5 Things I Learned About Entrepreneurship From Y Combinator's Paul Graham

Wish you were one of Y Combinator's chosen few? Here's a crash course in a few of the live-or-die-by tenets you'd learn from the startup incubator's founder, Paul Graham.

Paul Graham (PG) is one of the most prominent figures in Silicon Valley's entrepreneurial community, and his reputation is well-deserved. He's an honest leader, a talented computer scientist, and has an uncanny passion for entrepreneurship. Most importantly, he’s an entrepreneur himself.

The first time I met PG was in the summer of 2010, when my cofounder and I were selected to participate in Y Combinator (YC), the startup accelerator program PG founded that helped to create many successful companies, including Reddit (acquired by Conde Nast), Heroku (acquired by Salesforce), OMGPOP (acquired by Zynga). He’s known to be extremely particular about teams over ideas and, despite what you might think, is often pushing teams to radically change their ideas. In fact, we did exactly that almost immediately after starting YC. Since then, I’ve been asked many times what kind of insights I gleaned from Paul Graham about how to successfully build a company, so I want to share the 5 most important insights below: 

1. Genius is not enough. 

There is no question that PG is highly intelligent. He holds a PhD from Harvard, still regularly writes his own code, works on the most challenging startup problems on a daily basis, and still finds the time to engage his popular Hacker News website. But he will also constantly remind you that good engineering and sharp problem-solving skills are not enough. He’s openly discussed that his original thinking used to be IQ above all else when selecting YC teams. But when it comes to building a company from scratch, you need tenacity, allies, and the ability to adapt plus IQ.

Why? Because every entrepreneur, no matter how brilliant, will face moments of discouragement, frustration, and even despair. It’s the guaranteed outcome of going off to do something others found too difficult. In our case, we went from nothing to a working product and back to nothing in less than a month during our time at Y Combinator. Our original concept didn’t solve a real problem, so we were forced to abandon it and start again. While we frantically scrapped one idea after another, PG calmly supported us and brainstormed a variety of ideas with us. He wasn’t ever discouraged, and he had a seemingly unlimited supply of practical ideas that could use a bit of technology. 

The nature of taking on the difficult challenge of starting a company is that sometimes your best-laid plans will be crushed. In fact, you should expect them to be crushed. That new feature you were about to unveil will have fatal flaws, or the business partnership you worked three months to develop will likely unravel. These kinds of things are constantly happening. Actually, if they stop happening, you’re probably done for. It’s how you respond that will ultimately define you as an entrepreneur. And that’s where your allies and your determination come in. The lows are too low to do it alone, and the dependency on others requires that you persist when the inertia of the outside world works against you (which is most of the time). That’s why PG is quick to remind even the most IQ-heavy teams that genius is not enough to succeed. You have to will things into existence through persistence and hard work. Even with a brilliant mind like PG's, there are no shortcuts to the hard work required to get to there. He’s even created the “startup curve process” [pictured, right] to visually represent these ups and downs. 

2. Solve real problems. 

From afar you may think someone with PG’s background is always seeking out complex problems and only interested in complex solutions. In fact, the exact opposite is the case. PG is consistently telling startup teams to get out into the world and solve common problems. It's too easy to get caught up solving an obscure technical problem, especially when you’re a nascent technology startup. On the other hand, if you stay focused on an idea that creates real value, not just something “cool,” then you’re on the right track.

When my cofounder and I started with Y Combinator, our initial idea was to use technology to solve a problem, but halfway through, despite countless late nights we were feeling like the idea was not gaining the traction we were looking for, and after spending some time with similar companies and products, the future didn’t look too promising, either. That’s when we sat down with PG to brainstorm new problem spaces that were addressing real pain points for people. His encouragement led to us to ReadyForZero and helping people get out of debt.

3. If you stop moving, you’re dead. 

Certain sharks, like the Great White, need the pressure of ocean water against their gills in order to obtain oxygen. So for them, to stop moving forward is literally to die. PG believes the same is true for startups. Inertia is your worst enemy. Momentum is your best friend. Stop thinking about possible solutions and start building them. Keep doing it over and over again until things start sticking.

When we were in the midst of Y Combinator, we made an extra effort to meet up with PG as often as possible and, more often than not, he would ask us to show him progress since the last time we talked. He could be critical at times, but it was this kind of tough love that kept us moving. He always pushed us to seek out momentum (in all its forms--product, marketing, press, hiring, etc.). If you stop, even for a moment, you could be losing out on an opportunity to accomplish something that is key to building out the company. Startups by nature have limited resources; when you account for this, you start making serious progress.

4. Use money as a tool. 

One of the most common causes of death for a startup is running out of money. In order to avoid this fate, PG advises to raise just enough to get to your next milestone and think of money as a tool, not a means to an end. And keep in mind that it is most effective when directed toward long-term investments and/or as a catalyst toward exponential growth.

For example, when you’re in the early phases of a startup, you don’t want to make major advertising buys, because that would drain your resources quickly with little noticeable impact to the growth of your company (unless you’ve proven out the concept already). Instead, invest strategically to build the necessary momentum that will carry you to your next major milestone. Never think of investment capital as an end in itself, it’s simply a tool to carry you and your company forward. Hire bright individuals who can help you refine and improve your product so that it doesn’t need a big marketing budget to succeed. By having a healthy relationship with your money (and realistic expectations), you can get much further, faster. Use money wisely to build small wins quickly; this often leads to bigger wins down the road.

5. Recognize gaps and build a team that can divide and conquer. 

PG taught us: When you start hiring, don’t let titles get in the way of the work that needs to get done. As much as possible, you want to construct a team with complementary talents and personalities. You don't want to waste time with pointless power struggles, so for each task you must allocate responsibility to the person on your team who is best equipped to do it, and then offer support and guidance as needed.

As an example, PG was very strict that one person speak during demo day presentation. No exceptions: Decide who it is, and move on. It sounds simple, but oftentimes the same characteristics that drive people to become entrepreneurs are the ones that lead them into petty power struggles that impede progress. To make sure you don’t fall into that trap, do your due diligence when hiring your team and then trust them to get the work done. You can’t do it alone, and there is too much work to be done to get caught up in power struggles.

Our experience doing Y Combinator was a memorable one and helped to propel our nascent ideas for ReadyForZero into a real product that has now blossomed into a successful company that is helping people get out of debt. It’s in large part due to the early guidance of Paul Graham. He is one of those extraordinary leaders who trusts his instincts, makes data-driven decisions quickly, and can easily persuade people to believe in the impossible. And that’s what entrepreneurship is all about.

--Author Rod Ebrahimi is the CEO and cofounder of ReadyForZero, an online software program that helps people manage and reduce debt. Rod started his first technology company while still in high school at age 17 before moving to Silicon Valley. He holds a B.S., with department honors, in cognitive science with a specialization in human-computer interaction and has completed coursework at Stanford's Graduate School of Business.

[Image: Flickr users Larry W. Lo, and Niall Kennedy]