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It’s the time where Santa brings you a present. With Xendit everyday is Christmas.
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Your Xendit family.
“Closing with investors” that was the topic of a panel this week at Rework, a coworking space in Jakarta.
Guided by the founder of Rework, Vanessa Hendriadi, Xendit founder and CEO Moses Lo, shared together with panelists David Soukhasing – Director of the Angel Investment Network Indonesia (ANGIN) – and William Gozali – Investment Manager at MDI Ventures – their experiences to help other young founders to be successful in closing with investors.
In a small round, not more than 30 participants, this panel was truly honest and rich in knowledge sharing. Away from everything that you can read online it was more about soft skills needed to build and nurture the relationship with investors. A chance for attendees to interact with them, hear and learn from founders’ and investors’ real life experience.
You missed this one? Follow-us and get the chance to join the next event!
For the past event JakartaGlobe was there! An article can’t display an entire panel but see the highlights in the re-post here on our blog.
Startups Solving Indonesia’s Big Problems Are Next $1b Company: Investors
Jakarta. Startup companies which address problems, such as infrastructure, logistics or financial technology, are the most likely to become Indonesia’s next billion dollar companies, a panel of investors said in Jakarta on Tuesday (29/11).
The world’s fourth most populous nation offers both challenges as well as potential for startup companies seeking to monetize the $860 billion economy. People living in the archipelago nation face various day-to-day problems from traffic jams to poor infrastructure development, resulting in many people in some remote areas facing difficulties in accessing several basic services from telecommunication to banking services.
“There is a lot of optimism about Indonesia’s market potential, but again there also a lot of problems in the market,” said William Gozali, Investment Manager at MDI Ventures, a Jakarta-based venture capital initiative by Telekomunikasi Indonesia, Indonesia’s largest telecommunication company.
William made to comments during the “Closing With Investors” mini panel discussion in Jakarta hosted by Rework, a Jakarta-based co-working space provider. The panel offered advice to startups on fundraising and soft skill development in terms of nurturing relationships with investors.
William, who leads MDI’s investment team accelerating venture deals in the region, said some startups may have failed to monetize in Indonesia because of the country’s low credit card and formal banking penetration rates.
On the other hand, Southeast Asia’s biggest economy offers a growing internet penetration as well as a growing middle income class.
“So behind a problem there is opportunity, so the next $1 billion company is a company that Indonesia’s big problems like infrastructure, logistics, or fintech companies that enable other companies to monetize the markets,” said William, whose MDI Ventures also has operations in Singapore and Silicon Valley.
In Indonesia, homegrown startup GoJek, which provides transport options and other services in dense Indonesian cities like Jakarta via a motorcycle taxi hailing app, has been able to scale its business quicker than California-based tech giant Uber. Industry analysis shows the firm is now worth more than $1 billion.
Other big startups in Indonesia are dominated by e-commerce platforms, ranging from Tokopedia, MatahariMall to Lazada.
Founders personality top priority for investors
William was joined in the discussion with Moses Lo, founder and chief executive of Xendit — the first Indonesian company to be accepted into YCombinator, the US-seed accelerator known as the world’s most power start-up incubator — and David Soukhasing, a director of the Angel Investment Network Indonesia (ANGIN), the first and largest network of angel investors in the country.
The panel identified four key factors investors consider before selecting startups: personality of founders, a strong pitch, market potential and company financial.
Lo and William both agreed the personality of a startup founder is key as it represents the spirit of the company and is the best indicator of how a company will develop its business.
Lo added the pitch, when founders present firms to potential investors, is also important as it gives a “generic sense” of how the founders will develop relationships.
Soukhasing noted language barriers or weak presentation skills could discount this factor, but a strong market potential could bridge the gap.
Market potentials is also another important aspect to review, as “investors wouldn’t want to invest in a shrinking market,” Lo said.
The three speakers agreed investors usually understand financial performance may not be good enough while in the early stages, but some “traction” or evidence the company is gaining a market share, such as rising users, transactions or sales, can help investors determine their plans.
Read article of course also on JakartaGlobe
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Just Xendit – send and receive money anytime and anywhere in real-time. Making payments easy. Xendit enables banks and businesses to create seamless payments experience.
We are proud to be a valued member of Asosiasi Fintech Indonesia – Indonesia’s FinTech Association since this year. The FinTech Association includes fintech companies, banks, insurance companies, and venture capitalists, as well as stakeholders from both the government and non-government side. As a member, we aim to show our support for the association and other FinTech companies by sharing our knowledge with each other and helping others succeed. We are continuously looking for creative partnerships with other companies and banks to bring innovative payment solutions to Indonesia.
from left to right:
Junanto Herdiawan – BI FinTech Office, Boan Sianipar – Xendit, Adrian Anwar – FinTech Association
Boan, Xendit’s VP of Business Development and Government Affairs: ”The event on Friday was a community gathering which was attended by Bank of Indonesia’s FinTech Office. We’ve been a member of the association for a while now and I am honored to formally receive Xendit’s certificate of membership yesterday. We’re excited with the launching of BI’s FinTech office and know that it will be an integral part of the Indonesian FinTech eco-system.”
Let’s start with a quote of our VP Business Development and Government Affairs Boan Sianipar: “It’s a good point of entry to have people who are willing to push the industry forward, especially in BI because it has the ability to recommend to other ministries and institutions to harness the industry further,”
Repost of exciting news published in TheJakartaPost yesterday, 15th of November 2016
BI’s new ‘fintech office’ to ensure both innovation, security
Bank Indonesia (BI) on Monday officially launched a financial technology (fintech) office to monitor the services offered by the young and thriving industry so as to ensure innovation continues and consumers simultaneously enjoy security.
BI governor Agus Martowardojo described the new office as an advisory hub for all fintech companies operating in Indonesia and as a facilitator to help the industry expand further and ensure greater financial inclusion in a country where half the population does not have access to banks.
As part of its office, BI plans to monitor the development of fintech companies through its regulatory sandbox, a sort of laboratory where ideas on innovation are shared between regulators and fintech players so they can be tested and evaluated with the central bank’s supervision before they go commercial.
It is a method that has been adopted by other countries such as Singapore and the UK to foster their small, yet booming fintech industries.
“The focus for the sandbox will be on facilitating interactions, on monitoring the development of business innovation and cyber security and on consumer protection, which will be the most important aspect to consider,” BI deputy governor Ronald Waas said on Monday.
BI will have a direct hands-on role in the sandbox, as it would require input from fintech firms as well to draft new relevant regulations.
As a further boost to the industry, the Financial Services Authority (OJK) said that its proper fintech regulation, which will benefit third-party fintech players such as startups, would likely be ready by the end of the year.
“The incentives given by regulators to the industry are the ecosystem for them to grow in,” said the OJK’s deputy commissioner for non-bank institution supervision, Dumoly Pardede.
The OJK already has an existing digital finance regulation, but it only applies to traditional financial players, such as banks.
The continuing rise of fintech services and digital payments in Indonesia is due partly to the increasing number of internet users nationwide. BI noted that there are approximately 90 million internet users, which roughly accounts for 35 percent of the population. By 2020, the country hopes to have more than 100 million users.
There are about 120 fintech firms, mostly startups, currently operating in Indonesia in separate segments, such as peer-to-peer lending, e-wallets, crowdfunding and financial settlements, OJK data show. Total transactions within the fintech platforms are forecast to reach $14.5 billion with an annual growth rate of 18.8 percent expected until 2020, according to market statistics portal Statista.
Fintech players welcomed BI’s new fintech office.
“It’s a good point of entry to have people who are willing to push the industry forward, especially in BI because it has the ability to recommend to other ministries and institutions to harness the industry further,” said Boan Sianipar, vice president of business development and government affairs at the one-year-old fintech firm, Xendit.
Read article by Dylan Amirio also here at TheJakartaPost
In the previous XenditLABs we have shown you the why and how to start a start-up with the focus on four key areas: idea, product, team and execution.
Paul Graham, co-founder of Y Combinator tells his ideas of counterintuitives points for start-ups.
In this XenditLAB – LAB 5 we give you the highlights of the 6 counterintuitive ideas of a start-up to remember in order to prevent your existing instincts from leading you astray.
Startups are very counterintuitive! This is an area where you cannot trust your intuition all the time.
Let’s use the example of skiing. When you first try skiing and you want to slow down, your first impulse is to lean back, just like in everything else. But lean back on the skis and you fly down the hill out of control. Part of learning to ski is learning to suppress that impulse. Eventually you get new habits, but in the beginning there is this list of things you’re trying to remember as you start down the hill: alternate feet, make s-turns, do not drag the inside foot, etc. Startups are as unnatural as skiing and there is a similar list of stuff you have to remember for startups.
Startups are so weird that if you follow your instincts they will lead you astray. If you remember nothing more than that, when you’re about to make a mistake, you can pause before making it.
1. Counterintuitive idea 1: contradicting your intuitions
That’s the thing about counterintuitive ideas, they contradict your intuitions, they seem wrong, so of course your first impulse is to ignore them (not just the curse of Y Combinator) to some extent our raison d’être. You don’t need people to give you advice that does not surprise you. If founders’ existing intuition gave them the right answers, they would not need us. That’s why there are a lot of ski instructors, and not many running instructors; you don’t see those words together, “running instructor,” as much as you see “ski instructor.” It’s because skiing is counterintuitive, sort of what YC is—business ski instructors—except you are going up slopes instead of down them ideally.
Trust your instincts about people. Your life so far hasn’t been much like starting a startup, but all the interactions you’ve had with people are just like the interactions you have with people in the business world. One of the big mistakes that founders make is to not trust their intuition about people enough. They meet someone, who seems impressive, but about whom they feel some misgivings and then later when things blow up, they say, “You know I knew there was something wrong about that guy, but I ignored it because he seemed so impressive.”
There is this specific sub-case in business, especially if you come from an engineering background, as I believe you all do. You think business is supposed to be this slightly distasteful thing. So when you meet people who seem smart, but somehow distasteful, you think, “Okay this must be normal for business,” but it’s not. Just pick people the way you would pick people if you were picking friends. This is one of those rare cases where it works to be self indulgent. Work with people you would generally like and respect and that you have known long enough to be sure about because there are a lot of people who are really good at seeming likable for a while. Just wait till your interests are opposed and then you’ll see.
2. Counterintuitive idea 2: expertise in start-ups
What you need to know to succeed in a startup is not expertise in startups, what you need is expertise in your own users.
Mark Zuckerberg did not succeed at Facebook because he was an expert in startups, he succeeded despite being a complete noob at startups; Facebook was first incorporated as a Florida LLC. He succeeded despite being a complete noob at startups because he understood his users very well. Most of you don’t know the mechanics of raising an angel round, right? If you feel bad about that, don’t, Mark Zuckerberg probably doesn’t know the mechanics of raising an angel round either; if he was even paying attention when Ron Conway wrote him the big check, he probably has forgotten about it by now.
The way to make your startup grow is to make something that users really love, and then tell them about it. The best way to convince investors is to start a startup that is actually doing well, meaning growing fast, and then simply tell investors so , this is your so what “growth hack”
3. Counterintuitive idea 3: gaming the system and using tricks
Starting a startup is where gaming the system stops working. Gaming the system may continue to work, if you go to work for a big company, depending on how broken the company is, you may be able to succeed by sucking up to the right person; Giving the impression of productivity by sending emails late at night, or if you’re smart enough changing the clock on your computer, cause who’s going to check the headers, right?
In startups, that does not work. There is no boss to trick, how can you trick people, when there is nobody to trick? There are only users and all users care about is whether your software does what they want, right? They’re like sharks, sharks are too stupid to fool, you can’t wave a red flag and fool it, it’s like meat or no meat. You have to have what people want and you only prosper to the extent that you do.
Word of caution
If you’re really good at knowing what you’re talking about, you can fool investors, for one, maybe two rounds of funding, but it’s not in your interest to do. You’re all doing this for equity, you’re puling a confidence trick on yourself. Someone who knows zero about fundraising, but has made something users really love, will have an easier time raising money than someone who knows every trick in the book, but has a flat usage graph.
One of the most important thing to think about when planning your future. How do you win at each type of work, and what do you want to win by doing it?
4. Counterintuitive idea 4: start-ups are all consuming
If you start a startup, it will take over your life to a degree that you cannot imagine and if it succeeds it will take over your life for a long time; for several years, at the very least, maybe a decade, maybe the rest of your working life. So there is a real opportunity cost here.
Larry Page has an enviable life, but there are parts of it that are defiantly unenviable. The way the world looks to him is that he started running as fast as he could, at age twenty-five, and he has not stopped to catch his breath since. Every day shit happens within the Google empire that only the emperor can deal with and he, as the emperor, has to deal with it. If he goes on vacation for even a week, a whole backlog of shit accumulates, and he has to bear this, uncomplaining, because: number one, as the company’s daddy, he cannot show fear or weakness; and number two, if you’re a billionaire, you get zero, actually less than zero sympathy, if you complain about having a difficult life.
Which has this strange side effect that the difficulty of being a successful startup founder is concealed from almost everyone who has done it. People who win the one-hundred meter in the Olympics, you walk up to them and they’re out of breath. Larry Page is doing that too, but you never get to see it.
Y Combinator has now funded several companies that could be called big successes and in every single case the founder says the same thing, “It never gets any easier.” The nature of the problems change, so you’re maybe worrying about more glamorous problems like construction delays in your new London offices rather than the broken air conditioner in your studio apartment, but the total volume of worry never decreases. If anything, it increases.
What you need to know are the needs of your own users. You can’t learn those until you actually start the company, which means that starting a startup is something you can intrinsically only learn by doing it. Startups take over your entire life.
For unambitious people your thing can be the dreaded failure to launch. For the ambitious ones it’s a really valuable sort of exploration and if you start a startup at twenty and you are sufficiently successful you will never get to do it.
Mark Zuckerberg will never get to bum around a foreign country. If he goes to a foreign county, it’s either as a de-facto state visit or like he’s hiding out incognito at George V in Paris. He’s never going to just like backpack around Thailand if that’s still what people do. He can do things you can’t do, like charter jets to fly him to foreign countries. Really big jets. But success has taken a lot of the serendipity out of his life. Facebook is running him as much as he’s running Facebook.
5. Counterintuitive idea 5: you can’t tell if it’s too hard to start a start-up
Your life so far has given you some idea of what your prospects might be if you wanted to become a mathematician or a professional football player. Meaning starting a startup will change you a lot if it works out. So what you’re trying to estimate is not just what you are, but what you could become.
The founders sometimes thought they knew. Some arrived feeling confident that they would ace Y Combinator just as they had aced every one of the few easy artificial tests they had faced in life so far. Others arrived wondering what mistake had caused them to be admitted and hoping that no one discover it.
There is little to no correlation between these attitudes and how things turn out. Same is true in the military. The swaggering recruits are no more than likely to turn out to be really tough than the quiet ones and probably for the same reason.
6. Counterintuitive idea 6: I have to have a start-up idea
There are only two things you need initially, an idea and cofounders.
The way to get start up ideas is not to try to think of startup ideas. We talked about this extensively in XenditLAB2 “……” . Said in one sentence: The way to come up with good startup ideas is to take a step back. Instead of trying to make a conscious effort to think of startup ideas, turn your brain into the type that has startup ideas unconsciously. This is possible: Yahoo, Google, Facebook, Apple all got started this way. None of these companies were supposed to be companies at first, they were all just side projects. The very best ideas almost always have to start as side projects because they’re always such outliers that your conscious mind would reject them as ideas for companies.
How do you turn your mind into the kind that has startup ideas unconsciously?
- Learn about a lot of things that matter.
- Work on problems that interest you…
- …with people you like and or respect.
That’s the third part incidentally, is how you get cofounders at the same time as the idea.
What was special about Brain Chesky and Joe Gebbia from Airbnb was not that they were experts in technology. They went to art school, they were experts in design. Perhaps more importantly they were really good at organizing people in getting projects done. So you don’t have to work on technology per se, so long as you work on things that stretch you.
Y Combinator itself is something Paul only did because it seemed interesting. If you’re interested in generally interesting problems, gratifying your interest energetically is the best way to prepare yourself for a startup and probably best way to live.
If you think of technology as something that’s spreading like a sort of fractal stain, every point on the edge represents an interesting problem. One guaranteed way to turn your mind into the type to start up ideas for them unconsciously is to get yourself to the leading edge of some technology. To, as Paul Buchheit put it, “Live in the future.” And when you get there, ideas that seem uncannily prescient to other people will seem obvious to you. You may not realize they’re start up ideas, but you will know they are something that ought to exist.
The component of entrepreneurship, can never quite say that word with a straight face, that really matters is domain expertise. Larry Page is Larry Page because he was an expert on search and the way he became an expert on search was because he was genuinely interested and not because of some ulterior motive. At its best starting a startup is merely an ulterior motive for curiosity and you’ll do it best if you introduce the ulterior motive at the end of the process. So here is ultimate advice for young would be startup founders reduced to two words: just learn.
Learn more in our XenditLABs! Like, share and follow-us.
We emphasized in the past XenditLABs that you need a great idea and a great product first of all. Everything that we advise you will help you if you lack the first two key areas.
Not ready with the idea and product? Stop here and go focus on building a great idea and product.
Got a great idea and product? Stay here and learn about your next two focus key areas : Team and Execution.
The foundation of your team will be you and your co-founders
It is very important to find the right co-founder. Tension between cofounders is the number one cause of early death for start-ups.
Co-founder relationships are among the most important in the entire company. Choosing your co-founder is as important as hiring a team.
There are these 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. You would never hire someone like this and yet people are willing to choose their business partners this way.
Where to find your right co-founder?
Sure, college is a great place to meet your co-founder. But what if you’re not in college and you don’t know a co-founder? Go work at an interesting company. If you work at Facebook or Google or something like that, it’s almost as co-founder rich as Stanford.
Keep in mind It’s better to have no co-founder than to have a bad co-founder!
But don’t be solo founder. The top twenty most valuable YC (Y Combinator) companies have almost all at least two founders.
Xendit for example has three founders.
YC has this public phrase that a co-founder is relentlessly resourceful. Paul Graham and Sam add these criteria of a co-founder to it:
- know what to do in every situation
- act quickly
- ready for anything
You are looking for James Bond. it sounds very dumb, but it’s at least very memorable helps you to remember.
You need someone that behaves like James Bond more than you need someone that is an expert in some particular domain.
Everyone knows you want a smart co-founder, but things like tough and calm enough are important. Especially if you feel like you yourself aren’t, you need a co-founder who is. If you aren’t technical, and even if most of the people in this room feel like they are, you want a technical co-founder. Find a co-founder that is complementary to you.
Software people should really be starting software companies. Media people should be starting media companies.
In the YC experience, two or three co-founders seems to be about perfect. One, obviously not great, five, really bad. Four works sometimes, but two or three I think is the target.
What about co-founders that aren’t working in the same location?
The answer is, don’t do it. I am skeptical of remote teams in general but in the early days of a startup, when communication and speed outweigh everything else, for some reason video conferencing calls just don’t work that well.
How to hire a team?
In the first stage try not to hire. You’ll notice as you start a company, that everyone will ask you how many employees you have. This is the metric people use to judge how real your startup is and how cool you are. If you say you have a high number of employees, they’re really impressed. If you say you have a low number of employees, then you sound like this little joke. But actually it sucks to have a lot of employees, and you should be proud of how few employees you have. Lots of employees end up with things like a high burn rate, meaning you’re losing a lot of money every month, complexity, slow decision making, the list goes on and it’s nothing good.
Be proud of how much you can get done with a small numbers of employees. Many of the best YC companies have had a phenomenally small number of employees for their first year, sometimes none besides the founders. They really try to stay small as long as they possibly can. At the beginning, you should only hire when you desperately need to. Later, you should learn to hire fast and scale up the company, but in the early days the goal should be not to hire.
A used case example of Airbnb:
Airbnb spent five months interviewing their first employee. In their first year, they only hired two. Before they hired a single person, they wrote down a list of the culture values that they wanted any Airbnb employee to have. One of those was that you had to bleed Airbnb, and if you didn’t agree to that they just wouldn’t hire you. As an example of how intense Brian Chesky is, he’s the Airbnb CEO, he used to ask people if they would take the job if they got a medical diagnosis that they have one year left to life. Later he decided that that was a little bit too crazy and I think he relaxed it to ten years, but last I heard, he still asks that question.
It sounds like a crazy thing to ask, but he’s gotten this culture of extremely dedicated people that come together when the company faces a crisis. And when the company faced a big crisis early on, everyone lived in the office, and they shipped product every day until the crisis was over. One of the remarkable observations about Airbnb is that if you talk to any of the first forty or so employees, they all feel like they were a part of the founding of the company.
How much time should I spend in recruiting?
When you’re in this hiring mode, it should be your number one priority to get the best people. Just like when you’re in product mode that should be your number one priority. And when you’re in fundraising mode, fundraising is your number one priority.
The answer is zero or twenty-five percent. You’re either not hiring at all or it’s probably your single biggest block of time.
Hiring takes time. You think you have this great idea and everyone’s going to join. But that’s not how it works. To get the very best people, they have a lot of great options and so it can easily take a year to recruit someone. This is another case of why it’s really important to get the product right before looking at anything else. The best people know that they should join a rocketship.
If you compromise and hire someone mediocre you will always regret it. Mediocre people at huge companies will cause some problems, but it won’t kill the company. A single mediocre hire within the first five will often in fact kill a startup.
Where to get the good candidates?
The best source for hiring by far is people that you already know and people that other employees in the company already know. Most great companies in text have been built by personal referrals for the first hundred employees at least. If you go to work at Facebook or Google one of the things they do in your first few weeks is an HR person sits you down and beat out of you every smart person you’ve ever met to be able to recruit them.
Another tip is to look outside your location.
Sam Altman describes it as:
“There are three things I look for in a hire. Are they smart? Do they get things done? Do I want to spend a lot of time around them? And if I get an answer, if I can say yes to all three of these, I never regret it, it’s almost always worked out.“
Instead of doing interviews work on a project together!
If you are going to interview, which you probably will, you should ask specifically about projects that someone worked on in the past. You’ll learn a lot more than you will with brainteasers. How was so-and-so, you really want to dig in. Is this person in the top five percent of people you’ve ever worked with? What specifically did they do? Would you hire them again? Why aren’t you trying to hire them again?
Good communication skills tend to correlate with hires that work out. If someone cannot communicate clearly, it’s a real problem in terms of their likelihood to work out.
For early employees you want someone that has somewhat of a risk-taking attitude.
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.
There is a famous test from Paul Graham called the animal test. The idea here is that you should be able to describe any employee as an animal at what they do. I don’t think that translates out of English very well but you need unstoppable people. You want people that are just going to get it done. Founders who usually end up being very happy with their early hires usually end up describing these people as the very best in the world at what they do.
Mark Zuckerberg once said that he tries to hire people that A. he’d be comfortable hanging with socially and B. he’d be comfortable reporting to if the roles were reversed. This strikes me as a very good framework. You don’t have to be friends with everybody, but you should at least enjoy working with them or at least deeply respect them.
If you don’t want to spend a lot of time around people you should trust your instincts about that.
How to decide on employee equity?
While on this topic of hiring employee equity plays an important part of it. Founders screw this up all the time. A rough estimate to aim to give about ten percent of the company to the first ten employees.
They have to earn it over four years anyway, and if they’re successful, they’re going to contribute way more than that. They’re going to increase the value of the company way more than that, and if they don’t then they won’t be around anyway.
For whatever reason founders are usually very stingy with equity to employees and very generous with equity for investors. One of the things founders screw up the most often. Employees will only add more value over time. Investors will usually write the check and then, despite a lot of promises, don’t usually do that much. Sometimes they do, but your employees are really the ones that build the company over years and years.
So I believe in fighting with investors to reduce the amount of equity they get and then being as generous as you possibly can with employees. The YC companies that have done this well, the YC companies that have been super generous with their equity to early employees, in general, are the most successful ones that we’ve funded.
One thing that founders forget is that after they hire employees, they have to retain them. You have to make sure your employees are happy and feel valued. This is one of the reasons that equity grants are so important. 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, if they feel they have been treated unfairly that will really start to grate on them and resentment will build.
When should co-founders decide on the equity split?
This is not a discussion that gets easier with time, you wanna set this ideally very soon after you start working together. And it should be near-equal. If you’re not willing to give someone – your co-founder – you know, like an equal share of the equity, I think that should make you think hard about whether or not you want them as a co-founder. But in any case, you should try to have the ink dry on this before the company gets too far along. Like, certainly in the first number of weeks.
So the question is how do you know if someone’s gonna scale past, not scale up to a role, as things go on and later become crippling. People that are really smart and that can learn new things can almost always find a role in the company as time goes on. You may have to move them into something else, something other than where they started. You know, it may be that you hire someone to lead the engineering team that over time can’t scale as you get up to 50 people, and you give them a different role. Really good people that can almost find some great place in the company, I have not seen that be a problem too often.
So the question is what happens when your relationship with your co-founder falls apart. We’re gonna have a session on mechanics later on in the course, but here is the most important thing that founders screw up. Which is, every co-founder, you yourself of course, has to have vesting. Basically what you’re doing with co-founder vesting is you’re pre-negotiating what happens if one of you leaves. And so the normal stance on this in Silicon Valley is that it takes four years, let’s say you split the equity fifty-fifty, is that it takes four years to earn all of that. And the clock doesn’t start until one year in. So if you leave after one year, you keep twenty-five percent of the equity, and if you leave after two years, fifty, and on and on like that.
If you don’t do that and if you have a huge fallout and one founder leaves early on with half the company, you have this deadweight on your equity table, and it’s very hard to get investors to fund you or to do anything else. So number one piece of advice to prevent that is to have vesting on the equity. We pretty much won’t fund a company now where the founders don’t have vested equity because it’s just that bad. The other thing that comes up in the relationship between the co-founders, which happens to some degree in every company, is talk about it early, don’t let it sit there and fester.
Get some management skills
Learning just a little bit of management skills, which first-time CEOs are usually terrible at, goes a long way. One of the speakers at YC this summer, who is now extremely successful, struggled early on and had his team turn over a few times. Someone asked him what his biggest struggle was and he said, turns out you shouldn’t tell your employees they’re fucking up every day unless you want them all to leave because they will.
But as a founder, this is a very natural instinct. You think you can do everything the best and it’s easy to tell people when they’re not doing it well. So learning just a little bit here will prevent this massive team churn. It also doesn’t come naturally to most founders to really praise their team. You have to let your team take credit for all the good stuff that happens, and you take responsibility for the bad stuff.
Do not micromanage. You have to continually give people small areas of responsibility. These are not the things that founders think about. I think the best thing you can do as a first-time founder is to be aware that you will be a very bad manager and try to overcompensate for that. Dan Pink talks about these three things that motivate people to do great work: autonomy, mastery, and purpose. I never thought about that when I was running my company but I’ve thought about since and I think that’s actually right. I think it’s worth trying to think about that. It also took me a while to learn to do things like one on one and to give clear feedback.
The last part on the team section is about firing people when it’s not working. Letting people go is one of the worst parts of running a company, if not the worst part. 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. It’s better for the company, it’s also better for the employee.
In addition to firing people who are doing bad at their job, you also wanna fire people who are a) creating office politics, and b) who are persistently negative. 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. Again, this is an example of something that might work OK in a big company, although I’m still skeptical, but will kill a startup. So that you need to watch out for people that are ifs.
So, the question is, how do you balance firing people fast and making early employees feel secure? The answer is that when an employee’s not working, it’s not like they screw up once or twice. Anyone will screw up once or twice, or more times than that, and you know you should be like very loving, not take it out on them, like, be a team, work together.
If you have to choose between hiring a sub-optimal employee and losing your customers to a competitor, what do you do?
If it’s going to be one of the first five employees at a company I would lose those customers. The damage that it does to the company- it’s better to lose some customers than to kill the company.
Execution for most founders is not the most fun part of running the company, but it is the most critical. Many co-founders think they’re just signing up to this beautiful idea and then they’re going to go be on magazine covers and go to parties. But really what it’s about more than anything else, what being a co-founder really means, is signing up for this years long grind on execution and you can’t outsource this.
The founder builds the culture of the company
The way to have a company that executes well is you have to execute well yourself. Everything at a startup gets modeled after the founders. Whatever the founders do becomes the culture. So if you want a culture where people work hard, pay attention to detail, manage the customers, are frugal, you have to do it yourself. There is no other way. You cannot hire a COO to do that while you go off to conferences. The company just needs to see you as this maniacal execution machine.
There’s at least a hundred times more people with great ideas than people who are willing to put in the effort to execute them well. Ideas by themselves are not worth anything, only executing well is what adds and creates value.
A big part of execution is just putting in the effort and you can learn a lot of it.
The CEO and his jobs
The top five that come up a lot in the early days:
- set the vision
- raise money
- evangelize the mission to people you’re trying to recruit, executives, partners, press, everybody, hire
- manage the team
- setting the execution bar
Most founders get excited about or envision themselves executing, It is actually one of the critical CEO roles and no one but the CEO can do this.
Execution gets divided into two key questions. One, can you figure out what to do and two, can you get it done. What you need is focus and intensity to get things done. Focus is critical. Ask founders about what they’re spending their time and their money on. This reveals almost everything about what founders think is important.
You need to figure out what the one or two most important things are, and then just do those.
Focus on those and ignore, delegate, or defer the rest. You can only have two or three things every day, because everything else will just come at you.
Learn to say NO!
The trick to great execution is to say no a lot. You’re saying no ninety-seven times out of a hundred, and most founders find they have to make a very conscious effort to do this. One of the great and terrible things about starting a start-up is that you get no credit for trying. You only get points when you make something the market wants. So if you work really hard on the wrong things, no one will care.
Set goals every day so you know your focus. Most good founders have a set of small overarching goals for the company that everybody in the company know then everybody executes based off of that, ex. ship a product by this date, get this certain growth rate, get this engagement rate, hire for these key roles,
The founders really set the focus. Whatever the founders care about, whatever the founders focus on, that’s going to set the goals for the whole company. The best founders repeat these goals over and over, far more often than they think they should need to. They put them up on the walls they talk about them in one on ones and at all-hands meetings each week. And it keeps the company focus. One of the keys to focus is that you can’t be focused without good communication. Even if you have only four or five people at a company, a small communication breakdown is enough for people to be working on slightly different things. And then you lose focus and the company just scrambles.
Growth and momentum are something you can never lose focus on. Growth and momentum are what a startup lives on and you always have to focus on maintaining these. You should always know how you’re doing against your metrics, you should have a weekly review meeting every week, and you should be extremely suspicious if you’re ever talking about, we’re not focused on growth right now, we’re not growing that well right now but we’re doing this other thing, we don’t have a timeline for when we are going to ship this because we’re focused on this other thing, we’re doing a re-brand, whatever, almost always a disaster.
Don’t let the company get distracted or excited about other things. A common mistake is that companies get excited by their own PR. It’s really easy to get PR with no results and it actually feels like you’re really cool. But in a year you’ll have nothing, and at that point you won’t be cool anymore, and you’ll just be talking about these articles from a year ago that, Oh you know these Stanford students start a new start up, it’s going to be the next big thing and now you have nothing and that sucks.
The other piece besides focus for execution is intensity. Startups only work at a fairly intense level. The secret to start up success is extreme focus and extreme dedication. You can have a startup and one other thing, you can have a family, but you probably can’t have many other things. Startups are not the best choice for work life balance and that’s sort of just the sad reality.
The good news here is that a small amount of extra work on the right thing makes a huge difference. One example is the viral coefficient for a consumer web product. How many new users each existing user brings in. If it’s .99 the company will eventually flatline and die. And if it’s 1.01 you’ll be in this happy place of exponential growth forever.
Just outworking their competitors by a little bit was what made them successful.
So you have to be really intense. This only comes from the CEO, this only comes from the founders. One of the biggest advantages that start ups have is execution speed and you have to have this relentless operating rhythm. Facebook has this famous poster that says move fast and break things. But at the same time they manage to be obsessed with quality. And this is why it’s hard. It’s easy to move fast or be obsessed with quality, but the trick is to do both at a startup. You need to have a culture where the company has really high standards for everything everyone does, but you still move quickly.
Apple, Google, and Facebook have each done this extremely well. It’s not about the product, it’s about everything they do. They move fast and they break things, they’re frugal in the right places, but they care about quality everywhere. You don’t buy people shitty computers if you don’t want them to write shitty code. You have to set a quality bar that runs through the entire company.
Related to this is that you have to be decisive and quick. Indecisiveness is a startup killer. Mediocre founders spend a lot of time talking about grand plans, but they never make a decision.
The best founders work on things that seem small but they move really quickly. But they get things done really quickly. Every time you talk to the best founders they’ve gotten new things done. In fact, this is the one thing that predicts best a success of founders in YC.
So speed is this huge premium. The best founders usually respond to e-mail the most quickly, make decisions most quickly, they’re generally quick in all of these ways.
Have this “do whatever it takes” attitude. They also show up a lot. They come to meetings, they come in, they meet us in person. Jump on the next plane in marginal situations.
Sam’s story to showcase this:
When I was running my own company, we found out we were about to lose a deal. It was sort of this critical deal from the first big customer in the space. And it was going to go to this company that had been around for year before we were. And they had this like all locked up. And we called and said “we have this better product you have to meet with us” and they said “well we’re signing this deal tomorrow. sorry.” We drove to the airport, we got on a plane, we were at their office at 6am the next morning. We just sat there, they told us to go away, we just kept sitting there. Finally once of the junior guys decided to meet with us, after that, finally one of the senior guys decided to meet with us. They ended up ripping up the contract with the other company, and we closed the deal with them about a week later. And I’m sure, that had we not gotten on a plane, had we not shown up in person, that would not have worked out.
The momentum and growth are the lifeblood of startups. This is probably in the top three secrets of executing well. You want a company to be winning all the time. If you ever take your foot off the gas pedal, things will spiral out of control, snowball downwards. A winning team feels good and keeps winning. A team that hasn’t won in a while gets demotivated and keeps losing. So always keep momentum, it’s this prime directive for managing a startup.
For most software startups, this translates to keep growing. For hardware startups it translates to: don’t let your ship dates slip. This is what YC teall people, and they usually listen and everything is good. What happens at the end of YC is that they get distracted on other things, and then growth slows down? People start getting unhappy and quitting and everything falls apart. If you build a good product it will grow. So getting this product right at the beginning is the best way not to lose momentum later.
What if you lose the momentum?
If you do lose momentum don’t give long speeches about vision. Employees in a company where momentum has sagged, don’t want to hear that. Save the vision speeches for when the company is winning. Get momentum back in small wins. Try to figure out where you can get these small wins and you get that done.
Another thing that you’ll notice if you have momentum sag, is disagreement among the team about what to do. In this case you ask your users and you do whatever your users tell you. And you have to remind people: “hey, stuff’s not working right now we don’t actually hate each other, we just need to get back on track and everything will work.” If you just call it out, if you just acknowledge that, you’ll find that things get way better.
To use a Facebook example again, when Facebook’s growth slowed in 2008, mark instituted a “growth group.” They worked on very small things to make Facebook grow faster. All of these by themselves seemed really small, but they got the curve of Facebook back up. It quickly became the most prestigious group there. Mark has said that it’s been one of Facebook’s best innovations. According to friends of mine that worked at Facebook at the time, it really turned around the dynamic of the company. And it went from this thing where everyone was feeling bad, and momentum was gone, back to a place that was winning.
So a good way to keep momentum is to establish an operating rhythm at the company early. Where you ship product and launch new features on a regular basis. Where you’re reviewing metrics every week with the entire company. This is actually one of the best things your board can do for you. Boards add value to business strategy only rarely. But very frequently you can use them as a forcing function to get the company to care about metrics and milestones.
One thing that often disrupts momentum and really shouldn’t is competitors. Competitors making noise in the press probably crushes a company’s momentum more often than any other external factor.
So here’s a good rule of thumb: don’t worry about a competitor at all, until they’re actually beating you with a real, shipped product. Press releases are easier to write than code, and that is still easier than making a great product.
We end this LAB with a great quote from Henry Ford:
“The competitor to be feared is one who never bothers about you at all, but goes on making his own business better all the time.”
Now you have all four key areas and know-hows to idea, product, team and execution. Follow the advises and with a great portion of luck you’ll going to be very successful.
In XenditLAB 2 you got to know what you need to build a great idea. Now you need to turn a great idea into a great product in order to have a great company.
This is really hard, but it’s crucially important, and fortunately it’s pretty fun. Although great products are always new to the world.
We can’t advise you what to build but HOW to build it.
One of the most important tasks for a founder: make sure that the company builds a great product.
Until you build a great product, nothing else matters!
When really successful startup founders tell the story of their early days it’s almost always sitting in front of the computer working on their product, or talking to their customers. Work on your product, talk to users, exercise, eat and sleep. You should be very skeptical if your time allocation is much different.
Having a great idea and a great product makes everything else easier: raising money, getting more press, hiring, business development etc.
Building a great product includes
- customer support
- the copy you write explaining the product
- anything involved in your customer’s interaction in what you built for them
User must love the product
Your job is to build something that users love.
Build something that a small number of users love. It is much easier to expand from something that small number of people love, to something that a lot of people love, then from something that a lot of people like to a lot of people love. You wanna go for something that some people love and expand that into something that a lot of other people love.
If you start with ambivalence, or weak enthusiasm, and try to expand that, you’ll never get up to a lot of people loving it.
If you get right, you can get a lot of other things wrong. If you don’t get this right, you can get everything else right, and you’ll probably still fail. So when you start on the startup, this is the only thing you need to care about until it’s working.
So the advice is: find a small group of users, and make them love what you’re doing
One way that you know when this is working, is that you’ll get growth by word of mouth. If you get something people love, people will tell their friends about it. This works for consumer product and enterprise products as well. When people really love something, they’ll tell their friends about it, and you’ll see organic growth.
Start with something simple to get the love of an user
Its much easier to make a great product if you have something simple.
Start with a smaller subset of your super complex plan. It’s hard to build a great product, so you want to start with as little surface area as possible. Think about the really successful companies, and what they started with, think about products you really love. They’re generally incredibly simple to use, and especially to get started using. The first version of Facebook was almost comically simple. The iPhone is far simpler to use then any smartphone that ever came before it, and it was the first one users really loved.
Simplicity forces you to do one thing extremely well and you have to do that to make something that people love.
Be fanatical about the product and customer service
The word fanatical comes up again and again when you listen to successful founders talk about how they think about their product. Founders talk about being fanatical in how they care about the quality of the small details.
You need some users to help with the feedback cycle, but the way you should get those users is manually—you should go recruit them by hand. Don’t do things like buy Google ads in the early days, to get initial users. You don’t need very many, you just need ones that will give you feedback everyday, and eventually love your product.
Example of Pinterest:
Ben Silbermann, when everyone thought Pinterest was a joke, recruited the initial Pinterest users by chatting up strangers in coffee shops. He really did, he just walked around Palo Alto and said “Will you please use my product?” He also used to run around the Apple store in Palo Alto, and he would like set all the browsers to the Pinterest homepage real quick, before they caught him and kicked him out, (laughter) and so that when people walked in they were like “Oh, what’s this?”. This is an important example of doing things that don’t scale. If you haven’t read Paul Graham’s essay on that topic, you definitely should.
So get users manually and remember that the goal is to get a small group of them to love you. Understand that group extremely well, get extremely close to them. Listen to them and you’ll almost always find out that they’re very willing to give you feedback. Do whatever you need to make them love you, and make them know what you’re doing. Because they’ll also be the advocates that help you get your next users.
Make this feedback loop as tight as possible. If your product gets 10 percent better every week, that compounds really quickly. One of the advantages of software startups is just how short you can make the feedback loop. It can be measured in hours, and the best companies usually have the tightest feedback loop. You should try to keep this going for all of your company’s life, but it’s really important in the early days.
Its hard, it takes a lot of effort, but there’s no magic. The plan is at least straightforward, and you will eventually get to a great product.
Great founders don’t put anyone between themselves and their users. The founders of these companies do things like sales and customer support themselves in the early days.
Final advice: Mesure everything
Use metrics to keep yourself honest on this. If you are building an internet service for example look at growth and active users, activity levels, cohort retention, revenue, net promoter scores, these things that matter. And then be brutally honest if they’re not going in the right direction. Startups live on growth, it’s the indicator of a great product.
Remember you don’t get this right, the next steps won’t matter: great team and great execution
You can basically ignore everything else until this is working well. On the positive side, this is one of the most fun parts of building a startup.
Have fun building a great product and learn how to get a great team soon!
In our first XenditLAB LAB 1 part we shared the truth about real start-up life.
If you clicked on the button and you are here then you are ready to commit knowing fully what to expect on your start-up journey.
A word of caution:
Never start a startup just for the sake of doing so. There are much easier ways to become rich and everyone who starts a startup always says that they couldn’t have imagined how hard and painful it was going to be.
Young and inexperienced or old and experienced, being poor and unknown, are actually huge assets when it comes to starting a startup whereas are bad in other work situations.
Only start a startup if you feel compelled by a particular problem and that you think starting a company is the best way to solve it. Passion first, the startup comes second.
In this session you learn the must-haves to succeed with your startup.
Sam Altman President of Y Combinator and Dustin Moskovitz Cofounder of Facebook, Asana, and Good Ventures tell you how to start a start-up. In XenditLAB we walk you through the how tos step-by-step.
There are four areas you need to excel at in order to maximize your success as a startup:
And let’s make everything great as only great things make the difference:
- great idea
- great product
- great team
- great execution
These overlap somewhat.
You may still fail. The outcome is something like idea x product x execution x team x luck, where luck is a random number between zero and ten thousand. Literally that much. Be great in the four areas you can control and you have a good chance at at least some amount of success.
Today we share the first out of the four key areas: GREAT IDEA. The most important one as this builds your foundation of everything else.
Always remember this: The foundation is to have a great idea.
Great execution is at least ten times as important BUT a hundred times harder than a great idea.
Great execution towards a terrible idea will get you nowhere. Most great companies start with a great idea, not a pivot.
If you look at successful pivots, they almost always are a pivot into something the founders themselves wanted, not a random made up idea. Airbnb happened because Brian Chesky couldn’t pay his rent, but he had some extra space. In general though if you look at the track record of pivots, they don’t become big companies.
The definition of the idea is very broad. It includes the size and the growth of the market, the growth strategy for the company, the defensibility strategy etc. When you’re evaluating an idea, you need to think through all these things, not just the product.
If it works out, you’re going to be working on this for ten years. Invest in up front thinking, the up front value and the defensibility of the business. Even though plans themselves are worthless, the exercise of planning is really valuable and totally missing in most startups today.
To build a great idea you wanna follow this points:
- Think longterm
- Have a mission
- Be convinced
- Find the right market
1. Think longterm
Long-term thinking is a huge advantage if you do it. Remember that the idea will expand and become more ambitious as you go.
You need to build a business that is difficult to replicate.
The idea should come first and the startup should come second. Wait to start a startup until you come up with an idea you feel compelled to explore. This is also the way to choose between ideas. Work on the one that you think about most often when you’re not trying to think about work.
2. Have a mission
Best companies are almost always mission oriented. Having an important mission is usually hard without a great founding idea.
Having a mission oriented ideas is that you will be dedicated to them. It takes years and years, usually a decade, to build a great startup. If you don’t love and believe in what you’re building, you’re likely to give up at some point along the way.
A mission oriented company is more likely to get outside people willing to help you.
Keep in mind it’s easier to found a hard startup than an easy startup. This is one of those counter-intuitive things that takes people a long time to understand.
Derivative companies, companies that copy an existing idea with very few new insights, don’t excite people and they don’t compel the teams to work hard enough to be successful.
3. Be convinced
you need conviction in your own beliefs and a willingness to ignore others’ naysaying. There’s right on one side of it, and crazy on the other. But keep in mind that if you do come up with a great idea, most people are going to think it’s bad. You should be happy about that, it means they won’t compete with you.
Build something that you yourself need. You’ll understand it much better than if you have to understand it by talking to a customer to build the very first version. And you’ll have more conviction.
Don’t be afraid, share your ideas. The truly good ideas don’t sound like they’re worth stealing. You want an idea where you can say, “I know it sounds like a bad idea, but here’s specifically why it’s actually a great one.” You want to sound crazy, but you want to actually be right. And you want an idea that not many other people are working on.
Great ideas look terrible in the beginning
Thirteenth search engine, and without all the features of a web portal? Most people thought that was pointless. Search was done, and anyways, it didn’t matter that much. Portals were where the value was at. Or a way to stay on strangers’ couches. That just sounds terrible all around.
These all sounded really bad but they turned out to be good. If they sounded really good, there would be too many people working on them. You want an idea that turns into a monopoly but you can’t get a monopoly right away. You have to find a small market in which you can get a monopoly and then quickly expand. It’s good if you can say something like, “Today, only this small subset of users are going to use my product, but I’m going to get all of them, and in the future, almost everyone is going to use my product.”
A common mistake among founders, especially first time founders, is that they think the first version of their product – the first version of their idea – needs to sound really big. But it doesn’t. It needs to take over a small specific market and expand from there. That’s how most great companies get started. Unpopular but right is what you’re going for. You want something that sounds like a bad idea, but is a good idea.
4. Find the right market
..for your great idea. Make sure that the market you’re going after is going to grow and be there.
Take the time to think about how the market is going to evolve. You need a market that’s going to be big in 10 years. Most investors are obsessed with the market size today and don’t think at all about how the market is going to evolve.
Care more about the growth rate of the market than its current size. You want to go after a small, but rapidly growing market, than a big, but slow-growing market.
One of the big advantages of these sorts of markets – these smaller, rapidly growing markets – is that customers are usually pretty desperate for a solution, and they’ll put up with an imperfect, but rapidly improving product.
If you are a student one of the two biggest advantages you have is that you probably have better intuition about which markets are likely to start growing rapidly than older people do. You can basically change everything in a start-up but the market.
How to find the right kind of the right kind of market. For example, surfing someone else’s wave, stepping into an up elevator, or being part of a movement, but all of this is just a way of saying that you want a market that’s going to grow really quickly. So think about where this is happening in the world.
Ask yourself Sequoia’s famous question: Why now? Why is this the perfect time for this particular idea, and to start this particular company. Why couldn’t it be done two years ago, and why will two years in the future be too late? For the most successful startups we’ve been involved with, they’ve all had a great idea and a great answer to this question.
You know 50 Cents? Not only a cool rapper but smart when he launched his Vitamine water: 50 Cent is cool and smart when he launched his Vitamine water: Learn to think about the market and what people want first. Keep your focus on their changing needs, the trends that are washing through them. beginning with their demand, you create the appropriate supply. You’ll have a big leg up on most people starting startups.
Last but not least
Good startup ideas are almost always very easy to explain and very easy to understand. If it takes more then a sentence to explain what you’re doing, that’s almost always a sign that it’s too complicated. It should be a clearly articulated vision with a small number of words.
The best ideas are usually very different from existing companies, [either] in one important way, like Google being a search engine that worked just really well, and none of the other stuff of the portals, or totally new, like SpaceX. Any company that’s a clone of something else, that already exists, with some small or made up differentiator—like X, beautiful design, or Y for people that like red wine instead—that usually fails.
Start to think of the right idea when you are still a student. Finding the right idea takes time. Being a student is that you’ve got a very good perspective on new technology.
Meet your co-founders early
As a student you have the great environment for meeting people you can start a company with down the road. And the one thing that we always tell college students is that more important then any particular startup is getting to know potential cofounders. Being a student is that you’ve got a very good perspective on new technology.
Get started and work on your idea….work work work until it’s great.
Next week we see how to turn your great idea into a great product!