The problem with startup advice
David Peterson

Sam Altman spoke at IIT Delhi last week, and this bit went viral over the weekend:

“I feel so bad about the advice that I gave while running YC that I’m thinking about deleting my entire blog. There were a lot of things that we really held dear — you have to launch right away, you’ve got to launch a first version you’re embarrassed about, raise very little capital upfront, don’t take big R&D risk, you’ve got to immediately find product-market fit. OpenAI raised a billion dollars of capital before any product at all. It took us 4.5 years after we started to release something, and when we released it we didn’t talk to users for awhile…We didn’t do it the same way and it still worked.”

Those suggestions that Altman rattled off are basically the standard startup playbook now (thanks in no small part to Y Combinator). They aren’t controversial. They’re table stakes. Brand new founders will recite them like the Ten Commandments. Read enough VC Twitter threads and you’ll notice those same nuggets of wisdom, rehashed and repurposed, again and again and again.

The problem with a standard startup playbook, however, is that every really successful startup is an exception.

Whenever I hear “launch a first version you’re embarrassed about” I always think of Notion, Webflow and Figma. Each of those companies took 4+ years to launch the first version of their products. Why did they take so long? Those were hard products to build, with wide surface areas and deep technical challenges. There was no weekend hackathon version. If those founders followed the playbook, those products never would have been built.

And whenever I hear “immediately find product-market fit” I think about how every single investor we ever spoke to for Airtable told us to verticalize. I can’t blame them, I guess. They were following the playbook! Choose a niche, they’d say, and get to product-market fit quickly. The problem is that I’m pretty sure following their advice would have killed the company.

The reality is that the playbook isn’t wrong, per se. All that advice is reasonable. And many companies have died not following those rules. But slavishly following the standard startup playbook has resulted in a generation of entrepreneurs that think small, and a generation of investors that only know how to back hype and momentum.

The best entrepreneurs and investors, on the other hand, know the rules, but they also know when to break them. Building a massive company might require years not months, and might necessitate taking on real technology risk, and might require excess capital to start. That’s all right. As long as you know why you’re breaking those rules and have a rock solid plan to back it up.

If you listened until the end of that clip, you heard the one rule that can’t be broken. From Altman:

“The only certain thing I can stay about startups is…make something people want.”

Like me, you might disagree with parts of the standard startup playbook. But you can’t disagree with that.

David

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FROM THE BLOG

Looking Back to Move Forward
How to survive this extraordinarily exciting and wildly disconcerting age of generative AI.

LLMs and the Future of Customer-built Software Design
How will LLMs change software development and design?

Navigating AI’s iPhone Moment
A venture perspective on LLMs and what’s next…

Principles for AI Product Design
Or how we could all learn a little from Google’s conversion optimizer.

WORTH READING

ENTERPRISE/TECH NEWS

The algorithmic singularity is already here. UK-based Google Deepmind reported this week that its AI “AlphaZero” has been able to autonomously improve certain sorting algorithms by up to 70%. ““We honestly didn’t expect to achieve anything better,” says [Daniel Mankowitz, a research scientist at Google DeepMind.] “But to our surprise, we managed to make it faster. We initially thought this was a mistake or a bug or something, but when we analyzed the program we realized that AlphaDev had actually discovered something.”
AlphaDev found a way to sort a list of three items in 17 instructions instead of 18. What it had discovered was that certain steps could be skipped. “When we looked at it afterwards, we were like, ‘Wow, that definitely makes sense,’” says Mankowitz. “But to discover something like this [without AlphaDev], it requires people that are experts in assembly language.”
AlphaDev could not beat the best human version of the algorithm for sorting a list of four items, which takes 28 instructions. But it beat the best human version for five items, cutting the number of instructions down from 46 to 42. That amounts to a significant speed-up. The existing C++ algorithm for sorting a list of five items took around 6.91 nanoseconds on a typical Intel Skylake chip. AlphaDev’s took 2.01 nanoseconds, around 70% faster.”

How LLMs are transforming enterprise applications. TheNewStack took a look at a few paradigms for how LLMs are changing the way apps get built. “When some people hear “agent” and “AI” in the same sentence, they think about the simple chatbot that appears as a pop-up window that asks how it can help when they visit an e-commerce site. But LLMs can do much more than respond with simple conversational prompts and answers pulled from an FAQ. When they have access to the right data, applications built on LLMs can drive far more advanced ways to interact with us that deliver expertly curated information that is more useful, specific, rich — and often uncannily prescient.”

OpenAI CEO says it won’t compete with it’s customers. According to a now-deleted blog post by Humanloop CEO Raza Habib, “OpenAI CEO Sam Altman is privately reassuring developers using the company’s tech that it won’t compete with them beyond ChatGPT….”Quite a few developers said they were nervous about building with the OpenAI APIs when OpenAI might end up releasing products that are competitive to them,” Habib wrote in his blog post. “Sam said that OpenAI would not release more products beyond ChatGPT. He said there was a history of great platform companies having a killer app and that ChatGPT would allow them to make the APIs better by being customers of their own product.” Among other things on Altman’s mind was the worrying lack of GPUs, the specialized computer chips that help power AI software, according to Habib’s blog post. That shortage is reportedly stalling many of OpenAI’s short-term plans, which include improving the reliability and speed of OpenAI’s API.”

Defensive tech. Driven in no small part by what is happening in Ukraine, Germany decided to move ahead with a EUR 4B purchase of Israel’s advanced Arrow-3 anti-missile system. “The Arrow-3 is designed to intercept ballistic missiles outside of the Earth’s atmosphere. It is the top layer of Israel’s missile defense array, which extends from Iron Dome that intercepts short-range rockets to Arrow-3’s long-range missiles that destroy any non-conventional warheads at a safe altitude.”

HOW TO STARTUP

Selling the value of (developer) tools in 2023. Anne Debenham of Boldstart wrote an absolutely great piece on this very timely topic. It’s a must-read and relevant for any software company, not just developer tools, as CFOs are back in the purchasing decision equation these days and startups must be able to communicate their value proposition very clearly to customers. “Reach out to your most engaged customers and ask them for a case study. Ask them how much time your product has saved them with various tasks, or for stats on how it improved their reliability. They might even be able to quantify that reliability figure into a dollar value, particularly if they’re a well-trafficked storefront.” Here’s another tip on why it’s so important to just be honest: “Nobody likes being oversold on value. When you make a statement about how much money or time you can save a customer, you’ve got to be prepared to back this up. Ideally, give users a way to track it for themselves in the product! With Snyk’s example, the next obvious step here would be to quantify this on the user’s reporting dashboard so they can see for themselves exactly how much they’re saving over time. Users could customise this with their own data on things like wages to get a more accurate result. Until you have this, a simple spreadsheet may be enough to help the buyer see how you calculated this value, and change the parameters to map the true value more closely to their business.”

Back to the office. Paul Graham, founder of YC, tweeted about how many founders will move back to in-office work and abandon remote work. Interestingly, he provided an explanation for why the remote work trend caught on: “Why were all these smart people fooled? Partly I think because remote work does work initially, if you start with a system already healthy from in-person work. (It’s like communism in that respect.) And partly because it seemed to solve recruiting, which is always a bottleneck.”

Throwing in the towel. The difficulty of raising financing rounds has become well known to everyone in the ecosystem, and the WSJ wrote a piece on how many startups are falling victim to the financing freeze. ““The Mass Extinction Event for startups is under way,” said Tom Loverro, general partner at venture firm IVP, in a recent tweet. Loverro said in an interview that none of his portfolio companies has shut down recently, but it is early days in what could be a wave of startup failures. “It’s like the entire industry went out drinking and is now suffering the consequences,” he said about the venture boom of 2021 that he believes is heading for a bust….The venture market, meanwhile, has been declining. Startups in the U.S. raised $37 billion in the first quarter of this year, down 55% from the first three months of last year. The longer the venture market stays depressed, the closer many startups get to the moment of truth.”

A takedown of Stability.AI. Forbes published a detailed account of the much-hyped UK generative AI company Stability.AI. “AI experts and prospective investors have been privately expressing doubts about some of Mostaque’s claims for months now. Despite Silicon Valley’s sudden, insatiable appetite for AI startups, a number of venture capitalists told Forbes that the Stability founder has been struggling to raise hundreds of millions more in cash at a roughly $4 billion valuation. Mostaque publicly claimed last October that annualized revenue had surpassed $10 million, but insiders say sales have not improved (Bishara said the October number was “a fair assessment of anticipated revenues at the time,” and declined to comment on current revenue). “So many things don’t add up,” said one VC who rejected Mostaque’s funding overtures.”

HOW TO VENTURE

Sequoia goes domestic. The world’s most storied VC fund announced it was divesting of its international operations, and splitting into three firms. This move matters for two reasons. First, it marks the end of a long era of unbridled “globalization” in venture capital. This maps with the broad economic and political trends of our era. Second, Sequoia’s breakup into three funds amounts to a “firing” of their China and India funds — an effort by Sequoia to downsize into something more rational. Expect to see a lot of smaller and tighter funds across the industry. “…from the start, Sequoia considered its regional funds largely independent, with decentralized dealflow and portfolio decision-making. Partners from one geography would not review potential deals by another’s; instead, the funds shared back-office functions including compliance, finance and investor relations, basic infrastructure and an online portal for limited partners. Investors in those different regional funds overlapped — and partners often invested personally in each other’s funds. But the regions had already diverged in some respects, the partners said, with investor relations becoming more localized, and funds setting up their own software.”

Welcome to London, A16Z. Please come say hi! Andreesen Horowitz launched a London office focused on crypto, citing the friendly regulatory environment in the UK and Europe. “The move comes at a time when the SEC has been cracking down on the crypto industry, suing cryptocurrency exchanges Coinbase and Binance for allegedly breaching its rules. London’s long history in the finance world, large FinTech centre and softer regulatory approach to crypto has almost certainly played into a16z’s thinking on this strategic move. [Chris Dixon, who leads a16z’s crypto investments] said the UK’s “thoughtful approach” to crypto contrasted with the legal uncertainty in the US, although the firm re-affirmed its commitments to US crypto companies. “Our assessment is the UK is ahead of the curve and instituting [crypto] policies that will eventually becoming a global standard,” he added.”

PORTFOLIO NEWS

LightSolver’s CEO, Ruti Ben Shlomi, was featured in Laser Focus World’s “Faces in Photonics” series, highlighting world scientists, researchers, and educators reshaping the optics and photonics industry.

CruxOCM was selected as one of HackerNoon’s “Startups of the Year 2023”.

Snyk is acquiring Israeli startup Enso Security for over $50M.