Paul Graham - Essays

So what's the minimum you need to launch? We suggest startups think about what they plan to do, identify a core that's both (a) useful on its own and (b) something that can be incrementally expanded into the whole project, and then get that done as soon as possible.

This is the same approach I (and many other programmers) use for writing software. Think about the overall goal, then start by writing the smallest subset of it that does anything useful. If it's a subset, you'll have to write it anyway, so in the worst case you won't be wasting your time. But more likely you'll find that implementing a working subset is both good for morale and helps you see more clearly what the rest should do.

The early adopters you need to impress are fairly tolerant. They don't expect a newly launched product to do everything; it just has to do something.

You can't build things users like without understanding them. I mentioned earlier that the most successful startups seem to have begun by trying to solve a problem their founders had. Perhaps there's a rule here: perhaps you create wealth in proportion to how well you understand the problem you're solving, and the problems you understand best are your own. [4]

That's just a theory. What's not a theory is the converse: if you're trying to solve problems you don't understand, you're hosed.

And yet a surprising number of founders seem willing to assume that someone, they're not sure exactly who, will want what they're building. Do the founders want it? No, they're not the target market. Who is? Teenagers. People interested in local events (that one is a perennial tarpit). Or "business" users. What business users? Gas stations? Movie studios? Defense contractors?

You can of course build something for users other than yourself. We did. But you should realize you're stepping into dangerous territory. You're flying on instruments, in effect, so you should (a) consciously shift gears, instead of assuming you can rely on your intuitions as you ordinarily would, and (b) look at the instruments.

In this case the instruments are the users. When designing for other people you have to be empirical. You can no longer guess what will work; you have to find users and measure their responses. So if you're going to make something for teenagers or "business" users or some other group that doesn't include you, you have to be able to talk some specific ones into using what you're making. If you can't, you're on the wrong track.

Most successful startups take funding at some point. Like having more than one founder, it seems a good bet statistically. How much should you take, though?

Startup funding is measured in time. Every startup that isn't profitable (meaning nearly all of them, initially) has a certain amount of time left before the money runs out and they have to stop. This is sometimes referred to as runway, as in "How much runway do you have left?" It's a good metaphor because it reminds you that when the money runs out you're going to be airborne or dead.

Too little money means not enough to get airborne. What airborne means depends on the situation. Usually you have to advance to a visibly higher level: if all you have is an idea, a working prototype; if you have a prototype, launching; if you're launched, significant growth. It depends on investors, because until you're profitable that's who you have to convince.

So if you take money from investors, you have to take enough to get to the next step, whatever that is. [5] Fortunately you have some control over both how much you spend and what the next step is. We advise startups to set both low, initially: spend practically nothing, and make your initial goal simply to build a solid prototype. This gives you maximum flexibility.

It's hard to distinguish spending too much from raising too little. If you run out of money, you could say either was the cause. The only way to decide which to call it is by comparison with other startups. If you raised five million and ran out of money, you probably spent too much.

Burning through too much money is not as common as it used to be. Founders seem to have learned that lesson. Plus it keeps getting cheaper to start a startup. So as of this writing few startups spend too much. None of the ones we've funded have. (And not just because we make small investments; many have gone on to raise further rounds.)

The classic way to burn through cash is by hiring a lot of people. This bites you twice: in addition to increasing your costs, it slows you down—so money that's getting consumed faster has to last longer. Most hackers understand why that happens; Fred Brooks explained it in The Mythical Man-Month.

We have three general suggestions about hiring: (a) don't do it if you can avoid it, (b) pay people with equity rather than salary, not just to save money, but because you want the kind of people who are committed enough to prefer that, and (c) only hire people who are either going to write code or go out and get users, because those are the only things you need at first.

It's obvious how too little money could kill you, but is there such a thing as having too much?

Yes and no. The problem is not so much the money itself as what comes with it. As one VC who spoke at Y Combinator said, "Once you take several million dollars of my money, the clock is ticking." If VCs fund you, they're not going to let you just put the money in the bank and keep operating as two guys living on ramen. They want that money to go to work. [6] At the very least you'll move into proper office space and hire more people. That will change the atmosphere, and not entirely for the better. Now most of your people will be employees rather than founders. They won't be as committed; they'll need to be told what to do; they'll start to engage in office politics.

When you raise a lot of money, your company moves to the suburbs and has kids.

Perhaps more dangerously, once you take a lot of money it gets harder to change direction. Suppose your initial plan was to sell something to companies. After taking VC money you hire a sales force to do that. What happens now if you realize you should be making this for consumers instead of businesses? That's a completely different kind of selling. What happens, in practice, is that you don't realize that. The more people you have, the more you stay pointed in the same direction.

Another drawback of large investments is the time they take. The time required to raise money grows with the amount. [7] When the amount rises into the millions, investors get very cautious. VCs never quite say yes or no; they just engage you in an apparently endless conversation. Raising VC scale investments is thus a huge time sink—more work, probably, than the startup itself. And you don't want to be spending all your time talking to investors while your competitors are spending theirs building things.

We advise founders who go on to seek VC money to take the first reasonable deal they get. If you get an offer from a reputable firm at a reasonable valuation with no unusually onerous terms, just take it and get on with building the company. [8] Who cares if you could get a 30% better deal elsewhere? Economically, startups are an all-or-nothing game. Bargain-hunting among investors is a waste of time.

As a founder, you have to manage your investors. You shouldn't ignore them, because they may have useful insights. But neither should you let them run the company. That's supposed to be your job. If investors had sufficient vision to run the companies they fund, why didn't they start them?