Drew Angerer/Getty Images
- Sam Altman is the CEO and a cofounder of OpenAI, the developer behind ChatGPT.
- He gave a lecture at Stanford in 2014 explaining what it takes to build a successful startup.
- Aspiring founders today still find his advice on things like coming up with great ideas relevant.
To create a successful startup, you need to have a great idea, a great product, a great team, and great execution, Sam Altman, the CEO and a cofounder of OpenAI, the developer behind the popular artificial-intelligence application ChatGPT, said.
ChatGPT launched in November as a research prototype and has gained immense popularity ever since. On Tuesday, OpenAI unveiled its highly anticipated GPT-4 model, which Altman described as "more creative" and "less biased" than earlier versions. He added it was capable of passing the bar exam for lawyers and "could score a 5 on several AP exams."
But experts are worried that artificial intelligence, which can answer customer- support questions, write cover letters, and create training documents, will replace jobs in tech, media, law, and finance. Reid Hoffman, Peter Thiel, and Elon Musk, who is also a cofounder, also back OpenAI.
Altman shared these entrepreneurial insights in 2014 during a lecture series at Stanford University called "How to Start a Startup." At the time, he was the president of the startup accelerator Y Combinator.
While the startup environment has evolved since then, much of his advice is still relevant today, though he begins his lecture with a caveat that his advice works for high-growth startups and probably won't apply to most other companies.
"I really think that startups are the way of the future and it's worth trying to understand them, but startups are very different than normal companies," he said.
Nearly a decade later, 12 points of his lecture still ring true for aspiring startup founders.
Most great companies start with a great idea
In his lecture, Altman warned aspiring entrepreneurs that building a startup is a 10-year commitment, so they should be sure they're pursuing the right idea.
"If you have several ideas, work on the one that you think about most often when you're not trying to think about work," he said.
Above all, a founder needs conviction in their own beliefs. The best companies are also mission-focused, meaning a problem inspires them and staff design them to solve it whether it's something that affects the founder directly or affects a group of people they care about.
"If you don't love and believe in what you're building, you're likely to give up at some point along the way," he said.
The best ideas are often the ones that seem like bad ideas
Altman also told aspiring founders that good startup ideas are often considered seem like bad ideas for a while. The upside is that other people will rarely steal these ideas because the general public won't recognize their potential until the startup is more established.
"The best ideas often look terrible at the beginning," he said. "If they sounded really good, there would be too many people working on them."
Find a small market where you can quickly expand
When you're considering who your startup is for, it's important to focus on a small market where your customers are desperate for a solution, Altman said. You can change nearly everything about a startup except for the market.
"I prefer to invest in a company that's going after a small, but rapidly growing market, than a big, but slow-growing market," he said.
Young people and students are especially good at identifying markets that are quickly growing, Altman added, because they're most in tune with current trends.
"Older people have to basically guess about the technologies young people are using," he said. "But you can just watch what you're doing and what your friends are doing and you will almost certainly have better instincts than anybody older than you."
Make a product that people love
Once you have an idea, you need a great product that a lot of people love to become a successful company, Altman said.
But when you're starting out, it's easier to grow a product that a small number of users love than a product that a large number of users like. That's because you only need a few fans to organically grow your customer base, Altman said.
"Very few startups die from competition," he said. "Most die because they themselves fail to make something users love; they spend their time on other things."
Users will tell you what they'll pay for
As you're building your customer base, Altman recommended that founders gather feedback "by hand," rather than with paid ads. He used Ben Silbermann, a cofounder of Pinterest who recruited his first users by asking people at coffee shops to test his app, as an example.
"Get users manually and remember that the goal is to get a small group of them to love you," he said. "Do whatever you need to make them love you, and make them know what you're doing. Because they'll also be the advocates that help you get your next users."
Once you've gained those users, Altman said, it's important to listen to them and learn everything you can about them.
"Even if you're building the product for yourself, listen to outside users, and they'll tell you how to make a product they'll pay for," he said.
Be smart about picking your cofounder
One of the most important decisions you will make as a founder is who you choose to be your cofounder, Altman said.
Avoid picking someone you barely know and consider having two or three cofounders, he added.
"It's better to have no cofounder than to have a bad cofounder, but it's still bad to be a solo founder," he said, adding that the top 20 most valuable Y Combinator companies at the time had at least two cofounders.
He offered a framework to help founders find their cofounders: Look for a James Bond, someone who is "unflappable, tough, they know what to do in every situation, they act quickly, they're decisive, they're creative, and they're ready for anything." This is more important than an expert in a particular domain, he added.
The final test is how much you're willing to share with your cofounder. "If you're not willing to give your cofounder an equal share of the equity, I think that should make you think hard about whether or not you want them as a cofounder," he said.
Hire slow and fire fast
In the beginning, founders shouldn't rush to hire a lot of people, Altman said. "You want to be proud of how much you can get done with a small number of employees."
He added that some of the best companies at Y Combinator have employed very few people in their first year and sometimes none besides the founders.
Additionally, if you've hired someone who is consistently doing things wrong, fire them quickly, he advised. "A really bad hire can kill a company," Altman said.
He gave three things to look for if you're not sure whether to fire someone: people who are doing bad at their job, people who are creating office politics, and people who are persistently negative.
Every person in a startup sets the tone
When hiring for your startup, Altman advised against compromising and hiring someone mediocre.
In many cases, especially early on, it's more about getting someone with aptitude and belief in what you're doing than about experience. "Most of the best hires that I've made in my entire life have never done that thing before," he said.
He gave three questions to ask yourself when considering a new hire: Are they smart, do they get things done, and do I want to spend a lot of time around them?
He also suggested working with a candidate on a project, rather than an interview, because that will give you the answers to those questions.
Reconsider how you give equity
One common mistake Altman said he's seen founders make is they are stingy with the equity they give early employees and very generous with the equity they give investors. He believes it should be the other way around.
"Investors will usually write the check and then, despite a lot of promises, don't usually do that much," he said. "Sometimes they do, but your employees are really the ones that build the company over years and years."
Focus on one or two priorities and delegate the rest
Where a founder spends their time and money reveals what they think is important, Altman said. But it can be difficult to decide on those tasks. Many of the things that founders think are important, like going to conferences or recruiting, don't matter, he added.
"There are a hundred important things competing for your attention every day and you have to identify the right two or three, work on those, and then ignore, delegate, or defer the rest," he said.
As a founder, there will always be fires to put out, but it's critical to say no to the things that don't fall within your priorities, then communicate effectively with the rest of your team.
Indecisiveness is a startup killer
According to Altman, the best startup founders work on things that seem small, but they accomplish the work quickly. The worst thing is for a founder to talk a lot but never act.
"Mediocre founders spend a lot of time talking about grand plans, but they never make a decision," Altman said. "What you actually need is this bias towards action."
Always keep growing
A major part of a founder's role is to establish an operating rhythm early on so your company is delivering products and launching new features regularly, Altman said.
Then the challenge is to keep that momentum going. "The momentum and growth are the lifeblood of startups," he said.
If a startup's momentum slows down, people will disagree about what to do and fights can break out, he warned. To combat this, Altman advises founders to ask your users or customers what to do and then execute whatever they say.
Read or watch his full lecture here and here.