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My friend, Sam Altman, is a bit of a geek, and he's okay with me saying that, I asked.

To talk about my nerdy qualities, I.

Approve of that. Yes, I thought you did. Many people have noted you have affinity for cargo shorts.

Honestly, I don't think they're that ugly and I find them incredibly convenient. You can put a lot of stuff. I still read paperback books. I like to carry on around with me. I carry computer chargers, cables. They're just efficient.

It's somewhat your Batman utility belt.

Yeah, you just can carry a lot of stuff.

People don't often ask Sam directly about his cargo shorts or his geekiness, for that matter. Sam's the president of Y Combinator, one of Silicon Valley's most prestigious startup accelerators. He's incredibly respected, and founders everywhere know he can make or break their fledgling company. But if you really want to understand Sam, you've got to understand what species of geekdom he falls under. Sam is not just your garden variety geek. He's a student of the history of geeks.

An.

Aspiring student. Aspiring student. With a fascination for an entire range of tech. One of the pieces of tech that you ended up getting was a bronze sword.

I'm not sure exactly which sword you're referring to.

Turns out, Sam has a whole collection of swords and battle axes, and this fascination with ancient weaponry has put him in some uncomfortable situations. I asked him about one. One of the things I learned from the New Yorker profile, which I had no idea because I've never seen it, is that you occasionally bring a sword in with you to interviewing entrepreneurs.

No, that's not true. Either they wrote that wrong. No, I think I remember what happened.

Here's the story as Sam remembers it. A reporter from the New Yorker had been shadowing him for weeks to work on a profile. They're in Sam's home office sitting through meeting after meeting, and Sam is getting bored.

It's the 16th meeting of the day, and I needed some energy.

Suddenly, a package arrives and Sam gets really excited.

I had bought this Bronze.

Age sword. Yes, you heard that right. A Bronze Age sword.

It had just arrived, and I've been waiting for this thing. Finally. It had flown over from Europe, and it was in this big crate and I got it out. It was stunning, perfect. I was so excited. The first thing you do is pick it up and swing it and see how it's weighted, how it feels. This particular one had the mix of where it hit people's helmets a couple of.

Thousand years ago. Or maybe bones, right?

Too much of a nick for a bone, too deep of a nick in the metal.

The Nicks in the metal might not have been from bones, but he's swinging around this massive weapon from the Bronze Age with a journalist from the New Yorker in the room, and the day isn't over yet. I was on.

The phone, and it was a not particularly exciting conversation, and so I picked it up and I just started while I was on the speakerphone, swinging it around and fighting this pretend enemy because I was so excited. I just got this. I've been waiting for it for so long. And I didn't realize till I put it down at the end, but that was probably really dominant. It's probably going to make it into the profile. Because the reporter is sitting there watching. You just forget after someone's with you for weeks. But I have never swung a sword at someone during an interview process.

I'm glad we can finally put that rumor to rest. The headline, Sam Maltman's swing swords at young company founders, can officially be put in the category, fake news. He's not just an ancient history geek, he's a geek history geek. He collects tech artifacts from historic computers to jet engines, any object that represents a breakthrough in engineering history. That's also essentially what he's searching for today, a technology that's so new, so unlike anything that's come before, it unleashes a geyser of demand. There have been consumers across all eras who have just had to have the next big thing. I got to get a weapon.

Give me.

That iPod. If the history of geekdom has taught Sam anything, it's that a product that's deeply loved by a small group of early users is a product that can scale. I agree. In fact, I believe it's more important to have 100 people who love your product than a million people who just like it. You got to have incredible talent at.

Every position. It's like.

This is a huge push. There are fires burning when you're going home. Can you believe it?

Such an idiot.

And then you go back to, This is.

Totally.

Going to be amazing. There are so many easy ways to do it. I have no idea what to do. Sorry, we made a mistake. But you have to time.

It right.

I'm working.

As a free bed for a partner.

Stuff that.

Just seems absolute nutball. 10 years later, we're like, Well, that's just how you do it. We haven't made.

It just how.

You do it.

This is Masters of Scale. We'll start the show in a moment, after a word from our premier brand partner, Capital One Business.

Within the first two days in Ukraine, we were handing out blankets and gloves and pet food and wheelchairs and suitcases. And we started conversations with Airbnb. Org.

That's Jocelyn White, CEO of Alight, a global humanitarian nonprofit organization formerly known as the American Refugee Committee. When they rebranded as Alight, they made a strategic shift from calling the people they serve refugees to customers. Why? Because they had an instinct that in this moment in human history, it could make a difference to reorient their teams away from the word refugee, which might carry a negative connotation to customer, which aligns with a commitment to provide outstanding service.

Our reference to the people we serve as customers really resonated with Airbnb. Org. They saw us as a partner that had values that were aligned to theirs. We were able to really immediately book them into 30 days of free temporary housing. When we can use the incredible platform that a tech company like Airbnb has created to serve refugees. Like, wow, it makes a huge difference.

But the Light's rebrand not only spoke to Airbnb's desire to serve customers and aid in a crisis, it fueled growth by empowering the people a Light was out to serve. We'll find out how later in the show. It's all part of the Refocused Playbook, a special series where Capital One Business highlights stories of business owners and leaders using one of Reed's theories of entrepreneurship. Today's Playbook insight, Ignite the Multiplier Effect.

I'm Reed Hoffman, Co-Founder of LinkedIn, Investor, Graylock, and your host. While I'm obviously a big believer in creating things that can scale- You make this whole show about it. I believe it's more important to have 100 people who love your product than a million people who just like it. This isn't always obvious. Many entrepreneurs fall into the trap of chasing the illusion of scale. The 1 million users who show up to use a flash-in-the-pan product. What you actually want to do is seek out the true seed of scale, which has much humbler origins. Many great scale stories begin with a teeny kernel of diehard fans, perhaps no more than 100 strong, who are almost zealous in their passion for your work. They hang on to every product release. They can't believe that they ever lived without you. Think of Sam when that sword arrived.

Because I was so excited. I just got this. I've been waiting for it for so long.

It sounds like that. When a user like Sam gets excited, that matters, not only because it drives use and loyalty, but because it will drive him to tell his friends.

Hey, do.

You hear about that new thing? And if he tells two friends and they each tell two friends and they tell two other friends, well, that story gets big pretty fast. I wanted to talk to Sam Altman about this because he has an uncanny eye for these colonels of passionate early users. Y Cominator has become known as a kingmaker in Silicon Valley. There are alumni include Airbnb, Dropbox, Stripe, Reddit, and more than 40 companies that are valued at a hundred million dollars or more after being incubated at Y Cominator, or YC, as we call it. But Sam doesn't look for Kings. He looks for startups that showed these early signs of love from their users. And how does he spot them? He pattern matches with history. Think about his private collection of engineering milestones. He has an insatiable appetite for these objects, and his collection is constantly expanding.

I like things that were super important technological milestones in human history, even if they look like not really technology. I have a big collection of hand axes. This is the longest serving by far, like a million and a half years piece of technology in.

Human history. Is there any particular artifact that you're hunting for?

I don't know how I'm going to get this one, but I would like an F1 engine, or at least I would like the bell of an F-1 or something. Yeah. Bezos got one by pulling it out of the ocean and convincing NASA to loan it to him. I mean, that's really a lot of work.

Is there another one or two? Because this is actually personally fun.

Oh, Alan Kay gave me an Alto.

Alan Kay created the first computer with the graphical.

Interface.

Called the Alto. It inspired the first Macintosh.

That's not the very last computer that I think is within my capability to understand everything that's happening in there, but it's getting near the end.

This collection is like a wetstone Sam uses to sharpen his instincts. When he's deciding which founder to admit to a Y Combinator class, he looks for a groundbreaking idea that has the potential to give users something they can't live without. If he doesn't see it, he passes. But to understand how Sam spots the indispensable startups, you have to know how he arrived at YC himself. He wasn't predestined to become the startup kingmaker. When he graduated from college, it could have gone either way.

I'm very ashamed to say that I had been planning to go be an intern at Goldman Sachs that summer.

Ashamed is a pretty strong word and a distinctly Silicon Valley reaction. After all, it's tougher to get a job at Goldman Sachs than it is to get into Harvard. Only about 3 % of applicants get hired. It would make his family proud and his friends envious. He could live comfortably ever after. Or he could take the far less comfortable path. One better suited to my cargo shirt-wearing, bronze-aged, sword-wielding friend. It'd begin with a little mobile app that Sam and his friends developed while studying at Stanford. It was called Looped, and it'll let you share your location with friends.

It started as just a project that we worked on after class. And at night, we had worked on it during a spring quarter, and it was really fun.

Fun isn't exactly a sound business plan. And what makes this idea even shake here is that it's 2005, two years before the first iPhone was even invented. The word App Store had not entered into our vocabulary. So the odds of making money with this mobile app were incredibly low. Remember, the odds of making money at Goldman Sachs are 100 %. The odds were stacked against Sam and his startup, and everyone could see it.

If you said you were working on a startup, people laughed at you in a not nice way.

But not everyone was laughing. A new community was just forming, one that was deadly serious about startups and fun. It was called Y Combinator, and it immediately called out to Sam. For its founders, its founder was the now legendary computer scientist and entrepreneur, Paul Graham.

We all knew who Paul Graham was. We had followed him online and he posted this thing saying like, Hey, not excited about your summer job? Come hack on your project and you can make a startup. That seemed like it would be more fun than being an investment banker.

Fun actually can make business sense if you love what you're doing and other people do too. Paul was determined to prove that young innovators with deep passions could find success if they were willing to take a gamble. But this was a controversial idea outside of Y Combinator. Paul Graham was considered a tide piper for young entrepreneurs, leading them down the road to ruin. He wrote an essay about this in 2007, which you can find on mastersofscale. Com. Traditionally, investors would fund companies in stages, Show me growth and I'll show you the money. Step by step, you had to show user growth, hypothesize how much they'd spend on your product, and lay out in painfully minute detail how much money you'll need and how much money you'll make. It's classic business one-on-one thinking, and it can be exasperating for a founder. I experienced myself when I was raising a Series A round for LinkedIn. Right around the time that Sam was a college student, I was looking for investors. At the time, potential Series A investors wanted to see a business model that showed how LinkedIn would get to profitability. I told potential investors that we weren't going to generate any revenue until after the next round of financing, and that therefore it shouldn't matter to them.

They insisted anyway. The team and I generated a financial model that included revenue sources. I don't even remember what we put in it. Rather than wasting weeks on it, we simply set aside a single evening, drank a couple of glasses of wine, and put together the model. I might have even been a little miffed at having to waste even that single evening, but it was pretty good wine, so it wasn't a total waste. Contrast that with an investor like Paul Graham. He says, Forget the spreadsheets. Quit speculating. Just start building on a shoestring budget and build something a teeny cohort of users will love. Love is all you need. Some of you might be rolling your eyes at this idea, Love is all you need. Oh, brother. I'd to share a story that might turns often your cynicism. It comes from Dominique Ansel, the famed New York chef who invented a pastry that became a global sensation. You may have heard of it. It's called the Cronut. It's part doughnut and part croisson. Ever since the Cronut became the hottest thing since sliced bread, people have been mistaking Dominique for a master of publicity, a PT Barnum of the baking world.

Our producers visited Dominique's Manhattan Bakery and asked how hes going to engineer these publicity coupes. Dominique's answer, he doesn't.

There was no marketing. There was a team of literally four employees and myself. And when people approached me and asked me what my marketing strategy was and what was my budget to launch a campaign like this, I'm like, You guys don't understand. It didn't happen this way. And we're a small bakery, a tiny bakery, a neighborhood bakery on the street of Soho. It happen naturally, organically.

Here's Dominique's memory of how the Cronuts scaled. Naturally, every day he bakes a fresh batch of croisson and studies them like a scientist.

I actually look at it every day. I cut it in half, and I look at what we call the honeycomb, which is the structure created by the fermentation of the dough. So all these little air pockets that are inside the fermentation, you have to smell it. It's a different type of fermentation. The crust, the volume, the flakiness, everything is so, so important, and it's alive.

This obsession with the fermentation, the flakiness, the technical details, reminds me of all the great product designers I know. Dominique was singular in his focus on getting his croisson right. Then one day, Dominique staff challenged him to make a doughnut instead.

I don't do donuts. I told them that I have no recipe for donuts since I'm French, but I definitely can come up with something new, something special.

One hundred taste tests later, the Cronet was born. A food blogger, Hugh Merwin, arrives, snaps a photo, and shared the invention with his fans on Grub Street. The massive response stunned even the blogger.

He called me the same afternoon, letting me know that he had an increase of traffic of 300 % on his website and over 140,000 link. He told me to be ready to be busy tomorrow. I had no idea what he was talking about. I was happy for him. I told him, I'm happy for you. I need to go to sleep.

Dominique and his staff were facing a situation I'm all too familiar with. It's the inevitable fallout on the morning after the overnight success.

And the next day, we had over 100 people outside. By the third day, we had over 150 people waiting outside. And it was just like overwhelming for everyone. And it was very sudden. And this doesn't happen, but it happened to us. It was just overwhelming for everyone. The staff all wanted to quit. It was too much.

The rest is pastry history. And if Dominique's staff initially wanted to quit, they soon learned to cultivate the unexpected outpouring of love. His staff treats the loyal customers lined up outside like invited guests, serving them hot chocolate before the bakery opened each day.

I think it's important for any chef to be in touch with the guests, the customers, to see them, to listen to them, to wish them happy holidays, and to thank them for keep on coming to our shop. I think it's important we have a lot of very loyal customers, a lot of people from the neighborhood. And at the end of the day, a bakery is a local business, is a neighborhood business, and it's not live without the people in the neighborhood. If you've.

Never waited in line to enter a popular New York store like Supreme, for example, you may not realize just how radical these small acts of kindness are. And I suspect it had no small impact on the Cronut's success. But if you think Dominique now sits around trying to concoct the next novelty goodie, think again.

I don't think there's a need or a desire for me to try to recreate something like the Cronut. I don't think I can. I don't think I want. I aim to create pastries that talk to people. And of course, I want them to be popular. Of course, I want them to be successful. Of course, I want people to appreciate it. But I'm not trying to be gimmicky or trying to do something that doesn't mean anything to me. I'm still trying to translate my ideas through pastries. You cannot force it. Even with all the money of the world, you cannot recreate the Cronut. Even if you can hire the biggest team, like the smartest people, you cannot recreate something like the Cronut.

You could apply the same argument to just about any globally successful product. All the money and all of the marketing savvy in the world cannot sustain its growth in the long run. You need more than your customer's attention. You need their unflagging devotion. And this poses an almost Zen-like riddle for entrepreneurs. The first step to scale is to renounce your desire to scale. Focus on those happy few. This is a concept that every artisanal maker of small batch goods grasps instinctively. Scale entrepreneurs? Not so much. But Paul Graham was determined to prove the same fundamental truths applied to entrepreneurs with global ambitions. And to prove his point, he offered a laughably small sum of seed money to those early Y Combinator entrepreneurs like Sam. Each one got $6,000 plus free dinners. That's it. Off you go. Sam was intrigued.

So we applied to YC and flew out and interviewed and got funded. We're actually the first company ever funded by YC. And then it just kept going.

So Sam entered the first class of entrepreneurs at Y Combinator. They were essentially the guinea pigs who were meant to validate Paul Graham's theory of scale. And Sam offered quite the validation. After graduating from YC, his company looped, struck deals with Sprint, Verizon, BlackBerry, and AT&T. With the advent of the iPhone, they were positioned for growth and became one of the first offerings in the iPhone App Store. Here's Sam, sharing the stage with Steve Jobs in 2008.

We are incredibly psyched about Loop on the iPhone. Location plus a contact list and information about cool places means you never have to eat lunch alone again or at a bad place. We think that's really cool. We really do. You can use Loop with your friends on most other carriers or devices.

In 2012, Loop was acquired by Green Dot Corporation for more than $43 million.

We got acquired and I was trying to figure out what I want to do next.

Sam was 26 years old.

I decided I was going to partly take a mid-career sabbatical, race cars, fly airplanes, travel the world, all that stuff.

When he wasn't on the racetrack or in the air, Sam tried his hand at the venture capital game. He had an eye for it, investing early in companies with real potential, but it just wasn't his idea of fun.

I liked running a company. I did not like being on the sidelines. I didn't get the adrenaline rush. I get out of being in the trenches of running a company, which I think is something that a lot of founders miss when they start investing.

Sam missed being in the trenches. He felt adrift. And Paul Graham, Sam's mentor, could see it.

I was thinking about things I wanted to do, and Paul Graham had jokingly said a number of times over the years that I'm going to retire and you should take over why I see it.

Turns out Paul Graham was only half-joking. In 2014, he asked Sam in all seriousness to take over Y Combinator. Sam accepted the offer and became president of Y Combinator at the age of 28. Despite his youth, he was the perfect fit. Yc isn't just an investment firm. It's an incubator for founders who want to reshape the future. Think of Y Combinator as an extension of his Bronze Age swords collection. Only this time, he's collecting the people who can make the swords that will change the world. So where does he begin? He begins with a simple mantra. He repeats it to every founder that comes through YC's doors. Love is better than like. We'll be back in a moment. Afterward from our premier brand partner, our Capital One business.

Hundreds of thousands of people were streaming across the border.

We're back with Jocelyn White of Alight. She's been telling us how their pivot to thinking about the refugees they serve as customers led to a partnership with Airbnb. Temporary housing was just the first step.

There's this period of disorientation where they say, I know that there are services out there, but I have no idea how to navigate towards them. We actually hired who themselves had just been displaced, and we trained them to serve in these guide roles.

That's right. They hired their customers.

They're able to make referrals for health care or for people's pets or for schools or for childcare was more than just booking in temporary housing. We need to really design solutions that meet a whole set of their needs.

By empowering their customers, Alight hope to ignite the multiplier effect, cultivating leaders and thus strengthening organizational capacity, which would help them scale, says Lauren Tresco of Capital One Business.

It's common for companies to tap their networks for growth.

But Alight want to step further by.

Expanding their network to not only their business partners.

But the people they serve.

Or customers as well.

But a light's pivot would go beyond hiring their customers. What would happen if a light in the people they serve could co-create their future? We'll find out later in the show. It's all part of Capital One business's Spotlight on Entrepreneurs, following Reed's Refocus playbook at all levels of scale.

Love is much better than like. Why this central mantra within YC and all of the startups that are coming through?

Well, I think there's a few different reasons for that. One is that it objectively seems to be true. If you look at the companies that have gone on to become super important and valuable and shape the world in a big way, they tend to have fairly fanatical early users. If you think about how you first came across Facebook or Google, it's very likely because a friend told you how great it was.

It is indeed objectively true that these hit products spread by word of mouth. On the other hand, I can point to a whole graveyard of startups that started out with passionate users, and then the passion faded. The startup withered away and died of loneliness. It's heartbreaking. So passion is a great indicator of success, but it leads to a vital question that every founder must ask a user. How deep is your love? Sam has a clever way to plumb the depths of their to infection. When the first iPhone came to market, everyone has a gog at its new features: a touchscreen, apps, music on your phone. And don't forget about me. But Sam wasn't just studying the iPhone's features. He was studying its users intently. Recently.

So one of the things that was obvious when people got iPhones, even though there are only a few million of the first iPhone that sold them, is people that had them use them every day and loved them, and it became their most precious item. I remember shortly after the iPhone came out, I was in.

A.

Developing world country that was really quite poor, and people had nothing except they all had a smartphone. And once they had one, you read these statistics and when people need to do some lightweight journalism about like, Would you rather give up your smartphone or X? And it doesn't really matter what X is, they're going to keep the smartphone. And so I think you could have predicted with a lot of certainty, many people did, that this was going to be a large market.

This is a rather extreme case of attachment to a product. The odds you'll create a product that is so addictive your fans would give up all their other worldly possessions for it are pretty much slim than none. But the extremity of that thought experiment is clarifying. You want to make your product as indispensable as humanly possible. That's your primary objective. Before you show up your business plan or plan your PR campaign or any other steps along the road to world domination, your first step must be make yourself indispensable. But the truth is, you're unlikely to build a product that makes a user say, I'd give up my left arm for this. So short of that ideal, Sam sets a more modest objective for founders. Focus on love, not likes. Sam can't stress this enough.

That's really important because startups, once they get big enough, can only grow by word of mouth. All the growth hacking eventually stops working. If you're going to keep growing exponentially at some point, it is probably going to be because people tell you, You got to use this product with me, or, You got to try this. It's so great.

You've got to try this. There's a hidden power to that simple phrase, which Y Combinator has elevated to an almost mythic status. It's like open sesame. Open sesame. Once invoked, Y Combinator graduates react as if a wall had opened before their eyes and a secret pathway to scale is laid at their feet. They know if they keep hearing the words, You've got to try this, it will propel them to the far off future, the years that their valuation is based on.

That seems to be really important because these startups, so much of the value is in the far out years. In those years, it depends on continuing to grow at these fantastic rates.

By fantastic rates, he means exponential rates, the viral growth that can only occur when that first cohort of users says, You've got to try this to two friends each, and they say, You've got to try this to two friends, and so on and so on. This can scale to millions of users in a matter of months. But make no mistake, it's exceedingly difficult to kick off this chain reaction unless you're willing to hone in on a teeny cohort of users. You should almost have a willful blindness to growth and a monomaniacal focus on making just a few people happy.

You win people.

Over one.

Person at a time.

That's Aubrey Pagano, co-founder and CEO of Bow & Drape, a fashion line that lets customers personalize the design and fit of any piece of clothing. And she had to fight for that early cult following.

It's hand-to-hand combat, especially when you're under-resourced.

Even when you are well-resourced, actually, it doesn't matter. There's no cutting quarters around that. You can't throw enough money at that problem. You can't.

Tick.

People.

Into loving your brand.

You just have to.

Win that over.

That's how we grew the brand. We grew the brand through.

Word of mouth.

We didn't even start marketing until last year. Mind you, they've been in business for five years, and by their third year, Bow & Drape had grown revenue by over 300 % from their first. It was all word of mouth. I really do think that that is.

Such an.

Important.

Part to.

Early success. And if your users really can't stop raving about your product, you can defer marketing indefinitely, even if that product is underwear. No matter what kind you wear, no matter what gender you are, I'm going to bet you've heard of them. Spanks has been the name in undergarments since it's launched in 2000. Sarah Blakely, the founding CO, has come a long way since she was shipping packages from her home in Atlanta. One thing she never updated: her marketing plan.

I ran Spanks out of my apartment for two and a half years with a handful of people before we moved out of my apartment. It's been like that. I had $5,000 and I've been self-funded from the start, so I didn't ever raise a bunch of money. I didn't even know how to do that or that that was even really an option. Spanks has never advertised until this year and we're 16 years old. This has been a word of mouth brand.

Sarah didn't spread the word about Spanks on her own. She recruited an all-volunteer, Salesforce. She found a way to enlist department store clerks to her cause by setting up booths in quiet store corners. Sarah's enthusiasm was infectious, not just to shoppers, but to anyone within earshot.

So for the next two years, I stood in department stores for literally eight hours a day. And in the entrance of Neiman's or where cosmetics were, where there was so much more foot traffic, I set up a little table and I had my own display table and I brought my own television with a VCR in it and put the Oprah tape in there and some other news clips that had happened to me. And I was like a one woman show. What I was doing is I was creating this very loyal Salesforce that wasn't on my payroll because I would win over all of the associates at every Neiman Sachs Nordstrom that sold the product. By being there and explaining it and giving away free product to them, I would do morning rallies for the store before the store opened.

So Sarah targeted users who would bring in more users. She honed in on heavy hitters, people who already had the platform to do her marketing for her. The power of word of mouth is multiplied exponentially if you can recruit anyone that comes with a megaphone, whether it's a salesperson at a department store or Oprah Winfrey. But what comes next? After you've gathered new users around, how do you know they'll stick around? At a certain point, as you're zipping up a growth curve, you may think these users are here to stay. Retention is strong, growth is ticking upward, and the only thing standing between you and global domination is a slick sales and marketing campaign. You'll try to hack your way to growth through targeted ad campaigns and promotional offers, and you'll have all the appearances of growth. But Sam has a warning for you. Scaling falls into two categories: the easy kind and the hard kind. You may not know you're doing the hard scaling until it's too late.

The hard blitz scaling is where you try to start scaling up before the product is really great, and then most of your effort in scaling is to generate demand. I think the number one most important insight about how to blitz scale is that the good split scaling is when you are not having to generate demand as you go, but that you first got the product right.

The easy scaling is when you first got the product right, when you've created something users love and instinctively want to share. This scaling happens organically as users bring in other users. The hard scaling is when you only got the product half right. When you've created something users like and which they'll use, but not something so good they'll stick with it, and certainly not so good that they think to share it.

That's something we see again and again. People don't stick with products that they don't love. And so it is easy to get a lot of people to try something with a clever growth hack. The value of those users is often very low. They use it for a little while. You engage them with some trick, and they don't stick around. And that is not how you build these enduring, valuable companies. You need things that people want to come back to and use a lot. I think it's much easier to figure that out early when you can still make a lot of changes to the product. Everyone's like, Well, I'm just going to get a lot of people to like me, and then I'll figure out how to make them love it later. In practice, that's really rare. I would challenge you to think of an example.

Challenge accepted. I actually founded one of these companies, LinkedIn. One rather striking exception to Sam's rule. We had a passionate set of early users, but these were not the users that helped us get to scale. We were grateful. We appreciated their support. But what they ultimately wanted from us was something that no one could deliver. I explain this to Sam in our interview, and so LinkedIn, for example, is one because of our early users who loved us called Open Networkers, they actually went by a term. They put it in their headline called Lions, LinkedIn Open Networkers. They loved us because they wanted us to be something different than what we were. They wanted a whole world to say everyone should be able to connect to Bill Gates and have him connect back. And it's unrealistic about Bill's time and commitments and things he needs to be doing. And so we are not an open network. And it took us to get to scale when other people started loving us, the people that we were targeting. Because the thing I completely agree with is say, well, if you don't have millions of people loving you, you don't have a fundamental company.

But the question is the initial people we had loving us at LinkedIn were not the people that we wanted to love us when we were hundreds of millions.

So we've seen a version of this pattern a bunch of times, which is if you have a network-effect consumer business, you have this cold start problem.

Exactly. If scaling your product is ultimately dependent on having a large group of users, then you have a chicken and egg dilemma. The truly magical features we envisioned simply couldn't come to fruition until we had a dense network of users. We wanted to create such a vast reservoir of talent that a recruiter could say, I'm looking for an accountant based in Biloxi, Mississippi, who has a humanity degree, plus 10 years of work experience and the capabilities to lead team building events. I wouldn't be surprised if you could find that dream candidate in just one click. But it took years of clever hacks and grunt work to enable that high definition head hunting. Those valuable users just weren't going to love us straight out of the gate. So how do you get there? You work in batches, adding one narrow group of users at a time. Sam explains.

You've got to find someone or some set of people that are going to use you a lot in the early days, and that may be a small, narrow, but deep wedge, and then you expand it later. And this is fine. We see this all the time with companies where they start with some group of users that is not a particularly lucrative market, maybe not the long-term users they want, but people, for whatever reason, can use the product a lot and get a lot of value out of it and use that as a bootstrap to create value for everybody else.

Another example is Facebook. When Facebook first launched, it was only the students of a few colleges. It slowly expanded from Harvard to Columbia to Stanford and beyond. But the ultimate way to scale was to go far beyond college students, Sam explains.

In fact, Facebook, it turns out that their most profitable market is not students at the 10 most elite colleges. But those are people with a lot of time on their friends. They really cared about their social lives. They all had internet access in a time when not everybody at that age did. It turned out to be a really good primer.

That's right. Sometimes you can't get to the millions of people who love you until you're actually at a critical mass. Just like Facebook, LinkedIn had to find its initial users from somewhere. The next generation of truly lovable ideas will look nothing like the previous generation. If you take a backward glance at Y Combinator's most stellar graduates, Airbnb, Dropbox, Stripe, you'll think they've mastered the app economy. The assumption is that Y Combinator should stick to what they know. Sam begs to differ.

Yc was mostly funding software companies, but I had a lot of conviction that we could apply the same thing that made YC work so well for software companies to companies in a lot of the areas that I cared about: AI, esthetic biology, energy.

This may sound like a radical leap outside of Sam's area of expertise. After all, you can't build a supersonic jet on a shoestring budget. You can't ask a user to hop into an experimental self-driving car and hope they come back in one piece to give you their feedback. When you think about the differences between apps and what is often called hard tech, you might be tempted to ask Sam, What on Earth are you doing? In fact, Sam hears this a lot.

But at the time, it was like, This is a really dumb thing. One of the things that is funny is a side note and just as a note to anyone that tries to do anything where you take a company in a different direction or scale it is that it is always funny to read the articles from the same journalists that when you say you're going to do this thing, say, Sam is crazy, completely unqualified. This is not going to work. Yc is going to die. Going after hard tech, that means he's so stupid.

But to Sam, this leap into the unknown is completely consistent with Y Combinator's mantra: focus on love, not likes. To him, if a company is inventing something unheard of, you can ensure users will love it right from the proof of concept. Who wouldn't love the invention of a supersonic jet or a self-driving car to battle through rush hour while you flip through a magazine, or fusion energy plants that simultaneously make energy cheap and solve climate change.

One company that you and I were talking about recently is this company called Boom. They're making a supersonic airplane, and they really have lit up people's imagination and people really want it. People really love the idea of going to Japan in a few hours instead of 10 hours from San Francisco.

Boom Technology, the supersonic jet company, graduated from Y Combinator in 2016. One year later, they raised $51 million in venture capital. Here's the magic of tackling the seemingly insoluble engineering problems. People fall in love with your idea alone. Take, for instance, Boom.

It is harder, for sure, to make a Mach 2.2 airplane than a Mach 0.95 airplane, but it is easier in the sense that people care. People want to be part of it. People are excited, people pay attention. The CEOs of large airlines decide to come visit you. That's the way we see it again and again.

That so-called hard tech, Sam says it's easy.

This is why I tell people in many ways, it is easier to start a hard company than an easy company.

Ironically, it may be harder to start an easy company and easier to start a hard company. They're just so lovable. Now, Sam notes with raw amusement that in a span of 14 months, press coverage flipped from scornful to glowing.

This is great. Sam is a genius. He was predestined he was going to take over YC. It's ridiculous that YC is doing any software companies at all. I think you just have to ignore all of that and just say, I have a high level of conviction. We're going to try this thing. And most people will tell you it's not going to work if it's something new. Most people are afraid of things that are new. And you just do it. It's probably not that risky, probably won't kill the company and probably undervalued if everyone else says it's stupid. So we were able to do that. And the first thing was expand YC into all these different directions. I think the greatest companies are created on the bleeding edge of what people are working on.

When you think about it, this brings Sam one step closer to expanding his collection of engineering milestones. It's only at the bleeding edge of innovation you can discover a product that makes you say, because I was so excited.

I just got this. I've been waiting for it for so long.

I'm Reed Hoffman. Thank you for listening. Now, a final word from our premier brand partner, Capital One Business.

When we asked to displace people. What is it that you want or need? The first thing that they tell us is that they really want to be working.

We're back one more time with Jocelyn Wyatt of a Light. She was telling us how they hired refugees, now known as customers, to guide others through the maze of services available to them. But could Alight take that one step further and help their customers co-create their future?

Co-creation has really been at the heart of what we've been doing at Alight for about the last 12 years. That has been really meaningful in terms of people feeling like they can rebuild a life in a much more permanent way. We're scaling by bringing in additional funding to help people start new businesses or get jobs or find ways to make money and support their families.

By taking a distributed leadership, bottom-up approach, Light is creating a new model for refugee response, says Lauren Tresco of Capital One Business.

A light is changing the process of humanitarian aid by engaging the.

People they serve.

Through co-creation. This, in turn, empowers them to have an active role in designing their future.

Today, Alight's refocus is making an impact beyond borders, and their work has never been more timely. As war, famine, and climate change displace more people around the world. Capital One business is proud to support entrepreneurs and leaders working to scale their impact from Fortune 500 to first time business owners. For more resources to help drive your business forward, visit at capitalone. Com/businesshub. Again, that's capitalone. Com/businesshub. As with every ad on Masters of Scale, the entrepreneurs you just heard from were real and unscripted. Because Capital One is a financial institution, it's important to them to be transparent about their relationship with the entrepreneurs we interview. Some of these entrepreneurs are Capital One customers, and some are. Capital One did compensate all of them for participating in this campaign.

Masters of Scale is a Wait What original. Our executive producers are June, Cohen and Darren Triff. Our producers are Dan Kedmy, Chris McLeod, Natalie Chang, Jenny Cataldough, and Ben Manila. Our supervising producer is Jay Punjabi. Original music and sound design is by the Holiday Brothers, mixing and mastering by Bryan Pew. Special thanks to Chris Yee, Elisa Schreiber, David Sanford, Saeeda Sepieva, and Stephanie Kent. Visit mastersofscale. Com to find the transcript for this episode. Chatgpt.

I produce a podcast called Masters of Scale, and I'm looking for a way to get listeners to leave us a five-star review on Apple Podcasts. Do you have any suggestions?

Absolutely.

One effective way is to engage with your listeners directly during.

Your episodes. Remind them how.

Much a five-star review can support your show.

What about to try to convince listeners to share one of their favorite episodes with somebody in their life? Do you have any suggestions for that?

Certainly.

People love to share.

Content that has made an.

Impact on them. So remind your listeners how sharing an episode.

Can start.

Meaningful.

Conversations.

With.

Friends or help others discover insights they've.

Benefited from.

Would it be okay if I use maybe our conversation as a segment on the show?

That sounds like a.

Creative approach. Using a meta conversation about engaging.

Your audience as a segment.

Could be quite engaging.

This is Executive Producer, Chris McLeod, and I urge you to take ChatGPT's advice and leave us a review on Apple podcasts and share an episode with a friend. It really, really helps.