How to Get Startup Ideas

Monday, November 19th, 2012

The very best startup ideas tend to have three things in common, Paul Graham says:

They’re something the founders themselves want, that they themselves can build, and that few others realize are worth doing. Microsoft, Apple, Yahoo, Google, and Facebook all began this way.

[...]

The verb you want to be using with respect to startup ideas is not “think up” but “notice.” At YC we call ideas that grow naturally out of the founders’ own experiences “organic” startup ideas. The most successful startups almost all begin this way.

Tablets and Etherealization

Wednesday, December 1st, 2010

Paul Graham suspects that we’ll end up calling iPhones, iPads, and their Android equivalents tablets:

The only reason we even consider calling them “mobile devices” is that the iPhone preceded the iPad. If the iPad had come first, we wouldn’t think of the iPhone as a phone; we’d think of it as a tablet small enough to hold up to your ear.

The iPhone isn’t so much a phone as a replacement for a phone. That’s an important distinction, because it’s an early instance of what will become a common pattern. Many if not most of the special-purpose objects around us are going to be replaced by apps running on tablets.

This is already clear in cases like GPSes, music players, and cameras. But I think it will surprise people how many things are going to get replaced. We funded one startup that’s replacing keys. The fact that you can change font sizes easily means the iPad effectively replaces reading glasses. I wouldn’t be surprised if by playing some clever tricks with the accelerometer you could even replace the bathroom scale.

The advantages of doing things in software on a single device are so great that everything that can get turned into software will. So for the next couple years, a good recipe for startups will be to look around you for things that people haven’t realized yet can be made unnecessary by a tablet app.

In 1938 Buckminster Fuller coined the term etherealization to describe the increasing tendency of physical machinery to be replaced by what we would now call software. The reason tablets are going to take over the world is not (just) that Steve Jobs and Co are industrial design wizards, but because they have this force behind them. The iPhone and the iPad have effectively drilled a hole that will allow etherealization to flow into a lot of new areas. No one who has studied the history of technology would want to underestimate the power of that force.

When Quality Doesn’t Matter

Friday, September 3rd, 2010

Back when the Web was young, Paul Graham demonstrated a new algorithm to Yahoo’s Jerry Yang, one that ranked search results by user behavior and differentiated between clicks and clicks leading to purchases.  Yang didn’t seem to care, and this confused Graham:

I was showing him technology that extracted the maximum value from search traffic, and he didn’t care? I couldn’t tell whether I was explaining it badly, or he was just very poker faced.

I didn’t realize the answer till later, after I went to work at Yahoo. It was neither of my guesses. The reason Yahoo didn’t care about a technique that extracted the full value of traffic was that advertisers were already overpaying for it. If they merely extracted the actual value, they’d have made less.

This, Eric Falkenstain notes, is just one example of when quality doesn’t matter:

There are many stories about real-estate brokers setting up shop in the early aughts, not caring about whether homebuyers would actually pay their mortgage because it did not matter. This was a signal that rot was rampant. Basically, if quality doesn’t matter, and there’s free entry, there’s a bubble.

When people have positions that don’t do what they say they do, and make a lot of money, there are myriad bad effects. Once when I was a risk manager, I remember showing a swaps book trader a more efficient way for him to hedge his portfolio. As I had to calculate his value-at-risk I had all the data to demonstrate conclusively my superior algorithm. He found this annoying. As a market maker, his Sharpe was already well above 10, so decreasing his value-at-risk by 20% did not really matter. Like Graham’s encounter, I discovered it was all marketing.

The problem with this situation is that when you really understand the game, you have to never talk about it, which is easiest to do if you really don’t understand it. So, the best brokers or brokers-who-call-themselves-traders are blithely ignorant, because they don’t generate ‘tells’ that make everyone engaging in the game uncomfortable. When they talk about trade ideas that are totally unfounded, they can’t be convincing if aware of its lack of statistical evidence, or how their qualifications make everything said meaningless (this could lead to a retracement). Once you swallow the red pill, you can’t go back to enjoying the Matrix.

Similarly in the corporate borg, especially in places like the new Office of Minority and Women Inclusion that is now mandated to be part of each of our 30(!) financial regulatory bodies. As true discrimination is about as rare as a Klan rally, this is all just a sop to the Indian-like ethnic group spoils system the US is becoming (are there really any bankers who hate minorities enough to forgo extra profits?). So, the Chief Diversity officer’s real role is not to rid financial discrimination, but rather to spout cliches about diversity, and put a pretext on the patronage daisy-chain that led to the 2008 housing crisis. However, if you really understood this, you would go crazy, so earnest dolts plague the aristocracy because the dupes actually believe their job is about what it says it’s about.

The Acceleration of Addictiveness

Wednesday, July 28th, 2010

Paul Graham discusses the acceleration of addictiveness:

What hard liquor, cigarettes, heroin, and crack have in common is that they’re all more concentrated forms of less addictive predecessors. Most if not all the things we describe as addictive are. And the scary thing is, the process that created them is accelerating.

We wouldn’t want to stop it. It’s the same process that cures diseases: technological progress. Technological progress means making things do more of what we want. When the thing we want is something we want to want, we consider technological progress good. If some new technique makes solar cells x% more efficient, that seems strictly better. When progress concentrates something we don’t want to want—when it transforms opium into heroin—it seems bad. But it’s the same process at work. [1]

No one doubts this process is accelerating, which means increasing numbers of things we like will be transformed into things we like too much. [2]

As far as I know there’s no word for something we like too much. The closest is the colloquial sense of “addictive.” That usage has become increasingly common during my lifetime. And it’s clear why: there are an increasing number of things we need it for. At the extreme end of the spectrum are crack and meth. Food has been transformed by a combination of factory farming and innovations in food processing into something with way more immediate bang for the buck, and you can see the results in any town in America. Checkers and solitaire have been replaced by World of Warcraft and FarmVille. TV has become much more engaging, and even so it can’t compete with Facebook.

The world is more addictive than it was 40 years ago. And unless the forms of technological progress that produced these things are subject to different laws than technological progress in general, the world will get more addictive in the next 40 years than it did in the last 40.

The next 40 years will bring us some wonderful things. I don’t mean to imply they’re all to be avoided. Alcohol is a dangerous drug, but I’d rather live in a world with wine than one without. Most people can coexist with alcohol; but you have to be careful. More things we like will mean more things we have to be careful about.

Most people won’t, unfortunately.

The one that caught him off guard was “procrastination” on the Internet:

People commonly use the word “procrastination” to describe what they do on the Internet. It seems to me too mild to describe what’s happening as merely not-doing-work. We don’t call it procrastination when someone gets drunk instead of working.

His take on the iPad:

Several people have told me they like the iPad because it lets them bring the Internet into situations where a laptop would be too conspicuous. In other words, it’s a hip flask.

Start In The Middle

Friday, May 21st, 2010

When it comes time to start a new project, you should start in the middle, not at the beginning:

Has this ever happened to you? You wake up one day with a great new idea for applying bayesian filtering to twitter streams to filter out the pictures of Joel’s new puppy spam. You’re totally convinced it’s what the world needs. It’s the startup that’s finally going to help you to break out of your day job maintaining PHP payroll software stock supermarket shelf stockers. So what do you do? You do this:

  1. Fire up your IDE and start a new website project
  2. Whip up a login page and get the user account basics set up
  3. Decide OpenID’s really where it’s at these days and hit stackoverflow for a good OpenID provider plugin
  4. Run into problems getting it to accept Google accounts and spend half the night debugging it

Wait, what? How did this happen? Getting OpenID working isn’t fun. It’s almost the definition of not fun.

I didn’t want to do all this, I just wanted to make an awesome bayesian twitter filter, but somehow there’s all this stuff I have to get through first.

— Me (swear words redacted)

My hard disk is littered with projects that I started, got half way through setting up without ever really getting to the good bit, then abandoned. I suspect yours is, too.

The right way to start a bayesian twitter filter is to apply a bayesian filter to content from a twitter stream. I know. It looks like this:

  1. Google for some bayesian filter code
  2. Dump whatever’s in your twitter client logs to a file and write three lines of python to parse it into a form the bayesian filter can work with
  3. Train the filter and see what happens

Compared to the original approach it looks awesome, right? So what stops us approaching all projects like this? Well, there’s something beguiling about wanting to get the framework right from the start this time. It’s more comfortable starting with something we already know how to solve. Sometimes we have a clear vision of how it should end up in our heads and simply start to create that vision from the beginning through to the end.

Start in the middle.

— Paul Graham (lightly paraphrased)

Lean startups and the Minimum Viable Product are all about starting in the middle. Paul Graham’s advice for startups can be summed up as ‘first solve the interesting part of the problem, then build the business around it’, but the process is also fractal — starting in the middle applies right down to the level of writing a new class, or a single function. First write some code that solves the problem even if it’s imperfect or partial, then expand it out with your favourite blend of accessors, inheritance and polymorphism (Note: don’t even bother with that bit unless you hate yourself).

All Meaning Would Vanish

Thursday, April 29th, 2010

Po Bronson suggests a Twilight Zone-type premise:

What if surgeons never got to work on humans, they were instead just endlessly in training, cutting up cadavers? What if the same went for all adults – we only got to practice at simulated versions of our jobs? Lawyers only got to argue mock cases, for years and years. Plumbers only got to fix fake leaks in classrooms. Teachers only got to teach to videocameras, endlessly rehearsing for some far off future. Book writers like me never saw our work put out to the public – our novels sat in drawers. Scientists never got to do original experiments; they only got to recreate scientific experiments of yesteryear. And so on.

Rather quickly, all meaning would vanish from our work. Even if we enjoyed the activity of our job, intrinsically, it would rapidly lose depth and relevance. It’d lose purpose. We’d become bored, lethargic, and disengaged.

In other words, we’d turn into teenagers.

In Escaping the Endless Adolescence, Joe Allen argues that our urge to protect teenagers from real life – because they’re not ready yet – has tragically backfired:

By insulating them from adult-like work, adult social relationships, and adult consequences, we have only delayed their development. We have made it harder for them to grow up. Maybe even made it impossible to grow up on time.

Basically, we long ago decided that teens ought to be in school, not in the labor force. Education was their future. But the structure of schools is endlessly repetitive. “From a Martian’s perspective, high schools look virtually the same as sixth grade,” said Allen. “There’s no recognition, in the structure of school, that these are very different people with different capabilities.” Strapped to desks for 13+ years, school becomes both incredibly montonous, artificial, and cookie-cutter.

As Allen writes, “We place kids in schools together with hundreds, sometimes thousands, of other kids typically from similar economic and cultural backgrounds. We group them all within a year or so of one another in age. We equip them with similar gadgets, expose them to the same TV shows, lessons, and sports. We ask them all to take almost the exact same courses and do the exact same work and be graded relative to one another. We give them only a handful of ways in which they can meaningfully demonstrate their competencies. And then we’re surprised they have some difficulty establishing a sense of their own individuality.”

And we wonder why it’s taking so long for them to mature.

Paul Graham made a similar point in explaining why nerds are unpopular in high school — but not so much before or after:

I think the important thing about the real world is not that it’s populated by adults, but that it’s very large, and the things you do have real effects. That’s what school, prison, and ladies-who-lunch all lack. The inhabitants of all those worlds are trapped in little bubbles where nothing they do can have more than a local effect. Naturally these societies degenerate into savagery. They have no function for their form to follow.

In fact, all the evidence that teenagers have “raging hormones” or other intrinsic problems is modern:

I’m suspicious of this theory that thirteen-year-old kids are intrinsically messed up. If it’s physiological, it should be universal. Are Mongol nomads all nihilists at thirteen? I’ve read a lot of history, and I have not seen a single reference to this supposedly universal fact before the twentieth century. Teenage apprentices in the Renaissance seem to have been cheerful and eager. They got in fights and played tricks on one another of course (Michelangelo had his nose broken by a bully), but they weren’t crazy.

As far as I can tell, the concept of the hormone-crazed teenager is coeval with suburbia. I don’t think this is a coincidence. I think teenagers are driven crazy by the life they’re made to lead. Teenage apprentices in the Renaissance were working dogs. Teenagers now are neurotic lapdogs. Their craziness is the craziness of the idle everywhere.

Apple’s Mistake

Thursday, November 19th, 2009

Paul Graham examines Apple’s mistake:

Their fundamental problem is that they don’t understand software.

They treat iPhone apps the way they treat the music they sell through iTunes. Apple is the channel; they own the user; if you want to reach users, you do it on their terms. The record labels agreed, reluctantly. But this model doesn’t work for software. It doesn’t work for an intermediary to own the user. The software business learned that in the early 1980s, when companies like VisiCorp showed that although the words “software” and “publisher” fit together, the underlying concepts don’t. Software isn’t like music or books. It’s too complicated for a third party to act as an intermediary between developer and user. And yet that’s what Apple is trying to be with the App Store: a software publisher. And a particularly overreaching one at that, with fussy tastes and a rigidly enforced house style.

If software publishing didn’t work in 1980, it works even less now that software development has evolved from a small number of big releases to a constant stream of small ones. But Apple doesn’t understand that either. Their model of product development derives from hardware. They work on something till they think it’s finished, then they release it. You have to do that with hardware, but because software is so easy to change, its design can benefit from evolution. The standard way to develop applications now is to launch fast and iterate. Which means it’s a disaster to have long, random delays each time you release a new version.

Apparently Apple’s attitude is that developers should be more careful when they submit a new version to the App Store. They would say that. But powerful as they are, they’re not powerful enough to turn back the evolution of technology. Programmers don’t use launch-fast-and-iterate out of laziness. They use it because it yields the best results. By obstructing that process, Apple is making them do bad work, and programmers hate that as much as Apple would.

How would Apple like it if when they discovered a serious bug in OS X, instead of releasing a software update immediately, they had to submit their code to an intermediary who sat on it for a month and then rejected it because it contained an icon they didn’t like?

What Startups Are Really Like

Thursday, October 29th, 2009

Paul Graham asked a number of founders what surprised them about starting a startup and came away with this advice to potential founders:

  1. Be Careful with Cofounders
  2. Startups Take Over Your Life
  3. It’s an Emotional Roller-coaster
  4. It Can Be Fun
  5. Persistence Is the Key
  6. Think Long-Term
  7. Lots of Little Things
  8. Start with Something Minimal
  9. Engage Users
  10. Change Your Idea
  11. Don’t Worry about Competitors
  12. It’s Hard to Get Users
  13. Expect the Worst with Deals
  14. Investors Are Clueless
  15. You May Have to Play Games
  16. Luck Is a Big Factor
  17. The Value of Community
  18. You Get No Respect
  19. Things Change as You Grow

The key insight is the super-pattern, the pattern of patterns:

These are supposed to be the surprises, the things I didn’t tell people. What do they all have in common? They’re all things I tell people. If I wrote a new essay with the same outline as this that wasn’t summarizing the founders’ responses, everyone would say I’d run out of ideas and was just repeating myself.

What is going on here?

When I look at the responses, the common theme is that starting a startup was like I said, but way more so. People just don’t seem to get how different it is till they do it.

The Start-up Guru

Monday, June 8th, 2009

Max Chafkin, Inc.‘s senior writer, has written a piece on Paul Graham, The Start-up Guru. I enjoyed Graham’s take on getting acquired by Yahoo, back in the day:

“Running a start-up is like being punched in the face repeatedly,” he says. “But working for a large company is like being waterboarded.”

If you’re not familiar with Paul Graham and Y Combinator, here’s the story:

After leaving Yahoo, Graham spent most of his time writing essays about technology and business and developing a new programming language. His best work was collected in a book, published in 2004, called Hackers and Painters: Big Ideas From the Computer Age. “Everything around us is turning into computers,” he writes in the preface. “So if you want to understand where we are, and where we’re going, it will help if you understand what’s going on inside the heads of hackers.”

In March 2005, Graham was invited by the Harvard Computer Society, an undergraduate group, to talk about starting a company. “I told them to raise money from angel investors, preferably people who have started start-ups themselves,” he says. After delivering that line, he glanced at the audience and noticed that everyone was looking at him expectantly. Fearing a deluge of bad business plans from bright-eyed Harvard students, he quickly added, “Not me.” Later that day, while having coffee with some of the students, he remembered that if he hadn’t been able to find his own angel investors, Viaweb never would have gotten off the ground. He decided it might be worth seeing what these kids could come up with.

Y Combinator began as an experiment in angel investing, conducted during the summer of 2005. Graham recruited Morris, Livingston, and a Viaweb employee named Trevor Blackwell to join him. The pitch was straightforward: $6,000 for a company with one founder, $12,000 if the company had two founders, and $18,000 if the company had three. In exchange, Y Combinator would get roughly 6 percent in common stock. (Exact ownership stakes vary. The most Y Combinator has taken is 10 percent; the least is 1.4 percent.)

Graham promoted the program with an essay that he posted on his website and that quickly found its way to many college students’ e-mail inboxes. “We give you enough money to live on for a summer, as with a regular summer job,” he wrote. “But instead of working for an existing company, you’ll be working for your own; instead of showing up at some office building at 9 a.m., you can work when and where you like; and instead of salary, the money you get will be seed funding.”

Graham received 227 applications, mostly from computer science students, and he invested in eight start-ups. Half went on to raise additional funding, and two turned down acquisition offers. Graham knew that most of the companies would probably die, but he also believed he was onto something. For example, Loopt, which develops software for cell phones that allows users to see where their friends are, managed to raise $13 million from two Sand Hill Road firms. Another company in the first batch, Reddit, operates a social news website similar to Digg. It was acquired by Condé Nast just a year and a half after its founding and before it had hired any full-time employees. Though the price was not disclosed, reports have pegged it at anywhere from $10 million to $13 million, which means that Y Combinator generated a sizable return, as much as 25 times its initial investment.

Reddit is a good example of what happens to a Y Combinator company when most things go right. But few Y Combinator start-ups enjoy such a straight line to success. That, in part, explains why Graham encourages companies to release products quickly. Doing so, he says, is the best way to turn a bad idea into a good one. “As long as you pay attention to your users, you can change a bad idea,” he says.

Case in point: Justin.tv. The wildly popular online video site now attracts 41 million viewers a month. But it has its roots in a failed start-up called Kiko. The company, a part of Y Combinator’s first class, began with a plan to do for online calendars what Google’s Gmail had done for e-mail. Things went well at first, but then Google decided to do for calendars what it had done for e-mail, making Kiko suddenly irrelevant. Co-founders Justin Kan and Emmett Shear bailed out and sold the company on eBay for $258,000.

Graham lost money on the idea but nonetheless decided to back Kan and Shear’s next venture, a bizarre take on reality television. Kan attached a video camera to his head, wore a backpack stuffed with cell-phone modems, and broadcast his life 24 hours a day. The idea was that Justin.tv would produce similar programs and sell equipment to aspiring reality stars. “I thought it was insanely weird,” Graham recalls.

Kan’s life attracted a few thousand fans and reams of press. But Kan soon noticed that instead of broadcasting from hat-cams, some users were interested in more traditional types of broadcasting. “People were e-mailing us saying, ‘I want to broadcast a bike race or a talk show or a concert,’ ” Kan says. “We were like, ‘OK.’ ” Kan stopped wearing the camera and focused on building a live video platform.

This kind of meandering path, Graham says, is encouraged at Y Combinator. “A lot of great companies started with different ideas,” Graham says, noting that Steve Jobs’s first plan for Apple was to sell do-it-yourself plans for building computers. “You need to listen to your users, figure out what they want, and do that.” When founders are accepted into Y Combinator, they are given a gray T-shirt that says, “Make something people want.” When a company sells, the founders get a black shirt that says, “I made something people want.”

Graham finds unusual parallels between hacking and painting:

But one thing painting taught him was the value of living frugally. “It taught me how to do cheap in a cool way,” Graham says. Artists, Graham discovered, don’t pretend to be rich; they live in sparsely decorated lofts and wear cool vintage clothes. “A start-up is that philosophy applied to business,” he says.

Two Ideas That Would Explode If Combined

Tuesday, April 14th, 2009

Paul Graham has been holding in his head two ideas that would explode if combined — metaphorically:

The first is that startups may represent a new economic phase, on the scale of the Industrial Revolution. I’m not sure of this, but there seems a decent chance it’s true. People are dramatically more productive as founders or early employees of startups — imagine how much less Larry and Sergey would have achieved if they’d gone to work for a big company — and that scale of improvement can change social customs.

The second idea is that startups are a type of business that flourishes in certain places that specialize in it — that Silicon Valley specializes in startups in the same way Los Angeles specializes in movies, or New York in finance.

What if both are true? What if startups are both a new economic phase and also a type of business that only flourishes in certain centers?

Can You Buy a Silicon Valley? Maybe.

Saturday, February 28th, 2009

Can you buy a Silicon Valley? Maybe, says Paul Graham:

A lot of cities look at Silicon Valley and ask “How could we make something like that happen here?” The organic way to do it is to establish a first-rate university in a place where rich people want to live. That’s how Silicon Valley happened. But could you shortcut the process by funding startups?
[...]
People sometimes think they could improve the startup scene in their town by starting something like Y Combinator there, but in fact it will have near zero effect. I know because Y Combinator itself had near zero effect on Boston when we were based there half the year. The people we funded came from all over the country (indeed, the world) and afterward they went wherever they could get more funding — which generally meant Silicon Valley.

The seed funding business is not a regional business, because at that stage startups are mobile. They’re just a couple founders with laptops.

If you want to encourage startups in a particular city, you have to fund startups that won’t leave. There are two ways to do that: have rules preventing them from leaving, or fund them at the point in their life when they naturally take root. The first approach is a mistake, because it becomes a filter for selecting bad startups. If your terms force startups to do things they don’t want to, only the desperate ones will take your money.

Good startups will move to another city as a condition of funding. What they won’t do is agree not to move the next time they need funding. So the only way to get them to stay is to give them enough that they never need to leave.
[...]
Suppose to be on the safe side it would cost a million dollars per startup. If you could get startups to stick to your town for a million apiece, then for a billion dollars you could bring in a 1000 startups. That probably wouldn’t push you past Silicon Valley itself, but it might get you second place.

For the price of a football stadium, any town that was decent to live in could make itself one of the biggest startup hubs in the world.

What’s more, it wouldn’t take very long. You could probably do it in five years. During the term of one mayor. And it would get easier over time, because the more startups you had in town, the less it would take to get new ones to move there. By the time you had a thousand startups in town, the VCs wouldn’t be trying so hard to get them to move to Silicon Valley; instead they’d be opening local offices. Then you’d really be in good shape. You’d have started a self-sustaining chain reaction like the one that drives the Valley.

Startups in 13 Sentences

Monday, February 23rd, 2009

Paul Graham offers 13 sentences of wisdom for startups:

  1. Pick good cofounders.
    Cofounders are for a startup what location is for real estate. You can change anything about a house except where it is.
  2. Launch fast.
  3. Let your idea evolve.
  4. Understand your users.
  5. Better to make a few users love you than a lot ambivalent.
  6. Offer surprisingly good customer service.
  7. You make what you measure.
  8. Spend little.
  9. Get ramen profitable.
    “Ramen profitable” means a startup makes just enough to pay the founders’ living expenses.
  10. Avoid distractions.
    Nothing kills startups like distractions. The worst type are those that pay money: day jobs, consulting, profitable side-projects.
  11. Don’t get demoralized.
  12. Don’t give up.
  13. Deals fall through.

Keep Your Identity Small

Tuesday, February 10th, 2009

Keep your identity small, Paul Graham advises, to avoid “religious wars”:

Politics, like religion, is a topic where there’s no threshold of expertise for expressing an opinion. All you need is strong convictions.

Do religion and politics have something in common that explains this similarity? One possible explanation is that they deal with questions that have no definite answers, so there’s no back pressure on people’s opinions. Since no one can be proven wrong, every opinion is equally valid, and sensing this, everyone lets fly with theirs.

But this isn’t true. There are certainly some political questions that have definite answers, like how much a new government policy will cost. But the more precise political questions suffer the same fate as the vaguer ones.

I think what religion and politics have in common is that they become part of people’s identity, and people can never have a fruitful argument about something that’s part of their identity. By definition they’re partisan.

Which topics engage people’s identity depends on the people, not the topic. For example, a discussion about a battle that included citizens of one or more of the countries involved would probably degenerate into a political argument. But a discussion today about a battle that took place in the Bronze Age probably wouldn’t. No one would know what side to be on. So it’s not politics that’s the source of the trouble, but identity. When people say a discussion has degenerated into a religious war, what they really mean is that it has started to be driven mostly by people’s identities.

His conclusion:

The more labels you have for yourself, the dumber they make you.

The Other Half of "Artists Ship"

Monday, December 1st, 2008

Steve Jobs has said that real artists ship. Paul Graham looks at the other half of that maxim:

One of the differences between big companies and startups is that big companies tend to have developed procedures to protect themselves against mistakes. A startup walks like a toddler, bashing into things and falling over all the time. A big company is more deliberate.

The gradual accumulation of checks in an organization is a kind of learning, based on disasters that have happened to it or others like it. After giving a contract to a supplier who goes bankrupt and fails to deliver, for example, a company might require all suppliers to prove they’re solvent before submitting bids.

As companies grow they invariably get more such checks, either in response to disasters they’ve suffered, or (probably more often) by hiring people from bigger companies who bring with them customs for protecting against new types of disasters.

It’s natural for organizations to learn from mistakes. The problem is, people who propose new checks almost never consider that the check itself has a cost.

Every check has a cost. For example, consider the case of making suppliers verify their solvency. Surely that’s mere prudence? But in fact it could have substantial costs. There’s obviously the direct cost in time of the people on both sides who supply and check proofs of the supplier’s solvency. But the real costs are the ones you never hear about: the company that would be the best supplier, but doesn’t bid because they can’t spare the effort to get verified. Or the company that would be the best supplier, but falls just short of the threshold for solvency — which will of course have been set on the high side, since there is no apparent cost of increasing it.

Whenever someone in an organization proposes to add a new check, they should have to explain not just the benefit but the cost. No matter how bad a job they did of analyzing it, this meta-check would at least remind everyone there had to be a cost, and send them looking for it.

If companies started doing that, they’d find some surprises. Joel Spolsky recently spoke at Y Combinator about selling software to corporate customers. He said that in most companies software costing up to about $1000 could be bought by individual managers without any additional approvals. Above that threshold, software purchases generally had to be approved by a committee. But babysitting this process was so expensive for software vendors that it didn’t make sense to charge less than $50,000. Which means if you’re making something you might otherwise have charged $5000 for, you have to sell it for $50,000 instead.

The purpose of the committee is presumably to ensure that the company doesn’t waste money. And yet the result is that the company pays 10 times as much.

Let’s get to where he addresses Jobs’ maxim:

At big companies, software has to go through various approvals before it can be launched. And the cost of doing this can be enormous — in fact, discontinuous. I was talking recently to a group of three programmers whose startup had been acquired a few years before by a big company. When they’d been independent, they could release changes instantly. Now, they said, the absolute fastest they could get code released on the production servers was two weeks.

This didn’t merely make them less productive. It made them hate working for the acquirer.

Here’s a sign of how much programmers like to be able to work hard: these guys would have paid to be able to release code immediately, the way they used to. I asked them if they’d trade 10% of the acquisition price for the ability to release code immediately, and all three instantly said yes. Then I asked what was the maximum percentage of the acquisition price they’d trade for it. They said they didn’t want to think about it, because they didn’t want to know how high they’d go, but I got the impression it might be as much as half.

They’d have sacrificed hundreds of thousands of dollars, perhaps millions, just to be able to deliver more software to users. And you know what? It would have been perfectly safe to let them. In fact, the acquirer would have been better off; not only wouldn’t these guys have broken anything, they’d have gotten a lot more done. So the acquirer is in fact getting worse performance at greater cost. Just like the committee approving software purchases.

And just as the greatest danger of being hard to sell to is not that you overpay but that the best suppliers won’t even sell to you, the greatest danger of applying too many checks to your programmers is not that you’ll make them unproductive, but that good programmers won’t even want to work for you.

Steve Jobs’s famous maxim “artists ship” works both ways. Artists aren’t merely capable of shipping. They insist on it. So if you don’t let people ship, you won’t have any artists.

Why to Start a Startup in a Bad Economy

Thursday, October 16th, 2008

I enjoyed the opening to Paul Graham’s Why to Start a Startup in a Bad Economy:

The economic situation is apparently so grim that some experts fear we may be in for a stretch as bad as the mid seventies.

When Microsoft and Apple were founded.