Would Steve Jobs have applied to Y Combinator?

A quick glance at yclist shows how Y Combinator has become the war factory for the Web 2.0 revolution. If your aim is to take an existing application, strip away the cruft, replace it with a stellar user experience and see your product adopted by the world then Y Combinator is for you. Y Combinator's unique skill at turning around these web 2.0 companies is the reason why none of the copycat incubators have an alumni list or investment portfolio containing names such as Dropbox, Reddit, Clickpass, Posterous or Codecademy. I can't think of a better list. Except perhaps one containing Facebook, or Twitter, or a new Google or Apple. Is Y Combinator as limited in scope as it is successful? Is the next Steve Jobs or Bill Gates filling in Y Combinator's application form right now, or are they taking the independent route?

Although critical in nature, this post isn't just me taking a swing at Y Combinator and web 2.0 movement. Y Combinator deserves a great deal of credit for tempting college students away from banking jobs towards an industry where they can "change this world", unfortunately the focus of the resulting companies isn't so much on changing the world as it is fixing bad applications. This "change the world" mantra is universally quoted by Y Combinator founders (and deluded database CEOs), but the next great blogging platform is still a blogging platform, and a fancy database is still a database. I can't wait for a Y Combinator startup to build a viable and bloat free alternative to Excel/Numbers/OO Calc, it won't be changing the world in the way Visicalc did. Google on the other hand are building autonomous cars and Elon Musk is using his paypal fortune to build electric supercars and space rockets.

The lack of ambition and innovation is certainly not because of a lack of talent with Y Combinator founders. This point hardly seems worth expanding upon. Technologically speaking, the best of the best head straight to the orange room to begin their careers.

I think the problem is rooted in the business model that seems to be preached by Y Combinator: build a great product, choose investment over income, and exit as quickly as possible. Angels investors, quite reasonably, want to see a return on their investment, and what better way is there to realise this than a juicy acquisition cheque? The approach of remaining independent, and investing profits back into to the company followed by technology zealots such as Jeff Bezos and Steve Jobs is unattractive to an investor. Investors are well aware that many more people are capable of building a company worthy of acquisition than are capable of building a company like Apple, Amazon or Microsoft that is worth owning in its own right.

With this business model in mind, building better versions of existing products is the optimal approach. Not only do you have a model to start from and a guaranteed market, but if you succeed, you also have a very large, very scared, and very rich company who will buy you out for almost any amount of money rather than compete with you.

I doubt Y Combinator is going to change its (and by extension the Valley's) phenomenally profitable approach to investing, and I'm also sure that there are still plenty of crazy people out there working to change the world, but it is a shame that Y Combinator doesn't take a few of them under its wing so that the rest of us can feel the benefit of their creativity a little sooner (and with a much better user interface).

Posted on 18 May 2012

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