Sam Altman on how to pick which startup to work at

so I want to talk about how to pick

which startup to work at

um the most important considerations uh

you all already know

um picking a company you're excited

about people you're excited about a role

you're excited about uh that's more

important than the rest of the stuff I

have to say but that's also intuitive

and so I'm going to talk about the

things that are not intuitive or at

least haven't been for me and I want to

just Echo one thing that Justin said

because I think it's so important every

job I've ever had and probably every job

Justin's ever had as well I'll speak for

myself at least I've been wildly

unqualified for and

doing that I think is like the number

one secret to uh having a really great

career like that's the way you have a

super fast rate of personal growth

um and I think the way careers go is you

should put in the most of the effort at

the beginning because there's it's this

compound interest like thing where the

work you do now the learning you do now

the Improvement you make early in your

career gets to pay off for all the rest

so you may as well work hard uh and take

a chance on a role that you feel

unqualified for

um early and if you flame out you flame

out and you go try something different

um but my experience is when someone

does a role they're unqualified for it

either goes way worse or way better than

expectations and a lot of the times it

goes way better and if you hold yourself

back from doing this because you're

afraid of not working out which is

totally understandable sometimes it

doesn't I think you missed this

opportunity to have

um the sort of most impactful career you

can and that is what's so cool about

startups is you can get jobs you are

widely unqualified for

so I want to talk about how to pick a

startup and I want to talk about this

from the perspective of being an

investor because I think what you're

doing when you go to work at a startup

is making one big investment if you're

really good you are going to take way

less cash comp you can than you could

get at Google or Facebook

and you are going to be compensated for

that by investing your time in the

startup in return for equity

so people have different risk Awards

trade-offs you might want a later stage

startup with that's lower risk or return

you might want higher risk High return

of very early stage startup but I think

the right framework of this is to think

about it like you're investing in a

startup

and for me at least learning to invest

in startups was deeply counter-intuitive

and I'm going to talk about eight things

that I learned about how to evaluate

startups for investment this mostly

applies to sort of the stage of startups

you'll see here today

number one

this is a Paul Buchheit another Paul

buhaidism it's more important that a

startup have a small number of users

that really love the product rather than

a lot of users that really like the

product most startups either have no one

who cares at all or a lot of people who

are kind of like yeah that's okay

very rare to find a startup where people

love the product so much they

spontaneously tell their friends

but if you think about the really big

companies today Google Facebook you

probably heard about it because someone

was like this is awesome you got to sign

up

and you know people talk about product

Market fit all this other stuff I think

it's sort of hard to evaluate but one

thing you can do is either like talk to

some users of the company or ideally you

are one yourself or know some and like

is this product so good that people are

telling other people they've got to use

it and that I think matters much more

than the vanity metrics number of users

current growth rate whatever that most

startups throw around so if you only do

one piece of diligence this is the one I

would do

number two

trusting exponential growth and as a

byproduct of that trusting momentum

momentum is sort of this really

important concept to startups if things

are feeling good if it's growing if

people are loving the product if good

people are joining that tends to keep

going and if that falters it's very hard

to get it back so does the startup have

a good sense of momentum and is there

some sort of exponential growth model

by the way I've been investing in

startups for like I don't know eight or

ten years now I still have not managed

to get good at intuiting exponential

growth in my head so I have to do it in

a spreadsheet every time

um

but I've learned to trust it and if it's

if it's if a startup is growing

exponentially and it's not fake it's not

like you know they're buying all the

users or something it tends to keep

going and making that leap of faith uh

because almost no one understands

just how powerful exponential growth is

even if they say out loud they do making

the leap of faith and trusting that is

super valuable

related concept this is the third one

the size of the market today matters

almost not at all it is the the growth

rate of the market and how big the

market will be in 10 years

so I think the number one mistake

investors make when they miss out on a

really great opportunity is they look at

the size of the market today

now they only care about how fast a

startup is growing they don't care about

the size of the revenue today and why

they can't make this same leap of faith

for the market I've never understood

um but if you make a really great

decision on what startup to join it will

probably be a smallish market today

that's growing really quickly uh you

know I saw this morning on the way down

here this is like the 10-year

anniversary of the iPhone app store so

10 years ago not very long the size of

the market for iPhone applications was

zero dollars

and a lot of investors you know somewhat

rationally but obviously wrongly said

all right well we're not investing these

iPhone apps because this is a small

Market

I also saw this morning the Uber deck

when they first raised money and they

said you know their Tam is like two

billion or something and if you think

about the world from a certain set of

constraints that was true

um but it turns out that like

the market of people that want to move

around cities easily grows quickly when

you have a better product

so thinking about the growth rate of the

market not just the growth rate of the

startup super important if you're going

to identify something really big

and a related concept to that is

the biggest companies that we have been

able to be a part of and I think the

biggest companies in the technology

industry as a whole

happen when there's a technological

platform shift

so for example the I stick with the

iPhone example the iPhone app store

launches in 2008 in a period of say 2009

to

2012. there were a lot of companies that

you could never have started before

and that all of a sudden you could

um you know Uber's a good example but

there's other ones like Snapchat which

really just didn't quite make sense

before mobile phones and apps and so

trying to identify these platform shifts

uh that's that's another place where I

think you can find almost all the big

startups

most people are wrong about this so you

have to learn to trust your own

intuitions here

um it's very hard to

differentiate between real Trends and

fake trends

um the technology journalists in

particular seem easy to trick about this

but honestly so is everybody and so if

you read the news you're not going to

find the answer here if you talk to most

people you're not going to find the

answer here but if you think hard and

you really pay attention uh sometimes

you can that the metric that I use to

differentiate between a real Trend and a

fake trend is similar to loving a

product it's when is there a new

platform that people are using many

hours every day

so the iPhone comes out not that many

people buy it but they use it all day VR

headsets come out a lot of people buy it

but they never come off the shelf so VR

by that metric is not yet a real Trend

and at the point where people start you

know having their headset on hours a day

that might be a good time to start a VR

company

the fifth consideration

um

is the company exciting

and here's why that's important the

hardest thing to get especially right

now in Silicon Valley is a critical mass

of talented people at one company it's

easy to get the first few employees you

can give them a ton of equity

give them big job titles but that stops

to work and then you get to employee 30

employee 300. why are they still going

to join rather than start their own

startup join a small startup go to

Google

and

and this ability to have an exciting

enough mission to be able to concentrate

Talent

um this is why I think it's easier to

start a hard startup than an easy

startup because people care

um and if you don't have this it's

really hard I have basically in my life

tried had to recruit a lot for two

different startups one was a company I

started a long time ago that did social

networking on iPhones and another was

open AI and in the first one we could

tell people like hey you know like you

should come do this it's really cool and

it was kind of cool and open AI we can

say like you know

if we don't do a good job or if someone

does not do a good job building AGI like

the world will very likely get destroyed

and we need you specifically to do this

piece of it and if you don't do that

it's really bad for the world and that

is a really hard pitch to say no to and

so a startup that has a reason why

people need to join it uh is super

powerful

the sixth one is how is thinking about

how impressed you are by the founders

and the early employees at the startup

so as a general observation it is

extremely powerful whenever you can

identify something in the world that is

true and important and that most people

don't believe

and in fact I think this is one of the

two major Market inefficiencies that

startups get to exploit there exists a

small number of Founders in the world

that are so good that they end up

bending the world to their will

um and they can do this without a lot of

business experience and they are like

hundreds of times more effective than uh

people that aren't like this and you

know there are programmers that are I

know people hate the 10x engineer meme

because it's so often

um used to justify being a jerk but

there are plenty of people who are 10

times as good as average programmers and

also nice people and in companies where

you find a lot of these people

concentrated in the early hires

um this is a huge deal and these

startups consistently outperform

and the quality of the early people at a

company the quality the founders is so

determinant of success and it has such a

bigger impact than people like to

believe or want to believe about the

world that when you find this it is one

of these secrets about the world that is

critically important and that people try

not to believe so I think that's a

really great thing to look for

um the other the other big Market

inefficiency to look for is ideas that

sound bad but are good

um so most ideas that sound bad are

unfortunately bad and you should try not

to join those companies

but there exist a class and this is

where YC has made most of its money of

ideas that sound bad but are good if an

idea is good and sounds good then the

big companies will try to do it and

usually I'll compete you

um but there's a really important

difference between startups and big

companies if you have the same idea at a

big company and you want to do it you

have to get your boss to say yes your

boss's boss to say yes your boss's boss

to say yes and then soon daughter say

yes and then Larry Page should say yes

and in that chain of 20

um one no kills the entire idea and if

the idea sounds bad someone will

rationally so say no

if you're a startup

um you may also have 20 conversations

you may go up and down Sandhill Road

trying to convince someone to fund it

but you only need one yes

and the one yes you get to go do it even

if it's 19 no's uh it's it's very

different than what has to happen in a

big company

so uh one idea I often ask startups is

can you tell me why this idea sounds bad

to the big companies but actually is

good

um and then a final thing that I look at

are what this has been a long-standing

YC metric

um

what are the smartest uh sort of recent

college graduates excited about

in our experience now over more than you

know 13 years the YC has been in

business that group of people

consistently is three four years ahead

of uh what investors focus on and that

has been a model for us of identifying

real Trends before they happen that

group is not always right there have

been some big failures

um but directionally speaking young

people I think have

more time they're more on the Forefront

of Technology they're less set in their

ways whatever it's for

that you know what what those people are

going into is an area that we have

always looked at

um

so another question that's related to

all of this is how to get good advice

about what startups are join

and

you have to choose the peers whose

opinion you care about in your life very

very carefully

most people will have bring whatever

biases they have about what a career

should look like or what a safe choice

is or what a good thing to work on is uh

they'll bring all that to the table and

most people have let bad processes in

behind their firewall and they will give

you bad advice

and so trying to find a group of people

that you can go to in your life so

whenever you have a big career decision

that are kind of open-minded and

intellectually rigorous thinkers and who

care about the similar kinds of things

that you care about whatever that is is

a really valuable thing to do

um I was lucky to find a handful of

those people very early in my life I

still ping them on every big decision

um and the advice that they give me I

think is generally quite good and very

different than what I'd get from most of

my friends so finding people who can

give you good advice about what startup

to join is really important

um

I was going to talk about how to think

about Equity at a startup but I only

have one minute left so I will say this

you probably aren't getting enough

I think most startups are not nearly

generous enough with employee Equity the

difference the amount of value that you

create as an early employee versus a

Founder is not the 100x difference that

you usually see reflected on a cap table

we try to get YC startups to be more

generous with equity and I think over

time it's trending in that direction

but like remember

startups need really talented people

startups need people they could

otherwise go work at Google and make a

gigantic salary and I think you should

demand to be treated fairly for that

um that's my That was supposed to be

five minutes but there's the 25 second

version

um all right thank you very much we are

going to start with company

presentations now

uh and thanks for coming today

[Applause]