Seems like a lot of people are missing the point of this one.
PG/YC invest at the earliest stages. The information they need is pretty much:
1. What are you doing?
2. Do people like it?
3. How big is the market?
4. What are you/team like?
Could you cover all of those in a formal business plan? Sure, but you can also do so in a short-form application that's 1/20 the length or in a 10-minute back-and-forth conversation.
You don't have to ever view formal documents or financials to do that.
That is PG's broader point, and isn't really that controversial IMO.
If you have so much anxiety you can’t pitch your idea and tell someone who you are you aren’t gonna make it as a founder unless you have a cofounder who can carry you.
Repeated exposure to uncomfortable situations is a great way to reduce that anxiety. Even if students get a few bad grades in the process it benefits them in the long run.
Yes, but the students have had preparation time: the teaching and revision prior to the oral examination. They should be able to answer questions, even if the answers aren't as 'clean' as they might be if the questions had been shown to them beforehand.
Exactly this. My understanding of Paul's philosophy is that sometimes a person or group has the right idea and all the gumption to do it, but might not be at that stage yet.
I used to work with a guy who was so hung up on business plans he always wrote me off when I scoffed at his obviously made-up numbers. "Kevin, you're just not going to be making a million dollars by the end of your first fiscal year." and he would arrogantly reply "Of course not, but you need the goal!" This is when one needs to understand the difference between "goal" and "dream" because his so-called business plans didn't support those numbers.
Paul has mentioned before that sometimes an idea is early and so there is no real competition to speak of, and very few metrics by which to measure the value. Just a hunch that this will take off to unknown lofty heights and therefore might be worth investing in.
There’s a difference between business plan and Business Plan, so to speak - a formalized document with a pretty standardized format you used to have if you, for example, wanted to get a loan from a bank.
It’s mostly gone away, but there used to be endless arguments about whether a startup should have a formalized written business plan https://en.m.wikipedia.org/wiki/Business_plan. Business schools taught all the MBAs to write them, and everyone used to argue about whether a startup ought to have them.
Today I’m not aware of any VC or investor that requires/wants a Business Plan, almost everyone has settled on a standard pitch deck if anything (though one-page ‘memos’ are becoming a thing, and some investors even eschew those). A few business schools somehow still tell you to create a business plan if you want to raise VC. I invest in ~100 startups/yr and will see a handful of Business Plans sent to me, but not many. I don’t read any.
YC Continuity today would likely look at a deck and definitely ask questions, but still wouldn’t require a Business Plan.
One of the things PG reiterates is that at the early stage what the startup is doing changes rapidly. Many companies that end up being very successful have a product that looks quite different from what they set out to achieve. In such a setup, half-life of a business plan may be measured in weeks and its rigorous analysis may be a wasted time.
Instead, I believe YC is trying to focus on finding good teams under the assumption that a strong team that can execute well has a higher chance of success than a worse team with a better starting plan. If anything, the business plan's value is to indicate that the founding team can think logically and realistically map products to market. Once the investment reaches 100M (YC Continuity's stated higher end), they probably focus more on the marked and business plans. Just my 2c.
Interesting to contrast this with PG's most recent essay "Putting Ideas into Words" where he argues that people who don't write don't have fully formed ideas. What else is a business plan besides a thoughtful writeup? I think it would give me a good idea into how a person thinks.
Of course these things aren't opposites. Writing a business plan can be incredibly valuable to the author but forcing themselves to really think though their words and formalize the ideas that are floating around in their head. That doesn't mean that it is valuable to investors or anyone else.
I think if there seems to be a contradiction between the tweet and the essay it’s only a sort of psuedo-contradiction.
The point of the essay (as I understand it) is that writing about something (as for example in a business plan) helps the writer understand the topic. The tweet says that pg is not interested in descriptions written by someone else. That writing a business plan can be edifying for the startup founder and at the same time of no interest to an investor, is consistent with both the essay and tweet.
I know several entrepreneurs who could have saved themselves years of work and millions of dollars by just trying to fill out a business model canvas before starting their business. PG isn't saying that my above statement is false.
He is saying that it isn't useful for him when deciding who to invest in.
Writing a business plan saved me from wasting precious years chasing a dog idea.
I once had a meeting with an investor years ago. I had a dream of starting an internet cafe back when broadband was hard to come by. So I spent a couple weeks writing a business plan to show him. In the process I came to realize the idea was a dog. At least, it didn’t align with my interests once I ran the numbers, and realized that charging by the hour to use a medium to high end gaming machine could never scale. You can’t easily over subscribe which meant you had a real limit on the ROI you could get from the machines. Which meant that all the profit was in selling consumables. That’s when I realized I had very little interest in running a profitable eatery, I just wanted to work with the computers.
It's the opposite. Here's one of the tech influential thinkers literally opening his mind. But, no, we have to hate him and cancel him and pitchfork him.
What I mean by cognitive dissonance is “I have never read a business plan”, followed by “I wrote something I called a business plan, but is it really a business plan? I don’t know what a business plan is”, to “what I meant by business plan is 20 pages of fluff”. The rhetoric is so incohesive that one could not possibly engage in constructive dialogue. We’re wasting our brain cells here.
Words have meaning, and pg has done a poor job articulating himself in this instance, if his goal is to be understood. Since pg is a social media personality and his business ventures stand to benefit from his social media audience, reasonable people may speculate that his goal is NOT to be understood, but rather to drive engagement, and to that end he has been successful here. But it’s not actual thought leadership, it’s purely marketing.
The hate/cancel/pitchfork sentiment expressed by some replies, could be seen then as an intended consequence of pg’s remarks - the outrage-driven engagement cycle is a well known dynamic in social media. And the defenders like you are the other side of the same coin. It’s amazing and somewhat sad, but not surprising, seeing smart people get worked up over this.
Every time PG tweets, he can't give the entire context for everyone's benefits.
You either get PG, Naval, Sam Harris, Jordan Peterson, Tim Ferris, Musk, Bezos ... and understand where they are coming from and extract pearls of wisdom to enrich your life or you can bitch/whine/moan about semantics, sensitivity, political correctness.
Oh and I absolutely don't think PG needs to manufacture outrage. He has been a first principle thinker since 1990s and that means he will say things that go against the cargo pants culture.
People really struggle to recognize context. I assume most people who are getting so upset about pg’s tweet are reading it as “business plans are stupid. Balance sheets are stupid. No company should ever make one because no one should ever read it. Anyone who reads one is stupid.”
It should be implied that his advice is only relevant the type of investing which pg does.
pg tweeted later on that his solution is something he does in YC interviews. So his comments are obviously scoped to companies which would apply to YC.
I founded a company without a business plan. Raised money without a business plan. Ran the business profitably for a long time and then sold the majority of it without a business plan.
I don’t see the value in a formal business plan at all and so I would almost agree with your made up quote there.
I mean obviously you need to have a plan for your business. But writing it down in some formal way seems like a waste of time.
Perhaps there is value in writing one in order to coalesce your own thoughts if you are that way inclined, but it’s certainly not going to convince anybody of anything that wouldn’t be convinced by the conversation you would have instead.
Ok, you don’t need a business plan. But no balance sheet? You can’t file your taxes without a balance sheet. How can you run anything larger than a mom-and-pop business without ever seeing a balance sheet?
He's not saying you don't need a balance sheet. He's saying looking at one for an early stage startup as an outsider doesn't help him make a decision.
I suspect if you asked him he would tell you that particularly as the startup grows the startup should be across the financials, just that it doesn't help an outsider with no context as to why you're in the red.
But this is not what he said. If he said that, it would have been reasonable. Instead he claims to have never read a balance sheet, which doesn't seem likely, and even if it was true, it would not be very smart. Why avoid them until you read them and formed your own opinion?
Saying "I don't read those documents anymore" would have made sense too.
> Instead he claims to have never read a balance sheet,
It's pretty clear from the context that he means that he has never read the balance sheet of a company applying for VC funding as the information there is irrelevant at that time.
It's highly unlikely, as the founder of several businesses, and long term investor in others, that he could have never read any balance sheet ever.
This is not how I understand it. From the twitter thread:
>> Have you ever written one though?
> PG: I'm not sure. I wrote something for Viaweb that I called a business plan, but never having seen one, I didn't and still don't know if it contains what business plans are supposed to contain.
It doesn't matter though. The title is clickbait at best.
> It's highly unlikely, as the founder of several businesses, and long term investor in others, that he could have never read any balance sheet ever.
I found the process of writing a business plan to be a useful one. It’s really just a list of questions to ask yourself - who are the customers? What is the product? How will you sell it? etc.
The plan itself was short enough that I could share it with a fee people for advice but I never showed it to any of my investors, other than perhaps as a way to give a pre-canned snippet of information on a specific thing.
The process itself took about a day and a half, mostly spent getting specific answers. The knowledge gained helped a lot while pitching.
I've found the process of writing a business plan to be a complete waste of time. I've also found the organizations and investors who require a business plan to be a complete waste of time. Specifically, I'm referring to early stage, high-growth (potential) businesses. The short-term questions that a business plan answers are basic and a lot of fluffy writing goes into stating simple answers. The bigger-picture statements are really just short-form fiction.
Plans are not for reading but for writing. When you write stuff down you think about it = you plan. For others it should be enough that they know you made a plan. Unless they think they can deduce if it's a good one by reading it.
Not sure how many employees you had, but I'd say anywhere more than three or four it really helps to write something down so that you all can be sure you agree on it. Or I guess even if you don't agree on it, you know what it is.
Your last paragraph sounds the most correct to me. It's a drafting exercise that helps a person get a deeper understanding of the value added, the marketing of, the selling of, the delivering of and the financing of said value add. It's necessary for a business like a mind mapping diagram is necessary for an essay.
there are some sources of funding you need business plans to get, generally government ones need business plans, as to whether those sources are worth pursuing is of course up to the individual.
He might have meant to scope them but he has a few bugs in his code^H^H^H^Htweet that mean it's completely unscoped.
But yes I agree, he's talking early-stage startups. At that stage balance sheets seem like they would be obvious.
If I had one and you looked at it. It would tell you that I'm draining my personal savings and should probably go and take a job at a FAANG and stop trying to build a startup.
And both of them can be as ambiguous as anything. If anything, its impossible to predict who or what can become successful. Look at the historic interview of zuckerberg and his competitor: https://www.youtube.com/watch?v=cUNX3azkZyk
Competitor seems more outspoken, got more airtime, had already monetized yada yada but here we are.
Am I missing something? What's the point of the tweet other than to elicit a reaction? And then in the replies: 'I CAN'T BELIEVE I ELICITED A REACTION!.
Because it's Paul Graham, who's a very rich and wise venture capitalist, over whose musings people who also want to be very rich and wise venture capitalists someday, must fawn and nod their heads and agree with, as if he has said something very profound.
Is this tweet wise and profound? Obviously not. Is there a kernel of useful information buried in there? Barely. As you said, is the purpose really just to elicit a reaction? Obviously, yes.
These kinds of remarks remind me of people who used to brag about getting good grades despite not doing the reading or homework, as if that's a virtue.
They're not harmless, because plenty of people will take away from this the idea that you don't need to do research on things, in general. Because Paul Graham is very rich and wise and he said so.
It's dumb fortune cookie wisdom, like so many of his wise and profound edgy, contrarian viewpoints.
Actually small business advisors insist that founders do need a detailed business plan. But it's both necessary for founders, people giving advise and everyone involved that it depends on the kind of business. I used to think business plans are old school and overly formal. But it's good to know the correct reason.
I have mentored for SCORE which is small business advising and is pretty old school, but they no longer push for business plans unless the client is looking for
a bank loan.
Instead, the choice of a lean business plan (business model canvas) is also offered or at least talked through. Someone has an idea but isn't sure what to do next. Well a business plan can just be the very essentials (who do you plan to serve and how... what are you planning on actually doing and can you afford to do that)
I read them to see how people think. You can learn most of the same by talking to them. He didn’t say he doesn’t read the P/L, i.e. budget.
Plus he has other ppl to read the balance sheets.
I did a $20MM A round with $BIG_FIRM after associate asked for business plan and parter said “they sent it to us already” meaning just the Excel model. Which was a relief since I never write a BP suitable for public consumption, only internal use. But the excel model included all our assumptions for headcount, cap ex, op ex, regulatory and revenue so really what use was a narrative?
YC funds software companies disrupting large markets. Software has high margins. Large markets are easy to intuit. Therefore business plans aren’t as necessary as opposed to other types of investors eg private equity.
Tbf, the idea that all they really needed was a faster Internet connection and a secure server because clients "may believe" that's a useful thing for credit card transactions does fit the don't judge a founder by his planning philosophy
"Spending some money on advertising might also be a good idea"
Secure server software ($5000). This does not seem to be an absolute necessity; there are a lot of sites on the web where you can send your credit card number unencrypted, and to date there have been no reports of the numbers being stolen. But catalog companies may believe that a secure link is necessary, and spending this $5000 would give Webgen a much more professional look.
My understanding is Y Combinator was always about people, on both sides, it’s also far more than just PG. if you haven’t read it, read this that Paul wrote about Jessica Livingston, it’s a brilliant insight into how they invest and how important the people around PG are at informing their investment decisions:
The point is he doesn’t make investment decisions based on a traditional business plan or balance sheets. That’s all he is really saying in his tweet, for a popper insight read that post.
For someone known for his essays trying to convey meany from a 10 word tweet is never going to happen.
This is probably meant to be, partially, in comparison to Warren Buffet, who famously claims to invest based on reading of financial statements (and other documents) in search of “good businesses.” https://www.amazon.com/Warren-Buffett-Interpretation-Financi...
Suspect that both Buffet and Paul’s real methods rely heavily on instinct, context, relationship networks, combination potentials, personality and pattern matching which can’t be fully documented or quantified or imparted.
I remember having a conversation with my brother once about a protein powder being recommended by some bodybuilder or another. His response: “Yes, he says that he looks that way because of this powder, but what does he actually do?” Answer: Steroids.
Suspect the same is true of many great success stories in business.
Or all sorts of things you cannot publicly admit to without undermining your reputation.
For example, say that you have a resume packed with awards. The secret to getting nominations for awards and scholarships is usually to write it yourself and send it to a friend/teacher/colleague for signature, not waiting around hoping that someone deems you worthy.
As most wait for someone to deem them worthy, many awards are less competitive than they appear to be.
But you could never admit to this, as it would devalue you in the eyes of others.
Warren Buffet is not investing in startups. There is a big difference between an established business and a startup, insofar that established business has already demonstrated its potential. In startup potential is unknown, yet it's all that it has to offer
they fundamentally do different things. VC investors make money when a company goes public or is sold off, it's effectively a Keynesian beauty contest. Buffett tries to find companies that are long term viable.
Warren's conversations are also short though. The difference is he invests in mature companies. He studies their books, then asks the CEO a few questions. If he likes the answers he invests.
It's rather different from investing in a startup. Plus all of YC's startups presumably receive some boost from exposure on HN and reddit.
That board oversight in silicon valley is largely a joke is no surprise, particularly because it is a joke everywhere else too. Still if this isn't just an inflammatory statement, which it probably is, it's showing how negligent you can be for very long if only you talk a good talk.
I agree he makes his point sharply, but I suspect he's probably asked weekly where he got his MBA, so mentioning that he can't even read a balance sheet is a fun way to show that boards aren't always a bunch of soulless accountants with MBAs; that in the case of YC, those aren't the critical skills; but instead being able to quickly assess an idea and the people around it is what matters.
That’s why there are multiple people on a company board, but it’s also telling how narrative-driven rather than economics-driven the startup world is. It doesn’t matter if a company is hemorrhaging money as long as it fits in a good storyline.
That’s a worse confession. I’m sure PG can read an income statement just fine and likely used his to sell ViaWeb.
Looking at things like Uber, though, they’re coming up with ways of making these basic reports harder to read critically. It reminds me of the pre-SEC financials covered in “Security Analysis” by Benjamin Graham. Companies claimed all sorts of things, especially treating one-time events as operating revenue, and toed the line of fraud.
To be fair, I once heard Richard Branson on the radio telling a story that he was pretty far along in building his empire when he had to be taught the difference between gross revenue and operating profit. I found it hard to believe but there’s other interesting facts out there, like David Boies is dyslexic and prefers not to read.
It’s not really a confession because it takes very little effort or knowledge to read either, and he is obviously a smart and hard working person. Any MBA student can read these; obviously Sam could too.
What he is saying is that he doesn’t read them (i.e. chooses not to), and the implication is that he does not need to.
Can’t read what he says as I was blocked years ago. I had expressed the mildest degree of cynicism one can possibly express in response to a straight up lie.
I just logged in since ages to my twitter account and replied: “Wow you are trendy and cool Paul! Thank you for sharing…” [1]
I hope its not too much covered cynicism for him.. This is exactly the kind of stuff that degrades social media and particularly twitter. Just tweet something “smart”, “insigthful” and “prophetic”. Ohh, much wow (doge meme). Like someone here on this HN thread wrote, now the peasants are debating what the prophet said!
Ricky Gervais is reasonably well known for blocking people who criticize his work / attitude (by which I mean people who think he's a bad writer rather than blaspheming). He says he wants to be cancelled, but if he ever was he'd be making a teary apology within seconds.
Not the op, I don't have any bans, and I'm not normally signed in to Twitter. But a side note on UX here...
When I land on this tweet the site takes long enough to annoy me before it loads the content (ie. everything below the "Log In / Sign Up" banner is delayed).
When I scroll down past the first few tweets the whole page disappears and is replaced with a nag screen implying I can't see more without signing up and/or downloading the app.
Pressing back once bumps me right out of the whole site (back to HN).
The behavior is non-deterministic. It worked this way the first few tries (with varying quantities of tweets loaded before the nag screen took over). Then I tried in Incognito mode and it worked, and after that going back to the site without Incognito seemed to fare better (did Twitter finally figure out I don't want to download their app?)
Seriously disheartened the majority puts up with this kind of horrible UX. As a content publisher, I don't want readers encountering friction preventing them from digesting my thoughts. As a consumer I want to see the content without hassles. The only party benefitted by their dark pattern is the platform.
Not putting users first = opportunity for someone else to do it better and eventually displace your business.
I used to respect Twitter engineers and was under the impression they cared about things like load times and user experience. Has the culture changed? Am I just getting old and grumpy?
What Twitter has been doing with blocking access without an account has reached the levels of being user hostile. It's like they're following the awful pinterest model.
I find the URL that they call just before they block access to be interesting:
Not something I’m going to dig into, sorry. People have every right to block others, without giving any explanation and I support that side of it completely.
It stood out from my pov because there’s very very few times I’ve noticed I’m blocked and I don’t generally mean to cause any offence. The most I would’ve been intending to cause was a little introspection.
You could probably just ask in some way (email maybe) to become unblocked. It's really easy to feel like you're under attack constantly with that many followers so I'm not surprised any of them go heavy on the blocking.
I wasn’t following him and don’t mind about that. I think people have every right to block people without that person reaching out on other ways — I’ve seen people demanding explanations etc and in those cases as in this case, you know why.
As a cautionary tale to others, in case they don’t want to be blocked by him, it might make them pause and consider before putting into writing any extremely mild criticism, on Twitter.
I wonder why it was surprising for some to read this tweet. Startups will change their priorities daily. Business plans are against the idea of running a startup.
Probably because many people who follow him on Twitter have no idea what running a startup is like, so they are imagining a completely different context. Business plans do make sense in other contexts.
I understand business plans, but balance sheets? It seems like you'd want to know the financial picture of a company. What else to you look at to, even at the most basic level, determine if the startup is going to be able to pay it's AWS bill and payroll that month?
We used to send lengthy, wordy updates to our investors, including YC/PG.
Then one time he replied, frustratedly, imploring us to just tell him how much money we were making, how much money we were spending, and how much we had in the bank.
How much you were making: seen on income statements as revenues and on balance sheets as accounts receivable.
How much you were spending: seen on income statements as expenses and on balance sheets in accounts payable.
How much cash in the bank: seen on cash flow statements as starting/ending cash position and seen on balance sheets as cash assets.
Paul graham didn't care about your poetry, he just wanted to see your income statement and balance sheet. He apparently just didn't want to call it that because then he couldn't get edgy contrarian soundbites in on Twitter.
You keep throwing barbs around but missing the important point.
He specifically didn’t want to see balance sheets or income statements as he knows they can be full of bullshit (FWIW my only university qualification is in accountancy, so I know what he means).
All he cared about the bank balance and whether it was going up or down, because that’s what indicates whether the company would survive or not.
He still cared most about users and how excited they were and how fast their number was growing.
Nobody's missing the "important point" because everybody who's been on Hacker News for five minutes has heard Paul Graham make that point. Indeed, people have made jokes about startup business plans for decades. Literally everyone knows that those things don't matter for super early stage startups.
The tweet, however, and very much like many of Paul Graham's latest essays and tweets, seems to purposely elude any context, make a very generic a debatable statement, and assert it with complete aplomb. For someone who just wrote an essay about putting ideas into words, if he can't see that this tweet will be interpreted as "balance sheets are useless", he needs to put in a bit more work.
That's what people react to, because the only conclusion is that since he doesn't want to tweet bromides, he must be trying to say something "controversial."
It's really bordering on trolling, which for a man with his age and reputation is kind of cringy, embarrassing, and frankly disappointing to people who enjoyed his past stuff.
"Literally everyone knows that those things don't matter for super early stage startups."
If literally everyone knows that then I don't need to be commenting, as my replies in this subthread are to someone insisting that balance sheets matter even before a company has a working product. Clearly they don't.
It seems the people "reacting" are imagining some deeper intention or elaborate plot or some complicated character weakness behind it all.
I just see him repeating what he's said for years: for early stage companies, you should just focus on making something people want.
Yes, the "character weakness" is a penchant for midwit /r/iamverysmart takes that are well below people's usual expectations. Surely we can agree the reaction is overblown, but as someone said, this is definitely eyeroll material.
I think perhaps the thing with PG is that people think the advice/wisdom he shares should be far more profound and complicated than it is.
As someone who has frequently made the mistake of overcomplicating things, I don't see anything wrong with repeatedly telling early stage founders, in all kinds of different ways, to just focus on building a product that people want.
> Balance sheets or income statements as he knows they can be full of bullshit
Agreed.
However, I do have a question for you: what do you think can be more full of bullshit, an oral financial statement by the founder during a conversation, or his audited financial statements?
Yes, the notion that balance sheets and income statements don't tell the whole story and can be misleading is a fact. It's also a fact that they're useful tools, part of elementary due diligence, in combination with conversations with founders.
He asked financial questions that are in audited financial statements. Asking a founder and assuming it's all true is fine, but when making the investment he's surely having someone do due diligence on the finances to confirm. Yet he's denied that anyone else reads these documents for him, too.
I'm not sure how much you know about YC's history or PG's approach to investing, but in this and your other comment in this thread, you seem to be under a misapprehension.
The types of companies PG has normally invested in were barely even companies yet. They were small teams with an idea. Maybe a prototype. Maybe a few users. Often they were not incorporated as companies when he agreed to invest, or if they were, they weren't old enough to have audited financial statements. He didn't do "due diligence" as there was nothing to do diligence on; pretty much everything to know about the company was sitting in front of him.
Did he have to have a good bullshit detector? Yes, absolutely. But that was a skill he and the YC partners learned from doing thousands of interviews over many years. But also, it didn't matter if a few dud companies slipped through; they were investing such small amounts it didn't matter. That's the whole point of YC.
In another comment you wrote "at the scale of PG's investments...". That's what says to me you're misunderstanding things. PG's investments have always been very small. He just did many of them.
Sure, if you want to ignore the fact he was part of a C series funding round of $55 million, say just two months ago as an example, and believe he's solely done seed funding, be my guest.
If you want to ignore the fact he's been a director and has to sign off on balance sheets, also be my guest.
Sure, he makes some personal investments in later rounds of YC companies he particularly likes and believes in. I know that's the case with Rescale.
But again, his investment in Rescale isn't because he read their balance sheet and business plan; it's because he's been following their progress closely since YC invested in them in 2012. So he has at least 9 years of progress he's been following, via regular email updates and conversations with the founders. (You mention the $55M round as if it's evidence of the scale of investments he makes, but his share of that round was likely quite small. He really doesn't have a team to do due diligence on his personal investments. He just invests in people he personally believes in.)
As for being a director; he's explicitly avoided taking directorships in companies he's invested in, as he doesn't want to deal with the things that directors have to do, like read balance sheets. The only exception he made to that rule is Watsi, a non-profit - https://techcrunch.com/2013/04/19/paul-graham-watsi/
Please don't be patronising; I've been polite and respectful towards you and the others in this discussion, despite barbs being sent my way. I'm just trying to clarify misapprehensions as I have knowledge about the topic.
But you just said that he actually didn't care much about that stuff, that he just wanted to know 3 specific datapoints. Datapoints that traditional financiers have gotten from traditional financial statements for centuries. Sure, there's lots of bullshit in financial statements. But there's also lots of bullshit in emails and slack messages. If someone is pumping up a balance sheet with dead receivables and check kiting and other forms of bullshittery, what's stopping them from saying the same thing over an email?
You're acting like PG is sitting on something profound here, but there's nothing profound in the slightest. Nobody has ever gotten rich writing financial statements, they get rich by creating value that didn't exist before. The financial statements don't get you customers, don't build revenues, don't develop products, don't manage your cash flows, and don't manage expenses. But they're still crucial because they communicate, in a fairly standardized way, all of the most important measurements of a businesses success...including the three things that you just said PG cared most about.
Telling people that financial statements don't matter is like telling a PhD-candidate astrophysicist that it doesn't matter that they can only communicate in Azerbaijani as long as their physics research is rock solid. It's already completely brain-dead obvious that the physics research quality is the most important thing...but it's a breach of duty to tell them that they don't need to know how to communicate it to their peers.
"You're acting like PG is sitting on something profound here"
I'm really not. You and others are acting is if he said something far more grandiose and potentially influential than he did.
He's just saying he focuses on teams and products when investing in super early stage companies. Finances matter only to the extent that the company can survive long enough to become sustainable. It's only then that GAAP accounting matters.
It's really not that big a deal. Seriously, which competent startup founder is going to make a decision to "never" take care of balance sheets for their entire company-operating career based solely on this tweet?
Why does it matter? You are changing the financial picture, probably by an order of magnitude or more. The question should be what the company will look like after the investment, not before.
And that two guys with laptops in a cheap apartment in mountain view might be a majority of the cases they see, but how will they know unless they see it? I've seen plenty of fake-it-til-you-make-it startups that immediately go out an sign a lease for AAA office space because they think they need a cool office before anybody will take them seriously. And that is a massive red flag to a VC...one that shows up on a balance sheet.
For an early stage company, nobody cares about your assets or your shit estimates of the value of your intellectual property or goodwill. But payables and receivables can definitely be a dealbreaker, and I've never known a single VC that would sign a check without an understanding of where the company, no matter how new, stands with them.
Financially, YC's decision made sense regardless of balance sheets or business plans: YC was investing at a $1.5M valuation (7% for $100k). By selecting a pair of smart engineers, the acquihire potential often exceeded the invested value.
Furthermore, their interviews cut to the underlying cause (scrappiness & maker mentality), which inherently eliminated certain effects (AAA office spaces) without ever seeing a balance sheet.
I raised $4M seed round on a SAFE from two well known multi $B fund and others. I don’t think anyone asked for a balance sheet. The company was 3mo old, so there wasn’t much (no revenue, hardly any expenses) and we didn’t even have an accountant yet.
There was some basic due diligence questions that us founders had to answer but very light still.
I’d assume most seed deals on SAFEs or even priced rounds are similar.
I've looked at several startup business plans and financial models. Not one has turned out to be even close to reality a few years later. At the early stages, the numbers are pure fantasy.
But a balance sheet is not a financial model. It shows how much money is in the bank, how much people owe the company - and how much the founders have loaned the company.
PG might not personally read balance sheets but if nobody checks them at all, it would be pretty weird.
Please don’t start comments in that patronizing way. This field is highly counterintuitive. It’s easy to feel smart by parroting the obvious-seeming positions whilst being utterly wrong.
To your point: when YC interviews companies, they are mostly very early stage and pre-revenue. What YC cares about is how much money they could make if everything goes right, and whether the team is capable of making everything go (close enough to) right over the long term. The current financial picture has minimal bearing on that. Obviously, to the extent that it does have a bearing, YC is smart/experienced enough to consider that. But again, you can glean this from a conversation better than an accounting document.
> What YC cares about is how much money they could make is everything goes right, and whether the team is capable of making everything go (close enough to) right over the long term.
Isn't that what a business plan is? In some sense, it's a description of what your cash flow looks like in a couple of years.
By "business plan", he means a multi-page (usually at least 10 pages but often many many more) document with detailed predictions of what the company will do and how they will do it over the long term. That's what he's saying he doesn't ever read.
What he does read (or did, when he was still working), is the YC application form response, which is designed to glean the important information in a very succinct format.
If he likes what he reads, then he'd have a 5-10 minute conversation with the founders, and decide whether or not to invest based on that.
So, yes he wants to know what the founders' general plans are. That's very different from reading or recommending lengthy business plan documents.
Even if you are an early stage company, you've still got to have something resembling the concept of a balance sheet, even if it's an excel spreadsheet with a list of two computers, a bank account, and an AWS bill that hasn't been paid yet. Maybe he's right that he personally has never read a balance sheet, but for literally any company that has already formed before the investment, they would be extremely foolish to overlook it.
I've personally seen A-rounds fall through because of balance sheets...turns out that when you promise hundreds of thousands of dollars in future services in exchange for a little bit of present cash flow, it can drastically affect your balance sheet and prospects for future investment.
I feel like this is something that’s really important to you for some reason, and as such you’re getting more wound up about it than necessary.
Yes, companies need to mindful of their finances and cashflows. Everyone knows that, PG included, as I conveyed in another comment.
The real point that PG is making here is that an early stage company with perfect books but no exciting product or market opportunity is dead, whereas one with incomplete bookkeeping but an incredible product and market opportunity is much more likely to be a good investment.
If that truly is the point he's trying to make, then he needs to say that. The message he actually conveyed is "these things aren't important". And while I'd agree with him on the business plan, telling prospective startup founders that they shouldn't ever worry about the balance sheet is pure negligence and he should be called out for it.
I've long respected PG for his role in transforming the VC industry from it's MBA-led Sand Hill Road old boys club into an engineer-led scrappy startup world. And I have enjoyed his writing even when I disagree with much of it. However, his new Twitter persona is absolutely bonkers. Not every insight needs to be contrarian to the point of negligence.
He said _he_ is not going to look at it. That's all.
Tax authorities, YC's due diligence team and others will want to look at it. Anyone competent enough to start a company will know this.
Interpreting this as "pg says balance sheets don't matter at all to anyone" is.... weird. Repeatedly pushing this point is weirder. Maybe take a break from the internet for an hour or two
It could be interpreted in several ways, and you're choosing the worst possible way to argue against. And you're totally overlooking the fact that his career success since the very start of YC has hinged entirely on giving good advice to startups and focusing on the right things. You might think that after 17 years and countless successful companies, we might just think twice about presuming ignorance or malice in what he's saying.
The point of this tweet is just that balance sheets don't determine outcomes for early stage startups; good products and excited users do. Balance sheets matter later. Many of the teams PG invested in were not even incorporated when he invested in them.
Perhaps he asks how much debt the company has and what the operating expenses are during the interview? You don't necessarily need to look at the balance sheet if you ask the right questions, I guess.
I'm not sure what stage of company we're talking about here.
I'd argue that for ALL companies, in any industry, working capital--measured on the balance sheet--is a critical data point. That is, you may be booking revenue but not collecting cash from your customers (in an extreme case, the "revenue" may be fictitious, if the software doesn't work and the customer refuses to pay). And while you might have $x of cash on the balance sheet, you could also have a huge and looming payables balance because you're waiting to pay your bills until you're N days past due.
Also, revenue is just what you can actually book per the accounting standards, which has lots of specific tests for software companies. For most SaaS companies, a key number is also deferred revenue, a balance sheet item that records the difference between the cash you've collected (say, up-front for 12 months) and the remaining performance obligation to deliver software over the period. Or, if you have a big service component as part of your offering, a number to watch is the amount of revenue you've booked but not yet billed.
As an investor, I'd also be curious about the future obligations of the company that will consume cash, such as big leases, debt, and other liabilities (eg, legal judgements against the company).
Investors are free to ignore whatever information they'd like, I suppose. And a tiny two-person company probably has a very simple set of financial statements, if any. But those two founders have the ambition to build a big and successful company, I'd argue that understanding how to read financial statements with some mild degree of fluency just isn't that hard and is a very useful skill.
This really is just arguing semantics on the internet, one of the least interesting activities, usually.
I can almost guarantee that Paul Graham has read material produced by companies, which contain information on a business' plans and current status, including financial.
If you don't want to call that reading a business plan, that's fine. But it's really besides the point.
Further, he's denied that other people have read business plans or balance sheets for him. That's also very likely false. Reviewing a balance sheet is an elementary part of due diligence, I'm sure that many startups have been funded based on a conversation over coffee, but at the scale of PG's investments I don't believe he's never been involved in a transaction where his side has had someone due the most elementary due diligence to confirm founders' statements, e.g. by reviewing a balance sheet / income statement, which he has denied.
I mean hell, he's been director of various companies, typically you're required to co-sign at least annual financial statements as a regulatory obligation, sometimes audited, which always include balance sheets. Come on. Just restate your point: I don't focus investment decisions on traditional balance sheets at all, but rather on conversations with founders.
"This really is just arguing semantics on the internet, one of the least interesting activities, usually."
"Come on. Just restate your point: I don't focus investment decisions on traditional balance sheets at all, but rather on conversations with founders."
It's pretty interesting once you get into it, isn't it? Welcome to the club!
I don’t understand why it is now, a couple of years when a bunch of billionaires have basically become 5-10x richer, while the rest of the people in the world are suffering because of understandable economic restrictions, are these rich billionaires going out of their way to show that they really never deserved that money.
They had no special insight. They had no special genius. In fact, we built an economic system that ensured wealth ended up with 1-2% of the population, and they happened to be the ones who lucked their way into the 1-2%.
Like, I’m struggling to understand why so many of these folks are going out their way to show that this is the case.
Is it a power play. Like laughing at everyone else? Hahaha. I’m a bigger idiot than you but still I’m richer. Fuck you.
Or are they just that clueless?
Both of which only serve to show that our rich overlords are not deserving of their wealth for the most part (and the ones that are, are unfortunately the exception).
I'm a seed stage VC. Reposting my thoughts on this from twitter:
YC invests at $2m valuations, so Paul's take is very logical. This won't apply to startups raising seed rounds at 10x higher valuations.
At a 10x valuation, you (literally) need to show your startup is 10x more likely to win. Progress and pitching are part of that, but so are financial plans.
Some examples of what financial plans reveal:
- are the business model assumptions thoughtful or simplistic (e.g. ramp up team over time vs hire all on day one)? What ARE the key assumptions and levers?
- do you have buffer time set aside for a future fundraise?
- are you realistic about costs/salaries?
Addendum: basically if you're raising a seed round, you should expect that many investors will ask about financial models and projections. This is less about your predicted revenue in month 36, or whatever, and more about understanding how you think about the business for the next year or two.
> At a 10x valuation, you (literally) need to show your startup is 10x more likely to win. Progress and pitching are part of that, but so are financial plans.
Nitpick but this is (literally) not true. Expected value is a function of FUTURE VALUE and PROBABILITY. Unless all the wins are the same future value you can't reduce the reasoning just to probability as you suggest.
Practically the valuation is also determined (maybe dominantly) by supply and demand as you are not the only investor in the market.
You're right, I should've said EV has to be 10x higher, not probability of success. That said, in my experience it's much more common to de-risk a business by an order of magnitude than to 10x the market size.
Cool. Counterpoint from the opposite side of the table.
I agree that modeling these factors, checking your assumptions, finding what factors your plan is most sensitive/responsive to, estimating realistic buffers, etc. is extremely useful, and even essential. And doing so at an early stage is very good.
However, as Eisenhower said: “In preparing for battle I have always found that plans are useless, but planning is indispensable.” Having been expected to write and present such plans /pitch decks as a key element of, or prerequisite to, the first fundraising meeting, I found it absurd.
It was obvious to me as I built the models and wrote the deck that it was pure fiction. It was merely a projection of the intersection of our vision, plan, and execution, and the economy, in the next X years.
We were basically being asked to produce a linear projection when the entire point is to generate non-linear results and returns. And whatever we produce is hugely sensitive to assumptions in the models.
How can selecting a single point out of that fiction even begin to be actually useful as a predictor, at least for anything but linear growth businesses?
PaulG highlighted this in his post just a few comments down [0].
So, I'd think it would instead be a great exercise to do with a candidate after the first few meetings, have them generate best-medium-worst case scenarios, and highlight the most sensitive factors - then discuss that, but not as an initial selection criteria.
Re: Eisenhower quote -- this is what I meant in the original comment too. It's less about the details of the plan and more about understanding how someone is thinking about the plan.
> I'd think it would instead be a great exercise to do with a candidate after the first few meetings
We're on the same page here, too. If we ask for a financial plan it's usually after a meeting or two, not as a filter for whether to take a first meeting.
Biz plans and Balance Sheets are more associated with a goal-oriented mindset.
PG's decision making obviously aligns more with a systems thinking. Founders are a major piece of a winning system to him, thus why he puts so much value in a 5-minute talk with them.
It's true that Cash Flow and Income Statement is used more often to assess financial goal achievement, but I don't think we can discard Balance Sheets.
In my interpretation, "Balance Sheet" is being loosely used in this context for Financial Statements in general.
It's not really uncommon. Some very successful investors & businesses can focus purely on the value exchange.
At the end of the day, KPIs, OKRs, MAUs, etc are all just numbers. What really matters is whether the value being exchanged is business worthy.
Like take an example about the Steam Deck recently by Valve. Gaben doesn't really care about these metrics right now because he's trying to validate a hypothesis that PC gaming can work as a handheld device (which has been tried for many years). Can it fail miserably? Maybe.
Or look at Mark Cuban's recent online affordable pharmacy. Mark obviously is showing he doesn't care about draining individual's bank accounts for life saving generic drugs, but validating if the big pharma industry is a bit corrupt and wants to slash the prices down. Can it fail miserably? Maybe.
Do you need business plans, balance sheets, or pitch decks to do this? Arguably not. You just need to know how driven the individuals/team is and whether there's a sense of product-market fit.
His response to some of the reactions he's getting:
Even after all these years, Twitter still surprises me. This is the tweet that makes people accuse me of lying and announce that they're unfollowing me? People are that attached to business plans and balance sheets? How completely mystifying.
The reason I don't care about business plans is that I can learn more from 5 minutes of interrogating the founders than from 10 pages of fluff they've written.
The reason I don't care about balance sheets is the same reason I don't care who's leading 100 yards into a marathon.
This tweet is saying that YC interviewers don't read balance sheets; he's not saying that all balance sheets are useless. (You need a balance sheet to file your taxes, for one thing!)
As for business plans, the saying goes that "plans are useless, but planning is indispensable."
Business plans are a particularly poor tool for having funding conversations; they're both less persuasive than a pitch deck and less helpful in helping funders decide whether to invest than simply interviewing the founders.
But just because PG won't read your plan doesn't mean your startup shouldn't have/make a plan!
"But just because PG won't read your plan doesn't mean your startup shouldn't have/make a plan!"
This is true not just for startups and its great advice for life in general. However, I believe YC would actively discourage founders from writing a traditional business plan. They would rather have their startups talk to users and building products.
To put it another way, I think YC would say that you cannot possibly write a realistic business plan without a solid customer base and a good product. Anything else and you're just making things up. By the time you have customers and a good product, you don't need a business plan to raise funding.
* This is what I've gathered from their startup school materials without having raised a dime from YC or talked to any of the partners, so take this with a big dash of salt.
A) I call BS on "never". It's one thing to not consider them, but another to say never ever. And what does that say if he's truly never even read one?
B) This isn't something to be proud of, and certainly not something others should emulate. Ignorance isn't what makes you successful. (likewise, neither is millions of data points).
c) Business plans and balance sheets are still very useful and applicable, and fair to say they aren't everything.
I think they're very useful and applicable. But they are basically irrelevant to evaluating startups for YC. The stage those startups are at, the exact amount of money they have at that given point in time doesn't really affect anything; YC also has a standard "this is the implied valuation we'll fund you at" rather than actually evaluating the details of "what does the business look like now". Similarly, the business plan is also less relevant for evaluating a startup for YC: knowing what the founders are building and how they see it is what's relevant, not the details of market analysis and monetization strategy.
I have built a couple very successful SaaS businesses from scratch. 8 figure businesses. I have never in my life written a unit test or any kind of testing code in 20 years of professional software development.
I'd be curious to learn more about your experience, would you be open to a chat on sqwok.im? I'm somewhere in the middle with moderate unit tests and e2e for critical paths.
Clearly the value of business being sold is not dependent on the application of standardized programming approaches to quality.
I mean, who would even think it is?
There are also alternative approaches to achieving quality, and there was that report/"study" circulating around that claimed Team Software Process actually beats most agile/extreme programming methodologies in at least one metric (or two: defect rate and time to completion, IIRC). Of course, none of the actual "agile" development teams do clear-cut TDD or Extreme Programming either, so you are never comparing apples-to-apples.
As a corollary, I'd also say that neither does the UI or UX matter that much to success, and there are simply a bunch of intangibles that can make or break a product.
But one "tangible" thing is that you've got to be serving some customers' needs, and need to continue to do that. And rare are businesses which have a need of "my button needs to be rounded and 10px away from the next button" or "my code needs to be unit tested": those are actually "my customer can get their work done through my product" and "it should rarely break".
None of this means that you should not invest in pretty/functional UI/UX or well-tested code. Just don't expect that to mean much in the grand scheme of things. They will affect your ability to hire top-level people once you are an established business, though.
(I personally am too attached to "high-quality" [as in well tested] code and would struggle to kick off a start-up for that reason only, even though ideas keep popping up :)
Product/market fit has more to do with functionality and the minimum quality design aesthetic required by the customer.
In our case, we disrupted a rather boring, traditional field. Our UI/UX was never great neither did we hire “frontend” people until post-acquisition but performance and data security were huge to our clients thus testing.
The idea that you need to throw unit testing out to be successful is kind of silly.
When you’re growing a very complex system (huge micro services pattern and dealing with sensitive data) you’ll be happy you have tests to save your ass.
It's like exams and Europass CVs. At some point taking exams can be a separate skill from learning the material. CVs in Europass format, force all candidates at filling a form and the CV fails at it's purpose of differentiating candidates.
I imagine if business plans, balance sheets and pitch decks become established formats, the risk of people focusing too much on them.
A 'balance sheet' is useless in determining the value of an early stage company.
Let's be a bit cynical: the 'balance sheet' for a company at 0.2 on the scale of 0->1->N is basically the 'download and stickiness numbers'. YC strongly encourages users to 'share the numbers'.
The problem with this, is basically it's not really super early stage investing.
The implication is, you need to have a company showing material traction with a product, before taking on significant funds. Which is fine, but let's just be real about what that means.
It's a myth that 'rounds have been getting bigger' in a way ... really we've just been renaming rounds.
If you need to 'post good numbers' to get into a Seed, well, then it's not really 'Traditional Seed', it's something later.
How are business plans not just guesswork?
In practice how often does what actually happens to the business irl conform to the plan? And how closely? Like if you make 25% more profit in one year than planned than that's clearly way off and counts as not conforming.
This tweet kind of invoke the eternal(?) form vs. substance debate.
Regarding the business plan part, it seems PG does indeed read[1] "business plans": not from some written document which has static form but from a source having a more dynamic form i.e. people who are primarily responsible for writing of those static documents if/when needed.
And, about the balance sheet part, I don't really know how useful it is for the kind of businesses (early stage startup) in which PG and YC are interested and primarily invests in.
Note: since I can't edit my earlier post, writing a new one (for future reference) which better reflects my earlier thinking.
1. s/eternal/age-old/ # replace "eternal" with "age-old"
2. s/form vs. substance/signified vs. signifier/ # I think signified-signifier[1] distinction is more specific and apt compared to form-substance distinction when it comes communication.
Additionally if you're interested and want to "read" more on "business plans", I would recommend checking MIT's "Nuts and Bolts of Business Plans" course[2], at least the first lecture[3, 4] if you aren't motivated enough to go through the whole course.
Honestly the value of a business plan is just writing it, because it focuses your ideas and forces you to consider things you may not have considered before. Who cares if paulg reads it? It's a tool for founders, not investors (apparently).
> The reason I don't care about business plans is that I can learn more from 5 minutes of interrogating the founders than from 10 pages of fluff they've written.
Presumably Paul isn't meeting with every single founder who is applying to YC. So he must be using a different filtering mechanism to winnow down the funnel. This is usually the role that business plans have often played.
As someone who hates writing business plans as well, it would be wonderful if YC released a "here's why you should meet with me" doc template that people can use widely as a replacement for business plans.
I don't know what is controversial about that statement if you put it into pg's context. Anyone complaining about it surely could do something more productive with their time.
It reveals PG's MO. Which is to say edgy things at the expense of accuracy to attract attention.
The reaction is not directed towards business plans or whether PG has even read one or not (hint: no one cares). It is about his consistently proven proclivity to say edgy, inaccurate things, often which add 0 value. Then get upset that people are pointing this out on twitter. It's pretty annoying that he acts this way on twitter considering his previous essays have been ogod.
Any publicity is good publicity, the more small-minded idiots you can rouse, the more attention you get. Bonus points if you act like you're "surprised" (in pg's own words) by it and have a cynical comment to make about Twitter as a platform.
So, PG got lucky once, and now he has the luck to burn on numerous risky ventures until one pays off and he gets more luck. This is basically a humble brag.
Well, yes, that sums up technology VC in general. It is exceptionally rare for a person to truly have seen an opportunity with the clarity of vision to have any real confidence it will succeed. Almost of the successes in this world boil down to the luck of timing and, more importantly, social networking and connections.
It makes complete sense. I come from a geographic area where the immediate response to my job description is "here's my startup idea". There have been very few I feel passionate about and want to get involved. The rest I ask for a contract few and my counter is always $0 and a partnershie of ownership.
Does this, however, mean that no one in PG’s employ or in contract with read a balance sheet?
Because it makes complete sense that a balance sheet doesn’t tell you anything about how a business will do. But assuming it’s not falsified it helps identify red flags.
I suspect any due diligence almost certainly has someone reading a balance sheet.
Someone must be making sure there’s not a few million in debt casually tossed in, making a $250,000 or whatever investment into a $3,250,000 investment. Beyond that, balance sheets are really just part of the process of making sure the company’s not fragile.
This really does not mean that you do not need a buesniess plan. You definitely need it. But in case of startups that should be only for you: not for investors. For investors you make a different version called pitch deck.
I've been reading a few Lean Startup books recently, and this morning I went to the local government's website to see what advice they could give to register and start a business...
From all the Victoria Government's main business website and to all of their small business grant websites, all I could find was advice on how to write a business plan. This was in complete contrast to all the Lean books that not once talked about business plans but instead focused on customer development.
... maybe it's no wonder 9/10 of new businesses fail if they start with planning documents that take weeks vs "getting out of the building".
I’m surprised the YC application hasn’t been more of a focus in this discussion.
The following questions are pulled from the application (perhaps an older version):
What is your company going to make?
Why did you pick this idea to work on? Do you have domain expertise in this area? How do you know people need what you're making?
What's new about what you're making? What substitutes do people resort to because it doesn't exist yet (or they don't know about it)?
Who are your competitors, and who might become competitors? Who do you fear most?
What do you understand about your business that other companies in it just don't get?
How do or will you make money? How much could you make?
How far along are you? Do you have a beta yet? If not, when will you? Are you launched? If so, how many users do you have? Do you have revenue? If so, how much? If you're launched, what is your monthly growth rate (in users or revenue or both)?
—-
These questions cover product description, value prop, market analysis, financial projections and more, all of which are the core of a “business plan”.
Sure, the application may be structured in a different way, but the sentiment that PG has never read a business plan seems very disingenuous.
These questions cover product description, value prop, market analysis, financial projections and more, all of which are the core of a “business plan”.
There is a key difference though - none of the YC questions are about the planning bit of a business plan. None of them are about what you're going to do in the near term future. It's all about what you've done so far and where you believe you could be when you exit.
The issue with business plans isn't that they include a report on what you've done to date. It's the idea that you can reasonably predict what you plan to do over the next year or two. Lots of more traditional businesses can do that, and a business plan is appropriate for them, but a YC startup needs to be significantly more agile than that. Any plan will certainly be wrong, so there no point wasting time making one.
> Any plan will certainly be wrong, so there no point wasting time making one.
There's a famous Eisenhower quote that goes something like, "Plans are useless, but planning is indispensable."
The point being that any single plan is likely not to pan out because of unknowns and surprises, but by going through the process of planning, you have "cached" knowledge about your domain like what the opportunities and threats are and you can use that knowledge to adapt when the specific plan falls through.
A plan is very different compared to a business plan. The type of forecasting required in a business plan is good for something predictable, like a McDonald's franchise. Can you imagine trying to forecast the first 10 years for the first version of Google's search engine? It would be ludicrous.
They may well have done, and plenty of other startups will have done too, and their experience of how wrong it would have been is likely to be the sort of evidence that pg has used to inform his position.
They're not though. They're all questions about your market. They're asking you to demonstrate domain knowledge.
If you put something forwards-looking like "Google are really big so they might become a competitor!" it wouldn't look great. It's technically true, but it's not interesting. It doesn't demonstrate that you know your market. If you put "Lithuanian Startup X has launched a product in this market 60 days ago, which reached position 3 on Product Hunt, and had a successful Show HN post" then you start to look like you actually follow what's happening. You know your market, and can show you research it. No vague guesses about the future, just demonstrable knowledge about the present.
Traditional business plans are fantasy with numbers.
"By Q4 2025 expected turnover is..."
No one should take that kind of prediction seriously. (Although VCs sometimes do, which is unfortunate.)
Plans exist to show you know what a market is and that you can research the details enough to know who else is in the space, what they've done, how they did it, and what they missed.
If no one else is in the space - still possible, but rare - you should at least be able to point to some comparable efforts, some of which should be your own.
The point is to show that you're capable of thinking strategically and not just nailing some code to the wall and hoping someone will pay to get some use out of it.
>> It's all about what you've done so far and where you believe you could be when you exit.
YC was never about an exit. It's about building something people want. Only after that can you decide what to do with it. Continue running a business was a serious consideration before it got overrun by VCs.
Lots of business plans are quite vague about what is to be done in future, and but I'm pretty sure, YC will ask questions on customer acquisition routes and costs, [planned] revenue model, development priorities, long term growth aspirations, when the product will come out of beta and what they'd spend the cash on.
They might not require a bullshitty chart of next year's P&L, but if you already have a clear idea what the metrics that are supposed to lead to it are (growth rate, CAC vs CLV, untapped market size) you'll be at an advantage and if you can't tell a plausible growth story about your most likely route to growth you won't (not even if your deck has the chart!)
There is very little short term detailed planning in an actual formal business plan. It remains very much at the strategic level and is mostly about your value proposition, your go-to market strategy and financial projections (which necessarily include market sizing). All of these things are actually part of the YC interview. I agree with OP that PG’s comment is somewhat disingenuous.
The point about the business plan and planning, is not really to be able to 'predict' accurately the future, but to ensure of having a well known project:
Ensuring that you did think well about the threats, menaces, and what could impact your future growth. And so you have already evaluated mitigations for them.
PG knows how to write good content. This tweet was just-vague-enough that people can both claim he did and that he didn't and many other things and argue and explain the view, etc. He got engagement - maybe that's all it was about. Or maybe I'm wrong and it was a random tweet.
But what I'm sure about is that if he wanted this to be an idea that's well communicated and important, it wouldn't be ambiguous like this.
One of PGs things is if you're default dead or default alive. So even if he has never literally read a balance sheet he cares about the information in it.
If all business plans were as thorough and as revealing as YC’s application forces you to be, then YC would have called it one. But there’s a separate name for a business plan. Most are useless.
I suspect pg is referring to the plans founders make to impress investors, rather than to figure out which problems to solve.
This is all just semantic nonsense. YC has no more profound understanding of the noun "business plan" than anyone else in the business world. Don't overthink it
To be fair, there is a pretty concrete idea of what a traditional business plan looks like. Traditional business plans are needed if you want a small business loan from a bank. If you try to get a small business loan from the bank with a YC application, you'll get laughed out of the bank. A YC app is quite different from a business plan and most people would not see it as the same thing.
In a prior life as a regulator I read formal business plans (legally required) which probably looked quite different from what you're talking about. It's a generic noun used in various business contexts.
The business plan for a startup pitching to a VC will look different than the plan an SMB submits to a bank
Well, that business plan looks fairly similar (albeit more detailed) to the legally required plans I used to peruse as part of my old job. I've never been a banker so I don't know what the business plans you're talking about look like
I do think the plan you linked to is more thorough than what the majority of SMBs will be writing. YC is another league of finance. Most SMBs I know are not very sophisticated
I don't think they're public - it was just a narrative business plan (under a section titled business plan) required when an insurance company submitted an application for a license to sell insurance in the state of Alaska. Each state has similar requirements (NAIC model law).
It also included a background check on the management IIRC
Can you link to an example SMB business plan? I once tried to help a neighborhood grocer with financing and I can assure you they weren't writing a sophisticated business plan.
A typical 'deck' will cover all of these, and a typical deck has about as much relation to what will happen later on as most business plans do, ie: none whatsoever.
In most cases though YC applications are meant as a way to evaluate the team, not the business and that's where the difference lies between the data they collect and what your typical business plan shows, even if there are superficial similarities the goal is an entirely different one.
I think PG & Co would invest readily into a fantastic team with a crappy business plan knowing full well that they are effectively already investing in the first - or second - pivot.
For them it doesn't matter: people driven to succeed will try to do so one way or the other and have a leg up on people that are not like that.
It's tough to be properly nuanced and specific in a tweet. "I've never read a business plan , but I ask all the big questions that should be answered in a business plan." Just isn't pithy for a tweet.
Honestly Twitter is a terrible idea in most cases that just leads to people shouting at each other - because 140 characters isn't enough to communicate anything in a balanced way.
Yeah politics on twitter is awful. For outsiders like me it is often hard to even understand what a popular political tweet is even about. Twitter is good for pictures of nature though. And somehow a great deal of decent scientific discourse goes on twitter without descending into the crap that political twitter does.
I am just not engaged enough in day-to-day politics to know about the Issue of Day. So when people make angry quips about it, and can't fit a multi-paragraph explainer into it, I can't make any sense of their tweets.
I find politics is best learnt from history books. There isn't that much about today's politics you can't learn from 19th-21st Century history books.
That's tied in with the need to be succinct. Expressing uncertainty often adds verbosity and cognitive load onto the reader. Often it also adds redundancy, given that uncertainty should be taken for granted in certain contexts. Note that in these last two sentences, the word "often" added verbosity, which is an example of what I am talking about.
If someone is just expressing their opinion, I don't like to read a bunch of hedging. I get that you are uncertain and this is just your opinion, stop telling me that over and over and over.
I wish there was a new shorthand/syntax/convention/notation for expressing uncertainty. All statements are delivered succinctly, with some notation for saying I am only 70% certain, perhaps by putting 0.7 as small superscript text.
A lot of what goes on with social media is a reflection of society, in my opinion. Can a new approach fix that?
The only thing I can think of is targeting different users by various segments (which isn't new). E.g. HN is mostly for people that like tech and the startup scene.
There is a different quality to the information you receive when reading a piece of paper vs. talking to people. Depending on who you are you may gain more one way or the other. Then there is the gap between plan and execution. A plan is only worth as much as the execution behind it. And with written plans you don't know the real authors and reviewers while when talking to someone you may be able to force them to original statements and can see their ability or lack to deliver them. Last but not least plans aim at completeness outlining the overall picture while when you talk to someone the dialogue develops a certain direction and has a thrust revealing understanding of the key building blocks of the plan.
I would certainly hope that all founders have gone through these questions in detail, and may even internally have it written down (even if they didn't call it a business plan), but I guess in an "interview" people might (accidentally or intentionally) paint things very rosy, and sometimes as the owner of the plan you can stare yourself blind in the details.. Having someone like PG question and unpack things in real-time would probably be priceless for most startups! Also remember that when you invest in great people as much as (or even more than) ideas, then the moment-in-time plan matters less/differently somehow.
That business plans are a bad thing is becoming a meme.
It's great to get some (many in PGs case) likes on twitter and that's about it. A business plan is great to have because it forces you to think through all the important pieces of the business. Many great companies had one, e.g. Apple (as mentioned by someone else in this thread). Amazon has detailed Word documents for anything they dive into.
Of course, planning should not becoming your core activity... There's a limit after which business planning is just an academic exercise.
The question is not about the general utility of business plans. It's about whether they're good for early stage startups.
These kind of organisations need to move fast and try a lot of stuff in a short amount of time to see what works. A business plan then seems expedient because the future direction is not set in stone anyway.
That is half of the story. The other half is that he is looking at the people, not the product. Someone with the personality and perseverance to keeping pushing and pivoting until they hit success is going to drive YCs goals farther than someone with a solid business who won't fight through troubles or will stop instead of pivoting when needed.
Now, we can talk all day about whether that is a healthy path, to constantly drive to build Y/VC-level growth no matter what. But whether or not you buy into the "startup" lifestyle, YC absolutely does run under that model, so they seek people who match, and those people aren't identified by snazzy spreadsheets.
He obviously has got people working for him, that filters prospects before they get to him. I am sure they read both business plans and balance sheets.
I don't find that particularly hard to believe. Reading a pitch deck is like reading presentation slides - you can't really know what the author had in mind unless it's really good, and you tend to fill in the blanks with your own biases. That makes reading most decks a bit redundant. It's probably better just to talk to the founders and actually see their pitch.
People considering him a genius as opposed to a narcissist who accidentally got rich likely fuels his need to drop nuggets of "wisdom" to the peasants like this.
His essays are usually a big pile of “focus on the important things and add value or whatever”-type platitudes. It’s funny that each one has been proofread and revised based on comments from the Who-is-Who in SV, a typical Emperor and His New Clothes situation.
To be fair though, 99% of wisdom books from successful people are like this.
Calling it platitudes is harsh. The Airbnb founders have repeatedly said that their company was going no where but for Paul Graham's mentorship and the series of advice he gave them, amidst an economy in dire recession.
And btw, before YC, the whos-who of SV were a closed-knit, exclusive group. You underestimate the very radical nature of YC when they started in 2004.
I think that is an important fact to know considering the confusion in this thread.
There are people commenting that pg surely can't be a genius because this or that he engages in isn't ethical (to them).
But that's the thing, the IQ says absolutely nothing about ones ethical responsibility or the amount of empathy one has.
It is purely measuring "logical thinking ability". Things like "continue this sequence", "recognize a pattern", etc.
I also often see this dangerous assumption that ones political opponents or everyone with a different opinion than the one which seems most rational to ones own must be "stupid". In reality, the problem is that we focus on something as (arguably) unimportant as the IQ, which measures only something very narrow.
Another misconception about IQ is that those who are more poor or have less favourable job positions must have a lower IQ. To give just one counter example to that, very often, people who have some sort of handicap (ASD, ADHD, etc.) are also "gifted", have a high IQ, are good when it comes to logical thinking. But their handicaps still make their lives more difficult in general, so they face more adversity than someone who is "normal".
Sorry that i wrote a wall of text, was just thinking out loud.
In my personal opinion, the IQ is already a little dangerous, because it assigns a "value" to a human life, but that is an entirely different discussion.
I'm no particular fan of pg and for sure I'm not all that knowledgeable when it comes to VC, but it is my understanding that at the very early stages of investment pitch-decks are pretty much useless, it surprised me when I saw all those people attacking pg for this particular issue.
Maybe he’s read one for Viaweb or to help someone pitch? But I believe it in the context of PG as an investor, similar to how Warren Buffett could say he’s “never read” an investment banker’s report.
There's an obsession with pitch decks and whitepapers in some communities that borders on form over function.
Imagine showcasing a complete Dapp with a tutorial, basically ready for launch excluding some UX changes, and then getting questions about, "What's your roadmap?" or, "Where's your whitepaper?"
I appreciate his perspective here. Words must mean action. Talk is cheap.
That's not what most people mean when they say pitch deck, IMO. Most people are talking about a multiple-slide PowerPoint, covering a bunch of standard topics (team, market, etc).
We interviewed in late 2008. Then as now, it’s a conversation not a presentation. We were using PHP/Symfony then (changed to Python/Django later) but he didn’t ask anything about what language or platform we were using.
He did care a lot about the fact that we had users who were excited and unique insights into what was overlooked in the market.
Thanks for being the single datapoint of rationality in a sea of madness. It must be pretty surreal to read these comments as a founder. It certainly is for me, as someone who grew up with HN.
If Kim Kardashian started an ice creme company, she'd have a very good chance of succeeding.
Let's say she starts a few more businesses and they are successful. Is Kim someone we should take business advice from? She is one of the richest self-made women ever.
Kim would likely never have to make any ice creme either.
Many people took a lot of advice from him, but nobody took the advice on Lisp. That was exactly what I realized in 2007, when I started reading his essays, that the opportunity here was to take excellent advice that nobody else was going to take.
Now, some people do learn Lisp on his recommendation, the thing is too only a very few--perhaps only one--will actually also be able to turn that into the other thing he speaks of at length, becoming a great founder. I would say the two things pull away from each other. And technologic fashions have pulled in a direction diametrically opposite to his vision until only three years ago, to the point he announced in an interview Viaweb's technology "was a lot more sophisticated than it needed to be."
We need to stop treating people as unfallible. I used to idolize so many people when young. I still respect a lot, but now I understand that everyone is human and everyone has differing motivations, especially people in power.
He's saying that he doesn't read the business plan, balance sheet or the pitch deck. He just asks them questions, answering which would answer everything in those documents.
So, basically, in addition to writing all these things, you have to read it out to him because Mr. rich guy investor doesn't want to read it himself.
I would argue that this is far more complex than he being lazy. A slide deck or any document is well curated, optimized and spin'ed in a way that the creator wants it. Same reason why I actually prefer to write meeting minutes.
He does what anyone sane would do: ask the question and get real reactions. Most people are much better in lying (aka optimizing) on documents than in real life.
Considering PGs track record if investing in very early stage start ups (better than anyone else in the world), you should probably consider your own arrogance here.
For what he is doing, biz plans and balance sheets are noise. Like testing the math skills of a real estate agent. Whether or not they failed in math probably won't impact the price they get for your house.
I think a more fitting analogy would be: The student that would read for hours upon hours, get good grades, only to brag / lie about not studying at all. "Easy test, I didn't even study. I guess I'm just really smart"
Why would it be false ? It may be exaggerated (should read "I never use business plan or balance sheet to assess a startup") but not complete bullshit. Startups are not the same as traditional companies and the due diligence process reflects that. pg's arguments are reasonable in this context: business plans have info that is best discussed with the founders and balance sheets have little data that will be relevant in the future. Like it or not, startups business model is "exponential growth or die".
How in the world is a tweet about funding methodology even close to outrageous content that tip toes into banishment? You're losing the plot, friend.
It's simply a tweet to say he gets more value from talking directly with the founders about what he wants to know. Seems pretty reasonable to me, but I could see how a certain audience would say ** context and ignore to categorize it as "controversial edgy tweets". Easy to rile those people up though without challenging the algo.
In this case it isn't on the ban axis, but it's pretty obvious that Twitter likes edgy statements that are often in the "Ironic lie to make a point" (positive view) or "ironic lie shrouded in fog to let my avoid repercussions" (negative)
The whole point is that he didn't say it as you worded it, it's always about making a dramatic statement.
When you get into the "riling people up" part - like saying "Thanks I'll definitely listen to him now" in response to criticism of someones bona fides - it's very satisfying, but bad for the soul IMO. It subtly distorts how you view empathy because you're always arguing with a hyperreal snapshot of the other person (and them to you)
A business plan is literally the first thing you need to do when you have an idea for a business. The original idea needs to be developed so that you an others are able to see if it makes sense or is complete nonsense. That's a business plan. Whether the business is about tech or about something else doesn't make it any different in that regard.
Give it to an MBA to evaluate and they will come right back complaining about it. Guaranteed. And asking for a formal business plan with a detailed financial planning.
So, yes, in practice for someone who are familiar with startups it is a business plan. For everybody else it's just a generic description.
PG is a very, very bright guy and has left an outsized mark on the first two decades of 21st century consumer tech: his legacy is secure. I'll even grant that pre-A business plan decks are relatively low signal based on what I've seen.
But to just toss out the idea that balance sheets and discounted cash flows should have any bearing whatsoever on the value of an equity is so friggin Bitcoin.
PG/YC invest at the earliest stages. The information they need is pretty much:
1. What are you doing?
2. Do people like it?
3. How big is the market?
4. What are you/team like?
Could you cover all of those in a formal business plan? Sure, but you can also do so in a short-form application that's 1/20 the length or in a 10-minute back-and-forth conversation.
You don't have to ever view formal documents or financials to do that.
That is PG's broader point, and isn't really that controversial IMO.