Paul Graham, Y Combinator Recommend Startups Make Something People Want… To Pay For.

this Startup2Startup guest post is by Sean Ellis, author of the Startup-Marketing Blog.

Y Combinator has occasionally been criticized as lacking commercial focus.  Their mantra “make something people want” says nothing about a business model.  But Paul Graham and Jessica Livingston clearly demonstrated at the November Startup2Startup dinner (photos by Nandor Fejer) that they’ve always been about building solid businesses.  The only difference now is that they’re stressing monetization a bit earlier.  In fact, four companies in their recent “cycle” have already reached positive cash flow – admittedly on bare bone costs (Paul defined this as “ramen profitability”).

The first step to building a solid business is getting the product right.  As Graham explains “get product right and there is a lot of room to make mistakes.”  In my experience with Xobni and Dropbox (both Y Combinator startups) this focus has greatly facilitated our marketing job.   Both were instilled early with a culture of trying to understand users.  It is not unusual for Y Combinator startups to show their website to Starbucks customers and ask “would you use this?” Graham encourages startups to apply this intelligence by making every word on the front page of their website count, either explaining what the application is or causing people to do what you want them to do.  Even if they don’t necessarily call it marketing, Y Combinator is clearly very savvy about customer development.

Beyond laying a strong marketing foundation, Graham also described how Y Combinator companies all help and protect each other.  Dave McClure, who moderated the discussion, joked that Y Combinator sounded a bit like a “startup union.”  Graham concurred warning that you don’t want to piss off a Y Combinator company, and noted the growing Y Combinator alumni network numbers over 250 people and more than 100 startups.

So how do aspiring entrepreneurs gain acceptance into the exclusive Y Combinator community?  It starts with an application and then the most promising groups are invited for interviews.  Surprisingly the final decision is made after only a 10 minute interview.  Y Combinator prefers teams with either 2 or 3 founders, noting those startups appear to perform better on average than those with only a single founder, or 4 or more.  Partner Jessica Livingston describes the ideal founders as relentless, determined – even a bit crazy, or at least less subject to peer pressure.  You have to be willing to keep trying new things and refuse to die.  Paul Graham adds that you need to be clear in your own head about what you are doing and be able to explain it to people.

Here’s a short video clip of Leonard Speiser interviewing Paul on Y Combinator product philosophy, and  Jessica about her book Founders at Work:

And the reward for entry into Y Combinator?  Beyond the cash ($5,000 plus $5,000 per founder), Y Combinator startups receive critical guidance and VC introductions often needed for “success” – which Graham defines as the “founders getting rich” or a “significant exit”.  While his preference is for building great companies that keep rolling the dice, he admits that it sometimes makes sense for first-time entrepreneurs to opt for an earlier exit.

Following the inspiring interview of the YCombinator partners, the Startup2Startup participants broke into round table discussions.  Topics progressed from funding strategies to non-founder salaries.  While the focus is on helping rookie entrepreneurs, even the startup vets gain valuable new insights and relationships from Startup2Startup dinners.

November 20th: Paul Graham & Jessica Livingston on What Makes Startups Succeed

Our speakers for November will be Paul Graham & Jessica Livingston, of Y Combinator and Startup School.  Paul will be speaking on what makes startups succeed.  Jessica will also speak about her book Founders at Work and offer her thoughts on successful startup founders.

Paul Graham is an essayist, programmer, and programming language designer.  In 1995 he developed with Robert Morris the first web-based application, Viaweb, which was acquired by Yahoo in 1998 and later became Yahoo! Stores.  In 2002 he described a simple statistical spam filter that inspired most current filters.  He’s currently working on a new programming language called Arc, a new book on startups, and is one of the partners in Y Combinator.

Paul is the author of On Lisp (Prentice Hall, 1993), ANSI Common Lisp (Prentice Hall, 1995), and Hackers & Painters (O’Reilly, 2004).

Paul has an AB from Cornell and a PhD in Computer Science from Harvard, and studied painting at RISD and the Accademia di Belle Arti in Florence.

Jessica Livingston is a founding partner at Y Combinator, a seed-stage venture firm based in Cambridge, MA, and Mountain View, CA. She is also the author of Founders at Work, a book about startup entrepreneurs.

Jessica was previously VP Marketing at investment bank Adams Harkness. In addition to her work with startups at Y Combinator, she organizes Startup School.

Jessica has a BA in English from Bucknell.