Recently saw an amazing SaaStr talk by Michael Seibel (YC Partner) on a decade of learnings from YC (or to put it in another way, top mistakes startups make post demo day). These have been framed as learnings mainly for the post-seed stage (once a company has raised $1–2Mn), but in my view, are broadly applicable to any startup. As we close out 2019, I thought I will recap the top 10 highlights from this talk, just so all of us have this sober perspective heading into 2020.
- Assuming that just because you have raised a seed round, you have achieved PMF — “Don’t let investors convince you that you are further along than you actually are.”
- Hiring too quickly — per Michael, the standard startup model is, post a ~$1Mn seed round, grow to 8–10 people. Once this happens, the primary job of a CEO becomes “management” whereas it should be driving the company to PMF. Side notes (2a) Trying to take on too many problems or products at the same time. (2b) You want employees who are excited to drive the company to PMF, and not be under the impression that they are joining a company that already has PMF. (2c) An early stage, pre-PMF company should be minimizing # of non-essential employees. (2d) If an employee isn’t becoming an essential employee in first 3 months, it’s unlikely they will ever become one.
- Not understanding their business model — “not just pursuing the business model strategy that interests you, but one that is commensurate with what your product needs.”
- Not understanding what’s the right time to sell your product to founders/ tech startups as early customers — there are both pros and cons of this strategy. It really depends on what you are selling.
- Assuming investors will be a large differentiator — “An A grade investor is someone who signs the paperwork, wires the money on time, and then doesn’t bother you.”
- Not establishing best practices around hiring — “do simple things like setting up an intelligent interview process that candidates will enjoy going through, having an open communication process around equity & clearly talking about the candidate’s roles & responsibilities.”
- Not establishing best practices around management — “eg. consistent 1:1 meetings between employees and managers, some type of all-hands meeting, getting employee buy-in on direction & strategy.”
- Not clearly defining roles & responsibilities between founders — “avoid each startup decision going into a founder committee for resolution.”
- Not having level 3 conversations within founding teams to resolve conflict — creating an environment of resolution, not attacking. Not bottling-up conflict issues.
- Assuming Series A will be as easy to raise as an angel round — “important to get into Series A discussions with adequate leverage”. Side notes (10a) Don’t get impacted by TechCrunch articles on some Joe raising a $10Mn round for a business that will clearly fail. You don’t know the background circumstances behind that deal. (10b) People who had trouble raising money in their 20s, were finding it significantly easier to raise money in their 30s — this is because 1) investors are considerably more inclined to invest in 2nd-time founders, and 2) if you have been in the Bay Area for 10 years, you are most likely pitching people you already know.
Closing thought: as per Michael, the struggle with most companies is not that their thesis was off. It’s that either their timing was off OR they couldn’t iterate enough on the product to get to the solution that actually solves the problem statement. So, if you keep the team small, iterate quickly and ignore the hype, you can actually spend the time required to solve the problem. You might end up taking 1 yr or 3 yrs to get to PMF — stay lean till then and go to Series A once you have PMF, which gives you significant leverage.
PS: I loved this final quote from him — “In the startup journey, be prepared that both good times and bad times will feel bad.”