17 min read

How to Succeed with a Startup

My summary and key takeaways from Sam Altman, the CEO of OpenAI, on how to succeed with a startup.

Introduction

In 2023, together with one co-worker, I led the technical development of a software-as-a-service AI tool catering to real estate agents at Privatmegleren, one of Norway's leading real estate firms. In this startup, I architected and implemented the end-to-end solution, using bleeding-edge technologies such as edge runtime, web streaming, OpenAI, vector databases, and Next.js. Additionally, I successfully implemented a custom-tailored subscription service using Stripe, ensuring seamless payment processing.

It is very important to note that the technical implementation of the startup idea would have gone nowhere without the business acumen of my co-worker. This underlines the importance of having a diverse team with complementary skill sets.

Furthermore, I will be working on another startup idea the Summer of 2024.

In light of these new experiences and opportunities, I have decided to write down my key takeaways from Sam Altman, the CEO of OpenAI, on how to succeed with a startup. This blog post will be structured much like Altman's presentation, found here, presented from the point-of-view of Altman himself.

A product so good people tell their friends about it

The number one lesson we try to teach startups is that the degree to which vou're successful approximates the degree to which yout build a product that is so good, people spontaneously tell their friends about it.

Startups always ask us for the secret to success. They always want to believe it's something other than this, because this is really hard to do. But this is it. If you can build a product that is so good people spontaneously tell their friends about it, you have done 80% of the work that you need to be a really successful startup. If you think about the most successful companies, for instance Google, Facebook, whatever, you probably found out about them because a friend of yours said "you gotta try this".

So this is the bar: Something that people love so much they tell their friends about it.

Easy to understand

One important indicator for a good startup is a product that's simple to explain and easy to understand. If you can't explain in a few words what you do and if at least some people people don't say "Oh, that's pretty interesting", that's usually a mistake. It's usually a sign of unclear thinking or a need that is not big enough.

Exponential growth in the market

Another thing that startups need to look for is a market that is either started to undergo or is soon going to undergo exponential growth. I think this is actually related to one of the biggest mistakes investors make when evaluating startups. Investors always say "What's your growth rate? We care about the growth rate." Investors will forgive smallish revenue today if the startup will grow quickly. For some reason people don't think about markets this way.

But if you think about the most important startups, they are the ones that start in small markets that are growing very, very quickly. 11 years ago, the market for iPhone apps is $0.00. It's now huge, and I think if you only think about today, you'll make a big mistake.

What you really want to do is identify a market that's going to grow every year and be able to ride that upwards elevator.

Real trends versus fake trends

A really important thing to figuring this out is learning how to differentiate between real trends and fake trends. A real trend is something that's actually going to happen and a fake trend is not, or at least not yet. And before you make a big bet on a new platform, you want to make sure it's real. Now, there's an easy trick for this, which I'll share now.

Real trends are ones where a new technology platform comes along and the early adopters use it obsessively and tell their friends how much they love it. A fake trend is one where people may buy the product but don't use it, or at least not enough.

So an example of a real trend: I already mentioned the iPhone, and I'll mention that again. When the iPhone first came out, many people were dismissive because the phone only sold a million or two million copies that year. And they said, "well, this just doesn't matter". But for the people that had an iPhone, they used it for hours every day, and it became central to their lives. They loved it. They told their friends: "You've got to get one!" And I think it was obvious then to people paying attention that something had fundamentally shifted in a way, and a new computing platform (mobile) was going to spawn huge businesses. And it was a good time to bet on mobile apps.

A fake trend, or at least a fake trend as of August 2018, I would say, is VR. I do believe VR will be big someday. But today most people that I know that own a VR headset rarely or never use it. Although a lot of people talk about it, and maybe even a lot of people buy them, there's not the intense usage per user among the early adopters that I think you want to see before you make a big bet.

Evangelical founder

Another thing that startups need: at least one evangelical founder, usually the CEO. Someone at the startup has got to be the person that is going to recruit, sell the product, talk to the press, and raise money. This requires someone who can infect, with enthusiasm, the whole world about what the company is trying to do, and someone who becomes the chief evangelist for the company. It's it's very hard to succeed wildly without that. It's very hard to build a team at all without being able to do that.

Ambitious vision

One thing that helps for this is having an ambitious vision. You never want to be grandiose. That turns people off. But you wanna let yourself grow more ambitious overtime. And as long as you do that organically, people will respond. Ambitious visions are exciting. They're fun to work on.

Hard startups versus easy startups

In fact, I think in 2018, at least in Silicon Valley, it's easier to start a hard startup than it is to start an easy startup. Now this sounds paradoxical, but ambitious projects are interesting. In the current environment, it may be relatively easy to raise capital, but it's really hard to do everything else. There are so many startups, it's so easy to start one. They all sound so promising that bringing together enough talent in one organisation is really hard to do. And if you're working on a problem that may be modestly successful, it's kind of easy to get the first two people to join (you can give them a lot of equity), but then it gets really hard. Why is employee 20 going to join? Why does this matter to the world? Why should someone work on your startup versus any of the other things they could do?

Picking something that matters if you're successful is a great way to gather talent. It's really important to think about how this is going to evolve into a vision that a lot of people want to help with, and that a lot of people want to be associated with. Because I think getting talent and sharing good ideas across minds is really hard in the current environment and people are interested in startups that matter.

Confident and definitive view of the future

Another thing that we've noticed among our best founders - again and again and again - is that they are have a confident and definite view of the future. They may be wrong, and so we say it's good to be confident and flexible. And being relatively sure of that, having courage of your convictions, being a clear leader, saying "we're going to do this!". That's why even in the face of a lot of doubt, that seems to really correlate with success. And this comes back to having an ambitious vision.

Huge if it works

The entire startup ecosystem is best set up to support companies that have a low chance of success but are huge if they work.

Going for something that is huge if it works will attract the best people.

The team (non-obvious insights)

I'd like to mention a few nonobvious things that we've noticed about the importance of the team that we don't hear people say as much.

The team you build is the company you build.

Building a great team, in addition to picking the right market and building a great product, is the most important thing you do. All successful founders go through a transition where you switch from building a product to building a company, and building a company really is about the team.

Optimists!

You need optimists. The whole world will be telling you why you're going to fail as a startup. If you don't have that internal fire of belief, if you don't have people who say, "you know what, we are going to do this". And it doesn't matter what the haters say: "We're going to figure this out. It must be solvable".

If you don't have the spirit of optimism on the team, it's very hard to succeed when the world continues to punch you in the face.

Idea generators

You need at least some idea generators on your team. There are a handful of people in any company that has gone on to be really successful that I've been able to work with who are just really good at coming up with lots of ideas.

You don't want too many of these people because that's more ideas than a company can follow through on. But having some people within a company that are just constantly throwing out new ideas, most of which will be bad, turns out to be super important to have on the team.

We'll figure it out

The spirit of "we'll figure it out" is my favorite thing to hear among early startup team members.

A lot of things go wrong. The situations that startups are in tend to be incredibly dynamic. So this idea that even if I'm not qualified on paper, even if I haven't solved this problem before, even if this problem feels like it's going to kill the company, which many problems will feel that way, the spirit among the team of, you know what, we've got the people we need, we're going to figure this out, we're going to get this done. That's super important.

I've got it

Another thing that I love to hear from early team members is "I've got it".

You hear in big companies, a lot people say, "that's not my department", "someone else is going to do that", or "this is really bad", "this is going to hurt us".

You want people who just step up and say, I'll do it, I've got it, don't worry about it.

Bias towards action

You want people that have a bias towards action. Startups, especially in their early days, often win by moving very quickly.

You never get as much data as you'd like. You never have as much time to deliberate as you'd like. You want people who are willing to act with much less data than they like with much less certainty. Then, if they act and it doesn't work, they adapt really quickly and try something else.

The blessing of inexperience

We talk also about the blessing of inexperience. We have seen many of our startups do incredible things because no one told them it was hard or no one told them they can't do it.

Momentum

One of the most important jobs you have as a founder is to never lose momentum.

This is a little bit depressing because it means for the first few years, you never get to take your foot off of the gas. You never get to really rest. We try to be honest about this, that startups are not the best choice for work life balance at all, but especially in the early days, startups survive on their own momentum.

If you have momentum, people keep delivering results beyond what they think they're capable of. If you lose momentum, it's very difficult to get it back.

It's up to the founders to make sure that you don't lose a hold of this.

Competetive advantage

Another thing startups need is is a competitive advantage over time. Now, this is something that sounds so obvious.

Where are the network effect in this business? All of the really great businesses I know have an answer to this question.

Sensible business model

Another thing you want to have a plan for is a sensible business model.

You don't have to have it all figured out at the beginning. Important things to have an answer to is (1) how they're going to grow, (2) how they're going to get users, and (3) how they're going to make money.

Frugality, focus, obsession, love

These are things that you should be able to say about what you're doing and you as a founder: Frugality, focus, obsession, love.

Why startups win

I think these trends are valuable enough that as you evaluate which startup ideas you might do, it's worth thinking about if you fit into these.

It's really hard for startups to beat big companies most of the time, and here are some areas where we see it happening repeatedly.

One no versus one yes

One difference is if you are a product manager at a big company and you want to do something that sounds like a bad idea, but is a good idea. You have to get everybody from your boss, sometimes all the way up to the CEO, to say yes. So one "No" can kill you.

If you're a startup, any number of the thousands of investors can say yes, and you get to have a crack at it. It's a very different mindset. For those ideas that sound bad but are good, because of this phenomenon, this one "no" versus one "yes", startups can win.

In fact, startups usually do beat big companies in that category of ideas.

Look for ideas that sound bad but are good, and where you are much more likely to get one "yes" than someone at a big company is to get all "yes"-es.

Fast-changing markets

Another area where startups Usually be big companies are in very fast changing markets. A startup's great strength is in agility and speed.

The more a market is changing, the higher the number of decisions you get to make, and the higher number of tweaks to your product and your strategy you get to make. You want to optimize the number of those decisions that someone has to make to compete with you, because a big company will make them on average worse and certainly much slower than you do.

So, the speed of market evolution gives you a lot more chances to compound your advantage over a big company.

Platform shifts

Finally, startups usually win on big platform shifts. Many people have observed that startups come in these clusters after a big platform shift.

We'll stick with the iPhone example here. After mobile apps became a thing, many new companies got started that are now quite valuable. One of the reasons here is that most large companies work on sort of an annual cadence.

When there's a huge platform shift, big companies are not good at making a big enough strategic pivot. The battleship just turns too slowly.

Whereas a startup can say: "wow, I just woke up this morning and the world is fundamentally different than it was six months ago. We're going to go all in on this new direction". That's a way that startups usually win.

Key takeaways

All this content is stuff that can be revisited again and again to remind yourself of what's important when building a startup.

Here are the key takeaways:

  • Startup success is highly dependent on product quality, with the best products being those that users recommend to others.

  • A product's potential for success is indicated by its simplicity and the ease with which it can be explained.

  • Targeting rapidly growing markets is essential for startups, as investors focus on growth rates.

  • Differentiating between real trends (sustained usage and advocacy) and fake trends (initial sales without sustained usage) is crucial.

  • Startups need at least one evangelical founder who can recruit, sell, engage with the press, and raise funds.

  • An ambitious vision attracts talent and allows the company to grow organically over time.

  • Challenging projects are more likely to attract initial team members than easier ones.

  • Successful founders have a confident and definite view of the future, inspiring others to follow.

  • Building a great team is foundational, requiring founders to invest time in recruiting optimistic team members.

  • Startups need team members who are idea generators, proactive, and willing to tackle challenges without prior experience.

  • Maintaining momentum and a winning streak is the founder's responsibility to ensure the startup's progress.

  • Startups must have a competitive advantage and a sensible business model to succeed.

  • Traits of successful founders include frugality, focus, obsession, and a passion for their work.

  • Startups can outperform big companies by pursuing unconventional ideas, being agile, and pivoting quickly to market changes.