Jessica Livingston, founder of Y Combinator, discusses the key factors that contribute to the success of startups. She emphasizes the importance of founders staying focused on building their product and talking to users, while avoiding distractions such as partnerships, PR, and networking events. The most successful startups have ambitious plans and a grand vision, even though they may start small. Livingston believes that getting started with an idea is more important than having the perfect idea from the beginning, as ideas can evolve over time. She shares the example of Airbnb, which initially started as renting out airbeds during conferences but later transformed into renting out entire homes. Livingston also mentions the challenging economic conditions during the time Airbnb applied to Y Combinator, highlighting the uncertainty and fear surrounding startup funding.

- Y Combinator was initially skeptical about Airbnb's idea of renting out air beds, but the founders were convincing and had personal insights into the concept.
- The founders of Airbnb faced challenges in fundraising and even had investors walk out in the middle of pitches.
- Y Combinator bet on the founders rather than the idea itself.
- The Collison brothers, founders of Stripe, impressed Y Combinator with their determination and ability to convince banks to work with them.
- The most important traits in successful founders are determination, understanding users, being flexible-minded, and being a good leader.
- Y Combinator was started because the founders believed the investment world was broken and wanted to create a standardized and accessible form of funding for early-stage startups.

- Y Combinator, a startup accelerator, made same-day decisions on funding applications, which was unprecedented at the time.
- Y Combinator funded 8 companies in its first batch and quickly realized the power of funding startups in a group.
- The founders of Y Combinator had to do various tasks, such as advising startups, setting up the office, cooking dinners, and delivering air conditioners.
- The importance of having co-founders and a pre-existing relationship was emphasized.
- Y Combinator knew they were onto something early on, but didn't realize the extent of its success until Reddit and Dropbox gained traction.
- Looking back, Y Combinator would have hired more partners earlier on, but overall, the organic growth of the accelerator has been successful.
- Y Combinator's founder-friendly approach has been a key factor in its success.

- The purpose of Y Combinator (YC) is to encourage more startups and promote innovation
- YC prioritizes what is best for founders and offers founder-friendly terms and investment paperwork
- YC believes that successful startup founders are driven by a greater purpose, not just money
- YC initially did not make money and it takes time to make money as an investor
- YC prides itself on giving great advice, which is often hard to find from investors
- YC has attracted talented and intelligent founders, creating a strong community
- Advice for aspiring startup founders includes learning to code, building projects, and working at early stage startups
- YC has seen an increase in female founders and encourages them to focus on their product and not be deterred by challenges
- The advice for female founders is to start a company, apply to YC, and build something people want.

- Jessica Livingston, founder of Y Combinator, discusses the key factors contributing to startup success.
- Founders should focus on building their product and talking to users, avoiding distractions like partnerships and networking events.
- Successful startups have ambitious plans and a grand vision, even if they start small.
- Getting started with an idea is more important than having the perfect idea from the beginning.
- Livingston shares the example of Airbnb's evolution from renting airbeds to renting entire homes.
- The economic conditions during Airbnb's application to Y Combinator were challenging.
- Y Combinator bet on the founders rather than the idea itself.
- Determination, understanding users, flexibility, and leadership are important traits in successful founders.
- Y Combinator was started to create a standardized and accessible form of funding for early-stage startups.
- Y Combinator made same-day funding decisions, funded 8 companies in its first batch, and realized the power of funding startups in a group.
- Having co-founders and a pre-existing relationship is emphasized.
- Y Combinator's founder-friendly approach has been key to its success.
- Y Combinator encourages more startups, prioritizes what is best for founders, and offers founder-friendly terms and investment paperwork.
- Y Combinator believes successful founders are driven by a greater purpose, not just money.
- Y Combinator prides itself on giving great advice and has attracted a strong community of talented founders.
- Advice for aspiring startup founders includes learning to code, building projects, and working at early-stage startups.
- Y Combinator has seen an increase in female founders and encourages them to focus on their product and not be deterred by challenges.

Jessica is a cofounder of Y Combinator.

Y Combinator has funded 1,500 startups and they are worth more than $70 billion in total. More than 10 of them are worth more than a billion dollars or more.

Access podcast and transcript versions of this interview here:
https://www.ycombinator.com/future/jessica/

Hi everyone, my name is Sam Altman and this is How to Build the Future.

Today our guest is Jessica Livingston, the founder of Y Combinator, where I now work.

Y Combinator has funded 1500 startups and they're worth more than $70 billion in total.

More than 10 of them are worth a billion dollars or more.

So in terms of how to create a unicorn, Jessica Livingston probably knows more about this than maybe anybody else in the world.

So we are super delighted you came here today to talk to

What I really wanna get out of you is how founders get on a path to build a huge company.

So you have now for 11 years seen founders come in when they're just 2 or 3 people in an idea.

And sometimes those founders go on to do nothing most of the time.

Sometimes they create a small success and sometimes they create these companies that really transform the world.

And NYC has been very fortunate to be involved in a lot of those, Airbnb, Dropbox, Stripe, the list goes on.

And what I think would be really helpful is to talk about what the companies do during Y Combinator that allows them to then go on and build these super impactful companies.

So what have you observed the very best companies do when they're brand new?

Well, I've now seen more than 1,000 companies go through YC, So I'm very familiar what these companies do during YC And I'm first gonna say that there's not really 1 path for everyone necessarily and a lot of times These successful startups get started almost accidentally But when they're at the point where they say, yes, I am going to take this company seriously, I'm going to apply to Y Combinator, and then they come here to Silicon Valley for 3 months, the most successful founders I've noticed are totally focused on 2 things, building their product and making something people want, which of course is our motto, and talking to their users.

And they do not let themselves get distracted by anything else.

And that seems so obvious, but what's not obvious is how easily distracted founders can be by lots of other things going on.

And the most successful startups are like hyper-focused on their product.

What are some of the things that distract founders that seem like good ideas at the time?

And in fact, in a talk that I gave at the Female Founders Conference a couple months ago, I referred to some of these things as like the startup equivalent of wolves in sheep's clothing, because they really do seem like you're doing business.

A few of them are talking to big companies to try to form partnerships in an attempt to get better distribution or somehow get more users, to do a lot of PR before you've nailed down the product, to talk to corp dev people.

When you're not thinking about being acquired, yet you'll still have meetings with these people.

Or you'll take meetings with investors when you're not in fundraising mode, just to sort of build a relationship.

Or going to conferences, networking events, all these things that seem like important things to do as part of your business are not important in the very early stages when it's critical to build your product.

And how do you know when you have hit the product, as you just said?

Well, I think when you have people using it, you can measure your growth and you can measure how many users you get and are they coming back?

I mean, that's just the greatest thing of all, if you can charge for your product and that growth rate is going up.

So for all the YC companies that have gone on to be these sort of household names, did they all do this during YC, where they just focused on their growth rate, writing code, talking to users?

Are they the companies that ended up ignoring everything else?

If I had to think back on the most successful startups all during YC They were super focused and they weren't all over the place in terms of ideas that they were working on or things that they were doing They were definitely focused.

Like could Brian Chesky of Airbnb have told you during YC here's how we're gonna be a 25 billion dollar company and here's what we're gonna look like 7 years later?

I don't think they would have gone that far.

I think that all of the most successful founders have ambitious plans And they certainly start a lot smaller like they seem much less important when they're first getting started But I think the founders do have a grand plan.

I Have to believe though that when they're all in the earliest phases, none of them can predict just how big they'll be.

I don't think Brian Chesky knew that they'd be where they are today.

And how much strategizing do you think the companies do about how they're going to get from here to the next step to the step after that.

Like during YC, are they really just focused on trying to make a few users really happy?

Or are they thinking about, well, we need to build up a monopoly.

And so in Airbnb's case, we'll have that because we'll have 1 marketplace.

Or is it really just like, let's build this product people love and see where it goes?

I really do think it starts as, let's build this product and see where it goes.

In some cases, let's solve our own problem and see where it goes.

I mean, they built that product because it was a pain in the ass for themselves.

They were solving something for themselves.

So I do think that they are saying, let's build this and see where it goes.

However, I think that the most successful ones do have that grander vision.

I remember specifically during YC, Airbnb said to themselves and I think to investors, we plan to become the eBay of space.

Like they were nowhere near the eBay of space at that point, but they had that vision and they were working toward that.

Like you said, Airbnb came with this idea that turned out to actually be the eBay of space.

But a lot of founders, I think, don't get started because they don't yet feel like they have the idea that can be the $100 billion company.

So how important do you think it is to get the idea just right at the beginning or to just get started with something and then figure out where to take it?

I am of the mind of just get started with something.

And that's because we are funding companies at such an early stage that we're really funding the companies for the founders and for the attributes of the founders.

Have they been able to ship something in the past?

A lot of times, they don't get the idea right the very first time.

They might be in the general vicinity of being right, but then they have to adjust their idea.

Some founders totally fail with their idea and have to change completely, but I think it's more important to get started with something, build it, because your idea is always going to evolve.

I mean, Airbnb is like, to me, 1 of the most famous examples of an idea that has evolved, right?

They came to us with their idea, which was at the time, renting out airbeds in your home while you were there during conferences.

And then they said, okay, now we're gonna rent out airbeds in your home, but not during conferences.

And did all of that morphing happen during the YC program?

I think it, I want to say it took about a year.

I'm Not 100% certain, but I remember what happened specifically was Airbnb was always very strict about the host being home so that they could provide breakfast because it was airbedandbreakfast.com.

And then the famous story is that Airbnb's 1 of their hosts was Barry Manilow's drummer and he had this great place in New York City and he contacted them and said, hey, Barry's going on tour, I'm going to be gone, can I just rent out my apartment while I'm not there?

And like the Airbnbs were like, oh that doesn't really fit.

That's how they figured out how to like rent out whole spaces and to this day I think that that's like the majority of their business, but it took something like that to get them to even consider doing it.

Could you tell the story of what you thought the first time you met the Airbnb founders when they came in to interview for YC?

I mean, I know they were in kind of a rough place.

We actually did not know what a rough place they were in.

And for people that weren't around in the fall of 2008, it was really a grim time to be doing a startup in Silicon Valley.

Because the macroeconomic conditions had collapsed.

The macroeconomic conditions had collapsed.

People were, oh, we're gonna hold off on investing.

And so I do remember we went into interviews saying, we're only going to choose companies that we think could make it to profitability really quickly on their own, and then they can live as a cockroach.

Because you just weren't sure they'd be able to raise any money

Right, we weren't sure that come March, a demo day, that we had no idea what investors would be doing and so we were really sort of frightened.

It would be a disaster if we had this big demo day and none of the startups could get more funding.

So the Airbnbs came in and they were sort of a last-minute addition to the interview process.

I remember Michael Seibel, 1 of the partners here, said, hey, can you slot these guys in?

And I remember during the interview, Paul Tried to change their idea.

We thought this idea of like renting out air beds was a little weird

I know I know He but he did try to like pitch them a new idea and they were like no no And And that's just 1 of those things.

They knew they were on to something because they themselves were hosts.

And that is 1 of the key things about founders is that when you're using your own product or solving your own problem, you have all these insights that no 1 else has.

And the Airbnbs were renting out their room and their apartment because they couldn't pay their own rent.

So they had a lot of insights into this idea.

It's sort of funny, given the current controversy on Airbnb, that Airbnb started as an affordable housing company.

They had these insights that it was this wonderful experience when someone comes out of town to have hosts that can help them and show them around.

So they convinced us that their idea had legs and that their users, you know, the few users they had loved them.

I remember more about the founders though.

They were very convincing when they spoke.

You could tell they had thought about this problem a lot.

They didn't have all the answers by any means, but they just seemed like they had thought about this a lot.

And I remember also they brought in as a gift these cereal boxes, Obama O's and Cap'n McCain's or something.

This was the 2008 presidential election, and they had made these cereal boxes with Cheerios and Captain Crunch in them, which sounds so silly, because they're just cereal.

But I remember they said, oh, yeah, we designed these.

And then we went out and got Cheerios and we stuffed them in there and glue gun the boxes together and we've been giving them away And I thought oh my god.

These guys are like glue gunning the cereal boxes.

They really were doing this because they were out of money, and this was like a Hail Mary for them.

And they did wind up making a lot of money from these.

But to us, they were doing it as sort of a fun thing because they're Airbnb, They provide breakfast, coincided with the presidential elections.

But the original driving reason was just like, they couldn't raise any money.

Again, during the interview, we did not know these stories.

But when you hear the stories of the Problems that they had trying to fundraise prior to YC.

It's crazy They had 1 investor like leave in the middle of a pitch just walk out without even saying good.

Goodbye No 1 believed this idea was good or certainly would be big.

Did you know at the time that the idea could be great or was it for you really just a bet on those 3 guys as founders?

I have to admit it was more of a bet on the 3 founders.

I did Sort of like the idea of being able to stay in people's homes But I I have to admit I was I was not thinking it was gonna be huge

Just because that story was so interesting.

What was it like when you met the Collison brothers?

I think they were 19 and 17 when they started Stripe.

And they came in and said, we're going to do this crazy thing, and we're teenagers, and we're going to take on the financial system of the world.

Well, I have to admit, we met Patrick years earlier, when he was 16 or 17, still living in Ireland, because he looked up Paul, and we had him over for dinner.

So it wasn't like we first met them at a YC interview We We I think Patrick was working on some other idea first or something and we had high regard for him.

He certainly was good at building things and he had a Wikipedia app, so we knew he was a talented programmer.

He introduced us to his 16-year-old brother.

And I'm trying to remember when they said, oh, we're going to take on the financial industry.

I think we were kind of Like, do you realize how hard this is?

They were like, well, we don't have connections.

And they just—that is actually a really good question that you bring up because It shows how determined they were and how focused they were.

I mean, you think the head of a bank is going to take a 19-year-old startup founder seriously?

But they were good enough that they were able to convince these banks to work with them.

Are there other traits in the founders that go on to really change the future, besides determination, that separate the very best founders from the mediocre founders?

Have you noticed any other traits that kind of founders should aspire to that really want to have a big impact?

Yes, if I had to say The most important traits of the most successful founders.

I've already mentioned determination That is by far the most important

more than intelligence More than previous success, you know in school.

I mean remember when we started Y Combinator our Hypothesis was oh, we'll just fund all the best hackers from MIT and Harvard, and they'll turn out to be great startup founders.

A lot of them are good, And in fact, Patrick was from MIT, but it's not true for the most part.

Determination is the most important thing.

Again, sort of understanding your users and building a product with a great user experience is second most important.

Not being distracted, not getting lured down these paths that aren't going to be important for building your product.

Being flexible minded I've always felt is very important because you have this idea and you test it out and it doesn't always work the first time.

So you have to be able to say, okay, I thought I was going to do this, but let's try this.

Even though I have a lot of energy vested in this, let's try this direction.

And then ultimately, you have to be a good leader.

You have to be convincing and a good leader, Because you are going to be convincing employees to join you.

You're going to be convincing investors to invest in you.

When you do get to the point where you're doing deals with bigger companies, you have to convince them.

Like, your whole world is convincing people.

And so you have to be able to communicate your idea and convince people why they should care about you more than any of the other hundreds of startups out there.

So now I'd like to talk about your startup, Y Combinator, and how you started that.

Could you tell us the story of starting Y Combinator?

It was very much started in the same way that a startup is started, where Paul and I had this idea.

We really felt that the investment world was broken.

If you were an early stage startup and you just wanted to like test something out You either had to go to a VC and get 5000000 dollars Which is virtually impossible at that early stage or you had to know someone who was rich and could give you money And we thought there could be something better.

We thought there could be like a standardized, branded form of funding.

So if you wanted $25,000 or whatever, you could come to Y Combinator and we'd make it very easy for you.

So we thought, okay, let's start an investment company.

And then we sort of lured in his old co-founders, Robert Morris and Trevor Blackwell to be part of this, even though they were full-time on something else.

And we said, gosh, none of us know anything about angel investing.

Let's fund a whole bunch of companies at once, and we'll learn a lot.

So we set up a website, and we said, come join the Summer Founders Program.

And we started working on it, let's just say, in January.

We wanted to change a few specific things.

We wanted to make it very easy for people to find us and apply.

They didn't have to have a connection to us.

We had an application of like 20 questions.

We wanted to make it very simple on our side.

We're giving you $12,000 per startup, or $18,000 if you had 3 founders, but it was a very specific amount for this amount of stock.

And our paperwork is gonna be real straightforward.

And we're gonna make the decision that day.

We'll interview you and tell you that night." And that never happened back before us.

No 1 got a same-day decision for the most part.

They had known about Paul because of his essays.

And we found 8 companies to fund that summer.

And we learned very, very quickly into the 3 months that funding startups in a batch was incredibly powerful.

And it was powerful in that you could teach them all sort of the same things at once, and they became colleagues.

Because starting a startup as 1 or 2 people is very lonely and very isolating and back then in 2005 there was no information online about early stage startups at all So no 1 knew what they were doing.

So even Y Combinator was an example of this start with an idea you don't know much about, build something people want and iterate.

Do it lightweight, start small and evolve.

And we realized we had dinners on Tuesday nights, which actually we still have to this day, and we have guest speakers come in.

I personally helped everyone incorporate their company.

What else did you spend your time on that first summer?

Oh my god, what didn't I spend my time on?

As any startup, there was too much for everyone to do.

Paul spent his time advising the startups on their ideas, because I didn't really know that much about startups.

I was doing everything to get Y Combinator up and running.

I mean, we had to get our office, we had to cook dinners.

I was going grocery shopping and Paul was cooking the dinners.

We were recruiting speakers to speak that summer.

This is not what most people picture doing when they think about starting a really important company.

So I think it's good to note that this is in fact what it's like.

Oh my God, there's so much unglamorous work that founders have to do early on, and you just have to do it.

But I was delivering air conditioners to different people.

We had 8 startups in that batch, and they were all living scattered around the Harvard Square area, and there was a heat wave, and we were like, we can't have our founders not being able to work, So I went to Home Depot and I bought like 10 air conditioners and delivered them to everyone

What you know that summer that why come it was going to work?

would say within the first month, we were like, this is really interesting.

And people are working on very interesting ideas.

I mean, you were working on location stuff on your phones.

Before Reddit was in there, we were very interested in Reddit.

The JustinTV and Twitch guys, Justin and Emmett, were working on a calendar.

Unfortunately, Google Calendar launched and killed them.

But I mean, these were interesting things.

It's a great story about investing in people, that it was Justin's third Y Combinator startup, I think, that ended up being a billion dollar exit.

See all Y Combinator transcripts on Youtube

Jessica Livingston : How to Build the Future