Y Combinator Co-founder: How to Make a Billion Dollars?

Author: Paul Graham, Co-founder of Y Combinator

Organized from the author's speech at the Oxford Union

Since this is the cradle of future prime ministers, I'd like to talk to you today about something politicians ought to understand: how ordinary people become billionaires. Even if you have no political ambitions, I believe this content can be inspiring. If you don't become a prime minister, you can choose to become a billionaire.

The reason I can speak on this topic is that 21 years ago, Jessica and I co-founded the startup incubator Y Combinator. If you haven't heard of Y Combinator, it's a hybrid of an investment firm and a startup school. Since its founding in 2005, we have invested in approximately 6,500 startups.

Starting a successful startup is the most mainstream path to becoming a billionaire today. Over the past 21 years, my work has essentially been training entrepreneurs to reach the peak of wealth. Currently, about 30 of our alumni have successfully become billionaires, with many more on their way.

That's also why I was so surprised by the statement made by a US politician last month. She claimed that it's simply impossible to make a billion dollars. It felt like a figure skating coach hearing someone say a triple axel can't be done. Making a billion dollars is difficult, but it's not an impossibility.

Of course, this politician wasn't simply denying that people can become billionaires, nor was she quibbling over accounting concepts like income vs. capital gains. Her real point was: it's utterly impossible for a person to accumulate such vast wealth without resorting to improper means, exploiting loopholes, or harming others.

A few days later, I was speaking with an entrepreneur we invested in. As usual, my first question was about her company's growth rate. She replied that last month's revenue growth rate was 93%. I immediately pointed out that this meant her personal net worth was also skyrocketing at 93% per month, an astonishing rate of wealth accumulation. And from start to finish, she had never done anything improper or harmed anyone. The reason for the company's explosive growth was simple: users genuinely loved the product they had built.

This entrepreneur's personal experience is enough to prove that the politician's view is clearly mistaken. She never exploited anyone; on the contrary, she and her co-founders dedicated themselves to refining their product and serving their users. Satisfied users actively recommended it to friends and family, leading to exponential growth.

Later that day, I shared this case online. Someone commented: having a few million in assets and growing at 93% per month is completely different from being a real billionaire.

I believe many people hold the same view, but this opinion is not only wrong, it also hides a logic worth pondering.

Next, I'd like you to do something: take out your phone and calculate a set of numbers. This exercise might seem contrived, but it's crucial for understanding the essence of a startup, and it's the calculation I most frequently make as an investor.

Let's interpret "a few million dollars" by the most conservative standard, assuming initial assets of $2 million. To go from $2 million to $1 billion, assets need to grow 500 times. Now let's calculate: at a monthly growth rate of 93%, how long it takes to achieve 500x growth.

This calculation is equivalent to finding the logarithm of 500 with base 1.93. You can directly type the formula log(500, 1.93) into the Google search box. The result is approximately 9.45 months.

In other words, starting from $2 million and maintaining a 93% monthly growth rate, you would become a billionaire in just over nine and a half months. So, the gap between starting with a few million and achieving billionaire wealth is not as distant as one might think—it's merely a matter of a little over nine months.

This also explains why my first question to entrepreneurs is always about their growth rate.

To preempt any criticism that this growth rate is too idealistic, let's take a more conservative figure: a 15% monthly growth rate. This growth rate is very common in the startup world; I've encountered numerous startups maintaining this pace.

If a company's monthly revenue grows steadily at 15%, what will its revenue be after five years? Five years is 60 months. The calculation is 1.15^60, which equals approximately 4384.

This means after five years, the company's revenue will be 4384 times its original size. If the current monthly revenue is $10,000, then in five years, monthly revenue would be about $44 million, with annual revenue exceeding $526 million. Given the typical founder's equity stake, one would naturally become a billionaire.

In reality, a company's growth rate typically slows down gradually. A strong startup often grows faster than 15% in its first year and slower than that by its fourth year, but the overall growth magnitude achieved tends to be similar. Someone who starts a company in their early twenties can very plausibly become a billionaire before turning thirty. The path is hard, but it's entirely feasible.

The reason I wanted you to calculate these results yourselves was to intuitively understand the core logic of startups: exponential growth has an almost magical power to create seemingly impossible outcomes. And this is partly why some politicians are prejudiced against it—they don't understand the mathematics of exponential growth. When they see someone accumulating vast wealth rapidly, they assume that person must have used improper means.

Now, through calculation, you understand: to make a billion dollars, there is absolutely no need for trickery or shortcuts. The entire process depends on just two core variables: the growth rate, and the duration for which that rate is sustained. If it were truly impossible to make a billion dollars legitimately, which of these two variables would be the problem?

First, achieving a 15% monthly growth rate without improper means is already the norm in the startup world; there's no doubt about that. How long the growth can be sustained depends on the market size. To achieve thousands of times growth, the market demand must expand by thousands of times as well. But market size is an objective fact; you cannot artificially enlarge a market through trickery.

If your goal is merely to go into politics and become a future prime minister, you can stop here. We have demonstrated clearly: making a billion dollars legitimately is entirely feasible. It's determined by two objective variables, one of which is the norm for startups, and the other is also not something that can be manipulated by improper means.

But if you genuinely want to become a billionaire, let's delve a little deeper, focusing first on the first variable—growth rate. To maintain a stable growth rate over the long term, the core is to build a product with excellent word-of-mouth, one that users spontaneously recommend to others. This is another reason I always prioritize asking about growth rate: the rate directly reflects whether the product truly meets user needs.

So, how exactly do you build a product that people actively recommend?

The market economy has two sides: On one hand, existing products largely cover known public needs, making it difficult to uncover new ones. Once a new, satisfiable need is discovered, a crowd of practitioners rushes in. Therefore, you must find a potential need that others haven't yet noticed.

The simplest way to discover a new need is to start with your own needs.

This is the advantage young entrepreneurs have. At this stage, you may not have enough experience to accurately judge the needs of other groups, but your own needs are valuable as they often represent future market trends. Young people are the first users of new things. The products you and your friends are passionate about today will likely become mainstream in ten years.

Predicting others' needs is prone to error, but your own genuine needs are a reliable signal. So, the first choice for young entrepreneurs is to build products that they themselves and their friends need.

Building a product for yourself doesn't mean it has to be a consumer app. If you and your friends work in molecular biology, you might uncover overlooked innovative directions in DNA technology; if you and your peers are passionate about drones, you can also delve into that sector. Initial ideas don't need to cater to the masses; it's enough if they resonate with you and people in your immediate circle.

Also, don't worry prematurely about the second variable—market size. Since your needs represent future trends, the corresponding market will naturally grow over time, and you can later expand into adjacent areas. You just need to find an unmet need as an entry point and use it as a foundation for gradual expansion.

How do you find such startup ideas? This is one of the most counterintuitive principles in entrepreneurship—deliberately searching for startup ideas often fails to yield good ones.

With a mindset of "looking for a project," people unconsciously become conservative, actively filtering out ideas that seem niche or unconventional. But top-tier ideas often seem unremarkable or even absurd at their inception, which is why they remain undiscovered for so long.

Think back to the early days of Apple, Facebook, and Airbnb: who would have thought everyone needed a personal computer? Who believed an online social platform for college students could be profitable? Would people pay to stay in a stranger's house and sleep on an air mattress?

Now that these companies are successful, it's easy to romanticize their origins in hindsight, but I clearly remember that when Facebook and Airbnb first appeared, the general sentiment was not optimistic. When we invested in Airbnb initially, it wasn't because we believed in the business model; we simply admired the founding team.

If you can't deliberately search for ideas, where do they come from? The answer is: work on projects you find interesting with friends. The vast majority of top startups are born this way; they often didn't even start with the goal of forming a company, but simply because a group of people found something interesting and worth trying. Apple, Google, and Facebook all started this way.

This logic also confirms the earlier point: young people's preferences predict future needs. Seemingly casual creations often hide market opportunities.

Often, subconscious judgment is far sharper than rational thought. As long as you genuinely feel a project is worth doing, even if the idea sounds absurd, it can likely evolve into a great startup direction. No idea is too ridiculous; just consider Justin.TV, which we invested in back in 2006. Founder Justin Kan wore a camera and live-streamed his daily life 24/7. This seemingly nonsensical project eventually grew into what you now know as the live-streaming platform Twitch.

The core of building a successful company is deeply understanding a type of user and accurately building the product they truly want. Young entrepreneurs can take the shortcut of "building a product for themselves" because you know your own needs best. This is just one manifestation of a universal rule: only through deep user insight can you create a product that people rave about, leading to the exponential growth that propels a company forward.

There are other paths to wealth, some of which do involve profiting by exploiting others. But starting a startup is the most mainstream way to accumulate vast wealth today. And doing this well relies not on scheming or exploitation, but on empathy: understanding users' real needs and thinking about how to tangibly improve their lives with your product. This is also the quality we value most when selecting and nurturing entrepreneurs in our program.

How wealth is distributed in a society is key to understanding that society. Don't be misled by entrenched ideologies, movie tropes, or centuries-old examples. Be sure to ground yourself in the present and see the real logic of wealth creation. If you plan to start a company yourself, you'll naturally delve into these mechanics. I'm more concerned about future policymakers; I hope you'll remember today's content. Let me summarize the core points one last time.

The two core factors determining a startup's scale and its founder's wealth are: growth rate and the duration of that growth. To achieve a high growth rate, you must build a product good enough for users to actively share. To sustain long-term growth, you must enter a sufficiently large market.

Achieving exponential growth in a vast market increases a company's value, and the shareholding founders naturally reap the wealth. The entire process requires no improper actions; as long as you diligently serve your users, wealth growth follows naturally.