(2005-03-10) Graham Startup How To

Paul Graham on HowTo Start a Start Up. You need three things to create a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible... Look at something people are trying to do, and figure out how to do it in a way that doesn't suck... One of the best tricks I learned during our startup was a rule for deciding who to hire. Could you describe the person as an animal?... Ideally you want between two and four founders... In a technology startup, which most startups are, the founders should include technical people... There are only four MBA-s in the top 50. 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... In nearly every failed startup, the real problem was that customers didn't want the product... The only way to make something customers want is to get a prototype in front of them and refine it based on their reactions... Another way to say that is, if you try to start the kind of startup that has to be a big consumer brand, the odds against succeeding are steeper. The best odds are in Niche Market-s... I think it's wise to take money from investors. To be self-funding, you have to start as a consulting company, and it's hard to switch from that to a product company... There is more to setting up a company than incorporating it, of course: insurance, business license, unemployment compensation, various things with the IRS. I'm not even sure what the list is, because we, ah, skipped all that. When we got real funding near the end of 1996, we hired a great CFO, who fixed everything retroactively. It turns out that no one comes and arrests you if you don't do everything you're supposed to when starting a company. And a good thing too, or a lot of startups would never get started... Sometimes the VC-s want to install a new CEO of their own choosing. Usually the claim is that you need someone mature and experienced, with a business background. I think people who are mature and experienced, with a business background, may be overrated. We used to call these guys "newscasters," because they had neat hair and spoke in deep, confident voices, and generally didn't know much more than they read on the teleprompter... Customers loved us. And we loved them, because when you're growing slow by word of mouth, your first batch of users are the ones who were smart enough to find you by themselves. There is nothing more valuable, in the early stages of a startup, than smart users. If you listen to them, they'll tell you exactly how to make a winning product. And not only will they give you this advice for free, they'll pay you... For most startups the model should be grad student, not law firm. Aim for cool and cheap, not expensive and impressive... I'd advise most startups to avoid corporate space at first and just rent an apartment. You want to live at the office in a startup, so why not have a place designed to be lived in as your office?... More people are the right sort of person to start a startup than realize it. That's the main reason I wrote this. There could be ten times more startups than there are, and that would probably be a good thing.

Update: he's got a fund giving money for a summer of startup work.

Apr4 update: on why they've gotten some really bad ideas as proposals. Sum up all these sources of error, and it's no wonder we had such a bad idea for a company. We did the first thing we thought of; we were ambivalent about being in business at all; and we deliberately chose an impoverished market to avoid competition. Looking at the applications for the Summer Founders Program, I see plenty of all three. But the first is by far the biggest problem. Most of the groups applying have not stopped to ask: of all the things we could do, is this the one with the best chance of making money?

Sept14'2005 - article about the outcome. Aaron Swartz attended