1:28 - Tomer describes Gusto Embedded and the complexities behind compliance.</p><ul><li>Gusto Embedded takes ten years of Gusto’s experience building payroll software and compliance and makes it available to any software company wanting to ship their own payroll product to the market. </li></ul><p><strong>5:00 </strong>- Why did you decide to pursue startups as the company’s first target audience? How did you think about customer segments in that first year? </p><p><em>Over the last ten years, Gusto has scaled to build for multiple customer segments – starting with startups, then SMBs, accountants, and now with Gusto Embedded Payroll, developers who are embedding payroll directly into their software. </em></p><ul><li>When you have a grand vision, where do you start as a founder? Choose a customer segment. Make sure you choose a segment where 1) they have an important customer problem, 2) the product you are building solves that problem, and 3) you can reach your customer. </li></ul><p><strong>9:30 </strong>- Who were your competitors in the early days? </p><ul><li>The old, traditional payroll solutions, which were complex. With Gusto, <em>anyone</em> can run payroll at <em>any time</em>. Gusto also focuses on employees, a critical part of the system, by building a great payroll experience for them. </li></ul><p><strong>11:30 </strong>- Why did you decide to build for SMBs after startups? </p><ul><li>Look at your current customer base and learn from customers adjacent to the market you want to expand into. When you do expand into another vertical, make sure you maintain that early customer love. </li></ul><p><strong>14:45</strong> - How did you maintain the customer love of the existing customer segment? </p><ul><li>Think about your long-term vision and don’t put yourself in a corner when you want to move to the next segment. </li></ul><p><strong>17:00</strong> - Most startups find it hard to tackle the SMB market. Why do you think this is the case? </p><ul><li>Traditionally SMBs are hard to reach and use incomplete or manual solutions. Since 2000 an entire generation of business owners had to learn to trust online financial services. Today, SMBs are online and looking for solutions.</li></ul><p><strong>22:25 </strong>- What is different about serving SMBs as a customer versus startups? </p><ul><li>Startups come and go, and the real economics come from the big winners. Focusing on startups is a good place to start your journey, but think about how to scale with them.</li><li>There are more small businesses than startups, and they are around for a long time – but most don’t grow to thousands of employees. You need to build a business model that works with that dynamic. </li></ul><p><strong>27:00 - </strong>Why did you pursue developers and how did you decide to service them? </p><ul><li>For many verticals, it is much better to have an all-in-one platform to run your small businesses. But payroll is really hard to build yourself. Gusto Embedded helps partners deliver a more integrated solution for customers without investing the several years and tens of millions of dollars.</li></ul><p><strong>29:00 </strong>- Gusto went from directly acquiring small businesses as customers to creating an embedded solution – essentially “giving up” the relationship with the customer. How did you think about that? </p><ul><li>Evaluate the future of the industry and don’t ignore reality. Be the one to create that future. In this case, many payroll customers want all-in-one solutions. We can either try to meet those needs directly, or empower hundreds of partners to customize unique solutions.</li></ul><p><strong>33:00 - </strong>How should founders think about who to partner with? When should founders build directly for the industry and when should they go the embedded route? </p><ul><li>Think about the unique insight you have in the business you’re creating and make sure you own your destiny around that insight.</li><li>For your customer, what does a successful product look like, and could you partner with a company to fulfill those needs.</li><li>Your product must be high-quality. You have to put enough resources behind whatever you own. For everything else, you must ensure you bring in the right partner. It’s all about the end-to-end experience. </li></ul><p><strong>39:30</strong> - Gusto now makes it easier for software providers to bake compliance into embedded payroll. Tomer, I think developers looking at a payroll API would assume that compliance is baked in. But there are often steps companies have to take beyond just calling APIs. Tell us if that assumption holds.</p><ul><li>Regulation can change every quarter and every year. This is built into the product. We protect the customer and make it easy for developers to ship something quickly that is compliant for the long term.</li><li>One third of the companies in the U.S. get fined for mistakes on payroll. </li></ul><p><strong>43:00 - </strong>Compliance is the hardest part of payroll to build and ultimately has to be right. It took ten years of experience in compliance to launch this into Gusto Embedded Payroll. What advice do you have for founders who are building complicated, yet essential, components for an industry?</p><ul><li>Determine the parts of your product that are highly regulated and which areas are not. Build a culture that ensures quality-first in those highly-regulated areas, as well as a culture where people can iterate quickly in other areas. You can’t build a monolithic culture.</li><li>Embrace cross functional work. </li></ul><p><strong>46:00 </strong>- In the early days of Gusto, what guidance did you provide to your engineers about building payroll? What areas could break and which areas could not break? </p><p><strong>48:40</strong> - Looking back, would you have done anything different? </p><ul><li>Start charging what you feel is the value you provide; fix downwards versus upwards. If you’re truly adding value, customers won’t hesitate moving forward at that price.</li><li>Have the humility to learn from the customer and how the market changes around you. </li></ul><p><strong>51:45 </strong>- How should founders be thinking about embedded finance and how does this market evolve over the next 5-10 years? </p><ul><li>When you build a new software system for your customer, the more connected the system is for your customer, the better it is. Embedded products enable you to do that quickly and in high quality.</li><li>Bring more solutions into your product that are driven by what your customer needs. Understand your customer’s day-to-day, and figure out how to build something that solves their entire flow instead of one segment.</li><li>If you are not making money on your product, you don’t know if there's a product market fit. If you can charge and retain a customer, then there is product market fit. </li></ul><p><strong>56:30</strong> - Outside of payroll, what are you seeing product wise offered by APIs? </p><ul><li>This space is brand new and there’s a ton of opportunity to create a product that helps customers go through the end-to-end journey successfully and solves multiple pain points – instead of the customer needing ten years of background to create a high-quality solution.</li></ul>","comment_id":"62fa7b87ab52db0001d3b656","feature_image":"/blog/content/images/2022/08/BlogTwitter-Image-Template--5-.jpg","featured":true,"visibility":"public","email_recipient_filter":"none","created_at":"2022-08-15T09:59:51.000-07:00","updated_at":"2022-08-15T11:48:12.000-07:00","published_at":"2022-08-15T11:32:19.000-07:00","custom_excerpt":"Today, more than 200,000 businesses use Gusto for payroll, employee benefits, talent management, and more. And with the recent addition of Gusto Embedded, developers now use Gusto’s APIs and pre-build UI flows to embed payroll, tax filing, and payments infrastructure into products. 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Combinator","slug":"yc","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/yc.png","cover_image":null,"bio":null,"website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/yc/"},"primary_tag":{"id":"61fe29efc7139e0001a71179","name":"YC Events","slug":"yc-events","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/yc-events/"},"url":"https://ghost.prod.ycinside.com/yc-founder-firesides-gusto-on-building-for-new-verticals/","excerpt":"Gusto (YC W12) provides growing businesses with everything to take care of their team. Today, more than 200,000 businesses use Gusto for payroll, employee benefits, talent management, and more. And with the recent addition of Gusto Embedded, developers now use Gusto’s APIs and pre-build UI flows to embed payroll, tax filing, and payments infrastructure into products. ","reading_time":5,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"63d45276ba7a5900012d1cb7","uuid":"539ff8b7-1511-483b-aade-1dccd48511b1","title":"Learnings of a CEO: Snapdocs’ Aaron King on navigating market cycles","slug":"learnings-of-a-snapdocs-aaron-king-on-navigating-market-cycles","html":"<p>Welcome to the fourth edition of Learnings of a CEO. You can read previous editions <a href=https://www.ycombinator.com/"https://www.ycombinator.com/blog?query=learnings%20of%20a%20CEO\%22>here. </p><p><a href=https://www.ycombinator.com/"https://www.snapdocs.com//">Snapdocs is the leading digital closing platform for the mortgage industry. Today, the company touches 25% of all US real estate transactions and is valued at $1.5B. Founder and CEO <a href=https://www.ycombinator.com/"https://twitter.com/a_w_king/">Aaron King</a> and his team have expertly navigated fundraising and market cycles. We sat down with Aaron to hear his insight into getting a business up and running with minimal outside funding and building through volatile market conditions. </p><p><strong>Why did you decide to raise minimal funding early in the company’s history?</strong></p><p>I never considered funding to be a requirement for building — but I also didn't know much about fundraising early on in the company’s history. Snapdocs was started as a side project a couple of years before ever thinking about applying to YC. By the time I applied, we had a live product, customers, and revenue. Even after YC, we didn’t raise much immediately. We stayed focused on building and then raised a seed round later in the year.</p><p>It wasn’t until three years later that we raised our Series A. By then, we had spent about $1MM of our seed round and were at a $5MM revenue run rate. Around that time we started working with much larger customers, and it was clear we would need more capital to be successful in this bigger market. So, we raised our Series A. After we closed the round, our lead investor revealed how capital efficient we had been compared to our peers. </p><p><strong>Do you feel you had to ruthlessly prioritize when building the product because you didn't have the capital?</strong></p><p>Yes, and I’ve learned that you should take the same approach even when you do have the capital to be less disciplined. Back then, ruthless prioritization was our only option. We couldn’t afford to build features that weren’t essential. There were always a hundred distractions that would result in a broader, less focused product. But our capital constraints kept us focused on going deep with our paying customers. That helped us avoid the common trap of building products no one wanted. </p><p>It also meant that when we decided to build a product, we had to think about the smallest version of that product in order to quickly ship. That helped ensure we had a short feedback loop from our users and ensure our resources were continuously being invested in building the right features. Looking back, I’m amazed at how much we were able to accomplish without spending much capital. </p><p>Being capital constrained forced good behaviors that served us well even after we raised more funding. We continue to be thoughtful about every dollar we spend. But, there is a cost to this approach, and we’re paying for it today. We built many things that weren't engineered for scale or flexibility. However, now we can afford to reengineer those unscalable solutions because we built something people want.</p><p><strong>What did your product cycles look like before you raised your Series A?</strong></p><p>We were always heavy on customer involvement when building product. We spent a lot of time in our customers’ offices watching them use what we were building and understanding their work. We also kept a lot of our prospects in the loop as we built new features. Some of the best feedback came from people who had chosen to not yet work with us. Responding to that feedback with a killer feature was a great way to ultimately get them on board. </p><p>We built a lot of trust and rapport with these early customers, and the in-person interactions helped immensely. As a result, they would call one of us the moment they thought there was a problem or if they thought a competitor was doing something compelling. Customer churn for Snapdocs has always been incredibly low as a result. </p><p>We created a disciplined product release process, even in those early days, but we were still able to move quickly. We shipped code every day, sometimes multiple times a day. Customers were impressed by how quickly we could respond to issues and feedback. </p><p>Interestingly, not having too much pressure from investors early on allowed us to experiment more in an underappreciated part of our market. The Serviceable Available Market (SAM) of our initial product was roughly only $20MM, but we believed it would allow us to expand into more critical parts of the mortgage ecosystem. It was the type of opportunity that would be hard to discover through market analysis or spreadsheet exercises. You had to get deep into the problem set to see the opportunity and develop the right strategy—and that ultimately worked to our advantage. </p><p><strong>Founders need capital to hire employees. As a bootstrapped company, what was your strategy around hiring? </strong></p><p>Hiring was hard, but we did a few things that worked well. Even before the company could afford full-time employees, I worked with talented contractors. I also leaned on friends to help me work through both technical and business challenges. Someone would come over and whiteboard with me or we’d get into the code and work through a problem. </p><p>When I could afford to hire full-time employees, I treated them like founding team members. I was generous with equity and shared everything about the potential and challenges of the business. We built a lot of trust as a small team. Getting a few really good people into the company early on was foundational to the company’s success. </p><p>The first person to join full-time was an engineer I had worked with in a previous role (and one of the friends that would help in those early days). The second and third hires were applicants from job postings on Hacker News. All three turned out to be excellent. None of us initially had large networks in the startup world, so most of our early hiring involved lots of interviews and hiring a few of the wrong people. We couldn’t attract well-known talent and took risks; invested in people we thought had a lot of potential. </p><p>One mistake I made in the early years was being too timid to approach more of the people I respected. I should have tried to convince them to quit their successful jobs and join our small (yet risky at the time) startup. I’m fearless on this approach now, but back then I was intimidated to try to convince a friend to join a company that might fail. In hindsight, I did them a disservice by not trying to recruit them. The truth is that these people are smart and you’re not harming anyone by sharing your vision and the potential of the company with them. As long as you’re honest and transparent about the inherent challenges, you should give them the opportunity to take a risk on you. </p><p>As Snapdocs grew, it became easier to pull from the team’s networks. We continued to build a lot of trust within the team, and they started referring their friends to apply. Eventually, we attracted well-known investors, and that, along with our culture and growth, made hiring easier. </p><p>Because we were capital constrained, we also didn’t hire anyone until there was a clear and painful need. It made running the company harder because we were all spread thin but ultimately made us incredibly productive, as it meant we were always working on the most important things. </p><p><strong>How have you navigated different market conditions? When do you decide to react?</strong></p><p>A big part of our success has come from selectively ignoring some market changes while reacting quickly to others. It has always been a question of how the change aligns with our resources, vision, and north star metric of market share growth. </p><p>For example, the biggest and most dynamic change we regularly experience are fluctuations in the number of mortgages that happen in a given month or year. This can change quickly based on a host of economic factors. When we are well-resourced and growing fast, we can ignore some of those market downturns and stay focused on market share growth — knowing we have the momentum and capital to power through it. Other times we’ve had to scale up or scale back based on the size of the fluctuation.</p><p>But other market dynamics can change quickly too, like the industry’s appetite for new technologies and the competitive landscape. There have been times when the market was demanding a technology but we believed there were underlying factors in the industry that would prevent that tech from scaling. If we built the technology, it would pull resources away from the priorities that drove us toward our long-term goals. And so, sometimes to the protests of our sales team, we ignored it or invested minimally in these trendy areas. By doing so, we were able to stay focused on the things that were truly going to transform the industry. </p><p>It’s also worth noting that navigating change was relatively easy in the first few years of building the company. It was a lot easier to adjust course on company direction or strategy when the team was smaller and could all fit in the same room. The product cycles were relatively short and malleable. The cost of making a change was low. </p><p>As the company has grown, we’ve had to be a lot more thoughtful and methodical about changing the speed or direction of the business as we react to market changes. The cost of making a change has increased a lot. Investments take longer to play out. Changes to headcount take longer to scale up or down. There are more people on the team and more layers in the organization to communicate the change through. </p><p><strong>In March 2020, Snapdocs made a huge shift because of changes you were seeing in the housing market. How did you communicate this shift to your team and ensure their goals were aligned with the new priorities? </strong></p><p>COVID accelerated demand for our product, but with that came a shift in what our customers wanted from a platform like ours. We had to expand quickly to serve their needs, and we had to pivot our roadmap on a dime. It’s a testament to the team that we were able to pull that off. </p><p>To make decisions quickly and then communicate them, we worked in concentric circles. We started by discussing the change in a smaller group of 3-4 people. This is where the hardest and messiest conversations took place. We moved quickly to define the problems and opportunities and set a direction for the company. We then looped in the senior leadership team for further discussion and to arm them with everything they needed to share the directional changes with their teams. Finally, we held a company-wide meeting to share the new direction and answer questions. All of this happened over the course of about 2 weeks.</p><p>Now, our business required more speed and flexibility as information was coming in and changing week on week. We dealt with this by creating temporary pods of 4-5 team members focused on solving specific challenges that would spin up for a few weeks and then dissolve once the challenge was addressed. We also increased the frequency of our company-wide all-hands meetings from monthly to weekly so we could keep the whole company up to speed. </p><p>Luckily we had a deep culture of transparency that goes back to the beginning of the company. We’ve always tried to share everything with our entire team — our cash balance, monthly growth rate, burn, our biggest challenges. This got harder as the team grew, but we’ve largely continued this transparency to today. It’s much easier to be transparent in times of great change if you've laid a foundation of trust and transparency in the past. </p><p>We also worked hard to be intellectually honest about the growth we were experiencing. It’s easy to take credit when the business accelerates, but our message to the team wasn't, “Look at how great we're doing.” The message was closer to, “This industry works in cycles. We're in an up cycle now and that's great. There's going to be a down cycle. We don't know when or how strong it's going to be. But we should not overly congratulate ourselves for the current situation, just as we shouldn’t be too hard on ourselves when we’re fighting through an inevitable downturn in the future.”</p><p><strong>In 2021, Snapdocs </strong><a href=https://www.ycombinator.com/"https://www.snapdocs.com/resource-center/blog/announcing-our-150m-series-d-funding-round/">announced a Series D round. How did this change your mentality around resources?</strong></p><p>It was clear that the pandemic would be an accelerator for our business, and we needed to move fast to stay ahead of the market. We went from being frugal to raising larger rounds of capital and hiring seasoned executives who could help us scale. It’s important for companies to evolve at the right points in time and ask themselves, “Is what I did yesterday the thing that's going to get me to where I need to be tomorrow?”. We asked that question and decided we needed to change parts of our culture and capital investment strategy if we wanted to win.</p><p>When we raised capital in 2021, transactions on Snapdocs had steadily increased to millions of closings a year and thousands of lenders and title companies were using our technology every month. Demand for mortgages throughout the pandemic was strong, and we deployed an intentional strategy of prioritizing effectiveness over efficiency. We needed to get aggressive and expand our market position, which required capital. </p><p>The market turned again later in the year, with demand for mortgages cooling. It was clear that it was time to go back to some of our old ways of doing things. We ditched the motto of being effective over being efficient. This meant a return to ruthless prioritization of our focus. We shifted away from investing so heavily in future scale as we wouldn’t need to tap into these systems for a few years.</p><p>I find it helpful to remember that market fluctuations are normal and unavoidable. Startups should scale up at times and scale back at others. It’s hard and painful. There’s nothing easy or enjoyable about being understaffed to meet customer demand on one side, or needing to let team members go on the other. But these ups and downs are natural and a necessary part of building an enduring company. In a startup, you’re always making hard decisions based on insufficient information. You’re never going to be able to perfectly predict the future. You need to keep making the best decisions you can — knowing all the while that you may be wrong and need to change course again once the future becomes clearer.</p>","comment_id":"63d45276ba7a5900012d1cb7","feature_image":"/blog/content/images/2023/02/BlogTwitter-Image-Template--24-.png","featured":true,"visibility":"public","email_recipient_filter":"none","created_at":"2023-01-27T14:38:46.000-08:00","updated_at":"2023-02-22T18:17:22.000-08:00","published_at":"2023-01-30T08:59:00.000-08:00","custom_excerpt":"Founder & CEO Aaron King expertly built Snapdocs through volatile market conditions and with minimal outside funding into the mortgage industry's leading digital closing platform, valued at $1.5B today. This is what he learned about navigating market cycles.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710a7","name":"Lindsay Amos","slug":"lindsay-amos","profile_image":"/blog/content/images/2022/02/Lindsay.jpg","cover_image":null,"bio":"Lindsay Amos is the Senior Director of Communications at Y Combinator. In 2010, she was one of the first 30 employees at Square and the company’s first comms hire.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/lindsay-amos/"}],"tags":[{"id":"61fe29efc7139e0001a71174","name":"Advice","slug":"advice","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/advice/"},{"id":"61fe29efc7139e0001a71181","name":"YC Continuity","slug":"yc-continuity","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/yc-continuity/"},{"id":"61fe29efc7139e0001a71152","name":"Founder Stories","slug":"founder-stories","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/founder-stories/"},{"id":"61fe29efc7139e0001a71158","name":"Leadership","slug":"leadership","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/leadership/"},{"id":"61fe29efc7139e0001a71170","name":"Startups","slug":"startups","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/startups/"},{"id":"61fe29efc7139e0001a71155","name":"Growth","slug":"growth","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/growth/"},{"id":"63d45389ba7a5900012d1ccf","name":"#622","slug":"hash-622","description":null,"feature_image":null,"visibility":"internal","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/404/"}],"primary_author":{"id":"61fe29e3c7139e0001a710a7","name":"Lindsay Amos","slug":"lindsay-amos","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/Lindsay.jpg","cover_image":null,"bio":"Lindsay Amos is the Senior Director of Communications at Y Combinator. In 2010, she was one of the first 30 employees at Square and the company’s first comms hire.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/lindsay-amos/"},"primary_tag":{"id":"61fe29efc7139e0001a71174","name":"Advice","slug":"advice","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/advice/"},"url":"https://ghost.prod.ycinside.com/learnings-of-a-snapdocs-aaron-king-on-navigating-market-cycles/","excerpt":"Welcome to the fourth edition of Learnings of a CEO. You can read previous editions here. ","reading_time":9,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"6335e2416c330f000113fac3","uuid":"35201943-5292-4030-906c-00e0478b0141","title":"First Five Launches with Whatnot","slug":"first-five-launches-with-whatnot","html":"<p>Today <a href=https://www.ycombinator.com/"https://www.whatnot.com//">Whatnot (<a href=https://www.ycombinator.com/"https://www.ycombinator.com/companies/whatnot/">W20) is a lively platform where collectors can buy, sell, go live, and geek out with other like-minded people across a wide variety of product categories. But, like every startup, the founders of Whatnot began with only an idea. YC’s <a href=https://www.ycombinator.com/"https://twitter.com/anuhariharan/">Anu Hariharan</a> sat down with the co-founder and CEO of Whatnot <a href=https://www.ycombinator.com/"https://twitter.com/grantlafontaine?lang=en\%22>Grant LaFontaine</a> to discuss their first five launches.</p><p>The takeaways are below, and the interview can be watched on <a href=https://www.ycombinator.com/"https://www.youtube.com/watch?v=OKD0IAcwMig\%22>Youtube.
by Paul Graham3/21/2024
I met the Reddits before we even started Y Combinator. In fact they were one of the reasons we started it.
YC grew out of a talk I gave to the Harvard Computer Society (the undergrad computer club) about how to start a startup. Everyone else in the audience was probably local, but Steve and Alexis came up on the train from the University of Virginia, where they were seniors. Since they'd come so far I agreed to meet them for coffee. They told me about the startup idea we'd later fund them to drop: a way to order fast food on your cellphone.
This was before smartphones. They'd have had to make deals with cell carriers and fast food chains just to get it launched. So it was not going to happen. It still doesn't exist, 19 years later. But I was impressed with their brains and their energy. In fact I was so impressed with them and some of the other people I met at that talk that I decided to start something to fund them. A few days later I told Steve and Alexis that we were starting Y Combinator, and encouraged them to apply.
That first batch we didn't have any way to identify applicants, so we made up nicknames for them. The Reddits were the "Cell food muffins." "Muffin" is a term of endearment Jessica uses for things like small dogs and two year olds. So that gives you some idea what kind of impression Steve and Alexis made in those days. They had the look of slightly ruffled surprise that baby birds have.
Their idea was bad though. And since we thought then that we were funding ideas rather than founders, we rejected them. But we felt bad about it. Jessica was sad that we'd rejected the muffins. And it seemed wrong to me to turn down the people we'd been inspired to start YC to fund.
I don't think the startup sense of the word "pivot" had been invented yet, but we wanted to fund Steve and Alexis, so if their idea was bad, they'd have to work on something else. And I knew what else. In those days there was a site called Delicious where you could save links. It had a page called del.icio.us/popular that listed the most-saved links, and people were using this page as a de facto Reddit. I knew because a lot of the traffic to my site was coming from it. There needed to be something like del.icio.us/popular, but designed for sharing links instead of being a byproduct of saving them.
So I called Steve and Alexis and said that we liked them, just not their idea, so we'd fund them if they'd work on something else. They were on the train home to Virginia at that point. They got off at the next station and got on the next train north, and by the end of the day were committed to working on what's now called Reddit.
They would have liked to call it Snoo, as in "What snoo?" But snoo.com was too expensive, so they settled for calling the mascot Snoo and picked a name for the site that wasn't registered. Early on Reddit was just a provisional name, or so they told me at least, but it's probably too late to change it now.
As with all the really great startups, there's an uncannily close match between the company and the founders. Steve in particular. Reddit has a certain personality — curious, skeptical, ready to be amused — and that personality is Steve's.
Steve will roll his eyes at this, but he's an intellectual; he's interested in ideas for their own sake. That was how he came to be in that audience in Cambridge in the first place. He knew me because he was interested in a programming language I've written about called Lisp, and Lisp is one of those languages few people learn except out of intellectual curiosity. Steve's kind of vacuum-cleaner curiosity is exactly what you want when you're starting a site that's a list of links to literally anything interesting.
Steve was not a big fan of authority, so he also liked the idea of a site without editors. In those days the top forum for programmers was a site called Slashdot. It was a lot like Reddit, except the stories on the frontpage were chosen by human moderators. And though they did a good job, that one small difference turned out to be a big difference. Being driven by user submissions meant Reddit was fresher than Slashdot. News there was newer, and users will always go where the newest news is.
I pushed the Reddits to launch fast. A version one didn't need to be more than a couple hundred lines of code. How could that take more than a week or two to build? And they did launch comparatively fast, about three weeks into the first YC batch. The first users were Steve, Alexis, me, and some of their YC batchmates and college friends. It turns out you don't need that many users to collect a decent list of interesting links, especially if you have multiple accounts per user.
Reddit got two more people from their YC batch: Chris Slowe and Aaron Swartz, and they too were unusually smart. Chris was just finishing his PhD in physics at Harvard. Aaron was younger, a college freshman, and even more anti-authority than Steve. It's not exaggerating to describe him as a martyr for what authority later did to him.
Slowly but inexorably Reddit's traffic grew. At first the numbers were so small they were hard to distinguish from background noise. But within a few weeks it was clear that there was a core of real users returning regularly to the site. And although all kinds of things have happened to Reddit the company in the years since, Reddit the site never looked back.
Reddit the site (and now app) is such a fundamentally useful thing that it's almost unkillable. Which is why, despite a long stretch after Steve left when the management strategy ranged from benign neglect to spectacular blunders, traffic just kept growing. You can't do that with most companies. Most companies you take your eye off the ball for six months and you're in deep trouble. But Reddit was special, and when Steve came back in 2015, I knew the world was in for a surprise.
People thought they had Reddit's number: one of the players in Silicon Valley, but not one of the big ones. But those who knew what had been going on behind the scenes knew there was more to the story than this. If Reddit could grow to the size it had with management that was harmless at best, what could it do if Steve came back? We now know the answer to that question. Or at least a lower bound on the answer. Steve is not out of ideas yet.
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Paul is a cofounder of YC. He is the author of On Lisp, ANSI Common Lisp, and Hackers & Painters. In 1995, he and Robert Morris started Viaweb, the first SaaS company, which became Yahoo Store.