Contrary to fears of a "circular economy," YC founder Paul Graham advises that selling to other startups is optimal. They are smarter, less bureaucratic, and more representative of future trends. A product that succeeds with this discerning group is well-positioned for broader market success.
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The most effective operating philosophy for an early-stage company is brutally simple. It dictates that all time and energy should be spent on only two activities: understanding what customers are trying to achieve (demand) and selling a solution that helps them, while ignoring all other distractions.
YC provides a built-in go-to-market engine where startups treat their 200+ well-funded batchmates as their first customers. This 'win YC, win the market' strategy de-risks early customer acquisition and provides critical initial revenue and case studies to build momentum.
Startups often fail to displace incumbents because they become successful 'point solutions' and get acquired. The harder path to a much larger outcome is to build the entire integrated stack from the start, but initially serve a simpler, down-market customer segment before moving up.
YC distinguishes startups from regular businesses based on their potential for exponential growth, aiming for billion-dollar valuations. Profitability alone defines a business, but not necessarily a startup—a key concept for aspiring founders.
Successful startups tap into organic customer needs that already exist—a 'pull' from the market. In contrast, 'conjuring demand' involves a founder trying to convince a market of a new worldview without prior evidence. This is a much harder and less reliable path to building a business.
You've achieved product-market fit when the market pulls you forward, characterized by growth driven entirely by organic referrals. If your customers are so passionate that they do the selling for you, you've moved beyond just a good idea.
Instead of searching for a market to serve, founders should solve a problem they personally experience. This "bottom-up" approach guarantees product-market fit for at least one person—the founder—providing a solid foundation to build upon and avoiding the common failure of abstract, top-down market analysis.
This reframes the fundamental goal of a startup away from a supply-side focus (building) to a demand-side focus (discovery). The market's unmet need is the force that pulls a company and its product into existence, not the other way around.
Believing you must *convince* the market leads to a dangerous product strategy: building a feature-rich platform to persuade buyers. This delays sales, burns capital, and prevents learning. A "buyer pull" approach focuses on building the minimum product needed to solve one pre-existing problem.
A core investment framework is to distinguish between 'pull' companies, where the market organically and virally demands the product, and 'push' companies that have to force their solution onto the market. The former indicates stronger product-market fit and a higher potential for efficient, scalable growth.
