Paul Graham: The Future of Web Startups
(This essay consists of abstracts from the FOWA report held in October 2007)
Something incredible is happening right now. New companies (start-ups) go through the same stages of transformation as technologies when they are cheaper.
We are constantly confronted with this pattern when it comes to technology. Initially, there is some kind of device that costs decent money and is released in limited quantities. Then someone understands how it can be produced at a lower cost, a huge number of similar devices appear, and as a result, they are used for other, new purposes.
')
Take computers, for example. When I was small, computers were called big expensive cars, produced by the piece. Now computers - the subject of mass consumption. Yes, and we can arrange them almost anywhere.
This pattern is not one hundred years, as evidenced by the majority of the turning points in the history of the economy: steel became cheaper in the 1850s and production capacity in the 1780s. It happened with the cloth production in the thirteenth century, which gave rise to welfare, which later brought the Renaissance. Yes, and agriculture at the time, too, was an excellent example of such a model.
Today, this pattern is stimulated by startups in relation to themselves. Now the launch of a new web-site is so cheap that their number will increase significantly in the near future. And given the preservation of the laws, changes can be truly dramatic
1. A huge number of startups
Here is my first prediction about the future of startups: there will be a lot of them. When the launch of the company flew a lot of money, you had to get the consent of the investors. Now it is only a matter of courage.
And even this threshold is gradually lowered, as people see how others risk and survive. Some creators of the companies of the last wave, which we financed, said that at first they thought about it, but were not completely sure and therefore simply worked. And only after the stories of friends who took a chance, they decided to do the same.
Starting a startup is difficult, but working from 9 am to 5 pm is also not sugar, and sometimes it is hard at all. When you start a company, you have a lot of worries, but there is no feeling that life flies past you, as it happens when working in large companies. In addition, launching a startup, you can earn much more money.
Such companies are developing at the speed of sound, so that their number can reach beyond the limits.
Now everyone is accustomed to thinking about working in a company, but on the scale of historical epochs this addiction took quite a short time. Only 2-3 generations ago, for the population of now industrialized countries, it was more natural to engage in agriculture. Now it may seem strange that people want to change the usual ways of making money, although in fact it will be strange if they do not.
2. Standardization
For a significant reduction in price always comes standardization. When you do something in large volumes, then strive to standardize everything that does not need to be changed.
In Y Combinator, we still have only four people, so we are trying to standardize everything that is possible. We could hire more workers, but first we need to figure out how to expand the investment.
We often ask startups to quickly release a mini-version, and then let users' needs determine what to do next. In essence, allow the market to form a product. We did it ourselves. Now we consider ways to work with a large number of startups as a kind of software. Sometimes this is literally software, such as Hacker News and our application system.
One of the main points on which we work on standardization is the investment conditions. After all, until now, negotiations on investment conditions are conducted individually, which is a problem for the founders: it takes more time to earn money, and in this case taxes are higher. For each transaction, we use the same set of documents, which allowed us to develop a common “angelic” form that can be used by startups in the future.
Some investors will offer their own terms. In the foreseeable future, Category A contracts will become customary, for which profits range from a million dollars and more. And standardized agreements, in my opinion, will be supported by general transactions. Anyway, the “business angel” (investor) who wants to include several difficult conditions in the contract is not the one you need.
3. New attitude to takeover
The next thing I want to standardize is the process of absorption. As the number of startups increases, large companies will begin to develop standardized procedures through which takeover will bring in a little more work than hiring workers.
In this area, as in many others, the leader is Google. They are buying up a huge number of small companies - of course, that only a part of the purchased ones is announced. And it’s Google that knows how to do it most effectively.
They decided for themselves the problem of how to relate to the process of absorption. Most companies consider absorption as a sign of their own insolvency. They spend it, because they have to, while maintaining the feeling that they should not have been - after all, large companies have their own programmers who can create everything they need.
Google should save the company from this attitude. Now the best programmers are working in this tech company. If they do not have problems with the acquisition of companies, then others should have even less. No matter how many Google makes acquisitions, Microsoft tends to make ten times more.
The reason Google has no such problems is that they know firsthand about the level of people who thus fall under their auspices. Larry and Sergey launched Google after they were unable to sell their idea of ​​search engines to anyone. They tried to sell it to large companies, so they may be well acquainted with those who are sitting opposite them in this conference room.
4. Possible risky strategies
Risk is always related to reward. To get really big returns, sometimes you should act like crazy, for example, launch a new search engine in 1998 or refuse to sell your company for a billion dollars.
Traditionally, the problem is venture capital investment. The founders and investors usually have different ideas about risk. If investors tend to like the 50/50 ratio in risk strategy and benefits, then the founders (who do not have a fairly successful example before our eyes) try to be more conservative with this proportion.
If it is easier to start a startup, the conflict can be exhausted, since the young founders take the risk more easily, and therefore more startups can run during their career. When the founders are able to launch a large number of startups, they begin to look at circumstances in the same optimistic light as investors. Because risky strategies are used, respectively, and the income can be very large.
5. Young meticulous founders
Since startup start-ups will become cheaper, more and more people will be able to base them, just as in the case of computers: many people could afford to buy them as soon as they became cheaper after creating microprocessors. Accordingly, now the company can start the younger and more technically competent founders than before.
Earlier, when starting a company was more expensive, you had to convince investors of the expediency of your actions. Yes, and to start required quite certain skills. For example, if investors were professional experts, they would require these skills from you. But, unfortunately, experts are rare among investors. I know about this, because I see what a huge amount of work is being done to make money, and the sales volume is always inversely proportional to the opinion of buyers.
Fortunately, since the launch of companies fell significantly, another way of convincing investors appeared. Instead of collecting capitalists to demonstrate a business plan in an attempt to convince them to invest in it, you can issue a small batch of your goods with money from a bank or a loving uncle and present the result instead of a business plan. Then you do not have to look calm and confident, but just point to the fruits of your labor.
This kind of investor persuasion is more suitable for hackers, since they often represent only a part of their developments, thus saving themselves from deception.
6. Startup concentration areas will retain their positions.
It may seem that once launching a startup does not cost much, it will mean the end of such places of concentration of startups like Silicon Valley. If all that is needed to start up is to take a loan, then it will be possible to implement it anywhere.
This is partially true, partly not. True, because you can start a startup anywhere. However, to make it successful, you have to tinker. Success will be given to you with sweat and blood. But more likely to succeed in a place where there are many startups.
I have been thinking about this issue for a long time, and it seems to me that the cheaper start-ups start up, the more they will value their concentration. Their value, like the centers of any type of business, lies in a very old-fashioned custom — personal contacts. No technology in the near future will be able to replace a chance meeting with a university friend, who will tell you how to fix problems that prevented you all weekend, or a visit to a friend’s company that ended up talking to one of its investors.
The question of whether to be in a place of concentration of startups is equivalent to the question of whether to accept external investment. The question is not whether you need it, but what advantages it will give you. Because everything that brings an advantage will play into the hands of your competitors if they use it, but you do not. So, if someone tells you that “we do not need to be in Silicon Valley,” the very use of the word “need” is a sign that they misunderstand the situation.
And if places of concentration of startups are powerful magnets, then the fall in prices for launching startups is a decrease in the size of the metal particles they attract. Now a startup can run two 22-year-old guys, and he can develop much faster than the same with a staff of 10 people, half of whom have children.
We know this because we, at Y Combinator, carried out the relocation of people, and this was not a particular problem. The advantage of being able to work together face-to-face for three months outweighs the inconvenience of moving. Ask anyone who has worked like this.
The mobility of companies at the initial stage means that the initial financing is a national business. One of the most common questions that people ask us in their letters is whether we can help organize the “Y Combinator” clone in their region. But such a company is unlikely to work. Initial financing is not regional, as well as large research institutes.
Or maybe funding is provided not only at the national, but also at the international level? Interest Ask. There are signs that this is true. We have dealt with several startup founders (not Americans), and they are trying to work well, because they are all so focused on success that they can even move to another country to achieve their goal.
With the expansion of the geography of startups, it will become more difficult to form a new "Silicon Valley". The best representative from a startup will have a chance to get to the real Silicon Valley, and in its local version will remain only those who did not have enough energy to move.
This is by no means beyond the limits of one state. We are talking about the competition of cities, not countries. Similarly, it happens, for example, in Germany.
7. Requires more qualified experts
If the number of startups grows significantly, then people whose job it is to evaluate them should become more qualified. Especially, in my opinion, this applies to investors and purchasing companies. At the moment, we receive about 1,000 applications for opening a startup per year. And what will happen when their number reaches 10,000?
Anxious. But we will find a solution to this problem. Have to find. You may have to write some program for this, but fortunately we can do it.
Buyers will also have to become more competent when choosing the best. In general, they do a better job than investors, because they choose later when there are results of work that can be compared. But even in the most favorable case, when companies are carefully selected, upon purchase there is a huge amount of unnecessary friction.
I think that buyers, most likely, have special people at their disposal who can both recognize a good product and make a deal. At the moment, these two functions are separated. Developers often find promising startups. If someone powerful enough wants to buy them, then he transfers the right to negotiate to these developers. Of course, it would be better if someone with a technical education and at least an approximate vision of what needs to be achieved dealt with these two matters. Perhaps in the future, large companies will also have a vice president for engineering, responsible for internal technologies, and an expert in the implementation of such technologies from outside.
At the moment, there is no one among the big companies that would have difficulty in connection with the purchase of a $ 200 million startup company, which earlier they could have bought for $ 20 million. Although problems in this regard, at least someone, but should arise.
8. University will change
If the best hackers run their own companies right after college, instead of going to work, it is logical that this will change everything that happens in college. Most of these changes will be for the better. I think that the experience gained in college is distorted by the expectation of the assessment that a potential employer will later give you.
One of the changes will concern the time limits of the expression “after college”: not after its actual completion, but after it was abandoned. Why do you need a degree if you run your own company? Of course, we do not welcome the launch of a startup while studying in college, but the best of the founders, of course, were capable of it. Some of the most successful companies that we financed were founded by students.
I grew up at a time when an advanced degree seemed really important, so it’s not for me to say this, and yet — there’s nothing magic about it. There is nothing miraculously transformed after you pass the last exam. The degree is important only for the administration of large organizations. Of course, the lack of a degree can affect your life — without it, it is difficult to enroll in a magistracy or get a work visa in the US — but the farther, the less often, it is required.
With a decrease in interest in obtaining a degree, interest in college will also gradually decline. The startup you start is estimated by users who care that you are finished. Therefore, in the world of start-ups, elite universities will play less the role of "gatekeepers". In the US, outraged by the fact that the children of wealthy parents are easily enrolled in colleges, threatens to grow into a national scandal. But the solution to this problem may not consist in reforming, but in circumventing the college system. In the world of technology, we are accustomed to the principle of solution: not to “beat” officials, but to redefine a problem in such a way that it becomes insignificant.
The greatest value of universities is not their big name or even classes, but the people you encounter. If a startup startup becomes common after college, students can try to get the most out of it. Instead of focusing on internships in companies where they would like to work, students may be more willing to focus on interacting with other students as potential founding partners.
However, what students do in the classroom will also change. They will not try to get a higher score to impress a future employer, but they will try to really learn something. And these are really significant changes.
9. Great competition
If it's easy for you to start a startup, then your competitors can do the same thing just as easily. This fact does not in any way detract from the advantages of cheaper launches. You do not play a zero-sum game. The number of startups that can become successful is not fixed.
In fact, I do not think that there is any limit on the number of successful startups. , , . , , .
, , , , . , , , .
10.
, , , . , , .
, . , , - . , , Microsoft -. : - , , . .
- . , , , . , .
– , . , . , . , - , , . , , .
, , . , , , . , , , . — .
, . , . , «Y Combinator»: .
The startup process for startups is now similar to the plumbing system in an old house. Tubes are narrow and tortuous, leaks in each connection. In the future, this will all be replaced by one big pipe. Water will still flow from point A to point B, but the process will go faster and without risk of leakage.
. . – , , . , , , , , , . , . . -.
, Carson Systems – , .
: RU-ru EN-en .
Something incredible is happening right now. New companies (start-ups) go through the same stages of transformation as technologies when they are cheaper.
We are constantly confronted with this pattern when it comes to technology. Initially, there is some kind of device that costs decent money and is released in limited quantities. Then someone understands how it can be produced at a lower cost, a huge number of similar devices appear, and as a result, they are used for other, new purposes.
')
Take computers, for example. When I was small, computers were called big expensive cars, produced by the piece. Now computers - the subject of mass consumption. Yes, and we can arrange them almost anywhere.
This pattern is not one hundred years, as evidenced by the majority of the turning points in the history of the economy: steel became cheaper in the 1850s and production capacity in the 1780s. It happened with the cloth production in the thirteenth century, which gave rise to welfare, which later brought the Renaissance. Yes, and agriculture at the time, too, was an excellent example of such a model.
Today, this pattern is stimulated by startups in relation to themselves. Now the launch of a new web-site is so cheap that their number will increase significantly in the near future. And given the preservation of the laws, changes can be truly dramatic
1. A huge number of startups
Here is my first prediction about the future of startups: there will be a lot of them. When the launch of the company flew a lot of money, you had to get the consent of the investors. Now it is only a matter of courage.
And even this threshold is gradually lowered, as people see how others risk and survive. Some creators of the companies of the last wave, which we financed, said that at first they thought about it, but were not completely sure and therefore simply worked. And only after the stories of friends who took a chance, they decided to do the same.
Starting a startup is difficult, but working from 9 am to 5 pm is also not sugar, and sometimes it is hard at all. When you start a company, you have a lot of worries, but there is no feeling that life flies past you, as it happens when working in large companies. In addition, launching a startup, you can earn much more money.
Such companies are developing at the speed of sound, so that their number can reach beyond the limits.
Now everyone is accustomed to thinking about working in a company, but on the scale of historical epochs this addiction took quite a short time. Only 2-3 generations ago, for the population of now industrialized countries, it was more natural to engage in agriculture. Now it may seem strange that people want to change the usual ways of making money, although in fact it will be strange if they do not.
2. Standardization
For a significant reduction in price always comes standardization. When you do something in large volumes, then strive to standardize everything that does not need to be changed.
In Y Combinator, we still have only four people, so we are trying to standardize everything that is possible. We could hire more workers, but first we need to figure out how to expand the investment.
We often ask startups to quickly release a mini-version, and then let users' needs determine what to do next. In essence, allow the market to form a product. We did it ourselves. Now we consider ways to work with a large number of startups as a kind of software. Sometimes this is literally software, such as Hacker News and our application system.
One of the main points on which we work on standardization is the investment conditions. After all, until now, negotiations on investment conditions are conducted individually, which is a problem for the founders: it takes more time to earn money, and in this case taxes are higher. For each transaction, we use the same set of documents, which allowed us to develop a common “angelic” form that can be used by startups in the future.
Some investors will offer their own terms. In the foreseeable future, Category A contracts will become customary, for which profits range from a million dollars and more. And standardized agreements, in my opinion, will be supported by general transactions. Anyway, the “business angel” (investor) who wants to include several difficult conditions in the contract is not the one you need.
3. New attitude to takeover
The next thing I want to standardize is the process of absorption. As the number of startups increases, large companies will begin to develop standardized procedures through which takeover will bring in a little more work than hiring workers.
In this area, as in many others, the leader is Google. They are buying up a huge number of small companies - of course, that only a part of the purchased ones is announced. And it’s Google that knows how to do it most effectively.
They decided for themselves the problem of how to relate to the process of absorption. Most companies consider absorption as a sign of their own insolvency. They spend it, because they have to, while maintaining the feeling that they should not have been - after all, large companies have their own programmers who can create everything they need.
Google should save the company from this attitude. Now the best programmers are working in this tech company. If they do not have problems with the acquisition of companies, then others should have even less. No matter how many Google makes acquisitions, Microsoft tends to make ten times more.
The reason Google has no such problems is that they know firsthand about the level of people who thus fall under their auspices. Larry and Sergey launched Google after they were unable to sell their idea of ​​search engines to anyone. They tried to sell it to large companies, so they may be well acquainted with those who are sitting opposite them in this conference room.
4. Possible risky strategies
Risk is always related to reward. To get really big returns, sometimes you should act like crazy, for example, launch a new search engine in 1998 or refuse to sell your company for a billion dollars.
Traditionally, the problem is venture capital investment. The founders and investors usually have different ideas about risk. If investors tend to like the 50/50 ratio in risk strategy and benefits, then the founders (who do not have a fairly successful example before our eyes) try to be more conservative with this proportion.
If it is easier to start a startup, the conflict can be exhausted, since the young founders take the risk more easily, and therefore more startups can run during their career. When the founders are able to launch a large number of startups, they begin to look at circumstances in the same optimistic light as investors. Because risky strategies are used, respectively, and the income can be very large.
5. Young meticulous founders
Since startup start-ups will become cheaper, more and more people will be able to base them, just as in the case of computers: many people could afford to buy them as soon as they became cheaper after creating microprocessors. Accordingly, now the company can start the younger and more technically competent founders than before.
Earlier, when starting a company was more expensive, you had to convince investors of the expediency of your actions. Yes, and to start required quite certain skills. For example, if investors were professional experts, they would require these skills from you. But, unfortunately, experts are rare among investors. I know about this, because I see what a huge amount of work is being done to make money, and the sales volume is always inversely proportional to the opinion of buyers.
Fortunately, since the launch of companies fell significantly, another way of convincing investors appeared. Instead of collecting capitalists to demonstrate a business plan in an attempt to convince them to invest in it, you can issue a small batch of your goods with money from a bank or a loving uncle and present the result instead of a business plan. Then you do not have to look calm and confident, but just point to the fruits of your labor.
This kind of investor persuasion is more suitable for hackers, since they often represent only a part of their developments, thus saving themselves from deception.
6. Startup concentration areas will retain their positions.
It may seem that once launching a startup does not cost much, it will mean the end of such places of concentration of startups like Silicon Valley. If all that is needed to start up is to take a loan, then it will be possible to implement it anywhere.
This is partially true, partly not. True, because you can start a startup anywhere. However, to make it successful, you have to tinker. Success will be given to you with sweat and blood. But more likely to succeed in a place where there are many startups.
I have been thinking about this issue for a long time, and it seems to me that the cheaper start-ups start up, the more they will value their concentration. Their value, like the centers of any type of business, lies in a very old-fashioned custom — personal contacts. No technology in the near future will be able to replace a chance meeting with a university friend, who will tell you how to fix problems that prevented you all weekend, or a visit to a friend’s company that ended up talking to one of its investors.
The question of whether to be in a place of concentration of startups is equivalent to the question of whether to accept external investment. The question is not whether you need it, but what advantages it will give you. Because everything that brings an advantage will play into the hands of your competitors if they use it, but you do not. So, if someone tells you that “we do not need to be in Silicon Valley,” the very use of the word “need” is a sign that they misunderstand the situation.
And if places of concentration of startups are powerful magnets, then the fall in prices for launching startups is a decrease in the size of the metal particles they attract. Now a startup can run two 22-year-old guys, and he can develop much faster than the same with a staff of 10 people, half of whom have children.
We know this because we, at Y Combinator, carried out the relocation of people, and this was not a particular problem. The advantage of being able to work together face-to-face for three months outweighs the inconvenience of moving. Ask anyone who has worked like this.
The mobility of companies at the initial stage means that the initial financing is a national business. One of the most common questions that people ask us in their letters is whether we can help organize the “Y Combinator” clone in their region. But such a company is unlikely to work. Initial financing is not regional, as well as large research institutes.
Or maybe funding is provided not only at the national, but also at the international level? Interest Ask. There are signs that this is true. We have dealt with several startup founders (not Americans), and they are trying to work well, because they are all so focused on success that they can even move to another country to achieve their goal.
With the expansion of the geography of startups, it will become more difficult to form a new "Silicon Valley". The best representative from a startup will have a chance to get to the real Silicon Valley, and in its local version will remain only those who did not have enough energy to move.
This is by no means beyond the limits of one state. We are talking about the competition of cities, not countries. Similarly, it happens, for example, in Germany.
7. Requires more qualified experts
If the number of startups grows significantly, then people whose job it is to evaluate them should become more qualified. Especially, in my opinion, this applies to investors and purchasing companies. At the moment, we receive about 1,000 applications for opening a startup per year. And what will happen when their number reaches 10,000?
Anxious. But we will find a solution to this problem. Have to find. You may have to write some program for this, but fortunately we can do it.
Buyers will also have to become more competent when choosing the best. In general, they do a better job than investors, because they choose later when there are results of work that can be compared. But even in the most favorable case, when companies are carefully selected, upon purchase there is a huge amount of unnecessary friction.
I think that buyers, most likely, have special people at their disposal who can both recognize a good product and make a deal. At the moment, these two functions are separated. Developers often find promising startups. If someone powerful enough wants to buy them, then he transfers the right to negotiate to these developers. Of course, it would be better if someone with a technical education and at least an approximate vision of what needs to be achieved dealt with these two matters. Perhaps in the future, large companies will also have a vice president for engineering, responsible for internal technologies, and an expert in the implementation of such technologies from outside.
At the moment, there is no one among the big companies that would have difficulty in connection with the purchase of a $ 200 million startup company, which earlier they could have bought for $ 20 million. Although problems in this regard, at least someone, but should arise.
8. University will change
If the best hackers run their own companies right after college, instead of going to work, it is logical that this will change everything that happens in college. Most of these changes will be for the better. I think that the experience gained in college is distorted by the expectation of the assessment that a potential employer will later give you.
One of the changes will concern the time limits of the expression “after college”: not after its actual completion, but after it was abandoned. Why do you need a degree if you run your own company? Of course, we do not welcome the launch of a startup while studying in college, but the best of the founders, of course, were capable of it. Some of the most successful companies that we financed were founded by students.
I grew up at a time when an advanced degree seemed really important, so it’s not for me to say this, and yet — there’s nothing magic about it. There is nothing miraculously transformed after you pass the last exam. The degree is important only for the administration of large organizations. Of course, the lack of a degree can affect your life — without it, it is difficult to enroll in a magistracy or get a work visa in the US — but the farther, the less often, it is required.
With a decrease in interest in obtaining a degree, interest in college will also gradually decline. The startup you start is estimated by users who care that you are finished. Therefore, in the world of start-ups, elite universities will play less the role of "gatekeepers". In the US, outraged by the fact that the children of wealthy parents are easily enrolled in colleges, threatens to grow into a national scandal. But the solution to this problem may not consist in reforming, but in circumventing the college system. In the world of technology, we are accustomed to the principle of solution: not to “beat” officials, but to redefine a problem in such a way that it becomes insignificant.
The greatest value of universities is not their big name or even classes, but the people you encounter. If a startup startup becomes common after college, students can try to get the most out of it. Instead of focusing on internships in companies where they would like to work, students may be more willing to focus on interacting with other students as potential founding partners.
However, what students do in the classroom will also change. They will not try to get a higher score to impress a future employer, but they will try to really learn something. And these are really significant changes.
9. Great competition
If it's easy for you to start a startup, then your competitors can do the same thing just as easily. This fact does not in any way detract from the advantages of cheaper launches. You do not play a zero-sum game. The number of startups that can become successful is not fixed.
In fact, I do not think that there is any limit on the number of successful startups. , , . , , .
, , , , . , , , .
10.
, , , . , , .
, . , , - . , , Microsoft -. : - , , . .
- . , , , . , .
– , . , . , . , - , , . , , .
, , . , , , . , , , . — .
, . , . , «Y Combinator»: .
The startup process for startups is now similar to the plumbing system in an old house. Tubes are narrow and tortuous, leaks in each connection. In the future, this will all be replaced by one big pipe. Water will still flow from point A to point B, but the process will go faster and without risk of leakage.
. . – , , . , , , , , , . , . . -.
, Carson Systems – , .
: RU-ru EN-en .
Source: https://habr.com/ru/post/31302/
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