How to Start a Startup by Paul Graham (my Cliff Notes Version)



I came across this great essay written by Paul Graham titled “”. This is definitely a must read for all entrepreneurs, bootstrappers and business owners.

Since this article is fairly long, I thought it would be a good idea to write a cliff notes version of it.

Lessons Learned from Paul:

The Idea

  • You don’t need a brilliant idea to start a startup around. Simply offer people a better solution (technology) than they have now.
  • Look at something people are trying to do and figure out how to do it in a way that “doesn’t suck”.
  • If you go to VC firms with a brilliant idea but want them to first sign an NDA (nondisclosure agreement) most will tell you to get lost.
  • What matters most is not ideas but the people who have them.
  • Good people can fix bad ideas, but good ideas can’t save bad people.
  • Hire people who take their work a little too seriously; someone who does what they do so well that they pass right through professional and cross over into obsessive.
  • So as a rule you can recognize genuinely smart people by their ability to say things like “I don’t know,” “Maybe you’re right,” and “I don’t understand x well enough.”
  • Being friends with someone for even a couple days will tell you more than companies could ever learn in interviews.
  • Don’t make a conscious effort to schmooze; that doesn’t work well with hackers.
  • When there are just two or three founders, you know you have to resolve disputes immediately or perish.
  • Business is no great mystery. You just try to get people to pay you for stuff.
  • To run a startup are commonsense things people knew before there were business schools or even universities.
  • The rulers of technology business tend to come from technology not business.

What Customers Want

  • If you don’t understand users, you should either learn how or find a co-founder who can. That is the single most important issue for technology startups and is the rock that sinks more of them than anything else.
  • The only way to make something customers want is to get a prototype in front of them and refine it based on their reactions.
  • Your initial plans are almost certain to be wrong in some way and your first priority should be to figure out where. The only way to do that is to try implementing them.
  • It’s worth trying very, very hard to make technology easy to use.
  • A 10% improvement in ease of use doesn’t just increase your sales 10%. It’s more likely to double your sales.
  • How do you figure out what customers want? Watch them.
  • If you want ideas for startups, one of the most valuable things you could do is find a middle-sized non-technology company and spend a couple weeks just watching what they do with computers.
  • It’s easier to make an inexpensive product more powerful than to make a powerful product cheaper.
  • You can come along at any point and make something better and users will gradually seep over to you.
  • Once you get big (in users or employees) it gets hard to change your product.
  • There is nothing more important than understanding your business.

Raising Money

  • To make all this happen you’re going to need money.
  • It’s hard to switch from a consulting company to a product company.
  • The way to get rich from a startup is to maximize the company’s chances of succeeding, not to maximize the amount of stock you retain.
  • Most investors expect a brief description of what you plan to do, how you’re going to make money from it and the resumes of the founders.
  • You should get all the founders to sign something agreeing that everyone’s ideas belong to this company, and that this company is going to be everyone’s only job.
  • It’s hard to raise money with an IP cloud over your head, because investors can’t judge how serious it is.
  • Before you consummate a startup, ask everyone about their previous IP history.
  • If you really think you have a chance of succeeding, you’re doing them a favor by letting them invest.
  • The valuation wasn’t just the value of the code written, it was also the value of our ideas, which turned out to be right.
  • VCs are slow to make up their minds. They can take months. You don’t want to be running out of money while you’re trying to negotiate with them.
  • You have more leverage negotiating with VCs than you realize.
  • Go with whoever offered the most money the soonest with the least strings attached.
  • Talk to as many VCs as you can, even if you don’t want their money, because a) they may be on the board of someone who will buy you and b) if you impressive them they’ll be discouraged from investing in your competitors.
  • The most efficient way to reach VCs, especially if you only want them to know about you and don’t want their money, is at the conferences that are occasionally organized for startups to present to them.

Save Money

  • For most startups the model should be grad student, not law firm. Aim for cool and cheap, not expensive and impressive.
  • Besides being cheaper and better to work in, apartments tend to be in better locations than office buildings.
  • People are a recurring expense. So the fewer people you hire the better.
  • Don’t hire people to fill the gaps in an org chart. The only reason to hire someone is to do something you’d like to do but can’t.
  • As with office space, the number of your employees is a choice between seeming impressive and being impressive.

Interesting Facts

  • Microsoft’s original plan was to make money selling programming languages.
  • What you notice in the Forbes 400 are a lot of people with technical backgrounds — Bill Gates, Steve Jobs, Larry Ellison, Michael Dell, Jeff Bezos, Gordon Moore. The rulers of the technology business tend to come from technology not business.
  • While you can outhack Oracle with one frontal lobe tied behind your back, you can’t outsell an Oracle salesman.
  • Bill Gates was young and inexperienced and had no business background and he seems to have done ok. Steve Jobs got booted out of his own company by someone mature and experienced, with a business background, who then proceeded to ruin the company.
  • If I were going to start a startup today, there are only three places I’d consider doing it: on the Red Line near Central, Harvard, or Davis Squares (Kendall is too sterile); in Palo Alto on University or California Aves; and in Berkeley immediately north or south of campus. These are the only places I know that have the right kind of vibe.

These stories made me laugh

  • Almost everyone who worked for us was an animal at what they did. The woman in charge of sales was so tenacious that I used to feel sorry for potential customers on the phone with her.
  • Even Bill Gates, who seems to be able to bear a good deal of moral weight, had to have a co-founder.
  • For most, the cause of death is listed as “ran out of funding,” but that’s only the immediate cause. Why couldn’t they get more funding? Probably because the product was a dog, or never seemed likely to be done, or both.
  • Like most startups, we changed our plan on the fly.
  • The best opportunities are where things suck most.
  • You would not believe the amount of money companies spend on software, and the crap they get in return. This imbalance equals opportunity.
  • One of my favorite bumper stickers reads “if the people lead, the leaders will follow.”
  • David Filo’s title was “Chief Yahoo” but he was proud that his unofficial title was “Cheap Yahoo.”

My favorite quote “Build something users love, and spend less than you make. How hard is that?”

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