04. 03. 2021

Inspirational Mondays with Michael Seibel (Y Combinator)

Michael Seibel has a one from the most impressive resume: he is a Partner and CEO at Y Combinator, one of the world’s most famous startup accelerator and also the co-founder and CEO Justin.tv and Socialcam.

Socialcam sold to Autodesk for $60m in 2012 and under the leadership of Emmett Shear, Justin.tv became Twitch.tv and sold to Amazon in 2014 for $970m. Before getting into startups, he spent a year as the finance director for a US Senate campaign and in 2005, Michael graduated from Yale University with a BA in political science. What is his opinion on today’s startup? What is the most necessary thing when you want to start your business? These questions and more are from Jaroslav Luptak, co-founder of a Slovak startup ecosystem and Investment Manager at Neulogy ventures, who was chatting with a man who conquered Silicon Valley at FTRNW inspirational Mondays.

Jaroslav Luptak: Let’s talk about typical startup journey. Entrepreneurs are always asking how to develop a great idea and often times investors try to judge ideas. How do you actually judge these ideas?

Michael Seibel: We don’t like to judge ideas. One of the things we’ve learnt at YC is that founders create the future. When you invest to early-stages like we do, you’ll see world’s changed. You see a world go from no right share to right share, from no-grocery delivery to grocery delivery, no restaurant delivery to restaurant delivery or from no one understanding what bitcoin is to everyone having bitcoin account. You see startups are changing the world. And so as investors we have to be careful that our vision of what the world’s going to be doesn’t get in a way of us learning what’s founder’s vision is. Because a founder has much more ability to make that world a reality than we do as investors. …

Our job is to actually serve our customers and solve the problems. And so more often than not your original idea is going to change because it didn’t solve the problem. It’s hard to come up with solution to a hard problem. I think we’re not talking about this enough. I think startups they seem to go by this public pattern: come up with a great idea, build it, grow and then build a company. Advising hundreds or thousands startups like I do the reality looks nothing like that. Usually you’re obsessed about some kind of problem that exist, often because you have it and you itinerate through a number of different ideas and solutions for that problem. And it might be the first idea that worked, it might be the sixth idea.

The number one factor in your success is your perseverance in dealing with those solutions you come up with not being successful. And I think more often than not founders should be picking problems they’d be excited to build the second, the fourth, the sixth solution of the first solution didn’t work. Too many young startup founders think that success just happens. I think a lot it has to do with how startups are reported. Everyday you can ready stories about startups raising money, raising money and raising money and you would assume that’s all what they do. But in reality it’s almost nothing of what they do. Every time you read a story about a company raising money you should always assume that there’s a story about a company dying that hasn’t been written.

Jaroslav Luptak: Basically what you are saying is that there should be mission over idea, right? So the founders should pursue something they truly care about. And I’m curious to ask you, as an investor if you have a portfolio company that decides to put their mission over the profit, what’s your take on that?

Michael Seibel: So, I love it. Remember, we’re not aiming for profits today. We’re aiming for the company to be around and thriving in decades to come. And I think that companies that do that best are mission-oriented. Companies that do what they do for a specific reason not just to make money. Yes of course, they want to be profitable but also to make impact.

Jaroslav Luptak: How should we look at the problems from the market perspective?

Michael Seibel: So usually my first piece of advice on how to verify your market is to charge. I think a lot of founders have this misconception that after bringing a new product to a market, the way to get users is to make that product free. Because it’s not good enough yet.

If your users have a problem they would use a shitty solution to solve it. And you as a startup you’re looking desperate customers. And charging that person confirms that they are so desperate that they really need this product. Getting feedback from people you’re charging, means you’re getting real feedback. So that is why my strong preference for founders is to charge from early on. Maybe even consider charging even more, consider positioning yourself as a premium solution.

Jaroslav Luptak: You mentioned one interesting word and that is that you were “iterating”. What is the difference between iterating and pivoting.

Michael Seibel: Here is how I think about it in a kind of conceptual theoretical terms and then I say it in a practical way. In conceptual theoretical terms iterating means that you’re keeping the person and the problem constant. Which means that in every iteration you learn more about the person and the problem so you can incorporate that learning in the next iteration.

In pivoting you’re changing the customer or the problem so the vast amount of information you learned from the last solution doesn’t apply anymore.

In a super practical world, people get frustrated by the product, problem or the customer and that’s what drives them to pivot. And what I would really encourage you to do is to think about your initial problem less with your business brain and more with your heart. Most founders’ business brains are horrible. Especially young founders. Pick a problem that is going to maintain your motivation. Will this maintain my motivation for 10+ years?

Most startups commit suicide, they’re not killed. And that suicide is usually caused by loosing motivation. You loose motivation, then you’re going to make a pivot cycle and then you’ll give up. It’s the motivation piece that is the essential piece. And you can understand motivation much better from your heart than from your business brain.

Jaroslav Luptak: I think it is important to talk about the painful journey startups take so they really do think twice whether they want to do it or not. How long did it actually take justin.tv Twitch to build the company, to achieve the product market fit?

Michael Seibel: Justin.tv started in October 2006. We launched the first version of a product in the spring 2007, it was the online reality show live casting. By the summer of 2007 we realized …so we started to build a platform for anyone to broadcast live video, by the fall 2007 we launched that platform. That platform grew but was dominated with copyrighted content – professional sports, movies, television. By about 2010 we realized that that product could really never get true market fit. That copyright owners would continue to put content down not wanting to work with us so that would not be a viable product. We got business profitable that year and we came up with two new ideas. One was Social Camp and the other was Twitch. I would say that by mid 2011 both ideas were launched and I would say that by mid 2012 it was becoming obvious that Twitch was hitting product market fit. It was growing organically with very high retention. And by lead summer 2014 we sold with for billion dollars. So it was an 8-year journey but only in the last two years it was clear that we were onto something. Needles to say, this is an anomaly. Most companies don’t make it through six years without a product market fit. But I think that they could. I think that they could. I don’t think that folks that don’t find the product market fit right away they need to die.

Jaroslav Luptak: So is there a way to somehow measure product market fit?

Let’s be clear, it depends on type of the industry you’re in. If you’re in software industry, the experience feels pretty binary. When you talk to founders, the experience switches from “we need to figure out what features to build in order to make customers to love our product” to “we need to just ensure our product is online”.

Most of the calls I get when a company hits product market fit are negative. Founders are scared. They’re like you didn’t tell us product market fit is not fun. Every part of our software is breaking, customers calling us every day trying to get on and we don’t have enough room to support them, my team members are telling me we’re understaffed, we can’t make it. That’s how product market fit feels like and I’m loving those phone calls because I’m always telling founders I’m sorry that we forgot to tell you that being post-market fit is painful if not even more painful than searching for product market fit.

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