The J Curve Newsletter: Stacks of Wisdom from the Tech Industry Greatest Essayist

Yesterday I got to spend 9 ½ hours on a flight from Zurich back to New York and re-visited most of Paul Graham’s blog posts since early 2001, so over 22 years of content.

For those who don’t know, Paul Graham is a British-born American computer scientist, entrepreneur and venture capitalist. He’s best known for co-founding the world’s most influential tech accelerator Y Combinator in 2005. Through Y Combinator and individually, he’s helped launch companies like PayPal, Amazon, Google, Airbnb, Stripe, Dropbox, Instacart, Coinbase, Twitch, Reddit and thousands more. Interestingly, Paul Graham wrote a $200k check in a16z when the venture capital firm was barely 6 months old.

Throwing some example to indicate the magnitude of Paul’s success as an investor - he invested $50k in Airbnb in 2009. As of Feb 2023 Airbnb’s market cap is ~$75B and his current stake is worth over $600M. The Y Combinator (YC) itself’s worth $5b as of 2021 as per Forbes estimations.

YC is one of the rare tech accelerators that is consistently active in Latin America. YC companies in LatAm include Rappi, Jeeves, Frubana, Newports, Kevin, Nuvocargo and more.

In addition to being one of the most successful entrepreneurs and investors in the world, Paul is a brilliant essayist. I’ve been following his writing for as long as I have been in the industry of venture capital (am celebrating 15th year this year). Especially now, as I continue establishing myself as an angel and VC investor in Brazil and LatAm, I constantly re-read the thought pieces from some of the greatest minds in our industry. What follows bellow is the synthesis of my top 10 favorite Graham-isms and links to 5 of my favorite blog posts of his. Enjoy!

1. Most really good startup ideas look like bad ideas at first, and many of those look bad specifically because some change in the world just switched them from bad to good.

   It seems to me that beliefs about the future are so rarely correct that they usually aren't worth the extra rigidity they impose, and that the best strategy is simply to be aggressively open-minded. Instead of trying to point yourself in the right direction, admit you have no idea what the right direction is, and try instead to be super sensitive to the winds of change.

2. The problem with VC funds is that they’re funds. 

   Like the managers of mutual funds or hedge funds, VCs get paid a percentage of the money they manage: about 2% a year in management fees, plus a percentage of the gains. So they want the fund to be huge-- hundreds of millions of dollars, if possible.

   VCs don't invest $x million because that's the amount you need, but because that's the amount the structure of their business requires them to invest. Like steroids, these sudden huge investments can do more harm than good. Google survived enormous VC funding because it could legitimately absorb large amounts of money. They had to buy a lot of servers and a lot of bandwidth to crawl the whole Web. Less fortunate startups just end up hiring armies of people to sit around having meetings.

3. A startup should be able to explain in one or two sentences exactly what it does.

   And not just to user. You need this for everyone: investors, acquirers, partners, reporters, potential employees, and even current employees. You probably shouldn’t even start a company to do something that can’t be described compellingly in one or two sentences

4. Don’t get too attached to your original plan, because it’s probably wrong.

   Most successful startups end up doing something different than they originally intended - often so different that it doesn’t even seem like the same company - often so different that it doesn’t even seem like the same company. If companies stuck to their initial plans, Microsoft would be selling programming languages, and Apple would be selling printed circuit boards. In both cases their customers told them what their business should be-- and they were smart enough to listen.You have to be prepared to see the better idea when it arrives. And the hardest part of that is often discarding your old idear. Almost everyone's initial plan is broken.

5. Startup founders are naturally optimistic. They wouldn't do it otherwise. But you should treat your optimism the way you'd treat the core of a nuclear reactor: as a source of power that's also very dangerous. You have to build a shield around it, or it will fry you.

   Shielding your optimism is nowhere more important than with deals. If your startup is doing a deal, just assume it's not going to happen. The VCs who say they're going to invest in you aren't. The company that says they're going to buy you isn't. The big customer who wants to use your system in their whole company won't. Then if things work out you can be pleasantly surprised… The only way a startup can have any leverage in a deal is genuinely not to need it. And if you don't believe in a deal, you'll be less likely to depend on it.

6. Better to make a few users love you than a lot ambivalent.

   Initially you have to choose between satisfying all the needs of a subset of potential users, or satisfying a subset of the needs of all potential users. Take the first. It's easier to expand userwise than satisfactionwise.

7. Do things that don't scale.

   A lot of would-be founders believe that startups either take off or don't. You build something, make it available, and if you've made a better mousetrap, people beat a path to your door as promised. Or they don't, in which case the market must not exist.
   Actually startups take off because the founders make them take off. The need to do something unscalably laborious to get started is so nearly universal that it might be a good idea to stop thinking of startup ideas as scalars. Instead we should try thinking of them as pairs of what you're going to build, plus the unscalable thing(s) you're going to do initially to get the company going.

8. Try making your customer service not merely good, but surprisingly good.

   Go out of your way to make people happy. They'll be overwhelmed; you'll see. In the earliest stages of a startup, it pays to offer customer service on a level that wouldn't scale, because it's a way of learning about your users.

9. Nothing kills startups like distractions.

   The worst type are those that pay money: day jobs, consulting, profitable side-projects. The startup may have more long-term potential, but you'll always interrupt working on it to answer calls from people paying you now.

10. You can get surprisingly far by just not giving up.

    This isn't true in all fields. There are a lot of people who couldn't become good mathematicians no matter how long they persisted. But startups aren't like that. Sheer effort is usually enough, so long as you keep morphing your idea.

Fave blog posts:

1. A Unified Theory of VC Suckage http://www.paulgraham.com/venturecapital.html

2. Mind the Gap http://www.paulgraham.com/gap.html

3. Good and Bad Procrastination: http://www.paulgraham.com/procrastination.html

4. Why Smart People Have Bad Ideas http://www.paulgraham.com/bronze.html

5. How to Be an Expert in a Changing World http://www.paulgraham.com/ecw.html?viewfullsite=1

PS: On Friday I will drop a thought piece on the anatomy of angel investing in Latin America. I am beyond grateful for the contribution of some of the LatAm incredible angel investors (who were also my guests on The J Curve) to this piece. Stay tuned.