Why is it important to research past failures before starting a company?

Researching past attempts is crucial because most 'new' ideas are attacking old human problems with new techniques or technologies. Understanding how others tried and failed provides valuable insights, preventing willful ignorance and allowing founders to design better solutions, as seen with companies like Instacart.

Can founders rely on investor validation instead of doing their own research?

While investors provide experience, founders are ultimately responsible. Experts can be biased by past successes or failures, and it's essential to get a wide variety of opinions and synthesize them yourself. Blindly accepting advice, even from investors, is not sufficient.

How does the 'root' analogy explain startup success?

The analogy compares changing the world to uprooting a tree. Founders who understand the 'roots'—the underlying motivations, incentives, and existing structures within an ecosystem—have a significant advantage. Those who ignore these 'roots' face difficult on-the-job learning and struggle to make their ideas take hold.

Are traditional intermediaries like car dealers or realtors inherently bad?

The video suggests that simplistic arguments to eliminate intermediaries often overlook the reasons they exist and the incentives that maintain them. Revolutionizing these processes requires a deep understanding of all parties involved, not just a belief that they can be easily replaced by software.

Why might investors with less domain expertise be more optimistic about a startup?

Counterintuitively, investors who are less specialized in a particular field might see a problem as simpler and more ripe for innovation ('grass is greener'). Those with deep knowledge often understand the myriad complexities and past failures, leading to more cautious optimism.

What is the core message about changing the world?

The core message is that significant change comes from understanding and catering to the subtle motivations and pressures within an ecosystem, rather than trying to force a vision onto the world. Success lies in getting the small, intricate details right and designing solutions that align with human behavior.

Key Moments

How To Change The World? Get The Small Things Right – Dalton Caldwell and Michael Seibel

Y Combinator

Science & Technology6 min read19 min video

Feb 2, 2022|131,548 views|3,108|109

YC Y Combinator yt:cc=on

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Key Moments

TL;DR

Founders trying to change the world often fail by ignoring past research and the complex incentives of existing systems, not by lacking vision.

Key Insights

Most startup ideas today have historical precedents, often from the 90s and 2000s, making prior research crucial for success.

Founders are advised to research past failures thoroughly, as this costs nothing but years of life if ignored.

Ride-sharing, though seemingly obvious now, faced immense hurdles due to unaddressed constituent incentives and was a common failed startup idea before Uber.

Human problems like 'I want food delivered' or 'I want to get a job' persist across platform changes (Web 1.0, 2.0, mobile), making historical context vital.

Expert advisors can be biased by past successes or failures; founders should seek a wide variety of opinions and synthesize information, not blindly accept advice.

The founders behind Brex spoke to every challenger bank attempt before them, gleaning useful information while ignoring the widespread advice not to proceed.

Why 'forcing the universe' rarely works for founders

Many founders, inspired by figures like Elon Musk or Steve Jobs, believe they can impose their vision onto the world. This approach, often fueled by a desire to 'get rid of' inconveniences like car dealerships or realtors, overlooks a crucial reality: people don't force others to want things they don't inherently desire. The belief that a charismatic salesperson can convince anyone to buy something they don't need is a misconception. For most founders, attempting to 'force the universe' to their will is exceedingly difficult. This strategy often stems from a lack of understanding of existing customer needs and market dynamics. Instead of assuming a need exists, founders must discover or create a genuine demand. The core issue isn't a lack of a good idea, but often a failure to connect that idea to a demonstrable customer desire or a deep understanding of market incentives.

The costly mistake of skipping upfront research

A common 'rookie mistake' highlighted by YC founders is the failure to conduct adequate research before building a product. Many founders dedicate significant time and resources to a company without even performing basic Google searches on their idea or reading about previous attempts. This oversight is described as a 'self-own' because the research is free and readily available. Ignoring historical context is a form of 'willful ignorance.' Young founders may mistakenly believe that if they haven't heard of a prior company, it never existed. Others might avoid research to preserve their excitement and avoid confronting potential failure. However, lessons learned from companies like Webvan that previously attempted grocery delivery or challenger banks underscore the importance of understanding past efforts. Founders who ignore history are not building on a clean slate; they are unknowingly repeating mistakes and missing opportunities to learn from others' experiences.

Understanding incentives is key to changing behavior

Great innovation often involves understanding and subtly manipulating the motivations of key parties, rather than simply assuming a new solution will be adopted. Take the example of ride-sharing. The initial concept of getting into a stranger's car was, at the time, considered bizarre. To normalize it, founders had to architect systems that addressed the concerns and incentives of all involved: drivers, riders, and the existing market structures. Early iterations might have used hired cars to bridge this gap. Without deep insight into these constituents, a simple appeal to 'car inefficiency' wouldn't have sufficed. Many founders propose ideas to 'get rid of' intermediaries like car dealers or realtors, believing a website can replace them. However, these intermediaries exist for reasons, often tied to complex incentive structures. Simply waving a magic wand or 'sprinkling software' on the problem rarely works. It requires a nuanced understanding of why these systems persist and how to design a new solution that aligns with or outweighs existing motivations. This intricate understanding of human behavior and incentives is what distinguishes successful world-changing ideas from well-intentioned but failed ventures.

The illusion of 'getting rid of' established systems

Many startup ideas aim to eliminate entire industries by making them more efficient through technology. Founders often identify annoyances in current processes, like buying a car or a house, and believe their software can simply 'get rid of' the existing players. However, the persistence of industries like car dealerships or real estate agents suggests there are underlying efficiencies and incentives that are not immediately apparent. For instance, while engineers might be better equipped to assess other engineers, the existence of large recruiting teams suggests a necessary function that technical founders might not fully grasp. It's not just about technical superiority; it's about understanding the ecosystem. Many founders underestimate the power and inertia of established institutions, failing to realize that they either need to accommodate these systems or risk being dismantled by them. This dynamic is also seen in the hiring startup space, where the thesis is often that software can empower hiring managers and eliminate recruiters, overlooking the complex role recruiters play.

Human problems persist across evolving platforms

While technology platforms change rapidly—from Web 1.0 to 2.0, mobile, and beyond—fundamental human problems tend to remain consistent. The desire for convenient food delivery, the need to find employment, or the wish to avoid tedious tasks like grocery shopping are perennial issues. Founders often believe their new technology or approach is novel, but they are frequently tackling an old problem with a new tool. This is why understanding historical attempts to solve these same human problems is so critical. By studying how others have tried and failed, founders can gain invaluable insights into the nuances of the problem and the market. For example, companies like Instacart succeeded not by being the first to offer grocery delivery, but by understanding why previous ventures like Webvan failed and designing their solution to overcome those specific obstacles. This perspective is crucial for any founder aiming to make a lasting impact.

Navigating advice from experienced but potentially biased experts

While seeking advice from experienced advisors, angel investors, and venture capitalists is common, founders must critically evaluate this input—especially if it comes from individuals with direct, potentially negative, past experiences in a similar space. Experts might be biased, either positively or negatively, based on a small data set or personal investment history. For instance, someone who has lost money on media startups might be overly pessimistic about new ventures in that sector. Similarly, investors who are less familiar with a specific domain might offer a 'grass is greener' perspective, seeing opportunities where experts see insurmountable hurdles. The founders of Brex, for example, spoke to every team that had attempted to launch a challenger bank, gathering valuable information while also being consistently told 'don't do this.' This illustrates that expert advice should be synthesized, not blindly accepted. Founders must discern which pieces of information are relevant and actionable, understanding that their own research and ultimate responsibility for the company's success are paramount.

Mentioned in This Episode

●Companies

●People Referenced

Common Questions

The primary rookie mistake highlighted is building a product based on a founder's personal vision of how the world *should* be, rather than creating something a customer actually wants to buy. This often stems from a lack of thorough research into existing markets and customer needs.

Topics

Mindset & Self-Improvement Business & Entrepreneurship Product Development Behavioral Economics Startup Strategy Market Research Founder Mistakes Customer Validation Ecosystem Analysis

Mentioned in this video

People

Elon Musk

Mentioned as a heroic figure who forced the universe to his will, particularly with the advent of electric cars, serving as a model for founders.

Steve Jobs

Mentioned as a heroic figure who forced the universe to his will, serving as a model for founders.

Companies

Uber

Used as a prime example of successful ride-sharing that required understanding all constituents and normalizing a bizarre idea, contrasting with earlier failed attempts.

Instacart

Cited as an example of a company that likely stood on the shoulders of previous failed attempts (like Webvan), intentionally designing to be better.

Webvan

Mentioned as a predecessor to grocery delivery services like Instacart, whose failure founders should learn from.

Justin.tv

Mentioned as a pioneer in live video streaming on the internet, demonstrating that even seemingly novel ideas often have historical context and precursors.

DoorDash

Mentioned in the context of how founders with less specific domain knowledge might have a more optimistic outlook compared to those deeply familiar with the challenges.

Brex

Used as an example of founders who spoke to every person that previously tried to start a challenger bank, learning useful information while ignoring discouraging advice.