"The Aha! Moments That Made Paul Graham's Y Combinator Possible"
Paul Graham
From Fast Company:
When it comes to funding startups, Y
Combinator is an incubation machine. And behind it all are founder Paul
Graham's unique insights about what constitutes true innovation.
In the summer of 1995, Paul Graham heard a story on the
radio promoting the endless possibilities of online commerce, which at
the time hardly existed. The promotion came from Netscape, which was
trying to drum up interest in its business on the eve of its IPO. The
story sounded so promising, yet so vague. At the time, Graham was at a
bit of a crossroads. After graduating from Harvard with a PhD in
computer science, he had fallen into a pattern: he would find some
part-time consulting job in the software business; then, with enough
money saved, he would quit the job and devote his time to his real
love--art and painting--until the money ran out, and then he would
scramble for another job. Now 30 years old, he was getting tired of the
pattern, and he hated consulting. The prospect of making a lot of money
quickly by developing something for the Internet suddenly seemed very
appealing.
He called up his old programming partner from Harvard, Robert Morris,
and interested him in the idea of collaborating on their own startup,
even though Graham had no clue where they would start or what they would
develop; eventually, they decided they would try to write software that
would enable a business to generate an online store. Once they were
clear about the concept, they had to confront a very large obstacle in
their way. In those days, for a program to be popular enough it would
have to be written for Windows. As consummate hackers, they loathed
everything about Windows and had never bothered to learn how to develop
applications for it. They preferred to write in Lisp and have the
program run on Unix, the open-source operating system.
They decided to postpone the inevitable and wrote the program for
Unix anyway. To translate this later into Windows would be easy, but as
they contemplated doing this, they realized the terrible consequences it
would lead to--once the program was launched in Windows, they would
have to deal with users and perfect the program based on their feedback.
This would mean they would be forced to think and program in Windows
for months, perhaps years. This was too awful a prospect, and they
seriously considered giving up.
One morning Graham woke up with the idea that they might be able to
control the software on the server by clicking on links. He suddenly sat
bolt upright, as he realized what these words could mean--the
possibility of creating a program to set up an online store that would
run on the web server itself. People would download and use it through
Netscape, clicking various links on the web page to set it up. This
would mean he and Morris would bypass the usual route of writing a
program that users would download to their desktop. It would cut out the
need ever to have to dabble in Windows. There was nothing out there
like this, and yet it seemed like such an obvious solution. In a state
of excitement he explained his epiphany to Morris, and they agreed to
give it a try. Within a few days they finished the first version, and it
functioned beautifully. Clearly, the concept of a web application would
work.
Over the next few weeks they refined the software, and found their
own angel investor who put up an initial $10,000 for a 10 percent share
in the business. In the beginning, it was quite hard to interest
merchants in the concept. Their application server provider was the very
first Internet-run program for starting a business, at the very
frontier of online commerce. Slowly, however, it began to take off.
As it panned out, the novelty of their idea, which Graham and Morris
had come upon largely because of their distaste for Windows, proved to
have all kinds of unforeseen advantages. Working directly on the
Internet, they could generate a continuous stream of new releases of the
software and test them right away. They could interact directly with
consumers, getting instant feedback on their program and improving it in
days rather than the months it could take with desktop software. With
no experience running a business, they did not think to hire salespeople
to do the pitching; instead, they made the phone calls to potential
clients themselves. But as they were the de facto salespeople, they were
also the first to hear complaints or suggestions from consumers, and
this gave them a real feel for the program’s weaknesses and how to
improve it. Because it was so unique and came out of left field, they
had no competitors to worry about; nobody could steal the idea because
they were the only ones who were insane enough to attempt it.
Naturally, they made several mistakes along the way, but the idea was too strong to fail (though Graham notes the company came close several times anyway); and in 1998 they sold their company, named Viaweb, to Yahoo! for $50 million....MORE
