Paul Graham - Essays

I wish every startup we funded could appear in a Newsweek article describing them as the next generation of billionaires, because then none of them would be able to give up. The success rate would be 90%. I'm not kidding.

When we first knew the Octoparts they were lighthearted, cheery guys. Now when we talk to them they seem grimly determined. The electronic parts distributors are trying to squash them to keep their monopoly pricing. (If it strikes you as odd that people still order electronic parts out of thick paper catalogs in 2007, there's a reason for that. The distributors want to prevent the transparency that comes from having prices online.) I feel kind of bad that we've transformed these guys from lighthearted to grimly determined. But that comes with the territory. If a startup succeeds, you get millions of dollars, and you don't get that kind of money just by asking for it. You have to assume it takes some amount of pain.

And however tough things get for the Octoparts, I predict they'll succeed. They may have to morph themselves into something totally different, but they won't just crawl off and die. They're smart; they're working in a promising field; and they just cannot give up.

All of you guys already have the first two. You're all smart and working on promising ideas. Whether you end up among the living or the dead comes down to the third ingredient, not giving up.

So I'll tell you now: bad shit is coming. It always is in a startup. The odds of getting from launch to liquidity without some kind of disaster happening are one in a thousand. So don't get demoralized. When the disaster strikes, just say to yourself, ok, this was what Paul was talking about. What did he say to do? Oh, yeah. Don't give up.

A few weeks ago I had a thought so heretical that it really surprised me. It may not matter all that much where you go to college.

For me, as for a lot of middle class kids, getting into a good college was more or less the meaning of life when I was growing up. What was I? A student. To do that well meant to get good grades. Why did one have to get good grades? To get into a good college. And why did one want to do that? There seemed to be several reasons: you'd learn more, get better jobs, make more money. But it didn't matter exactly what the benefits would be. College was a bottleneck through which all your future prospects passed; everything would be better if you went to a better college.

A few weeks ago I realized that somewhere along the line I had stopped believing that.

What first set me thinking about this was the new trend of worrying obsessively about what kindergartenyour kids go to. It seemed to me this couldn't possibly matter. Either it won't help your kid get into Harvard, or if it does, getting into Harvard won't mean much anymore. And then I thought: how much does it mean even now?

It turns out I have a lot of data about that. My three partners and I run a seed stage investment firm called Y Combinator. We invest when the company is just a couple guys and an idea. The idea doesn't matter much; it will change anyway. Most of our decision is based on the founders. The average founder is three years out of college. Many have just graduated; a few are still in school. So we're in much the same position as a graduate program, or a company hiring people right out of college. Except our choices are immediately and visibly tested. There are two possible outcomes for a startup: success or failure—and usually you know within a year which it will be.

The test applied to a startup is among the purest of real world tests. A startup succeeds or fails depending almost entirely on the efforts of the founders. Success is decided by the market: you only succeed if users like what you've built. And users don't care where you went to college.

As well as having precisely measurable results, we have a lot of them. Instead of doing a small number of large deals like a traditional venture capital fund, we do a large number of small ones. We currently fund about 40 companies a year, selected from about 900 applications representing a total of about 2000 people. [ 1]

Between the volume of people we judge and the rapid, unequivocal test that's applied to our choices, Y Combinator has been an unprecedented opportunity for learning how to pick winners. One of the most surprising things we've learned is how little it matters where people went to college.

I thought I'd already been cured of caring about that. There's nothing like going to grad school at Harvard to cure you of any illusions you might have about the average Harvard undergrad. And yet Y Combinator showed us we were still overestimating people who'd been to elite colleges. We'd interview people from MIT or Harvard or Stanford and sometimes find ourselves thinking: they must be smarter than they seem. It took us a few iterations to learn to trust our senses.

Practically everyone thinks that someone who went to MIT or Harvard or Stanford must be smart. Even people who hate you for it believe it.

But when you think about what it means to have gone to an elite college, how could this be true? We're talking about a decision made by admissions officers—basically, HR people—based on a cursory examination of a huge pile of depressingly similar applications submitted by seventeen year olds. And what do they have to go on? An easily gamed standardized test; a short essay telling you what the kid thinks you want to hear; an interview with a random alum; a high school record that's largely an index of obedience. Who would rely on such a test?

And yet a lot of companies do. A lot of companies are very much influenced by where applicants went to college. How could they be? I think I know the answer to that.

There used to be a saying in the corporate world: "No one ever got fired for buying IBM." You no longer hear this about IBM specifically, but the idea is very much alive; there is a whole category of "enterprise" software companies that exist to take advantage of it. People buying technology for large organizations don't care if they pay a fortune for mediocre software. It's not their money. They just want to buy from a supplier who seems safe—a company with an established name, confident salesmen, impressive offices, and software that conforms to all the current fashions. Not necessarily a company that will deliver so much as one that, if they do let you down, will still seem to have been a prudent choice. So companies have evolved to fill that niche.

A recruiter at a big company is in much the same position as someone buying technology for one. If someone went to Stanford and is not obviously insane, they're probably a safe bet. And a safe bet is enough. No one ever measures recruiters by the later performance of people they turn down. [ 2]

I'm not saying, of course, that elite colleges have evolved to prey upon the weaknesses of large organizations the way enterprise software companies have. But they work as if they had. In addition to the power of the brand name, graduates of elite colleges have two critical qualities that plug right into the way large organizations work. They're good at doing what they're asked, since that's what it takes to please the adults who judge you at seventeen. And having been to an elite college makes them more confident.

Back in the days when people might spend their whole career at one big company, these qualities must have been very valuable. Graduates of elite colleges would have been capable, yet amenable to authority. And since individual performance is so hard to measure in large organizations, their own confidence would have been the starting point for their reputation.

Things are very different in the new world of startups. We couldn't save someone from the market's judgement even if we wanted to. And being charming and confident counts for nothing with users. All users care about is whether you make something they like. If you don't, you're dead.