
What Founders Ask Founders About Getting into Y Combinator - dwaxe
https://about.gitlab.com/2016/09/30/what-founders-ask-founders-about-getting-into-yc/
======
jkarneges
Most people I know that are interested in starting a company need help near
the beginning, within 6-12 months of setting out on their own. Almost always
pre-revenue, and very early traction (if b2b, maybe just a few users
evaluating).

Where are these kinds of entrepreneurs supposed to go? Is it still YC, when
they have to compete with already-successful applicants?

Kudos to GitLab bootstrapping to $1M ARR though. That's truly incredible. They
should write a story about that part. :)

~~~
vbhartia
I agree - It really feels like YC is now geared towards more later stage
companies. Companies that are in the growth phase vs. finding product market
fit. Also you have to be full time on your idea in order to be taken
seriously.

Is that a misconception?

~~~
sytse
YC is still very much accepting companies that are still finding product
market fit. But as far as I know you it really helps if you're willing to
commit full time.

~~~
vbhartia
Yeah - definitely able to go full time after. It's hard and very privileged to
be able to go full time now when the company is so early stage.

------
vbhartia
Reading through your YC application, you were already so successful ($1M in
rev, 60% growth rate, 1M users), did you ever have second thoughts about going
through YC? If you had not gotten in, what would you have done otherwise?

Congrats on your success!

~~~
sytse
Thanks! We never had second thoughts about YC. We did talk a lot during YC if
we wanted to take outside investment. If you take investment you need to work
to a liquidity event (acquisition or IPO). Since we would like to stay
independent the only option is an IPO. Not many companies make make that.

But we also wanted to make GitLab a great and popular solution. For this we
need the best marketing and sales people. When we tried to hire those they
wanted options in the company. It is not fair to give options if it will take
very long to cash them. So we needed a liquidity event in any case. In that
case it was better to take outside investment so the chance of getting to IPO
was higher than without it.

If we would have not gotten in we would have continued GitLab and probably
applied again for the next batch.

~~~
sanderjd
I'm very curious about the part where prospective employees wanted options,
implying you need a liquidity event anyway. Aren't there other models for
that? For instance, a partnership track setup, or paying dividends on shares,
or some other sort of revenue sharing? Equity in profitable privately owned
bootstrapped companies must be valuable, or there would be no incentive for
the founders of such companies, so why not offer a share in that value?

~~~
sytse
Great question, I'm sure there are multiple models possible. One complication
is that our priority for next few years is to grow as fast as possible. This
means that you're not making a profit but investing back in more growth.

Since we took outside investment that period is about 5 years. Without outside
investment it will take longer, maybe 10 years. Many potential hires don't
want to wait that long. They might wait 10 years but only if you get a
substantial windfall at that point, not the first small profit share.

Partnerships are more common at consultancy and finance firms where labour
generates direct profits. I think they are less suited for product firms where
the labour comes years ahead of the revenue. A liquidity event is a great way
to bring the 'windfall' forward.

Of course things are not black and white. We choose a 4 year vesting period
[https://about.gitlab.com/handbook/stock-
options](https://about.gitlab.com/handbook/stock-options) There are startups
now doing 6, 8, and 10 years. We didn't have a good reason to deviate from the
norm, so with our vesting time we stuck to what is usual in order to be an
attractive employer and hire the best executives.

~~~
sanderjd
Thanks for the answer! This is all great food for thought.

------
sytse
GitLab CEO here, AMA

~~~
open-source-ux
In your Y Combinator application, you say:

 _"...to create and grow a competitive open source offering you need to have a
proprietary commercial version to generate scalable revenue, support income
alone is not enough._"

I've often wondered if you can make money selling an open source software
product that isn't dependent on support or services. In your application form,
you're essentially saying this isn't possible.

Do you have any advice for people creating open source products regarding this
view of open source vs closed source for sales and revenue?

Do you still feel that anyone with an open source product should also be
providing a closed-source commercial version which will actually be the main
source of revenue?

How have people in the Open Source field reacted to this viewpoint given that
there is a strong negative reaction to closed source in some quarters.

I'd love to find a way of selling an open source product that didn't have to
rely on a service contract or support for revenue. Is it impossible without a
closed source offering?

Any thoughts, much appreciated.

~~~
agibsonccc
Another open core YC founder here. Can confirm it's the best way to go. Pure
oss tends to become services heavy quick.

Another thing to think about: If your open source support is good enough, they
may not pay for your support offering either.

~~~
sytse
Thanks for chiming in, I totally agree.

Of course some products and markets have been able to make the support model
work, like RedHat.

But it is very hard to pull off and I think it used to be easier in the past
when companies where very worried about support and licensing. Nowadays they
are much more comfortable with open source.

What we are seeing is that companies that pay for our premium support tend to
cancel that after the first year because they didn't need it.

We want to make a product that is easy to install and maintain. This reduces
the demand for support. There is a incentive for companies selling support to
be a bit less aggressive documenting everything.

An open core model needs a very careful balance between being a good steward
of the project and the need for revenue. We documented what we learned so far
on
[https://about.gitlab.com/about/#stewardship](https://about.gitlab.com/about/#stewardship)
and keep our ears open on forums like these.

~~~
agibsonccc
We've had conversations with board members at most of the major open source
companies (eg: large and private or public)

and the consensus has been that you need a lot of components for the support
contract to work.

One difference we've found for example that seems to work pretty well is
providing support for deep learning models. Each "model" solves a problem like
"face detection" "cat finder" "fraud detection" and we charge for the platform
used each time for each model. This reflects the amount of work we do for
customers but also provides an SLA for deep learning they might not otherwise
have.

Source control has a wider user base and tends to favor an easy to install
integrated experience.

Machine learning applications tend to have fewer people who know how to build
them but they are just as critical for the business.

Eg: points of accuracy in a model can directly map to revenue or profits.
That's easy to explain to an enterprise customer.

So despite the smaller potential user base "data scientists" in this case,
we've found it fairly easy to go to market.

One thing I think people miss is that the bulk of open source infrastructure
companies tend to be devops or operating systems with lots of moving parts.

They don't tend to be applications or machine learning.

I think what a lot of us are finding is that you have to innovate on the
business model itself in order to really capture value for both your user and
the customer as well as your startup.

~~~
sytse
Very interesting, thanks for sharing!

------
annerajb
What did you learn at YC that you feel you would have not learned elsewhere or
that it would have taken you longer?

~~~
sytse
We learned many things. The two most important ones:

1\. You can do more than you think. We came in wanting to grow into a 30
person company in 2020. Now we're 100+ people and plan to IPO in 2020. You
realize that you have only so many years left and you want to make them count.
And that with some help you can aim higher. Not every company should take VC
and I love companies like Basecamp. But YC helped these two EU founders be
more ambitious.

2\. You can ship faster than you think. Seeing what is now
[https://www.wayup.com/](https://www.wayup.com/) and other people in our group
achieve much more than us every two weeks made us question how we worked. We
learned to iterate and launch the minimal iteration as soon as possible. It
was a counter-intuitive lesson that greatly increased how effective we are.

------
boxcardavin
What did getting into YC 'liberate' you to do that you later found out was
just a mental block?

~~~
sytse
See
[https://news.ycombinator.com/item?id=12615911](https://news.ycombinator.com/item?id=12615911)
but I don't think we would have overcome the mental block without YC.

------
jaypaulynice
Minor typo...the link says the deadline to apply to YC is October 4
2017...should be 2016...could throw some people off...

~~~
sytse
Thanks, fixed with [https://gitlab.com/gitlab-com/www-gitlab-
com/commit/e9fa504f...](https://gitlab.com/gitlab-com/www-gitlab-
com/commit/e9fa504fed806b902e0a555dcba7a35b5bc22b36)

