Y Combinator Startup Podcast - Advantages Of A First-Time Founder

Episode Date: February 17, 2023

Step inside the Group Partner Lounge to hear Y Combinator Group Partners Harj Taggar, Michael Seibel and Brad Flora discuss the advantages of being a first-time founder and the instances when it pays to have experience founding a startup in the past. Apply to Y Combinator: https://www.ycombinator.com/apply/ Work at a Startup: https://www.workatastartup.com/

First-time founders can actually take more risk on the ideas that they pick because they don't have other startup friends or they don't care as much. They're just working on stuff they find interesting. I love that. They have nobody to impress. Yeah, basically. Hello, this is Michael with Harge and Brad. Welcome to Inside the Group Partner Lounge. As YC group partners, we often find ourselves repeating the same advice over and over again to startup founders we work with. Before COVID, we'd often gather together in the Group Partner Lounge at the YC office.

to try to figure out why this was the case and how we could help startups figure it out faster. Today we're going to talk about all of the advantages that first-time founders have over second-time founders. Bradenhardt, set this up. So we talk to a lot of founders where it's the first time they've ever started their business, and some of you listening at home, this might be working on your first startup ever, or you're thinking about working on your first startup. And one thing we see is founders love to read all the tech news. They love to read VC Twitter.

They're out there consuming all of this content information about the startup world. Oftentimes, they get pretty psyched out by the fact that a lot of the coverage is about repeat founders, people that have sold companies, they've IPOed companies, they've built huge companies, had huge successes. And now they are building some new company, maybe in the space that the founder is thinking about starting a business in. And it can be really discouraging. How the heck are you going to compete with them, considering all the success. they've had. So, Harsh, one of the things that you mentioned before we started recording is the idea

that as a second time founder, you had access to a lot of expert opinions. Now on the surface, that would seem incredibly helpful when creating a company. But tell us why counterintuitively maybe that's not exactly what you want. Yeah, I think as a second time founder, you both have access to more people, like more smart people who know a lot about startups and you've had a lot more of your own experiences. And so every time you have a decision to make, you just have a lot more data to check the decision against. And I think there are obvious reasons that's great. Having had the experience of choosing a startup idea or running a startup idea by your smart startup friends or mentors

has obvious advantages. But it can also just slow you down. I think this is something I felt myself is that it took me much longer to pick the idea or commit to working on an idea from my second startup than the first startup. And I think it's because we had so many people we could run the idea by and get feedback and opinions from. And then digesting all of that feedback and thoughtful ideas can actually just mean you move slower. And let's pick it what that means. Like when you're in that scenario, you're not talking to your potential customers and your users there, right? You're talking to all these other startup people that you've made friends with over the course of doing your first startup. I remember I was at a camp YC once and I had this idea

and I pitched it to 10 people and they all told me it was terrible. So I didn't work on it. But had I gone and talked to actual customers for it, maybe they could have helped me like find a better version of that idea that actually would have solved the real problem for them. I also think this concept of expert is a really interesting concept, right? Because I'm so happy you said this idea, of separating the expert from the user, because there are so many people who are really smart about startups, but who don't really have the problem you're trying to solve, and really can't give you great advice, to be honest,

but they will give you advice that sounds very expert. And then there's other people who are users who might not be able to tell you whether this can be a billion dollar company, but they can easily tell you they have the problem. And I think as a second time founder, it's just as hard to talk to your users, but it's 10 times easier talk to experts.

So almost by extension, it's like even harder to talk to your users. And it's a, it's a tricky thing. Another area that's interesting is this idea of picking your market, right? Like, oh, you know, like I don't want to get caught by the trap of having us building in a small market. God forbid, I build a small company that only makes $100 million in revenue. But I see so many founders who don't understand that markets. can grow or that you can move to an adjacent market? You know, it's like, oh, no, I have to be in the trillion-dollar energy market.

That's the only place that can contain my ambition. Have you all seen some of this disadvantage for second-time founders? I call this like the dinner party or the drinks problem. It's that when you're a second-time founder, you start optimizing for how impressive what you're working on sounds at like dinner parties when you go for drinks and people. And so it's like, yes, I'm working on like revolutionizing energy. blah blah, right? But like you don't want to sound like you're working on some dumb idea like air bed and breakfast as like an example, right? And so like it actually is all like you know,

like it's come 2011, 2012, like if you were pitching the idea for Coinbase, like it's hard to do that as like a second time founder because it would just seem so dumb. And so I think that like first right, like first time founders can actually take more risk on the ideas that they pick because they don't they don't have other startup friends. or they don't care as much. They're just working on stuff they find interesting. I love that. They have nobody to impress.

Yeah, basically. Oh, man. Now, what about this concept of, like, the novel? Like, it's, as a first-time founder, you experienced so many things for the first time, which can be so energizing. You know, second-time founder is, like, you know, one of the things we've been saying

is, like, the lows are just as low, but the highs aren't as high. Like, how have you guys seen that? Well, with my company, I know that that first time we got anyone to pay us anything for anything was incredible. And we were dancing around the apartment, right? Or, you know, cracking beers left and right. Like, what a rush.

And yet, you know, the next day we didn't feel that way. It was just more, more revenue. And so, yeah, if you take away all those fun little moments, where do you find the motivation to go further and to push harder? It's got to come from somewhere else. Yeah, that one's also fun because you know the lows are going to suck, right? So it's actually, it hits you on both sides. Like, you know that there are going to be moments you hate your life as second time founder.

But you also know, like the first amazing hire would just feel like, yeah, that's one of the first 100 people I have to hire great. And then 1,000 people. You know, it's like none of these. moments kind of stick as much anymore in your head. And that can be demoralizing. I think one of the other tricky advantage's first-time founders is that like because they're going to have harder times typically raising money or hiring employees, they tend to have to innovate more. Like they tend to have to, they're constrained into building something good, whereas like the lack of constraints so often lead people astray. Yeah, I think that's a common one. What's the phrase?

like constraints breed creativity like i definitely see that especially with early stage startups because yeah as a second time founder all of these things play in again like you can use you have an easier time raising funding so you don't need to have the product be necessarily as amazing to raise your first round um you often have other people who are willing to try it out and be beta users or testers or whatever so it can you know your your friends and family network is is potentially larger whereas a first time founder you can get press to write about what you're launching as well. Right. Whereas the first time founder, the only way you're getting your first few users is having

a really great product and being really great at selling it. I think you can just get a little bit lazy on that front as a second time founder. Yeah. And then the other one is this idea of honesty. Like, Brad, you think it's second time founder it's really possible to get honest feedback from your investors or friends or things like that or did people have a hard time being honest with you? Yeah, I think it's harder. When you're a first time founder, nobody cares about you because they don't have any sort of relationship with you yet. You know, you talk to some investor and you're just the product and they tell you if they want to invest or not. But then after you've been through a process with people and you've

built some sort of rapport and relationship, it's now costly to tell them what you really think about what they're working on. You know, it basically, it, it, just comes from, it's just a continuation of the first startup being carried through into the second one and not having like a clean break and resetting all those relationships. But yeah, I definitely just, it's really hard to get, you know, real true feedback from people. Yeah, it's just part of the, the broader thing that first I founders often don't get is that when you're getting feedback on your idea from investors in particular, like they're not, their pure motivation is not to just give you their highest quality feedback they possibly can.

Like, they're often playing a different game, which is how do they set themselves up to get referrals to other good startups in the future? And it's like when you're a second time founder, the investors know that you know more people. They don't want to give you bad feedback, right? They're incentivized to tell you nice things so that you'll continue being nice to them. Whereas when you're a first time founder, you're less useful to an investor in that way. So they kind of can be a little bit more like just direct with what they think about you. They can treat you without the kid gloves or they don't wrap you up in cotton wool as much.

Yeah, what I've also seen for second time founders is that oftentimes for an investor, it's more of a catch. It like helps you build your reputation in your firm or it helps you get the deal approved. And like so oftentimes there's like internal political reasons why you might be getting funded that have like nothing to do with your product being great. or your users loving you, you know? And you're never told that stuff, right? Like, it's just kind of happening in the background. And you don't really know that you're being graded on a different front. Whereas, like you said, when you're first time founder, you're nobody, nobody care.

I'll say, you find that eventually, though. It's a little bit like taking out debt, honestly, where it's like maybe early on as a second time founder, like maybe the seed round's easier, maybe even a series A is easy. easier. But the later, the longer you work in your startup for, the more people just care about the results. And like, sooner or later, if you don't have a product, if it doesn't actually have product market fit, if you don't have customers who love you and will do a reference course saying how great your product is, like the whole thing falls down. And so I think that's another thing often. We can see with like a first time founder, like they never had it easy. So

they just have to learn how to operate like at a certain like level of execution from day one. Whereas the second time founder, you sometimes it's a little bit like you're like driving on like autopilot or something and then it like the autopilot gets shut off. And now you're like, oh crap. Like like I have to actually figure out like how to get like a great product shipped. I have to like actually fix all these problems because now I'm not going to be able to raise investment or get to like the next revenue milestone unless I have something that's really good. It's funny. I love that analogy because in that analogy when the autopilot gets shut off, you're like going 120 miles an hour down like a curvy mountain road, right?

And then it's like, well, I thought everything was good, though. The computer was driving. I think somebody going great. I'm the best driver. Yeah. Whereas at least it's the first time started, you start on like some suburban road going two miles an hour. Oh, man. All right.

Well, let's be clear, though. Like, someone should play devil's advocate because certainly there are some events. to being second time founder. What do you all think is like the first kind of big boy here on a massive advantage being a second time founder? Well, I think if you did your first startup and got some semblance of financial independence from it, then you don't carry the same like massive weight of asking yourself constantly, how the heck am I going to survive, eat, sleep, whatever.

that first-time founders often carry with them, right? We work with a lot of these first-time founders. We know lots of first-time founders. That desperation in their eyes, which is a great thing. Sometimes it helps drive them forward also comes with a cost of just being stressed out all the time. And it can lead to some short-term thinking

in terms of what to work on, how to sell your product, what go-to-market strategy. I see a lot of companies that just want to do product-led growth, for example, because they think that'll get them their first revenue, when really they should be selling enterprise, which might take a while,

but actually be the fit for their business, for example. Whereas if you have some financial independence, like a lot of second-time founders, you can think bigger and actually play out the implications of the business that you're going after and try to build something that's optimized to get big from day one. Yeah, you know, and that's a big one when you want to have family or want to own a house, just like, you know,

being able to not, if you're successful, as you mentioned, and using that money to free your life of distractions can be a big advantage. You can up the childcare. You can up the quality of the home, the quality of the space you live in, and so on and so forth. Like for sure, that's one. What do you think, Arjee? Another devil's advocate position here on why second time advantages founders have an advantage? Another very specific type of startup that seems to be suited to second time founders,

are capital-intensive businesses. And by that, I mean, you know, any start-up where, like, more money raised or just more money is a strategic advantage, second-time founders who are good at raising money can benefit, right? So let's make some examples around it. Like, there's famous ones, like Elon Musk, probably the most famous one, right? Like, he started, I think it was Zip 2 of something, then PayPal, but, you know, now SpaceX and Tesla. But from our own orbit, like, we have examples. I speak a personal one, a friend and former roommate in mine, Eric Wu is a YC founder who started a company called Movity.

It's acquired by Trulia pretty early on, but like it was a good exit for him. And then he started Open Door, right? Open Door's now a public company worth billions of dollars. And I think Open Doors are a company. He's raised like well over a billion dollars for that company. And I think that was much easier for him to do as a second time founder. Well, but people probably won't know. Why is Open Door so capital intensive?

Oh, because they're actually buying and selling houses. They're like, yeah, it can be more intending to have it intended. Like, they actually go out and just buy like tens of thousands of homes across America. So, yeah, definitely helps. Definitely helps to have a lot of money. Good software, not sufficient. Software plus money. Yeah, oh, man.

Another class example is Blake from Boom, who started a software company and sold it and then decided to make, you know, a supersonic jet company, right? and another example of a company that will take a decade to make the first flight and at least. And that's like on an aggressive timeframe. That would be a massive accomplishment. And so, you know, yeah, being able to say I've already exited, I've already given my investors cash back.

Like that's really helpful when you have to build a Sousa supersonic jet company. Any other examples here, Brad? I mean, I think you can look at Cruise, for example. and you know, you can look at like what Max has done, Max Levchen, with all the different companies that he's built. And each one just gets more and more and more and more ambitious. And it's just something you can do more as a second-time founder. I think what I will say, though, is that so many founders are confused about whether they're building a business where money is the real advantage. Like, I would certainly say that's the minority of businesses here.

You know, when we describe what's going on, we have like, like large physical, like our examples are large physical things, right? Rockets, cars, self-driving cars, and hypersonic planes, right? So large physical things clearly need a lot of money. Also lending, right? You know, Brex's second time founders, they extend credit to startups. Max Levkin with the firm extending credit. So it's like lending and big physical things definitely require a lot of money.

It's not obvious to me that there are many other business categories that require a lot of money where cash is the advantage. So if you're doing one of those two, it might make sense. Yeah. And if you're one of the many people listening at home was thinking about building a software company, like it's not going to help the incumbents, right? Having all this access to capital is not going to do it. You go out and talk to your users. That's what's going to make the difference. In fact, it'll hurt them, right? Because they'll spend it on, instead of spending it on, you know, rockets and stuff, they'll spend it on too many employees. And then, yeah, we'll see. We all know what happened then.

So maybe the last area is when you're building in a space you know really well. You know, Harge, you know Parker Conrad well. Like you've seen him build two companies in the same space. What are your thoughts on this? Yeah, Parker is a great example, right? Like you built Xenifitz, which was worth like $4 billion at its peak. And then like he started rippling, which is now worth like over $10 billion. And I think if you sort of, if you ask him to sort of explain that a little bit,

he'll say that the experience of working on Zenefits, gave him really deep domain expertise around how to build high quality HR software and sell it. And he used all that expertise to build something even bigger with Ripling. He's clearly a world-class domain expert in how to build effective HR software. And I've looked it up. The Workday founders very similar. One of the Workday founders was a CEO of PeopleSoft.

And then he saw how the world was moving to the cloud. And he decided to move along with it. So there's definitely advantage if you've, got like intense deep knowledge about a space. And by the way, and you're not sick of that space and you want to go back to it for another couple decades. But Michael, that raises the other point I want to make about this, which is that it's so common to talk to a second time founder and they just hate the market they were just working in. And they, oh, like, oh, never do that one of those startups. It's the worst. Whatever the market is, if they did a startup in it, it's terrible.

And yet we're highlighting that when they go back, that's one of the times when it can be really good. Another really important point about that, though, Brad, is that it's why it's really important if you're a first time founder and you get feedback on your idea from a founder who had tried the idea before and failed is you have to be very careful. Because on the one hand, there's probably interesting learning for you there. But the other hand, you have to remember that sometimes when founders don't succeed in a market, they end up, hating that market and they kind of don't want anyone to succeed because otherwise it's sort of like hurts their own self image right like and so this is something I notice I always I often tell yC founders to talk to other yC founders that have worked on similar things before and maybe they've moved on but the trick is to listen to just the facts of what they did and what happened not what

they think about it because we're all so deluded about why things happened or what they mean or the significance of them that it's just not useful signal to founders that are building a new business. So if we're going to wrap this up, for the person who is thinking about being a first-time founder but is worried that they don't have the advantages, what's the kind of parting message we want to give them? You're actually well situated to build a unique novel business that delivers real value to your users. And a lot of the glamour that comes with being a repeat founder is a trap. And they have their own problems that they're working through.

And it's not going to help them. So don't be discouraged by that. Understand that you can and should take your swing. Yeah, I'd say to first-time founders, just don't get sucked into Grassless Greener Syndrome. I don't think that just because you've got a competitor that's started by a founder who's on their second or third company that they're going to crush you. As we speak from our own personal perspectives here, often those same second third-time founders

are wishing that they have the benefits and advantages of the first-time founder. And, you know, I think we would be remiss without adding that, you know, some of the biggest companies ever, Google, Facebook, Microsoft, first-time founders. So you're in good company as a first-time founder. Always remember that. You know, your company is maybe the best founders who ever existed, Jeff Bezos, you know. So with that, good luck out there.

See you guys later. See you.