Y Combinator Startup Podcast
00:02:12 · Max Hodak
So Picasso was noted for saying that when art critics get together, they talk about form and structure and meaning, and when artists get together, they talk about where to buy cheap turpentine. This is also often phrased as amateurs talk strategy, professionals talk logistics, a quote from a guy that The United States named a tank after. And there are there are surprisingly few lessons that are really broad across companies. Typically, the experience of running a startup is you're just looking at kind of a continual stream of facts that hit your desk every day, and you're trying to make the best local decision that you can in the... For those facts. And if it looks inconsistent over weeks, that's usually the way to go. But there are a couple topics that keep kind of very repeatedly coming up that are kind of universal experiences, at least for deep tech companies, which is the thing that I I kind of know most of my experiences in, not just pure software. And so there are things that keep coming up, like buying things. So your first reaction might be that if you do software, you don't need to buy things. It will be me alone in an empty room with some computers writing software, and this is going to be how I build the company. And if this is you, yes, you have figured out a reason why VCs love funding software and why they've done so much of it for last twenty five years. But if you do anything other than pure software, you'll be buying many, many thousands of things. This is us about, I think, six months into the company. And it's a little tough to make out. There are a lot of computers. There's also a bunch of microscopes and other electronics and three d printers and resin and PCBs. You're buying things really continuously, and so it might sound really obvious... Like a really basic question, you'd surely just buy things. So for you as the founder, you can use a credit card. Credit cards work great. You can buy lots of things with credit cards. You can also send a wire transfer. The question is, how does your seventeenth employee buy things? Do they have a credit card? Let's say you hand out credit cards to all of your employees and tell them to buy what they need. So you're gonna... You start getting messages like this, and the... And you think, like, you know, I care about burn. We have to spend efficiently.
00:04:24 · Max Hodak
I'm going to approve all of the purchases as they happen. And you get a message like this, and then you think, $3,000 sounds like a lot for a power supply. Do we need a $3,000 power supply? What if we get one from an auction? Like, in three days, there's an auction. Maybe we'll get it for half off. We can get it in two weeks. But then you also remember that you've hired some very highly paid and talented employees, and are you saying they can't get the tools that they need? That you're spending a $100,000 a week. If you wait a week to get a power supply half off, you have certainly dwarfed any possible benefit from getting it. And then, you know, and if they were anthropic, they're not gonna be getting hassled over a $3,000 purchase. They're just gonna have a power supply. And so what you realize is not only is this very hard to keep burn under control, but also it's just this is the inappropriate place to exercise spending review. Spending review has to come earlier. You have to have some concept of budgeting. It's not really about even just the payment rail of buying a thing. It's how do you understand the bucket of money that you have, and I don't wanna be making the $1,500 power supply versus $3,000 power supply trade off. They need to understand the resources that they have so that they can make trade offs within those other resources. So you set up a procurement system, and now your highly paid employees are spending their days clicking around b to b enterprise SaaS, and it turns out that from the time that they place an order for a power supply, it takes two weeks to arrive because you can't actually buy that with a credit card. You have to set up an account with the vendor and deal with insurance and certification paperwork and get an account set up, and they have to generate a quote so that you can generate a purchase order so that you can generate an invoice, and now everyone's upset that things are taking super long to get ordered. And so this actually really requires... Like, this is a living organism. Like, when people move from academia to startups, I think one of the reactions that people often have is, like, why are there people whose job there is to purchase things? Surely, I can just buy things. But, absolutely, there are people whose job is to buy things.
00:06:34 · Max Hodak
From the time that you submit the order, going back and forth with the vendor to set all of this up is very time consuming, and it can easily stretch out. It takes, like, active management to metrics to cause us thing... These things to go fast. And I think part of why... Like, when we think about this, we have a a reputation, I think, of often being very quick, and people are unsure, like, how does that happen? It is mostly not that we are smarter. It is infrastructure like this, that is the the... Like, how speed is built. So now people can buy things. At least you can keep overall burn under control. Now you know that you're not gonna exceed some large amount of spending every month, and then you realize that that wasn't really the problem. You could figure out your runway. The problem is attribution. It's when you're doing... Whether you're working on rockets or cars or drugs or brain computer interfaces or all... Like, anything that involves dealing with the real world, you realize that one of your other problems is that you're buying stuff in bulk. Like, we buy gases from argon to silane to nitrogen to resins to media, and then we buy these things in bulk, and we part them out to lots of different experiments. Now, when you do this, it breaks... Attribution is pretty difficult, And so if nobody knows how much an experiment costs, like every time you, like, grow up a new cell line or every time we make a new a new probe in in the fab, how much does that loop cost? Nobody knows. Therefore, experiments are free. It doesn't cost dollars. It costs media, and media comes from the fridge. And we wanna know what... How do we price a thing that we make? Like, we make a whole bunch of things in volume in the Foundry. We wanna know what can we sell that for. That requires all of these spreadsheets to get an estimate of the pricing. And there's opinions in here. Like, these are not all facts. Like, how much do you include rent? How much do you include depreciation of the tools? This comes with opinions about your future volume. All of this is required to understand not just what you should charge, but also what you're spending and what your runway is. And so to deal with this, we've built a huge amount of internal software at the company for for managing this.
00:08:43 · Max Hodak
One of the first things that we did is almost everything that you can do in the company is a button somewhere in the software. We call it Helix, including stuff like purchasing. But because this extends all the way through to manufacturing, where we have every step that happens in the lab in the database, we can correlate all of this through and get this information. And these like... Again, so it turns out that for every iteration of a wafer that we make in this case, for this protocol, it costs $40,000 This is a lot of money. Might have raised let's say you raised $20,000,000 in a Series A. You think you need four years. You need 20 people. In my experience, about half the burn is headcount. So let's say 20 people. That's probably three, three and a half that's like 3,000,000 a year in revenue. That's half of your burn. You need 20,000 square feet, about $4 a square foot. That's another 750,000 to 1,000,000 a year. So now suddenly, you've got really... It's a 3,000,000 a year research budget for three or four years. That goes way faster than you think. But again, your team see... Saw... Saw that you raised a larger amount of money than they've ever seen in their lives, and they think that the $3,000 power supplies are free. This is pretty important. This is a thing that actually... This infrastructure actually determines success or failure in many companies. Another universal experience is hiring. So hiring also, I think, really separates the successes from the failures. Startups usually don't come out of nowhere. I think the best companies, in my experience, come from what might be characterized as scenes. There's a moment that enables a new company to be born, and there's a bunch that comes together that really creates this unique nucleation for the new company. And once that moment has passed because some company has executed on it or just the time has gone, it's kind of tough to get back. And so the the best hiring comes from within your network, people that you've worked with before, you know are good, and the extended version of that is to hire from the network that produced the startup. There's usually some extended scene that the thing came out of. There's a bunch of cofounders that come together out of... That crystallize out of that, but then there's an extended community, and that should really be the target of your initial marketing.
00:10:57 · Max Hodak
These are the people that already speak your language, are already familiar with it, but there's never enough of them to really fill an entire company. You have to hire from the general public. So there's... Different companies hire in different ways. There's different processes that make sense to different founders. This is the thing that really is gonna be matched to who the founders are and how they view the world, and there's no one right answer. But this is a thing where you need a really defined process. There is no right answer, but a wrong answer for sure is not having something that you do very religiously as a company. And this is an area where reality has a surprising amount of detail. It seems really straightforward like, oh, you'll you'll, like, have a job board. You'll get applications. You'll review them. This very quickly becomes a huge, huge drag on the rest of your team. You can easily spend almost all of your time recruiting if you're not doing it efficiently to get to suboptimal outcome. And so for us, again, we've built a lot of software to do this. There are four steps to our process. The first is that we've built a software interface for users to apply... For applicants to apply online where we can capture some structured information from them upfront, including the ability to apply to multiple jobs in parallel. And so we originally used a commercial applicant tracking system. We've moved this to our internal tools, and one of the reasons we did that is because this allowed us to do something that we couldn't find in any the commercial ATSs. So when we... The first step of our process when users apply is it goes to company wide voting. This is a heavily redacted version of of the internal interface, but hopefully, can make out the idea of what's going on here. So the the applicant's resume is in the middle. We collect a little bit of other structured information, but the most important thing is on the the far right, you see this... There's a question. Like, how would you vote for this candidate? Are they known good, strong yes, yes, no, strong no? And so when a person applies, the system picks out seven or eight current employees that it thinks look something like their backgrounds, and it pings them all for votes.
00:13:05 · Max Hodak
And so we can distribute the voting across a lot of the company for this initial review, which is essential because if you're doing anything cool by the time you get a couple years into it, that top of funnel is overwhelming. And if you place any in... Any small group of employees or any one person in the way as a bottle... Bottleneck on this, they will absolutely bottleneck the whole rest of the organization. And it's also you want to, I think, average over judgment. I think there's different people that are better or worse at hiring and have different perspectives on what you're looking for at that stage. So And in the beginning, as the founder, you can meet with everybody. You should... That will take you quite far. You should definitely interview everybody for quite a while. But even beyond that, you still wanna... You want ways to average over the judgment of the rest of your team, and voting mechanisms are usually a really good way to do that. So these are these are our actual statistics over the last couple years. So 17% of the top of funnel applications that we get go to a phone screen. Again, that first initial voting stage is drawn from a company wide pool so that we can get fat... That we can get the voting done quickly within usually twenty four or forty eight hours and not bottleneck that on any small group of people. The phone screen is, again, drawn from a company wide pool of people. This is not team specific. This is a company wide bar really looking for three things judgment, horsepower, and agency. Like, if we throw you into a complex, vaguely defined situation, will you tell... Tend to make good decisions, or will you create diplomatic incidents? Like, do you meet just a basic hurdle for technical competence and demonstrated ability to learn things? And are you effective at causing the world to look like you wish it were? Like, how does your life look or not like whatever ambitions you had? And, like, do you have specific ambitions for your life? And so this, we can distribute over the entire company. And then half of those tend to go to homework.