Y Combinator Startup Podcast - #61 - Sam Altman on Masters of Scale

Episode Date: February 22, 2018

Reid Hoffman interviews Sam Altman on this uncut interview from the Masters of Scale podcast.

Hey, how's it going? This is Craig Cannon, and you're listening to Y Combinator's podcast. So today we have an uncut interview from the Masters of Scale podcast. And in it, Reid Hoffman, the co-founder of LinkedIn, interview Sam Allman. All right, here we go. So I'm here with Sam Altman, president of Y Combinator, who is a good friend and has been involved in many scaling things. Let's start with your entrepreneurial, like what got you in? entrepreneurship. How you started looped, why you started looped. Yeah. First of all, thank you for having me here. I fell into it accidentally. I went to college to be a computer programmer. I knew that was all I wanted to do. And I started college after the dot-com bubble had bust, and so startups were not. I'm on anyone's mind. In fact, it was, I remember one of the things I was surprised by as a freshman in college was that I thought people would still be excited about startups. And if you said you were working on a startup, people, it was sort of laughed at you in a not nice way. And I actually didn't want to work on a startup.

I worked my summer after my freshman year in the Stanford CS department as a researcher, and I love that. And out of that grew a project, which eventually developed into Looped, but it started at, as just a project that we worked on sort of like after class and a night and it was not it would not have been a startup if it were not for Y Combinator. So it kind of got to the point where we had worked on it during a spring quarter and it was really fun. I'm very ashamed to say that I had been planning to go be an intern at Goldman Sachs that summer. I accepted a job offer and I realized that was a much more fun.

We're all, there are three of us working on this project. And we all kind of knew who Paul Graham was. We had followed him online. And he posted this thing saying like, hey, not excited about your summer job? Like, come hack on your project and you can make a startup. And, you know, that seemed like it would be more fun than being an investment banker. So we applied to YC and flew out and interviewed and got funded. We were actually the first company ever funded by YC.

And that was how, then it just kept going. and is there anything that, I mean, that's the very beginning, is there anything from now having done looped and a bunch of things we're going to get into, that if you could call that younger self of yours going into YC, that you would tell yourself to do differently, like key things? Well, I think one general thing that I didn't understand then and learned pretty quickly but would have saved me quite a bit of heartache

is about how to calibrate risk. I think most people worry way too much about risk. You know, when you're young and you have nothing to lose, is absolutely the time to take risk, and it's the time, unfortunately, that most people have most risk covers in their lives. They need to save, they want to work for a few years, build up savings, then they're going to do a startup,

they want to do what their parents want, whatever. And I ended up in the right place, but it could have gone either way, and I was very totally stupidly nervous about the risk. And so this idea that most things are not nearly as risky as they seem is a powerful one and one that I always try to tell people in that position. You know, you're like a poor college student with no money and no reputation. And if you do a startup and fail, you're like a two years older with no money and no reputation,

and it's fine. It's actually much harder to wait and, you know, let your life ramp up and then do it. So that's one thing. I think another thing is, well, I don't even think I'm super. easy to work with today, but I was like sort of infamously difficult to work with when I was 18 or 19. And I would have put more effort into trying to be better about that. And what specifically would you have done to be easier to work with? I think a lot of it is how you set and communicate expectations with others and also realizing that if you're the founder of the company and you want

and work 100 hours a week and be super focused and productive. That's cool. But like most other people you hire, especially as you get bigger, have other lives. And you need to understand that. Again, everyone learns this lesson quickly. But it would have saved some, you know, pain along the way if I had learned it earlier. The, and then the other thing that I think I got wrong and 19-year-old starting companies often get wrong is, because they evolve fairly organically from projects,

you never take the time to realize like, wow, this has become, you know, all of a sudden I'm running this company with 10 people and we're doing this and we've raised all this money. And do I really believe that this is going to be a market that will support a giant company? And I think there is a checkpoint where you need, several checkpoints along the way where people don't get that enough thought. And how do you think about, how do you,

think that they should make those checkpoints. Because, you know, from other conversations, I know that both you and I think this whole total addressable market, Tam, thing, is frequently very illusory. Yeah. Yeah, I think, you know, the most interesting companies start with a Tam of nearly zero, and it's like a very bad investors

are the ones that are super focused on the Tam of today. Very good investors are focused on the Tam of 10 years from now. The thing that I have seen, be most predictive for Tam is total addressable market. The thing that I have seen be most predictable for a large Tam down the road is how much the people that are using it today use it and love it. So one of the things that was obvious when people got iPhones, even though like, you know, there were only a few million of the first iPhone that sold them,

is people that had them use them every day and loved them. And it became like their most precious item. I remember shortly after the iPhone came out, I was in a developing world country that was really quite poor, and people had nothing except they all had a smartphone. And people, once they had one, like, you know, you read these statistics and people need to do some lightweight journalism about, like, would you rather give up your smartphone or X? And it doesn't really matter what X is. They're going to keep the smartphone. And so I think you could have predicted with a lot of certainty, and many people did, that this was going to be a large market. It was small in 2008, 2007, but it was guaranteed that it was going to grow very quickly because of how much people loved it. The Internet in the early days was the same thing.

And I think a lot of other trends, people jump on too early because a lot of people dabble but put it on the shelf. A lot of people have bought VR headsets and put them on the shelf. It doesn't mean that VR will not be big someday, but this is, I don't think you can make a high conviction bet on starting a VR company today, at least that the TAM will be huge. It still feels like we're at the Palm Pilot,

not the iPhone era. For those who remember Palm Pilots. Yeah, you know, I have one still that I got, when it was a ridiculous thing to have a Palm Pilot 7, it was the Internet-connected one. And I loved it, but other people didn't.

And I thought that was sort of, it's, you can, it was very easy to tell the difference between the reaction to that and the iPhone. I think you probably know this, but you know the first use case for PayPal was splitting the dinner check on Palm Pilots. I do know that. And apparently, like, Legend had set it up

so that it could only happen once because it was actually cryptographically secure and he stayed up for four nights in a row or something and this demo and the camera didn't work and I wanted to do it again. Yeah. And they only had two that it worked on. Yeah, it was kind of crazy.

And they did part We did the closing of the first financing on it in bucks. Wild. Super entertaining. Yes. Classic Silicon Valley stuff. So Loops. Then how did you get to YC?

So Loops. I ran loop for seven years. We got acquired and I was trying to figure out what I wanted to do next. And I decided I was going to partly take a sort of mid-career sabbatical, race cars, fly airplanes, travel the world, all that kind of stuff. but that I didn't want to totally disengaged from working, and that I would try to invest for a while. So I took the money I made from Looped,

and I also raised some outside capital, and I became a sort of very traditional seat investor. I had invested a little bit during Loop, but very small checks, although that was possible back in the day, because the valuations were so much lower, and the company raised so much less money. I remember, like in 2000, I think this was 2010, I invested in Stripe, and I had like $17,000 in my bank account at the time, maybe 2009, and I invested like 15,000 of that into Stripe.

And, you know, it was like for a meaningful percentage of companies. It was a different world. And that's kind of like as a founder not making much money, kind of that was sort of the size of check you could do. But it was still possible to like once a year make an angel investment as a founder. And now I just think you can't because the amounts of money and C-ROMs have gone up so much. but because it was a different world I had invested a little bit during looped I think I made three investments and I thought I liked it

so I was like well I'm going to do this as my sabbatical job and I did that from 2012 and 2013 and I turned out to be fairly good at it but I didn't like it at all and I think you just have to try things to know

but it turned out that I don't want to be a C-E investor or VC. I liked running a company. I did not like being on the sidelines. And it just, I didn't find, I didn't get the adrenaline rush. I get out of sort of like being in the trenches of running a company, which I think is something that a lot of founders miss when they start investing. You know, you figure out an approach to this I like for investors, which has continued to be very involved with operating one company, and I think that's a model that is very under-explored, and we'll see more of.

So, but anyway, I did this, and I was like, you know what, that was fun, and it did pretty well. I think it's like a ridiculously highly compensated job, but I didn't want to keep doing it. And I was thinking about things I wanted to do, and Paul Graham sort of jokingly said a number of times, over the years that I'm going to retire and you should take with the YC. I had kind of bucketed that in my head in the, you know, this is investing and I don't like investing.

But I started talking about that more serious. I was looking at two other things. Golden Sacks? No, it's the thing about going to run a big public company or start a company I had been excited about for a while. And the more, but I, the find was like, I'm really going to think kind of what I want to do. NYC seemed like such a promising and underutilized thing, and so important to what I cared about.

Or at least I realized that there was this set of four or five things that I really deeply cared about, NYC had the best platform of anything I was looking at or maybe anything in Silicon Valley to go address all of those. And that even if there were things about it that I wasn't excited about, I could get other people to do those, or I could change YC in big ways, and that worked out basically as I expected, which was great.

Go in a little bit more details about what the things were that were like, oh, here was the, because this is one of the things where you see the potential scale. Like I see this asset. It could be so much more in Silicon Valley, and I want to go to, which were those? So one was the kinds of companies that we were funding. At the time YC was mostly funding software companies, but I had a lot of conviction that we could,

apply the same thing that made YC work so well for software companies to companies in a lot of the areas that I cared about. And, you know, AI, synthetic biology, energy, and that the same model would work, which now people are like, oh, yeah, hard tech. Everyone wants to invest in hard tech. By the time, it was like, this is a really dumb thing. One of the things that is funny as a side note, and just as a note to anyone that tries to do anything, where you take a company in a different direction or scale it is that it is always funny to sort of like read the articles from the same journalists that when you say you're going to do this thing say like Sam is crazy completely unqualified this is not going to work

YC is going to die like going after hard tech companies is so stupid to like a year 14 months later you know this is great like Sam is a genius it was like predestine he was going to take over YC you know it's ridiculous that YC is doing any software companies at all it's all lots of other stuff. So I think you just have to ignore all of that and just say, like, I have a high-level conviction, and we're going to try this thing. And most people will tell you it's not going to work. If it's something new, most people are afraid of things that are new. And you just do it. And as long as it's not, again, risk is miscalibrated. It's probably not that risky. Probably won't kill the company. And probably undervalued if everyone else says

it's stupid. So we were able to do that. And, and, and, And the first thing was expand YC into all these different directions. I think the greatest companies are created on kind of the bleeding edge of what people are working on. And by 2014, there were already a lot of people making mobile apps. There will still be great mobile app companies, I'm sure. But it was like fish in a barrel in some of these other areas. We were able to just go pick out in the world the best quantum competing company, the best

self-driving company, which recently got acquired by GM, the best nuclear fusion company, the best synthetic biology company just all the way down the list. And no one was competing to invest in those companies. Meanwhile, like another photo sharing company, we have to like go do a lot of work to convince them to do YC because they're like, well, every VC in Sandhill Road wants to give me $30 million. So that was one area where we expanded. Another was just more companies.

We significantly up the number of companies we fund every year. To what, for example? Maybe it was like from 100 to 280. something like that now. We expand the geographies that we plan on. We now fund companies from all over the world, which is a logistical nightmare, but I think really good for the kind of companies we can serve.

We raised a later stage fund, because one of the other things we realized, especially with the hard tech companies, you can fund a lot of these companies at some point they need to raise $50 or $100 million. Not a lot of investors are doing that. So to support those companies we need at this large pool of capital. we wanted to, on the other side,

really increase the top of our funnel. And so we started teaching MOOCs basically and say, hey, we're going to try to distill how to start a startup onto a class and make that available around the world. We started a research lab. There are some things that are important to us and our mission and our vision for the world

that don't fit as a for-profit company that we still want to do. But basically, fundamentally YC is sort of this new university. We are a collection of smart people that have some sort of shared vision of the world we'd like to build and the tools that we think work to get there. And that's a very flexible structure. So we've been able to do all these things. And in terms of the efforts to scale YC is like this global geography, there's early and late stage, there's research, that you also, taking nonprofits through YC as well as part of it.

When you think about and you say, okay, I saw this potential to have a massive scale impact that I went in, which were the things that you kind of wish you would double down on earlier, and which are the things that you would have changed in that scaling process? We've kind of, I think one thing that is really, the two things are really important to get right when you're going to try to scale an organization a lot. one is a very clear vision and culture and the other is a reasonably clear org structure I think we are good on the vision and culture

this idea that like YC wants to produce the most innovation in the world and then do that in such a way we make the future great for everyone not for seven people and and we've stayed we kind of talked when I took over about that, the mission, the vision, the culture to support that. And I think we've done a very good job of staying true to that. And one thing I'm particularly proud of the organization on is without me having to legislate it,

if there's a company we look at where we think we'd make a lot of money, but we'd think it might be bad for the world, we won't touch it, which most other investment firms unfortunately have a hard time with. But, you know, we do things that other investment firms would not, not like fund basic income research or support open AI or fund nonprofits. And so I think we got that right early and that and getting that right is really critical because if everyone believes the same thing, there's a lot less conflict and also if people are going to kind of organically march in the right direction, you just need a lot less organization.

You just need some and I think we could have put a better structure in place earlier. We've gone through a few iterations. I think we now have one that's good, but but I initially tried to just have no structure at all. And that would have worked if we had stayed at like 10 people working at YC, which is what it was when I took over, fell apart pretty quickly at 30, 40 people, something like that. Was it a deliberate attempt at holocracy, or was it just kind of like, oh, let's try not bother with a org denier.

Definitely not a deliberate attempt at holocracy, which I don't think I'm a fan of from what I know about it. It was just like the growth in the number of people, of an organization sneaks up on you. And you can completely get away without any structure until you can't. And it's a pretty quick flip. Got. And what do you think about, was there anything you would have applied capital to more fiercely

or anything that you would have said, I should have recruited these people into the organization earlier? We run super white on capital. and I think that is to our credit. So there are all these things that would have been smoother and better if we had applied more capital to but the tradeoff is it would have hurt our culture

and that reflects on companies. Like I kind of like that when entrepreneurs come to YC they drive to like honestly a kind of shitty industrial part of Mountain View and they walk into this building that looks like it's, we did a nice job on the inside but it's like nice in the very, You've been.

I have. It's nice in the very cheap sense. Like there's no, like, gleaming marble or, you know. What you see on Sandhill Road a lot. Yeah. And we just, like, you know, we still have, like, a CFO that yells at people if she finds that there was a $50 cheaper flight to buy. And so in all of these, in all these specific instances, we could have applied more money to problems and it would have helped. But I think there is something.

culturally important to us about frugality because we want that reflected in our startups and our startups have the kind of bond with us where they reflect what we do. So I think on the whole it is good we did not try to go solve a bunch of problems by mega amounts of capital. So let's go to the YC selection process because we're going to go into what are the lessons from YC companies. And one of the things I learned from the New Yorker profile, which I had no idea, because I've never seen it, is that you occasionally bring a sword in with you to

interviewing entrepreneurs. No, that's not true. That is, well, either they wrote that wrong, no, I think I remember what happened. I do like, I love engineering history of all sorts. I kind of collect these things that like Concord engines and just like things I think are important in engineering milestones. So I had bought this Browns, Age Sword. And I was in office hours, and the reporter was sitting with me, and office hours

are kind of this drudgery at some times where you're doing this, like, you know, it's the 16th meeting of the day, and I needed some energy. And so when it was a phone call, and the story had just came, beautiful Bronze Age Sword, and it had just arrived. I'd been waiting for this thing. You know, like, it had flown over it from Europe, and it was in this big crate, and I got it out, it was stunning, perfect. And, I mean, the first thing you do is, like, pick it up and swing it and see, like, how it's weighted, how it feels. And this particular one had, like, you know,

like the nicks of where it hit people's helmets a couple thousand years ago. It was a little dark, but... Or maybe bones, right? Too much of a nick for a bone. Too deep of a nick in the middle. And so I was, like, so excited. And I was on the phone and it was kind of like a not particularly exciting conversation. And so I picked it out when we were like,

in my house. And I just started, like, while I was on the speaker phone, like, swinging it around and, like, fighting this pretend enemy because I was so excited. I just got this. I've been waiting for it for so long. And I didn't realize until I put it down at the end, but, like, that was probably really dumb, and it was probably going to make it into the profile. Because the reporter was sitting there watching, kind of just forget after someone's with you for weeks. But I have never swung a sword at someone during an interview process. Yes, it was less the swinging sword, and more did you, like, bring props with you to the interviews.

No, no. This was just in my house and I had just arrived. We don't bring props. Got it. So tell me a little bit about the YC interview process. This is one of the things you've actually really refined over the years in order to get really good. Yeah. There are a few big ideas that, actually a very small number of big ideas

that make YC work. And one of them is that there is a giant amount of arbitrage left because most investors in Silicon Valley will only fund you with an intro or they'll only talk to you with an intro. And it is, honestly, I think, by and large, a fairly infiller network. And one of the ideas with YC is if we can build a process

that's not too painful, where we can look at everyone's smart that wants funding from us, that we can unlock a huge amount of value because no one else does that or at the time no one else did that. Now other people do it, but I don't think they do it as well, where we have a brand or something where I think we still have an edge.

But, you know, we are willing, not able, we are willing to look at tens of thousands of people a year with no intro, that don't know us. And there's a lot of really smart people that just because of the circumstance they were born into or the country or whatever aren't plugged into the Silicon Valley Network. And we are abridged to that, and I think we get compensated for that. But that idea that you should have an open application, and you shouldn't require an intro.

is great. Now, doing it well in practice is hard because it is very tiring and very draining to talk to 40,000 people a year. So we have a lot of people, a lot of software. This is like a secret I don't even mind telling something. Other people will copy it well. We spent so much time and money

building really great internal software that only like 50 people in the world use. And yet it lets us run this process that no one else can run. And you videotape them And you cross-check the results. Yeah, we cross-check the results. We watch companies that we say yes or no to.

When we say yes to a company, we have to say how strong of yes it is, how well we think we're going to do. And we really sweat every mistake. And so tell me also, before we get to some of the interesting companies, about your going global efforts. Like what were the things to scale to more than just the Silicon Valley network? Well, the number one best thing we did for that was the, the MOOC, the class that we teach.

That got incredible distribution worldwide, and then that brought people from these other countries. And what we find is that when we fund someone from another country or city for the first time, they go back and then everybody else there is like, well, I can get into YC now. It's not so hard. And so we just see this. There's like this, there's this incredible chain reaction effect once we get the first good company in a new area.

We also do, we get on planes a lot. You know, like partners just go fly around the world and give talks and meet companies. And that is phenomenally effective. It won't be too much longer until we have more companies applying from outside the U.S. than inside the U.S. And then you also were doing a fellows program at some point? Yes, we, it was sort of like an on-ramp version to YC. One of the things we realized that there was more demand for that program than we were ever going to fill. We were shocked.

We thought we were going to get like 200 applications for the first fellowship. We got like 7,000. This is not going to work as designed. So we have now evolved that and the class that we've taught together into this new thing that we're going to try next year for the first time, which is halfway between a lecture series and a Ycombinator class where people have individual advisors and office hours and they have to report their metrics every week.

But they can do it remotely and anyone can do it. So now let's go to a couple of the kind of great, you know, just amazing YC companies. There's a number. We talked about Stripe a little earlier as one of your earlier investors, and I think you now, I actually hadn't realized the background economics. I think you now, you were more edgy in your angel investment than I was, because I started pretty early with kind of the crazy, like, how much of your savings? But I think you had a higher percentage of your savings that you were deploying.

Risk management has never been my strongest suit. Yeah, so I think I went up to 50% not, I think that was roughly somewhere around 90. It's different when you have no money at all, though. Like, yeah, I mean, there's some level beyond which the percentage doesn't matter. Yeah. And so let's talk about a few of them, and what are the key kind of lessons for how the scaling, like what we have learned in White Coneyar and Silicon Valley about how to scale. And let's start with strike, where obviously the Colossons are amazing and the company is doing spectacularly well.

Like, what did it look like in the early days? Why did you think it'd be great? What did they learn about how to scale? So I think the number one lesson that I have learned or the YC has learned about how to scale well is that the first thing you have to do is build a product that is so good, people spontaneously want to use it and tell their friends about it. And if you can do that, you still have to blitz scale, but it's the easy kind. You have too much demand.

The hard kind of blitzscaling is where you, you try to start scaling up before the product is really great, and then most of your effort in scaling is to generate demand. So I think the number one most important insight about how to blitz scale is that the good kind of blitz scaling is when you are not having to generate demand as you go, but that you first got the product right. And in many of these cases, Stripe, Dropbox, Airbnb, they took a long time to get the product right, but they were obsessed with that.

then when they did, all their effort is, okay, we have so much demand that without much more effort, we know this is going to keep growing 20, 30 percent a month for years. That's a real problem. It's a high-class problem, but it's still a real problem. How do we build that? So that is the kind of scaling that works, and it has generated Facebook, Google, I mean, a lot of, you know, it's the same playbook. I think the kind of blitzscaling that we have seen go. badly is we have a mediocre product. We have raised hundreds of millions of dollars, and RVC is beating down our throats to hire more salespeople to grow faster. Any particular examples? I don't want to name names. There's so many to pick from. Thankfully, most of them are not YC.

One thing that is pretty good, and again, a few exceptions to this, we try to beat that idea out of people during YC. And thus, most of the mistakes in Silicon Valley of that sort in the last decade, if not ours. One interesting thing that I think is a slight variant on the theory that you just gave that applies to Airbnb is actually, in fact, one of the things I think I've learned about some scaling things is that you initially have to do things that don't scale. in order to get into scaling.

And so actually, in fact, they spent a bunch of time kind of out in the desert, not getting transactions. And I think it was actually Paul Graham who gave me this advice to go to New York, go door to door, explain to people, just get them into it. Yeah. Paul Graham wrote an essay out of that experience and a stripe experience that's somewhat we can talk about. The essay is called Do Things That Don't Scale.

and I think it is in the top four most important essays for a new founder to read. This is almost universal among, not perfectly, but almost universal among our best companies where initially you have to go get users manually or do things that you could never do with 10 million users. And it's actually a sign of bad entrepreneurs in my experience when people that have a company with no users, no product, and no revenue, say they won't do something because, well, that's not going to scale. It's what that means is,

I am lazy and don't want to go get my hands dirty, or I think knocking on doors and taking photos is below me in the Airbnb guys' case. Which is not what they did. They actually went and did all those things. Exactly, exactly. So I think the way that you build a really great

product is to be very close to your customers. And the way that you do that is to do things that don't scale. And so I think it's super important. I think it's, again, like a critical piece of still, even in 2016 in Silicon Valley, still not fully internalized advice. Are there any cases that come to mind for you that were someone built a really good product that had that kind of, at least potential for love that actually failed to scale? You know, Twitter is the example everyone uses. And I say, well, if the company had scaled better,

it would have been a $200 billion company or a $20 billion company or what a $10 or whatever it's worth now and if Twitter is the best example you can find that this is not working that still says something there are others

it's more often where I think the founders were really good at building a product but then not good at all at building a company so it never even got far into the public conscious but it's rare. It happens surprisingly rarely. What advice do you give YC founders on hiring the scale?

Vinod Kostla has this soundbite that I have always loved, which is that the team you build is the company you build. And a lot of founders, particularly young founders, but a lot of founders are afraid to hire people that are a lot more competent or experienced than they are. And there's some truth to this because a lot of times hiring really experienced people backfires and they actually try not to be good at all. But it can be magic when it works right.

And the thing that I think you need most to scale well and quickly is two or three senior team members that you trust and that are really good at scaling an organization, especially if you're a first-time CEO. So the recipe, I think, has worked pretty well in Silicon Valley is a relatively inexperienced CEO who identifies a small number of direct reports who are really great at scaling things up pretty quickly and know how to do that. And if you don't hire those people, generally I think you kind of just will suffer. And do you, NYC, teach the companies anything about culture building?

Not enough. We do do some of that in the early days, which I think we're fairly good at, but there's a lot of culture building is not this thing that you do in the first three months of your life and then stop. It gets a lot more important as the company gets well out of YC. One of the things that we're thinking about doing at YC

is programs that continue to teach our founders more well after out of YC. The model used to be that you would go through YC and then you'd get a board member who would only take eight boards and would spend a couple days a month with you and do things like help you build the culture as the company's scales. But just the dynamic of Silicon Valley Venture has changed so much and people, there's so many more companies and more deals per investor

that I think a lot of these things that used to get taught one-on-one by a board member now just don't get taught at all. And so I'm interested in terms of what we can do to teach that to our alumni. One thing I think you said during a Stanford seminar is what a founder needs is something like idea, times product, times execution, times team, times luck. Yeah. Is there any particular, where luck is a random number between zero and 10,000, is there anything in particular you think that people should keep in mind about how to play luck, how to make luck, how to factor luck into this? Yeah, look, I think there are a lot of ways that you can manipulate the outcome. And there's a lot of things you can do unrelated to luck.

And certainly you can be really lucky, but if you don't do those things well, a company will still be worth nothing or very little. But I think all those are things, like trying to come up with a really good idea, and trying to pick a market, it's going to be really big, and trying to hire a great team and trying to execute really well. Like, those are all the ways you minimize the effect of luck. That said, it's just like, it's a chaotic universe. So sure, I think you can do a whole lot to minimize that, and you should.

I think I also generally believe that if you do really well on those four categories, even if the first or the second company doesn't work out, you can kind of tell people that are eventually going to be successful at something. Sometimes it takes a lot of tries. Yeah, if they keep at it, especially. Yeah. One of the things I think is a, the way that I think about managing luck is, like one of the things YC provides founders, which is really good, is a network.

And it's the use of the network, both for seeking opportunity and also seeking risk assessment. Right. Like, what do you think, you know, like one of the pieces of advice I give founders is to constantly go to smart people and say, what do you think, what landmines might I run to? What risks might I have? Not just do you like my thing or not, because I'm sitting with you. I'm probably going to say, oh, you're sure, your thing's great, unless I'm, I'm, you know, deliberately trying to help you by being edged.

What do you think about those as key things for luck management? Yeah, I agree. I think that, you know, the way I have always tried to think about it for myself is that luck is a big factor, but I'm going to keep working, and eventually, you know, because it's a variable, it's going to swing my way. and I think that's roughly the right mindset to have. If you don't acknowledge the role of luck at all, I think you're wrong in a dangerous way where you sort of just are not a great human

and if you can't look and say, I got really lucky at some points, it's probably bad, but if you're also like, well, it's all about luck and, you know, I have no chance the world is against me and I'm just going to sit here and complain, that's not going to work either. So I think the other,

roughly correct mindset is luck is important, but I'm eventually going to get lucky, and I'm going to just work really hard until I do. That may be one of the better definitions of optimism that actually I think I've heard. Good. So a little bit of the, one of the challenges of being the president of a scale thing is that all of a sudden the demands on your time go ferocious. So for example, you get a deluge of email looking for meeting requests. how do you manage that?

I don't think it's rude to send someone an email asking him to meet. I also don't think it's rude not to respond or to write a quick thanks, but I'm just super busy. I don't think I manage this well because I still feel more guilty than I should about not doing things,

but I try to be pretty rigorous about not doing what I don't want to do. I think everyone finds their own product, systems that work well for them. I'm a list person. So I make lists every day of what I need to get done and I make like annual list of the big picture things I want to do. And I, you know, because YC is a services organization, I've just accepted that I'm going to be very interrupt driven and that most of my time is going to be dynamically responsive to our companies that need help. And I just accept that I'm going to, that's our fundamental job. I'm going to, you know, devote 50 to 60% of my time to

that and I just leave it empty because I don't know when it's going to come up. But other than that, I just don't do stuff I don't want to do. And I think this is an underutilized strategy because it feels rude. And again, I still, because it feels rude, don't do nearly as good of a job of it as I would like. I think the other answer that no one likes to give is just work a lot, just do a lot of hours. You know, people talk about working smart all they want. There's nothing makes up for like working smarter and a lot of hours. Yep. What got you into coding?

I don't remember not being into coding honestly. I mean I got a computer for my eighth birthday and I already knew how a program that, very rudimentary programming. So I learned at some point before that at school but I don't remember it. It was just, yeah. The New Yorker thought it was analyzing area codes. I mean, New Yorker writers come up for a lot of series. I don't think are particularly right, including that one.

Yeah, yeah, got it. Because I was curious about that. That was in the category of things I didn't know, in addition to the amateur swordsman. No, I, you know, like, I think I have a brain that is naturally inclined to enjoy things like puzzles and math, and coding is like a fun way to do that. And then for the last personal question of this sort, many people have noted you have affinity for cargo shorts.

I'm not wearing them today. I know. It's cold outside. So when it's warm, cargo shorts. And is there any particular reason cargo shorts? Honestly, I don't think they're that ugly and I find them incredibly convenient. Like I, you can like put a lot of stuff. I like to, I'd still read paperback books.

I like paperback books. I like to carry on around with me. I have an iPhone 7 plus, which is kind of like works really well in cargo pockets. I carry like computer chargers, cables. They're just like, you know, efficient. Why people care about that so much that I can't tell you. I don't know either, but it's somewhat your Batman utility belt.

Yeah, you just can carry a lot of stuff. Okay, so moving back to blitzscaling and the scaling. You know, you and I have talked a bunch about what are the kind of theories of what makes Silicon Valley unique is this networks of talent and networks of practice in order to scale things quickly. And some of that is to actually build a product that actually goes, you know, fairly global pretty quickly. Is there anything in the...

theories that I've been doing that you think I currently have a hole in? Because you're familiar with the whole range. Is there anything that you would critique the current blitzscaling theory? Well, I certainly agree incredibly strongly that the magic of Silicon Valley is the dense network of people that have this knowledge, these connections, the willingness to help for free. And just all of you know, the network is so dense that all

the different pieces you need of which there are a lot to blitzscale are all together. And if I disagree with anything, it would be how quickly that will spread outside of Silicon Valley. I think it may happen relatively quickly. So there's still a question of how long, there's still a question of how long does Silicon Valley remain the absolute dominant force in startups. And I think at this point, a lot of that knowledge and talent and people and capital and cultural mindshare and whatever is seeping out in a way that I think is good. And so I don't know if it's against the theory, but it would at least suggest a relative weakening of Silicon Valley.

So let's do one more version of this because I think it's useful. So the central theory is to say actually, in fact, part of what Silicon Valley itself has is network effects, where it's network effects of the talent, network effects. of knowledge sharing, network effects of company and business formation. And so, therefore, creating another Silicon Valley or other Silicon Valley is actually going to be super difficult because you need to have that network effect density in order to make it happen. And your counter theory is actually, in fact, that the networks are actually being built

in those places because the culture of entrepreneurship is spreading. Yes. Or that they, yeah, I think it's just spreading. And do you think that the question of like scale talent and ability to kind of play the scale games is sufficiently spreading? Well, I think if you like look at Beijing, it's spreading there. Yeah. Although actually China is its own case. There's blitzkailing in Silicon Valley.

There's blitzkailing in China. Maybe L.A. is more interesting case. L.A. is not Silicon Valley. It feels like one of the things I've always said that makes Silicon Valley work is that startups are the number one thing. In New York, it's finance, in DC, and politics. In L.A., it's been media. And it's still definitely not startups, but it's interesting that startups,

there's a number of startups in L.A., snap most probably, but others that are doing really well. In fact, I bet there's more billion-plus dollar companies in the last few years than New York, or at least more total market cap. And it's not, that is, L.A. has not been traditionally thought of as a hot spot for startups at all, at all. And yet somehow while everyone was talking about New York is the second Silicon Valley, I think there's more evidence about in other cities, L.A., Seattle.

And I think that's kind of an interesting example of where it was close enough, or it is close enough that people fly back and forth all the time, they move, you can get people to move from Silicon Valley down to L.A. And at this point, I'd say you have that, whatever that is, that density of network in talent and capital and knowledge and everything else in LA. And that happened relatively quickly. Actually, that part of the network extension, because when I think about how to build more Silicon Valley, it's the connectivity of Silicon Valley, which is one of the things I think YC does so well. And that's actually part of how you get it

to spread. For sure. So I'm going to go to Lightning Round unless there's anything else. something that's in your pocket beside your phone. Very often nothing, honestly. I have been trying to evolve down to just a phone. I still carry, like, one credit card and, like, a driver's license sometimes, but very often nothing but a phone. Artificial intelligence filled you with hope or dread, pick one. Hope.

Your favorite place to think big. I'm pretty happy on any hike. I don't think big in an office very well. Although sometimes, I guess I look at the biggest ideas in the last few years, my office at home works. I think I managed to get the feeling of a good, and getting the feeling of a good office down is really important for good thought. And I think I finally managed to do it at my house.

And I think people get this wrong all the time. Like, what you actually want is a small. This is a famous, I think it's a Da Vinci observation, but what you actually want is like a small office with really good natural light and, you know, comfortable chairs. And I finally got that. But I'm a big hiker, and I like being out by myself or with friends, but way away from, like, any structures.

I'm just beginning because we moved headquarters at LinkedIn to actually condition the office I want, and it's going to have a lot of custom wood when I get there. It's not there yet when I do. I'll have you come over, but it's to give it the tactile feel. I saw what I thought recently was the perfect office, which was a Japanese tea house, basically,

with beautiful custom wood by itself in a forest. It's a glass, wood, a couch, a table. That was it. Perhaps post-ranch in. All right. What job would you take if you were out of work tomorrow? I would just sleep for a while if I were out of work tomorrow and do not think about work. But, you know, a few months later, actually I would go study physics.

And then I would get some job related to that, probably. I don't know. One object from your childhood that you could never throw away. A lot of those. Probably photographs, honestly. but I still have my like original computer and like the stuffed animal I slept with when I was a kid and I don't think I could throw away those either.

What's one question no one has ever asked you? I don't know if there's an interesting one. What's the one outstanding talented job candidate that got away? Someone that I was going to hire. Well in our line of work it's more like that you know, most of the people, the job candidates are founders that we didn't fund. And that's actually what keeps me up at night. It's not even the famous ones.

Like, we had not many times, but there have been a few times where we funded someone and they went on to do really well. But that's not the interesting failure mode to me. Interesting failure mode to me is people that we said no to that would have been the next Zuckerberg or Chesa or whatever. And there are three or four people over the years that I have turned down. at interviews that didn't go on to do anything successful. But it still eats at me, and I'm pretty sure I was wrong in a big way.

The one thing you wish your phone could do? I wish there was sufficiently good AI on my phone, that it would only interrupt me for things I needed to see. And I could say, and also that it would decide if reading something would make me more or less happy, which probably would mean it would never show me anything on Twitter. That would be an easy one. But there's a lot of other stuff where I think,

like, I would love it if it would curate what I saw better. Favorite app? Gmail probably. Well, actually, the new Gmail app sucks, the old Gmail app, I would say. All-time favorite book? Oh, that's a hard one. Well, I can't pick one all-time favorite book. My favorite book of the year is a book called Pandemonium,

which is basically a C. the subtitle is something like the coming of the machine age from 1650 to 1850 and it was just what it was like when people who had never seen a machine before had to think about the future of automation and incredible read

Best movie ever I'm not a huge movie person I love all the Star Wars movies I love Dark Night I love the American Beauty to pick something that is not a sci-fi movie. I'm not a huge movie launcher.

Messy desk or a clean desk? I don't really do a desk. I work on a couch most of the time. No desk. Is there a single poem or passage from literature that you've memorized? I've memorized a lot of poems. A lot of literature. You know, one image that I love is relevant to this conversation.

There's a poem called Ozymandius by Shelley, and the image is one that I think I often share with founders of a certain type, and it has been very effective in correcting bad behavior, so I will use that one. In the desert is this wreckage of a statue, this giant statue, of a king that is now fallen in its ruins, and it's all by itself just in sand. and the inscription that's still visible in statue is,

my name is Ozymandius, King of Kings, look on my works, you mighty in despair. And there are a lot of startup founders who in the moment feel like they're the most important thing ever in the world. Their company is going to be incredible. These are usually founders that have accomplished nothing, and that have this feeling of like, forever,

I'm going to be the most important person, my company is going to be the most important company, and we're going to be this huge success, and, you know, I'm king of kings, look at my works and despair. And what eventually happens to everyone is that you end up in ruins, but startups often do that pretty quickly

and a pretty quick change of fortunes. And I think keeping that image of, like, someday, any statement you'll make like that is someday going to be in a collapsed statue in a desert has been an effective mental image for startup founders that get way too arrogant. That's great. Actually, I may use it too. The single greatest embarrassment of your career.

I can't pick one. I mean, there's so many. One of the things that is good and bad about investing in startups is deeply humbling. People forget that every time you make an investment, you do it with a belief that that company is going to be successful, or at least that you're paying for positive expected value. and so many investments that I have been so confident about have utterly failed, and I was so completely wrong.

That doesn't actually bother me that much. The painful one is the other kind of era where you're like, you know, this company's going to suck, and then it goes on to be really successful. And the most painful version of that, of all for me, is when I'm already an investor in the company, they asked me to put more money to a future round, and I say the price is too high, and I'm not going to do it.

And that has happened many, many times. But those are the most embarrassing errors to me. What are the techniques that you teach why C founders on triage? Because one of the key things is to let certain fires burn while you're solving others, because startups are inherently dead at the beginning. Right. And what do you teach them about, you know, kind of how do you go, okay, it's totally fine

to let those fires burn while you're working on the other ones. So I think I like to draw the matrix of urgent, not urgent, important, not important. And everyone gets

urgent, important first and non-urgent, not important last, but people screw up the other two. And so I like to talk about you know, the that you have to let the urgent and not important things

not happen or get someone else to do them. I think a lot of founders find someone on their team relatively early on that they rely on to just like take care of that stuff and never think about it. So I think that's one important frame of mind. I think another one is

you only have to do really well at a few things to do well. And you can do badly a lot of things. But if you don't do well at those few things, it doesn't matter how well you do everything else. And so what you don't want to be is the founder that gets everything but building a great product perfect. And so you just have to ruthlessly prioritize,

is this going to do it or not? And you want to be aware of the areas where people likely get tricked. So like going to conferences, going to Mecker Island or something, these things end up being huge time wasters. But they feel they're fun and they superficially feel like important networking or something. So we try to talk to people about hear the normal tricks founders fall for that are bad uses

of time. Great. Well, thanks, Sam. As always, a huge pleasure. And thanks for talking with us. Thank you. All right. Thanks for listening.

So as always, you can see the transcript at blog. combinator.com. And if you'd like to hear more from Masters of Scale, you can find them at masters of scale.com. See you next time.