CS183B Notes

Lecture 1: Dustin Moskovitz "Why to Start a Startup" Notes

Lectures 1+2: Sam Altman "Ideas, Products, Teams and Execution" Notes

Lecture 3: Paul Graham "Counterintuitive Parts of Startups, and How to Have Ideas" Notes

Lecture 4: Adora Cheung "Building Product, Talking to Users, and Growing" Notes

Lecture 5: Peter Thiel "Business Strategy and Monopoly Theory" Notes

October 11, 2014

CS183B Lecture 1: Dustin Moskovitz "Why to Start a Startup" Notes

Note: This is a condensed version of a talk by Dustin Moskovitz. I’ve trimmed it down to its core points and added headings for readability. There is paraphrasing and rephrasing based on my own personal interpretation. Please see the source for the full original transcript.

Source: Lecture 1: How to Start a Startup

Table of Contents:

There’s a bunch of common reasons that people have that I hear all the time for why you might start a startup. It’s important to know what reason is yours, because some of them only make sense in certain contexts, some of them will actually lead you astray. You may have been mislead by the way that Hollywood or the press likes to romanticize entrepreneurship, so I want to try to illuminate some of those potential fallacies, so you can make the decision in a clear way. And then I’ll talk about the reason I like best for actually starting a startup. Surprisingly, I don’t think it’s the most common reason. Usually people have one of these other reasons, or they just want to start a company for the sake of starting a company.

4 common reasons

The 4 common reasons to start a startup are it’s glamorous, you’ll get to be the boss, you’ll have flexibility, especially over your schedule, and you’ll have the chance to have bigger impact and make more money then you might by joining a later stage company.

1. “It’s glamorous”

It’s hard work and stressful

There’s an ugly side to being an entrepreneur. What you’re actually spending your time on is just a lot of hard work. You’re basically just sitting at your desk, heads down, focused, answering customer support emails, doing sales, figuring out hard engineering problems. It’s really important that you go in with eyes wide open. It’s also quite stressful. This has been a popular topic in the press lately: founder depression. Let’s be real, if you start a company it’s going to be extremely hard.

“Major responsbility” stress

There are a couple of reasons why is it so stressful. One is you’ve got a lot of responsibility. People in any career have a fear of failure, it’s kind of just a dominant part of the psychology. But when you’re an entrepreneur, you have fear of failure on behalf of yourself and all of the people who decided to follow you. That’s really stressful. In some cases people are depending on you for their livelihood, even when that’s not true, they’ve decided to devote the best years of their life to following you. So you’re responsible for the opportunity cost of their time. You’re always on call, if something comes up – maybe not always at 3 in the morning, but for some startups that’s true – but if something important comes up, you’re going to deal with it. That’s kinda the end of the story, doesn’t matter if you’re on vacation, doesn’t matter if it’s the weekend, you’ve got to always be on the ball and be in a place mentally where you’re prepared to deal with those things. A sort of special example of this kind of stress is fundraising.

Hard work at Facebook

There’s a scene in The Social Network where we’re partying and working at the same time – somebody’s spraying champagne everywhere. The Social Network spends a lot of time painting these scenes. Mark’s not in the scene, and the other thing they spend all their time on is painting him out to be a huge jerk.

Here is an actual scene from Palo Alto: Mark spent a lot of time at his desk, head down and focused. Mark was still kind of a jerk sometimes, but in this more fun lovable way, and not in a sociopathic, scorned lover way.

Then there’s the scene demonstrating the insight moment [writing the algorithm on the dormroom window]. They jump to these moments from other moments, with partying in between. But really we were just at that table the whole time.

“Unwanted media attention” stress

Another form of stress is unwanted media attention. Part of it being glamorous is you get some positive media attention sometimes, it’s nice to be on the cover of Time and to be the Person of the Year. It’s a little less nice to be on the cover of People with one of your wedding photos. It depends on who you are, I really hate it, but when Valleywag analyzes your lecture and tears you apart, you definitely don’t want that. Nobody wants that.

“You can’t just up and quit” stress

One thing I almost never hear people talk about is you’re much more committed. If you’re an employee at a startup and it’s very stressful and things are not going well, you’re unhappy, you can just leave. For a founder, you can leave, but it’s very uncool and pretty much a black eye for the rest of your career. So you really are committed for ten years if it’s going well and probably more like five years if it’s not going well. So three years to figure out it’s not going well and then if you find a nice landing for your company, another two years at the acquiring company. If you leave before that, again it’s not only going to harm yourself financially but it’s going to harm all your employees. So if you’re lucky and you have a bad startup idea, you fail quickly, but most of the time it’s not like that.

Effects of stress on your health

I’ve had a lot of this stress in my own life, especially in the early years of Facebook. I got really unhealthy, I wasn’t exercising, I had a lot of anxiety actually throughout my back, almost every six months, when I was twenty-one or twenty-two, which is pretty crazy. So if you do start a company, be aware that you’re going to deal with this. You’re going to have to actually manage this, it’s one of your core responsibilities. Ben Horowitz likes to say the number one role of a CEO is managing your own psychology, it’s absolutely true, make sure you do it.

2. “You’re the boss”

Another reason why people start startups, especially if you’re had another job at another company, is you start to develop this narrative, like “The people running this company are idiots, they’re making all these decisions and spending all their time in these stupid ways, I’m going to start a company and I’m going to do it better. I’m going to set all the rules.”

Everyone else is your boss

People have this vision of being the CEO of a company they started and being on top of the pyramid. Some people are motivated by that, but that’s not at all what it’s like.

What it’s really like: everyone else is your boss – all of your employees, customers, partners, users, media are your boss. I’ve never had more bosses and needed to account for more people today.

The life of most CEOs is reporting to everyone else, at least that’s what it feels like to me and most CEOs I know. If you want to exercise power and authority over people, join the military or go into politics. Don’t be an entrepreneur.

- Phil Libin

Being a CEO is really, really hard

The reality of these decisions at companies is nuanced. The people you thought were idiots probably weren’t idiots, they just had a really difficult decision in front of them and people pulling them in multiple directions.

The most common thing I have to spend my time on and my energy on as a CEO is dealing with the problems that other people are bringing to me, the other priorities that people create, and it’s usually in the form of a conflict. People want to go in different directions or customers want different things. And I might have my own opinions on that, but the game I’m playing is who do I disappoint the least and just trying to navigate all these difficult situations.

And even on a day to day basis, I might come in on Monday and have all these grand plans for how I’m going to improve the company. But if an important employee is threatening to quit, that’s my number one priority. That’s what I’m spending my time on.

3. “You have flexibility”

A subset of “You’re the Boss” is you have flexibility, you have control over your own schedule. This is a really attractive idea. So here’s the reality:

If you're going to be an entrepreneur, you will actually get some flex time to be honest. You'll be able to work any 24 hours a day you want!

- Phil Libin

You’re always on call

There are a few reasons for this. You’re always on call. So maybe you don’t intend to work all parts of the day, but you don’t control which ones.

You’re a role model

You’re a role model of the company, and this is super important. So you might have some good weeks and you might have some bad weeks, some weeks when you’re low energy and you might want to take a couple days off. That’s really bad if you’re an entrepreneur. Your team will really signal off of what you’re bringing to the table. So if you take your foot off the gas, so will they.

You’re naturally always working

You’re always working anyways. If you’re really passionate about an idea, it’s going to pull you towards it. If you’re working with great investors, you’re working with great partners, they’re going to be working really hard, they’re going to want you to be working really hard.

Some companies like to tell the story about how you can have your cake and eat it too, you can have 4 days work weeks maybe, if you’re Tim Ferris maybe you can have a 12 hours work week. It’s a really attractive idea and it does work in a particular instance if you want to have a small business to go after in each market, you’re a small business entrepreneur. That makes a little sense but as soon as you get past 2 or 3 people you really need to step it up and be full-time committed.

4. “You’ll make more money and have more impact”

Reward for joining a very successful startup

As employee number 100 coming into companies like Dropbox or Facebook especially if you’re a relatively experienced engineer, you’re pretty likely to have an offer that’s around 10 base points. If you joined Dropbox a couple years ago you’ve already locked in about $10M and there’s plenty more growth from there. If you joined Facebook a couple years into its existence you’ve already made around $200M. Even if you joined Facebook as employee number 1000, you still make $20M. That’s a giant number and that’s how you should be benchmarking when you’re thinking about what you might make as an entrepreneur.

Reward for starting a moderately successful startup

On the other hand consider two theoretical companies you might start. “Uber for Pet Sitting”, it’s a pretty good idea. If you’re really well suited to this you might have a good shot at building a $100M company and your share of that company is likely to be around 10%. That certainly fluctuates a lot, some founders have more than this, some founders have a lot less, but after multiple rounds of dilution, multiple rounds of option pool creation you’re pretty likely to end up with about 10%. So basically if you’re extremely confident in building a $100M company, which is a big ask, you should of course have a lot more confidence in Facebook in 2009 or Dropbox in 2014 than you might for a startup that doesn’t even exist yet.

Reward for starting a very successful startup

If you think you’re the right entrepreneur to build “Uber for Space Travel,” that’s a really huge idea, a $2B idea. You’re actually going to have a pretty good return for that, you should definitely do that. This is also the value only after 4 years and this idea probably has legs, definitely go after that. If you’re thinking of building that you probably shouldn’t even be reading this right now, just go build that company.

Potential for impact joining a company

So why might joining a late stage company actually have a lot of impact. You get this force multiplier: they have an existing mass of user base. If it’s Facebook it’s a billion users, if it’s Google it’s a billion users. They have existing infrastructures you get to build on. That’s also increasingly true for a new startup, like AWS and all these awesome independent service providers, but you usually get some micro-proprietary technology and they maintain it for you. It’s a pretty great place to start. And you get to work with a team, it’ll help you leverage your ideas into something great.

Bret Taylor at Google

A couple specific examples. Bret Taylor came into Google as around employee number 1500 and he invented Google Maps, a product used by hundreds of millions of people around the world. He didn’t need to start a company to do that. He happened to get a big financial reward, but the point is yet again massive impact.

Justin Rosenstein at Google

Justin Rosenstein joined Google a little later after Brett. He was a PM there and just as a side project he ended up prototyping a chat which used to be a stand-alone app, integrated in Gmail. Before he did that you couldn’t even imagine you could chat over Ajax or chat in the browser at all and he just kind of demonstrated it, showed it to his team and made it happen. This is probably a product most of you use almost everyday.

Justin Rosenstein at Facebook

Shortly after that Justin left and became employee around 250 at Facebook. He led a hackathon project along with people like Andrew Bosworth to create the Like button. This is one of the most popular elements anywhere on the web, totally changed how people use it and he didn’t need to start a company to do it. He almost certainly would have failed if he had tried because he really needed the distribution of Facebook to make it work.

So it’s important to keep in mind the context for what kind of company you’re trying to start and where you will actually be able to make it happen.

The Best Reason

The best reason to start a startup is basically when you can’t not do it. You’re super passionate about this idea, you’re the right person to do it, you’ve got to make it happen.

You can’t not do it because you’re so passionate

There are two ways in which “you can’t not do it.” One is, you’re so passionate about it that you have to do it and you’re going to do it anyways. This is really important because you’ll need that passion to get through all of those hard parts of being an entrepreneur that we talked about earlier. You’ll also need it to effectively recruit. Candidates can smell when you don’t have passion and there are enough entrepreneurs out there that do have passion so they may as well work for one of those. Your subconscious can also tell when you don’t have passion and that can be a huge problem.

You can’t not do it because the world needs it

The other way to interpret “you can’t not do it” is, the world needs you to do it. This is validation that the idea is important, that it’s going to make the world better, so the world needs it. If it’s not something the world needs, go do something the world needs. Your time is really valuable, there are plenty of good ideas out there, maybe it’s not your own, maybe it’s at an existing company, but you may as well work on something that’s going to be good.

You can’t not do it because you’re the best person to do it

Another way of thinking about this is that the world needs you to do it because you’re actually well suited for this problem in some way. If this isn’t true then it may be a sign that your time is better spent somewhere else. The best case scenario if this isn’t true is, you outcompete the team for which it is true and it’s a suboptimal outcome for the world and that doesn’t feel very good.

Starting Asana

So drawing this back to my own experience at Asana, Justin and I were reluctant entrepreneurs before we founded Asana. We were working at Facebook and we were working on a great problem. We would basically work all day long on our normal projects and then at night we would keep working on this internal task manager that was used internally at the company and it was just because we were so passionate about the idea, it was so clearly valuable that we couldn’t do anything else.

At some point we had to have the hard conversation of, OK what does it mean if we don’t actually start this company. We could see the impact it was having at Facebook, we were convinced it was valuable to the world. We were also convinced no one else was going to build it. The problem had been around a long time and we just kept seeing incremental solutions to it and so we believed if we didn’t come out with the solution we thought was best, there would be a lot of value left on the table. We couldn’t stop working on it and literally the idea was beating itself out of our chests and forcing itself out into the world. I think that’s really the feeling you should be looking for when you start a company, that’s how you know you have the right idea.

Published October 11, 2014