- Jessica Livingston, co-founder of Y Combinator, gives a talk about the challenges faced by startups.
- She emphasizes the importance of resilience and drive in overcoming obstacles.
- She uses examples of successful startups like Airbnb, Pebble, and Y Combinator to illustrate her points.
- Livingston encourages founders to stay determined and not be discouraged by rejection or criticism.
- She also highlights the need for improvisation and unconventional approaches to problem-solving in the startup world.

- Founders of Locketron impressed an investor with their prototype and received an order for 40 units, but couldn't afford the commercial locks needed.
- They bought broken locks, fixed them, and fulfilled the order.
- They faced challenges when launching on Kickstarter, but created their own platform and sold close to $2 million worth of Locketrons.
- Another example of improvising involved sending a message to a co-founder through a pizza delivery person.
- Founder breakups can be detrimental to a startup's productivity and morale.
- Investors tend to have a herd mentality and fundraising can be slow and demoralizing.
- Distractions, such as networking and talking to corporate development people, can hinder startup progress.
- The difficulty of creating something people want is a major challenge for startups.

- Startups require more than just brilliance and determination, they require the ability to talk to users and adjust ideas accordingly.
- Many successful startups have gone through multiple iterations and changes before finding the right idea.
- Dropbox is an example of a startup that went through a lot of refinement before achieving success.
- Startups experience dramatic ups and downs, often related to fundraising.
- A startup that was promised funding had the deal fall through at the last minute, causing them to lose everything.
- Another startup, Codecademy, experienced rapid success after launching just days before demo day.
- Startups should not get immobilized by failure or complacent by success.
- Startups face scrutiny and criticism from trolls and reporters, so having a thick skin is important.
- Startups are hard and can be demoralizing, but understanding the challenges can help navigate them.

Jessica Livingston, co-founder of Y Combinator, discusses the challenges faced by startups and emphasizes the importance of resilience and drive. She uses examples of successful startups to illustrate her points. Livingston encourages founders to stay determined, be open to unconventional problem-solving, and not be discouraged by rejection or criticism. She also highlights the need for adaptability and the ability to adjust ideas based on user feedback. Startups often face ups and downs, particularly in fundraising, and must be prepared for criticism and setbacks. Understanding and navigating these challenges is crucial for startup success.

Jessica Livingston, partner at Y Combinator, at Y Combinator Startup School on October 20, 2012.

Presented in Stanford Memorial Auditorium by Y Combinator and the Stanford Technology Ventures Program.

We have like this team of people in the back helping.

And it's been more than 7 years since we started YC.

And in that time, we've funded 467 startups.

I was a little nervous back there, so thanks.

There's a talk I always want to give at the beginning of each batch, warning everyone about stuff that I know is probably going to happen to them.

I finally wrote down my thoughts, and I'm going to share it with you today.

So we all know that lots of smart and talented people start startups.

On the left side there you see huge numbers of startups getting started.

And yet, if you look at the other side a few years later, there's actually only a handful of startups that are big successes.

What's happening in the middle there that's causing such failure?

It's like there's a tunnel full of monsters that kill them along the way.

And I just want to thank Minnow Monsters for providing me these fabulous cartoon monsters.

So I'm going to tell you about these monsters today so you can know how to avoid them.

In general, your best weapon against these monsters is determination.

And even though we usually use 1 word for it, determination is really 2 separate things.

Resilience keeps you from being pushed backwards, and drive makes you go forwards.

1 reason you need resilience in a startup is that you're going to get rejected a lot.

Even the most famous startups had a surprising amount of rejection early on.

Everyone you encounter will have doubts about what you're doing, whether it's investors, potential employees, reporters, your family and friends.

What you don't realize until you start a startup is how much external validation you've gotten for the conservative choices you've made in the past.

You go to college and everyone says, great.

You graduate and get a job at Google and everyone says, great.

Well, what do you think happens when you quit your job to start a company to rent out air beds?

This is Airbnb's website when they first launched in 2007.

I mean, look up there where they explain what they do.

It says 2 designers create a new way to connect at the IDSA conference.

I've never even heard of that conference.

And over on the left it says list your airbed.

This is not the sort of thing that you get a lot of external validation for.

Almost everyone is more impressed when you get a job at Google than if you make a website for people to rent out airbeds for conferences.

And yet, this is 1 of the most successful startups.

So even if you're Airbnb, you're going to start out looking like an ugly duckling to most people.

Here are the Airbnb founders when they did YC back in early 2009.

And at this point, they'd already endured tons of rejection.

You should check out Brian's talk from the 2010 startup school.

But by the time they came to us, they had maxed out their credit cards, they were eating leftover Cap'n McCain cereal, they were at the end of their rope.

And everyone thought their idea was crazy.

And during YC, they made some key changes to their site, they talked to users, they set their goals, and they measured everything.

Remember, new ideas usually seem crazy at first.

But if you have a good idea and you execute well, everyone will see it eventually.

We funded Eric Mijakovsky about 2 years ago when he was working on Impulse, the predecessor to the Pebble watch.

Eric was a single founder And these watches there have something in common that terrifies investors.

Poor Eric had a really hard time getting funding.

He met with more than like 30 investors who all said things like, I love the idea, but I can't fund a hardware company.

Some claim they just didn't fund hardware companies as a rule.

Others said that there were too many capital expenses up front.

They all said no when he showed them the concept.

But he'd been building the Pebble based on all this user feedback from the impulse and he felt strongly that people wanted this product.

So I remember he talked to Paul and they agreed he should just give up investors and put it on Kickstarter.

His original goal was to raise $100,000 to make 1,000 watches.

And instead of $100,000, Pebble raised $10.2 million in 30 days, The largest amount of money ever raised on Kickstarter.

Even Y Combinator got rejected when we first started.

This here is our first batch sitting at dinner in Cambridge, Massachusetts back in 05.

Now there are lots of organizations doing what we do, but trust me, when we first started, people thought we were crazy or just stupid.

Even our own lawyers tried to talk us out of it.

But 8 teams of founders took a chance on Y Combinator and moved to Cambridge and got their $12,000 per team.

And I think they'd tell you they had a really great experience.

We, too, knew we were on to something interesting.

So we focused on making something that a few people loved and we just expanded slowly from there.

When we came out to Silicon Valley in the winter of 06, we hardly knew anyone So we decided we'd focus on meeting new investors to convince them to come to Demo Day.

I got an introduction to the number 1 angel investor in the Valley, Ron Conway.

And let me show you how he tried to brush us off.

So we get the introduction, and Ron says, is this in Boston?

And I said, no, we're in Mountain View, and we'd love to have you come to demo day.

And he said, So is this a chance to invest in your incubator?

And I replied, no, we're not asking you to invest in us.

We were asking you to invest in the individual startups.

And he said, I'll have to circle back to you.

We got the jammed up right now from Ron Conway.

Here's Ron a year later, speaking to the Winter 07 batch of founders.

He did wind up coming to Demo Day and he was impressed with what he saw.

Remember, if you execute well, eventually you'll win people over.

And by the way, I should also point out that there's David Rusenko, who's speaking later today.

And there's Harj Taggar, who's now a partner at YC.

Remember, there were 2 components to determination.

We've talked about why you need resilience because everyone will be down on you.

But you need drive to overcome the sheer variety of problems you'll face in a startup.

Some of them are painfully specific like a lawsuit or a deal blowing up and some are demoralizingly vague like no one's visiting your site and you can't figure out why.

There's no playbook you can consult when these problems come up.

And sometimes you have to do things that seem kind of abnormal.

Elacarte lets restaurant customers order and pay through a tablet.

He was a grad student at MIT when he started the company, and he was so committed that he got a job as a waiter to learn what restaurants were like.

You see that air duct up there over his head that looks like a halo?

Here are the Collison brothers who founded Stripe.

Patrick's speaking right after me today actually.

When these guys got started, they were a pair of young programmers.

They had no idea how to make deals with banks and credit card companies.

So I asked Patrick, how did you even convince these big companies to work with you.

And 1 trick he told me that worked was he started with a phone call.

And then people would pay attention to their arguments without being distracted by their youth.

And by the time they met in person and the companies could tell how young they are, they were already impressed.

We funded the Lockitron guys back in the summer of 2009.

That's them, actually, at their YC interview.

A year after YC, they were still figuring out their idea.

And 1 day, the WePays were having a party for their investors.

And by that point the Lockatrons were working on a product to lock your door with the iPhone.

They were able to impress 1 of the investors with their prototype and he asked to have 40 installed at some startup offices he owned.

The founders were totally psyched, but the commercial locks they needed to use cost $500 a pop.

They didn't have $20,000 to fulfill that order.

So they went around to local locksmiths and scrapyards buying broken locks for $10 a piece.

They fixed them themselves and were able to deliver on that order.

Fast forward a few years later and these guys were ready to launch the newest version of the Lockatron and they decided to go on Kickstarter.

A day after Locketron submitted their campaign, Kickstarter changed their policy about hardware companies and rejected them.

But the Locketron guys decided to build their own Kickstarter and they did it in less than a week.

And not only did people come but they've already sold close to 2 million dollars worth of Locketrons that way.

These are the Justin TV founders when they first got started.

And they were having a lot of scaling issues.

And 1 weekend, their whole video system went down.

Kyle was in charge of it, but no 1 knew where Kyle was.

And Kyle wasn't picking up his cell phone.

This was live video, so it was pretty critical that this get fixed immediately.

So Michael Siebel called Kyle's friends and found out that he was in Lake Tahoe and got the address.

You know the address of where someone is and he's not answering his phone.

How do you get a message to him immediately?

Michael went on to Yelp and looked for a pizza place near the house and called them up and said, I want to have a pizza delivered but never mind about the pizza.

Just send the delivery guy over and say these 4 words, the site is down.

So, the pizza place was like really confused by this and they send the pizza guy without a pizza.

The delivery guy's like, the site is down.

Kyle's like, oh no, and he fixed the site.

It was down for less than 1 hour from start to finish.

All right, so now we're going to move on to another monster, co-founder disputes.

I think people underestimate how critical founder relationships are to the success of a startup.

Unfortunately, I've seen more founder breakups than I care to even count.

And when it happens, it can crush a startup.

Be very careful when you decide to start a startup with someone.

Have you worked with them or gone to school with them?

Don't just slap yourself together with someone just because they're available and seem good enough.

And if you start seeing red flags, do something about it.

It's a red flag when you find yourself worrying whether your co-founder is trustworthy or whether he or she works hard enough or is competent.

When founders break up for whatever reason, it's a blow to the startup's productivity and morale.

If there's 3 and 1 leaves, it's not so bad.

But if there's 2 and 1 leaves, it's hard, because now you're a single founder.

They like you if other investors like you.

So if no 1 likes you until others do, what happens when you talk to the first ones?

It's like the catch-22 of not being able to get a job because you don't have enough experience.

You're really starting off in a hole, and you have to work your way out of it.

You have to meet with lots of investors and hear things like, I'd be interested once you get some more traction, or who else is investing?

If you work hard enough, you may be able to find a few people who are excited enough about you and the idea to fund you, even though you don't have other investors yet, then when you have a few investors, you can start to make the herd mentality work for you instead of against you.

Fundraising is hard and slow until it's fast and easy.

But working to convince those first few investors can be really demoralizing.

Left to their own devices, they'll just keep delaying.

There's no downside for them to delay, whereas delay will kill you, because while you're fundraising, your company will grind to a halt.

And by the way, there are some really good investors who aren't like this.

I'm just talking about the median investor.

But it blows my mind how many successful startups had a hard time fundraising at first.

If you remember 1 piece of advice about investors, it's that you've got to create some type of competitive situation.

I'll give you what has always stuck in my mind as the most amazing example of this.

1 of the founders of 1 of our more successful startups had a long-standing relationship with a VC.

So when the founder started the company and did YC, This VC kept in touch for the 3 months, not really doing anything except kind of keeping a benevolent eye on the founder.

The VC attended demo day, but didn't invest.

After a few months, the startup gets a term sheet from a prestigious VC.

And for those of you in the audience who don't know, a term sheet is an offer to invest in your company.

When the first VC heard about this, he shifted into panic mode.

He faxed the founder a term sheet from his firm with the valuation blank and just said, fill in whatever valuation you want and we're in.

And there are worse things investors can do than just delay.

Sometimes they say yes and then change their mind.

It's not a deal until the money is in the bank.

And we've seen some founders learn that the hard way.

I could tell you a lot of horror stories to frighten you, But just remember that fundraising's a bitch.

YC founders raise money under really good circumstances.

1 of the reasons fundraising can be so damaging to your company is that it's a distraction.

We warn everyone early on at YC that there's, you know, you need to be very careful about distractions.

And no one's stupid enough to play video games all day, but the kind of distractions founders fall for are things that seem like a reasonable way to spend their time.

We tell people that during YC, there's 3 things that they should be focusing on, writing code, talking to users, and exercising.

And maybe that's a little bit extreme, but the point is early on, nothing else for your startup matters.

You need to figure out how to make something people want and do it well.

And by the way, fundraising is a distraction, but it's a necessary 1, so just try to spend as little time on it as possible.

1 thing that isn't necessary and is a bad distraction is talking to corporate development people, or corp dev.

These are people at big companies who buy startups.

So you get a call from a corp dev person, and they want to learn more about what you're doing and explore possible ways of working together.

The founder thinks, oh boy, this important company wants to work with me.

And I hate to sound harsh, but what these meetings are really for is a way for them to see if they want to do an HR acquisition.

And an HR acquisition means they're essentially trying to hire you.

And they're such a dangerous distraction that I've given them their own little monster.

There's nothing wrong with HR acquisitions if that's what you want to do.

But most founders don't start startups just to get a job at a big company for what essentially is a nice hiring bonus.

Talking to corp dev people early on isn't just a waste of time.

And I see this cycle happen over and over.

The founders go to meet with the Corp Dev people and think the meeting was great.

And the founders delude themselves into thinking that their startup is going to be the 1 that gets bought for $10 million after only 5 months.

They start to think, OK, yeah, we'd kind of like to get acquired.

And they start to not work on their startup anymore, and they lose momentum.

Then they get the offer, and it's essentially what they would have gotten if they'd walked in off the street and gotten a job.

But by then, they've gotten so accustomed to the idea of selling that they take it.

So going down the CorpDev road seriously can deflate your ambitions.

OK, now we come to the fiercest monster of all, the difficulty of making something people want.

It's so hard that most startups aren't able to do it.

You're trying to figure out something that's never been done before.

Not making something people want is the biggest cause of failure we see early on, with the second biggest being founder disputes.

In order to make something people want, being brilliant and determined is not enough.

You have to be able to talk to your users and adjust your idea accordingly.

And ordinarily, you have to change your idea quite a lot, even if you start out with a reasonably good 1.

Airbed and Breakfast was a rather narrower idea when they first launched.

They started out as a site that let people rent out air beds to travelers for conferences.

Then they changed to renting out air beds.

Then they changed to renting out a room or a couch, but the host had to be there to make breakfast.

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Jessica Livingston at Startup School 2012