds crazy, but it, it, uh, it will at least stick in your memoryAnd, and you need someone that behaves like James Bond more than you need someone that is, you know, an expert in some particular domain. As I mentioned earlier, you really wanna know your co-founders for a while, um, ideally years. This is true for early hires as well, but incidentally, more people get this right for early hires than they do for co-founders. Uh, so again, take advantage of school. Um, in addition to relentlessly resourceful, you want a tough and a calm co-founder. Uh, there are all the obvious things like smart, but everyone knows that you want a smart co-founder. Uh, most people don't prioritize tough and calm well enough, especially if you feel like you yourself aren't, you need a co-founder who is. Um, if you're not technical, and hopefully most people in this room are, you really want a technical co-founder. There's this weird thing going on in startups right now where it's become popular to say like, "You know what? We don't need technical founders. We're gonna hire people. We're just gonna be great managers." Um, that doesn't work too well in our experience. You know, software people really should be starting software companies. Media people should be starting media companies. Um, so i-in the YC experience, two or three co-founders seems to be about perfect. Um, one obviously not great, five really bad, four works sometimes, but, uh, two or three I think is what to target. Okay. The second part of how to hire, um, try not to. So one of the weird things that you'll notice if you start a company is that everyone asks you how many employees you have, and this is the metric people use to sort of judge how real your startup is and how cool you are. Um, and if you say you have a high number of employees, they're really impressed, and if you say you have a low number of employees, then, then you sound like sort of this little joke. Um, but actually it sucks to have a lot of employees, and you should be proud of how few employees you can have. Lots of employees ends up with things like a high burn rate, means you're lo-losing a lot of money every month, complexity, tension, slow decision-making. The list goes on, but it's nothing good. So you wanna, you wanna be proud of how much you can get done with a small number of employees. Um, many of the best YC companies have had phenomenally small number of employees for the first year, sometimes none besides the founders. Um, they really try to stay small as long as they possibly can. At the beginning, you should only hire when you have a desperate need to. Later, you need to learn how to hire fast to scale up the company. But in the early days, uh, the goal should be not to hire, not to hire. And one of the reasons this is so bad is that the cost of getting an early hire wrong is really high. Um, in fact, a lot of the companies that I've been very involved with that have had a very bad first hire in the first three or so employees never recover from it. It just kills the company. Um, Airbnb spent five months interviewing their first employee before they hired someone, and in their first year, they only hired two people. Um, before they hired a single person, they, they wrote down a list of the cultural values that they wanted any Airbnb employee to have. One of those was that you had to b-believe Airbnb, and if you didn't sort of agree to that, they just wouldn't hire you. Um, as an example of how intense Brian Chesky is, he's the Airbnb CEO, um, he used to ask people before he hired them at Airbnb if they would take the job if they got a medical diagnosis that they had one year left to live. Um, he wanted them to be that committed. Later, he decided that was like a little bit too crazy.

20. SPSpeaker9:24

    [laughing]

21. SASam Altman9:24

    Um, and I think he relaxed it to 10 years.

22. SPSpeaker9:28

    [laughing]

23. SASam Altman9:28

    But last I heard, he still asks that question. Um, but like, you know, these hires really matter. These people are what go on to define your company, and so you need people that believe in it almost as much as you do. And it sounds like a crazy thing to ask, but he's gotten this culture of extremely dedicated people, um, that come together when the company faces a crisis. Uh, and when the company faced a big crisis early on, everyone in the company lived in the office, uh, and they shipped product every day until the crisis was over. One of the remarkable observations about Airbnb is if you talk to any of the first, say, I don't know, 40 or 50 employees, they all feel like they were part of the founding of the company. Uh, and this is really hard to get right, and this is really rare. Um, but by having an extremely high bar and hiring slowly and making sure everyone believes in the mission, you can get that. Okay. So let's say, you know, you've listened to the warning about not hiring and now you absolutely have to. Um, when you're in this hiring mode, your job is... It should be your number one priority to get the best people. Just like when you're in product mode, that's your number one priority, and when you're in fundraising mode, fundraising's your number one priority. Um, one thing that founders always underestimate is how hard it is to re-recruit. You know, you think you have this great idea, everyone's gonna come and join. Um, but that's not how it works. To get the very best people, um, they have a lot of great options, right? And so it can easily take a year to recruit someone. It's this long process, and you have to convince them that your mission is the most important of anything that they're looking at. This is another case of why it's really important to get the product right, um, before anything else. The best people know that they should join a rocket ship. Um, by the way, that's my number one piece of advice. If you're gonna join a startup, pick a rocket ship. Um, pick a company that's already working, uh, and that the, you know, not everyone yet realizes that. But it's, you know, you know 'cause you're paying attention that it's going to be huge. And, and again, you can usually identify these. Um, but good people know this, right? And so good people will wait, and they wanna see that you're on this breakout trajectory before they join. One question that people asked online this morning is how much time you should be spending hiring. Um, the answer is either like zero or twenty-five percent. You're either not hiring at all, or it's probably your single biggest block of time. Um, in practice, like all these books on management or whatever say that you should spend fifty percent of your time hiring. But the people that give that advice, it's rare for them to even spend ten percent themselves. Twenty-five percent is still a huge amount of time. Um, but that's really how much you should be doing once you're in hiring mode. Um, okay. So if you compromise and hire someone mediocre, you will always regret it. Uh,We always like to warn founders of this. No one really feels it until they mis- make the mistake the first time, um, but it can poison the culture. Mediocre people at a big company cause some problems. They don't usually kill the company. A single mediocre hire in the first five will often in fact kill a startup. A friend of mine has a sign up in the conference room that he uses for interviews, and he, like, positions the sign so that the candidate is looking at it while they're interviewing. And it says that mediocre engineers do not build great companies. Um-

24. SPSpeaker12:36

    Oh. [laughs]

25. SASam Altman12:36

    Yeah. That's true.

26. SPSpeaker12:37

    [laughs]

27. SASam Altman12:38

    Um, it's really true. You can get away with it, uh, in a big company, right? 'Cause people just sort of like fall through the cracks. But, but every person in a startup sets the tone. Um, so if you compromise in the first, you know, say five, 10 hires, um, it might kill the company. And you should think about that for everyone you hire. Like, will I bet the future of this company on this single hire? Um, and that's a tough bar. At some point in the life of the company when you're bigger, you will compromise on a hire. Um, there will be some pressing deadline, uh, or something like that. You will still regret it, um, but this is the difference between theory and practice. And we're gonna have, uh, later speakers talk about what this hap- what to do when this happens. But in the early days, you just can't screw it up. Um, sources of candidates. This is another thing that students get wrong a lot. Um, the best source by far for hiring is people that you already know, um, and people that other employees in the company already know. Most great companies in tech have been built by personal referrals for the first at least 100 employees, and often many more. Um, most founders feel awkward about calling everyone good that they've ever met and asking their employees to do the same. But you'll notice that if you go work at Facebook or Google, one of the things they do in your first few weeks is an HR person sits you down and, like, beats out of you every smart person you've ever met, no matter how likely you think you are to be able to recruit them. Um, and these personal referrals really are the trick to hiring, so you have to, like, go way beyond your comfort zone here. Um, another tip is to look outside the Valley. It is brutally competitive to hire engineers here, um, but you probably know very good people living elsewhere in the world that would love to work with you. Another question that founders ask us a lot about is experience and how much that matters. Um, the short version here is that experience matters for some roles and not others. Um, when you're hiring sort of like, you know, someone that is gonna run a large organization of your company, experience probably matters a lot. Um, for most of the early hires you make in a startup, experience doesn't matter very much, uh, and you should go for aptitude and belief in what you're doing. Most of the best hires that I've ever made in my entire life have never done that thing before. Um, so it's really worth thinking like, is this a role where I care about experience or not? Most of the time you don't in the, in the, in the early days. Um, there are three things that I look for when I hire people. Um, are they smart? Do they get things done? Uh, and do I wanna spend a lot of time around them? And if I get an answer, if I get ended up with a yes for all three of these, um, I've almost never regretted the hire. It's almost always worked out. You can learn a lot about all three of these things from an interview, but the very best way is by working together. So ideally, it's someone you've worked with in the past, and in which case you probably don't even need an interview. Um, if you haven't, then I think it's way better to work with someone on a quick project for a day or two before hiring them. Um, you'll both learn a lot. They will too. And most, uh, first-time founders are very bad interviewers, but very good at evaluating someone after they've worked together. So one of the pieces that we give advice, one of the pieces of advice that we give at YC is try to work together on a project rather than just doing an interview. Um, if you are gonna interview, which you'll probably do as well, you should ask specifically about projects that someone has done in the past. Um, you'll learn a lot more than you will with brain teasers. For some reason, young technical founders love to ask brain teaser questions rather than just ask what someone's done. Really dig into projects people have worked on and call references. Uh, that is another thing that first-time founders like to skip. Um, you wanna call some people, uh, that these people have worked with in the past. And then when you do, you don't just wanna ask like, "Oh, how was so and so?" Like, you really wanna dig in. Like, is this person in the top 5% of people you've ever worked with? What specifically did they do? Would you hire them again? Like, why, why, why aren't you trying to hire them again? Um, you really have to press on, on these reference calls. Um, another thing that I've noticed from talking to a lot of YC companies is that good communication skills tend to correlate really well with hires that work out. Um, I used to not pay attention to this. We're gonna talk more about why communication is so important in an early startup. If someone is difficult to talk to, if someone cannot communicate clearly, uh, it's a real problem in terms of their likelihood to work out. Also, for early employees, um, you want people that have somewhat of a risk-taking attitude. Uh, you, you generally get this or they wouldn't be interested in a startup, but now that startups are sort of more in fashion, um, you, you want people that actually sort of like a little bit of risk. If someone's choosing between, like, McKinsey and joining your startup, um, very unlikely that person's going to work out at the startup. Uh, you also want people who are maniacally determined, and that is slightly different than having a risk-tolerant attitude, so you really should be looking for both. By the way, people are welcome to interrupt me with questions, um, as stuff comes up. There's a famous test from Paul Graham called The Animal Test, um, and, and the idea here is that you should be able to describe any employee as an animal at what they do. Um, and I don't think that probably translates out of English very well, but, um, you know, you need unstoppable people. Uh, you want, you want people that are just going to get it done. Um, founders that end up being really happy with their early hires usually end up describing these people as the very best in the world at whatever they doMark Zuckerberg once said, uh, that he tries to hire people that A, he would spend time with socially and B, that he'd be comfortable reporting to if the roles were reversed. Um, this strikes me as a very good framework. You don't have to be friends with everybody, um, but you should at least enjoy working with them. And if you can't have that, you need to at least deeply respect them. Um, but again, the... If you don't wanna spend a lot of time around people, uh, you should sort of trust your instincts on that. While I'm on this topic of hiring, uh, I wanna talk about employee equity. Founders screw this up all the time. Um, I think that as a rough guideline, you should aim to give 10% of the company to the first 10 employees. Um, they have to earn it over four years anyway, and if they're successful, they're gonna contribute way more than that. Uh, they're gonna increase the value of the company by way more than that. Um, and if not, then they won't be around anyway. So for whatever reason, founders are usually very stingy with equity to employees and very generous with equity to investors, and I think this is totally backwards. Um, I think this is one of the things that founders screw up the most often. You know, employees will only add more value over time. Investors sort of like write the check and then despite a lot of big promises, don't usually do that much. Sometimes they do. Um, but, but your employees are really the ones that build the company over years and years. So I believe in like fighting with investors to reduce the amount of equity they get, um, and then being as gener- generous as you possibly can with employees. Um, the YC companies that have done this well, the YC companies that have been super generous with equity to early employees, um, in general, are the most successful ones that we funded. Um, all right. So one thing that founders forget is that after they, uh, after that they hire employees, they have to retain them. I'm not gonna go into a huge amount of detail here 'cause we're gonna have a full lecture on this later, um, but I do wanna talk about it a little bit because founders get this wrong so often. Um, you have to make sure that your employees are happy and feel valued. This is one of the reasons that big equity grants are important. Um, people in the excitement of joining a startup don't think about it much, but as they come in day after day, year after year, um, if they feel like they've been treated unfairly, that will really start to grate on them, uh, and resentment will build. But more than that, learning just a little bit of management skill, um, which first time CEOs are usually terrible at, uh, goes a long way. Um, one of the speakers at YC this summer, uh, who, who is now extremely successful but struggled early on and had his team turn over a few times, someone asked him what his biggest learning was and he said that, uh, "It turns out you shouldn't tell your employees they're fucking up every day unless you'd like them all to leave, because they will."

28. SPSpeaker20:57

    [laughing]

29. SASam Altman20:57

    Um, but as a founder this is this like very natural instinct, right? You think you can do everything the best and, uh, it's easy to tell people when they're not doing it well. So learning just a little bit here will prevent this like massive team churn. It also doesn't come naturally to most founders to really praise their team. Um, it took me a while to learn this too. You have to let your team get all the credit for everything good that happens, um, and you take responsibility for the bad stuff. You have to not micromanage. You have to like continually give people new areas of responsibility. These are not the things that most founders think about. Um, I think the best thing you can do is be aware that as a first time founder you are likely to be a very bad manager and try to overcompensate for that. Uh, Dan Pink talks about these three things that motivate people to do great work. Autonomy, autonomy, mastery, and purpose. Um, I never thought about that when I was running my company, but I've thought about it since and I think that's actually right and I think it's worth trying to, to think about that. Um, it also took me a while to learn to do things like one-on-ones and give clear feedback. All of these things that first time CEOs just don't do, uh, until they get burned a few times. But maybe, maybe I can save you from doing that. All right, and the last part f- on the team section, uh, is about firing people when it's not working. Um, no matter what I say here, this is not gonna prevent anyone from doing it wrong, and the reason is that firing people is one of the worst parts of running a company. Um, actually in my own experience, I think it is the worst. Uh, every first time founder waits too long. Everyone hopes that an employee will turn around. But the right answer is to fire fast when it's not working out. Um, it's better for the company, it's also better for the employee. But it's so painful and so awful that everyone gets it wrong the first few times. Um, in addition to firing people who are doing bad at their job, you also wanna fire people who a, uh, create an office politics and b, who are persistently negative. Um, the rest of the company is always aware of employees doing things like this, and it's just this huge drag. It's completely toxic to the company. Uh, again, this is an example of something that might work okay in a big company, although I'm still skeptical, but will kill a startup. So I think you need to watch out for people that are... Yes.

30. SPSpeaker23:14

    How do you balance firing people fast and making other employees feel like they're secure even if they screw up sometimes? You don't want them to feel like they're out the door the first-

Episode duration: 46:18