
What's The Secret Behind Y Combinator's Success? - gatsby
http://www.forbes.com/sites/drewhansen/2013/02/18/whats-the-source-of-y-combinators-success/
======
pshin45
Given that YC is essentially the "Harvard" of startup accelerators, I think
that by analyzing how Harvard got to where it is today, we can gain a lot of
insight into YC's success as well.

Not unlike YC, Harvard was also the first of its kind (oldest college in the
US), which gives them a first mover advantage right off the bat. And then
somewhere along the way, just like YC with Airbnb and Dropbox, Harvard too
probably got "lucky" early on with several alums who became super rich and
successful, who then started giving back to the Harvard community via generous
donations of their money and time, which coupled with their first-mover
advantage resulted in a virtuous cycle of success that no other university has
been able to replicate since.

Smash cut to the present, and Harvard has a $32 BILLION war chest (endowment)
and a network of alumni who go out of their way to ensure that the next
generation of Harvard students can succeed as well.

Lastly, I think YC's small size has been essential to its success. I myself
went to a very small liberal arts college (total student body of only ~2,000),
and the small size allows for a level of intimacy and personal care that
larger universities could never dream of. It also causes us to feel like
underdogs and war buddies, and thus that much more willing to help other alums
in order to keep growing and sustaining our small but precious community.

Oh and btw, it just so happens that pg got his Masters and PhD from Harvard.
Coincidence? You tell me :P

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cperciva
_YC has invested $8 million [...] the value of YC’s portfolio is approaching
$10 billion, largely due to Dropbox and AirBnB_

If I understand this correctly, the $10B is the _total valuation of all
companies YC has invested in_ , not actually the valuation of _YC's portfolio_
(which starts at 2-10% and decreases as other investors buy in).

Which isn't to say that YC hasn't been achieving great returns -- but it's not
fair to paint it as turning $8M into $10B.

~~~
citizenkeys
"YC has invested $8 million... more than 400 companies in over 30 markets."

Where have I seen that exact phrase before?

<http://ycuniverse.com/ycombinator-companies>

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Mz
I will suggest that HN is part of the secret sauce. It gives a place for
people to get started on learning, making contacts, etc from nothing, long
before they ever decide to found a company. It gives fertile soil for seeds to
be planted and grow into something ready for an incubator. And gives a lot of
opportunity to do some weeding and pruning well before applying to the
program.

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kamaal
The problem with analysis done by pony tail management guys is they take
successful story of which largely- a successful team with a amazing leader is
involved, identify some patterns and try to a make a process out of it, while
totally neglecting the human aspects of it.

How long are we going to pretend that its the people who are the center of
success and not the process.

If someone is saying if you do Step X, Step Y and Step Z you will become like
<insert a successful leader> they just lost the whole point. A leader is not
successful because of steps X, Y and Z. Some other leader would execute step
A, B and C exactly opposite to X, Y and Z and be equally successful.

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niggler
Can we agree, as a community, that Forbes is linkbait and not up vote these
articles?

~~~
rdl
I don't understand what happened to Forbes. It used to be a real publication.
Now it's linkwhoring blogspam, fairly exclusively, with horrible design on top
of that.

~~~
jedberg
They turned it into a blogging platform when no one was looking, in an attempt
to leverage their brand but get cheap/free content.

People are (obviously) starting to pick up on this and their brand is being
quickly diluted.

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confluence
Oh I know! It's fundamental attribution error!
(<http://en.wikipedia.org/wiki/Fundamental_attribution_error>)

Oh wait - that's not right, that's actually the gross error that all "What's
the X behind Y?" questions make - when in reality, it's probably about 100+
different things all coming together at the same time.

For YC it's the falling cost of bandwidth, the falling cost of storage, the
falling cost of computation, an increase in the number of internet users by
nearly 1 billion over the last decade, a doubling in the global economy over
the last 2 decades - quite frankly the list leading up to the creation of a Y
Combinator is almost endless - and I haven't even dealt with the actual people
who help make YC the success that it has become today.

Single factor explanations of complex phenomena are stupid.

~~~
pshin45
All factors are not created equal though, and you must admit that there is
probably a combination of a few key factors that help explain most (but not
all) of their success, no? (<http://en.wikipedia.org/wiki/Pareto_principle>)

I think that is what they/we are trying to get at.

I agree with your general principle that causation is rarely as black and
white as we make it out to be, but saying that all/most phenomena is a result
of hundreds of different factors coming together at the right time and right
place would make it very difficult to ever learn anything about anything.

> "..the falling cost of bandwidth, the falling cost of storage, the falling
> cost of computation, an increase in the number of internet users of nearly 1
> billion over the last decade, a doubling in the global economy over the last
> 2 decades."

These are all situational factors common to TechStars, 500 Startups, etc. but
which don't explain YC's unique success.

~~~
confluence
_> very difficult to ever learn anything about anything_

Not really - if you are talking about investigating things that have a
multitude of conflating variables affecting the end result. In that case you
aren't learning anything either - because then everything is just correlation.

When one investigates some arbitrary phenomena, it is important to constrain
one's experiment and control all but one variable so that one can be sure that
the changes one observes are more likely to be due to causation rather than
correlation.

For example: Stating that Africa is a failure because of X thing is full of
peril.

However, stating that when people don't have easy access to safe drinking
water, they are more likely to die of water borne illnesses, and that this has
probably contributed to the failure of Africa is a much more secure statement.
It's not nearly as pithy, and it includes many qualifiers - but then again, it
is a much more accurate and true assessment. It is also much less likely to be
subject to vague/"woo"/dumbass business like thinking.

 _> These are all situational factors common to TechStars, 500 Startups, etc.
but which don't explain YC's unique success._

First mover advantage anyone? Path dependence is a bitch - just ask DVORAK.

~~~
pshin45
I don't disagree with what you're saying.

If I were to sum up why YC might have succeeded like it did, I'd say that pg
is great at pattern recognition and is better than most at figuring out who
might become a great entrepreneur vs. who is just posturing, which increases
(but doesn't at all guarantee) his chances of finding great founders capable
of building great companies.

Of course, things played out pretty well for pg, but with less luck perhaps it
might've taken a longer time for them to find their Airbnb/Dropbox, or perhaps
Drew Houston and the three co-founders of Airbnb might have failed several
times before hitting their respective home runs. In which case TechStars and
500 Startups (admitted copycats of YC) might never have come into existence.

pg's knack for identifying great founders doesn't guarantee that everyone who
gets into YC is going to be "great," just like there are probably plenty of
not-so-capable people in Harvard who somehow still managed to get in.

But I would posit that the % of potential great founders is significantly
higher at YC than at other accelerators (due to brand, prestige, whatever),
which in the short run doesn't mean much but which over time will be greatly
and increasingly to their advantage.

------
pedalpete
If the network is the biggest 'secret' to YCs success, then is there any
reason why YC has been more successful than 500 startups or techstars?

These incubators should have an equally impressive group of founders.

I think their is something special about YC, though I don't know exactly what
that is.

At the same time, you have to suspect that some of the cache comes from AirBnB
and DropBox hitting bases loaded home runs.

What are the most successful start-ups from 500Startups and TechStars? Did YC
just get lucky with these two, and luck begets luck because now the best and
brightest will apply to YC because it has had the early success?

\----update------

I also hadn't realized how many companies have been through more than one
incubator program. For example, sendgrid was both 500Startups and TechStars,
Webmynd,Chirply and GazeHawk were all part of 500Startups and YC.

I'm sure there are many more.

~~~
niggler
"I think their is something special about YC, though I don't know exactly what
that is."

YC provides three key benefits:

1) "The Alumni" -- YC founders helping each other

2) "The Man" -- PG and the other partners do bring some value in the form of
advice and connections (and the associated branding)

3) "The Cycle" -- Any moderately interesting product/service will have
guaranteed customers in the form of other YC companies.

AFAICT, the other programs don't have a charismatic character at the helm, may
not have as strong an alumni network, and don't have the portfolio breadth to
sustain a business from the cycle

~~~
rdl
DMC might be less "charismatic" than pg, but is pretty aggressive at getting
his message out there.

------
jacquesm
I see several major factors behind Y Combinator's success:

\- to organize applications in classes that are solidly oversubscribed

This allows YC to select the cream of a batch of applicants rather than to
have to judge each proposal at some point in time on its merits on an
individual basis. Having a background against which to judge is a huge
benefit.

\- Hacker News

Having a place that is a breeding ground that already works _before_
joining/applying gives another way to look at applicants and creates a way for
applicants to join up.

After YC had run for a while a third ingredient came to represent an ever
growing factor in the success, the YC alumni, as the article rightly points
out. Like any network there are second order effects at work here, effectively
YC has a very large multiple of the number of eyes, ears and brains compared
to other entities.

------
macspoofing
How do they not mention Hacker New? I'm not sure Y Combinator would be as
popular without this site. It's an incredible marketing tool.

~~~
raverbashing
That's probably an example of 'hidden in plain sight'

Other incubators may try to replicate it, maybe with a Web 2.0 look and hiring
a couple of people to post news and then we end up with a (worse) BI/SAI 2.0

------
argumentum
The secret is that YC is not run like an incubator, but like a startup ..
because it is a startup .. that generates other startups.

They iterate on their own successes and mistakes .. don't follow the latest
trend, but genuinely think for themselves.

------
t0
His recent Bloomberg interview shed some light on one reason for YC's success:
luck.

~~~
Harj
Presumably that's an ingredient in all success.

------
tyang
You all keep underestimating Dave McClure. That man is incredibly savvy and
smart.

------
dschiptsov
Investing in _personalities_ instead of technologies + connections.

------
jes5199
How successful is Y Combinator, anyway? I've seen some vague numbers, and I
have no idea how that compares to other investors

~~~
pshin45
How would you define "success"?

Forbes publishes a ranking of accelerators based on financial results, and YC
was #1 for what it's worth:

[http://www.forbes.com/sites/tomiogeron/2012/04/30/top-
tech-i...](http://www.forbes.com/sites/tomiogeron/2012/04/30/top-tech-
incubators-as-ranked-by-forbes-y-combinator-tops-with-7-billion-in-value/)

"The rankings are based on a number of factors, focusing on the value of the
incubators’ companies. In other words, we took the exit prices or the last
priced equity valuation of the companies that have gone through each program.
We also took into account other measures, such as how much venture funding
their companies have raised, what percentage of their companies have raised
funding and what percentage of their companies have been acquired or gone out
of business."

------
michaelochurch
It came up in a time when raising money without connections was hard-to-
impossible and there was a lot of young talent eager to take a swing at the
startup game.

Y Combinator had the reputation and credibility instantly (as opposed to
other, mostly undistinguished, incubators) so it could take equity at
extremely advantageous valuations-- justifiably, because just being able to
say you're YC improves the value of your company by _at least_ 1.1x (probably
1.5-2x).

The problem right now is that it seems to be a "feeder school" for traditional
investment, and it won't be able to replace VC outright. YC is an impressive
and commendable project, but its value is prestige and it's hard to scale
without losing it.

~~~
Harj
_The problem right now is that it seems to be a "feeder school" for
traditional investment, and it won't be able to replace VC outright._

Why is this a problem? The intention was never to replace VC outright, YC and
VC both play different and important roles.

~~~
nodemaker
_"The current VC-funded startup scene, which I’ve affectionately started
calling “VC-istan”, is– not to be soft with it– a total waste of time for most
of the people involved"_

 _"the VC’s stake gives them control. It gives them board seats, influence
over senior management, and the opportunity to hand out a few executive
positions to their children or to people whom they owe favors"_

[http://michaelochurch.wordpress.com/2012/07/08/dont-waste-
yo...](http://michaelochurch.wordpress.com/2012/07/08/dont-waste-your-time-in-
crappy-startup-jobs/)

