The three steps to building a great company, and why most startups fail on the first step

From Growth Advice from YCombinator’s Sam Altman at PlatziConf Mexico, May 2015, a talk by Sam Altman:

The 3 key tasks for successful CEOs:

  • Task #1: Build a product that users love
  • Task #2: Figure out how you are going to grow
  • Task #3: Make sure you are going to stay a winner if you win

Notes:
(1) I love Sam’s clarity and simplicity. This is similar to Peter Nixey’s The only startup goal worth your undivided attention, but with more structure.
(2) Are the three tasks sequential? In other words, should you figure out growth only after you’ve finished building a product that users love? I think there’s overlap, but broadly speaking — yes, they’re sequential.
(3) In my experience, the most common fatal error made by entrepreneurs (often encouraged by their VCs) is to focus insufficiently on building a product users love. We move from core product development to growth — prematurely. This is a mistake we’ve made numerous times in Seeking Alpha.
(4) Why do we move prematurely from “build a product people love” to growth? (i) It’s easier to measure user or revenue growth than it is to measure how much users love your product. (ii) Since sustainable growth is impossible without a successful product, growth metrics assume product success; so we think we can measure product success by measuring growth. (iii) Growth is the true measure of startup success, and entrepreneurs (and particularly VCs) like to measure end results.
(5) There are two approaches to measuring how much your users love your product: (i) Net promoter score. (ii) User engagement – how frequently your users use your product. I prefer the latter because it’s based on actual behavior, not what people say.
(6) Your target for user engagement should take into account the frequency of habit of your product area. For example, investing is a daily habit, so Seeking Alpha targets high user frequency.
(7) See How to set priorities in product development and (also by Sam Altman) For product managers: “The best startup advice I’ve heard”.

9 thoughts on “The three steps to building a great company, and why most startups fail on the first step

  1. On sequential, I think one can do a reasonable analysis on whether a) there is a market to grow into that’s profitable, and b) whether the product will be unique enough or adaptable enough to maintain profitability the company does grow. But definitely sequential when it comes to execution. (And the analysis is obviously only going to go so far, because things will change as one builds a product and the market shifts, etc.).

  2. Also on sequential, how can you build a product that users love without first building up a user base? If the size of the user base is insufficient there won’t be enough data to measure whether or not the users are loving the product. This would then require some attention to growth even before the product has been perfected.

  3. Once all the three “tasks” are complete, I think real success is achieved when a company is constantly working on improving the product so that users continue to love it, the company continues to grow and win. Looks more like an upward spiral than a task list (unless that’s what Sam means by #3).

    • Yup, that’s what I was grappling with when I said that there’s some overlap. Product improvement should never stop, neither (once they start) should growth and deepening your competitive moat.

  4. Pingback: For SaaS startups — how to avoid increasing costs inefficiently and prematurely | A Founder's Notebook

  5. Pingback: How to decide what to prioritize — a simple rule for startup CEOs | A Founder's Notebook

  6. Pingback: Growth rate in revenue or active users is the paramount startup metric | A Founder's Notebook

  7. Pingback: Why optimization alone can’t create great products or companies | A Founder's Notebook

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