April 2008(This essay is derived from a talk at the 2008 Startup School.)About a month after we started Y Combinator we came up with thephrase that became our motto: Make something people want. We'velearned a lot since then, but if I were choosing now that's stillthe one I'd pick.Another thing we tell founders is not to worry too much about thebusiness model, at least at first. Not because making money isunimportant, but because it's so much easier than building somethinggreat.A couple weeks ago I realized that if you put those two ideastogether, you get something surprising. Make something people want.Don't worry too much about making money. What you've got is adescription of a charity.When you get an unexpected result like this, it could either be abug or a new discovery. Either businesses aren't supposed to belike charities, and we've proven by reductio ad absurdum that oneor both of the principles we began with is false. Or we have a newidea.I suspect it's the latter, because as soon as this thought occurredto me, a whole bunch of other things fell into place.ExamplesFor example, Craigslist. It's not a charity, but they run it likeone. And they're astoundingly successful. When you scan down thelist of most popular web sites, the number of employees at Craigslistlooks like a misprint. Their revenues aren't as high as they couldbe, but most startups would be happy to trade places with them.In Patrick O'Brian's novels, his captains always try to get upwindof their opponents. If you're upwind, you decide when and if toengage the other ship. Craigslist is effectively upwind of enormousrevenues. They'd face some challenges if they wanted to make more,but not the sort you face when you're tacking upwind, trying toforce a crappy product on ambivalent users by spending ten timesas much on sales as on development. [1]I'm not saying startups should aim to end up like Craigslist.They're a product of unusual circumstances. But they're a goodmodel for the early phases.Google looked a lot like a charity in the beginning. They didn'thave ads for over a year. At year 1, Google was indistinguishablefrom a nonprofit. If a nonprofit or government organization hadstarted a project to index the web, Google at year 1 is the limitof what they'd have produced.Back when I was working on spam filters I thought it would be agood idea to have a web-based email service with good spam filtering.I wasn't thinking of it as a company. I just wanted to keep peoplefrom getting spammed. But as I thought more about this project, Irealized it would probably have to be a company. It would costsomething to run, and it would be a pain to fund with grants anddonations.That was a surprising realization. Companies often claim to bebenevolent, but it was surprising to realize there were purelybenevolent projects that had to be embodied as companies to work.I didn't want to start another company, so I didn't do it. But ifsomeone had, they'd probably be quite rich now. There was a windowof about two years when spam was increasing rapidly but all the bigemail services had terrible filters. If someone had launched anew, spam-free mail service, users would have flocked to it.Notice the pattern here? From either direction we get to the samespot. If you start from successful startups, you find they oftenbehaved like nonprofits. And if you start from ideas for nonprofits,you find they'd often make good startups.PowerHow wide is this territory? Would all good nonprofits be goodcompanies? Possibly not. What makes Google so valuable is thattheir users have money. If you make people with money love you,you can probably get some of it. But could you also base a successfulstartup on behaving like a nonprofit to people who don't have money?Could you, for example, grow a successful startup out of curing anunfashionable but deadly disease like malaria?I'm not sure, but I suspect that if you pushed this idea, you'd besurprised how far it would go. For example, people who apply to YCombinator don't generally have much money, and yet we can profitby helping them, because with our help they could make money. Maybethe situation is similar with malaria. Maybe an organization thathelped lift its weight off a country could benefit from the resultinggrowth.I'm not proposing this is a serious idea. I don't know anythingabout malaria. But I've been kicking ideas around long enough toknow when I come across a powerful one.One way to guess how far an idea extends is to ask yourself at whatpoint you'd bet against it. The thought of betting against benevolenceis alarming in the same way as saying that something is technicallyimpossible. You're just asking to be made a fool of, because theseare such powerful forces. [2]For example, initially I thought maybe this principle only appliedto Internet startups. Obviously it worked for Google, but whatabout Microsoft? Surely Microsoft isn't benevolent? But when Ithink back to the beginning, they were. Compared to IBM they werelike Robin Hood. When IBM introduced the PC, they thought theywere going to make money selling hardware at high prices. But bygaining control of the PC standard, Microsoft opened up the marketto any manufacturer. Hardware prices plummeted, and lots of peoplegot to have computers who couldn't otherwise have afforded them.It's the sort of thing you'd expect Google to do.Microsoft isn't so benevolent now. Now when one thinks of whatMicrosoft does to users, all the verbs that come to mind begin withF. [3] And yet it doesn't seem to pay.Their stock price has been flat for years. Back when they wereRobin Hood, their stock price rose like Google's. Could there bea connection?You can see how there would be. When you're small, you can't bullycustomers, so you have to charm them. Whereas when you're big youcan maltreat them at will, and you tend to, because it's easierthan satisfying them. You grow big by being nice, but you can staybig by being mean.You get away with it till the underlying conditions change, andthen all your victims escape. So "Don't be evil" may be the mostvaluable thing Paul Buchheit made for Google, because it may turnout to be an elixir of corporate youth. I'm sure they find itconstraining, but think how valuable it will be if it saves themfrom lapsing into the fatal laziness that afflicted Microsoft andIBM.The curious thing is, this elixir is freely available to any othercompany. Anyone can adopt "Don't be evil." The catch is thatpeople will hold you to it. So I don't think you're going to seerecord labels or tobacco companies using this discovery.MoraleThere's a lot of external evidence that benevolence works. But howdoes it work? One advantage of investing in a large number ofstartups is that you get a lot of data about how they work. Fromwhat we've seen, being good seems to help startups in three ways:it improves their morale, it makes other people want to help them,and above all, it helps them be decisive.Morale is tremendously important to a startup—so importantthat morale alone is almost enough to determine success. Startupsare often described as emotional roller-coasters. One minute you'regoing to take over the world, and the next you're doomed. Theproblem with feeling you're doomed is not just that it makes youunhappy, but that it makes you stop working. So the downhillsof the roller-coaster are more of a self fulfilling prophecy thanthe uphills. If feeling you're going to succeed makes you workharder, that probably improves your chances of succeeding, but iffeeling you're going to fail makes you stop working, that practicallyguarantees you'll fail.Here's where benevolence comes in. If you feel you're really helpingpeople, you'll keep working even when it seems like your startupis doomed. Most of us have some amount of natural benevolence.The mere fact that someone needs you makes you want to help them.So if you start the kind of startup where users come back each day,you've basically built yourself a giant tamagotchi. You've madesomething you need to take care of.Blogger is a famous example of a startup that went through reallylow lows and survived. At one point they ran out of money andeveryone left. Evan Williams came in to work the next day, and therewas no one but him. What kept him going? Partly that users neededhim. He was hosting thousands of people's blogs. He couldn't justlet the site die.There are many advantages of launching quickly, but the most importantmay be that once you have users, the tamagotchi effect kicks in.Once you have users to take care of, you're forced to figure outwhat will make them happy, and that's actually very valuableinformation.The added confidence that comes from trying to help people canalso help you with investors. One of the founders of Chatterous told me recently that he and his cofounder had decided that this servicewas something the world needed, so they were going to keep workingon it no matter what, even if they had to move back to Canada and livein their parents' basements.Once they realized this, they stopped caring so much what investors thoughtabout them. They still met with them, but they weren't going todie if they didn't get their money. And you know what? The investorsgot a lot more interested. They could sense that the Chatterouseswere going to do this startup with or without them.If you're really committed and your startup is cheap to run, youbecome very hard to kill. And practically all startups, even themost successful, come close to death at some point. So if doinggood for people gives you a sense of mission that makes you harderto kill, that alone more than compensates for whatever you lose bynot choosing a more selfish project.HelpAnother advantage of being good is that it makes other people wantto help you. This too seems to be an inborn trait in humans.One of the startups we've funded, Octopart, is currently locked ina classic battle of good versus evil. They're a search site forindustrial components. A lot of people need to search for components,and before Octopart there was no good way to do it. That, it turnedout, was no coincidence.Octopart built the right way to search for components. Users likeit and they've been growing rapidly. And yet for most of Octopart'slife, the biggest distributor, Digi-Key, has been trying to forcethem take their prices off the site. Octopart is sending themcustomers for free, and yet Digi-Key is trying to make that trafficstop. Why? Because their current business model depends onovercharging people who have incomplete information about prices.They don't want search to work.The Octoparts are the nicest guys in the world. They dropped outof the PhD program in physics at Berkeley to do this. They justwanted to fix a problem they encountered in their research. Imaginehow much time you could save the world's engineers if they coulddo searches online. So when I hear that a big, evil company istrying to stop them in order to keep search broken, it makes mereally want to help them. It makes me spend more time on the Octopartsthan I do with most of the other startups we've funded. It justmade me spend several minutes telling you how great they are. Why?Because they're good guys and they're trying to help the world.If you're benevolent, people will rally around you: investors,customers, other companies, and potential employees. In the longterm the most important may be the potential employees. I thinkeveryone knows now that good hackers are much better than mediocreones. If you can attract the best hackers to work for you, asGoogle has, you have a big advantage. And the very best hackerstend to be idealistic. They're not desperate for a job. They canwork wherever they want. So most want to work on things that willmake the world better.CompassBut the most important advantage of being good is that it acts asa compass. One of the hardest parts of doing a startup is that youhave so many choices. There are just two or three of you, and athousand things you could do. How do you decide?Here's the answer: Do whatever's best for your users. You can holdonto this like a rope in a hurricane, and it will save you ifanything can. Follow it and it will take you through everythingyou need to do.It's even the answer to questions that seem unrelated, like how toconvince investors to give you money. If you're a good salesman,you could try to just talk them into it. But the more reliableroute is to convince them through your users: if you make somethingusers love enough to tell their friends, you grow exponentially,and that will convince any investor.Being good is a particularly useful strategy for making decisionsin complex situations because it's stateless. It's like tellingthe truth. The trouble with lying is that you have to remembereverything you've said in the past to make sure you don't contradictyourself. If you tell the truth you don't have to remember anything,and that's a really useful property in domains where things happenfast.For example, Y Combinator has now invested in 80 startups, 57 ofwhich are still alive. (The rest have died or merged or beenacquired.) When you're trying to advise 57 startups, it turns outyou have to have a stateless algorithm. You can't have ulteriormotives when you have 57 things going on at once, because you can'tremember them. So our rule is just to do whatever's best for thefounders. Not because we're particularly benevolent, but becauseit's the only algorithm that works on that scale.When you write something telling people to be good, you seem to beclaiming to be good yourself. So I want to say explicitly that Iam not a particularly good person. When I was a kid I was firmlyin the camp of bad. The way adults used the word good, it seemedto be synonymous with quiet, so I grew up very suspicious of it.You know how there are some people whose names come up in conversationand everyone says "He's such a great guy?" People never saythat about me. The best I get is "he means well." I am not claimingto be good. At best I speak good as a second language.So I'm not suggesting you be good in the usual sanctimonious way.I'm suggesting it because it works. It will work not just as astatement of "values," but as a guide to strategy,and even a design spec for software. Don't just not be evil. Begood.Notes[1] Fifty years agoit would have seemed shocking for a public company not to paydividends. Now many tech companies don't. The markets seem tohave figured out how to value potential dividends. Maybe that isn'tthe last step in this evolution. Maybe markets will eventually getcomfortable with potential earnings. (VCs already are, and at leastsome of them consistently make money.)I realize this sounds like the stuff one used to hear about the"new economy" during the Bubble. Believe me, I was not drinkingthat kool-aid at the time. But I'm convinced there were some goodideas buried in Bubble thinking. For example, it's ok to focus ongrowth instead of profits—but only if the growth is genuine.You can't be buying users; that's a pyramid scheme. But a companywith rapid, genuine growth is valuable, and eventually markets learnhow to value valuable things.[2] The idea of startinga company with benevolent aims is currently undervalued, becausethe kind of people who currently make that their explicit goal don'tusually do a very good job.It's one of the standard career paths of trustafarians to startsome vaguely benevolent business. The problem with most of themis that they either have a bogus political agenda or are feeblyexecuted. The trustafarians' ancestors didn't get rich by preservingtheir traditional culture; maybe people in Bolivia don't want toeither. And starting an organic farm, though it's at leaststraightforwardly benevolent, doesn't help people on the scale thatGoogle does.Most explicitly benevolent projects don't hold themselves sufficientlyaccountable. They act as if having good intentions were enough toguarantee good effects.[3] Users dislike theirnew operating system so much that they're starting petitions tosave the old one. And the old one was nothing special. The hackerswithin Microsoft must know in their hearts that if the companyreally cared about users they'd just advise them to switch to OSX.Thanks to Trevor Blackwell, Paul Buchheit, Jessica Livingston,and Robert Morris for reading drafts of this.
