Sam Altman: Customer love is all you need

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0:41That's why over 3 ,000 firms trust Affinity, the CRM platform purpose-built for private capital. Affinity's relationship intelligence reveals your team's strongest paths to founders, investors, and decision makers using insights It's hidden in emails, calendars, and meetings. With powerful AI tools like Affinity NoteTaker and Deal Assist, you'll spend less time managing data and more time closing the right deals. Learn more at affinity.co slash marketplace. My friend Sam Altman is a bit of a geek. And he's okay with me saying that, I asked. To talk about my nerdy qualities, I approve of that. Yes, I thought you did.

1:26Many people have noted you have an affinity for cargo shorts. Honestly, I don't think they're that ugly, and I find them incredibly convenient. You can, like, put a lot of stuff. Like, I like to, I still read paperback books. I like to carry one around with me. I carry, like, computer chargers, cables. They're just, like, you know, efficient. It's somewhat your Batman utility belt. Yeah, you just can carry a lot of stuff. People don't often ask Sam directly about his cargo shorts, or his geekiness for that matter. Sam's the president of Y Combinator, one of Silicon Valley's most prestigious startup accelerators.

1:57He's incredibly respected, and founders everywhere know he can make or break their fledgling company. But if you really want to understand Sam, you've got to understand what species of geekdom he falls under. Sam is not just your garden variety geek. He's a student of the history of geeks. An aspiring student. An aspiring student with a fascination for an entire range of tech. So one of the pieces of tech that you ended up getting was a bronze sword. I'm not sure exactly which sword you're referring to. Turns out Sam has a whole collection of swords and battle axes. And this fascination with ancient weaponry has put him in some uncomfortable situations.

2:43I asked him about one. And one of the things I learned from the New Yorker profile, which I had no idea because I've never seen it, is that you occasionally bring a sword in with you to interviewing entrepreneurs. No, that's not true. No? Well, either they wrote that wrong. No, I think I remember what happened. So here's the story as Sam remembers it. A reporter from the New Yorker had been shadowing him for weeks to work on a profile. They're in Sam's home office, sitting through meeting after meeting, and Sam is getting bored. it's the 16th meeting of the day, and I needed some energy. Suddenly a package arrives, and Sam gets really excited.

3:22I had bought this Bronze Age sword. Yes, you heard that right, a Bronze Age sword. It had just arrived, and I'd been waiting for this thing. Finally. You know, like, it had flown over from Europe, and it was in this big crate, and I got it out. It was stunning, perfect. And so I was, like, so excited. I mean, the first thing you do is, like, pick it up and swing it and see, like, how it's weighted, how it feels. And this particular one had, like, the nicks of where it hit people's helmets a couple thousand years ago. Or maybe bones, right? Too much of a nick for a bone. Too deep of a nick in the metal.

3:53The nicks in the metal might not have been from bones, but he's swinging around this massive weapon from the Bronze Age with a journalist from The New Yorker in the room. And the day isn't over yet. I was on the phone, and it was kind of like a not particularly exciting conversation. And so I picked it up and I just started, like, while I was on the speakerphone, like, swinging it around and, like, fighting this pretend enemy because I was so excited. I just got this. I've been waiting for it for so long.

4:21And I didn't realize until I put it down at the end that, like, that was probably really dumb and it's probably going to make it into the profile because the reporter was sitting there watching. You kind of just forget after someone's with you for weeks. But I have never swung a sword at someone during an interview process. I'm glad we can finally put that rumor to rest. The headline, Sam Maltman, Swing Swords at Young Company Founders, can officially be put in the category, Fake News. He's not just an ancient history geek, he's a geek history geek. He collects tech artifacts, from historic computers to jet engines, any object that represents a breakthrough in engineering history.

4:56And that's also essentially what he's searching for today. A technology that's so new, so unlike anything that's come before, it unleashes a geyser of demand. There have been consumers across all eras who have just had to have the next big thing. I gotta get a walkman. Give me that iPod. And if the history of geekdom has taught Sam anything, it's that a product that's deeply loved by a small group of early users is a product that can scale. I agree. And in fact, I believe it's more important to have 100 people who love your product than a million people who just sort of like it. You've got to have incredible talent at every position.

5:37It's like this huge push. There are fires burning when you're going home. Can you believe it? Such an idiot. And then you go back to, this is totally going to be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. Oops. working as a three-bedroom apartment. Stuff that just seems absolutely nut balls. Ten years later, we're like, well, that's just how you do it. We haven't made it just how you do it.

6:04This is Masters of Scale.

6:12I'm Reid Hoffman, co-founder of LinkedIn, Investor Greylock, and your host. And while I'm obviously a big believer in creating things that can scale, you make this whole show about it, I believe it's more important to have 100 people who love your product than a million people who just sort of like it. And this isn't always obvious. Many entrepreneurs fall into the trap of chasing the illusion of scale, the 1 million users who show up to use a flash-in-the-pan product. What you actually want to do is seek out the true seed of scale, which has much humbler origins. Many great scale stories begin with a teeny kernel of diehard fans, perhaps no more than 100 strong, who are almost zealous in their passion for your work.

6:55They hang on to every product release. They can't believe that they ever lived without you. Think of Sam when that sword arrived. Because I was so excited. I just got this. I've been waiting for it for so long. It sounds like that. And when a user like Sam gets excited, that matters. Not only because it drives use and loyalty, but because it will drive him to tell his friends. Hey, did you hear about that new thing? And if he tells two friends, and they each tell two friends, and they tell two other friends, well, that story gets big pretty fast.

7:28I wanted to talk to Sam Altman about this because he has an uncanny eye for these kernels of passionate early users. Y Combinator has become known as a kingmaker in Silicon Valley. Their alumni include Airbnb, Dropbox, Stripe, Reddit, and more than 40 companies that are valued at$100 million or more after being incubated at Y Combinator, or YC as we call it. But Sam doesn't look for kings. He looks for startups that show these early signs of love from their users. And how does he spot them? He pattern matches with history. Think about his private collection of engineering milestones. He has an insatiable appetite for these objects, and his collection is constantly expanding.

8:14I like things that were like super important technological milestones in human history. Even if they look like not really technology. So I have like a big collection of hand axes. This was the longest serving by far like a million and a half years piece of technology in human history. Is there any particular artifact that you're hunting for? I don't know how I'm going to get this one, but I would like an F1 engine. Or at least I would like the bell of an F1 engine. Bezos got one by pulling it out of the ocean and convincing NASA to loan it to him. I mean, that's really a lot of work. Is there another one or two?

8:51Because this is actually personally fun. Oh, Alan Kay gave me Alto. Alan Kay created the first computer with a graphical interface called the Alto. It inspired the first Macintosh. That's not the very last computer that I think is within my capability to understand everything that's happening in there. But it's getting near the end. This collection is like a whetstone Sam uses to sharpen his instincts. When he's deciding which founder to admit to a Y Combinator class, he looks for a groundbreaking idea that has the potential to give users something they can't live without. If he doesn't see it, he passes.

9:29But to understand how Sam spots the indispensable startups, you have to know how he arrived at YC himself. He wasn't predestined to become the startup kingmaker. When he graduated from college, it could have gone either way. I'm very ashamed to say that I had been planning to go be an intern at Goldman Sachs that summer. Ashamed is a pretty strong word, and a distinctly Silicon Valley reaction. After all, it's tougher to get a job at Goldman Sachs than it is to get into Harvard.

10:00Only about 3 % of applicants get hired. It would make his family proud and his friends envious. He could live comfortably ever after. Or he could take the far less comfortable path. One better suited to my cargo-shirt-wearing, bronze-age, sword-wielding friend. It began with a little mobile app that Sam and his friends developed while studying at Stanford. It was called Looped, and it let you share your location with friends. It started as just a project that we worked on sort of like after class and at night. We had worked on it during a spring quarter, and it was really fun. Fun isn't exactly a sound business plan.

10:41And what makes this idea even shakier is that it's 2005, two years before the first iPhone was even invented. The word app store had not entered into our vocabulary. So the odds of making money with this mobile app were incredibly low. And remember, the odds of making money at Goldman Sachs are 100%. The odds were stacked against Sam and his startup, and everyone could see it. If you said you were working on a startup, people sort of laughed at you in a not nice way. But not everyone was laughing. A new community was just forming, one that was deadly serious about startups and fun. It was called Y Combinator, and it immediately called out to Sam.

11:25For starters, its founder was the now legendary computer scientist and entrepreneur Paul Graham. We all kind of knew who Paul Graham was. We had followed him online, and he posted this thing saying like, hey, not excited about your summer job? Like, come hack on your project and you can make a startup. And, you know, it seemed like it would be more fun than being an investment banker. fun actually can make business sense if you love what you're doing and other people do too and paul was determined to prove that young innovators with deep passions could find success if they were willing to take a gamble

12:04but this was a controversial idea outside of y combinator paul graham was considered a sort of Pied Piper for young entrepreneurs, leading them down the road to ruin. He wrote an essay about this in 2007, which you can find on mastersofscale.com. Traditionally, investors would fund companies in stages, show me growth and I'll show you the money. Step by step, you had to show user growth, hypothesize how much they'd spend on your product, and lay out in painfully minute detail how much money you'll need and how much money you'll make. It's classic business 101 thinking, and it can be exasperating for a founder.

12:43I experienced myself when I was raising a Series A round for LinkedIn. Right around the time that Sam was a college student, I was looking for investors. At the time, potential Series A investors wanted to see a business model that showed how LinkedIn would get to profitability. I told potential investors that we weren't going to generate any revenue until after the next round of financing, and that therefore it shouldn't matter to them. They insisted anyway, so the team and I generated a financial model that included revenue sources. I don't even remember what we put in it. Rather than wasting weeks on it, we simply set aside a single evening, drank a couple glasses of wine, and put together the model.

13:23I might have even been a little miffed at having to waste even that single evening, but it was pretty good wine, so it wasn't a total waste. Contrast that with an investor like Paul Graham. He says, forget the spreadsheets. Quit speculating. Just start building on a shoestring budget and build something a teeny cohort of users will love. Love is all you need. Some of you might be rolling your eyes at this idea, love is all you need. Oh, brother. So I want to share a story that might soften your cynicism. It comes from Dominique Ancel, the famed New York chef who invented a pastry that became a global sensation.

14:03You may have heard of it. It's called the cronut. It's part donut and part croissant. Ever since the cronut became the hottest thing since sliced bread, people have been mistaking Dominique for a master of publicity, a sort of P.T. Barnum of the baking world. So our producers visited Dominique's Manhattan bakery and asked how he engineers these publicity coups. Dominique's answer? He doesn't. there was no marketing there was a team of like literally like four employees and myself and when people approached me and asked me what my marketing strategy was and what was my budget to launch a campaign like this i'm like you guys don't understand it's it didn't happen this way and we're a small small bakery a tiny bakery a neighborhood bakery and a street of uh soho So it's, you know, it happened naturally, organically.

15:00Here's Dominique's memory of how the cronuts scaled. Naturally. Every day, he bakes a fresh batch of croissants and studies them like a scientist. I actually look at it every day. I can't have, and I look at what we call the honeycomb, which is the structure created by the fermentation of the dough. So all these little, like, air pockets that are inside. The fermentation, you have to smell it. It's a different type of fermentation. The crust, the volume, the flakiness, everything is so, so important. And it's alive. This obsession with the fermentation, the flakiness, the technical details, reminds me of all the great product designers I know.

15:42Dominique was singular in his focus on getting his croissant right. Then one day, Dominique's staff challenged him to make a donut instead. I don't do donuts. I told them that I have no recipe for donuts since I'm French, but I definitely can come up with something new, something special. One hundred taste tests later, the cronut was born. A food blogger, Hugh Merwin, arrives, snaps a photo, and shared the invention with his fans on Grub Street. The massive response stunned even the blogger. And he called me the same afternoon, letting me know that he had an increase of traffic of 300 % on his website and over 140 ,000 link.

16:25And he told me to be ready to be busy tomorrow. I had no idea what he was talking about. I was happy for him. I told him, I'm happy for you. I need to go to sleep. Dominique and his staff were facing a situation I'm all too familiar with. It's the inevitable fallout on the morning after the overnight success. And next day, we had over 100 people outside. By the third day, we had over 150 people waiting outside. and it was just overwhelming for everyone and it was very sudden. This doesn't happen, but it happened to us. It was just overwhelming for everyone. The staff all wanted to quit. It was too much.

17:05The rest is pastry history. And if Dominique's staff initially wanted to quit, they soon learned to cultivate the unexpected outpouring of love. His staff treats the loyal customers lined up outside like invited guests, serving them hot chocolate before the bakery opened each day. I think it's important for any chef to be in touch with the guests, the customers, to see them, to listen to them, to wish them happy holidays and to thank them for keeping on coming to our shop. I think it's important we have a lot of very loyal customers, a lot of people from the neighborhood. And at the end of the day, the bakery is a local business, is a neighborhood business, and it's not live without the people in the neighborhood.

17:54If you've never waited in line to enter a popular New York store, like Supreme, for example, you may not realize just how radical these small acts of kindness are. And I suspect it had no small impact on the Cronut's success. But if you think Dominique now sits around trying to concoct the next novelty goodie, think again. I don't think there's a need or a desire for me to try to recreate something like the cornut. I don't think I can. I don't think I won't. I aim to create pastries that talk to people. And of course I want them to be popular. Of course I want them to be successful. Of course I want people to appreciate it.

18:37But it's not, you know, I'm not trying to be gimmicky or trying to do something that doesn't mean anything to me. I'm still trying to, like, translate my ideas through pastries. You cannot force it. You know, even with all the money of the world, like, you cannot recreate the Cronut. Even if, like, you can hire, you know, the biggest team, like, the smartest people, you cannot recreate something like the Cronut. You could apply the same argument to just about any globally successful product. All the money and all of the marketing savvy in the world cannot sustain its growth in the long run. You need more than your customer's attention.

19:16You need their unflagging devotion. And this poses an almost zen-like riddle for entrepreneurs. The first step to scale is to renounce your desire to scale. Focus on those happy few. This is a concept that every artisanal maker of small batch goods grasps instinctively. Scale entrepreneurs? Not so much. But Paul Graham was determined to prove the same fundamental truths applied to entrepreneurs with global ambitions. And to prove his point, he offered a laughably small sum of seed money to those early Y Combinator entrepreneurs like Sam. Each one got$6 ,000 plus free dinners. That's it. Off you go.

20:00Sam was intrigued. So we applied to YC and flew out and interviewed and got funded. We're actually the first company ever funded by YC. And then it just kept going. So Sam entered the first class of entrepreneurs at Y Combinator. And they were essentially the guinea pigs who were meant to validate Paul Graham's theory of scale. And Sam offered quite the validation. After graduating from YC, his company, Looped, struck deals with Sprint, Verizon, BlackBerry, and AT &T. With the advent of the iPhone, they were positioned for growth and became one of the first offerings in the iPhone app store. Here's Sam sharing the stage with Steve Jobs in 2008.

20:42We are incredibly psyched about Looped on the iPhone. Location plus a contact list and information about cool places means you never have to eat lunch alone again or at a bad place. And we think that's really cool. We really do. You can use Loopt with your friends on most other carriers or devices. In 2012, Loopt was acquired by Green Dot Corporation for more than$43 million. We got acquired, and I was trying to figure out what I wanted to do next. Sam was 26 years old. And I decided I was going to partly take a mid-career sabbatical. Race cars, fly airplanes, travel the world, all that kind of stuff.

21:16When he wasn't on the racetrack or in the air, Sam tried his hand at the venture capital game. He had an eye for it, investing early in companies with real potential. But it just wasn't his idea of fun. I liked running a company. I did not like being on the sidelines. I didn't get the adrenaline rush I get out of being in the trenches of running a company, which I think is something that a lot of founders miss when they start investing. Sam missed being in the trenches. He felt adrift. And Paul Graham, Sam's mentor, could see it. And I was thinking about things I wanted to do, And Paul Graham had sort of jokingly said a number of times over the years that I'm going to retire and you should take over YC.

21:55Turns out Paul Graham was only half joking. In 2014, he asked Sam in all seriousness to take over Y Combinator. Sam accepted the offer and became president of Y Combinator at the age of 28. Despite his youth, he was the perfect fit. YC isn't just an investment firm. It's an incubator for founders who want to reshape the future. Think of Y Combinator as an extension of his Bronze Age swords collection. Only this time, he's collecting the people who can make the swords that will change the world. So where does he begin? He begins with a simple mantra. He repeats it to every founder that comes through YC's doors.

22:34Love is better than like. Real leaders don't back down when the stakes are high. They innovate, they push forward, and then they take the stage at the Masters of Scale Summit. Join us in San Francisco, October 7th to 9th, to hear from the CEO of the New York Times, scientists using cutting-edge technology to find cures, the leader of crypto powerhouse Coinbase, a retired four-star general, and many, many more. Apply now at mastersofscale.com slash apply25. That's mastersofscale.com slash apply25.

23:38aws.amazon.com slash activate and start building. Expanding your business in the U.S. can feel like a maze. Every state has its own payroll, benefits, and compliance rules, which can pull your focus away from growth. That's why founders use Deal. Deal is the Professional Employer Organization, or PEO, that gives you a dedicated HR expert plus Fortune 500 level benefits for your team. The National Association of PEOs says businesses can grow twice as fast if they use one. So if you're scaling, make it simple with Deal. Go to deel.com slash mos and get up to three months free. So love is much better than like.

24:26Why this central mantra within YC and all of the startups that are coming through? Well, I think there's a few different reasons for that. One is that it objectively seems to be true. If you look at the companies that have gone on to become super important and valuable and shape the world in a big way, they tend to have fairly fanatical early users. If you think about how you first came across Facebook or Google, it's very likely because a friend told you how great it was. It is indeed objectively true that these hit products spread by word of mouth. On the other hand, I can point to a whole graveyard of startups that started out with passionate users.

25:06And then the passion faded. The startup withered away and died of loneliness. It's heartbreaking. So passion is a great indicator of success. But it leads to a vital question that every founder must ask a user. How deep is your love? Sam has a clever way to plumb the depths of their affection. When the first iPhone came to market, everyone has a gog at its new features. A touchscreen, apps, music on your phone. And don't forget about me. But Sam wasn't just studying the iPhone's features. He was studying its users intently. So one of the things that was obvious when people got iPhones, even though there were only a few million of the first iPhone that sold them, there's people that had them use them every day and loved them, and it became their most precious item.

25:53I remember shortly after the iPhone came out, I was in a developing world country that was really quite poor. And people had nothing except they all had a smartphone. And once they had one, like you read these statistics and people need to do some lightweight journalism about like, would you rather give up your smartphone or X? And it doesn't really matter what X is, they're going to keep the smartphone. And so I think you could have predicted with a lot of certainty, many people did, that this was going to be a large market. This is a rather extreme case of attachment to a product. The odds you'll create a product that is so addictive, your fans would give up all their other worldly possessions for it, are pretty much slim to none.