What do names like Dropbox, Wufoo and Reddit have in common?

They’re all graduates of Y Combinator, Silicon Valley’s hottest startup accelerator program.

Paul Graham is the man behind the magic. He knows a thing or two about what makes startups tick.

They know a thing or two about how to scale and grow a business. Graham and his team at Y Combinator have accelerated the growth of 800 startups.

So if anyone knows what it takes to launch a new venture, it’s Paul Graham.

He shared 5 of his top lessons learned in an interview with Andrew of Mixergy.

  1. Start With a Dynamic Duo
  2. A Team That Complements One Another
  3. You Need the Grit
  4. Ideas Are Nothing
  5. Push ‘Em Off the Edge of Greatness

Without further ado, here are Paul Graham’s 5 Steps to Building a Great Software Company.


1. Start With a Dynamic Duo

80’s rapper Rob Base said it best, “It takes two to make a thing go ri-ight!”

And Paul agrees.

“Having a cofounder is very important. We’ve seen tons of evidence of this.”

Graham says that he’s funded both solo and group startups, and on average, partners typically perform better.

“Initially you need a couple guys to spread the load over.”

Paul uses major tech companies like Oracle, Microsoft and Apple as prime examples. All had cofounders to begin with, but a single person eventually came to the fore to take the reins.

You might be wondering…

“Where can I find a partner?” Paul says to take a look in your own backyard.

“The two biggest ways people find co-founders is to go to school with them or to work with them at the same company. Because you don’t really know what someone’s going to be like until you’ve worked with them.”

Graham explains it’s best to start off on smaller projects together and then work your way up.

“And the project you work with does not have to be the start-up. It’s just as well if it isn’t because then you don’t have to figure out…who’s in charge of what and how to split the intellectual property or what to work on.”

“Just work together with them on some open source projects for a couple months and then you’ll know if they’re good.”

2. A Team That Complements One Another

Y Combinator is comprised of an impressive core of individuals who bring incredible value to the table. And they all bring value in different ways.

For example, Paul has an innate sense for knowing which ideas are good (and which ones suck).

“Somehow, I seem to be able to look at a web app and think, ‘No, this is wrong. This is right.’”

“You know, I have a weird ability to do this. I don’t know why. I often worry that it will stop working.”

Then there’s Jessica Livingston. A former investment banker and legal mastermind, she is Y Combinator’s social radar for judging people.

“I’ll meet somebody I really like, and she’ll say, ‘You know, there’s something off about him.’ And it always turns out she’s right. Always. So I’ve learned, when Jessica says these people are good or these people are bad, I should really listen.”

And then there is Robert Morris, Paul’s former startup partner and all-around IT genius.

“We’re probably the only company that has a full professor at MIT as their grumpy SysAdmin.”

How cool is that?

3. You Need the Grit

Paul describes how he’s learned throughout the years that determination is one of the biggest factors for determining success.

In 2005, Graham gave a speech to the Undergraduate Computer Society of Harvard. He would learn afterwards of some special guests in attendance that night.

Steve Huffman and Alexis Ohanian, the founders of Reddit, took a cross-country train ride just to hear Paul speak.

“They were determined and flexible. They seemed like they really wanted to start a startup. They were so determined that they came on the train all the way from Virginia to hear that talk.”

“I was impressed by their determination, and that was actually why we funded them.”

Brian Chesky and Joe Gebbia from Airbnb designed and sold their own breakfast cereals to keep their startup afloat. That is grit.

4. Ideas Are Nothing

As popular as the site is today, the initial pitch for Reddit wasn’t even close to the site today. Although the first idea didn’t win Paul over, the people behind it did.

“The idea for Reddit was a combination of us and them. We told them we didn’t like their original idea. We said, ‘Come back and we’ll talk about other ideas.’”

That’s right – the Reddit was rejected. Even after taking the train all the way from Virginia to see Paul speak. But their grit left an impression even if their idea didn’t.

“I just called them on the phone and said, ‘We loved you guys even though we rejected you. If you come back, we’ll figure out something new for you to do.’”

So how can Paul tell when he’s looking at a big idea in a big market? He can’t.

“We don’t know that and we don’t worry about it.”

“Unless it’s obviously terrible, it’s not the idea that’s important. We care about the founders. We have three months to figure out the perfect variant of the idea.”

Paul says many think the whole startup process begins with some brilliant idea. As though, “success is for the destined.”  His experience has proven otherwise.

5. Push ‘Em Off the Edge of Greatness

Paul’s coaching style has a heavy dose of nagging. But it’s important to nag just the right amount.

“You know there’s always some percentage that are just doomed.”

There are others who are on the borderline, who you know, might fail and might succeed. And then if I nag them and nag them and nag them I can maybe push them over the threshold.”

“And so it’s one of these situations where you have two extremes of what you want to do. The ones, the guys who are just good enough you want to nag enormously and the ones who are not going to be good enough you want to nag not at all.”

Graham also describes how he’s taken bold measures to keep people calm before their interviews.

“We don’t want people to be flustered during the interview. We need all the signal strengths we can get.”

Apparently the process works.

“We’ve learned how to tell the difference between people who are nervous and people who are lame.”

Graham goes on to describe the formula for what makes a successful startup (and what doesn’t) and how to put yourself on the path to get there.

Want to know how to apply the formula yourself? Get the interview below to find out…

Who should we feature on Mixergy? Let us know who you think would make a great interviewee.