A Week of Conferences (Part 3)

Paul Graham and Jessica Livingston’s Masterclass

From left to right: Joe DiNucci, Bob Goodson, Paul Graham, Reid Hoffman, Jessica Livingston

After the morning Garage session, masterclasses and tutorial sessions filled up the rest of the day. Paul and Jessica gave a masterclass focusing on the trends surrounding the current growth in Web start-ups.

Paul started off by naming 7 key drivers:

1. Moore’s Law ( => hardware is becoming cheaper and cheaper)
2. The Internet itself ( => easy distribution – Facebook, TechCrunch etc.)
3. Open source – software is free
4. Programming languages – quicker and easier to build Web applications e.g. Ruby on Rails
5. Attitudes – start-ups are accepted as something people can do successfully (more on US West Coast than elsewhere)
6. Funding – easier to get both seed and venture capital
7. Tax law – income tax rates are lower, so there is more financial incentive for founders

(Un)surprisingly, since we were at Said Business School, the trend of more people doing MBAs was raised. One MBA student actually asked Paul what value an MBA was in a (Web) start-up. Despite a valiant attempt to say positive things, Paul eventually said that he thought they had no value.

On a related note, I recently watched Guy Kawasaki’s Art of the Start video – a 10-point, 40 minute speech. At one point he said:

“There are no two worse types of entrepreneur than MBAs and consultants.”

He was mainly referring to the pre-defined way in which they are susceptible to analyse problems. My observation here is that ‘raw’ entrepreneurs tend to analyse problems from first principles – which often results in more appropriate solutions. It could be argued that having too many frameworks and textbook methods at one’s disposal can actually cloud one’s instinct and logical judgment.

Anyway, after a few questions in the masterclass, Paul proposed the current and future consequences of the above trends:

1. Founders have more power – they’re less dependent on investors and large programming teams
2. Founders are more hackerly – understanding products and users is what matters now on the Web; business skills can be easily picked up along the way
3. More start-ups – an order of magnitude more than there were a few years ago
4. Big companies will develop far fewer products in-house – they’ll just buy start-ups. The process-oriented nature of product development in large corporations is seriously struggling to compete with the speed and agility of small start-ups.
5. More rich people who have retired under 35 – what are they going to do with their time and money?

There’s also an interesting corollary to 4: big companies will be under pressure to acquire start-ups earlier. Obviously there’s a trade-off between:

• Stunting innovation by stepping in too early, and
• Paying $500M when $50M would have satisfied the founders 6 or 12 months earlier.

Would Chad Hurley and Steve Chen have sold YouTube for $100M in late-2005? Similarly would the founders of Club Penguin have sold for $70M in late-2006? I’m intrigued about how the M&A market will evolve over the next decade.
After some other masterclasses and a Valley-celeb-filled dinner, Andy and I spoke with Paul and Jessica at The Living Room bar. Firstly, great news for us is that we were invited out to a Y Combinator dinner in March! An invitation which will be hard to refuse.

Secondly Paul said something that paints a very different picture to the headline published in The Daily Telegraph on 20th November. I had asked Paul the question:

“So you’ve had quite a few British founders on the Y Combinator scheme now – what are the main differences between them and their US counterparts?”

Paul replied:

“Well, the British guys are usually better. They’re more determined. They’ve already shown they’re committed enough to fly across the Atlantic for an interview.”

Including the winter 2008 batch, 10% (8 out of 80) of Y Combinator’s investments have been in British teams. This reminds me of what Jessica wrote in the last paragraph of her book Founders at Work – determination is the most significant factor driving success in start-ups. There’s certainly not a problem with British determination, with British talent. The problem is actually how and where many British people apply it.