Datasets:

vrathi101

/

yc_dalton_caldwell_convos_unsloth

like 0

<human>: So let's talk about equity. What are the questions people should ask themselves about whether they have enough equity, equity at all? This comes up a lot. <bot>: I know you are a big proponent of this, Michael, but in general, something like equal equity is pretty common for startups that apply to YC and is something we recommend. And sort of the anti-pattern we might see is say there's two founders and the non-technical business founder has 90% and the technical person has 10% or less, And the explanation is basically just that the business founder... had sharper elbows and was a better negotiator. There's actually no justification for this. <human>: It was my idea. <bot>: Yeah, okay. Right? And so there's really no good reason. It's just that the business guy gets more for whatever case. And usually in those situations, you wind up with something much closer to even. Again, you give this advice. How do you explain this when this happens? <human>: I always just think that the vast majority of the journey is ahead of you, not behind you. And you want your co-founders to feel like owners and partners. And I always think about, in the early days of our company, on Sunday night when the website went down, I couldn't fix it. And so we're going to live in one of two worlds, the world where I get text and I have to like cajole people to fix it, or the world where everyone feels like an owner. and they get text and they wake up and they fix it, right? And I think a lot of people just don't understand that if you can make people inherently motivated, they'll do far better work than if you fucking yell at them. So that's the founder. Do you have close to equal equity? <bot>: Yeah, what does your equity look like? And does it make sense? Is the justification for whatever your equity is, does it make sense to you based on what you bring to the table and based on your actual responsibilities? </s>

<human>: And I think that, like, the other thing that's really tricky, and we were talking about this earlier, is that unfortunately, founders get caught up with this math around default, dead, default, alive, because the math they use to pitch their company to investors is only a subset of the math they need to run their business. And I think this point is really tricky. Like, when you're going in and pitching for a series a or a series b, so often, especially in a good economy, you're talking about top line revenue, you're talking about new accounts that you've opened, you're talking about your month over month growth, and oftentimes you're talking about your headcount, your hiring plan, slash the execs you've brought on, so on and so forth. Like, that's the math that you're putting front and center. That's the math that investors, especially in good times over, focus on. Whereas I'd argue when you're running your company, those numbers are important. But there's also your burn rate, your retention, how much your existing customer accounts are expanding, your revenue expansion over time. Those metrics are the ones that can better help you when you're trying to figure out how to make sure my company stays alive. And I think this is where things are tricky, is that in many ways, investors are setting the agenda on what metrics are important for a company, and the investors are a little biased. They have a point of view that might be not oriented around keeping the company alive. And PG talked about this. What was PG's line on this stuff? <bot>: Yeah, he calls this in a blog post, killer Cure, where he just points out that a founder and investor have completely opposite incentives, where as an investor with a portfolio of companies, if you push them all to grow fast, and some of them successfully grow really fast with a high burn and thread the needle and become uber or whatever, and some of them completely explode, like fly the plane into the side of the mountain, like, fast. And there's lots more fasts out there. It actually makes sense from a portfolio theory to advise people to do this, because either way, either it works great or it dies and goes away and you get to spend your time on something else. But, like, either way, it's explosive, right? It's explosive good, explosive bad. <human>: Well, and for a good fund, that time is the limiting factor, right? Not money. <bot>: Yeah. And board seats. You're limited as a VC on how many boards you can sit on and so you don't want to sit. So. So basically, if you're a VC and you sit on a board of a company that takes forever to get big with, like, low burn, that's kind of boring and kind of bad for your career, and look, you look bad to your colleagues. Like, there's all these dynamics that founders are not aware of. That's not a good move to be on the several boards of companies doing just okay. Versus if you're a founder and you're choosing between, do you want a zero, literally zero, or do you want to keep going and give yourself more time to figure out product market fit and maybe you can figure out an exit and make life changing money. <human>: Yep. <bot>: Then that to a VC, doesn't matter at all. Like, man, that sure sounds like misline incentives, right, Michael? <human>: Like, massively so. Sometimes the investor in this equation is kind of is perceived by founders who haven't raised money yet as, like, demanding that the company grows or demanding that the company burns a lot of money as if they were the boss. And I think this is a very bad misconception. Like, I don't. I think that's extremely rare for an investor to be demanding you to, like, burn like crazy. I think that the horrible truth is that founders don't need much of a push. <bot>: Oh, it's like, it's like how, Michael, I hear you're demanding people to raise at high valuations. <human>: That's the rumor I heard, yes, exactly. <bot>: Aren't you demanding YC founders? I am. <human>: I'm twisting their arms to dilute less. It's, I'm so powerful. I think this is the tricky bit is that, like, deep down inside, every founder wants permission to blitzscale. <bot>: And if they're special and they're going to build the next big one. And so if you talk to, you know, half a dozen people, and one of them's like, yeah, I don't know, maybe you should grow faster. I don't know. Maybe burn's not our biggest concern. Like, that's actually the fly on the wall recording. I wish you could have a fly on the wall. It's like, yeah, you know, these numbers, I think you want to get these up. But I don't know if Burn's my biggest concern. And then the founder hears that and they're like, we're going. <human>: It's time. I knew it. <bot>: What did fast do? They raised 100 million and they burned it in ten months. They got into a 10 million a month burn. That's incredible. I'm actually super impressed you have to really try. <human>: You'd have to be working pretty hard on it. We certainly need a lot of recruiters. You gotta hire a lot of people. <bot>: Yeah. Cause, like, what else are they spending money on? <human>: There's no inventory. Like, if it was a hardware company, I'd understand, but there's no inventory. Like. And it's. I assume they weren't getting offices. It was during COVID Right. So it's like, jeez. <bot>: I have no idea. I just. It's. That takes effort is my point. You don't just wake up one day with a 10 million a month burn and be like, oh, you know, we're cutting free snacks. You know, this spinning is out of control in these stacks. We need to be able. We need to tighten our belts, friends. </s>

<human>: Dude, do you remember just having to buy maps? Physical maps to drive around a city? And your dad would have a bunch of maps in the car for all the places you might want to drive to in the future. So Translation's gotten a little better. Yeah. A little better. <bot>: What else has got better health care? I mean people are living longer. They're living better lives. Yes standard of care infant mortality Yes, life expectancy around the world. Yes people making more money being raised out of the poverty line I mean just look at all the stats you can look it up. Yes, actually Like, zoom all the way out and look at this stuff for yourself. <human>: Yes. It's pretty cool. The number of people living in extreme poverty is less. The number of kids living longer. Once again, we're not talking about the difference between, like, the Civil War era and today. <bot>: This was, like, 20, 30 years ago. </s>

<human>: Oh, yeah. <bot>: I would argue is not venture capital backable. You know, a lot of the stuff that I see on the television show, you would never in a million years be able to raise VC from it. And so I think you watch Shark Tank, and you think that that is reality. <human>: No, it's not this industry. So I think that, um, That's the first thing, is that if you're starting a business that can appear on Shark Tank for the most part, you probably shouldn't raise venture capital. But I think there's actually a deeper thing here, which is that let's say you want to start a startup business. You don't have to raise venture capital either. Correct. And I'll say the same thing. I don't believe venture capitalists want to invest in all software businesses. And I don't believe all software founders should raise venture capital. Yep. <bot>: Yeah, let's talk about them. I think what's really going on is, I think if you looked at how many businesses are started every year, what percentage of those are venture funded? But I would guess definitely single digits, if not less than 1%. And so if you just look at businesses that are starting in the world, it is like a weird outlier freak occurrence that is a VC funded business. But I think if you're just consuming content, you're watching media, you're watching YouTube, you don't realize that. Venture capital as a product is specifically for investing in something where their investment could be worth at least a hundred times more, if not a thousand times more. And so trying to put that jet fuel into something that isn't going to grow to be big, everyone is going to be sad and lose. And so you shouldn't do it. <human>: No one wins. And so again, I don't think that there's this <bot>: push that I can see from investors to try to convince people to raise VC money for something that has no chance of growing like that. It just doesn't make sense for anybody. </s>

<human>: Hey, this is Michael Seibel with Dalton Caldwell. Welcome to Rookie Mistakes. We asked YC founders for their rookie mistakes so we could share them with you and help you avoid them. Here's the first mistake that was written in. In the beginning, when you're still figuring out your idea or product, get in as many user or potential user calls as possible, at least one per day and ideally multiple. It seems obvious, but it's something that we personally failed at in the beginning. Don't brainstorm ideas in a silo. You don't know what people want. <bot>: We have all these ideas in our heads as founders about what people want that the moment they are subjected to reality are embarrassingly wrong. Like there's nothing more humbling. There's nothing that makes you feel shittier than seeing real people using this thing that you built that you spent a bunch of time on and just like ripping it to shreds and not understanding it or like using none of the features or clicking on the wrong thing. It's horrible. So talking to users is like the inoculation against this spending inordinate amounts of time doing something that is completely irrelevant to your end users, okay? <human>: So you're suggesting then that I take surveys, right? I mean, what's the most efficient way to learn what my customers want? I should survey them, right? <bot>: So this may be offensive to some folks listening to this video, but I don't, think that user surveys are that valuable when choosing a startup idea. Surveys are a useful way to get certain kinds of feedback. I would think of it as sort of micro-optimizations or trying to choose directions. Or say you have four names for a company, you want to choose which name was the best of the four choices. Yeah, great, run a survey. But when you're looking for fundamental truths or you're trying to find your first customer or market validation, you want to be harsher or harder. Well, what does that mean? </s>

<human>: So, let's actually go through the kind of the histories here. So, you know, if we start with Sam, Sam's first startup wasn't OpenAI. Nope. It was a company named Loot. He did it when he left Stanford. Yeah, he was a college dropout. He went to Stanford. And then he went to YC. And then he was able to raise money for Loopt, and Loopt was like a mobile social product to see where your friends were in the city, released before the iPhone. And raised a relatively small amount of money, had a relatively small team, iterated, and honestly like used the YC network and then the network he built on top of the YC network to build a successful career. Yeah. Interestingly enough, like that worked really well for him. <bot>: Yeah. And people don't think about looped. We don't talk about looped. I don't even know, probably people seeing this video, you know, Google it. This is a real thing. There's a lot, there's lots out there, but this was a really important part of how someone like this was created or how they, how they, got enough of a network to make change in the world, was doing what was a pretty garden variety path, similar to you and I's path and many of our colleagues' path, of just doing a pretty normal startup at a pretty normal age with a pretty normal outcome, like pretty standard. <human>: Yeah, and it's weird, right? Like go to a good school, do YC, start a startup. That is what led to eventually OpenAI. <bot>: You know? Right. And so we're just flagging this so people remember. That's what happened. Is that the beginning states before OpenAI was fairly standard stuff. And so if you actually wanted to emulate Sam, you would not immediately go try to start a lab and raise $100 million or whatever. Yeah. Because that's not at all what he did. <human>: And by the way, nor could you. I think that's a really important point. For literally 99.9999% of founders, you couldn't copy Sam's play starting at OpenAI. Sam couldn't copy Sam's play starting at OpenAI. And by the way, I think this is an important point to make. I sometimes do meet people who can do things Better or have inherited advantages and the advice they give them is very different. Yeah, you know and so, you know If you can do this, maybe you're a considerate. Yeah, but if you can't why are we debating whether it's the right move or not? <bot>: Yeah, a lot of the people that were most influenced by his advice of like maybe I should be raising a hundred million Are people that are not gonna raise a hundred? No, so why so it's kind of like a disservice to these people. Yeah, right And so if you're one of the people out there that can raise $100 million. <human>: Or they won't do a startup, because they're like, if I can raise $100 million, it's not worth it. <bot>: Why even bother? Yeah. </s>

<human>: So the next one on the list is it's okay to take a day off. It's okay to go home. I think that you know There was one moment in my career where We were gonna get bought social cam was gonna get bought and we were two months into the diligence process and We got a call that said the deal was off. And it was the only moment in my career where I was like, I'm not going to react to this well in front of my co-founders. I just need to go home. At least home I can react. in a way that won't be a bad example to them, you know, like, because they're going to look in my reaction, they're going to be like, are we fucked? And if I'm looking like we're fucked, like, that's not helping. You know, when the generals like pulling their hair, being like, this looks horrible, we're going to die. It's not good. And man, like going home, Hanging out with, you know, at the time was my girlfriend, but then, you know, later became my wife, like, taking that day, the next day, I could kind of bring a better Michael to the table. Yeah, right. You know, that was, that was a big thing. That was a big thing. I was thinking about this in the context of like, when things go bad, there's a current set of people you should probably be hanging out with, and a certain set of people you probably shouldn't be hanging out with, right? Like, how do you think about that? <bot>: Yeah, I mean, I have my personal experience, and I have all the data points we have across YC Founders, and you just sometimes see people... that are taking punches and having a hard time. And there's some really amazing people that you can hang out with that support you and tell you you're okay and validate your experience and like. let you take space for yourself and like all this good stuff. And like these are these are great people to have in your life. And then we see other sorts of folks that are like, you know, oh, you should do tons of drugs or, hey, like, let's go not sleep for a really long amount of time or let's hang out with celebrities or like, you know, like there's all these different crowds you can get into. And. It's Depressing how predictive that is for how people will deal with like setbacks, you know, even and these are adults We're not even talking about these are these are adults. These are our own people our age people Still struggle with this particular one And so I think you just want to think about Yeah, who you're spending time with when you're when you're taking punches and what kind of habits that you're taking from the peer group? </s>

<human>: What was the DoorDash story, Dalton? <bot>: Well, look, when you think about something like food delivery, you imagine a scaling, you want to be doing hundreds of orders a day. And so the way the founders got started, was they just did all the deliveries themselves. They didn't have to hire anyone or build a driver app or recruit drivers. If someone made an order via DoorDash, if some miracle happened and someone made an order, the founders would drop everything and go deliver the food. <human>: That was actually how they got started. Go ahead. What's so cool about that is that one of the other topics in this essay is delight your users. Well, the easiest way to delight your user when you're doing food delivery is you do the delivery yourself, right? You race to the freaking restaurant, you make sure you get the right thing, you throw in an extra, you deliver it yourself, you say thank you. They didn't have to deal with managing a driver, network, motivating, it's like they just did it themselves. <bot>: And think about all the other ancillary benefits where they got to see why it was hard to do the deliveries. They got to talk to the restaurant owners personally and develop a relationship with them. They got to talk to their users. They'd be like, hey, here's your burrito. I'm the founder of this company. Do you like it? Would you order again? Isn't that funny? Like, could you imagine a more lower status thing than, of course not, but that's why it was awesome. It was not scalable. It is, in present day, if you order from DoorDash, Tony is not gonna deliver your burrito, or he might statistically. He still does this sometimes. I'm sure everyone saw the news. He still does this. To this day, the founders still do deliveries. But like, that was not a scalable strategy, but man, that's how they got off the ground. </s>

<human>: I remember, you know, when Gusto went through YC because they were actually in my second batch in winter. Twelve. And another example of, if you look at Gusto today, you would say, oh, you can do payroll, you could do benefits, you can see your chart, you can do 401k. It's like this tool chest full of amazing HR tools. When Gusto started, it was a company named Zen Payroll. It did exactly one thing, your payroll. Back then, if you didn't use Zen payroll, you'd have to call up ADP, and ADP would bring someone to your office for you to sign stuff so that you could run payroll and then every month you had to call someone on the phone and say, yes, I do want to run payroll this month. Like, that was state of the art. And then Gusto said, we can just do that online. And that's all it's going to do. And you're going to love it, and you're going to sign up and you're going to forget about it, because that's what good payroll is, right? You forget about it. And so to work like. <bot>: Yeah imagine a Version of Gusto or Zen payroll that had a lot of features but constantly didn't pay your employees. Like, like a broken version. A product that doesn't work with lots of features is infinitely worse than a product with one feature that works. And again, like. <human>: Let's play that out. Let's play that out, right? Imagine if it's like they were like, you get healthcare and you get benefits and you get 401K and payroll, and none of those features work. <bot>: And sometimes we lose the money. <human>: Yes. Like, you would hate them. You would hate them. <bot>: That sounds like Verizon or something, you know? <human>: Exactly. <bot>: That's a great way to a hated company is to have a lot of features that don't reliably work. </s>

<human>: Then maybe the last one, even more modern. Uber. Yeah, this was the fun one. I think it started with spend as much money as possible, which I love because Uber was a successful company. <bot>: It's great. <human>: And the idea that we could boil down a key strategy to spend as much money as possible, but that was the takeaway. <bot>: They wrote a book about it. It was called blitzscaling. <human>: Spend all the money as fast as it comes in. What's funny about maybe these Uber ones that are slightly different from the Facebook and Google ones is like, I don't think Uber even did these things. <bot>: Yeah. <human>: Like cargo culting kind of took on its mind of its own. <bot>: Exactly. And again, to be really clear on the point, Uber did a great job of what they did. <human>: They broke and roll. <bot>: It's the folks that were like, well, Uber did x, so we should do this. <human>: Yes. <bot>: Without really understanding why Uber did the things they did. They would superficially scale the way they scaled, burn the way they burned, ignore laws the way they ignore laws, ignore. <human>: Unit economics, go to as many cities as possible as possible. <bot>: It was the superficial wannabe Ubers that did the silliest stuff versus Uber itself, where that worked pretty well. Right. </s>

<human>: And you know, at my school too, I think there was a whole set of kids. Um, and I think this makes sense who are like, you know, I'm going to do really good in high school and get into a really good school. Okay. I'm at that school. What's the next. status seeking thing that a gunner should want to go after. Right. And, and to your point, finance, consulting, law, medicine, those were the like easy ones. And they had a lot of the characteristics of school. Like there was a clear application process. There was a clear steps. These steps were kind of imposed upon you. Like it was, it was a very comforting structure. <bot>: Yeah, there was a lot of recruiters, there was stuff on campus. And also you could brag to people that you, what offers you got, right? Like a lot of these places, you would interview at all the management consulting places and then talk to, you'd brag to people about all the, you know, who you got offers from. </s>

<human>: It's always much more enjoyable work with strong technical teams. But, you know, over the last, you know, let's say three, four months, what are you seeing overall in our world? <bot>: I think that people that want to do a startup because they're excited about building something and solving stuff for users, those people are still applying. If anything, those folks that aren't making fear-based decisions are more excited to apply to YC and do this, almost because it's more rebellious or anti-something to do a startup when it's less cool to do it. And this makes sense, again, if you actually look at the YC data, Some of the best companies we've ever funded happened when either there was a full downturn or at least a blip, I think we can call it a blip, like some of what happened in 2018. But look at when Stripe was founded, look at when Airbnb was founded, look at when Dropbox was founded, right? <human>: Yeah, it's a weird trend because I agree with you, it's both a little bit like, I want to go against the flow, there's that set of founders, but there's also the set of founders who are just strategic. who are just like, hey, look, in the middle of the hype cycle, hiring is harder, getting access to customers is harder, like 17 of your competitors are gonna all get funded. It's weird because on the surface, the hype cycle looks good, but when you actually get into the dirt, the hype cycle hurts just as much as it helps. And so I'm starting talking to founders in this batch who are like, yeah, no, this is actually like, They're not wishing for a downturn, but they're like, this is the time when it's strategic to get in the game. <bot>: Yeah. Make hay while the sun shines, right? This is where, oh, cool. The price of Facebook ads is dropping. Oh, cool. All these factors are changing. And so if you're well-positioned, this is when you go on offense. You're not like defensively, oh, I'm going to hide. There's a lot of folks that we talk to that are like extremely ready to go on offense. Yes. </s>

<human>: Talking before, you were saying that the Brex folks have figured this out a little bit too. Tell their story. <bot>: We've spoken about the Brex pivot in various other contexts. And so folks know they started with an idea that was like, hey, VR is the future. I guess let's make some VR headsets. Hype-y, scene-ster idea of the moment. Yes. And it makes sense. They had the sense that that was what a startup should be, is whatever the current zeitgeist of what's popular. Fair. And the issue was, you know, I don't know where to begin. They didn't know a ton about that. They were programmers, but they had only worked on fintech stuff before. They didn't really understand the use cases. They weren't really sure why the other products weren't good enough. Like it was just basically DOA. It was a complete mess. It was a mess, yes. And then they tried a couple of ideas, again you know the story. But at the end of the day, they really understood other founders, other people in the YC batch. And once they got the idea for Brex, it was very clear what to do next, which was to talk to the people all around them in YC, literally in this building we're in right now. and ask them stuff like, oh, do you have a credit card? Oh, you don't. Cool. Do you want to use our thing? OK. And then they were able to spend so much time with these customers, understanding the complexities of what they're trying to do, they could very quickly ship the product. And again, let me give you another example for them is a lot of folks that have companies in different countries or employees in different countries, there's all this complexity that you get if you're not American and your company's not American and your employees aren't in the United States. <human>: Yes. <bot>: Right? </s>

<human>: So the next category is the successful entrepreneur in a non tech industry. And this is really common. This is really common internationally in like, new founder ecosystems where, like, the people funding them maybe didn't make their money in tech. What's the common kind of advice given here? <bot>: Yeah, this one's tricky where if someone made all their money investing in real estate or in strip malls or franchise McDonald's franchises or something like just something that is not remotely a tech startup, they will often ask for crazy terms that would make sense if they were investing in, like, a franchise store. They may ask for more control and they may be really stressed out all the time that you're going to lose their money. And so a lot of the trickiest investors is a nice way to say it that I've seen the YC founders are like, oh, why did I take their money? It'll just be someone who's totally well meaning, but they treat this like an investment in a subway franchise and that you're the manager of the subway franchise and they're going to call you and yell at you that you're gonna lose their money as opposed to letting you do your tech startup. <human>: And that's really just like, they really, these folks are like, you can't be mad at them. They're just taking the principles that they learned to make their money and applying them to a different industry. Right. And it's like <bot>: Totally. </s>

<human>: So let's do the takeaway here. You know, you set this up with play stupid games, win stupid prizes. Let's talk about some of the stupid prizes that we see companies win. Where do you want to start here? <bot>: Yeah, well, the thing is, if you set that goal, if you start playing a silly game, you can win at the game. We see lots of people win at the game. And so one of the stupid games sometimes people play is just how much money can I raise? The more money I raise, the better. My goal is most dollars raised. And the bigger that number is, the better I am. So you're playing the game. You won the game. Congratulations. What's the prize you win, Michael? What's the stupid prize if you play the raise as much as you can game? <human>: Often you lose control of your company. So like when you confront the challenges, suddenly, you know, your board can fire you. Often you find yourself burning tons of money because all the people who gave you money expect you to spend it. Oftentimes you have the wrong people on your team. You have a bunch of people who think you've made it, who think that this is the next Google, when in reality, it's not. And then last, you might have to change what you're working on or change the problem or pivot in some significant way, but now there are all of these people and all this money and all this momentum going down a direction that's driving your company off the cliff. And that pivot becomes 10 times harder or damn near impossible oftentimes. But you did win the fundraising game. <bot>: Congratulations Here's your prize you have a messed up a company that shouldn't have raised all the money and you've got to dig yourself out of a disaster and Everyone's mad at you. Here you go. You won the prize. Have fun. </s>

<human>: All right, so I suspect I'm in a bad situation. What do I do to fix it? <bot>: If you think you might be in a bad situation, I would look at what are the other opportunities that you're taking an opportunity cost from doing? So for instance, if you're at the big tech company and other people are getting tons of promotions because of your work, you probably are pretty well undervalued and you could be learning more. And so I would explore starting your own company or going to working somewhere else. If you really want that seat at the table, my guess is you could find a job where you have way more a seat at the table when you're doing decision-making. <human>: Well, I'll say a step you could do even before that. You can ask for a seat at the table. That's true. I remember there was this great employee at Justin TV, this guy named Tim, and he was disgruntled because the company wasn't doing well. And as disgruntled as he was, he actually would do the work to come up with ideas and to point out things that were wrong and to create fixes. And like, He took ownership. And what was interesting is that as he took ownership, he was given ownership. So it wasn't this weird, it wasn't like, oh, like you're not at the table, it's like. come up with the smart ideas. Maybe you are at the table, and you're just not fucking participating or taking responsibility. <bot>: That's a great point. And we see this with equity splits. Because often, sometimes it'll just be, hey, have you all thought about maybe, or how did you come up with the equity splits? Like, well, it's 90-10. Well, why? Well, it's my idea. Well, most of the work is ahead of you, not behind you. What if you went equal? People are like, OK. <human>: Yeah, fine. <bot>: It's actually not that hard to fix this stuff sometimes, shockingly. </s>

<human>: So I would say the last story on this was a story I experienced at Justin.TV and Twitch. And I would say, to be honest, Ray, we experienced both sides of this. In the early part of the story, we had a very troubled relationship with our users. On one hand, they were streaming content on our site. We had a lot of traffic. We were able to monetize traffic a little bit. But on the other hand, they were streaming content they didn't have the rights to. They didn't have the rights to. It was like soccer. Soccer, sports, movies, TV. Boxing. Boxing was big. UFC. Hi, guys. They liked us. It's very popular. Very popular. And they were creating problems for us. Like we could get sued. We were getting sued. Like all kinds of issues. We had a really complicated relationship with our customers. And even just the UGC content, right? Or people in chat saying bad things, right? It was like for a lot of the time. They only said nice things, I think. No, no, no. Sometimes you say bad things in chat. And so for a lot of the time, we had this really complicated relationship with our users. And then I think that really changed when Emmett and Kevin started talking to streamers, right? The way the story goes is that, you know, some people started streaming StarCraft II, Emmett was a big StarCraft fan, and he just loved watching this stuff. And he started talking to the streamers, and like, not sending a mass email to all streamers, saying, do you like streaming? Yeah, do you streamer 257? Like, you know? You know, like weird, but yeah, he literally reached out one by one with Kevin. And if you're a streamer, just to this point, just a TV is like five years old. And you're on a phone call with like the CEO and the COO. That's pretty cool. <bot>: Right? <human>: And you care about your like StarCraft channel? <bot>: Yes. Your StarCraft. What did they play? Were they like, they were StarCraft guys? <human>: Is he a Protoss guy? Emmett could kill me with every race in Starcraft. Okay. So I don't even know his... We should ask him. Yes. I was like a zergling rush guy. Okay. Emmett figured out in four seconds and then just had infinite ways. I would play Terran back in the day. Really? Yeah. Siege tank. I don't know. <bot>: Anyway, carry on with this. <human>: Sorry. Sorry. Yes. Yes. So Emmett and Kevin get on the phone with these streamers and basically just asking them what do they need. And I think that what was funny is that the streamers tested them a little bit. The first things they said were things like, well, can you let me stream in higher resolution, right? And, you know, it was funny because talking to Emmett and Kevin afterwards was like, yes. In fact, that's one of the easiest things. Yeah. Like, let me break this down. <bot>: They thought that people would be asking for all this really hard stuff. And what they asked for was embarrassing because it was so obvious and easy to implement. And it's just that they never bothered to ask. <human>: Never bothered to ask. And actually, it was even more insidious than that. For these users that we had a complicated relationship with, increasing the bitrate of their streams increased our costs. that was kind of a negative feedback loop. And, but for these folks, like there was no issue with their content. It was, it was perfectly fine. There were no rights issues and so on and so forth. And hilariously, because we had a really strong technical team and technical founders, we built our own video system. Changing the bit rate was like a number. <bot>: Like, yeah, it was probably a settings file. <human>: It was like the easiest thing in the world. And so, bam, we had that feedback loop of like, they asked for something, we call them two days later, we built it. Oh, mind blown. And then after a couple other conversations, they started teasing this idea. It's like, can you help us make money? And once again, Kevin and I were like, not a lot of money. Like, we are barely alive. Like, how much money do you want to make? And they're like, any money. And once again, I mean, I was like, really? Any money? And they would do the math on some channel and be like, well, if we split the ad revenue with you on this channel, we could send you a check for $20 a month. And the people, the streamers were like, that's amazing. And I was like, really? That's amazing. OK, well. You know, and I remember back in the day, like Kevin would handwrite and mail the checks. And so to me, it was just like the third example of putting yourself out there five years in, not in the beginning, five years in, caring about that customer, asking what they want. And then you start learning, oh crap. The core learning of Twitch was if you could help these streamers make money, and they could quit their job and stream the content that they love, they will make stuff that millions of people want to watch, right? That was the core learning. And the only reason we accomplished it was because Emmett and Kevin called them and gave a shit. Yeah, because think about it. <bot>: That story could have been, they asked the PM, to go do a report, go do a survey from your data science team, or you asked your investors to go do a report, go do some data science. Like think about the million different ways they could have not personally cared enough to get on the call. Yes. </s>

<human>: So the next category investor we see a lot is the influencer, famous person. When I think about this kind of person, this is the person that would come to a YC demo day and everyone would freak out to get them on their cap table. <bot>: Yes. <human>: They just get infinite access. How do you think that they try to help founders who are struggling? <bot>: Yeah, I think that you really understand distribution if you're an influencer, because that's your game is building up your distribution network, which you can monetize a bunch of different ways, right? If you have a million, you know, Instagram followers or a million tik-tok followers, you can make money off that and you get it, you're savvy. So I think these people are very savvy and realize they can kind of treat startups like other ad deals of being like, give me some stuff and I'll promote you. And so a lot of times these folks will like ask for advisor shares or they'll ask those ask for things, and again they would, that's how they got big. They're good, you know, they know, they know what they're doing and it can be so tempting to do it. To think that like celebrities tweeting about your thing is gonna fix all your distribution problems. And like maybe in some cases they do. But most of my experience, both personally and with founders in YC, is the founders kind of feel like they got a raw deal on these and that the clicks they get from the, from the posts or whatever were not as helpful as they had hoped. That is a nice way to say it. </s>

<human>: I think that you've just hit on this like secret hint to founders. Who you're comparing yourself to matters. Like if you're trying to hit a Grand Slam home run with your startup, compare yourself to the people who have hit Grand Slam home runs. Instead of comparing yourself with like a local peer group or the company that just raised at a unicorn valuation. <bot>: Other people in your pitch competition. <human>: Yeah, like at a minimum, if you're looking for like heroes to emulate, can you copy companies that have at least 100 million in revenue and like preferably a billion? There's like so much more you can learn from their stories, even if they might be old. I guess, you know, Facebook's an old company now, but even if they might be older, Man, like you can learn a lot more and like that's what you're trying to emulate. You're not trying to emulate the unicorn valuation. You're trying to emulate the successful multi-billion revenue company. <bot>: Yeah, that's really well said, Michael. Choosing your peers and choosing who you want to be like is one of the most powerful things you can do if you're an ambitious person that wants to do things in the world, is you get to choose who you want to be like. </s>

<human>: This is Michael Seibel with Dalton Caldwell. Today, we actually have some news to announce. For the first time since winter 2020, this new batch, the Summer 22 batch, will be in person. And we are all excited. Dalton, we're gonna get to see founders in person again. What do you think? <bot>: It's a breath of fresh air. I've been spending a lot of time in this little room, much as probably you have too. So yeah, this is, it's really fun. I'm excited. <human>: Me too, me too. So let's talk about what this means. So the founders of this batch are going to have an in-person retreat in Sonoma to kick the batch off. They're going to be able to go to weekly meetups in San Francisco. We're actually going to help organize weekly meetups in other cities around the world. We built some software that are going to help founders meet each other and have one-on-one coffees, founders in the same city. And then we're going to have a huge end of batch celebration after demo day in San Francisco with all the batch and the alumni. Needless to say, the program is still going to be friendly to founders participating remotely. So the batch talks, office hours, things like that will still be online. And we still have founders from all over the world participating. But I have to say, you know, founders I've talked to in every country have been excited to come here to meet us, to meet their batch mates, to get out in front of Zoom and get off these cameras for a little while. I'm really, really excited. <bot>: Yeah, we kind of had a dry run a little bit last batch where there were a lot of these in-person meetups. And I went to a few, I know you did too. And the energy was great. And so, yeah, now is the time to make this move, you know? </s>

<human>: This is Michael Seibel with Dalton Caldwell. Today, we are talking about conformists versus non-conformists in the tech and startup world. So Dalton, set this topic up for us. <bot>: Sure thing. So something I think about a lot is the history of technology, the history of Silicon Valley, the history of startups. It's just a topic that I've always. was cool. And something that I think a lot about in my job at YC is the change between Stardust being something entirely done by non-conformists and the domain of non-conformists and to kind of becoming like a mainstream thing that I would consider conformist thinking is cool. Like your parents thinking it's cool, your authority figures thinking it's cool, the kind of people that would have gone into very Blue-chip kind of jobs are entering tech and startups that would not be caught dead doing in the past So anyway, that's the setup is it's been weird to witness What was previously a very weird place to go populated by weird people become almost the opposite of that. </s>

<human>: So we talked about this classic cargo culting, and at least with the classic, you're copying successful companies. What concerns me more and more nowadays with the explosion evaluations is that we see a lot of founders copying companies that haven't succeeded yet. And this is what's really scary to me, is that, like, some founder will be like, well, we have to do it this way because so and so coming to this, and I'm like, oh, why are they good? It's like, well, they're a billion dollar company. <bot>: They just raised a series b. They just did this. They read some fundraising announcement. <human>: And then I asked them, well, how much revenue are they making? And the most common answer is, I have no idea. And it's like, so you're basing a huge chunk of your company's strategy. <bot>: Yeah, your strategy. You are the CEO of a company. Let me get this straight. You're the CEO of the company. <human>: Yes. <bot>: You're telling me the strategy, you're betting the pharma. <human>: Yes. <bot>: Is based on, you read a fundraising announcement and you have no other context but, like, a podcast or interview with a founder. <human>: And it has a lot of GitHub stars. It's one thing to try to copy something that's working. Like, you might get lucky in winning. Right? Like, if you copy something that's not working, I don't even know what are we doing here? And I think that unfortunately, these valuations have gotten people all messed up in the head. Like, they think that if investor thinks it's worth a billion dollars, it's working. <bot>: Well, again, just to be super concrete, how many people do we see that were influenced by WeWork and building WeWork for X? And their entire strategy was based on WeWork? Yeah, we saw the same thing. Zoom pizza, like robotic pizza making. And so you'd see these things where it eventually turns into, like, you know, sadly a flame out for the founders. But there are a lot of people that were copying these companies blindly because. <human>: They raised a bunch of money. <bot>: Yeah. </s>

<human>: I think this also comes from historical context. By that, I mean, I still think that most founders are kind of looking back to what's worked in their past and almost everything that's happened in their past, almost everything they've learned, they didn't have to learn from first principles. They didn't have to observe personally. Right. You learn physics from a physics teacher. And so I think what's so tricky is what we're basically saying is that, like, all of the ways that you learned in the past don't work here. You actually have to go observe the problem, talk to the people who have the problem, try to figure out what's going on, and iterate, whereas, like, no one learns things that way in school. Like, no one's like, hey, like, we're gonna drop a rock off of a building, see it fall, and then figure out what happened, right? You never learn physics that way. And so I think that what happens is that when these founders go into startups, they're looking for the teacher is the teacher is the cheat, right? Like, how much harder would it be to learn physics without the teacher, right? <bot>: It's funny, I'm sure, like, you know, people, people email you and me sometimes after these videos, they watch these videos, and our whole point is, go talk to customers, go figure it out. And they email us, and they're like, can you give me advice? Like, they kind of aren't getting the video. </s>

<human>: You know, I think this is like such a common thing that comes up when we give startup advice, you know, we'll get a founder that's like, oh, how do I test my product before I launch to make sure it's gonna work? And I always come back and tell the founders the same thing. If you have a house and it's got full of pipes and you know some of the pipes are broken and they're gonna leak, you can spend a lot of time trying to check every pipe, guess whether it's broken or not and repair it, or you can turn the water on. And like, you'll know, you'll know exactly the work to be done when you turn the water on. And I think people are always surprised that that's basically all startups do, is just turn the water on, fix what's broken, rinse and repeat. And like, that's how big companies get built. It's never taught that way though, right? It's always taught in like, oh, somebody had a plan and they wrote it all down. It's like, never, never. <bot>: And you earn the privilege to work on scalable things by making something people want first. And you know what I think about sometimes with Apple is picture like Wozniak hand soldering the original Apple computer and like those techniques compared to like whoever it is that works on Apple that designed AirPods. Like it's the same company, but like Wozniak hand soldering is not scalable, but You know, because that worked, they earned the privilege to be able to make AirPods now. And because Google search was so good, they earned the privilege to be able to create super scalable stuff like MapReduce and all these other awesome internal tools they built, right? But if they wouldn't have built that stuff first, it wouldn't be Google, man. </s>

<human>: So number three is Peter Thiel, and probably one of the things that most young people know about him the most is his critique on college, and like, do we need to go to college? And I think that... Totally fair critique, totally valid critique. Yes. But... He went to college. And not only, like, did he go to college, he went to college, he went to law school. He did undergrad. And he got a law degree from Stanford. Yeah. He worked at a famous law firm and a famous bank. And one might argue he's basically telling you to avoid all that stuff. That stuff brought him pain. But I think one of the things I've learned in advising startups is that if you don't let the startup experience any pain, It's a lot harder for them to learn. And maybe experiencing that pain is what broke them into this. <bot>: Yeah, and we don't have an A-B test. Again, you could probably hate that we're saying this, but we had an A-B test. And he was exactly the person he was now by just omitting college completely, then fair enough. He wins the argument. But my sense is there was some aspect of those experiences that had a profound impact on his later success. <human>: Well, even if we separate out psychoanalysing, you should know that he didn't walk that path. That's true. And then use those facts as you will. Why? Why do people give startups advice that they didn't take? <bot>: I think you should always assume positive intent in people. That's something I really try to do. <human>: And especially these three people. <bot>: Yeah, these are great. They're trying to help people. And so I think this is well-meaning. And I think what's going on is they're so used to their backstory, they almost become blind to it, just like any human can forget their backstory. And what they're really focusing on is what they would do now based on the information they have now. Yes. </s>

<human>: And the best example I saw of this was early days Airbnb. Airbnb did this fun thing to get users in the very early days where they offered people who were putting their homes online for rental on other platforms, free digital photos, high res digital photos, back when like digital cameras weren't a thing yet. in order to list on Airbnb. And then instead of hiring a photographer, they went out, they got digital cameras, they went out and they took the photos. And to this day, I still remember that there was one guy who they met, they took photos of his house. He loved the photos. He asked him, hey, do you want to sit down for coffee or tea or whatever? They started talking and then he said, you know, I've been renting out my house on all of the platforms on the internet for a decade. and I have a notebook of all of my notes on all the things they do bad and all the things they do well for the last decade, do you wanna see it? And it's like, so in the Dalton scenario A, he would have received an email survey, like how, he would have signed up for Airbnb, not had a listing, not used it, and would have sent an email survey, like how do you like Airbnb? Suggest things to improve, right? In the real world example, they got a book of all the things they needed to do. <bot>: And again, like, think about this. Imagine, you know, these guys, the founders of Airbnb back in the day, the way they validated the idea was to ask people on a survey, or they did some user research, they did interview, they did a user interview, would you like to rent your home? Do you see how what they could have learned from that is is like this versus actually trying to get strangers to rent their home out to other strangers and all the like things that popped up trying to actually make the damn business work. Do you see how like they learned this much from that versus this much from writing a survey? <human>: Well, Dalton, it's not even this much. We're not, we're not, we're not, it could be negative. Right? Like it could be negative. <bot>: You're right. Well, I would never want to use that because it's dangerous. So you need to, you know, like... Done. Right? You don't make Airbnb? </s>

<human>: And so, and I think what's cool is that... that wasn't a particularly special period of time. I think they're on the cusp of a bunch of new interesting stuff, right? You know, hilariously, like I remember when Starlink was like an idea. <bot>: Yeah. <human>: And it was kind of like a funny idea. <bot>: Can you imagine an internet access anywhere going to satellites? </s>

<human>: So let's talk about that. Let's talk about the moves. What are some of the tough decisions that you might have to make if you find yourself, default, dead. And you want to change that? Let's go through the list of pain. What's number one? <bot>: Well, for most folks, it's literally headcount. It's not office snacks. I'm sorry. That's probably not the thing. That's, you know, perks are not bankrupting the company. It's that you hire too many folks. People are expensive, and this is 80%. Like, I've just seen so many people's like, burn spreadsheets. You know, you have to, that's always the thing. They want to be like, whoa, but we're very cheap, or we're, you know, they want to tell a story, but it's, it's, people over hiring is the thing. <human>: And I think it's sad because no one likes letting people go. No one looks like, like, let's go. Letting good people go. Right. It's, it's horrible. The best founders, if they have to do this, will make sure that they get other jobs, will make sure that they, they're well. <bot>: And the best thing is to never over hire to begin with. Like, like, honestly. <human>: Yeah. <bot>: Actual hack is to not over hire. <human>: Yes. <bot>: Once we start having that, we over hire. Now what do we do? Conversation. Let's not have that conversation. Like, like, that's, like, too far. So the actual advice is don't make it a problem, and then you don't have to worry about how to fix it. </s>

<human>: Yes. <bot>: So here's the issue. If you need to manufacture a lot of a product, it's much cheaper to do a big order in quantity, right? Follow me. Like, say we want to, let's talk about t shirts. Let's say we want to create Dalton and Michael T shirts. It's much cheaper to do an order for 10,000 than it is to do one at a time, right. <human>: Of the same t shirt. 10,000 of them, same t shirt. <bot>: Yeah. Makes sense, right? And so crowdfunding and Kickstarter made sense because you could raise, you could sell the t shirts at once. We actually had a YC committee. It's called Teespring. Didn't work out, but it was like a way to order a bunch of t shirts in a quantity. And then you get a big pile of money, and then everything goes perfectly and you engineer it and you manufacture the product, and all the backers of your Kickstarter get the product and everyone's happy and you write, you know, you ride off into the sunset. Right? That's how it works. Right, Michael? <human>: Like, that's exactly. And then you, then your apple. <bot>: Again I don't think people are going to get the irony. We're being, I'm being facetious. For my foreign friends that don't get the irony. So in practice, Michael, what actually happens? What do we see with all these companies that do crowdfunding? <human>: No idea how to build it. No idea how much, how much building it would cost, no idea how much the thing should cost. So they're charging users for a product that they don't even know what the right price is. The people who buy it have no idea how long it's going to take to build, which is only matched by the people who are building it, having no idea how much it takes to build. And we haven't even gotten to the best part. No idea whether the thing actually solves the problem for the person. But a lot of money upfront and God, like, a lot of expectations, a lot of untested plans, you know? <bot>: Well, that's, that's what's funny is like, when you think about it, it seems like the greatest thing in the world to be able to raise money from a crowd fund for your hardware company. But in fact, there's no sure way to make strangers on the Internet hate you. Like, it's a really great way to become like, infamous on the Internet is to be like, here's a cooler with a blender on it, and it's like $200 and back my Kickstarter. And then you don't ship it and you send out updates. The dog ate your homework and, oh, it's chinese new year. Like, I don't know, like, shit happens. And like, man, people don't, people really hate you. You're like a villain for like, and thousands of people spend a lot of time trying to like, track you down and get the refunds and calling you a scammer. Like, it kind of, we've seen this ruin people we know's lives doing this kind of thing. <human>: I think that more and more, there are other areas of the startup world that are starting to resemble this kind of model. And I think that it's hard, man. It's so hard because I remember the run up to hardware. If you were a hardware company, everyone else was doing this. You look like an idiot if you weren't crowdfunding. And so like, it goes back to the, hey, man, sometimes when everyone's doing something, it doesn't mean that's gonna work. Crowdfunding was what, a six, seven year cycle? <bot>: It still could be cool. Like, there's situations where it's a, it's a tool. I just think, I think our startups seven, eight years ago thought it was a panacea. They thought it was the solution. <human>: Yes. <bot>: Like, if you were a hardware company, the only way to do it was to do a crowdfunding, always, right? And now it's just, it's a tool that you could bring to market. But honestly, you know, what the real story here is, is usually do it after you've shipped and manufactured a couple of versions already. </s>

<human>: All right. This is Dalton plus Michael. And today we're going to talk about how to not get screwed as a software engineer. Interesting topic. Yeah, we're going to give some tips. <bot>: We've noticed that a lot of technical folks sometimes get exploited. They kind of get ripped off by other folks. Evil business people. Yeah, it's kind of a bad pattern. And so we're going to talk about it. So who is this aimed at, Michael? <human>: Who is this video for? The folks we're talking to. So we're talking to maybe your technical co-founder at a startup right now. Maybe you are a great engineer. at a scaling up company. the guy that everyone comes to, the person who always gets fixed, the woman who's always up late getting those text messages and having to. <bot>: Yeah. Or you're at a really early stage startup, but you're not a founder or a co-founder. You're like a lead engineer or head of engineering or there's some title and the whole company is like three people, but you're not a founder. <human>: You're not a founder. Okay. There is the college student who all the MBAs go to to build their prototype. And then there's the Googler, right? How did you describe it? <bot>: It's the person that does the work that other people take credit for to get promoted in bonuses. It's the person that does the, you know, actually producing the products that a lot of people stake their career on. <human>: Yes, yes, yes, yes. <bot>: So that's who we're talking. <human>: Yeah. So I think the thing that we're trying to really help you with. Yeah, we feel bad for you. <bot>: So this comes up a lot for us at YC where we read a lot of applications and we interview a lot of companies and we see folks where it's pretty clear what's going on. We can see it a mile away in the application that someone is getting exploited or ripped off and it's usually the technical person, right? And it feels bad to see just all of these applications come in and it's crystal clear what's going on. </s>

<human>: You know, there is one better strategy. Do a software company a lot easier. A lot easier. <bot>: Yeah. And then along these lines, you know, clearly there's a lot of stuff happening in crypto, and this relevant to this, but just be aware, if you take money from people at scale on the Internet, they rightfully will hold you accountable. And I just don't know if people. It looks like people are handing out free money on the Internet, and I get why people want that. Just understand that there's a cost, and if people think that you rugged them, if you rugged the people with your thing, you know it's gonna be bad for your life. Right? Like, there's a cost. Like, there's no. There is no free lunch, I think, in this sense. And so, you know, just be aware of that. I don't. Again, I know people that have been on the other side of this. It's not great if they start trying to track you down. </s>

<human>: The number two is ad spend. And, man, we see this all the time. It's, well, we have this top line goal. <bot>: We need to hit 80K Mrr. Right, Michael? We need to hit 80K Mrr. <human>: We gotta hit it. And so we gotta spend this much money on ads. In fact, we have to spend more money on ads every month because we're growing to hit our growth. Yeah. And unfortunately, the result of that is also that, like, our payback period for every customer that we're acquiring is either super long or long and growing. So our ad dollars are getting more ineffective as we are scaling them up. <bot>: And we have to show growth, because if we, if we stop increasing our ad spend, basically, if we stop steering the plane into the mountain and putting the gas or, like, putting throttle in, if we don't do that, we won't raise. And so you'll talk to founders where they know the problem. They're like, yeah, yeah, we're in trouble. We need a raise. And we're like, well, maybe don't, like, don't crash the plane to the mountain. And they're like, yeah, yeah, but you don't get it. If we don't put the throttle into the side of the mountain, we won't be able to raise. And it's like, these are the most frightening conversations so bad. And I think what they, and what they don't want to do is take the l. Like, they don't want to, they don't want to take the growth hit because they, the idea that maybe someone would fund them or maybe they could sell their company in some long shot scenario prevents them from not steering the company into the mouth. Right. <human>: And I think this isn't talked about enough. Like many successful companies have had to take L's along the way. <bot>: Oh, yeah. <human>: Like, learning how to take a punch is not a bad thing. Losing face. <bot>: No one cares. No one cares. Oh, you reduced your ad spend, your growth evaporated, but you're around to live to fight for another day. That's fine. </s>

<human>: All right, what else? So we got entertainment. <bot>: Yeah, I mean, think about, there's like an infinite supply of things to look at all day. Infinite. Infinite. Any movie you want to see, any television show ever created, any book ever created. If you want to pirate things, like if we include piracy in here, it's literally the sum of all human creative contents. in the history of time is available at your fingertips for free. Yes. And the only thing limiting it is your willingness to go find it. Yes. Like, it's your appetite is the limiting factor, not scarcity. You might have to watch some ads. Yeah. You might have to watch a couple ads. But it's post-scarcity on this stuff. The only limiting is your imagination of what you want to watch. </s>

<human>: And so when I talk to founders about this, I say, hey, look, you got a team of two, three, four people. Maybe you're going to have one or two who are passionate about the problem because they've experienced it or because it's a life work or so on and so forth. But the other things that you can be passionate if you're on the team on is one, your co-founders, right? Working with friends is so much fun. Compared to a job at Google, working with your friends feels like winning. Not having a boss feels like winning, like being able to choose what you get to do every day feels like winning. I think there's a certain set of somewhat broken people, and I would put us in that group, where having consequences feels like winning. If I'm playing in a sandbox and everything is controlled and I can't do anything wrong, it doesn't feel like winning. If I can lose, games have losers and winners, right? If I can lose, it's much more likely I'll feel like winning. Those are the things that you can kind of tie yourself to, at least for a little while, before you've got clear evidence that your customers, you're solving a real problem for your customers. <bot>: So. And it's a riff on this, man. I actually think what you're talking about and what I always suggest founders do is intentionally set up motivators, like psychological motivators around you to intentionally game yourself, like very intentionally, the same way you would be, you know, training a pet or something, you train yourself, right. And when you set yourself up with a startup idea, with no opinions, with no customers, with no revenue, searching for amorphous goals that are ill-defined. Working with strangers. Working with strangers. You could not create a shittier environment to ever do anything good. Because there's no rule. You just wake up every day and you do things and maybe something happens, maybe it doesn't. But like, you're hoping that you'll be discovered someday. I don't even know what you're hoping for. You're hoping magical things will happen to you, okay? Versus when you set it up so that you're like, okay, our job is to get revenue. But so many founders are like, well, I don't want revenue. I think that'll slow our growth. You know, they have theoretical reasons. But what's good about having revenue is it's a number. And you can look at the number every day. And if the number goes up, your brain will feel good. Your brain will release chemicals when you make money that is fun. </s>

<human>: This is Dalton Plus Michael and today we're going to talk about should you bootstrap or should you start a VC backed company? This is like a confusingly controversial topic. <bot>: Yeah. <human>: I'm not really sure why it's controversial. <bot>: Well, it's one of those sort of one sided things where a lot of people don't care to topic versus people that care a lot? Yeah. Does that make sense? <human>: Yeah. <bot>: And so I think there's a lot of people that strongly identify and are really excited about bootstrapping. Yeah. That are very like fired up about this. Yeah. And there's a lot of people that this just isn't a topic that comes up much. </s>

<human>: So how do we avoid this at YC? Because we all do startups. We have our own scars. Exactly. We are self-aware. And we actually try. Someone can make a video about us about the same topic. <bot>: And so one of the things that we try to do with companies in the batch, at the beginning of the batch, is we all tell our own stories about our whole back story, what we did before we started our companies. Everything we screwed up. Everything we screwed up. I think the government had advantage because we were ruining their internet. <human>: Justin says, I'm going to strap a camera over my head and broadcast my life 24-7 on the internet. And Paul Rand says, I will give you $50,000 just to see what happens. So we do whatever he says he wants to do with us, and we email MIT. <bot>: We're really honest, and I actually think it helps people get to know us, to contextualize us as humans, to know our whole story. Yeah, I think it really helps a lot. <human>: And to know how many mistakes you can make and still do something interesting. <bot>: Yeah, and so I think it's good to actually hear before you Cherry-pick bits and pieces of people's advice. It's good to kind of like a fuller. Yeah. Yes Perspective on their whole thing. Yes. I think it's helpful Yes, and even even us like I think if people knew more about us, but they were watching these videos Yeah, it probably would add some nuance to what we say in these in these videos 100% right 100% I think the second thing is I <human>: and you made this point, I think we think a lot about what would we tell people we are really close to? What would we tell our kids? What would we tell our friends' kids? Like when it becomes, like when you can personalize it and make it real in your life, suddenly you're a little bit more maybe conservative or you're a little bit more real. And you can be a little bit more experimental. You know, it's like, I'm thinking I'm gonna tell my kids to go to college. <bot>: Yeah, exactly. <human>: And I didn't really like college. And I actually wasn't terribly impressed with my school. I went to Yale. I wasn't terribly impressed. But if you look at the facts, it's where I met my co-founders. Without them, I wouldn't be here right now. So if that's the only thing Yale did for me. Worth it. <bot>: It changed your life. <human>: Yeah. <bot>: The only thing it did for me was changing my life. Yeah. <human>: Well, you know. <bot>: What have you done for me lately, though? But yeah, imagine we had an AB test where you didn't go to college. Hey, man, I don't think you'd be here. No, I would not be here. <human>: Absolutely not. Yeah. So I'm probably going to tell them to go to college. <bot>: Risk it. Yeah. And again, I feel the same way. I got kids, too. And I actually really try to give them, I try to give founders or the people in these videos, I try to say the same stuff I would just say to my kids. Yes. Like, and not have a, oh, let's throw in a troll opinion here, Michael, just for the hell of it. </s>

<human>: Hey, this is Michael Seibel with Dalton Caldwell. And today we're going to talk about what does it really mean to do things that don't scale? This term was massively popularized in a PGSA from 2013, but it was advice that he'd been giving YC founders for a really long time. But Dalton, it seems like a lot of founders get this confused. <bot>: Doing things that don't scale is doing something that's provocatively manual on your part, where you, the founder, does a thing personally, and that isn't counting on a lot of code that you're writing or scalable processes to run how you think late stage companies are run. <human>: Might help for us to give some examples. Let's give examples. Reddit. So day one, Reddit exists, site, no links. No users. No users. Blank page. But like, click a button to submit a link. What do you do if you're Steve and Alexis? <bot>: So the scalable solution is you first launch subreddits, then you run ads to recruit people to come sign up for Reddit on different topics. And then hold on, then you would hire an influencer. You have an influencer strategy to get influencers on various topics to come moderate the subreddits, okay? And so that the day you launch, you have this big splashy launch with hundreds of thousands of signups, right? That scales. That scales. </s>

<human>: No. <bot>: And doesn't that suck? <human>: Yeah, that sucks. <bot>: It's like, Sorry, I wish I could tell you that I had all the facts. <human>: I feel like we can't make it not suck. But isn't it nice that we're just being honest with you and be like, this is exactly how much it's going to suck? You know, it's not, it's not easy. What I find distressing, though, is how investors often get this wrong. Investors often believe that founders don't need this ground truth. Or you can just take solution from a and put it in place b and work. Give companies money. Those companies start doing company building, hiring the execs, hiring the team. And this happens to YC companies all the time. You talk to them two years later and you're like, they come to you and they're like, it's not working. And this happens to YC companies a lot. They'll go raise a lot of money, ignore us for two years, come back when it's not working. But they have a team of 50 and be like Michael Dalton. Like, what happened? It's like, well, did anyone like your product, like, did you solve any problem for anyone? Or like, let's look at a core stat. Like you charge people, what's your revenue look like? <bot>: Well, we're not really focused on revenue right now. We want to grow. <human>: We want to grow. We have to increase the, we know this company personally. I won't say it is, we have to increase the number of customers who could buy us before we increase the customers who do buy us. It's like, well. <bot>: It's great logic. </s>

<human>: And I think this is part of this kind of weirdly bigger trend of like, people doing the modern cargo culting among startups where they're like, oh, if my startup looks is gonna, is gonna be real, it has to look like other startups. <bot>: Yeah. It's like the superficial, they're really focused on how people will perceive the startup superficially. <human>: Yes. <bot>: Like the logos thing we were talking about. <human>: Yes, yes. <bot>: Like, what are some examples of the superficial things that you want to do to pretend to be a startup? <human>: I have to raise money. Right? I have to have good advisors. Maybe someone, God forbid, told me I should have a patent. Right. I have to have an amazing pitch deck. I gotta be able to pitch my company anywhere. Maybe a couple conferences, I get invited to some press. And these are things that founders do to impress themselves, to impress other founders. <bot>: Yep. <human>: The user is not essential. <bot>: Essential has nothing with the product or solving problems for users. It's all the superficial. <human>: Yes. <bot>: Facade of this looks like a startup that looks like other startups that raise money. </s>

<human>: All right, here's the next investor type. The junior investor, the person who just got started looking to make a name for themselves still early in their career, oftentimes having to really have a win pretty quickly to cement themselves in this career. What's the most common type of advice these people give? <bot>: Yeah, I think this one is tricky. I think a good mental model is to put yourself in their shoes. I think when you're a new investor or you're newly hired at your job, you're not in a position of power inside of the place that you work or you're not in a position of power with your investors because they want to raise money from someone else. And so to show weakness or to like screw up their first few investments is very bad for their career. And we know lots of people that basically don't last in the industry because their first investments were bad. Like it's kind of career suicide to become an investor, not have any other track record, and then make some bad investments. Like you're not going to make it. Okay. And so basically these folks are very optimistic that it's going to work, that you're going to make it work, that you should totally go raise more money because their KPI is that if you raise money and they can mark up their investment, it makes them look good. So they can go tell their colleagues or their investors, hey, I invested in this company and it went on to raise more money at a better valuation than I invested at. <human>: I'm really working. Right. <bot>: And so the thing to understand is that's their KPI. And so in your interactions with them, they will often just really encourage you to fundraise and keep doing that a lot and that everything's working great and you do have product market fit and you should scale faster. Right. <human>: Yeah. And it's interesting because another example of that, like they're not trying to hurt your company. <bot>: they're nice people. <human>: Like, in many ways, yeah, in many ways they're like some amongst the biggest cheerleaders for your company. It's just that like your company at this stage probably has some really broken shit that has to be dealt with. And so unfortunately, it's harder for them to kind of go and spend the time in the dirt with you on that stuff because it's going to kind of break their illusion. And hey, it is what it is. <bot>: It's rough. Like if you are a company where it doesn't make sense to raise for a very long amount of time, it may be the right thing that you want to do, but may not be great for them if their whole thing is to prove that they're great investors really fast so that they can keep their jobs. </s>

<human>: Money's tangential. In fact, if you think about doing these things with a lot of money, that's how you get to the, let's hire a <bot>: Let's have many people between me and the customer. <human>: The more layers there are between, the better we'll do, the smarter, the more we'll learn, the more people we can talk to. All right, so the final takeaway here is that if you really want to accelerate your learning, care about your customers, go talk to them, go spend time with them one-on-one, and you'd be surprised at one, how special they'll feel, and two, when they feel special, how much they can help you learn about their problems and how to solve them. Dalton, great to see you, man. <bot>: Thanks. </s>

<human>: And I think the last one that I would say is like, And this is a slightly dangerous one, but when people are honest with you and it turns out to be that way, when people are like, this is gonna be the hardest job you've ever done, and then it turns out that you're working like crazy, when the team you're coming into is extremely upfront with you about how it's going to be, and it turns out that way and it's not good, it's not necessarily you're being exploited. You made that choice. <bot>: You chose that. <human>: That's a really great point, man. <bot>: Think about expectation setting when you take any job, or when you go to school, the people, the great professors, or teachers, or bosses, it's not that they tell you it's gonna be easy, it's that they tell you what's gonna happen, and they're right. And you're like, wow, I really respect that you set my expectations well, and I knew what I was walking into. And so again, if someone did an A plus job of expectation setting, you can't really hold, you can't argue that they're exploiting you or that this is like not what you signed up for, right? No. </s>

<human>: The next fun one is I want to feel like someone running a big company. I want to have 50 employees. I want to have 100 employees. I want to have 500 employees. I want to be a boss of a lot of people. <bot>: My metric is number of employees. I want a real big team. I want to move real fast. That's my game. Yeah. <human>: It's always about moving fast. That's the lie. It's like if we had this, we could finally move as fast as like, you know, we could finally build all the things that I want us to build. So what's the stupid prize on that one, Dalton? <bot>: Now you wake up one day and you look at the spreadsheet of your burn and you look at all the people that work at your company and you're like, oh no. And guess what? It's now your problem because now you might have to do a layoff. You might have to let people go. You might mess up people's lives that believed in you. You might mess up that or have moral issues there. It's like the worst thing ever to over hire and have to deal with it. And if you talk to someone that's had to deal with this, this is usually one of the more, the biggest failures if you look at your life. I know that's how I feel like personally is the biggest failures I've ever had were definitely having to let people go that I shouldn't have hired. So congratulations, you win the prize. You hired a bunch of people. You're a big, important person. Now you're responsible for all of this. </s>

<human>: And I think what was interesting was that when Joe tells this story, he talks about one host who, after they took all the photos and they arranged the lights the right way, and they showed him photos, like, oh, the place looks great. The host was like, hey, do you want to sit down for coffee? And it was so funny, because that was the moment in the story where I was like, a lot of founders would have said no. Yeah. A lot of founders would have been like, I have someone else on the list. I'm just doing this to try to make my website better. I don't really like you. I'm actually kind of pissed that you have shitty photos of my site. So I got what I need. I'm getting out of here. And Joe actually cared about his users. And Joe was like, sure. And as he tells that story, he learned that that host had been renting out his apartment for, I think, 10 years. And throughout the process of learning how to do it, he had taken notes in this notebook. And at some point during this coffee session, the guy was like, hey, oh, you want my notes? Do you want my notes on being a host for the last 10 years? It's like, would you like a goldmine? Yeah, for all of my thoughts, all of my everything. And Joe's Loon. Yeah. And what was so funny was that That whole process, that whole thing of learning what he probably couldn't have learned if he had talked to a hundred hosts casually, he got by caring about one host. Those moments never happen. That learning never happens if you don't care. <bot>: Yeah, we always, we talk about these guys a lot, but you know something that you can't fake that they always do is they remember the names and the life stories of their first customers. Like when they talk about the original Airbnb, they weren't like, yeah, we, We hid behind our keyboards and we bought some Facebook ads. We put out a landing page and we spammed some people and they signed up and, you know, we scraped VR. No. Yeah. When they tell the story, it's a story about people. Yes. And they know all their names. And they keep in touch with all of their original hosts and the people that stayed with them to this day. And they just cared more. Yeah. And you can't fake that in many ways. </s>

<human>: Long time, actually. And I resisted it. I resisted it. Our CEO, Kevin was like, this is important for you to learn. And I'm like, you know what's important for us to learn? How not to lose money every month before we die. And the balance sheet is not really telling us that. It's that we make no money and we spend money. So that's what the problem is. <bot>: For these folks I get it. Right. You spend time in spreadsheets, especially if you're doing stock market investing or private equity investing. It makes sense that your weapon is money, and you move money around to. That's your leverage point. That's your point of leverage. What's the downside of internalizing that too much, man? <human>: I mean, we see this all the time, which is like scaling negative unit economics or spending a ton of money on advertising with ever, ever worse payback periods or no payback period ever. It's really like getting people to work on things that are not making their product good. <bot>: Yeah. And I think what's, remember Patrick Collison was talking about this when he came to speak at a batch recently where he's like, listen, let me be blunt. Too many founders treat product as an afterthought. They're basically trying to do financial engineering, and the product is like, delegated. </s>

<human>: Hey, this is Michael Seibel with Dalton Caldwell and welcome to Rookie Mistakes. We've asked YC founders for their rookie mistakes so we can share them with you and help you avoid them. Okay, so here's the next note that a YC founder wrote in. The easiest way to fundraise is to indeed have a good metric that's growing. When I ran a startup that wasn't growing, I spoke to 140 investors and only got two angel checks. Now I'm working on a startup that is growing, and almost every well-known VC is trying to figure out how to talk to us. It took us one week to raise our seed round. <bot>: I don't know, Michael, I've heard rumors from around the world that the best time to fundraise is before you have any metrics at all, right? Because once you have any revenue, you will be judged on the revenue. </s>

<human>: So, number two, of course, Facebook, even closer to kind of our generation, they were the ones that brought you the going viral. <bot>: Oh, yeah. <human>: How is your thing gonna go viral, Dalton? How's it gonna go viral? They're the ones who brought you the. Where's the share button? Yeah, you have to have a share button on everything. What else did. What else was the Uber? I'm not the Facebook classics, I think. <bot>: Just trying to not make any money directly from users and build up as big of a user base you can and then build an ads business. Obviously everyone was trying to do this, but Facebook, really, we were constantly told by everyone we knew, and again, we believed it, that following the Facebook playbook was what was right for every business. No matter what type of business, no. <human>: Matter what, charging users was against the rules. <bot>: Yeah. Cause you wanted to get the most user data possible. You wanted to get the biggest database of users, all that good stuff. <human>: And then the nobody cares about privacy. What was that? There was a zuck quote where it was like, privacy is. <bot>: Doesn't matter. <human>: I forget. <bot>: They were like. Anyway, everyone that was blindly following what they did was trained to ignore all of those yes. Matters. </s>

<human>: Let's talk about some other examples, though. You were mentioning that OpenSea is a good example of something that started super simple. <bot>: Yeah, I mean, look, Opensea is a company in the zeitgeist it's really famous. It feels like it came out of nowhere. If you're like a, like a normal person, you're like, wow, Opensea, what a huge deal. Well, OpenSea was in YC in 2018 and, you know, it was a rough start. They changed their idea. They were working on something else to begin with and they pivoted into OpenSea and they actually spent something like a year to two years grinding it out with this really simple website that just let you buy and sell nfts and like barely worked. And they shipped tons of features. They shipped like once a day or once a week constantly. They didn't build their own wallet. Like, if you use Opensea, you'll notice this, you have to use a third party wallet. There's all these other things they didn't build. And by grinding away and being super focused on the simple use case, they got something that people wanted, they got network effects, and then boom, we all woke up one day and this is one of the hottest companies in the world, and everyone wants to invest and they're worth billions of dollars. Well, don't forget the two or three years they were grinding away in obscurity, just trying to make the dang thing work. Doing the simplest thing that had basically no features. The feature was a website to buy an NFT and transfer it to someone else. You know what I'm saying? And it still has a lot of work to do on the basics before they add really complex features. There's a lot more basic work to do on that thing. And so again, the story here is the reason that thing worked is they started simple and they made the simple thing work and now they're adding more complexity to it. And so if someone wanted to like compete with them or make an NFT startup, they should be doing the simple fundamentals first and not try to get feature parity with all these other companies first, you know. </s>

<human>: I think there was also a bit of like, the folks in this world weren't lazy. I actually think the other kind of aspect here that was interesting was that It was a lot of people who didn't want to wait in line. Like they didn't want to be told like, Oh no, no, no. Like you still have 10, 15, 20 years to go to school or to work your way up through the system before you get to do stuff. You know, they were like, I want to do stuff now. And what was funny was that, you know, tech was the place back then where you could do stuff now, like there would be no waiting. Um, and certainly tech startups back then. But now things have changed, you know, fast forward, um, a little less than 20 years and tech is now attracting conformists. And I think that, you know, you and I have talked about this a lot, but I think at first that was a confusing concept to us, you know, just, just because of our different lived experience when we were in school. <bot>: Also in hiring, I mean, we'll probably talk about this a minute, but like the people who we were able to hire at our startups, like who would want to be an early employee at iMeme and Justin TV? Non-conformists, like they would never be, you know, a conformist would not be caught dead working at an early stage startup. <human>: Well, you know, and to, to extend that point, what was so cool about San Francisco was it was the first place I went that just felt like. I could be in a room full of weirdos. I could meet weirdos on the street. Like, you know, weirdos were all around, you know, it was the first place. Oh, wow. There are all these people who think they can make companies and they're just kind of all around doing it. That's different. Like that's the opposite of where I came from. But, you know, today I might argue that. Big tech has become put itself solidly in that list, right? It is amongst the finance and consulting and legal and medicine. Um, you know, college kids today obsess with getting jobs at Facebook and Google. They study how they interview just as much as people study how to interview, how to get into Goldman Sachs, right? <bot>: Yeah. And they, you know, you brag to everyone. I got this offer. I get this bonus. I got this level. Like it's a whole, like I've seen some of these Reddit threads, man, this stuff's wild. </s>

<human>: Now, we're also seeing a lot more interest in San Francisco and like, I don't know, like that's a dirty word. I'm not sure if I'm allowed to say the term San Francisco because we all know the tech world doesn't exist here anymore, right? Yeah. Well, it's funny. <bot>: There was so much content marketing trying to FOMO everyone. that everyone was moving into whatever, insert city name, whatever the city was, this is the next capital. Then there was a lot less content marketing of all the people that moved back. I don't know who you're talking to, but a lot of the folks I've talked to that were loudly talking about moving away to whatever city name, they're much more quiet on the move back. Yeah, I'm not seeing as many, I'm not seeing as much of that. But yeah, I think a lot of folks are moving back right now. New York too. It just seems like people are going back to the big centers because they're getting bored and lonely and feel kind of over it. Again, this is what I'm learning in Office Hours, man, is that people are, they want to be where the action is. <human>: You know, I think you're saying it the right way. I think the founders I talked to, they don't want to build a startup ecosystem. They want to be a part of a startup ecosystem. And it's been interesting because we saw it, you know, first in the end of batch survey when we asked people about, oh, as we add more in-person components, and it was like almost unanimous. The founders in the previous batch were like, if you had told us something was happening in the Bay Area, we would have moved, you know, and like that was a response. we didn't necessarily expect. <bot>: It's almost like you and I were convinced that that wouldn't be the case. I don't know how to explain it. The content marketing worked on me too a little bit. Yeah, yeah. But it's not being borne out in the data that we have about, you get what I'm saying? I kind of bought into the content marketing too, but we'll see. I don't know. </s>

<human>: And then I think the last one is learn to love long games. And this is kind of the theme that I brought up in the beginning. These games are long. And I remember when I started my startup, I was 23 years old and I'd never done anything that took very long. When you really think about it, like what do you do in school? What's the longest project you have in school? Like maybe a senior thesis in college, maybe. And so I remember talking to our lawyer at the time and he said, oh, and he was 30, which in my mind was like impossibly old. I was like, well, obviously nothing you know is relevant to modern times. And he said, you know, the average startup takes seven to 10 years to exit or IPO or sell. And I just thought that couldn't be the case. Like, and what's funny is like he worked at a law firm, like he worked at a law firm that represented like maybe a quarter of all tech companies. He had the data, like this wasn't like an off-the-top-of-his-head thing. And I just remember thinking, this guy doesn't know what he's talking about. And I remember when our company sold, took him out to dinner, it was seven years later. I was his age when he told me that. I was 30, he was 37, impossibly old. And I just remember thinking, fuck, the guy was right. Like, this is a long game. <bot>: And I think having ambition in your life involves playing the long game. Because to actually do something great, it doesn't happen overnight. And I don't know what your experience is, but we know a lot of people when they were very young. it's okay to have ambition, it's good to have ambition, and true ambition means being patient over many, many, many years. And so to give you a completely non-startup example, my high school girlfriend, her thing was poetry, and she really liked poetry. Again, this is like high school. And so she'd write all this poetry, that was like her thing, and I kind of fell out of touch with her, but she's the New York Times poetry critic now. Holy shit. And that was my high school girlfriend who loved poetry. So she played the long game. And this is my point. It's that like, you know, probably not everyone that likes poetry when they're like a 16 year old is probably not gonna go there. But if you actually put in your whole life towards something and you have a dream and you're not ashamed of the dream and you keep the dream going into your third, like a lot of people have dreams when they're young and they lose their dreams in their 20s. They let the dreams go. But if you keep your dream and put in the years of work, those are the people sitting at the top of the system. Yes. Like the people that make it are people just like you and me. Yes. That had a dream and they put in 17 years, 20 years of real hard work. </s>

<human>: What about your friends? who are making fun of you. Because you're doing this shit work. You tell your friends what you're doing. They work at Google. They get free food and free laundry and Google bus. And they're like, what are you, you're hand delivering food? You're hand adding links to your own link sharing website? How do you get over the know what I was telling you? You are an idiot. That's not how it works. I know how it works. I work at Google. <bot>: Well, you are an idiot because you started a company. No, just kidding. This is what comes with the territory, friends. If it were easy to start a company and anyone could quit their job at Google and just magically have product market fit and be successful, way more people would do it. How many Googles are there in the world? Not many. And it's because there's this Um, this stage screens out most people because it sucks, right? It sucks hard. And so most people look at this and they're like, I have to do what? And then most likely I'll fail and I'll go broke. Whereas I could keep my high status job. This screens everybody out. This is why are there not more successful founder? Like the reason why there's not more startups in the world is not because there's lack of good ideas or innovation, or I would argue even funding. It's basically there aren't enough people that really want to do this stage of the startup and are good at it. </s>

<human>: I think I first met him 15 years ago. <bot>: Yeah, you're right. I met him. Anyway, we've known him a long time. And he recently made some comments about, hey, I don't know about some of the advice I gave when I was working at YC. Maybe there's just a better way to do startups of going really big and being ambitious. And fair enough. So a lot of folks have raised a lot of money, hire a team, build a lab that takes years. Super cool. I think it's worked well for him. Yes. And so a lot of people are asking about us and you know, I think he makes fair points But we should talk about story is important, which we'll get to in a minute. <human>: Yes. So maybe the next one is Elon, you know some version of Oh, it's been more exciting to work in the world of Atoms or YRP. <bot>: People aren't doing ambitious enough startups. Founders need to be fixing the world, saving the world, going to space. Which, by the way, I don't disagree with that message. <human>: I would like founders to do that. But that's not, once again, that might not have been his history on the news. And we'll go into that. <human>: And the last one, of course. <bot>: Is Thiel, he's given a lot of advice about a lot of things, which is great. The one that we are flagging here is the whole, don't go to college, college is bullshit type of thing. Which again, all right, there's some fair points to make there. But not his path. </s>

<human>: So what's the cure, Dalton? I am a founder. I admit I'm thinking like a vc, and I don't want to. What is the cure? <bot>: I think to start with, this is a case of being good at learning certain things that may not serve you at a certain time. Again, let me give you an example. Let's say that someone worked at a big company for a while and learned a lot about corporate politics. Okay. File that away in the memory bank. Maybe someday that will be helpful. Yeah, but, like, forget it. Like, whatever part of your brain was saving that, turn off those neurons. If you're trying to do a very early stage startup. <human>: Yep. <bot>: I would argue this is a similar thing, which is all the Excel spreadsheet modeling you learned as an investment banker. That's great. Just turn that off, though, like, unlearn that doesn't serve you now, and embrace the beginner's mind to get your startup off the ground. And then if you're very successful, you'll use these skills again. They just aren't. <human>: You'll earn them. Well, you'll earn the right to use them. <bot>: Exactly. </s>

<human>: So I think the other thing is that no one is trying to say in our industry that if you make a great software product that allows you to make enough money to live a good life, and it's not PC-backed, that you haven't won. You won. Yep. Like, I had a friend who made one of these companies. He might have used this product. His product generated about $30,000 to $50,000 a month and took about 7 to 10 hours a month of maintenance the entire time I was working on my startup. he was living life. Like I would watch his life on Facebook and be like, this is amazing. He traveled the world. He got married. He had kids. I'm like, he won. Like, that's like, like good for him. <bot>: Like there's no, like, again, this is the one-sided thing is that we're like, great. Like we're like high-fiving that dream versus, <human>: that there's this two-sided battle. 97% of the time I was watching that Facebook, I was like, am I the idiot? And like, the evidence was like... Quite possibly, Michael. Quite possibly. Yes. And he's still doing great, right? And so, like, this is really clear. It's like building a great small business, software, small software. <bot>: Even the term small bothers people. </s>

<human>: I always like to think about this a little bit like science. Like imagine that you're a founder, oh sorry, if you're a founder, imagine you're a scientist, right? And you could design one of two experiments. One experiment that actually tests your hypothesis and will give you actual information about whether your hypothesis is right or wrong. And another experiment that doesn't test the important variable at all. How many founders do we know who are never testing the important key hypothesis of their company? For the exact reason you talked about, because if I know that I'm wrong, my ego shatters, or my investors will hate me, or my co-founders will leave, or some other reason I've told myself for not just figuring out, is the thing I think true or not? And what I find so surprising is that Some founders just, it doesn't occur to them to think this way. You know, we had the Stripe founders come in and talk last batch. And we always get founders asking us about pricing. I gotta discount my product, gotta make it free early, and da-da-da-da-da. And the Stripe founders said, we thought that startups had a problem accepting credit cards. We thought that all of the existing products out there back in the day were too hard to use and too much of a pain in the ass. See, now we tested our hypothesis. We built something for developers that was a lot easier for startups to use, and then we charged more than the competition for it. Now, any scientist would say, okay, well, if we're trying to test this variable, charging more to figure out whether startups would use this thing, it seems like a great just logical test. But for a startup founder, that seems like a crippling decision. And what I loved about the Stripe founders here is that they just went with the logical test. They kind of put their ego to the side and they said, hey, what's the fastest, most logical test that we can run to see if this thing is something that people want? Anyways, so we've talked about this problem, this mistake of are my users willing to spend some capital, any kind of capital on using my product. Here's the last one that I love. The last one is kind of sometimes what I call the terrorist user or like the user that you love more than they love you. So here's the quote from the YC founder. When the customer you're pitching says, we really love your tech, but we can't pick it up today because X, but we wanna use it in our next project and we'll be in touch soon. This is a rejection. They don't want your tech. They just want you out of their office. This is a don't call me, I'll call you. So how does a founder interpret whether they're talking to a real customer or someone who's just trying to be polite or just trying to move on or doesn't have the need? How do you figure out? We told them to talk to their users. How do I figure out whether they're talking to a live one? <bot>: I think if we talk about being scientists again like we did a moment ago, a scientist would be dispassionate and would say, okay, no, and they wouldn't think about it anymore and they would go on to the next thing. </s>

<human>: You know, we talked about the surface issues. Let's go deeper. How are you actually supposed to figure out what to work on? Like that's the real thing. Okay, so let's say you find yourself attracted to stuff and you're like, all right, I believe you. I believe you, Dalton. I'm not gonna do a blank startup because it's the coolest technology right now. How do I figure out what to work on? <bot>: You know, I think a lot of people get told to follow your passion. You know, I'm looking for a project, a project, again, that's a good tell. If you call it a project. That's a bad sign. We're looking for a project we are very passionate about. And so you sort of go through this like spirit journey of what all the problems are that face humanity or something. And so you're like, okay, Michael, we figured out our passion is the environment. Yep. That's our startup. And so again, I think when people give the advice of follow your passion, they're trying to be helpful. What do you think that actually means in a way that is actionable when someone is saying that? What does it mean to follow your passion when you're finding a startup? <human>: I want to break this down into two parts. Part one, there are people out there that have real problems, that encounter real problems on a daily basis. They are passionate about solving those real problems and they can actually see even in their MVPs the problems being solved. I think for those people, I want to push them to solve the real problems in their lives. I think there's a whole set of other people who don't have very many problems in their life. And I think those people kind of reach for like the UN problems or the global – the problems that like they are told they should care about but they don't really encounter on a day-to-day and they can't really tell whether they're improving them or not. So I think you and I always kind of get into a debate on this. You know, for that person who grew up, I mean, we have funded people who like in their country, when you try to swipe a bank card, the transaction doesn't go through like two out of five times. And it's, you know, and we funded them and they've actually fixed that. And that wasn't a theoretical problem, but that turned into actually improving banking in their country, right? Then we funded other people who absolutely didn't have that. So to me, I'm happy to talk about the other things that you can trigger on if you don't have that real problem in your life, but what do you think about the people who do have the real problem in their lives and they're going after it? <bot>: I think in terms of this passion thing, let's dig way back into history. Yes. What was the genesis of the companies Microsoft and Apple? I mean, Microsoft, you know, flashback to the seventies, my recollection of the story is it was some folks that really liked computers when they were a new thing. And someone needs to port basic, which was a programming language onto some weird hardware sold out of a strip mall in Albuquerque, you know? And so these were just folks that were really into this weird niche thing, but no one told them to go work on microcomputers. They weren't following, their professors weren't telling them that it was a great market. I don't think anyone would have. But there wasn't that stuff. They probably wouldn't have been working on that stuff even if there was no money in it, right? That's how I define passion is, would you be doing this stuff even if you didn't make any money doing it? And I think with Apple, same deal. you know, they were working on stuff they thought was cool, like Homebrew Computer Club and welding, excuse me, soldering stuff in your garage and trying to make software run on it. That was, I think, how they were passionate about the ideas. </s>

<human>: So why is a situation where it takes a long time to make money and a lot of startups are dying all around us every day? Why are we optimistic? <bot>: I think it's this. I think if you zoom all the way out, it's weird to talk to young people. and have them be pessimistic about the future. It's weird. And so part of the reason we wanna do this video is to give you some reasons to be optimistic yourself. And I think it comes down to perspective, Michael. I think it's all about perspective where if all you do is read the news every day, you get bombarded with negativity, especially around technology. The biggest technology stories right now are some version of like, this is bad, these people are bad. People are being exploited. Bad, bad, bad, bad. And so it's not hard if you're just consuming the news and not zooming out to be like, yeah, you know, things were better back 50 years ago or a hundred years ago. Don't point to me, I wasn't around. And again, I'm not sure that's true. I think it's a perspective thing. So again, so walk with us here. Let's talk about perspective. Let's talk about the things that have improved since the 90s when we were like teenagers. Let's go through the list. We thought through some of these. Go ahead. </s>

<human>: You know, to close out, this reminds me of this like scene in the West Wing where One of the characters has a drug problem that's pretty bad. Another character is going through PTSD and is really struggling, but doesn't want anyone to know. And this character is like a drug addict that like cleaned up and so on and so forth, and is noticing the first character is struggling. You know, the way the kind of story goes is that other people who don't understand how much pain the person's in, will like say, oh, you should go see a psychiatrist or you should go get a prescription. Like they'll do these superficial things, but this character knows. And so like, he actually, you know, the analogy is like, he jumps down to the bottom of the well with them. It's like, I'm at the bottom of the well struggling and then my friend jumps down with me. And you know, the thing that they say at the end is that like, well, I'm jumping down with you because I've climbed out of this well before and I know the way out. And I think so much about being a YC partner is exactly that. I've made all these mistakes before. And I'll probably make them again. <bot>: And I'll probably make them again. <human>: And the only thing that I could say is, I know the way out. As opposed to like, oh, we play error-free ball, which is obviously. All right, man. Great chat. <bot>: Thanks. </s>

<human>: And then I guess last but not least is the college student, who in most cases isn't even offered equity. They're just the typer. You're the intern. You're our technical intern. <bot>: Just do all of the work. We're just the idea guys. Yes. <human>: So equity is one set of topics you can ask yourself in these roles. Another one, and one that you brought up, was kind of decision-making process. Like, OK, we've established that you are doing a lot of the work. <bot>: Yeah, it's basically, do you have a seat at the table? And so again, if you're trying to self-diagnose, am I being exploited as an engineer, as a technical person, is the whole point that the business people have a lot of meetings that you're not invited to, and all decisions about everything are made by the business people, and you are basically used as a robot to write code. probably not a great sign, probably a sign that you might be being exploited, right? You're being used as like a machine to write code and not a person with a brain. </s>

<human>: Well, and Dalton, we talk so much in the batch about leverage when it comes to fundraising. And when I think about being default alive, there's multiple levels of leverage. One is confidence. Right. If you don't need a deal, man, you're going to pitch better. Like, that's the way life works. Like, when you don't need something, you're way more convincing than when you're begging for something. And then two, leverage being the investor knows you don't need them. So not only is your pitch better, the investor knows your business is stronger and knows there's going to be more competition to invest in your business and therefore is going to be more likely to want to invest in your business. So you get double leverage. Whereas on the flip side, if you run your business, default dead, you take two leverage hits. Like, when you really think deep down, especially like you said, when you're on low Runway, you're like, shit, if I don't thread this needle on this fundraise, we're dead. A good investor can always tell whether the company's pitching them is going to die. <bot>: And even if you want to invest, you offer worse terms or you put in sneaky. You know, there's all sorts of sneaky things that investors can do. Yeah, yeah. Not good. <human>: And by the way, like, I would argue that that's an investor being a good business person. If they have more leverage, they should get more positive terms. If you have more leverage, you should get more positive terms. <bot>: So, Michael, why is this the thing that so many investors don't like us as YC partners telling YC founders? Why do they hate when we say this stuff out loud so much? They're allergic to this advice. <human>: You know, I think that in general, investors are allergic. When we tell founders that there might be situations where their incentives and the founders incentives are not aligned, perhaps perfectly. <bot>: It's. Yeah, it's like a magic trick. We're like telling people how the magic trick is performed. It's like a faux pas. They don't like it. Why do they always tell us to shut up when we tell people this? <human>: They always tell. And there's like, and I think it's also funny because they also always tell us, like, hey, like, we're funding your companies. Like, you shouldn't be like, you know. <bot>: Like telling the founders not to have high burn. </s>

<human>: And what's interesting is that another YC co founder, Trevor Blackwell, basically made a calculator that allows you to calculate this. Because, you know, I would argue it's easy to calculate, but it's just nice to have a tool there where you could just input some numbers and we'll make sure that's linked to as well. So I think that with this concept of default dead or default alive, what's so weird is how obvious it is. Like it's weirdly the kind of concept that, like, the entrepreneur who runs a barber shop will understand before a startup founder will. Right. It's like, it's so logical. What do you think are some of the reasons why founders have a hard time understanding this is important math to do. Like, what's distracting them from this truth? <bot>: I think the context is that if you've raised some money, say you're a YC company, raise money at Demo Day the belief that you'll be able to raise more money. It's hard to not take that for granted. And you're like, yeah, yeah, yeah. But really, once you started raising money, you get hooked on it, you know? Like, you get hooked on the juice. Okay. And so the idea that maybe you won't be able to raise the next round or that'll go harder than you want to say that out loud is almost a showing. Like, it's like you're not confident enough. Like, I think you. I think it's awkward to speak of these things with your co founders, with whoever, because it's almost like, well, of course you can raise the next round. Like, of course, like, we're gonna make it. And so I think it's that, man. I think. I think, again, we've both been founders. I don't think you want to say this stuff out loud too much. It makes it sound like you're worried or scared, and you certainly would not want to admit this to your investors. <human>: Well, I think that. Here's the tricky bit in my mind. Not only is it that this idea of, like, well, if we question our ability to raise the next round, are we not confident, or are we going to psych some people out in our team and make them not want to work here. It's that plus raising the next rounds harder. So you kind of get screwed both ways. Like, I think oftentimes founders believe that raising the next round is going to be like the last round, even though they kind of understand that the next round, there's a smaller pool of people who can do it, they're investing more money. So logically, it should be harder, right? Like, mathematically, there are fewer series a's than seed rounds and fewer series b's than series a's, right? And so. But I don't think they internalize that. And one of the things you talk about a lot in the YC batch is this idea that startups are a series of mini games, and the minigames change and get harder. I think people weirdly think that this fundraising minigame doesn't change when. Of course it does. Of course. <bot>: And sometimes it's easier when you have a great product and great design. Sometimes your next round is far easier. To be clear. <human>: Yes. <bot>: We're not saying it's always harder, but, and here's the big but, it's a moving target. And there's this thing called the economy, this thing called like investors who are people that are not within your control, we don't know interest rates. And so what you'll see is whenever there's like choppy waters, the default dead people that were banking on the next round being easy, die. Simple as that. And it's in the companies that are default alive. When there's choppy waters, they live. <human>: And I think it's funny because I like your phrasing. We can't tell you whether it's going to be harder or easier to raise your next round. We can just tell you it's probably going to be different than the last one. So you should be planning for a wider range of possibilities than same as last time. <bot>: And I think about this in terms of margin of error. Like last thing on this point. Yeah. The margin of error when you're defaulted live is huge. You can go out and try to raise around and fail and be fine. There's huge margin for error. And what's funny, I always talk about this. Imagine if TechCrunch wrote an article about every failed fundraise. It'd be, we're only reading about the successful one. There's lots of failed fundraisers. France. Lots and lots and lots and lots of fundraisers. <human>: The majority. The vast majority. <bot>: And so I think folks that are just reading TechCrunch think that most fundraisers succeed. So you're getting a really warped view. And so, again, like, bear with me. So most of them fail. Well, guess what? If your default's alive, all right, like, that's not good news that your fundraise failed, but you can live to fight another day. But if you're running your business tight, where you have like three months of Runway and you're banking that it's going to work and it's, you're running this thing super tight, what happens if your fundraise doesn't work is you die. I think about defaults alive default dead is if you actually control, if you're actually in control of your company and not outside parties, that is, investors actually hold the key to your company. You're kind of working for your investors. They're actually your boss. When your default's alive, you're in control of everything, right? It's kind of awesome. It's a question of agency over the outcome, you know? </s>

<human>: All right, that next group, the Googler. I think this one's actually much more interesting because I would argue that if you're the Googler, you're getting a bad deal if you're doing like 100 hour weeks and grinding and like your boss or your boss's boss is getting like mega vacations and $10 million a year packages and like promotions and da da da da. I would say on the flip side, though, if you've got good work-life balance. Yeah, I think it's risk-reward. <bot>: This is a subtle point that Michael's making. I think it's for the opportunity cost that you're taking to not do something else, are you getting a square deal versus, again, if you're working really, really, really hard, perhaps another thing would be better. But if you're very happy with the trade you're making on work-life balance and compensation, hey man, maybe it could be great for you. </s>

<human>: In fact, I might argue many times the first conversations we have are wrong. I think the only thing that we do well is we continuously ask ourselves, are we lying to ourselves? Or is there like, what did you say? What's the deeper question? What's the question behind the question? What's the question behind the question? I think we are good at asking that. And sometimes we assume that the initial salvo of questions are complete bullshit ourselves, within YC itself. <bot>: And I think that's life, man. I guess what I'm trying to say is no one's perfect. Don't put anyone on a pedestal. It doesn't matter who they are. They have their own shit. And that should be freeing and empowering and make you feel optimistic and not bad. Right? Isn't that the right takeaway here? </s>

<human>: I remember in the mid-90s getting this CD-ROM called Encarta. And I remember my uncle, who's 20 years older than me, being like, oh my God, the encyclopedia's in your house versus having to go to the fucking library? This is incredible. And you could just search it. It was on one disc. Exactly. It was easy to search. And now, God knows how much more information than that is for free on the internet. <bot>: Literally everything that's textual information is a search away. Yes, and video. Freaking YouTube itself. Crazy. There's a website where anyone can record any video of like any length. Yes. On any topic for free. Yes. And you can watch it for free. Forever. That is like mind blowing to me. Yes. How incredible this is. Again, if you zoom out, if you think like you're an alien and you just have no context on this stuff. Yes. This is incredible. Incredible. </s>

<human>: The best explanation that I've come up with is that there's a bit of a school metaphor here. I think that people are trained in school for so long that they try to see startups like school. And in school, you're not really rewarded for having opinions on things. You're rewarded for accomplishing specific tasks. And so, you're also rewarded when you're doing things that your smart friends are also doing. And so I think when they apply that model to their startups, they think, okay, someone invested in me. That's an obvious, that's like getting an A on a paper, right? I'm doing an idea that my friends think is really cool. That's like getting into a college my friends think is really cool, right? It's just kind of this rinse and repeat of the strategy that's worked for them in the past. <bot>: Well, and you see the superficial similarity between what you're doing and things that appear to be working And you try to hide from the fact that you have no idea what you're doing or you don't believe it. You have no particular opinions of what it is. And so you, so what's, what's brutal about this is you have to really look in the mirror and understand the difference between superficial similarity of what you're doing and kind of going through the motions versus the damn thing actually working. </s>

<human>: You know, Dalton, I think a lot of the reason why founders get caught in this trap is because they were never taught what sales really is. Like they were taught sales in the context of, I would almost argue, argument. I think what a lot of founders think sales is is more like what lawyers have to do to convince a jury. A jury has to be there and they're going to make a decision and as a lawyer, your job is to convince them one way or the other. I would argue that the best salespeople Convincing is really low on the list of what they're doing. I might say convincing isn't on the list of what they're doing. I would argue that the best salespeople are spending a lot of their time doing two things, learning and filtering. Learning and filtering. It's a successful conversation with the customer if they say no quickly and they teach you about other kinds of customers who also are going to say no quickly. That's a success. And like filtering out the customers who will never get to a yes as soon as possible is a success. And I think that a lot of founders who've never done sales are like, oh no, if they say no, that just means that they don't understand how good my thing is and I have to explain it better. As opposed to like, Know that no is a gift. Figure out what you could have asked them so they would have said no in the first three minutes of the conversation. So at YC, we kind of talk about this as customer validation. Every sales call should start with three questions that allow the customer to disqualify themselves from your product. A lot of your calls should be ending in the first five to 10 minutes. You know, I don't think we're right for you now. We're happy to call you back when we can do this thing or that thing, but I don't think we're right for you now. And if enough founders, and it's funny, because the themes are all the same, being willing to say no, being willing to test the core hypothesis, or sorry, being willing to accept a no, being willing to test the core hypothesis, not feeling bad when someone doesn't want your thing. Having a strong opinion. <bot>: Yeah, not falling into a spiral of self-recrimination and self-doubt. You know, like you can get really dark and it's like someone just doesn't want to buy your thing. Like, who cares? </s>

<human>: I'll get another truth. Empirically, none of the trillion dollar software companies are bootstrapped with no VC dollars ever. Yeah. So if someone's telling you you can make a trillion dollar company, maybe you can. Just no one's ever done it. I'll say fact-based. <bot>: And again, to look at the numbers, even if you look at software companies, even if you look at iPhone apps, if you actually did an audit of the app store and you said what percentage of the apps in the app store are VC-backed, it is tiny. But if you said what percentage of dollars that are spent in mobile apps, going to ZC backed companies. I think that's fair, right? Because dollars are going into Amazon and eBay and like all that kind of stuff, right? </s>

<human>: I also think spending time with your users is a cure for this. Because your users don't care about macro at all. <bot>: No. If you're solving a problem for some industry, they probably don't care about the fundraising announcements in AI land. Again, let me, let me give a concrete example. There's lots of people applying to YC with Copilot for X ideas. We're gonna copilot for trucking. <human>: Yeah. <bot>: And then they'll be like, we did market analysis. AI is really big and it's growing really fast. Oh, gee. And trucking is really big and growing fast. And so what we're gonna do is build AI for trucking, fund us. <human>: And. <bot>: Then it's like, okay, well, what exactly, what is that? Be specific. What exactly are you going to build for AI? For trucking? <human>: Yeah, well, we'll talk about that. <bot>: Let me get back to you today. <human>: We'll talk to the trucking companies and figure out what they need. <bot>: Yeah. It's like asking the founder of the precise exact thing they're going to build. They hadn't thought that far ahead. It's combining AI and trucking seems like something that will raise money and seems like a big idea and seems on trend. And the details feel like irrelevant details. And sometimes people get frustrated when we ask these questions. <human>: They feel irrelevant, like, why are you. <bot>: Asking these stupid questions, Dalton, what precisely does our AI trucking startup do? Exactly? Yeah. <human>: Shouldn't we go back to competitive analysis? It's a land graft. <bot>: But basically, if you spend time, a ton of time with trucking companies, you are likely to have a whole different perspective here on how AI could solve problems in trucking. But you have to go really deep and spend time with them versus sitting in your apartment reading market analysis. <human>: This is something I see with YC founders. I just talked to a former YC founder literally yesterday who he admitted his first two or three companies were kind of this, things he thought were good ideas. And during that whole time, one of the things he did was he owned a used auto dealer. And his latest idea has to do with giving people auto loans at used car lots. And hearing him talk about it, I'm like, you know this almost as well as if you've owned a used car lot for the last 15 years. And he could go point by point on why the people before didn't work, what the motivations. It turns out, like, for a lot of these financing companies, the car lot makes more money selling, getting a referral fee on financing. And so like a lot of the companies that direct to consumer, oh, I come in with my loan pre approved. The guy in the car lot is trying to convince you to take a different. <bot>: Yeah, that's, that doesn't help. </s>

<human>: Yep. So what are we talking about here? <bot>: Yeah, I think there's three examples that we could think of that are folks that we, some of them we know decently well. So Sam Altman is one, our colleague of many years. Another one is Elon Musk. I think people have heard of him. Pretty famous guy. And then of course, Peter Thiel. And so those are the examples that we're going to kind of talk about today. </s>

<human>: That's not fun. I love that. I love that because sometimes founders want to put other people on the front lines and it's like, Like, no. Like, you are the front lines. But it's more scalable. <bot>: Again, and again, we're not trying to be facetious. It is more scalable if the founders could spend their time on other tasks, right? That's more scalable. But if you're doing things that don't scale, you embrace the suck, right? You give it a hug. You're like, yes, I love doing this horrible work. </s>

<human>: So, to wrap up, if you're a high schooler and you're thinking about this startup game, one, that's awesome, right? Like, we love that you're thinking about it. <bot>: Hey, don't let it, never let anyone put you down. Like, have a dream. We're telling you, be cool, be yourself. Like, if that's your dream, we love it. <human>: Yes. <bot>: Live your dream. <human>: Live your dream. The game will be here when you're ready to play. And, you know, we'll be here to help. All right, man. Great chat. <bot>: Thanks. </s>

<human>: I think the other thing that I'm seeing, and it's interesting because I've got a brother who's this age, a recent college grad, I think what's so hard for a lot of people to see is that if you're a recent college grad, you don't wanna stay in the city you went to school in. You might be living with your parents. And like in comparison, moving to the Bay Area is way better of an option than kind of your current setup over the last couple of years. And so I think that a lot of that content marketing is unfortunately written by like, People our age, people with kids, people living in San Francisco for like the last two years who were generally pissy about COVID. And it was like less responding to someone who might have spent a year and a half remote doing college or living in some small college town locked down. and is like, I wanna get out of this. That kind of person is, San Francisco looks like a beacon. <bot>: I think you wanna be where the action is, is I think how my summary is. Versus feeling like you're in a, not where the action is. </s>

<human>: I also think there's a little bit of, I'll invent a term, Google Itis, like people looking at companies that they use today and not understanding what they looked like at the beginning. <bot>: Yeah, they're a copying current product. You're like, oh, we're the next Amazon. So we're going to build everything Amazon has. And not hey, when Amazon started, it was like a really simple website that just sold books. It didn't do anything else. Like, I think it didn't even do that. <human>: That well. <bot>: Fair. </s>

<human>: But let's just go with classic. In the classic variety, what goes wrong in cargo culting is because you don't understand, really deeply understand the product that you're copying. You miss some, like, obvious things. <bot>: Yeah. <human>: And I like your, like, you know, airport example, right, where it's kind of like, yeah, if you make a landing strip in the middle of the jungle, airplanes won't land there. You're missing the. There's a part of the kind of. <bot>: Something larger going on soul system. <human>: And I think founders did this. I think we have definitely of this. And so let's talk about kind of the companies that were classically cargo culting in our era. <bot>: Well, the first and most obvious one was Google. <human>: Yes. <bot>: Everyone in the two thousands was obsessed with Google. It was the best startup. <human>: Yes. <bot>: And so everyone you talked to was like, well, Google did this, or are you the next Google or. Well, this is how Google did it. <human>: Yes. <bot>: And so all these ideas that may or may not have been good ideas, we were kind of trained. <human>: We're obviously the right things to copy. <bot>: So the most obvious one is just like the office culture of having an open office and like, bright colors and like, free snacks and like, all this, like super googly stuff. <human>: Yep. <bot>: That was considered like you, if you wanted to do a real startup, you had to be like Google. Right. Man. <human>: Not only that, that's what made Google great, was the lack of offices. <bot>: Yeah, you're right. No cube farms. That's why it was. Changed their culture. Like this is actually, there was arguments that copying down to the t, every aspect of the Google office culture was key to building a successful startup. <human>: Exactly, exactly. I think the other thing was this kind of flat org, managers don't need management and da da da da. Another classic one that I love was just, they like, hire as many smart engineers as possible. If you ever come across a smart engineer, no matter what, give them a job offer, you'll find a way to use them. I think it's funny because this is what we came up like. Yeah. Like, this was conventional wisdom. <bot>: There was other examples more silly than that. It was like the name of your startup needed to be cute. <human>: Yes. <bot>: Or like drop vowels. Remember Flickr started this where there was no e in it, and so it would be. You need a Google like logo. <human>: Yes. <bot>: That looked like primary colors and had like a shiny. Remember what was the term? Like, you would put like a lens flare on your logo. Everyone did this. Go look at logos back in like, 2006. And that was because Google and these other startups had lens flare on their logos and they had cute names. <human>: Yes. <bot>: So you had to do it well. </s>

<human>: And they want the structure, they want the leveling, they want the status, they want the money that used to be associated with these finance or professional jobs. Bam, they're all now associated with big tech. And so what's interesting is that at first you see the explosion of CS majors in school. And I think you would think to yourself, oh man, that means that there are a lot more people who are interested in building. But that's not actually the case. Like it's, it's, it's, uh, it's deceiving. The numbers are deceiving. I remember going to a class and talking to a bunch of kids who were kind of interested in tech and startups and so forth. And I remember saying to them, Hey, like how many of y'all are studying CS and write code? And 90% of the people raised their hands. And then I remember asking, Oh, that's amazing. Like what percentage of you would want to be writing code as part of your job in a startup or at a company? And like 90% of those hands went down. And, and, and it was so clear that like that CS job was like a, a label or a status thing to get the career they wanted. It wasn't, writing code wasn't something they enjoyed doing at all. <bot>: I remember going to the MIT career fair, this was like years ago. And most of the people that talked to me wanted to ask me how to get a job in VC and what tips I had. than how to start a startup. Like, that's what, like, that's actually, again, I know it's, well, that's why they were talking to me, but it was just, it was fascinating that they're like, yeah, yeah, yeah, you know, why comment, yeah, cool, whatever. But like, how do I become an investor? And these were, this was MIT, man. <human>: Well, I think that you're setting up the next topic, right? Which is that, like, these conformists are also now invading the startup world. And I agree with you, right? The highest status job in the early stage startup world is investor, right? It's the one everyone wants to meet, everyone wants to talk to, everyone seeks approval to. And so for sure, it makes sense, right? That, that, you know, the logic follows. But we also see a lot of these folks who are conformists who want to do startups, but they start almost, it feels like their motivation or starting point is very different than what we would expect. You know, one of the things that we say sometimes at YC is that don't make the investor your customer. Um, but a lot of these conformists who are getting into startups, that's what they do. Like they want an idea an investor is going to like, they want to act the way an investor is going to like, they want to have their resume investors going to like. <bot>: And their questions are usually something along the lines of they want us to tell them the secret to get investors to like them. Like that's actually, that's what they, that's what they hope that we will tell them is the secret, the secret words to whisper to an investor to get approval. </s>

<human>: All right, here's the second type that's common in the investing world. The big company exec, the person who's seen companies at 1000 plus people and have a lot of experience and have done great work in those companies and now become investors. <bot>: Folks with big tech experience are really great at taking a successful product and scaling it further or refining a product. Okay. It just is pretty different when you were employee number, you know, 100 or 200 at Airbnb or Google or Facebook than employee number five. And as we spoke about in a prior video, our friend and colleague Paul Buhit, you know, number 18 at Google was like the king of dirty hacks. And in a lot of ways, you know, when we would interview former googlers and he was in the room, he would, he wasn't on. He didn't love some of the instincts of folks that it was the same company that they worked at, but the, the tactics that they brought to bear when you were employee number 1000 to scale up one of these core products was pretty different than the folks in the first 20 employees. And so generally with these folks, it looks more like scaling up process, it looks more like scaling up hiring, and kind of sometimes taking for granted that getting any users at all is really hard. Like, I talk to folks a lot about this in the batch, man. </s>

<human>: And then at that point, you have to learn. And one of the things that we've seen, and we'll give some examples today, is that The fastest way to learn what you need to know, both about the problem and how to solve it, is to care about your customers, right? If you care about your customers and then as a result you spend time with your customers, you can really learn what their problems are and how to solve them so much faster. You know, one example, and we talk about Airbnb a lot, but one example that came up when they most recently spoke to The Bash that really clicked in my mind was they retold a story about how they were emailing their hosts, and they saw their hosts had horrible photographs on Airbnb. And they knew their hosts were listing their properties on other sites, and they had horrible photos there too. And they said, OK, we're just going to help them get better photos. We're just going to help them get better photos. We're going to email them. We're going to go to their homes. We're going to give them better photos. And I think what's interesting about that was that they knew that those hosts were going to use those photos in other places. They sure did. They knew that maybe their company was going to be dead in three months. And they knew they were kind of losing money on the deal. Because they flew in. Yeah, yeah, exactly. They 100% losing money on the deal. Didn't pencil out. Yeah, didn't pencil out. But they did it anyways. And they had empathy for the users. And they're like, you know, those photos suck. This is something we can solve for them. And it's kind of human nature that if you do something nice for someone, they'll appreciate it. They remember it. They'll try to help you. <bot>: They'll give you trust. Like you establish some trust when you break down the barriers between yourself and the folks you're trying to serve. do something nice for them. Who knew? Something valuable. Who knew? And they weren't like, here's your invoice. Yeah, no, no. No, no. </s>

<human>: This is Michael Seibel with Dalton Caldwell. And today we're going to talk about why investors, including YC, can't fix your company. <bot>: For some folks, it's like telling them that Santa Claus isn't real. You know, like, they're like, hey, we finally get some time with you. You know, no one wants our product. What should we do? Here's some. Here's our designs. Can you help me design this? So growth takes off, and I have to tell them the unfortunate news, which is, I have no idea. And, like, I went through this through, too, when I was a founder, that I really believed that once I raised from the top investors, they would tell me whatever secrets they were holding out on the world. <human>: What's unfortunate is that there are a lot of investors out there who aren't former founders, right? Who haven't really lived these mistakes themselves. <bot>: If you haven't been humbled by having a crappy startup like we did, that failed a lot like we did. It's easy to sort of, like, think you're hot shit. <human>: It's easy to think that your advice can make companies work that, like, you are the magician. And what's interesting is that over the years, a lot of YC founders will kind of start following the advice of these people, and they'll make very, very common errors. And you can almost track it back to, like, oh, I kind of understand the type of person who is giving you this advice, because I see what you're doing now, and, like, this matches one to one. So one of the most common types of investors is the investor with a finance background, someone who's like, never run a company, never operate in a company. And pure finance. <bot>: When all you have is a hammer, everything's a nail. And so if what you know is money, the solutions usually involve money. So raising more money, spending more money, throwing money at the problem. Right. <human>: Hey, Dalton, you're a pre product market fit. Do you have five year financial projections? <bot>: That's a great example of that. Financial projections may be a good idea later stage, but to even ask me if I had financial projections, I was like, what's a financial projection like? </s>

<human>: Not the best play. You know, the other common failure path that we see is People putting the investor as the kind of center of this game, as opposed to the customer. People thinking the investor is almost the teacher and their job through a pitch or a deck is to get an A from the teacher. And the A is money. <bot>: I think that looking for validation from authority figures is a lot of how we are constructed to look at the world. And if you've been an employee or you've gone to school your whole lives, a lot of the way you get ahead in life is to figure out who the authority figure is that you need to please. And if you please that authority figure, it's the path to greatness. And so again, like if you're like a level, whatever, level three engineer at some big company and you're like, the way you get ahead is to impress the bosses. Why not kind of pattern match that onto startups? <human>: Not true. If I could redirect that energy towards pleasing people's customers. <bot>: Yeah. People call this customer obsession. Like it's a buzzword. We are customer obsessed, but take, Let's take that literally. What does it literally mean to be customer obsessed? What it literally means is most of your waking hours, who are you thinking about pleasing? It's your customers and you're trying to solve problems for them. </s>

<human>: What I love is that when the Stripe founders came to speak at YC, the other detail they added was it was the most expensive product in the market. Like to make sure people really wanted it, they didn't give it away for free, they didn't price it comparably, they made it more expensive and people were still desperate to use it. Like that's how you know you have an insight. Like when you're the most expensive thing, speaking of Apple, and people still are desperate for it. Now the shit takes, right? The shit takes were pretty clear. One, what are two teenagers doing in the banking space, the government regulation, it's the most regulated space in the fucking world, right? <bot>: Isn't this like a suicide mission? You're like, hi, we're 19. We wanna start basically a bank. Give us all your money. We're gonna handle hundreds of millions of dollars of everyone's money. So yeah, that's our plan. And there will be no fraud. <human>: We're good. I think the second one is that even subtracting regulation, they needed a bank deal. They needed Wells Fargo to let them start using their rails. As an early stage startup, they need to get that, which at the time seemed impossible. And then, of course, I think the last one is that PayPal existed. There was a really popular company where it felt like PayPal was a quarter step away from this, right? And it was like, oh, even if you start doing well, PayPal can go here instantly. They have all these users. They're the hot company. <bot>: Yeah, it was seen as a crowded market with huge companies with hundreds of employees, thousands of employees. And it's the classic thing, again, the knock against YC companies at the time is YC would just fund crappy versions of existing company. Like the third rate knockoff version of something actually good was what YC companies were. Isn't that hilarious? I don't know if people remember that, but that was the reputation of YC companies is like, oh yeah, they'll take an existing idea that's good and they'll make like a less popular version of it. </s>

<human>: The next one that I see that I love is, um, everyone has high expectations for what they're going to accomplish when they get into YC. And then inevitably and initially they don't meet those expectations. And it's so fun to work with the founders who are excited by that, who are like, I'm excited that this is harder than I thought it would be. Like I knew it was going to be hard. It's proving to be harder than I thought. This is going to make me better. Like this is forcing me to raise my bar. I wanted to test how good I was. And like, this is bringing the best out of me. <bot>: And you're, it's different. Cause you don't get to level up and get a gold star and oh, good job. You're, you're now founder. We're up, we're getting a promotion. You are now founder level three. You know, congratulations. You know, like when people are cool with it, it's not that way. Cause I think sometimes people really want it to be that way. And they're really freaked out that it's not. Some people love it. They're like, yeah, this is great. Like there's no structure. Like the only way that you can keep score is like revenue for my startup. And if it gets big, there's no other way to keep score than that. Some people love that. <human>: And then you should set up this last one because I always love this one. <bot>: I think a good way to say it is folks that have a very high opinion of themselves. And when they see peers They're like, yeah, I'm gonna try way harder and be way smarter and learn way faster than them. Basically, the non-conformists are willing to kind of like, they wanna be above the peer group, not in the peer group. Versus if you're a conformist, you kinda wanna be in the pack with everybody. A lot of the folks, the really hardcore non-conformists I've funded that have done great, they'll be like, yeah, you know, I don't get what all these other people are doing, but like, This is what I'm doing. And like, it's going great. You know what I'm trying to say? So it's like a combination of optimism and confidence. </s>

<human>: You often talk about this and it's something that I think is becoming part of the culture of YC where we want to talk up to our founders versus down to our founders. We want to talk to the smartest kid in the class, not the dumbest kid in the class. And I think sometimes in the general public, that's not well understood. But I think within the YC community, it really is. The feedback that we got from alums was universally, this caused me to take a sober look at my situation. And if my situation was good, I'm staying on plan. If my situation wasn't, I'm making changes. And just to your point, it wasn't, I'm freaking out. it was like, okay, I'm gonna take a second and do a sober analysis of my company. And I think what's unfortunate is that they had just gone through this two year cycle where investors were basically screaming at them to burn and raise, because investors were getting markups and they were raising new funds. And so I think that in many ways, this letter gave them a lot of people the opportunity to say, okay, wait a second, like, is that strategy actually good for my business? And it's obviously good for my investor's business. Getting markups is obviously part of their business model, but is that strategy good for my business? So that's been really fun to see. It's been fun to see the founders taking it in the right way. Probably one of the last big trends is this new standard deal, right? That was big news over the past four months. And it's interesting, because I think that in some ways, it was conceived of competitively. People were looking at the YC Standard Deal being like, oh, like YC is to compete. There's so many new seed funds out there. And I think what's interesting is if you would kind of take it inside baseball for a second, that's really not the reason we did it at all. Like take us inside baseball a little bit, Dalton. Like what was the strategy behind it? Yeah, I mean, the strategy was <bot>: It's good for companies to get fully funded the moment we accept them. And frankly, we saw some stuff that looked a little toppy, to use the Wall Street Bets terminology. <human>: Dalton, you're speaking in code. Be literal here. What did we see? It looks like <bot>: We're not sure that things were sustainable that everything would keep going up forever. How about that? Stocks may not only go up. And so it seemed prudent to give the companies more money so that in the event of a market change, we were confident that everyone would be fully funded. Again for context, I think people forget this because of all the crazy seed round warped perceptions. How much money did like Airbnb and Dropbox and all those folks raised back in the day. How much money did Airbnb raise again? <human>: Under a million. Under a million. These seed rounds are under a million. And diluting over 20%, over 25%. <bot>: So we actually know that half a million dollars is slash was enough money to build one of the most successful companies ever. And it made a ton of sense to have this budget, to raise this money. We could fund a lot of companies. It's all raised. We have it, dry powder. So that no matter what happens, if you get into YC, you're good. <human>: There's this saying that I love, the best time to fix the roof is when the sun is shining. And, you know, I look at our opportunity to create this new standard deal for YC founders, and the fact that we have budget to fund over 1400 companies with this standard deal. And I think to myself, like, you know, I'm so happy we did that when we could, because now we're going to be able to help so many teams that otherwise might not be able to do startups might not be able to raise money. <bot>: And not be sure, oh, I don't know if I want to apply to YC, I don't know if I want to start a company because I'm afraid. I've read TechCrunch articles, the funding environment is rough. There's all these fears out there. Well, it's like, well, yeah, if you get into YC, you get half a million dollars. And the day we fund you, it's funny, sometimes people don't believe us. They're like, wait, this is contingent on something, right? It's like, no, we can't do that. </s>

<human>: Let's talk about honesty. This is a big one. This is a big one that I think people, in fact, you know, we talk about a lot of people who maybe didn't learn this lesson, that honesty is important, and for a while, they do okay with it, but inevitably, they get caught. How do you think about learning to be honest if you're a high schooler? <bot>: The best skill is to learn to be honest to yourself. Like, if your own relationship with yourself is, you can't be honest about things. What do you really feel? What do you really think? Who are you really? Yeah. It's going to be rough. Yeah. And then at your core, if you're not honest with yourself, your relationship with your parents, your relationship with your friends, with institutions, it's going to be tricky. We run across folks that seem like they've deferred a lot of this honesty. <human>: Yeah. I think that the thing you should understand about the startup world is that A lot of it works because of honesty. A lot of the reasons why early adopting customers will use you is because they think you're going to be honest. A lot of reasons why investors might give you money, why your co-founders might work with you, an employee might work with you. A lot of reasons why people make things happen in the startup world is because we're in a high trust environment. <bot>: Yeah. And this is one of those like negative things that people say about nerds is, oh, this person has no manners. They just say whatever they think. Like, again, in polite society. Yeah. You're supposed to lie all the time. Something a nerd would do is be like, hey, That product sucks. Why are we shipping this product that no one wants? It's like, hey, shut up, man. That's what a nerd would do. You're bad for telling the truth about something because it's impolite and you're hurting people's feelings. And so there is part of the nerd culture in this that I think is good, which is essential. The person who would stand up and raise their hand and point out that the emperor is wearing no clothes. </s>

<human>: Now let's talk about this kind of – we keep on bringing Google. Let's go with this phenomenon. I see so many young founders basically saying like before I start a startup, I need to work at a big company. That's what I'm going to learn how to do it, do you think Google's gonna help? Or how do you think it helps and how do you think it hurts? Because I think it's more nuanced than just one or the other. <bot>: To set the scene, if you've ever interviewed for like a programming position at Google or Facebook or Amazon, a lot of what they have you do is design algorithms that ideally are scalable algorithms, right? Like ideally you're not bubble sorting on the whiteboard during your interview at Google, right? And so it gets ground into you during the selection process that your job is to design solutions that scale. And when you're inside of a big tech company, you're rolling things out to millions or tens of millions of people. And so you're beat into your head that you only scalable solutions are good solutions, right? Like if Facebook had some new feature, but it required them to buy a hundred times more servers, which would bankrupt the company, guess what would happen to your bright idea? Can't do it. It's got to be more scalable, right? So every single product idea or feature that you build inside these companies is viewed through the lens of scalability, and rightfully so. You still with me? Yes. Yes. Now, this is what's funny if you think of these jobs as training for startups, is that now you've had deeply ingrained into your brain what I would argue is not helpful at the earliest stages. This is helpful when you make it to late stage, hallelujah, right? But the earliest stages, you just got immersed in a culture that is not helpful. Versus if you never worked at one of these companies and you just graduated college, no one ever told you to worry about scalability. You're like, yeah, cool, whatever. I wrote the algorithm with a bubble sword, that's okay, right? You've never been yelled at by your boss because you came up with unscalable ideas. <human>: you want to be trained at doing just enough as opposed to doing perfect job. And like the startup needs to do just enough and Google needs to do way better than just enough. And I think that like what's hard for me is that sometimes you see those founders and they can't launch. They're like, oh, something's broken, or oh, a customer didn't like this, and they just cannot bring themselves to launch because it's not perfect. Well, think about it. <bot>: If you're at Google and you launch a new feature, or if you're at Facebook and you launch a new feature and it doesn't scale, like if it doesn't work, that's the fail. Like, congratulations, you suck, and your team sucks, right? And again, they're not wrong, but all the incentive structure is set up to not launch a feature that is not scalable. This is where that scalable word comes in, right? </s>

<human>: Yes. <bot>: And remember, this is something that sometimes founders do is they're like, they'll put a slide in their slide deck of exit strategy. Like, basically, when they're trying to choose what idea to work on, they want. <human>: To include what we know is going. <bot>: To buy us, that they're going to sell the company and for how much into who, and of course, delete that slide. Like, oh, my God, are you kidding me? <human>: Yes. <bot>: And the point I'm trying to make here is if you think like an investment banker, you do need to think about an exit strategy. If you're a private equity company, you're buying a mattress company for hundreds of million dollars. You definitely want to have an exit strategy slide. <human>: Yes. <bot>: And to me, the evergreen lesson here is that you don't need all of the full plan today. And a lot of founders are worried. Well, what if I do? This idea, I'm really confident people want it, but I'm going to top out at $20 million of annual revenue. It's a bad idea then, right? And it's so rare. You can attest to this, Michael. It's so rare in this job where we see a company that gets to 20 million, 30 million, 40 million in annual revenue, and the founder has no idea on how to grow it. <human>: Yeah, there's no, there's no move. <bot>: They're out of ideas. <human>: Yeah, this is. <bot>: I'm not going to say that never happens, but it's extremely rare. <human>: I think it's a problem you want to have amongst all the problems, if you could choose one. <bot>: And so if you're filtering out ideas that you. That seem great and you have expertise in it, but you're worried it'll only get to 50 million or whatever. Yeah. You don't need the full plan today. It's okay to not worry about some of these problems until your later stage. <human>: You know, personally linked in on this front. I remember I got the course book for university, and I remember reading it and thinking, okay, I know the 36 classes I'm gonna take, like, before going to school, I was like, well, I mean, the book's here. You read it, you pick the classes. And I remember, you know, halfway through the first semester being like, well, that was a bunch of wasted work. <bot>: Yeah. <human>: And I wish sometimes founders would embrace, it's gonna be a bit of an adventure. <bot>: Yeah. <human>: It's gonna be a bit of an adventure. Anyways, good chat, Dalton. <bot>: Sounds good. Thanks. </s>

<human>: So yeah, maybe that's the message that we want to leave, is that unfortunately, amongst these 1,400, they're not going to make it. Unfortunately, this unicorn label does not mean you're going to get in the money. Yep. And you've got to think critically. And isn't that life? <bot>: Yeah, and a lot of life is you could be disappointed because other authority figures told you something is true. The authority figure said, this company raised a lot of money. It's a very good bet. It's the next whatever. But ultimately, those authority figures aren't going to be around if it doesn't work out. It's on you. <human>: And if those authority figures are investors, they're hedged. <bot>: Yeah. <human>: They're hedged. So maybe do the math yourself. <bot>: What's good is every YC unicorn is going to make it. Every one. <human>: Every single one. You heard it here. every single one. Dalton's personal guarantee. All right. Great chatting. <bot>: Thanks. </s>

<human>: I think the other thing that's kind of maybe a dirty kind of underbelly here is who is spurning this argument? Like who is incentivized for this to be a big issue? <bot>: Yeah, I think that this has been just like a topic that gets a lot of engagement online. And so, you know, if you wanna get people agitated about something, this is a pretty good topic. And then you can use it to promote Stuff and so yeah, I'm not gonna name any names, but I can think of folks over the years. Yeah that are like kind of built a Following around encouraging people to do this and to the extent it is helpful and more people are Improving their lives doing it. That's great. Yes, but there's a little bit of like creating a fake controversy. And then monetizing it. A little bit. </s>

<human>: A YC founder wrote in, a potential customer's opinion is not valuable unless they're willing to pay you. or use the product regularly, or share the product with their friends. They call this financial capital, pay you, time capital, usage, or social capital, give it to their friends. <bot>: I think people really struggle with this because I think it's getting at the core of like a human condition thing, which is we want to be loved and we don't want to be rejected. And so, you know, getting through all these layers of defense that you've created for yourself to protect yourself from rejection is really hard. And it's like, Yeah, man, it's personal work. Like it's work you're doing in your head. It's not work you're doing in the external world. And so I just noticed a lot of these teams, the really core thing going on is ego protection and nothing else. And like, you can come up with all these intellectual arguments on why actually, you know, but when you really talk to someone and you get down to the core, it's being okay with getting rejection. </s>

<human>: Hello, this is Dalton plus Michael. And today we're going to talk about why are we optimistic about the future? So to be clear, at YC, we fund a lot of startups. And even though we try to do a very good job, most startups fail. <bot>: Yeah, if you look at the numbers, We know a lot more about failing and failed startups than successful ones. That's just how the numbers work, right? And so we see failed startups every day. We live it, we breathe it. This is the job that we have. We're experts on failure. </s>

<human>: I think the next thing you should be thinking about is kind of effort level. You know, are you working these crazy hours but everyone's on vacation in Aruba half the time, right? Are your counterparts who are doing fundraising and sales and HR and all the other tasks within the company, are they grinding or are they not? <bot>: Yep, like this is a self-diagnosis thing, but it's really sad when you see someone in the role of technical co-founder, and they really have to work their butt off, and they're really showing up every day, and the idea guy or the salesperson or the business expert, the fundraising expert, actually isn't doing much. <human>: Sometimes they're part-time. <bot>: Sometimes they're part-time. And man, that is such a vector for being exploited. And so you should really feel, from a self-diagnosis perspective, that yeah, your counterparts are just as into it and there's just as much heart that they're bringing to the table as you are. And if so, again, maybe it's a great deal for you. </s>

<human>: Hello, this is Michael Seibel with Dalton Caldwell, and today we're going to talk about whether your startup is default alive or default debt. So this was a concept that was actually invented by one of the co founders of YC, Paul Graham. Dalton, do you just want to start by explaining what this means? <bot>: Yeah, I mean, so to start with, you should read his blog post. It is excellent, it is short, it is easy to read, and so you should read it. But let me try to give you my crash course in it. Here's what he means by default alive, default dead. As founders, we like to ignore the truth a lot of the time. And one of those truths are, is my startup going to go out of business? Right. It's kind of an awkward thing to talk about. You know, you don't want to bring that up in polite company. And so the point of default alive, default dead is it forces you to be honest with yourself. If I don't raise any more money, am I going to die, am I out of business or am I going to make it? And default alive is different than profitable. Profitable means today I make enough money that I am profitable. My bank account grows every month. You still with me? Default alive means I may be burning money today, but my growth rate is high enough on revenue that I will become profitable before my bank account goes to zero. Does that make sense? And so if not a single other dollar of investor money comes into the business, my growth rate is high enough such that I don't have to lose sleep, that I'm going to have to raise around before I die. And his point is, this is a binary. Either you are default alive or you are not default alive. Thus defaulted. There's no third option here, friends. It forces you to pin yourself down in your own mind, right? Does that sound right to you, Michael? Did I get that right? </s>

<human>: I think that the last two are kind of connected. This kind of like, is it working slash opportunity cost, right? One would argue that you, because you're doing all this work, have an amazing ability to judge whether the company's working. Yep. you should maybe trust your instincts there. And you know, is it working, right? Like you might be exploited if you're being asked to do all this stuff and like the evidence is painfully obvious it's not working. <bot>: Well, and you're the technical person, so you notice the first. The funniest thing is this one of the technical person who does all the work is the one actually reading the analytics and like, hey, like this, our launch bombed. What's the plan in the business? Don't worry about it. This is like, you need to be quiet. This is my department. You know, stop asking questions. And so if it just seems like you're bringing your A-game effort and doing all of the work, and it's definitely not working, probably it might be a sign you're being exploited. <human>: Well, and this is even more of the case that the opportunity cost might not be worth it. Or you might be not leaving because you're afraid, but you know intellectually this thing isn't working. <bot>: All right, so, and like, don't let them finesse you. Again, this is the same person that convinced you that you getting, you know, one 10th of their equity is a great deal for you is the ones like, hey, I know it looks like we're not growing and we have no revenue and we're about to run out of money. Don't let that same suave person keep doing the same move on you over and over again. <human>: It's weird because I never use the term gaslighting, but it's actually gaslighting. It's actually that. I don't want to paint too bad of a picture because on the flip side, we see situations that are Great. Yeah, more often than not. Of the folks we fund. In YC, yeah. Yeah, the folks we fund. <bot>: It's mostly a really awesome trade. </s>

<human>: Hey, this is Michael Seibel with Dalton Caldwell and welcome to Rookie Mistakes. We asked YC Founders for their rookie mistakes so we can share them with you and help you avoid them. YC Founder wrote in and said, we chose to create a company around a hot technology. We were really excited about the tech. We eventually raised funds because there were enough investors who were excited about it too. But now, looking back, I think we had it backwards. We were the classic Silicon Valley startup in search of a problem. <bot>: Michael, let's start with the definition of solution in search of a problem. What do we mean by that? Solution in search of a problem is where you build a thing and you're like, we have this thing. We just need to find someone who wants it. We need to find a use for it. We have the solution and let's go out and find a problem for it. And, you know, as long as technology has existed, this has been an issue. Remember reading about the patent system? You know how there's millions of patents for, products like better mouse traps or whatever that there's actually no market for whatsoever. And so this is, you know, as long as humans have been banging rocks together, there have been rocks that were not, that were solutions, but they weren't useful for anybody. And so look, this happens a lot with technologists, that happens a lot with Silicon Valley, where they start with the technology thing is cool, and they try to find a market for it second. Now, the core thing that I want to talk about here that you sort of zeroed on is founders with no particular opinions about what the market should be and no ideas on who the customers are or anything. They're just sort of floating in space. </s>

<human>: So when we were pivoting from Justin.TV and Twitch, Emmett Shear and Kevin Lin were kind of leading the Twitch team. And they took this to heart. We had not done talk and news for years. They took this to heart and they basically just started interviewing video game streamers and asking what they wanted. And the funniest thing is that at this point we had built every feature a live video social media site could have. We had chat, we had messaging, we had feed, we had social media stuff, we had embedding, we had every kind of sharing, we were on multiple platforms. And so they were really surprised when the first thing people said was, can I stream in higher quality? And we were like, really? That's like, you don't want like some big, we'll build you anything. Like, yeah, can I, you know what they said? They're like, well, you know, my computer costs like four grand and I paid for like the best internet connection in my neighborhood and I'm streaming this HD game and it looks like crap. And we were like, huh? Well, because we built our own media server and we were controlling our old streaming, that was like an integer. That was the easiest change you could ever make. And it would cost us incrementally more, but from a building product perspective, it was very anticlimactic. And so I think three days later, we introduced you know, higher HD or something. And these people went crazy. They were like, I've never, first of all, they were like, I never imagined you could do this. Like I thought it was some massive technical issue that was like, where you were screwing us for like a year just because it was too hard. And like suddenly you fix it. And then two, I've never used the website where I talked to someone about it and then it got better. And so this started a series of, in hindsight, what looked like extremely obvious things to build. One was, I want my stream to look better. Very quickly, two was, I'd like to make money, please. Can you help me make money? Don't you want a social network? Dude, don't you want to customize your page more with different colors and themes? It's like, no, but like I'll run ads on my own stuff. He's like, what do you mean? It's like, oh, if you give me a button where I'll just run a video ad on my own users and I can make money, I'll click it. I'm like, but wouldn't that, what? And then once again, we already had video ads. Like once again, it's like, fuck, like that's not even hard to build. Like the hardest thing was like, what should the button look like? <bot>: And again, dude, you were experts. You were running just, how many years in were you at Just Indeed? <human>: This was five years in. We were experts. <bot>: So you were five years into your startup. You knew everything about everything, but then you were like, oh yeah, I guess we should talk to some of our users. And they said a bunch of stuff that blew your minds, that none of you would have thought. </s>

<human>: So I think that there are some businesses where you actually need money up front. Yes. And if you need money up front and you're building a software business, the venture capital industry can help you get money up front. If you don't need it. Don't take it. Yes. I think that what's so interesting about this is that there aren't many other good mechanisms. If you need millions of dollars or $10 million to get your company to break even, there aren't other mechanisms in our economy to give that to you. <bot>: Unless you use an example of Google, I don't know, just because it's famous, one of the most viable companies in the world. I don't know how you could have bootstrapped that. And so again, maybe the audience is saying, well, I don't want to build Google. Great. No one is saying you have to build Google. But if Google wants to build Google, but if the founders of Google wanted to build Google, it doesn't seem mathematically possible. There's no route they could have done it without the crazy money. There's no loans they could have gotten to buy the servers and do the things they did. </s>

<human>: So, anyways, I think that if you can resist this thinking, like a VC, I think what I've realized is you kind of have superpowers. I think this virus has invaded a fairly large percentage of founders. <bot>: Yes. <human>: And so you actually get to do things other founders would think would be silly. <bot>: Yeah. It's like everyone has a filter for what seems like a good idea or not. And if your filter is exactly the same as everyone else's, you're all going to be screening out the same ideas. Right? <human>: Yeah. <bot>: But if your filter is calibrated differently, you will see things that other people have decided is bad. Right. <human>: Well, I think that's what's so funny is because that's the every successful YC story. That's the story in hindsight, right. It's like everyone thought the idea sucked. It was off trend because it was off trend. <bot>: It was a bad model, it was a bad space. The market wasn't big enough. </s>

<human>: Now, let me play devil's advocate a little bit. Dalton, I have an expert advisor. I have an angel investor. I have a seed investor. I've got a series A investor. They're the experienced ones and they believe they're working with me. Like, isn't that validation enough? Don't they – didn't they do this research? <bot>: Kind of. I mean, let's go to this two ways. One, it's best to do your own work on this because ultimately you're responsible for your company and it working or not. And this is what I tell people in the batch, you know, I'm like, well, just make sure You have to live your life. So if your startup doesn't work, it's not really my problem. I'll be OK. And so feel like you've done all of the diligence and research, and you know the risks of what you're doing. But to the extent I have relevant advice, it could be helpful. I think the other thing is sometimes experts can be too biased positively or negatively based on a small data set. So if you're working on a startup idea that someone had either personally worked on before or lost lots of money investing in before, they're going to have opinions. In my case, you know, media and entertainment startups are really hard. So I, you know, I know a lot about them. I can advise people on them, but I'm not usually the most optimistic on that startup idea. Um, and then, and so when you're talking to experts, just make sure you get a wide variety of them. I think would be my, my. reaction to your pushback and synthesize them. Just in the same way I said earlier, it's good to listen to lots of different kinds of music to synthesize together. I would just be synthesizing a lot of different opinions or a lot of different pieces of history as you're forming an opinion. In the Brex example, they went and spoke to every person that ever tried to start a challenger bank before. And guess what they all told them? They told them two things. One, useful information that they wrote down in their notes, the founders of Brex did. And two, they told them, don't do this. Are you crazy? So the break funders ignored that part, but this is similar. When you speak to experts, you just need to know what bits and pieces to draw from what they have to say, then to blindly accept what they say as facts. And that includes us, totally. <human>: Right? You know, I think you brought up something so counterintuitive about investors. Like I get so many emails from people saying like, I'm doing social this or live video that, Can you help me?" And I'm one of those people who's like, wow, I took a lot of hits during my social media live video days. I think sometimes counterintuitively, investors who know slightly less about your space can be a little bit more grasses greener, like optimistic than folks who know more about your space. I think that's not something that I realize. I don't think that's something that's obvious to founders. I think that like people assume expertise equals optimism. Yeah, right? Haven't we observed the opposite of that? <bot>: Yeah. I mean, yeah, there's something nice about not knowing much about something. It's much easier to see it as a simple question or a simple problem. Like imagine asking the founders of DoorDash about food delivery and what they would have to say about it versus me. Versus a customer. </s>

<human>: All right, this is Dalton Plus Michael, and today we're going to talk about why it's so hard to copy your heroes. Cut this off for us, Dalton. <bot>: Yeah, there's a common dynamic that we see in our industry where a prominent person will give advice that sounds reasonable, you know, like they're just saying, they're just giving people advice. But it is not at all what they did to become successful. It's the classic, do as I say, not as I do, or in this case, past tense, do as I say, not as I did. And it always gets a little bit tricky for us when we witness this. <human>: Well, it's super weird because we're just getting old enough where for a lot of these people, we saw what they did. Yeah, we know their story. Yeah, we know their story. And so we're just like, that's weird. You didn't do that. <bot>: Yeah, that wasn't at all your path. And so you're telling everyone to do something that wasn't the thing you did. </s>

<human>: You're not helping the company. So one thing I think is helpful is like, how do we help founders prepare their minds for this zone? And we're telling you it's going to suck. We're telling you to do things that people are gonna make fun of you. We're telling you that you might have to live in this spot for a while before things start looking better. I think that the big challenge the founders make is screwed up expectations. Like the big challenge is that founders think I launch it and then it's gonna work. And I really wish founders went in with the mindset like, I don't care if it takes two years to work. Like how do you set your mind up so that you're immediately not disappointed? Because I think that it's like, you know, we talk about this at YC all the time, maintaining motivation is like three quarters of this game. <bot>: I think this is a great question. And it's funny how much the questions Like if someone got to spend time with us, Michael, say someone went to dinner with us, what they want to ask us about is like fundraising, networking. I know exactly what people would want to talk to us about, but usually what you should be asking us to talk about is like, emotional well-being and maintaining motivation and dealing with high stress situations and dealing with criticism, like a lot of people aren't prepared for people on the internet criticizing them. It's hard, right? And so it's funny how much what people think expertise, like what they think they want help with and what they actually need help with are not the same thing. <human>: Yes. <bot>: And think about how many startups that we fund die basically as the founders run out of gas and get sad and want to go back to their jobs at Google because this was not what this was not what they thought it was. Man motivation. <human>: I don't think motivation is about how shitty something is. Right. Like I think it's about how shitty did you think it was going to be when you started. I think that's what screws your motivation. It's like, how shitty did you think it was gonna be when it was started? That's why, I mean, honestly, when I do talks to college kids now, I'm just like, this life sucks. Like, this is the first thing out of my mind. It's like, this life sucks. It's like getting punched in the face every day. And like, real face punch. Like, not like fake. It's like, you're gonna get punched in the face. You remember that shit for like the rest of your life. <bot>: I mean, to this day, I'm sure you do too. Man, I have like bad dreams about my startups. I still have like, it's not like we're insulated from this. This was hard. This was like the hardest shit we ever did. Yes, by far. </s>