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The first problem: In tech, too many people want to start companies, and too few people want to solve problems.
YC, in its effort to build an institution of prestige, caused the glorification of starting and running a company. This creates noise by attracting the wrong type of people to apply. Their application prevents basic gamification, but in reality, it's created a strange pocket of companies that have little real impact on people.
We've seen that it's entirely possible to build a convincing image of a company that pretends to solve a problem. Their application unfortunately focuses very little on explaining what the problem is. Having users, growth, and profit does not always suggest that a problem is being solved.
This leads into the second problem, maybe a more fundamental one: YC's motto of "Make something people want" is misguided.
This is dangerously misleading for a few reasons. People often "want" something that's harmful to them in the long term. A lot of tech products offer people a shiny object, reap the rewards of selling that product, only to leave people worse off than they started.
I could build a business of selling heroin to users, and I've built something that people want. This seems like an extreme example, but the digital equivalent of heroin is social media.
A much better framing would be "Solve a big problem that people have". I think this change would go a long ways to solving both problems I've outlined. If they stick to this principle, they'll continue to be an institution that creates value for society in the long run.
YC has created pieces of "true" value here and there, but I hate seeing it go down this path of creating a system for the purpose of moving money around.