Completely off topic, but I'm this post made me realise that Sam Altman went from programmer to enterpreneur to financial guy. This post has very little ado with what he once started doing. He's a partner (and president) of an investment fund now, a pretty odd career move once you take the pink Silicon Valley glasses off.
This entire post is about finance. Not about business, not about products, not about customers, just finance. Personally, I understand just about half of the entire post.
To be clear, I don't think this is a bad thing. I envy Altman for understanding this (and for running YC at an age younger than mine, but that's another thing). But that's not my point. What I wonder about, is whether this is inevitable for successful enterpreneurs.
Is the path programmer->enterpreneur->finance the obvious one? Sam's path might've been odd, given that his startup wasn't the next Facebook, but you see the same in startups that are the next Facebook, such as Facebook. Zuckerberg used to be a PHP hacker and now he's this NASDAQ CEO. I'm not sure about Drew Houston but all I read about Dropbox recently were acquisitions.
Does growing business make you a finance guy, or do you need to be somewhat of a finance guy to grow a business? I'm really curious which is the chicken and which is the egg here.
Finance allows diversification in ways that operating (programming, marketing, etc.) doesn't. One usually needs to either (a) make money operating or (b) gain experience marking to either (a) invest your own money or (b) invest the money of others.
Being a founder means looking after your employees and that's what this post is about. Entrepreneurship is not solely about building and creating things. You have to lead, manage, and look after the company and its most valuable asset, the employees. Employees need to be compensated properly, and the devil is always in the details, so he is diving into financial details on how to achieve that. Financials are not the point of this post, it is the consequence of proper employee compensation.
As soon as you go from solo programmer to building a team, you need to be aware of these financial issues. How to structure equity and compensation are fundamental issues faced by all founders. Focusing on the details may not be necessary, but if you don't at least understand the basics of the financial side - which are not hard - it will be hard to build a company.
PS. I don't think it's fair to call him a "financial guy" based on one post.
I don't think the skillset is the factor. Smart ambitious person happens to learn programming first, his ambition keeps him pushing to entrepreneurship and other fields.
Another smart ambitious person might start on a different side of the mountain and keep climbing.
I was half-expecting him to advocate a "less equity for employees" stance since, superficially, don't investors already compete with founders for percentages?
Of course it makes sense on a higher level, e.g. when wanting startups to be desirable workplaces, or wishing for their own ecosystem to be a fair place etc.
There's several factors that make this irrelevant.
1) YC's incentives look very different from VC's: they get common shares, not preferred. This means their incentives are more aligned with the founders than with future investors (for example, if a VC has a controlling stake in the company & wants to fire the founder and dilute the common shares to basically nothing, then YC gets similarly diluted).
2) The dilution effect of the option pool on YC's shares is trumped by the dilution effect of future investments on YC's shares. If expanding the option pool has a marginal dilution affect but dramatically increases the likelihood of success, then that's a no-brainer for YC to push for.
3) YC's business model is dominated by the extreme outlier successes (e.g. Dropbox, AirBnb). Thus, YC does better by doing these three things better:
A. Increasing the likelihood that future successes are funded by YC (i.e. the founding team chooses YC early on)
B. Increasing the probability that a startup will become an outlier success.
C. Given that a startup is becoming an outlier success, multiply that success to the extent possible.
This piece hits nicely at each of those points. For A, YC takes a leadership role in how to structure a cap table, making founders look more to YC. Also, YC startup employees (ie future YC founders) think better of YC. For B and C, once a company grows beyond the founders, each employee makes very meaningful decisions on a daily basis that impact both the company's likelihood of success and magnitude of success. Aligning these employee's motivations with the company's further helps make these decisions better for the company.
It's about as meta-strategy as you get. It doesn't just make YC look good for advocating better incentives to attract better employees, it makes YC look like a leader. And makes them look extremely smart for seeing the way to look like a leader.
This entire post is about finance. Not about business, not about products, not about customers, just finance. Personally, I understand just about half of the entire post.
To be clear, I don't think this is a bad thing. I envy Altman for understanding this (and for running YC at an age younger than mine, but that's another thing). But that's not my point. What I wonder about, is whether this is inevitable for successful enterpreneurs.
Is the path programmer->enterpreneur->finance the obvious one? Sam's path might've been odd, given that his startup wasn't the next Facebook, but you see the same in startups that are the next Facebook, such as Facebook. Zuckerberg used to be a PHP hacker and now he's this NASDAQ CEO. I'm not sure about Drew Houston but all I read about Dropbox recently were acquisitions.
Does growing business make you a finance guy, or do you need to be somewhat of a finance guy to grow a business? I'm really curious which is the chicken and which is the egg here.