This post is a recap of an article written by Paul Graham, a famous VC investor and co-founder of YCombinator, the most influential startup accelerator in the world.
Full article available here: http://paulgraham.com/ds.html.
Microsoft can’t have seemed very impressive when it was just a couple guys in Albuquerque writing Basic interpreters for a market of a few thousand hobbyists (as they were then called), And Brian Chesky and Joe Gebbia didn’t feel like they were en route to the big time as they were taking “professional” photos of their first hosts’ apartments. They were just trying to survive, but in retrospect that was the optimal path to their domination.
Startups usually don’t just take off on their own, but with the push from the founders that make them take off and it all starts by doing things that don’t scale, which can seem counterintuitive.
A few examples of that are:
– acquiring new users manually,
– providing the best customer experience as possible,
– running your software manually behind the scenes, even though it should be automated.
The most common unscalable thing founders have to do at the start is to recruit users manually, which is usually hard for them as they are shy, lazy and prefer writing code at home. Besides, the absolute numbers seem so small at first, so this can’t be how the big, famous startups got started, they think. But they shouldn’t underestimate the power of compound growth: if you have 100 users, you need to get 10 more next week to grow 10% a week. After a year you’ll have 14.000 users, and after 2 years you’ll have 2 million. Of course growth has to slow down eventually and you’ll switch to doing user acquisition less manually by then.
A great example of aggressive early user acquisition is Stripe with their “Collison installation” method (named after the founders, Collison brothers). When anyone agreed to try Stripe they’d say “Right then, give me your laptop” and set them up on the spot.
Founders should take extraordinary measures not just to acquire users, but also to make them happy, which is again, often counterintuitive for them. Steve Jobs said that attention to users should be insane (literally, to a degree that in everyday life would be considered pathological), but what does that mean for an early stage startup? At that time, it’s not just about the product (which is the dominant component for a big company), but about the insanely great experience of being your user that makes up the difference for an early, incomplete, buggy product. That’s not just a technique to get growth rolling but a necessary part of the feedback loop that makes the product good. The feedback you get from engaging directly with your earliest users will be the best you ever get. When you’re so big you have to resort to focus groups, you’ll wish you could go over to your users’ homes and offices and watch them use your stuff like you did when there were only a handful of them.
Sometimes the right unscalable trick is to focus on a deliberately narrow market. It’s like keeping a fire contained at first to get it really hot before adding more logs. That’s what Facebook did as it was available just for Harvard students at first, then for students at specific colleges… They targeted only a potential market of a few thousand people, but because they felt it was really for them, a critical mass of them signed up.
Sometimes YC advises founders of B2B startups to take over-engagement to an extreme – pick a single user and act as if they are consultants, building something just for that one user. By doing that, they’ll usually find they’ve made something other users want too. Similar technique is to use their software themselves on the user’s behalf (like they did at Viaweb, when they made online stores for their users and it taught them how it would feel to use the software and what features they’d need – instantaneous feedback loop)
An extreme variant of that is not just using your software, but being your software, which means doing things by hand that you plan to automate later. Stripe did that with their “instant” merchant accounts (what really happened was that founders manually signed them up for traditional merchant accounts behind the scenes). If you can find someone with a problem that needs solving and you can solve it manually, go ahead and do that for as long as you can, and then gradually automate the bottlenecks. That’s still much better than the far more common case of having something automatic that doesn’t yet solve anyone’s problems.
The need to do something unscalable and difficult to get started is so nearly universal that it might be a good idea to stop thinking of startup ideas as scalars. Instead we should try thinking of them as pairs of what you’re going to build, plus the unscalable thing(s) you’re going to do initially to get the company going.
In the best case, both components of the vector contribute to your company’s DNA: the unscalable things you have to do to get started are not merely a necessary evil, but change the company permanently for the better. If you have to be aggressive about user acquisition when you’re small, you’ll probably still be aggressive when you’re big. If you have to manufacture your own hardware, or use your software on users’ behalf, you’ll learn things you couldn’t have learned otherwise.
And most importantly, if you have to work hard to delight users when you only have a handful of them, you’ll keep doing it when you have a lot.