25 Nuggets of Modern Startup Wisdom
Catalyst's Cohort curriculum is divided into 4 weeks and 4 topics. The third is Modern Startup Wisdom.
It turns out that starting a startup is hard. And why is that? Probably because every day, you're forced to make impossible decisions. Decisions that no one knows the answers to.
But though no one knows the answers, some very wise people do know how to help you find them.
During my past two years of building, I've been faced with countless decisions that have forced me to desperately search for wisdom from mentors and thought leaders. And they've told me some unbelievably valuable things that have gotten me through countless difficult crossroads and challenges.
My goal for this essay is to share the most impactful insights from that collection, so you can skip the desperate search and get straight to building.
Since the purpose of wisdom is ultimately to help us make better decisions, I thought it would make sense to organize this by decision.
So here it is. I'm going to let you know what bits of wisdom helped me figure out:
- Decision 1: What to build
- Decision 2: Who to build with
- Decision 3: When/how to launch
- Decision 4: How much to charge for it
- Decision 5: How to get your first customers
- Decision 6: How to grow
Yes: founders have to make more than 6 decisions. But these are the most significant ones I've had to make, and if you're just getting started, they likely will be for you too.
Decision 1: What to build
Assuming you've already decided that starting a company is a good idea for you, the next question is what is the company actually going to make?
From what I've observed, it seems like there are two types of founders when it comes to this. Some founders:
- Decide to build a company then solve a problem
- Decide to solve a problem then build a company
For example, I would fall into the second camp. I started a student organization to solve my own problem of wanting to break into venture capital. My aspiration was to get hired by a good VC: not to start a company. But a VC partner told us they'd pay if we charged them for what we were doing, and we found ourselves with the beginnings of a business model.
On the other hand, the founders of Twitch decided they wanted to start a company, then went through a number of ideas before actually landing on the one that sold for $1B.
But it wasn't that they found a great idea: it was that they found a great problem to solve.
Before Twitch, their startup idea was to livestream the founder's life 24/7 on the internet. But when they were building it, they realized livestreaming, in general, sucked. Then in solving that problem for themselves, they realized a lot of other people might need their solution.
So to reiterate what I wrote in my last essay, good startup ideas come from ambitious people who encounter a difficult problem while doing something they care about.
To find the right thing to build, find the right problem to solve.
Which, as far as I can tell, is a difficult problem that's close to you. Meaning you would understand it and would want to solve it.
In a Catalyst workshop, we go through this exercise to help our students get ideas:
- Pick an interest of yours (doesn't have to be business or technology related)
- Find out what people with that interest want
- Find out what's in the way
- Think of the least scalable way you could remove that barrier
But why least scalable? Because thinking of it that way will help you arrive at something you actually could do right now. Even if it's not scalable, if it solves the problem, it's a start.
And if you care about it, the odds you'll be able to learn what you need to learn in order to turn it into something hugely impactful are significantly higher.
For example: leading educational sessions on my university campus is not scalable. Nor was it even a business. But because I cared about it, I did whatever I needed to to turn it into something I could sustainably do for a long time, and something that could help a lot more people. Now, my full-time job is doing stuff like writing this.
That's what I say about picking what to work on, but what are some other general principles conventional wisdom says you should follow?
In a meeting with a founder who went through Y Combinator, he told me something a Partner at YC told him while he was deciding what to build:
Nugget 1: Do the 75 IQ thing.
When faced with a number of options, just do the simplest one that solves a problem in the most straightforward way.
My co-founder and I spent weeks daydreaming about deeply complex products that we never could've built before we decided to just do what we knew would actually solve the problem, even if it was only for a few people at first.
Another nugget from YC founder Paul Graham:
2: You don't need to be an expert in startups to start a startup. You just need to be an expert in your customers.
Remember how I said you should start with a personal interest when looking for a startup idea? That's because when your customers are people with similar interests to you, you don't just know more about them; you are them.
Mark Zuckerberg was a college students when he built Facebook for college students. Not a startup guru. He knew what his users wanted. And knowing that is infinitely more powerful than knowing anything else when it comes to startups.
3: Talk to users.
The best way to find out what to build is to ask the people you want to build for. Ask them about their experience with the problem you're trying to solve. See if that problem has already been solved well, or if it even needs to be solved in the first place.
Don't mention what you're building, or even that your building it. Your job is to get insights and decide what to do about them yourself.
This is a habit that good teams never stop. It is the most productive way to gain direction as a leader or founder, and is the most effective way to fill a real need.
Speaking of teams:
Decision 2: Who to build with
Here are two facts:
- 90% of startups fail
- The #1 reason they fail is co-founder breakups
So just to paint a picture of the stakes here, if you're not careful, picking the wrong person could result in the death of the entire company or project. It could involve you in expensive lawsuits, bankrupt you, harm your reputation, and more.
But on the other hand, having a co-founder is almost definitely something you should do, especially if you want to move fast.
When it comes to thinking through almost anything, two brains is better than one. And when it comes to getting sh*t done, two people can always get more done than one person. You want someone as invested as you are in your startup. Otherwise you'll risk worse decisions, fast burnout, and probably insanity.
But I'll address the elephant in the room: Yes, I am a solo founder. But I wasn't when I started, and though my co-founder and I have gone our separate ways, I know that neither of us would have been as dedicated, or as capable of making good decisions in those first 6 months without each other.
So with that in mind, what do the smartest founders say about deciding who to work with?
Nugget 4: Look for complementary knowledge and skill sets.
If you and your co-founder have similar knowledge and skill sets, the awkward truth will be that one of you doesn't need to be there.
Essentially, you'll probably end up splitting one person's job. And also, the equity the two of you have will end up being a liability as you try to distribute more shares.
Here's what I mean. Say I have a co-founder who is not complementary to me at all. Now let's say we want to bring on a technical co-founder: someone who can actually develop tech products.
The new co-founder can now only get 33% of the company because we've got one guy (me or my non-complementary co-founder) taking up equity that doesn't need to be taken up. So the new co-founder is receiving less compensation than he could for no real reason.
Additionally, if you and your co-founder are too similar, you'll end up clashing. You'll want to take similar roles within the company, and it will be a race to see who's top dog. That's very bad.
So that's item 1. But we skipped what's probably the most important question to answer: where do you look?
5: Try to work with people you know and trust.
I won't say this is gospel, because plenty of co-founders meet for the sake of co-founding a company together. That's why the YC Co-Founder matching platform works. But it is strongly recommended that you first look to your own friends and personal connections when hunting for someone to build with.
People say co-founding is like a marriage. And I can tell you that's exactly right. You spend an unbelievable amount of time with your co-founder, and deciding how to run a company together is like deciding how to raise a child: It's important that you agree on things. And if you don't, it's important that you have the trust to be able to talk through it while respecting each others' perspectives.
But in order to have that, you'll need to have a desire to preserve the relationship in the first place, and not let those disagreements become explosive. If you're friends with someone, that desire is much more likely to be present.
Even then, co-founders do find ways to screw each other over, and one of those ways is distributing equity. So the wisest leaders often say:
6: Shoot for equal ownership.
Here's the cornerstone of this idea: equity is a form of compensation. It's how you motivate your co-founders. If you want them to be as motivated as you, and devote as much time as you, you would give them equal equity.
If you don't, you may find yourself frustrated when they don't seem as invested as you are. But it will be because they aren't as invested as you.
That can lead to resentment in both directions--your frustration with their efforts, and their frustration with your disproportionate ownership.
7: Value character and alignment over skill.
It doesn't matter if your co-founder is the world's best programmer or the world's best salesman: if you hate each other, you will fail.
The strength of the team is the foundation of any company. And that strength is built on many things, but one of the most notable is alignment towards a goal.
If you're solving a problem that you're deeply passionate about, but you co-founder doesn't give a sh*t about it and just wants to make money, you're going to hate each other, and then you're going to fail.
8: Pick someone you can argue with.
If you have a friend you know you can have productive debates with, you should think about bringing on that person.
There are zero co-founding teams who don't fight. Running a company is hard, and nobody knows how to do it when they start. You're bound to have different ideas about how to approach things at every stage, and that's perfectly fine--amazing even. It's the value of having a strong co-founder.
Strong teams come out of those arguments with new respect for each other. But with weak founding teams, the slightest tension can cause them to snap.
So to sum that all up, your co-founder should be someone you ideally knew previously who you trust and who you can have arguments with. They should have complementary knowledge and skill sets, and aligned passion for the mission of your company. And when you sign the papers, you both should have equal ownership in the company.
Once you sort all of that out, you and your co-founder should probably decide when you're actually going to start offering your thing to customers.
Decision 3: When and how to launch
To save you some time, I'll just give you the answer: you should launch as soon as possible with the simplest thing that will actually solve your customer's problem. And you should charge for it.
Here's why: your ultimate goal at the earliest stages should be to find out if anyone wants the thing you're going to make. Sure, you could ask them. But you need to analyze behavior, not feelings. And the only way to do that is by offering to solve their problem in exchange for money.
If they won't pay, you'd want to know that before sinking tons of time and money into a project that is built on false assumptions.
I know it's tempting to dream up big ideas, make compelling pitch decks, and talk about some massively scalable and "cool" product that will take months to build. But it turns out that the most successful founders did exactly the opposite.
So the above can be broken down into 2 more nuggets that I would encourage you to commit to memory--they could save you a lifetime of wasting energy on building bad products:
Nugget 9: Do things that don't scale
This is one of the most prominent ideas in startups coined by YC Founder Paul Graham. The idea is exactly what we described: if you want to learn the necessary lessons about your customer and product, the best way to do it is to charge your customer to solve their problem in a simple way that you can deliver right now.
This is a foundational element of the "lean startup methodology". It's the most effective way to simultaneously conduct market research, build product, sell, and generate revenue while most likely spending very little money.
Back when we wanted to build a platform to match students with startup internships, we launched by simply connecting students with startups we knew and charging startups for it. There was no product. And we were heavily involved in every aspect of the process from training the students to managing them throughout the project. It taught us a ton AND made us money.
That's a service. And services don't scale. But it gave us the insight to understand what type of scalable product could solve the problem as effectively as we were solving it, or more effectively.
But eventually, by staying close to the problem, I was able to discern that it wasn't a sustainable business model before spending my life savings on it. If it wasn't for the wisdom I'm reiterating to you now, I would have been in a much worse position.
It doesn't matter how manual or time-consuming or painstaking it is. This is a necessary step that every startup needs to take in order to truly understand the problem they're solving and who they're solving it for. And doing so can give you a huge competitive advantage, because few people are willing to truly embrace this.
10: Launch fast and iterate
Put simply, do everything we've been talking about as soon as possible. Your business won't make any real progress until you have something you can try to sell to users.
If they don't want it, you get to find out why and change it. If they do, you get to find out why and make it even better. Either way, you're one step closer to product-market fit. Which, remember, is the goal at the early stages.
Founders get trapped in the mindset that their launch is going to make or break their reputation and success. But the truth is that the most likely outcome is that nobody will care about their thing.
So you might as well launch ASAP, learn from the results, and if you have to, launch again. And again. And again. With a better product or offering each time.
But even if you do get all of that right, one thing all of us founders struggle with is pricing.
Decision 4: How much to charge
So we established that you should charge. But how much? You don't want to miss out on revenue by charging too little, and you don't want to miss out on customers by charging too much.
For every business, there is absolutely an equilibrium point that balances those two issues. And it's not based on how much your solution costs you to deliver; it's based on how much your solution is worth to your customers.
That of course depends on how much money your customers have to begin with, how significant the problem is you're solving, and how well you're solving it.
So here's what I've been told to do about that:
Nugget 11: Charge based on value, not your costs.
The fact that your solution costs you money to deliver doesn't make it worth something; someone else's desire to buy it does.
So do your best to find out exactly how strong that desire is. This is something else you can partially discern through customer interviews.
But at some point, you're just going to have to give someone a price based on your best estimate of the value. And here's something to keep in mind:
12: Price can effect your actual value.
Charging a high price indicates to your customer that your product or service is highly valuable. So the perceived value is high. When that's the case, they will often be more motivated to get the high value from it that they paid for. So they'll use it more, making it actually more valuable to them.
Charge a price that your customer can write off, and they'll believe your product is one that they can write off too. They won't use it, and that low price will lead to them actually receiving low value.
That might sound like you should always aim high with pricing. But when you're just starting out, and you don't really know if your product works yet, it's actually best to lean the other way. Here's why:
13: The difference between what customers would pay and what they actually pay is good will.
Good will is simply their trust in you, and their positive feelings about you and your product. More good will likely means more referrals, better reviews, less churn, etc.
When you price, it's wise to weigh out which you need more from your customers: more money or more good will. If good will is what you need, charge less.
And when you're just starting out, you most most likely need good will more than money. A launch is only as successful as your customers. And their success means getting more value than what they paid. When you charge less, you increase the likelihood of that happening.
Plus, if you blow it and charge more than you're worth, you'll basically be set back at zero. You'll have no revenue and no good will, which means no referrals.
Even if you price too low, you'll at least have tons of good will with your customers. Which leads to more future revenue in the form of referrals, more pricing power because of a proven track record, and more success stories/testimonials.
But that's assuming you have any customers who actually care about what you're selling. And that's not an easy thing to get.
Decision 5: How to get your first customers
Founders often aren't sure where to start with this. Should they reach out to strangers? Should they ask their friends? Should they post an ad on Facebook?
The answer, according to Y Combinator, is pretty simple.
Nugget 14: You should start with the easiest customers to get.
If you have connections to people who fit your ideal customer profile, ask them first. Don't make it unnecessarily hard on yourself.
Alex Hormozi in his book 100M Leads defines leads simply as "people you can contact".
To get your first customers, you should be able to tap into the leads you already have. Meaning your contacts in your phone, your Linkedin connections, your Instagram followers, etc. Message people letting them know what you're building, and asking if they would know anyone who might be interested.
15: Offer the "kitchen sink".
The "kitchen sink" is the total package. To drive up the value your early customers are receiving, do everything you can to solve as much of the problem for them as possible. Even if that means rolling up your sleeves and doing the manual grunt work. It will teach you more about the problem than you can possibly imagine, and build trust with your customers in a way that your competition won't be willing to.
16: Create urgency and scarcity.
Use your limited time and resources as an asset. Tell prospects you can only take a few customers in your "pilot program", and that there's not much time until the program launches. This will motivate them to arrive at a decision sooner.
17: Track performance.
It's easy to think you'll just close the first few customers you email and that will be that. But with 99% of businesses, that's not the case. You should adopt a CRM software as soon as possible that will track email open rates, conversion rates, etc. so that you can assess and improve upon your sales strategy.
18: It's about truth-seeking.
A sales call is meant to be a conversation between you and the customer where you both mutually decide whether or not they should buy your thing. It's not your job to immediately pitch and persuade. Your job is to find out more about their problem, and see if your solution is a fit.
19: Conviction is everything.
None of the above works if you don't actually believe in what you're selling, or believe that it solves a real problem for your customer. It's hard to be great at sales if you know you're taking more value from the customer than you're providing. So actually build something great and charge a fair price, and this won't be a problem.
20: Sales is a numbers game.
A few people not wanting to buy your thing doesn't mean it's flat-out bad. It most likely means you haven't told enough people about it. For many salesman, 10 replies out of 100 emails is very strong performance. This of course pertains more to cold outreach (you should be doing warm outreach for your first customers), but is important to understand for setting expectations.
Additionally, if you've never done sales before, you'll probably be bad at it. So again, if people don't buy your thing, don't jump to the conclusion that it's not worth building.
Decision 6: How to grow
So let's say you find out what to build, sell it, keep talking to users, build something better, sell it, and just do that again and again.
Odds are you'll eventually get to a product, service, or combination of the two that can serve way more people with a lot less effort from you and your team. All you have to do is get more people to use it and/or buy it.
There are a lot of ways to do that, but since you're a startup with very limited time and resources, you're likely going to have to pick one or two and focus all of your energy on those. In other words, you'll need a strategy.
By definition, a strategy is how you allocate limited resources to unlimited options. So to decide yours, you'll have to take inventory: what resources do you have? A lot of time? A lot of money?
Then, you'll have to try to limit your options. One useful framework is Alex Hormozi's "core four": warm outreach, cold outreach, posting free content, and running paid ads.
A favorite quote of mine from his book went something like: "If you have more time than money, do outreach. If you have more money than time, run paid ads."
And no matter who you are, you should definitely post free content.
Like most founders, I had much more time than money when figuring out how to grow. So my days were split between cold outreach and posting free content like this.
Here are some of the things I learned at that time:
Nugget 21: Give, give, give.
The best way to attract people to your business is to help them for free. It builds brand by gaining customers' trust, and attracts more customers overall.
The primary way to do this is through content. Y Combinator posts an unbelievable amount of free, highly valuable content for startups. And as a result, tons of founders see them as the leading experts in all things entrepreneurship. That trust attracts YC tens of thousands of applicants.
Or as another example, maybe you're starting to see what's going on with this blog. Though this essay is private to Catalyst students, many of the other essays on here are published for free on the web for curious students to learn what we're all about.
22: The rule of 100
There was a stretch of time when the only real way I could grow was cold outreach to startup founders. And guess what--it was really hard. So of course, I started looking for wisdom on how to approach it. And though I didn't love the answer at the time, it was pretty undeniable: send 100 personalized cold outreach messages every single day.
I can't say I always hit that goal, but setting it was extremely productive for my progress. It not only got more people to know and care about what I was building, but also taught me the skill of getting them to care about it through cold outreach.
Also, with the average response rate of cold emails being around 1%, 100 is truly the bare minimum to productively move your company forward.
23: Track KPIs.
This is obvious for many people, but it's important that every founder does this as early in their company's life as possible. A KPI is more than just an indicator of progress or success: it's a tool to help you prioritize.
For any given task, you can quickly understand how directly or concretely it's going to move your business forward by tracking its impact on your KPI. A few months into Catalyst, this was life-changing in terms of my productivity. As soon as I put my KPI at the top of my to-do list, I realized about 60% of the things on that list simply did not matter.
24: Track inputs too.
KPIs measure the results of your input. But whether you're running ads, doing outreach, or making content, the fact is that you're very likely going to suck at first, and it's not going to work. You can't control that.
What you can control is how much effort you're putting into getting better. So at this stage, it's not just about seeing how your content or emails perform: it's about how you perform, and making sure you're getting the reps in to improve. That's why we have the rule of 100, and why it's important to set similar goals for all growth efforts (posts on social media, ads, etc.).
25: The best way to grow is to build something great.
You could be amazing at all forms of advertising and outreach, but if your product isn't great, it will be like pouring water into a bucket filled with holes.
You don't just need people to use your thing. You need them love it. Otherwise they're just going to stop using it right away. And most importantly, they're not going to tell their friends about it.
Word of mouth and referrals is the most powerful form of growth, and it only happens if you get this right. So don't get caught thinking you need to spend more time on growth than you do on making your product great--the two are often the same.
Of course, the issue of growth is a lot more complicated than 5 nuggets of wisdom. And like I said, I've really only put effort into content and outreach (and I'm still somewhat new to both). So if you're looking for a bit more depth, the best thing I can do is recommend the book I mentioned: 100M Leads by Alex Hormozi.
Go find more wisdom.
There are a lot more decisions to make at a startup than the ones detailed above: I just haven't had to make them yet. So rather than talk out my a** about things I have no experience with, I want to stress one thing above all else: seek wisdom from people who know more than you.
No matter what you're faced with, odds are someone has gone through something similar, and discovered the lesson at the other end. And it probably took them a while. But you could save that time by just listening to them.
And that doesn't always mean mentors: it could also mean content you find online. Y Combinator's podcast got me through countless tough decisions, and so did Alex Hormozi's content. There are answers to your questions--you just need to look hard enough.
So with that I'll close this off and say kudos to you for having the ambition and drive to build something. Most people would've stopped reading this after the first few paragraphs, because most people aren't cut out to make the decisions you're looking for guidance on. So I wish you the best, and hope these last 45 minutes you've spent reading will save you some of the time and pain it takes to make this stuff work.