Comment by mrandish | Hacker News Reader

Comment by mrandish | Hacker News Reader

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Yes, I agree and would add other reasons. It's always seemed obvious to me that YC would invest in multiple startups working on the same problem space for these reasons:

First, compared to a traditional VC, YC is micro-investing in far more startups and doing so faster and more frequently.

Second, YC highly prioritizes founder/team quality over ideas but teams come to YC by pitching an idea. I just read an article yesterday citing evidence that in the last 10-15 years the diversity of startup ideas has declined significantly. This makes sense. Enormous amounts of information about what other very early stage startups are doing as well as which areas are currently being funded is readily available in near real-time. As a serial entrepreneur who did my first startup in the 80s, second in the 90s and third in the early 00s, I can attest we had nothing like this visibility in earlier eras. Ideas which are getting funded and which sound like good ideas in hot areas are obviously going to influence founder idea selection and cause clustering.

Third, YC knows that many startup teams will pivot away from their initial idea once they engage with real customers in real markets. So much so, YC considers it a sign of a smart team working well together. However, like all VCs, at any given time YC has broad sector themes it considers especially ripe for various reasons ranging from new technologies enabling disruption to expected high growth in an emerging sector.

Fourth, is the reason you identified. Having a good enough high-concept idea is necessary but far from sufficient for startup success. In addition to the execution details like go to market that you mentioned there's also timing. Even being 12 months earlier or later can make a difference toward making it. Finally, there's the luck factor. While it's true that quality teams are better able to maximize good luck when it happens and also have a tendency to increase their overall odds too, luck still matters. In my successes we had to get a lot of things right but there were also three or four serendipitous things that made a big difference at important moments. The only way for YC to solve for both the micro-timing and luck factors is betting on multiple similar startups around the same time.

I wonder how successful market pivots are, on average. Seems like flailing to me. How can one take money to achieve x, build plans and hire people to achieve x, and then do y instead and not fall down in the necessary interval, unless the y product happens to be a side effect of x?

It's true that some startups just randomly try other ideas when the first one doesn't work - and some of those incorrectly call that flailing a "pivot." However, that isn't the actual concept behind pivoting.

Pivots are a thing because early stage startups are often pursuing an opportunity space they are betting is just emerging. Because of this there's often little data to go on when they start and they're making educated guesses about a bunch of things from product features, primary customer, go to market and business model. The concept is that a startup should very quickly develop an MVP which enables engaging with actual customers. That engagement often reveals which initial assumptions were incorrect. Hopefully they were incorrect not because they made a dumb mistake but because the correct answer was unknowable without testing.

That testing also sometimes reveals completely new customer and/or market information about a bigger opportunity in that area leading to a pivot. This is akin to sinking temporary test wells before building an oil derrick and pipeline. Even the best geology analysis can only give a probability of oil being found in a given location. Sometimes sinking test wells reveals the oil is actually a quarter mile to the East. That isn't really a pivot but more like product/market tuning. A surprising number of times, the process of sinking those test wells to discover oil leads to discovering something different but just as good like natural gas or something even better like gold. That's a canonical pivot. Experienced founders and VCs can pretty easily tell the difference between flailing and a pivot because the pivot is motivated by actual real-world customer/market response encountered while validating the first idea.

An example might be a startup whose first guess at the right product and customer was "An expense tracking program for sales people." After building a prototype or MVP and putting it the hands of some actual salespeople, they discover that, while nice to have, it's not compelling enough to buy. However, during their field visits to observe customers using the MVP they learn that field service engineers have a different but related problem in tracking parts inventory which is a major pain point.

In Steve Blank's legendary startup class at Stanford he teaches that initially a startup should be thought of as "a temporary experiment to discover a viable business." Once product/market fit and go to market are sufficiently validated with an MVP, then the process of building the real product and company begins.

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