# Dalton & Michael: Where do great startup ideas come from?

**Author:** Dalton Caldwell, Michael Seibel
**Type:** Video
**URL:** https://www.ycombinator.com/library/DU-dalton-michael-where-do-great-startup-ideas-come-from
**YouTube ID:** Jcuqq48CNj8

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Dalton Caldwell and Michael Seibel talk about where the ideas for Airbnb, Coinbase, and Stripe came from, and lessons
you can learn from these founders.

## Transcript

in all three of these cases these folks had the problem they had experience and in hindsight there was an obvious opportunity to make something 10x better but most people thought they were idiots and that's probably the overarching theme they had to be contrarian hey this is michael seibel with dalton caldwell today we're going to talk about where do great startup ideas come from we've picked three successful yc companies to unpack this question airbnb coinbase and stripe and there are three

common themes that we've seen through all three of these companies the first timing was important for each of these companies there was a pre-existing product pre-existing competitor dominant you might say but there was an opportunity to make something that was 10x better than what existed number two most people founders and investors thought these ideas were horrible either because they were too hard to execute or because they just were bad ideas and then number three and i think the coolest one of them

is that each of these opportunities turned out to be bigger than the founders even knew when they started they turned out to be way bigger all right so let's talk about airbnb um one of the things that i think is really interesting to set this up is that existing products did exist right airbnb did not come up with this idea so what were you using before airbnb to airbnb dalton yeah um for context i i think if you if you've only seen airbnb you think they came up

with the idea that's probably if i if i talk to my mom she'd say oh airbnb is a great idea that those founders dreamed up um but back in the day i was already using vrbo before airbnb was even funded by yc or or existed there was also a very popular startup called couchsurfing which was quite similar to airbnb and it had a lot of mind share had a lot of it was a big network and so it kind of felt like the third-rate entrant to a crowded space at the time i

remember when they were nyc that was my perspective do you remember that michael how'd you use any of those because i'd use vrbo personally and i thought i had used vrbo i had also used couchsurfing um one of the reasons why i was actually excited about working with the airbnb folks was because using couchsurfing was so painful and so i think that you know first thing when it comes to timing i think they nailed this hardcore they weren't first but the existing products weren't great and i think it's interesting to talk

about why the existing products weren't great because honestly that's important i would argue that like there were two fundamental facts that made the existing products not good the first is that vrbo and craigslist did not facilitate payments so when you arranged in a house share with someone or staying in someone's apartment you still had to pay them either in cash or check or wire and there was a lot of friction because there's two people who don't know each other having to trust each other to

transmit payments i think the second problem that vrbo had was they charge hosts to list and if you think about the core insight of this market it's that hosts are the game if you can get the most hosts you win you have the best inventory but if you charge them up run to be on your site uh like you're probably doing it wrong so to me timing was huge existing product did not there were 10x improvements that can be made and the second thing that was

really interesting was that um they were solving their own problem like most people don't realize that airbnb started because joe and nate needed to make rent money and there was a big conference going on in san francisco and they basically rented out room on their floor to host people so that they could make some money and it's funny because we always talk about personal problems but like not being able to pay rent that's like that's a real problem right

and that doesn't sound like a vacation rental which was what i was used to seeing uh on vrbo which was vacation rentals exactly exactly i think it was interesting at the time that a lot of people realized that they could use their property to make extra money and it's not a coincidence that this happened around the same time as the oa crash where a lot of people needed to make an extra buck and suddenly they realized oh i have an asset right now i can make some money on then i think the last thing is they used their own product airbnb

didn't realize the insight around facilitating payments around accepting payment when they launched they didn't have an insight when they launched you know brian came and spoke to yc recently and he shared the story that when he used his own product and he forgot to bring money for payment and the host thought he was a fraud he realized oh crap like our site needs to allow people to pay like we have to solve this problem so it's funny because these insights seems obvious now but dalton back in the day you know

put your investor hat on what were the [ __ ] takes like why did everyone think oh this is a dumb this is dumb oh look there's two extremes one was renting a house when someone is already home renting a room in a house with a hoster there was like the ultimate unappealing scary bad thing that no one wanted to do especially older folks you know like investor folks like investor types you know you have a lot of money and can afford nice hotels you want to go stay in a stranger's apartment in manhattan

like no thank you right so it was extremely unappealing idea of people worried about those sorts of things um and then like the other the other insight i have for you on this one is it was seen as uncool and impure when you're building the community at this time in history to charge money for it like the couchsurfing ethos was it was a very like communal community based pay it forward

social collective action decentralized goodness thing and to be commercial was extremely in poor taste and remember michael you and i both were the founders of this era all of the messaging that was bombarded from us from everyone all of our peers is that making money isn't cool and being commercial isn't cool and what they should have done is get as big as they could and and get 100 million people on airbnb and then charge once they built the network and so to charge

that's a horrible idea guys build a network first and then charge right like again you went through this as a founder man isn't this what you would have been told it's it's what we were told i mean twitch became big when we started diversifying our business model and it started accepting direct payments from users in addition to ads but that was seen as dumb back then so clearly and of course this is going to be a common theme if they had listened to most of the investors or most of the founders at the time

airbnb wouldn't exist yeah it'd be like well couchsurfing is free so your plan is to build something like couchsurfing but with no users and you're just starting and you're going to charge money for it good luck that sounds like a suicide mission right all right so so the next one is coinbase so set the scene for coinbase what do you think brian saw when he was getting rolling yeah so i was around back then and i was trying to buy bitcoin back then too and i remember um

the coinbase yc application really well in the whole historical context so to set this up for people circa 2011 2012 it was really hard to buy bitcoin really hard i remember looking into it around 2011 and there was a step of sending money orders like going to western union and sending a money order to some foreign country and that's when i opted out of it i wish i would have done it would have made a lot of money but i didn't because it just seemed too much like a total scam like if you ever sending money orders to foreign

countries something is going wrong in your life right um but anyway i also um was familiar with mountain gox and mount gox was a was the biggest and largest bitcoin exchange back in the day and um it went down a lot and got hacked and everyone lost all their money i actually lost some money at mount cox personally um i think i had about one bitcoin in mount cox i'm not too worried about it um i feel like the reputation for mount gox was like you can get money in but you can't ever get any money back out

that was the environment where is that was an acronym that was magic that gathering online online exchange it was originally a website to trade magic cards that they pivoted into into bitcoin and so anyway um the historical insight was buying bitcoin was something people wanted to do but all of the options were pretty bad that's the historical context and brian wanted to fix that i think what's really interesting about this is we come back towards he wasn't the first mover

was not the first mover but the product that existed was so bad that a 10x better product was actually within reach like it was actually possible i think the other fun insight here is that like portable online gold is valuable like it is 10x better than gold and so as something you might want to have if you think gold is something that you might want to own and it seems like the market does like owning gold portable online gold strictly better so i think

out of maybe all three of these founders brian was exposed to the most [ __ ] takes the most people saying this was not gonna work so break that down first like explain all the reasons why coinbase is not supposed to work and brian should not be a successful founder today well at the time um people saw bitcoin as a tiny market that it was going to crash that it was a bubble um investor didn't like it it was synonymous with a lot of you know actual fraud right didn't didn't have a great reputation

also getting a bank deal was impossible it's not like other founders didn't want to start something like coinbase uh us-based exchanges were incredibly hard to start and this is the reason why all the exchanges at the time were offshore was uh the regulatory environments were different in different places right another thing i want to note is even brian in his yc application didn't really believe in his own idea because what he basically applied to yc with was um the p2p transfer parts it wasn't buying bitcoin and holding it it was the idea

that he could build something like paypal to do p2p transfers and that the the buying bitcoin part but that was just part of it and so isn't it funny that even he kind of under accounted the simple promise of buying bitcoin in a non-sketchy way with a debit card in the us and not getting hacked and losing all your money that was enough that was enough of an insight to be the basis for like a hundred billion dollar company he didn't need to do all this other stuff but

and following the pattern a valuable insight that he learns after starting the company right like you don't have to have all the valuable insights before you start well you remember what the coinbase product was back in the day right it was a website you logged in you put in how much bitcoin you wanted to buy and you push the button and you bought it and that that was you could sell it too there was no there was no social network there was no comment fee you know it was probably the simplest products there were no graphs

it was one of the simplest products i've ever seen yeah but it's because it solved the right some single problem at the time and and i think that the way that this is kind of embodied was that uh fully embodied how bad of an idea people thought this was is that he had a impossible time raising money on demo day and so if he had taken the demo day signal the investor signal of oh we don't want to give you money and quit we don't have coinbase correct all right last one

stripe so um you had dabbled with payments um pre-stripe how easy was it to accept credit cards online pre-striped tell yeah share the story with everyone i have set up before stripe existed i set up um accepting credit cards from for my companies twice once in 2002 or so believe it or not when i was very young and then once again um in 2007 and to get a merchant credit card account um

was like applying for a mortgage you had to fill out lots of paper you had to fax in stuff you had to personally guarantee things they had to do fraud checks on you it was rough it was expensive there was minimums and so it's a possible thing to do but i would call it gnarly and the opposite of easy in every way okay and so that was so and i also remember when strike came out i was actually in the strike beta i was one of the first hundred customers of strike way back in the day for my cup for my third company the third time i want to accept credit cards and um

i really wanted it in terms of make something people want when it came out and i read about it on hacker news i immediately wanted strike and i hadn't even seen it yet i just knew i wanted it so that that's a historical context you know it's funny we were authorized.net users too um at justintv and twitch and perfect example again of like a taste of the good stuff but so hard to you it took us three months to start accepting credit cards i think there was a 30-page

contract that we had to read and figure out a sign and it was like wow so once again not first mover i think another really interesting thing about stripe was that it was a problem that they saw their peers in yc have so literally they were seeing all of their friends in yc not like going through all of the pain of authorized.net and they were hearing this story over and over again and then you know that's a good hint for people out there looking for ideas like if all of your smart technical friends are complaining about the same thing

maybe it's a real problem now last insight that i think that they had talk to me about their go to market and specifically about understanding that their customers were developers and not business guys because i think that was revolutionary at the time yeah the the really clever brand promise or marketing stance or whatever you want to call it they had was to try to make the most beautiful website they could with the most beautiful documentation

that was every you know programmers dream like they they constantly ask themselves and push themselves to say what would i want or what would it what would a programmer want and this is so different than every other processing company because it was built for basically business people like the customer was not the the programmer who had to implement authorize.net was not the customer it was like some someone getting paid you know 20 bucks an hour or something to to implement the code whereas this was like they went nuts

at making something that developers would just freak out about and everyone copied it by the way every developer would copy the stripe documentation copy the stripe website it was like the apple it was it was like if steve jobs had to design a payments company it would be stripe and i think they totally did this on purpose but what this created is a lot of buzz on hacker news and around nerds basically that hey have you seen the stripe thing oh are you in the band also they did a beta invite program

and so there was a it was a hot commodity to be able to get into stripe and be able to use it you were seen as well connected if you got the the pleasure of getting to use stripe it was like a favor they were doing you to use their product that's how that's how that's what a great job they did in making the website and documentation excellent what i love is that when the strikefounders came to speak at yc the other detail they added was it was the most expensive product in the market like to make sure people really wanted it they didn't give it away for free

they didn't price it comparably they made it more expensive and people were still desperate to use it like that's how you know you have an insight like when you're the most expensive thing speaking of apple and people still are desperate for it now the [ __ ] takes right the [ __ ] takes were pretty clear one what are two teenagers doing in the banking space the right government regulation it's the most regulated space in the [ __ ] world right isn't this like a suicide mission you're like hi we're 19. um we want to start basically a bank give us all your money like we're gonna

we're gonna we're gonna handle hundreds of millions of dollars of everyone's money so yeah that's our plan and there will be no fraud like we're good i think the second one is that even subtracting the regulation they needed a bank deal they needed wells fargo to let them start using their rails well like as an early stage startup they need to get that which at the time seemed impossible and then of course i think the last one is that like you know paypal existed there was a really popular company where it felt

like paypal was like a quarter step away from this right and it was like oh even if you start doing well paypal can go here instantly they have all these users they're the hot company yeah it was seen as a crowded market with huge companies with hundreds of employees thousands of employees and it's the classic thing again the knock against yc companies at the time is why c would just fund crappy versions of existing company like the third-rate knock-off version of something actually good was what yc companies were isn't that hilarious i

don't know if people remember that but that was the reputation of yc companies is like oh yeah they'll take a existing idea that's good and they'll make like a less popular version of it which which kills me because like in all three of these cases these folks had the problem they had experience and in hindsight there was an obvious opportunity to make something 10x better but most people thought they were idiots and that's probably the overarching theme they had to be contrarian

to walk down this path because if they had asked 10 startup experts 10 investors 10 fellow founders eight of them would have told them that they were stupid and like they had to build good products like you can't take for granted you can't we can't you know talk on a whiteboard and plan our strategy and win all of these founders had to actually do it and the doing it part was the hard part yes right like all these people had to execute and build a product that people loved and actually worked and all these

people built products that handled hundreds of millions of dollars and they couldn't lose the money right so the actual execution bits talk is cheap execution's hard execution's expensive they all these folks had to execute so i think what the takeaway here is if we can sum this up one you shouldn't give a [ __ ] if there's an existing product in the market if you're a user of that product or your friends or users of that product and they all hate it and you should not give a [ __ ] um two

you should not give a [ __ ] if most of the people around you who you believe are experts don't think this is a good idea especially you shouldn't care if they're not going to be users if they have no experience with the pain of using the existing product and then three be very careful about your initial market math be very careful about pretending that you know how big the market could be it turns out with so many of these transformational technologies there are use cases you

can't dream of that once you build a 10x better product other people will do and so each and every time these founders were presenting oh we have a market size of blank the next time they raised money they could say actually we made a mistake the market size is actually bigger we didn't think of this we didn't think of that and so don't be discouraged if someone's like that's a tiny market that's kind of a [ __ ] um thing that would have killed all these companies all right talk to you later man
