Lessons from working with 600+ YC startups | Gustaf Alströmer (Y Combinator, Airbnb)

Gustaf Alströmer (00:00:00):
If I drill down what makes companies fail, it's quite simple. It's just like they don't talk to users, which means they don't find product market fit. And if they don't find product market fit, nothing else really matters. What mistakes do people make is like it is all about that. It's all about talking to customers and learning that you're building something that's actually useful. YC Slack headline is make things people want, and it's still true and it's always going to be true.

Lenny (00:00:30):
Welcome to Lenny's Podcast where I interview world-class product leaders and growth experts to learn from their hard one experiences building and growing today's most successful products. Today my guest is Gustaf Alstromer. Gustaf is a group partner at Y Combinator where he's been for almost six years. Prior to that, Gustaf was at Airbnb for over four years where he started the original Airbnb growth team and where I was very lucky to get to work alongside him for a number of years. Gustaf is also at the heart of YC's increased focus on climate tech, and in my opinion is one of a handful of people who've had an incredible impact on the increasing amount of investment and people flowing into climate tech.

(00:01:10):
We chat in depth about what's happening in climate tech, why things have shifted so much recently, what's new and exciting, and how to think about the space if you're hoping to make the jump. We also get deep into Gustaf's experience working with over 600 startups over his time at YC. We talk about what are the most common mistakes that early stage startups and founders make, what advice YC partners give founders most often, the most common attributes of successful founders, the importance of having a technical co-founder and why that's the case, so much more. I guarantee you will leave this episode smarter and more inspired and I can't wait for you to hear it. With that, I bring you Gustaf Alstromer after a short word from our wonderful sponsors.

(00:01:53):
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(00:04:15):
Gustaf, welcome to the podcast.

Gustaf Alströmer (00:04:17):
Thank you, Lenny. Honestly, it's so great to see you. I'm excited to be talking to you.

Lenny (00:04:22):
I've been looking forward to this conversation for a while ever since we booked this. We worked together at Airbnb for many years. I was really lucky to get to work with you before you moved on to bigger and better things at YC. Speaking of Airbnb, you once tweeted about how special an experience that was for you, and I think even more interestingly, how many of the people that have left Airbnb can't find another place that's as special that just like that bar has been set too high. And so my first question is just like, what do you think it was that made Airbnb so special? Why was it such an important experience for you and other people? And even more importantly, just what is it that you take from that experience that you bring to startups that you work with now?

Gustaf Alströmer (00:05:02):
Yeah, it's funny. I think this year in a couple of months it'll be 10 years ago since you and me started Airbnb.

Lenny (00:05:07):
Wow.

Gustaf Alströmer (00:05:08):
It was 2012. The reason I treated that was I asked everyone that I'd met after Airbnb, because I had this experience of like, this was the highlight of my career up until then, at least being in the team like that and I asked everyone, "Have you found anything better?" Besides maybe one or two people, I haven't heard anybody say that they found something better. And they all missed that dearly. I thought a lot about why that was the case, but I would say Airbnb did not feel like a normal job. It felt like more like a group of friends trying to just do something together and we were friends. At least in the beginning it did not feel like this was a job. It was sort of like an ongoing project and an assembly of amazing people. I think in the end we managed to build two things, like a really successful company, thanks to Joe and Nate and Brian just for starting this. Without them there would be nothing to build.

(00:06:04):
I think people don't like to use the word family, but I feel like that way because when I go and meet with Airbnb alumnis from that team. We have a very special bond that reminds me of close social connections more than anything else. It does not remind me of coworkers. I asked myself why this was the case. The best answer I have is probably we brought in a special type of people. We had very diverse backgrounds. A lot of us was former founders. Not many of us were career people from the technology industry of the early days, not many of us.

(00:06:37):
I think that bar that we set, the first, I believe when I joined there was probably five or seven PMs and there was 30 engineers or something and you joined a little bit before me, those people set the bar or set the standard of what we were looking for afterwards. I think it took a long time to change that narrative. I mean, eventually you have to hire people that only had big corporation careers, but I don't remember we did that for a long time. When I actually read my goodbye note recently, my words there still means a lot to me and it means sort of like you're trying to reflect on exactly these things on like, building a great company that became successful and being part of this sort of family of really close friends.

Lenny (00:07:21):
So it sounds like if you had to boil down what Airbnb did, it sounds like hiring was the main piece that impacted the way it turned out just like the founders being very specific about the type of people they were hiring.

Gustaf Alströmer (00:07:32):
Absolutely.

Lenny (00:07:32):
Is there anything that's like, I don't know, a take away there of just what you recommend to founders, like hiring. People know, be very careful who you hire. The first, I don't know, 10 people will impact the culture long term. But I don't know. Is there anything just abstracting away there of just what to look for in that first batch of hires?

Gustaf Alströmer (00:07:50):
It's a tricky one because I would like to say that all the things that we did were the cost of the outcome of this, but that's not really how the world works. Some of the things we did work, some of the things that we did did not work. It's hard for us to actually disentangle what those things are, but I think we can talk about the things that we did. First of all, we made sure we hired people that were really excited to be there, right? They wanted to build Airbnb and they were really excited to work on Airbnb. That was the most important thing. Of course people had other offers, but I think you can figure out from those offers are you excited to be here or not. So that was probably the first thing.

(00:08:30):
The second thing I think is trying to understand the true motivations of the people that were there, like lower, "Why are you here?" We did something we call culture interviews that I think the founders have written about or there's probably content online about this. We did a lot of culture interviews early on to try to figure out we got the people that were there that mapped our core values and were really excited to work on Airbnb. I think finally, I don't know how this happened, we did pick people from diverse backgrounds. Most startups don't have most of the PMs being former founders, but I believe that was the case for the first 10 or 12 or 15 PMs at Airbnb. A lot of us were former founders. I think that that made a big difference for how you make decisions and how you get started on things.

(00:09:21):
I think I actually see this a lot in the Airbnb founders. They really care about the time at YC and they tried to recreate YC inside Airbnb a couple of times with demo day and with so new products completely isolated from the rest, starting with doing things that don't scale and talking to customers. So I think that that experience had made a big impact on them, but it's hard to say just these two things go and apply these things. It's actually kind of hard to say, "Well that will work at it as Airbnb." I think that's a really tricky question to answer.

(00:09:51):
The last thing I would say is Airbnb had an incredible business model, an incredible business from early on and it was hard to fail. What I mean by that is it's hard to fail with a company. You can fail with individual things inside the company, but a company was still going to succeed. I think we all felt that. A lot of companies don't have the ability to take risks like Airbnb did early on because they don't have something that's so obviously great.

Lenny (00:10:18):
That's a really interesting point on the last piece that you may have the most amazing culture and hire incredibly well, but if the company doesn't work out, it's not going to be looked back as like, "Wow, that was an amazing experience, but we failed."

Gustaf Alströmer (00:10:18):
Yeah.

Lenny (00:10:30):
Yeah, that's interesting. So you mentioned YC and this kind of is a good segue to where I want to focus most of our time. You mentioned that you've worked with over 600 companies at this point, which is absurd. It feels like it's you get some statistical significance on takeaways at this point of what works and doesn't work. So I have just a bunch of questions about your experience working at YC and with all these companies. The first is I think about this quote that Elad Gill tweeted once and he wrote, I think, a post about it. Elad Gill is a legendary angel investor. He said that starting a company is an act of desperation. You're either desperate to change the trajectory of your career or you're desperate to make a bunch of money, you're desperate to achieve some kind of mission or build a specific product that you're just like, "I need this to exist." I'm curious if you agree with that sentiment and then I have a follow-up question around that.

Gustaf Alströmer (00:11:20):
Yeah, actually I haven't heard it before, but you know me, I'm an optimistic person. I think it probably reflects on my view of this question, but I would say desperation sounds like a negative place that you're starting at. I actually think that most people to start companies start from a positive place. But the motivations, I agree with what he said, can be very diverse for successful founders, right?

(00:11:41):
So we actually asked this in one of the early Group Office Hours sessions. We asked them, "Why are you doing this?" And we don't want to hear an answer like, "I found this niche of the market.' That's not the why. The why is like, "Why will you come in and work late after four years when you have no money left and everything's going to shit?", right? Then the niche market is not the answer. There's something deeper than that. We've learned that it varies a lot for people's motivations to start companies. Some of them just want to solve some technical problem that they feel are passionate about solving. Some of them want to prove themselves in front of others or prove themselves towards themselves. Some have grand really important motivations to change the world and they will say things like, "I want to give everyone water or I want to solve climate change or I want to democratize publishing." You can imagine any number of large ideas. Some people just want to start a big company and just want to be successful.

(00:12:44):
It doesn't matter, in my experience, what your motivation is. I don't think either of these motivations. It sounds like some of them will be better than others. In my experience, it's not the case. The motivation will change over time to just running this thing, right? Like once something becomes big, it's hard to think every day about exactly why you got started because the motivation is just like it can be fun and work on boring things because it's fun to build something big. Everything doesn't have to be shiny and big and grandiose because there are many ideas that are "boring," but just the idea of running the company becomes the motivation eventually.

Lenny (00:13:17):
That is really interesting that one of the main things you look for, it sounds like when you're interviewing, is how strong and durable is that drive to build this company. Is that what you're saying?

Gustaf Alströmer (00:13:26):
It's actually kind of hard for screen for motivation, I would say, in interviews because the purpose of this kind of Office Hour question is to highlight why someone is there and highlight the diversity of reasons people are there and sometimes even highlight from one founder to another co-founder why they are doing this. They might have never talked about this. Actually, surprisingly, often founders have not talked about why they're doing this. And just knowing why someone is here really helps with conflict resolution for example, really helps with understanding why someone is there on a certain day or something like that. So it's not something we screen for as much as I think we try to help founders discover this among themself and really know this about themself. I've just accepted that the motivations to start companies is widely diverse.

Lenny (00:14:13):
Do you ever discourage founders from starting a company when you see that maybe it won't be a durable kind of lasting motivation or whatever other reasons just knowing how hard starting a company ends up being?

Gustaf Alströmer (00:14:23):
It's a good question. I would say sometimes if someone doesn't have a motivation or don't know why they're doing this, they're doing this because they read that it would be a natural career step. So a good reason to not start a company is if you think of starting a company as a career step. Well, it is not. Because if it's successful, it'll be your entire career. It'll be 10 years most likely. And if it's not successful, then it's not something that people generally aspire to start. So non-successful startups. So I think people will start companies because this is sort of something they want to put on their resume. They have not understood what startups are or why you should do them.

(00:14:58):
Sometimes you can screen and kind of figure this out, but sometimes people don't even know why they're starting a company when they get started and it kind of gets figured out along the way. And that's okay. I don't want to discourage people who don't know exactly why they're starting this company just to start a company. They might figure out along the way and find the true motivation after doing this for a little bit or finding that it's really fun.

(00:15:21):
I think I discourage people to start startups if they have so many other things that are important than their life that are more important than the startup. So if there are financial constraints or family constraints or relationship constraints and they are going to trump this, then yeah, you should think a second time perhaps because startups are hard. They're much harder than a normal job. Equally hard if they're successful or failure, right? There's no middle way, we're like, "Oh, my company is doing great so I can chill." That doesn't work that way either. So I don't really discourage or encourage people, I just want them to have all the information.

Lenny (00:16:03):
You mentioned YC Office Hours and I had a question around this. I'm working on this piece where I'm interviewing a bunch of B2B founders of companies that are doing super well and I asked them a few questions like, "How'd you come up with the idea? How'd you find your first few customers?" it's shocking how many of them bring up a conversation in YC Office Hours as the most pivotal point that set them on the trajectory that they're on now. I'm curious what happens in these Office Hours? What are the most common pieces of advice that you give or maybe most surprising pieces of advice that you give in these Office Hours so that people can get maybe a glimpse into these conversations you have?

Gustaf Alströmer (00:16:43):
So at YC we have two type of Office Hours, two of the common ones. We have regular Office Hours, which is usually a one-on-one or basically the founders talking to me, or me plus another partner. They happen every week or every other week throughout the entire program. And they happen years after the program on the regular basis. Then we have Group Office Hours, which is you and six or seven other startups talking to us. They have [inaudible 00:17:07] a little bit different purpose. So the goal of the regular Office Hour, I always ask the question, "What's holding you back from moving faster? We don't want to hear updates, we don't want to hear strategy questions. We want to understand what's slowing you down or what's holding you back from moving even faster. You generally have a specific goal."

(00:17:27):
And I think that question of what's slowing you down or were holding you back crystallizes the priorities. There are only so many things you can do as a startup and there are only so many things that matters at that stage. And by asking that question, we can start digging into, "Okay, what's the goal? What are the things that drives towards that goal? What are the things that's slowing you down towards that goal?" Usually, the founders don't know what's slowing it down, so the conversation and us probing questions actually leads to us or them discovering what it is just slowing them down.

(00:17:59):
In the Group Office Hour, it's a little bit different. The Group Office Hour holds a couple of different purposes. One of them is if I think back on Paul and Jessica's motivation to start YC, this is a surprise to them, but starting a company is incredibly lonely. You can't really lean on your employees and say, "Hey, I'm feeling really shitty as a founder today. Everything is going to shit." Employees isn't going to take that well. So you lean on perhaps your investors, but they're not really available. But what you can lean on is other founders because they're all in the same situation. It's sort of like when you ask a founder the question, "How are things going?", it's so emotional for them to answer that question because it's never going well, right? It's never like, "Oh, everything is going fantastic." They might say that, but everybody knows all founders, when they look each other's eyes, then no, that's not the answer.

(00:18:48):
So founders have infinite number of problems that they're thinking about all the time, which is why they're allergic to the question, "How are things going?" But when YC started, we put all the founders in a group together in a room and they started learning that all founders, all companies are broken in some way, right? They're all having these massive problems and they're all feeling that anxiety when they hear the question, "How are things going?" And just hearing other founders explain their problems, perhaps solving their problems, is a really good way for yourself to both feel motivated to do it yourself and see how problems get solved when other companies are having similar problems. Nowadays because of the scale at YC, we group companies together that have the same problems or the same area that they're operating in.

(00:19:30):
The second thing that Group Office Hours do well is accountability, right? We ask you, "What were your goals? What were your goals for the last two weeks? Did you hit them?" And then that gives founders accountability because founders are competitive. They don't want to look bad. They don't want to come back after two weeks and say "Nothing worked," or at least like, "We didn't learn anything." They want to learn something and make progress whether it's positive or negative.

(00:19:54):
Group Office Hours to me is the most magical moment because it really creates this very intense three or four month period. Founders often come back to us afterwards and say, "Hey, we want to do that again. We don't have this really intense, really productive period. We don't have a program exactly. We have other programs, but we don't have anything exactly that mimics that experience." But we do encourage founders to continue with Group Office Hours after YC. Many of them do and many of them, ad hoc, continue to meet for years in this group setting where they ask the same kind of questions to each other, to hold themselves accountable, to learn from each other, and to just have someone else to lean on. I think this was unknown and somehow the world didn't know before that starting company is super lonely and you have all these anxiety. By just talking to other people who have the same problems, it's just one of the best thing you can do.

Lenny (00:20:45):
There's so many things that come up when you talk about this. One is I had a startup at one point and we worked in the coworking space. We joined the coworking space because we're like, "Oh, we'll meet other founders. It'll be social, we won't be alone." But it turns out everyone's just heads down, headphones on, "I don't have time for anything. I just need to work." It's like a microcosm of that experience that even if you're surrounded by founders, no one has time to do anything. They're just working.

Gustaf Alströmer (00:21:09):
You got to schedule it and force it and put the laptops on the floor and the phones on the floor and you just sit there with pen and paper. That's how you have to do it. We tried to mimic that as much as we could over Zoom. But honestly the best experience of this was in person, in a ring, in mountain view with no computers and everyone just paying attention to everyone. That was the best experience. Yeah, that's what I remember is one of the most meaningful parts of YC. I didn't have it myself when I did YC, but now everyone has it.

Lenny (00:21:36):
The other thing that's made me think about is someone tweeted once, "Don't ever ask a founder how they're doing or how it's going. It just creates all this anxiety because nothing's ever going great."

Gustaf Alströmer (00:21:44):
Don't do it. Everybody looks at each other's eyes and they know that they're allergic to that question.

Lenny (00:21:50):
That's hilarious. So just to summarize the questions you said you asked, the one is in the individual Office Hours, is what's holding you back. And then in the group setting, what was the question again that you asked?

Gustaf Alströmer (00:22:01):
What are your goals for next two weeks and what were your goals for the last two weeks and did you hit the goals? And if you didn't hit them, what came in the way of hitting the goals? It's very simple. That can uncover lots of problems that other founders are having exactly in the same way. Just by talking about the things that held you back or the things that allowed you to hit your goals, uncover something material for the other seven companies doing that in the ring.

Lenny (00:22:26):
If you kind of zoomed out a little bit and thought about the startups you've worked with, what would you say are the most common mistakes that early stage startups make broadly?

Gustaf Alströmer (00:22:36):
There's so many. I mean, this is how I initially learned about startups, by searching for that on Google and landing on Paul Graham's articles because he kept-

Lenny (00:22:45):
Wow.

Gustaf Alströmer (00:22:45):
I think I've written many articles about this topic because it is so common. So this topic can go on forever. But if I take the most recent experience I've had in YC, I would say startups fail, one, because they don't talk to customers. And if you don't talk to customers or users, you don't actually know what's important. If you don't know what's important, it doesn't matter what you build, it doesn't matter kind of what ideas you have in your head if you don't actually know what it is that you need to build and you don't validate with customers. That's where a lot of the failure stems from. A lot of early YC for us or early part of the program is us pushing and probing founders to be like, "Tell us about the conversations you've had with the customers. What did you learn? Can you show us the organizations?" Or like all these questions, like, "What are the software they're using? What are they paying for? What problems do they have? How are they describing the intensity of that problem?" So that's what we spent a lot of time early at YC.

(00:23:43):
After that, I would say one of the commons mistakes in... I'm not talking about generally startups here, I'm talking inside YC. The second most common thing I see in YC is people are just afraid to talk to customers. They're just not trying hard enough to get in front of customers. I think this comes from, technical people tend to think that software is just sort of solution to everything. But really what you should need to do is to talk to someone over Zoom or over phone or in person, even better. People are just afraid of doing that and they're afraid of being rejected. These are common, people that want to build good products are just really afraid of people saying no.

(00:24:25):
The problem is, which anyone who hasn't done sales before that joined YC, they realize this, is that if you take the average customer group in the world, 90% are not early adopters. It doesn't matter if you have something new and cool, they're just not interested. They are not incentivized to take risks in their job to try something new. They're just incentivized to not take risks and just continue what they're doing. Those 10 percents are the early adopters. They're The ones that you actually want to reach. But that means you have to reach 10 to find one. And then you convince that one person to get on the phone or a video call with you. And that takes work and it takes a lot of work. I think people don't really think of this. This is common knowledge, basic stuff for salespeople, but founders should never done sales before just get surprised by the percentages and the sort of what it means to do this.

(00:25:12):
If I think of more generally outside of YC, so these are two kind of things I experience within YC, but I think generally outside of YC, I would say the two most common problems the same one is not talking to customers, the other one is not being technical and not knowing what it takes to build successful technology company. It means having technical founders and it means being able to build the first prototype. This is something we screen for when we interview people in YC and we aren't accepting a whole lot of team that don't know how to build or get their first prototype built themselves because we know it is a super common value pattern.

(00:25:50):
I can go on and on and on and on for this one, but honestly if I drill down what makes companies fail, it's quite simple. It's just like they don't talk to users, which means they don't find product market fit. And if they don't find product market fit, nothing else really matters. What mistakes do people make is it is all about that. It's all about talking to customers and learning that you're building something that's actually useful. YC Slack headline is make things people want, and it's still true and it's always going to be true.

Lenny (00:26:23):
This is really interesting and good advice. It's interesting that... Like, "Talk to customers," people hear that all the time. They're like, "Of course we're going to talk to customers. We're going to do that of course." And your experience is they know this but they just don't do it probably because they're afraid. Maybe also because they think they already know what they need to build and it's like, "Yeah, we're good."

Gustaf Alströmer (00:26:41):
And you have all these validators, right? So the people are validating that even if you don't talk to customers, why has he accepted you? This investor invested in you. This investor said you were great, like blah blah blah. All these different validations that you confuse with product market fit, right? We have to remind everyone on the first day in YC, "None of you have product market fit because you probably don't," right? Almost nobody has. Because people confuse this external validation with the thing that matters the most, which is talking to customers and learning what matters. It's just like a thing that just keeps coming back. Some get really good at it. And that is the source of successful startups, is when you really get good at this.

Lenny (00:27:21):
It reminds me coming back to Airbnb, one of the most important moments in Airbnb history was Paul Graham telling the founders of Airbnb, "Where are your customers?" And they're like, "Oh, they're in New York" and he's like, "Why are you talking to me and not in New York right now talking to them?" And they talk about that all the time.

Gustaf Alströmer (00:27:35):
Yeah, it's absolutely true. I think he wrote the article Do Things That Don't Scale as a learning.... The learning there was the Airbnb founders doing the trips to New York and learning about how to build Airbnb, which is a very counterintuitive idea, which is when you have to spend the most amount of time with your customers. I think Airbnb is sort of one of the best stories inside YC of doing this well.

Lenny (00:27:57):
This also reminds me, I've been talking to a bunch of founders recently. I asked them, "How many customers have you talked to help figure out this idea?" So just the other day it was 150 financial CROs that they talked to before they actually started raising this round. Another company, actually two Airbnb guys that started, they actually ran ads I think on LinkedIn to find specific people to talk to and that specific role. And they talked to probably at least 100, maybe 200. So there's a strong correlation there.

Gustaf Alströmer (00:28:26):
Yeah, I think that's the volumes that people don't expect. They think they might have to talk to five, but I think you have to talk to 25 to 50. That means you have to reach out to a lot more to be able to get to people that are potentially early adopters. Those ones you talk to are also the ones that become your customers. So you are already doing most of the sales by just doing this work anyway.

Lenny (00:28:45):
Do you have maybe one tactical tip you could share of just either getting over your fear of talking to customers or just holding yourself accountable to actually doing it?

Gustaf Alströmer (00:28:55):
Yeah, I tell this story, I actually told this story yesterday. So remember when you sign up first service that's a cool service and you hear about in TechCrunch or something like that and then you realize you already signed up a year ago, right? And then from the founder's perspective, you sign up to something you never used it. So the founders who build those services, their inclination to think is that "Everybody hates me because they sign up and they never use me." They never use the service. The fear of that is that basically the fear of rejection. So if I put my thing out there and most people won't use it and they will tell all their friends how shitty this thing is, you should never even sign up for it, that's the fear people have, but the truth is that people sign up for it and be like, "Oh, I'm busy. I got something else to do." And they actually don't remember or care.

(00:29:43):
So whenever you sign for something that you signed up a year ago, think of yourself that that is the common customer experience, which is that you just sign up for a lot of stuff you don't even remember you. You never have this, "I hate this thing' reaction. You always have this like, "I'm indifferent to this thing. I don't actually care to even complete the sign up flow or try it out," right? I think that's the thing that people need to remember, is that the worst thing that can happen to startup is not that people hate what you're doing, it's that they're completely indifferent to what you're doing. It's not the worst thing, but the most common thing that happens is people just is indifferent. But it doesn't give you a second chance. Let's say, it always gives you a second chance and you really need to internalize that people have busy lives and if people don't actually use what you're building, that's fine. You can reach out to them a year from now or six months from now or two weeks from now and they probably will if you make some improvements.

(00:30:37):
I think people just have this fear that, "If I get a lot of rejection, that means everything is bad." But the rejection should be put in context to the early adopter idea and that most people who don't care are not early adopters, who don't want to dig into new things. And that the more narrow of a solution you have to a specific problem, the fewer people actually want to dig in. But that's where you have to start because you cannot build the whole thing right up front and make everybody loves you. That doesn't really work that way.

(00:31:07):
Even Airbnb was like air mattresses or staying in someone's homes when they're home. That was not the complete solution of Airbnb. But there were early adopters who dug in and be like, "Yep, I like that. I like those two things. I want to have people stay in my living room in my mattress." But that's not what Airbnb is about today, and a lot of those things were unknown at the time. But I think people are just afraid of rejection and you just need to overcome that fear and just learn that there's nothing that's really that bad that can happen when people don't use the service or sign up and don't care. It's not really that bad.

Lenny (00:31:42):
It reminds me of a quote that I always love for Mark Andreessen, that everyone's time is already allocated. They don't have space for your product right now. They already have plans for their day.

Gustaf Alströmer (00:31:42):
Totally.

Lenny (00:31:51):
And it takes a lot to convince someone to pay attention to anything. I guess that just comes back to why it's so important that your product is solving a real pain and not just a nice little toy that is better than what's out there, but not so much better that you're like, "I need this right now." So maybe just along those lines, do you have any thoughts on just the importance of that pain and just how critical that is?

Gustaf Alströmer (00:32:15):
I actually recorded... I'm happy of these videos, but I've recorded two videos on YouTube as part of YC Startup School last fall. You can go watch them on YouTube right now. One of them is how to talk to users and the other one is how you sell or how you use sales. The one about talking to users, I think there's a difference in asking someone, "Do you have a problem with X, Y, Z? Is this podcasting setup working for you?" And people say, "Yeah, it's kind of working." But if you are a podcasting setup experts and you watch people use some other thing that's really shitty, they might also think that it's pretty good. But you have to watch them do it. And the best way for you to figure out what is the intensity of the problem is not to ask them but to watch them or to watch them solve the thing that they do.

(00:33:06):
You know how a lot of non-technical people don't know how to automate things? So they will do the same thing in Excel like a million times by just tapping because that's the only thing that they know and they're not technical enough to write some kind of script to do it, and you just have to watch those people to just feel the pain. You can't actually ask them how difficult is it to do X, y, z because they won't even know that it's that difficult to them. So the best thing I've learned about how to discover the pain is to watch people, have them screen share, have them walk you through their daily workflow about the area where you're doing some discovery. That is the best thing.

(00:33:43):
I'll give you another example. So there's a bunch of waste companies that are doing EV charging for electric cars and they're like, "What are the problems in EV charging?" And I was like, "Just rent an EV and go and charge at all the non Tesla chargers and see what they say, see what you experience." And the truth is that it's just like garbage. A lot of EV charting systems are just so shitty and the apps are terrible. You just have to just use them yourself to know how bad it is.

Lenny (00:34:13):
It's cool how often it just comes back to, "Just go do the thing. Do things that don't scale." Classic YC advice. I want to come back to something you mentioned that I want to pull a thread on as the technical co-founder, being technical early on, just to cover that. So I know YC looks to... Having a technical founder is an important variable in you're deciding to accept a company. Say someone doesn't have a technical co-founder, do you have any advice for what they could do, like what often can work?

Gustaf Alströmer (00:34:41):
Yeah, I think the first thing is to understand the value of technical co-founder. So some people who are in this situation where they have an idea of something they want to build and they don't have anyone to help build them in building it, I had a friend Paul who gave this incredible quote, he said, "I have an idea for a song, I just need a musician to help me make it," right? That's kind of similar to how it is with engineering. If you view output of engineering as like, "I just have an idea for a song, I just need someone to actually make it for me" and then you're not valuing software engineering or mechanical engineering or any engineering skill set deep enough, right?

(00:35:17):
The truth is that the engineering part is the really hard part. The first thing I would say is you need to learn how to value the engineering piece. Let me give you an example of how you don't do that. You applied to YC and you have 90% for yourself and 10% for the engineer. You're basically saying that like, "Oh, the engineering part of this company is only worth 1/10th of me. I'm the non-technical person." So that to me is a signal that you're not really valuing engineering.

(00:35:44):
Okay, so how do you go out about and find someone? Well, the truth is that there are a lot of technical co-founders. The technical people, they also want to find business co-founders. They don't want to do other part. They don't want to do sales and they actually don't really care that much about fundraising. They just want to solve the problem. And that's fine. We built something called co-founder matching where those funders can meet, but if you don't participate in that, you can just start by asking the best technical people that you know. "Are you interested in starting a company with me?" Same thing with rejection. Many of them will just say, "No, I have a great job, I'm really happy." But some of them will have thought about starting a company for a while and was hoping that someone would come and ask them to do that. So you have to remove your fears and go and ask the best people.

(00:36:29):
The reason you want to have a technical co-founder and not a hired engineer or not a hired contracting team is because so many of the decisions you're going to make are technical and so many of the iterations you're going to make relies on engineering. And if you don't understand that, you won't actually make the right decisions anyway. It's not like service. You have an idea for a product, you build a product and you're done. There's infinite number of iterations in that process.

(00:36:54):
And then finally, I would say a lot of people learn how to code themselves, right? So there are a lot of places online that you can learn the skillset that takes to build a prototype. You might not be the best engineers. So there are many successful startup founders who are not the best engineers because they stop coding when they hire three or four engineers, that's fine. But you need to be sufficiently good that you understand the value of engineering and that you understand that the best way to solve most of the problem is with software. There are a lot of founders who just, for whatever reason, study something else that doesn't have to be a conscious or very precise reason that you had when you were 18 or 19 and then you're 25, you're like, "Oh, I wish I know how to code" and then just learn to code and they learn how to code. It's not that more difficult than that.

Lenny (00:37:42):
Have you ever seen a startup work out if they had a contracting firm, like engineering firm build a product? Does that ever work or were you just like, "No, do not ever do this"?

Gustaf Alströmer (00:37:53):
Basically, I can't recall any specific ones where people have a contracting firm but I've recalled founders where let's say you had two non-technical founders, but they valued engineering and they had an ability to build a team of great people that were not co-founders and they gave them equity and they become successful. There are many examples of that I would say, but I don't remember any specific examples where you had a contracting team building the whole thing. I think the reason for that is it takes more than just sort of riding a spec to build a product. You can't actually spec yourself to a great product. You have to just be part of the iterations yourself. That's why I think someone being the engineer, having the idea of what iteration looks like and just doing it is how you do things.

(00:38:38):
I think that the cases where I've seen non-technical founders make this work is that they have really good engineering teams who feel like they're founding team. It might not be co-founders per YC-7 definition of having 10%, but they feel like they're the bonding team.

Lenny (00:38:52):
This reminds me of a story of just the recent podcast interview I did with the CPO of Calendly. She talked about how when Calendly started, they actually had a Ukrainian dev team built the first product. Not only did they help them build the first product, they actually ended up driving all the growth initially because they saw Calendly and started using it within their firm.

Gustaf Alströmer (00:39:14):
Wow.

Lenny (00:39:14):
And then everyone that they knew started using it and spread within Ukraine and they actually continue to work with that firm. They're still the [inaudible 00:39:20] team for Calendly or some part of it.

Gustaf Alströmer (00:39:22):
Wow.

Lenny (00:39:24):
Yeah

Gustaf Alströmer (00:39:24):
Wow, that's cool.

Lenny (00:39:24):
There's a success story.

Gustaf Alströmer (00:39:26):
I mean, I would say it's certainly the case that in some countries people have other jobs while they start the startups, so like the engineers. In Ukraine for example or in Eastern Europe, it's very common that if they start their own startup, they actually have a full-time job as a contractor while they're starting the startup because that's how you pay the bill because often you can't raise money. And that's fine too.

Lenny (00:39:46):
Amazing. That's some hustle.

(00:39:49):
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(00:40:47):
I want to zoom out a little bit and ask another big question and see what answer you have for this. If you just think about the most successful startups in YC or even just the companies you worked with, if you had to pick just one or two attributes of what's most common across successful companies, what would that be?

Gustaf Alströmer (00:41:04):
I would say the most common reason that I've seen founders succeed or companies succeed, it comes down to the founders and characteristics of those individuals. The most important characteristics of those individuals are they're really determined to win and they don't give up when things are hard and they have an internal motivation that's just really infectious to people around them, which is how they end up building really good teams around them. People are actually going to want to go and work for them. I have numerous examples of people like this where the CEO or one of the founders are just really inspirational people.

(00:41:42):
The second thing I would say is they are technical. So that's kind of like they're technical enough. If I would grade companies on a scale of technical to less technical, more technical founders are more likely to succeed, I would say. And then I would say they figure out how to talk to users and move fast early on so they don't wait for permission from their investors or from YC or from someone else to make progress. They're like, every day or every week there's continuous progress. They're not doing this for someone else, they're doing this for the customers. They're not doing this for the investors, that's for sure. The investors are sort of in the way more or less. And they're just naturally focusing on the customers.

(00:42:29):
Finally, what I would say is the skill that's really attributed to great founders is excellent communication skills. So the ability to communicate really complicated ideas clearly, to enjoy the communication part, right? Enjoying communication is often kind of correlated with enjoying doing fundraising, which is an important part of some companies' success. Not all of them, but for some of them. I would say communication or storytelling is part of the same arc, right? And those are part of the same thing that actually motivates people around you. If you can communicate why you're building, what you're building and why it's important to the world, tell a story about that, that can motivate people around you to just want to follow you. I think it's rare that I've seen founders succeed where the founder isn't in some way an inspirational person or someone that is a good communicator. Most of the time, you at least have respect or you somewhere know that they're going to succeed, right? And that is what inspires you to be around them or be on their team.

Lenny (00:43:33):
That is a really cool list. So just to summarize, one, they have the strong will to win, and with that they're inspirational. They kind of pull people along and get people really excited. Two is they're more likely to succeed if they're technical and can build a thing. Three, they figure out how to talk to customers, don't wait, just start doing it. And they're just obsessed with that versus what investors want them to do and they don't want to talk to the investors to make time for the customers. And then excellent communication skills, which comes back to the first. They're able to story tell and get people excited. Is that right?

Gustaf Alströmer (00:44:06):
Yeah, I would say those are the attributes of successful things. To be a super successful company, there's something else that have to happen. Those things are not things you can put on a list because they are the outliers, right? If you look at startups on a typical YC batch, there'd be a couple billion companies. Those are the outliers. They'll almost certainly have all the things that we've talked about. Many other companies in the batch will have that too, but then what makes someone a true outlier is something that is unknown. That's why so many investors said no to Airbnb when they were not trying to raise money because that was an outlier idea. It was an idea that was not logical and did not make sense to most people. Those kind of ideas, the ones that end up succeeding often don't make sense to people. There's some reason that no one has done this before because they're just not natural next step of the world.

Lenny (00:44:57):
That's a great segue to a question I've been meaning to ask, which is, how good are you at predicting in a batch which startups are going to be the monster hits? So maybe like you and then just generally YC, how good are you all at knowing what's going to work out, is going to be the next Airbnb or Dropbox?

Gustaf Alströmer (00:45:14):
I think the truth is that we're not very good at knowing what's going to succeed. Certainly we cannot figure out who's going to be the really successful company in the batch. That's not possible. What we're good at is knowing what failure looks like. What we sometimes like to tell founders at the beginning of the batch is like, "If you fail, please do it in some new exciting way. Not one that we've seen 100 times." Because we have seen people fail for a large number of reasons. The best way for us to sort of not predict, but the best way for us to make more companies succeed is to tell them how they might fail, right? Be very direct and honest with them and say, "You doing these three things, these things are likely going to lead that you won't succeed." And if we do our job well, most people get that feedback and they're on the track for succeeding.

(00:46:06):
Now, which of those companies end up becoming the best? There are so many things that are uncorrelated to being the best, and it's the things that people don't like. I'm in a hot industry, I was writing up on TechCrunch like, this investor started talking to me. You'd be surprised how many of the things I just mentioned are uncorrelated to outlier success, right? That's why it's so hard to actually do this. I think people really want these questions to be answered. People really want to believe that you can pick really great companies at the seed stage, but everything I've learned from the plus 600 companies that I've worked with is that it's just not that easy and it's maybe not even possible and certainly not possible when you talk about finding the outlier companies. I don't think it's that easy. And if it was easy, then we would accept a lot fewer companies. We just accept those ones, but it's just not that easy.

Lenny (00:46:59):
Do you have a sense of which ones are likely to work out better than others? Or is it just like, "We have 150 really unclear, but one of these, hopefully."

Gustaf Alströmer (00:47:09):
One good indicator is if each new Office Hour there is really exciting new stuff, right? We're not talking about the same thing we talked about two weeks ago or four weeks ago. They've already done that stuff, right? Like, "Oh, I was trying to sell to these three customers. Well, they already bought it. I'm not actually talking to seven others." And now we are talking about a different price and different product because they're like, they want more of what we're doing. If I'm experiencing that, and that's like a consistent trend, then when people draw this revenue graph of this 10% weekly growth rate kind of situation, those are the companies that we attribute that to. It's like if you're able to make that progress on that short amount of timescale, you are on track to do something well.

(00:47:51):
Now, a lot of other things have to go well for you to ultimately be able to succeed, but progress on this weekly or biweekly timescale is a really good indicator of someone who'll succeed. To me, much better indicator than I am in this market or I'm talking to this investor or something like that. But those are much worse indicators of someone succeeding than I'm making progress and it's pretty fast clip.

Lenny (00:48:17):
Interesting. And so what I'm hearing is at the beginning of a batch, we're just in a bet on a bunch of companies that have a lot of potential founders, technical maybe, they have the strong will to win and all these things. Through the batch, you're looking at the companies that are exceeding your expectations week to week in terms of progress that they're making.

Gustaf Alströmer (00:48:34):
I mean, sometimes it could be different reasons that people are not making progress. But if you are making continuous progress, and I think Paul and Jessica said this, this was true early days in YC, if you are hitting your goals and you're making progress continuously, if that continues, that's a really strong correlation to some success. But again, going back to the question, can we predict who's going to be the best ones? No. And that's why we really focus on trying to meet people not to fail. Especially good teams can't fail. If you have a really talented team who's really technical in how to build a product but they make some other basic mistakes, like not talking to customers or something like that or trying to build everything all at once, I feel like it's our responsibility to make sure they don't make the basics mistakes that we've seen many times. We need to help them at least make some spectacular mistake that we haven't seen before. Then that's a high potential team. If someone's on a good track for a decent idea but they're still early, that's a really good potential.

Lenny (00:49:30):
I have kind of a fun question that I wanted to try, which is kind of connected to this idea around attributes of successful founders and companies. So I had this founder friend named Flow, and he was asking me recently, "If you had to think about the most successful founders, which attributes do they have?" And he kind of gave me this list and it's kind of like two ends of a spectrum. So I thought it'd be fun to just go through this list and see, in your experience, which end of the spectrum, if any, are associated and correlated with the most successful founders. Does that sound good?

Gustaf Alströmer (00:50:01):
Sure. Sure. Let's do it.

Lenny (00:50:03):
Okay. So the first is speed versus quality. Is there end of the spectrum where you find that most successful founders are either speed-focused or quality-focused?

Gustaf Alströmer (00:50:10):
Sometimes founders ask us this question, "What should I focus on? Growth or retention?" And the answer is, they're asking us for permission to not do one or the other. The truth is, to succeed, you have to do both. I would argue that speed versus quality, there's different level of speed and different level of quality at different stage of the company. But the truth is that you always have to move fast and you have to understand what the meaning of quality is, right?

(00:50:35):
So I think I actually don't see that as a spectrum, but I would say if you move fast with talking to customers, you'll build something that have potential having quality because you know a lot about the problem. I think when people think about quality, they often think about, "What is my personal definition of quality?" I have a bar of quality, but quality to me of a good product idea, a good startup idea, has more to do with the customer think is valuable. And if you move fast by talking to customers and having customer learnings and know the problems, then you will actually come up with something that's high quality. So they're not at a spectrum to me.

Lenny (00:51:11):
All right. Let's try another one. Confidence versus humility as a founder?

Gustaf Alströmer (00:51:16):
I don't think that they're on a spectrum. I think that learning to predict confidence as a founder is critical going back to this communication piece of motivating people around you, right? I wouldn't want to join a company where the founder's completely not confident in their own idea, right? Because that is going to shine through. An investor isn't going to want to invest in someone who's completely not confident in that idea. So learning to first build your own confidence for what you're working on and then predicting that confidence to the people around you I think is critical. A lot of people will have doubt around you. And if you're not predicting that confidence, it's not clear that anybody else will if you're the founder. You're the one who's have to do it.

(00:51:58):
I think that you can predict that confidence while having a strong sense of humility towards the people around you. But I think when it comes to startups, learning to have that confidence is an important piece of the early days, right? And especially if you're building something that's very difficult, that takes a lot of work and a lot of money, protecting the confidence that you will succeed is critical for everybody that's doubting you. And those doubting you is a lot of people around you, right? And you just need to have an unnatural amount of confidence to prove them wrong. I think, again, this is not on the spectrum with humility. In fact, the most successful founders are often the most... You cannot inspire people around you if you don't have a strong sense of humility. People don't actually want to spend time with you, which means they don't want to work for you or invest in you. Again, you need both, but they serve different purposes when you get started.

Lenny (00:52:48):
Tough gig this founder life. You got to got to be everything. Let's see if there's a big difference in this next one. Execution and tactics versus focusing on strategy and kind of higher level stuff. How deep do founders go that you find that are most successful?

Gustaf Alströmer (00:53:02):
So this one actually I have a strong opinion about. I think that the reason that we talk about strategy a lot is because it goes back to business school. The origin of business school was to teach people to join the corporate world. And in the corporate world, strategy matters, right? So when you join a big company, you're employee number 2,010 or something, then you probably might have a business school job where thinking about corporate strategy is an important thing. When you are a small startup, strategy does not matter because there's not that much a strategy as about. Maybe later on you might be fruitful to think about strategy, but strategy kind of assumes that you can do multiple things at the same time, which small startups cannot. They can just do one thing at the same time. So execution is the thing that matters for companies.

(00:53:51):
Whenever someone wants to have a strategy conversation, it assumes that they don't understand their priorities. The priorities is always a list from top to bottom where there's one thing that's more important than the others. You can't really have a strategy session about the other things because there's only one thing to work on. So to me, a clear answer here is the good founders are execution-oriented and they just continually have one priority of what they're trying to go for. And then they're just hitting that priority all the time and then new priorities will come up and you don't really have time to have a discussion about company strategy. Company strategy also assumes that you have product market fit because you already have something that's working. If you don't have that, then getting to people wanting your product, that is your strategy. You don't have any other strategy.

Lenny (00:54:36):
Awesome. Okay. We found one that's quite different one on the spectrum or the other. How about autocratic and kind of like, I don't know, I think of Steve Jobs-like versus kind of consensus, collaborative driven, if this is a spectrum at all. And then where do you find founders might fit that are most successful?

Gustaf Alströmer (00:54:53):
I don't know if I have an answer to that question because I think when you work at early stage, you might look different than when you work at late stage. I don't spend a lot of time with founders that have thousands of employees and hearing how they are in the... When I talk to those founders, I talk to them one-one-one and I only hear from their perspective. So I don't actually know how they're peering in a large corporate setting. But when you're a small company, you're three people or five people or 10 people, you cannot be an autocratic decision maker. The founding team have a founding team decision making dynamic that could look different. Sometimes it's like everybody decides together on everything and sometimes you say, "I have my area of expertise and you have yours. We split it up, the decision making." Either of those things are fine. I think you just have to have a process so you don't rehash every decision after you made them a million times.

(00:55:42):
I would say the thing that matters the most at that point is to be willing to adhere to the process that you and your founding team have come up with. Your individual nature could be different in a different role in a different company. But for a startup to work out, you have to have a specific process on how you make decisions. Those are on a very short sprints, like weekly or biweekly. And everyone needs to feel good about decisions after the fact. At least they feel good about the process. I don't think that you can just decide... You can't also be fully collaborative, everyone gets decided about everything. So small startups agree on how they decide together. So after that, everyone just follow the process. That's usually how things work out.

Lenny (00:56:27):
Okay, I got one more. Cares more about the product or cares more about the distribution and growth strategy?

Gustaf Alströmer (00:56:33):
Well, there's a lot of assumptions built into that, I would say, because caring about the product to me is caring about the customers. Sometimes if I would say something like, "Oh, great founders care about the product," a lot of founders misinterpret that as in my personal perception of the product or my ideas of what the product is. And that's wrong. The right perception there is the expectations or the use of the product from the customers. So if you are meaning focus on the product or cares about the product in that sense that your customers care about, then absolutely, I think that's a really, really critical, important thing to have early on, like talking to users, doing things you don't scale. Once you get big, if you don't figure out a scalable distribution strategy, you won't succeed. And those are different for different companies, but they're not doing anything that don't scale.

(00:57:27):
Doing things that don't scale is not a scalable strategy. Eventually, something specific will be the things that work for you. If you're lucky, people will talk about your product and you'll have organic growth. But in many cases, that sales, that is some kind of consumer distribution strategy. You can't start with that. I've seen a lot, and this is when I had to reset my thinking coming from a growth team joining YC, is you can't start a startup ethic with a growth team mindset because that is just scalable things all the time. And really what you need to go back to is doing things that don't scale and unscale your way of thinking about customers. But it's really useful to have the growth mindset once something is working, right? Once you have thousands of people signing up everything every day, well how do you get to 2,000? Well, that's probably something that looks more like this thing that the growth team would do or distribution team would do.

(00:58:21):
I would say everyone has different experiences of this based on their prior experience, right? So if you work for a company that was infinitely successful, then you won't care so much about this. If you work for Google, you'll never even think about this because distribution is just the website. But if you work for a really small shitty product, then you think a lot about distribution because that's natural to you on how you succeed. So I think at the end of the day, talking to customers matters the most. That is what it means to care about a product to me. And then distribution is something that you will definitely invest a lot in once something is working.

Lenny (00:58:53):
Awesome. All right. I have probably a hundred other questions I want to ask along these lines, but I want to make sure we get to another topic which I know is near and dear to your heart, which is climate tech. So my understanding is you're instrumental in pushing YC to focus on climate tech as a focus area. I believe you led the charge on their initial request for startups I think is the term where you all put out like, "Here's who we want to fund." I think you've mentioned you funded a couple dozen climate tech companies and the last few batches, is that all generally correct?

Gustaf Alströmer (00:59:24):
First, request for startup was actually Sam Altman and a few other folks that was kind of that one who drove that. The second one that we wrote into our actual request for startup, I wrote that one, was carbon removal specifically focused on. And then naturally the people that apply with climate tech ideas get in my reading queue of applications and I read them and I interview them. Not all of them, but many of them. I think today we funded over 130 plus companies that are focused on climate tech in some way or another.

Lenny (00:59:53):
Wow.

Gustaf Alströmer (00:59:54):
The trend line is that really ambitious people who want to start companies in this area. Some of them want to start the companies because the climate tech is the number one problem, but they don't view this as a nonprofit. Now I want to really make this as a distinction. People somehow think that starting a climate tech company is doing good for the world, but it probably doesn't have a lot more than that. The truth is that the world have decided. Because climate is one of the biggest problems that we're facing, if not the biggest, we've decided that we are going to stop doing the things that we're doing and we're going to change our entire energy system and change all the things that we do that emits carbon. And we have just decided, governments have decided this. The question is how it's going to happen, but this decision has been made.

(01:00:42):
In that transition, we're talking about trillions of dollars of money moving from things that cause climate change to things that don't. The scale of this transition is not something we've seen recently. Like software is not that big in comparison. It actually is much smaller than this transition. So I think if you look at something like Tesla, which now has, I don't know, $600, $700 billion market cap, that's just one company that currently provides a couple percent of all the cars in the United States, new cars sold. And that is already one of the biggest companies in the world and has now the biggest, richest person in the world. We've only seen the beginning of this. The economical motivation be behind the decisions that people are making are just as strong as I want to fix climate change because this is just a really good business. This change have attracted a large set of software founders that you and me know that listen to this podcast that said, "My skills is relevant here. There are a lot of things that I can do. And if not, I can learn those things."

(01:01:43):
But most importantly, the skills of working for startups is really, really critical to join this transition. A lot of them have started companies or joining companies. I still get an email every week from some accomplished software engineer who asked me "Which software companies should I work for to fix climate change?" And I've gotten those emails for two or three years now. This thing just attracts really, really ambitious people. It's not stopping. It's accelerating. I feel lucky to work with so many of these great founders because they are uniquely interesting people.

Lenny (01:02:16):
I've noticed exactly the same thing of just how many smart, driven, amazing people are like, "I just want to move to a climate tech company. That's all I'm looking for now." Just to give you credit, I feel like you are ahead of the curve on the shift that's started to happen and pushed YC to focus on this really early. I always think like, "Man, I know Gustaf and I feel like Gustaf has made such a massive impact on the investment and focus in startups on climate." And so I just want to give you huge props for doing that and being so at the forefront of a lot of this.

Gustaf Alströmer (01:02:50):
Thank you. I mean, sometimes I'd say that it matters to someone who has the credibility of YC to start accepting these companies. It does matter. I remember when I spoke to Diego from Pachama in 2018 when he was starting Pachama, we were whiteboarding in YC. He was a YC alumni starting a different company. The word climate tech did not exist. People were unsure if investors would fund companies like these. Pachama's raised $60 million to have, I don't know, lots of big customers, lots of employees and it's clearly doing really well. But I think at the time of 2018 it was kind of unknown. One of the reasons it was unknown is we had this previous bubble, clean tech bubble, in 2008, 2009, 2010 that didn't work out because of a number of specific reasons and investors were just afraid of funding things because they had some scar tissue or scars from this previous thing that happened.

(01:03:46):
Now that turned out upside down. The number of new investors that are investing in climate tech is as big of a trend as any other trend we've seen in the last decade or two decades. There's just an enormous focus on the investing side. Most recently, me and another guy, David Rusenko, wrote this request for startup, a new updated, very detailed list of... I hope we can post it in the show notes, a very detailed list of ideas or areas where we think it might be worth looking If you want to start a company.

(01:04:18):
Now, we don't know what good ideas look like. We don't know. But we can tell you where all the areas of opportunity exist. We should go and look for good ideas. We wrote this because in response to all these people that come to us and say, "I want to work on climate tech. I don't have a good idea because I don't have any specific experience in this stuff." And then we're just like, "Don't work on these three things but go and work on any of these 25 directions." It already has generate a good response. I think it'll generate more response. But I think it's important for YC to tell the world that we look and fund these things. And that's always been the reasons we had requests for startups, is to let people know that these are things that we actually want to fund.

Lenny (01:04:58):
I actually moderated a panel a couple weeks ago. This organization called the Climate Draft put together PMs that are in climate tech. A lot of the questions were just like, "What kind of background do I need to move into climate tech startup to start a climate tech company?" It's interesting, every single one again and again just said like, "Your actual regular PM skills is all we need." There's a lot of people already at the company that are experts in the science and that's okay if you have no experience. They just need the business experience, how to operate, how to execute, standard stuff that PMs learn. And so would you agree with that that you don't need to have this deep background in science and climate to move into the space?

Gustaf Alströmer (01:05:41):
Yeah, I would say if you were working on a software company and even some of the hardware companies, that's probably generally true. Absolutely. It's much more valuable to have that background than to have this specific domain expertise background. Those are complimentary. But as a PM, having the solid PM background is the more valuable piece I would say. Being a competitive PM, coming from a really good culture of product management, knowing what good looks like, that's invaluable to some of these companies because in the past they weren't able to hire these people. So I agree with that 100%.

(01:06:14):
In terms of founders, I've seen everything, right? I've seen people having some domain expertise starting a company and really succeeding. I've seen people who had no domain expertise and learned everything they need to know. Maybe they partnered up with someone who had a domain expertise and then succeeded. I've seen all of it and I actually think that you can succeed in either of these categories. You don't need the deep expertise. It depends really on all the area you're in. But someone like Pachama, Diego and Tomas did not have expertise in forests besides the personal experience. They just had a willingness to solve the problem and it really worked out for them.

Lenny (01:06:51):
You mentioned you have this list of areas you're excited about. I know we'll share in the show notes, but is there any you want to highlight, just like here's areas you're most excited about and want to fund and/or are there companies you want to mention that are super interesting and super cool in the space that people should know about?

Gustaf Alströmer (01:07:04):
We wrote the list and we are highlighting companies in each of the categories. I don't know if I want to highlight any specific categories, but I can talk about some of the things that we've funded in the past that has real legs. So here's how I generally think about climate tech. So we have to decarbonize all the things we do that emits emissions. That means we have to change a bunch of things in the world, change transportation, change energy, change homes, all of these things, or change how we heat homes for example.

(01:07:35):
And then there is carbon removal. Carbon removal is sort of like, well even if we do all of this stuff really well, it's probably not going to be enough. And because there's an opportunity and there's some evidence to suggests that we can actually remove carbon from atmosphere in some way or another, a lot of companies are also working on this at the same time. I would say we need to do both and they're not in conflict. We probably are going to need to do both. Well, we certainly need to do the first one.

(01:08:02):
On the decarbonization side, there's infinite number of categories of our society where we met a lot of carbon, right? So I'll give you an example. Shipping is a really big deal. A lot of carbon emissions come from freight ships around the world. That's not obvious solution how you would solve that because the kind of oil that they run on is really cheap and it's a very low margin business and they don't have a whole lot of incentives to change besides what is coming down regulatory. So it's not a national solution where someone to be a cool, someone will build a test off ships and it just work out. But the two companies to be funded in that area, one of them is Seabound who is building carbon capture and removal for ships.

(01:08:41):
The other one is Fleetzero who build electrical ships. Electrification is on and again and again and again and again and whenever it's being applied, turn out to be a more efficient way of doing whatever thing that you were previous doing with the combustion industry. It is almost no maintenance. It's cheaper to build. The batteries are more expensive, it's cleaner and it fits the carbon coal you have. There's just a bunch of benefits there, but there has limitations. Usually the limitations on electrification has to do with batteries. It's like how far can you go? Now that category is what I call the... Which is a very important kind of critical one, which is the carbon accounting and sort of the recommendation systems that help big company account for the carbon that they have and they are giving some recommendations of what you do.

(01:09:25):
So I'll give you three examples. We funded Unravel Carbon, which is carbon counting software in Singapore, focusing on Asia, probably the leading one there. There's company called Carbon Chain, which is focused specifically on supply chain and shipping and raw materials, stuff like that out of UK. And then there's ANAI here in the Bay area. Who knows how this market is going to play out, but this market has carbon accounting customer demand right now, right? So all the large companies of the world have other either promised the government, promised their shareholders or promised the public, or maybe even the employees, they go into decarbonize. They don't always have an idea how to do it. These software platforms is like the plug and play "This is how you do it."

(01:10:07):
And then I'll give you two examples of things you can go into if you don't have any specific domain expertise and just a good software engineer. There's a company called Enode. They are basically building Plaid for EV chargers and Plaid for home energy system. So if we imagine that the future of all homes or future of all charging of EVs is going to be a bunch of energy appliances that are run by small computers, they're all wifi connected, you can connect to them and do things, tell them to turn on, turn off, turn on when it's cheap, turn off when it's whatever, all these different things that are valuable for the energy grid. Then you need a software platform to connect with all of them. And that's what Enode has been building.

(01:10:48):
Another related company is called Static. Static is the Airbnb for EV charging in India. The reason that you need something like that is you don't have Tesla charging. You don't really have public charting in general. People don't have outlets in their garage and they don't have garages. So you need to build a new bottom up EV charging system or platform, and that's what Static has been doing. They're actually building out public charging infrastructure as well, but they have their own app. So if you use a Static app, they'll direct you to all the Static chargers. I believe that they're the biggest or the fastest growing EV charging network in India, which is the second-biggest country, if not the biggest country in the world right now.

(01:11:25):
So the potential of these ideas, even that they're doing well now is just infinite, such an enormous market. If you succeed in one of these things, I don't think we are going to have as many gas stations as we have today and different networks. We're not going to have the same in EV charging. It's going to be a lot more consolidated around the use experience of the end user and the app they open to do this stuff. So I'm pretty convinced that there's real big opportunities for software entrepreneurs to figure this out. There's some companies in the current batch that are focused on this too.

(01:11:59):
The final one I would mention is Heart Aerospace. We have a Heart Aerospace and the Right Electric and a few others focused on aviation. Aviation is another big difficult to decarbonize. Heart and Right are focusing on battery electric planes. So they're basically making commercial airplanes that fly on batteries and flying electric motors and it's incredible to see.

Lenny (01:12:22):
What a killer list. We're definitely going to include links to all these companies in the show notes. Something I was thinking about is, so one narrative violation you mentioned is that there's actually money to be made in climate tech. It's not impact-oriented market anymore. It might be worth chatting about why that happened, but the question I want to get to is also things are going well. A lot of progress is being made. People see climate change and it's like we're dead, it's game over. But it feels like battery prices are coming down, solar's coming down, wind powers ramping up, all these startups are investing. So it'd be fun to just hear what's going well and maybe what is there to be optimistic about, but then also, "Okay, yeah, things are going well, but there's still things that are not going so great and where we need to double down."

Gustaf Alströmer (01:13:10):
Two specific things that went well in the last say 12 or 24 months. First one was politics. So in the United States we got the IRA, which is like it's called the Inflation Reduction Act. It makes sense because shift into greener energy is going to actually reduce inflation because it reduces energy costs. But it's really a climate bill, right? It really is a bill that is focusing on onshoring, a lot of supply chain for the green economy and incentivizing a lot of this change that we just talked about. Whether it's carbon removal or home energy or home heating, whatever it might be, this bill addresses all of it and is massive. So that's one really good news. Politics didn't have a lot of good news in the US for a long time on this. Maybe not ever actually.

(01:13:52):
The second good news, and it's such a good news that Europe is now trying to conquer. They're not trying to counter the IRA with their bill because they're seeing some of the battery companies saying, "Well, I'll actually going to build the next factor in US, not Europe anymore. I changed my mind."

Lenny (01:14:05):
Oh, wow.

Gustaf Alströmer (01:14:05):
So Europe now has to counter with their incentives as well. The second good news is corporations are now customers. So maybe three or four years ago you went to a Fortune 100 company and you're like, "Hey, do you want to buy my XYZ decarbonation solution?" What it's like? The software platform or EVs or whatever it might be. They're like, "Well, talk to this person on this floor. Maybe they can help you." And this person was not really empowered to make decisions. That has changed. Now they're like, "Actually, we promised our shareholders to reduce emissions by 2% every year and we also promised the government and we promised whatever publicly to do that. So we got to do that." They're like, "Where do we start? What's the first 2% that we got to decarbonize? Maybe that starts with energy. Oh, we'll change our energy providers." But they are now showing up as customers, not just with LOIs but paying actual for contracts, right? Doing investments in these companies because they've all see the future and they don't want to be behind.

(01:15:02):
There's financials motivations for this. They want to get access to capital that has some strings attached to some of these things, but they don't want to fall behind. And then they don't want to be the Toyota to Tesla, where Toyota said, "We are not going to do battery electric." It's just like they're still saying that sometimes and everybody else is like, "Tesla is the one we got to copy because that's the one that's winning." All these corporations are really afraid of being the Toyota. They're really afraid of being the last one who's not changing and then the world will move past them and then they're going to die. So I think the motivation here is intrinsically survival and it's really about sort of adopting this because this is where the world is going.

(01:15:39):
I think these are the two best news. The thing that I think what... We also wrote about this in the request for startups. This is not a thing where you can convince everybody to just agree with you. And even if you did, people wouldn't know what to do. So you have to view this as an economical opportunity and say... We can't convince everybody that this is going to be the thing that's going to happen. It doesn't actually matter if you convince everybody. What matters is that sufficient amount of corporations are convinced that they change their habits. And then you can sell the things you're building to them.

(01:16:09):
As sort of founder, just focus on your customers and focus on B2B. That's what most people I recommend to do here because that's where most of the change is going to happen. That's why I'm really optimistic about these startups and these founders. What they're doing is, in my opinion, more impactful than someone running a campaign trying to convince some other people that this is a big problem. Even when people know that climate change is problem, they don't know exactly what to do about it. But the startup founders, they know.

Lenny (01:16:37):
You touched on this, but it feels like one of the biggest shifts is capitalism is kicked in and is now leaning into climate tech startups and that's-

Gustaf Alströmer (01:16:46):
Yes. Absolutely. Absolutely.

Lenny (01:16:48):
... making a big dent. Well, with that, we've reached the final part of our chat, which is the very exciting lightning round. I've got six questions for you. Are you ready?

Gustaf Alströmer (01:16:58):
Yeah.

Lenny (01:16:59):
What are two or three books that you recommend most to other people?

Gustaf Alströmer (01:17:04):
The first one I recommend, I think I have it here. Yeah, this one. It's called The 100% Solution. It's written by Solomon Goldstein-Rose. It's for people who think climate change is a problem but don't know what to do about it, or they're just kind of in despair or think they're like, "Ah, everyone are going to die," right? There are some books written where the outcome of the book is like, "We're all going to die," but the truth is that we're not all going to die. This book is trying to cover the 100% of all the solutions in detail, kind of much more detailed version of the request of Sharp that we wrote. It gets you freely optimistic. And I give that to anybody who's cared about climate change because it really lays out this from a very optimistic way of looking at the world. And that's why I recommend that book more than almost anything else. That's probably my number one book.

Lenny (01:18:00):
Amazing. I love that if just a one book, here's the book you got to read. I like that approach. What's a favorite recent movie or TV show that you've really enjoyed?

Gustaf Alströmer (01:18:10):
Oh, I watched so much. I don't know. I love Emily in Paris on Netflix. I think I have TV serves different purpose for me these days. It's just like entertainment.

Lenny (01:18:22):
Yeah, I get that.

Gustaf Alströmer (01:18:24):
But what else movie do I watch? We watch the Everything All at Once. I thought that was a really good movie. That was-

Lenny (01:18:30):
Yeah, it might win Best Picture.

Gustaf Alströmer (01:18:32):
Yeah.

Lenny (01:18:32):
We have a drinking game here. People say White Lotus, we drink. And so you did not, that's probably for the best. Favorite interview question that you like to ask YC founders when you're interviewing them?

Gustaf Alströmer (01:18:43):
What have you done since you applied to YC on your product? What are specific things that you've accomplished since you applied? Because that usually is a month or two month months ago.

Lenny (01:18:51):
That's awesome. It connects so much with what you said earlier.

Gustaf Alströmer (01:18:55):
I hope the answer is like, "Here are all the things that we did."

Lenny (01:18:59):
Versus we just prepared for this interview.

Gustaf Alströmer (01:19:01):
Exactly. Exactly.

Lenny (01:19:02):
Most out there wild startup you have funded?

Gustaf Alströmer (01:19:07):
I think I would say when I stepped onto the hangar floor of Heart Aerospace. I can send you a photo. Literally, I am looking at an airplane that's being made and I'm like there's no SaaS company's office you can walk into and you just open your mouth and you're like, "What the hell is this?" There are a few of those companies that are space companies or airspace companies or something like that where it's just a different feeling that you fund them and you can touch it. I have a lot of appreciation for things like that now because they're much harder to do, but when you succeed, they're much more tangible and you can be like, "I have a tiny little piece in this space rocket or this airplane that we funded or this satellite above us." I really think that that's in some way a strong legacy compared to some other things that exist and just replace other softwares. And all these are better businesses, but there are strong legacies.

Lenny (01:20:06):
What's a pro tip for applying to YC?

Gustaf Alströmer (01:20:09):
Pro tip. Number one thing is go to YouTube and type in like... I think there's a video that we've recorded which is about how you succeed with your application [inaudible 01:20:18]. It's an hour long video that gives you all the pro tips on how to do it. We told people in advance, "Once you've watched that video, then see if you know anybody who've done YC and then reach out to them and maybe ask them if YC is right for you, but also ask them what's important for you to, as you kind of approaching applying to YC, writing the application, during the interview, what were the things that matter?" Those are probably the two things I would do.

Lenny (01:20:46):
Final question, what's one pro tip for visiting Sweden?

Gustaf Alströmer (01:20:49):
First of all, you should visit in the summer. It's a really good time to be there. It's a very different country in the winter. Try to go outside the cities into the nature and then prepare yourself for Swedes not all being Americans. They're a little bit more colder and have a little bit more distance to you and they don't randomly talk to you like I've learned to do here in America. I think you just have to go along with a little bit different of a vibe than you have here in the US. Most people actually love it. Most people who have just been, they love it, but most of them go in the summer.

Lenny (01:21:23):
This reminds me, I wanted to close it, but there's a tweet once about how in Sweden when you go to someone's house, they don't feed you. It's not expected that you will have food. You have to bring your own food. Is that true? And what's that about?

Gustaf Alströmer (01:21:35):
It's absolutely true. I actually gave an unconference talk about this topic. The unconference talk was all of the strange things to Swedish people do and why. If i would summarize it, yes, we do that. I actually experienced that. I went to a friend's house and they had dinner and I waited in my friend's room while they had dinner. That was just normal. And why did that happen? I think there's a strong sense of individual responsibility in Sweden, which kind of reaches over to unfriendliness, [inaudible 01:22:10] from an American or foreign lens because this is so crazy. But in Sweden it's just like, "Well, you take care of your kids. I'll take care of my kids." And it's not really a question.

(01:22:18):
I think that a lot of the motivations of why Swedes are strange, one of them is we don't want to be indebted to someone else. So we never want to feel like... Which is why you wouldn't... For example, if you go to a bar in Sweden, you don't buy a round, you buy your own beer because maybe you have to figure out the money at the end of the day, things like that. I think it's just actually quite individualistic society, but it's individualistic with heart I would say. There's a warmth to it, but it will definitely be appeared strange to people who don't really understand this. They think people are cold and they're just like they don't understand that there's actually a heart behind this stuff.

Lenny (01:23:00):
That sounds really smart, to be honest, the system. I would be into it, but I can see how people are very confused. Gustaf, I can't thank you enough for doing this. This was incredible. I know that people listening to this are going to leave informed, inspired, motivated, hopefully motivated to move faster and make more progress. Two final questions. Where can folks find you online if they want to learn more or ask you may be follow up questions? And two, how can listeners be useful to you?

Gustaf Alströmer (01:23:27):
I tweet sometimes on twitter.com/gustaf. The most useful things that I put out is probably on the YC's YouTube channel. So I record a couple videos on growth, on sales, on how to talk to customers. I actually send them to people all day long because the Start School videos that we made are a lot of preparation went into it and it answers most of the questions that people have. So watch those first, I would say. But yeah, sometimes I tweet other stuff that people can follow. That's fine. How can people be useful to me? I love hearing feedback from founders, what they're working on. I want to hear kind of questions they have about their companies. But I want to also really emphasize that to apply to YC, you don't need to know any of us. You don't need to reach out to us. It doesn't make any specific difference.

(01:24:15):
The principles in YC is that you should be able to become an insider in YC in Silicon Valley without knowing anybody. That's kind of what the application process is about. So feel free to reach out to us if you have questions, but don't feel like that's required to be a good YC applicant. It's actually the opposite in that we read and treat all the applications equally. Thank you so much for listening to this podcast. I mean, it made me happy you made all the way to the end.

Lenny (01:24:44):
Yeah, extra credit for listening to the end. I also just want to say while you're saying that, it feels like YC is such a good force for the world. It just enables so much innovation and progress. And if technology is what drives the world forward, IC is so at the center of a lot of that. So just huge props to what YC is doing and what you're doing, Gustaf.

Gustaf Alströmer (01:25:02):
We feel a lot of responsibility towards that. That's for sure.

Lenny (01:25:05):
All right, I'll let you go. Again, Gustaf, thank you for doing this.

Gustaf Alströmer (01:25:09):
Thank you so much.

Lenny (01:25:12):
Thank you so much for listening. If you found this valuable, you can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. Also, please consider giving us a rating or leaving a review as that really helps other listeners find the podcast. You can find all past episodes or learn more about the show at lennyspodcast.com. See you in the next episode.