How to Start a Startup: Idea, Product, and Purpose

I am currently in the trenches of building my own startup. Whenever I hit a roadblock, I look for guidance from those who have actually walked the path. One of my biggest inspiration is Sam Altman. He built a successful business himself and knows exactly what it takes to make it. This is his CS183B class at Stanford. He designed it to teach the 30% of startup success that applies to every founder. While much of building a company is specific to your product, this general framework is relevant and pretty straight-forward.

The Startup Equation

The formula for success is defined as:

Idea x Product x Execution x Team x Luck

Note that "Luck" is a random number between 0 and 10,000. You cannot control luck, but mastering the other four areas will significantly increase your chances.

1. The Comeback of the "Great Idea"

In recent years, it became trendy to claim that "ideas don't matter." People thought founders should just launch, throw things at the wall, and pivot until something sticks. Sam Altman argues the pendulum has swung too far. A bad idea is still bad, and great execution cannot save it.

• Long-term Vision: Successful pivots, like Airbnb, usually happen when founders move into something they genuinely wanted themselves. It is rarely a random attempt to find a market. You need a "kernel" of an idea that can expand into world domination.
• Market Evolution: Investors often obsess over current market size. You should obsess over market growth. It is better to target a small but rapidly growing market than a large but stagnant one.
• Unpopular but Right: The best ideas often look terrible at first. Remember that Google was the 13th search engine. If an idea sounds clearly "good," too many people are already doing it. You want an idea that sounds crazy to others but is actually right.
• The "Why Now?" Question: You must be able to answer why this is the perfect time. Be suspicious if you cannot explain why it wasn't done two years ago or why two years from now is too late.

2. Building a Product Users Love

Once you have the idea, the next step is building a great product. Until this is done, nothing else matters. Do not focus on PR, fundraising, or recruiting until the product is right.

• Love vs. Like: It is far better to build a product that a small number of users love than a product that a large number of users simply "like." It is easier to expand from a fanatical base than to generate enthusiasm from a lukewarm crowd.
• Start Simple: Great products often start incredibly simply. The first versions of Facebook and Google were stripped-down and did one thing extremely well.
• Do Things That Don't Scale: In the early days, do not buy ads. Recruit your first users manually. For example, the Pinterest founders manually set browsers to their homepage in Apple stores.
• The Feedback Loop: You need a tight loop where you get feedback and improve the product immediately. Great founders feel physical pain when their product is broken and fix it instantly.

3. The Reality Check: Why Start?

Dustin Moskovitz, the co-founder of Facebook and Asana, warns against starting for the wrong reasons. The media romanticizes entrepreneurship. The reality is often ugly, stressful, and involves sitting at a desk answering emails.

The Best Reason: You should only start a startup if you "can't not do it." You must be so passionate about the problem and so convinced the world needs it that you are compelled to do it despite the hardship.

• The Financial Myth: If your goal is strictly money, you will likely make more by joining a successful late-stage company than starting a risky venture.
• The Autonomy Myth: Do not start because you want to be the "boss." You will answer to everyone, including employees, customers, and investors. Do not do it for flexibility, as you are always on call.

Questions?

How do you define a market that will grow rapidly?

Based on Sam Altman’s lecture, a market that will grow rapidly is defined not by its current size, but by its trajectory and future evolution.

Here is how to identify a rapidly growing market:

• Future Potential Over Current Size: The most critical factor is determining what the market is going to look like in ten years. Altman argues that most investors make a "systemic mistake" by obsessing over the current market size. Instead, you should focus on the market's growth rate and whether there is any reason for it to top out.
• Small but Desperate: A rapidly growing market often looks small today. Altman prefers investing in a "small but rapidly growing market" over a "big but slow growing one." In these specific markets, customers are usually desperate for a solution. This means they will tolerate a product that is imperfect or unfinished as long as it is improving rapidly.
• The "Tail Wind" Effect: Entering a rapidly growing market is described as "surfing someone else's wave," "stepping into an up elevator," or "being part of a movement." This external momentum acts as a "tail wind" that helps push the startup toward success.
• Technological Intuition: Younger founders and students often have a distinct advantage in identifying these markets. They have better intuition regarding which new technologies or trends are likely to explode in popularity.
• The "Why Now?" Factor: To confirm a market is ready to grow, you must be able to answer why this is the perfect time for the idea. You need to explain why it couldn't have been done two years ago and why waiting two years would be too late.

Altman warns that while you can change almost everything about a startup (the team, the product), you cannot create a market that does not want to exist. Therefore, validating that the market is actually there and growing is one of the few things you must get right from the start.

What does it mean to do things that don't scale?

According to the lecture, "doing things that don't scale" means investing high amounts of manual effort to acquire your first users and ensure their happiness. You should rely on this rather than automated or scalable methods like paid advertising or hired support staff.

Here is a breakdown of what this entails:

• Manual Recruitment: In the early days, you should not buy Google ads to get users. Instead, you should recruit them "by hand." The goal is to find a small group of people who will give you feedback every day and eventually love the product, even if the numbers are small.
• The Pinterest Example: The lecture cites Ben Silbermann, founder of Pinterest, as a prime example. When Pinterest was considered a "joke," he recruited users by approaching strangers in coffee shops in Palo Alto and asking them to use the product. He also went into Apple Stores and set all the browsers to the Pinterest homepage before being kicked out.
• Founders Doing the "Grunt Work": Great founders do not put anyone between themselves and their users. This means founders should do sales and customer support themselves rather than hiring people to do it immediately. This ensures a tight feedback loop where the founder learns exactly what the users like and dislike.
• Fanatical Attention to Detail: Doing things that don't scale allows founders to be "fanatical" about customer support. The lecture notes that successful founders often hook up systems like PagerDuty to their support tickets. This allows them to answer user emails within an hour, even in the middle of the night.

Ultimately, this unscalable work is necessary to build the kind of deep user love required to eventually grow into a large company. The lecture recommends reading Paul Graham's essay on this specific topic for further context.

Why is the 'Why Now?' question so critical for success?

The "Why Now?" question, famously associated with Sequoia Capital, is critical. It acts as a litmus test for whether a startup has identified a specific, fleeting window of opportunity necessary for hyper-growth.

Here is why this question is essential for success:

• Validating the Window of Opportunity: It is not enough to have a good idea. You must articulate why the market conditions are perfect specifically at this moment. You must be able to explain why it couldn't have been done two years ago. This implies recent technological or cultural enablement. You must also explain why two years in the future will be too late. This implies the window is closing or the market will be saturated.
• Correlation with Outsized Success: Sam Altman notes a direct link between this answer and top-tier performance. He states that the most successful startups Y Combinator has been involved with all had a great idea and a great answer to this question.
• A Warning Sign for Failure: Conversely, the inability to answer this question is a major red flag. If a founder cannot explain why the timing is perfect right now, Altman advises they should be somewhat suspicious of the idea's viability.

Surfing the Wave In the context of the broader "Idea" pillar, the "Why Now?" question ensures you are not just building something people want. It ensures you are entering a market that is just beginning to explode. You want to surf a wave or tail wind rather than enter a market that is stagnant or already won by competitors.

How can a founder identify an unpopular but right idea?

Based on the lecture by Sam Altman, identifying an idea that is "unpopular but right" requires a specific mindset. You are looking for a concept that sounds like a "bad idea" to the general public. This minimizes competition. However, it must be supported by a specific insight that proves its future value.

Here is a breakdown of how a founder can identify and validate such ideas.

1. Look for Ideas That Sound "Crazy"

The first step is accepting that truly great ideas often look terrible at the beginning. If an idea sounds obviously good, there will already be too many people working on it. This makes it difficult to capture market share.

• The "Bad Idea" Filter: You are looking for an idea where you can say, "I know it sounds like a bad idea, but here is specifically why it’s actually a great one."
• Historical Examples: You should recognize that massive successes often started as "toys" or niche projects.
  • Google: It was the 13th search engine. It lacked "portal" features and launched when people thought search was a solved problem.
  • Facebook: It was originally a "tenth social network" limited only to college students with no money.
  • Airbnb: The concept of sleeping on strangers' couches sounded terrible to almost everyone initially.

2. Validate the "Right" Side of the Equation

To ensure an unpopular idea is not actually just a bad idea, you must subject it to specific rigorous tests.

A. The Market Evolution Test Do not judge the idea by the current size of the market. Most investors make a "systemic mistake" by focusing on the market's current size rather than its growth.

• Small to Big: You want to identify a small market that you can monopolize quickly. It should be a market that will expand into a massive one over the next ten years.
• Desperation: Look for a small group of users who are desperate for a solution. They will tolerate an imperfect product because they need it so badly.

B. The "Why Now?" Test You must have a clear answer to Sequoia Capital's famous question: "Why is this the perfect time for this particular idea?"

• Timing: You need to explain why this couldn't have been done two years ago. Perhaps the technology wasn't ready. You also need to explain why two years from now will be too late because the window of opportunity will close.
• Tailwinds: Identify if you are "surfing someone else’s wave" or "stepping into an up elevator." You are essentially finding external forces, like new technology adoption, that will push the idea forward.

C. The Simplicity Test A good idea that is "unpopular but right" is usually surprisingly easy to explain.

• One-Sentence Rule: If it takes more than a sentence to explain what you are doing, it is usually a sign that the idea is too complicated.
• Clear Vision: The best ideas are generally either totally new (like SpaceX) or different from existing companies in one specific, important way. Google doing search without the portal clutter is a great example. Avoid being a "clone" with a minor differentiator.

3. Personal Conviction and "Mission"

Identifying these ideas requires a high degree of independent thinking because the feedback you receive will be negative.

• Ignore Naysayers: There is a fine line between "right" and "crazy." To survive the skepticism, you need deep conviction in your own beliefs.
• Personal Need: The best way to find these ideas is to build something you yourself need. You will understand the nuance of the problem better than if you are trying to guess what others want.
• Passion over Strategy: Ultimately, you should work on the idea that you "think about most often when you’re not trying to think about work." You should feel compelled to do it, almost as if the idea is "beating itself out of your chest."

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