Trajectory (Michael Seibel)

Michael Seibel, Partner at Y Combinator and CEO of YC’s Startup Accelerator explains what signals and patterns they look for in applications from startups:

The number one thing that I look for, above all else, is that the team who’s applying has the ability to build and launch the first version of the product. And the second, and very closely tied item, is, I want evidence of forward motion.

Given the amount of time the founders have been working on the company, I want to be impressed with what they’ve done. And I don’t care if that amount of time is two weeks. I don’t care if it’s two years. I just want the sum of what they’ve accomplished during that time to be impressive.

And I think this is a hard concept for people to understand. I think everyone is trained on school where there are these absolutes (what was your SAT score? what was your GPA?). School doesn’t really measure trajectory, at all. Whereas with us [at Y Combinator], it’s really the only thing we care about. It’s trajectory. It’s, how much forward motion and momentum are you creating, as opposed to starting position?

What is real startup growth and how do you get there? (Mike Maples, Jr.)

Mike Maples, Jr., Partner at Floodgate, has been on the Forbes Midas List since 2010 and was also named one of “8 Rising Stars” by FORTUNE Magazine. He thinks about growth hacking as part of a larger framework which includes value hacking, growth hacking, profit hacking, and then company building.

The essence of Mike’s hypothesis is that in a startup, value gets created differently through time.

1. Value-first: In the early days you start out dead and you have to prove you’re alive… someday; [this is] “zero to one” mode. Ryan Smith at Qualtrics says “there’s no substitute for the scar tissue muscle memory of zero to one.” (This is element V: Value)

2. Growth-first: And then you shift modes into growth-first mode, in which the startup’s identity is categorically different, and the primary focus becomes trying to 10X the business in a certain time frame.

3. Profit-first: And then hopefully someday you’re profitable.

4. Company-building: As a company, you have a variety of these initiatives — you’ve got some startups inside your company, you’ve got some cash cows in your company, and you’ve got some growth initiatives in your company, and as CEO you become asset allocator as chief among those things.

What is fake growth?

“Growth theater” – emphasizes growth optics over growth reality, for example:

  • Focusing on funding round sizes and surrounding PR;
  • Focusing on PR regardless of customer traction;
  • Competing with others on last round valuation;
  • Trying to make spreadsheet numbers look good, with complicit board (e.g. engineering a proforma around 15% month over month growth);

One of the primary causes of fake growth is caused by [a startup] trying to grow before it’s ready to grow.

The hypothesis [on how to avoid fake growth] is for a startup to create a very strong value proposition that’s true, and then grow by syndicating the truth. Because if the value proposition is true, in theory, a company should be able to scale at will.

What is real growth?

“Real growth” is asking…

  • How is value getting created in this business?
  • And what’s the best way for value to get created in this business right now?

The difference between Buffet-style and startup real growth investing is…

  • Both want to invest in really valuable businesses;
  • Buffet believes in applying profit dollars to growth;
  • With startups it’s OK to consume venture capital in the early days, because there’s a “someday category” that’s really massive, and we’re trying to become the category king.

But when a startup loses money, the reason it’s okay to lose money is because more value creation happens that way in becoming the dominant category king than in chasing profits.

What is value hacking?

Value hacking…

  • Is about studying the truth of your value proposition before you start to grow;
  • Is trying to solve a problem uniquely that people are desperate for, and that you believe someday a whole lot of people will be desperate for (and all your leading activities are built around answering this);
  • Is about invention;
  • We don’t have product market fit (PMF) yet and we’ve got to get it. And we do that by creating this unique value proposition that lots of people will be desperate for.
  • Time-frame is incredibly unpredictable (e.g. Twitch took five years to get PMF whereas ngmoco took less than 6 months);
  • Small team made up of diverse skill-sets who do it all (i.e. it’s a team of Macgyvers in a truth-seeking exercise);
  • Patient for time but hawkish for burn;
  • The word “company” is a misnomer. Steve Blank says “a startup is a temporary organization seeking a business model someday.”
  • It’s more about learning and discovery than it is about execution.

Knowing when to transition over to growth hacking mode is a little bit zen-like, and it’s really hard. You have to ask yourself a few questions:

  • Do I have product market fit?
  • How do I know I have product market fit?

Knowing that you’re ready to grow is like a forward-pivot, where you’re willing to bet the company that you can 10X in a certain amount of time with a certain amount of money. And if you’re hesitant in any sort of way, write down the things that are causing you to hesitate, and those might be the things that are standing between you and product market fit.

Because when you get into the growth first mode, you’re literally becoming something different. You go from being Macgyvers to being “VP of nothing.” Every layer of how value gets created changes. You go from trying invent a new idea, and now all of sudden, you need to have predictable growth.

Whereas KPIs are lagging indicators of having done the right things earlier (and should be used in growth-hacking mode), the “right things earlier” which can be called “leading activities”. And the leading activities are the things that you do in value-hacking that allow you to convert assumptions or questions into facts and secrets and conviction.

What is growth hacking?

“Growth hacking” is when you try to have what’s called a predictable value creation agenda and then instrument the rest of your company around creating that value. (e.g. And so when we work with a SaaS company we know that most top four tile public companies content, their revenue from a million to 10 million ARR in less than 18 months, consuming less than $1 for every new AR dollar they create.)

  • Hiring experts (e.g. someone in charge of getting product economics right; demand generation; sales management; customer success; etc.);
  • Asking “what do we need to create a compelling growth story?”;
  • On-the-job training doesn’t work;
  • You’re instrumenting all the things that yield smart growth.

Most companies try to transition to profit-hacking too quickly. As long as we’re careful about our burn, we can stay in “zero to one” mode for as long as we want, because we’re more interested in learning than we are in execution. But once you shift into an execution posture, you can’t really go back.

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