<human>: I think the other thing that comes up a lot around innovation is business model and pricing. I think this, once again, is not putting the customer first. You know, hey, let's say you're selling cloud compute, right? Your customers have probably bought AWS before. Maybe  you should charge like AWS does, right? Because maybe your customers will recognize that and that will give them comfort. Yep. No, that's wrong. We hate AWS.  We can't do anything like AWS, including pricing. So now your customer looks at this pricing thing, and they're like, well, I really like your product, but I don't understand.
<bot>: Your pricing page doesn't make sense. It's not even that they don't want to pay. It's that they're like, I don't understand what you're saying or how this works. I have to buy floozles, and then I get credits for floozles, and then I transfer them into the, like super real.
<human>: And by the time I'm at that page, I just want to know what it costs.  And if I can't figure out what it costs, how do I? I'm walking, you've invited me in your home, and then you've shot me in the leg.
<bot>: No, you've invited me in your home, and I can't open the front door. Like the door handle. I don't know how to use your door handle. And I really wanted to come in. I did. I was game. I had my money.
</s>


<human>: This is Michael Seibel with Dalton Caldwell. In our last video, we talked about the setbacks that make founders feel like shit when running their startups. And this time we're going to talk about how to prevent these punches to the face,  and how to take a punch and recover if you absolutely must. So Dalton, I think the cool way to think about this is a little bit like healthcare. There's preventative healthcare and then there's treatment. So let's start with the preventative and let's set the framework here. A lot of times founders get punched in the face as almost unforced errors.  It's like a result of magical thinking or like other parts of their lives not being set up. And so here are things you can do to either reduce the number of punches that come or at least reduce their intensity because you have your other shit locked up.  Does that make sense?
<bot>: Yeah, exactly. It's like, as we spoke to last time, you can't think that you're not going to have any setbacks and you're not going to, again, take some punches. It's going to happen to you 100%. The highs are high and the lows are low. And so rather than assuming you can be so smart that you will never have low lows,  Instead, plan ahead. Put the infrastructure in place so that when you do have these big challenges or these low moments, you have the infrastructure set up that, you know, you plan ahead for it. I think that's a very good idea.
<human>: So we were joking when we were talking about what to talk about in this video. A lot of these things could be put in the category of adulting.  And it might turn out that if you want to be a founder of a very successful company, you might have to adult harder than the people around you. In fact, it almost assuredly requires adulting harder than the people around you. Sometimes I think founders look at us and they're kind of like, well, you know, my roommates don't do this, so why do I have to? And it's like, well, your roommates aren't trying to build a billion-dollar company, then they don't have to.  Maybe you need to be better than the people around you to do something extraordinary.
<bot>: It's yet another thing that distances you from your peers. And if your whole thing in life is I'm the same as my peers and I'm the same as my roommates that have jobs at like big tech companies. This is yet another way that you're going to be isolated and different and have to learn to love that.  and not feel sad that when they're like, hey, we're gonna go pull another all-nighter, we're gonna go party Thursday, Friday, Saturday. You have to be cool with opting out of that, right? But if you think you can have it all, you can't. We're here to ruin that have it all dream.
</s>


<human>: I'm going to try to come up with a bad analogy on the spot. Let's say that changing the world is like uprooting a tree, like a big, old, tall tree. Imagine there were two founders. One founder knew that trees have roots.  and the other founder had no idea, right? Like the trees with RootsPerson, they have an advantage. They have a very large advantage. The tree without RootsPerson, they're gonna have a lot of very horrible, how do I phrase this? On-the-job learnings. Yeah, it's not moving. Like we don't get it. Like we...
<bot>: We're pushing it, and it won't fall over.
<human>: Yeah, we've done all the math. If the tree ends right where the ground begins, pushing like this, it should work.
<bot>: That's a great way to say it. There's so much under the surface. There's so much under the surface to understand with a lot of these ideas. And if you don't understand it, yeah, you're going to learn. You'll get some on-the-job training.
</s>


<human>: And I think that what's not spoken about enough, and it's a point you make a lot, is that there are certain cities that are just better, and there are certain regions that are just better. And we can talk about all the reasons why, but if you want to be the best in finance, you're probably going to find yourself in New York. If you want to be in the best.
<bot>: Or maybe London.
<human>: Or maybe London. Yeah. If you want to be the best, no, no, no.
<bot>: OK, anymore.
<human>: We're not since Brexit. Yeah. Brexit kind of fucked that up. If you want to be the best,  in entertainment, you're probably going to find yourself in LA. And the reason why is because when you want to be top 0.001%, you want to be around other people who are trying to be top 0.001%. And I think both of us wanted to be top 0.001% in startups. Yeah.  You're from Texas. I'm from fucking Jersey. We didn't grow up here.
<bot>: Yeah, that's true.
<human>: We made our way here. And when you're here, you get to consume all the other people like us who were looking to be the best and willing to get in the car and make our way here to do it. So I think that's a huge, huge factor.
<bot>: Yeah, and I just think a lot of the folks that I talk to, they have the opinion from reading Twitter and reading all this stuff.  that they all need to agree with you on this point. And that like, if moving to San Francisco means... You have to live downtown, in the Tenderloin. It means you have to make some really serious... You have to protest on the weekends. Yeah, but again, I talk to people when I fund people for YC, and I think they have a lot. A lot of people have like a lot of anxiety about these issues. And again, what they don't realize is  Do you know how many people live in East Bay and they live in the peninsula and they like it's a huge area. It's a huge area. Yeah. But we all get to work together. Yes. But we get to make our own decisions. Yes. We get the benefits of living in the Bay Area and having the network effects of the city. Yes. Without all living in like the like our lives are not the Twitter thread.
<human>: No.
<bot>: Showing photos of what's going on in downtown San Francisco.
</s>


<human>: So you had another story about Facebook early days that is similar in this light.
<bot>: So let me paint the picture. Back when you started a startup a long time ago, you had to buy servers and put them in a data center, which is a special room that's air conditioned that just has other servers in it. And you plug them in and they have fast internet access.  And so being a startup founder until AWS took off, part of the job was to drive to the suburbs or whatever, drive to some data center, which is an anonymous warehouse building somewhere, go in there and like,  plug things in. And what was funny is when your site crashed, it wasn't just depressing that your site crashed, it actually entailed getting in your car. Like part of being a startup founder was waking up at 2 a.m. and getting in your car and driving to like Santa Clara because your code wedged, you had to physically reboot the server. And your site was down until you physically rebuilt the server. So anyway, I'm just trying to set the stage for people. So this was what our life was like, okay? And so my company, iMeem,  We had a data center in Santa Clara, and there was a bunch of other startups there as well. And so something that I liked to do was to look at who my neighbors were, so to speak. There was never people there, it was just their servers, and there'd be a label at the top of the rack, and you could see their servers, and you could see the lights blinking on the switch, okay? So this is what I was like. And so our company was in the data center, in this data center in Santa Clara,  And then one day there's a new tenant and oh, new neighbors. So I look at it and the label at the top of the cage next to ours, you know, three feet away, the label said thefacebook.com. And I remember being like, oh yeah, I've heard of this. Like, cool. Like, sounds good. And they had these super janky servers. I think there was maybe eight of them when they first moved in. And they were like super cheap. They were like super micro servers.  You know, like the wires were hanging out, like, you know, I'm like, cool, but the lights were blinking really fast. Okay. And so what I remember.  was that there was labels on every server, and the labels were the name of a university. And so at the time, one of them, one of the servers was named Stanford, one of them was named Harvard, you know, like, and it made sense because I was familiar with a Facebook product at the time, which was like a college social network that was at like eight colleges, okay? So then I watched, every time we would go back to the data center, they would have more servers in the rack with more colleges. And it became increasingly obvious to me  that the way they scaled Facebook was to have a completely separate PHP instance running for every school that they copy and pasted the code to. They would have a separate MySQL server for every school.  And they would have like a memcache instance for every school. And so you'd see like the University of Oklahoma, you know, you'd see the three servers next to each other. And the way that they managed to scale Facebook was to just keep buying these crappy servers. They would launch each school and it would only talk to a single school database.  And they never had to worry about scaling a database across all the schools at once. Because again, at the time, hardware was bad. MySQL was bad. The technology was not great. If they had to scale a single database, a single users table to hundreds of millions of people, it would have been impossible. And so their hack was the 9-10 solution like PB used for Gmail, which is like, just don't do it. And so at the time, if you were like a Harvard student and you wanted to log in  It was hard-coded to the URL was harvard.thefacebook.com, right, man? And so if you try to go to stanford.thefacebook.com, it'd be like, you know, error. That was just a separate database. And so then they wrote code so you could bounce between schools.  And it actually took them years to build a global users table, as I recall, and avoid this hack. And so anyway, the thing they did that didn't scale is to copy and paste their code a lot and have completely separate database instances that didn't talk to each other. And I'm sure people that work at Facebook today, I bet a lot of people don't even know this story. But like, that's what it took. That's the real story behind how you start something big like that versus what it looks like today.
</s>


<human>: Well, and it's so funny, because I love your point around maybe you don't like  coffee shops. Everyone can like people. Everyone can like helping another person. That's just a quality of humans, right? You like helping someone else.
<bot>: Yeah, it feels good to provide service. And it feels good to give someone something that, sure, you're making money from it because you're charging for it. But you know that the value that the thing is delivering is big. Way more. You're getting a great deal. And you know in your heart they're getting a great deal. And not just like, hey, they bought the software. We know it doesn't work. We know they don't use it. But I hope they keep paying.  They signed the LOI, so I was able to fundraise, but we know the software sucks.
<human>: That makes you feel bad. That makes you feel bad, yes. So if we're going to wrap this up, we've given a lot of advice on how to do all kinds of things around early stage startups. But one of the things that we probably should have emphasized more is it really helps to care about your customers. And if you can use that as a tool, you'll learn more.  you'll make more sales, you'll have more fun.
<bot>: And people can tell if you care. They'll want to tell you more about their problems. They'll give you the benefit of the doubt. They'll cut you slack. If they can tell that you care and that, you know, you want to actually solve the problems and not just get money, raise VC dollars.
<human>: With that, thank you very much. See you later, Dalton.
<bot>: Great. Thanks.
</s>


<human>: The next one that comes up a lot is fake metrics.  And we've talked about this a little bit, but for companies who charge their customers money, somehow creating a goal incremented in something that's not money. Hey, my product costs $10 a month, but I'm measuring registered users. I want to hit 1,000 registered users.  That's weird. Like, hell, if users is going to be the metric, like, why wouldn't it be active users, right? Like, just like if we're going to be in that world. Well, that's too hard, Michael. That's why. Well, fair. But if we're charging them, why wouldn't it be the amount of money we make? Like, that seems even simpler. But I think you've seen a wide variety of fake metrics that goes way further than users, right?
<bot>: Yeah. Okay. Counting hits on your website. That's an oldie but a goodie. Yeah. Counting downloads but not registrations is a good one. Yeah. Counting users as people that started the registration process and didn't finish it. Counting users as people that downloaded your product, opened it, closed it after five seconds and never opened it again as users. Yes. Yes.  We've heard that one. Just basically like a thousand and one different ways to avoid the actual meaning of the metric, which is to capture if it's working or not. It's like every which way. People are so creative in finding ways to like  not actually measure the thing that they know they're supposed to be measuring. And I can never tell if they're doing it to fool themselves or to fool investors or authority. You know what I'm saying? It's hard for me to tell when someone is practicing self-deception that number of downloads is the right metric or if they think that no one else realizes that that's obviously... No one else can tell what they're trying to do.
</s>


<human>: I think what's really interesting about this is we come back towards he wasn't the first mover, was not the first mover, but the product that existed was so bad that a 10x better product was actually within reach, like it was actually possible. I think the other fun insight here is that like portable online gold,  is valuable, like it is 10x better than gold. And so as something you might want to have, if you think gold is something that you might want to own and seems like the market does like owning gold, portable online gold, strictly better. So I think  Out of maybe all three of these founders, Brian was exposed to the most shit takes, the most people saying this was not gonna work. So break that down for us. Explain all the reasons why Coinbase is not supposed to work and Brian should not be a successful founder today.
<bot>: Well, at the time, people saw Bitcoin as a tiny market, that it was going to crash, that it was a bubble. Investors didn't like it. It was synonymous with a lot of actual fraud. It didn't have a great reputation. Also, getting a bank deal was impossible. It's not like other founders didn't want to start something like Coinbase. U.S.-based exchanges were incredibly hard to start. And this is the reason why all the exchanges at the time were offshore.  was the regulatory environments were different in different places, right? Another thing I want to note is even Brian in his YC application didn't really believe  in his own idea because what he basically applied to YC with was the P2P transfer parts. It wasn't buying Bitcoin and holding it. It was the idea that he could build something like PayPal to do P2P transfers. And that the buying Bitcoin part, that was just part of it. And so isn't it funny that even he kind of undercounted the simple promise of buying Bitcoin in a non-sketchy way with a debit card in the U.S.  and not getting hacked and losing all your money, that was enough of an insight to be the basis for like a $100 billion company. He didn't need to do all this other stuff.
<human>: He didn't know that. No one knew that. And following the pattern, a valuable insight that he learns after starting the company, right? Like, you don't have to have all the valuable insights before you start.
<bot>: Well, you remember what the Coinbase product was back in the day, right? It was a website, you logged in,  you put in how much Bitcoin you wanted to buy, and you push the button and you buy it. And that was, you could sell it too. There was no social network, there was no comment feed, you know. It's probably the simplest product. There were no graphs. It was one of the simplest products I've ever seen. But it doesn't solve the right single problem at the time.
</s>


<human>: And the last one on our list, playing the game of using your position as a startup founder to become an amazing investor.  And I think this one's like really tricky because for one thing, you definitely see a lot of famous startup founders have written kind of angel and checks into companies that that tend to do well. And so I think sometimes people confuse that for, oh, I should be spending a significant amount of my time looking around and trying to be an angel investor instead of making my company work. And  I think that what, if I can try to explain to you what's actually happening, when you're a good founder, oftentimes you know other good people and the opportunity you have to give them money requires almost no time or effort. And so you just, and like, if you're a good founder, oftentimes people are offering you  deals, and so you're spending five minutes saying, yes, this is an obviously good thing, I use it, or this is my friend, I wanna support them, and the amount of time and effort you're spending writing these angel checks is basically nil. I remember when I was starting SocialCam, I emailed Brian Chesky saying, do you wanna angel invest? He was like, sure. That's it. That was the entire time that he spent, probably less than 15 seconds.  I think people don't see this so they think, oh, I need to copy what I see investors on Twitter doing. I need to go network. I need to go meet founders and advise them and do office hours and like all these things. And it's like, ah, like classic example of cargo culting, right? Like not really understanding what's going on.
<bot>: The stupid game you're playing is a status game. Like if you play status games where what you want to do is level up, you want to,  put angel investor in your Twitter bio or something. Okay. You're playing a status game. Fair enough. The prizes that you win playing the game is congratulations. Now a bunch of your money is tied up in illiquid investments that may or may not show up. So now maybe you're like financially strapped. Maybe you're worried about other stuff. You're worried about your startup. So maybe you're performing worse because your money's tied up somewhere.  you have spent a bunch of time and stuff, you've totally pissed off your employees, whether or not they would say it to your face, that is not a great way to win awards with your team.
<human>: Yeah, you're a scenester. Congratulations. Yeah. So I think to wrap this up, right,  Sometimes founders don't think enough about the bad consequences of the games they're playing. And once they really do the whole logic tree down to the end, they'll realize that maybe it's not worth playing those games and you might as well just build a good business. And even if that's a tricky message for you to internalize,  Think about what you're teaching your team if you're making these mistakes. They will copy what you're doing because you define success in your company. And so even if you're like, oh, for me, this is cool. A perfect example, if becoming a status-seeking angel investor is what seems cool in your company, people in your company can start trying to do it instead of doing their work. And so make sure...  yeah, people in their company start doing it. It's kind of like a little bit, we're both parents, it's kind of like, hey, if you don't want your kid to be a screw up, you don't do screw up shit in front of them. It's like a pretty simple one to one here. And on the flip side, to kind of end with a positive note, some of our best companies get so good at goal setting and accomplishing goals that they  They move faster than we would ever imagine possible. They are just machines at doing this well. And I would argue that most people don't start doing this well. Most people who focus on setting goals and accomplishing them get better at it over time. But man, the rate of improvement is sometimes shocking. Sometimes there are founders who are kind of fooling themselves, who are thinking like, hey, I'm smart, so I can coast on this stuff.  Man, outliers are smart and great executors and great trainers, right? Like they have multiple things they're great at. They don't sandbag themselves. Any other thoughts here, Dalton?
<bot>: I think we're good. I think it's well said. Thanks, man.
</s>


<human>: I think another really interesting thing about Stripe was that it was a problem that they saw their peers in YC have.  So literally, they were seeing all of their friends in YC going through all of the pain of Authorize.net, and they were hearing this story over and over again. And that's a good hint for people out there looking for ideas. If all of your smart technical friends are complaining about the same thing, maybe it's a real problem. Now, last insight that I think that they had, talk to me about  their go-to-market and specifically about understanding that their customers were developers and not business guys. Because I think that was revolutionary at the time.
<bot>: Yeah. The really clever brand promise or marketing stance or whatever you want to call it they had was to try to make the most beautiful website they could with the most beautiful documentation  that was every programmer's dream. They constantly asked themselves and pushed themselves to say, what would I want? Or what would a programmer want? And this is so different than every other processing company, because it was built for basically business people. The programmer who had to implement Authorize.net was not the customer. It was someone getting paid $20 an hour or something  to implement the code. Whereas this was like, they went nuts at making something that developers would just freak out about. And everyone copied it, by the way. Every developer would copy the Stripe documentation, copy the Stripe website. It was like the Apple. It was like if Steve Jobs had to design a payments company, it would be Stripe. And they totally did this on purpose. But what this created is a lot of  buzzed on Hacker News and around nerds, basically, that, hey, have you seen this Stripe thing? Oh, are you in the beta? Also, they did a beta invite program. And so it was a hot commodity to be able to get into Stripe and be able to use it. You were seen as well-connected if you got the pleasure of getting to use Stripe. It was like a favor they were doing you to let you use their product. That's what a great job they did in making the website and documentation excellent.
</s>


<human>: This is Michael Saibel with Dalton Caldwell. Today, we're going to talk about setting goals. More specifically, all of the pitfalls involved in setting or trying to accomplish goals that startup founders we work with tend to fall for. Dalton, why don't you set this one up?
<bot>: Yeah, you know, when we were talking about it this morning, the phrase or the meme that came to mind was the one, play stupid games, win stupid prizes.  And again, what I think it means in this context is if you set goals or if you start playing one specific game that is silly to begin with or that's clearly a bad call, yeah, the prizes, the implications of that, the things that you win are going to be equally silly or nonsensical or nonproductive. And so we see a lot of people  who set goals to in effect play kind of stupid games.
</s>


<human>: So what's the grand takeaway here, Dalton?
<bot>: I think the grand takeaway is the following, which is just to remind people that it's okay slash good to be a nonconformist. If you're not currently a founder, one tip is to join an early stage startup instead of a big company, because it's more likely you'll find like-minded people. Being the first 10 employees somewhere is going to be weird, and the people that tend to like working at the first 10 employees tend to be nonconformist.  Right? Cause there's no structure. It's like chaos. So that's like a really good move versus going into like the, the big tech treadmill. And I think the other big takeaway is just to remind people like, you know, don't play status games or, or maybe you can, but maybe some, you know, do it inside of a big tech company instead of trying to play status games and startups.
<human>: Yeah, my final thought is I come back to what I say to every founder when they come in, which is, you know, congratulations for being in YC. The average YC company dies. Like you, you literally have accomplished in the scale of making any impact on the world, getting into YC means you've accomplished nothing.  I think there's a lot of people who think that they're nonconformist, but they are actually secretly following some thesis of tech Twitter or yadda, yadda, yadda, you know, and like, they tell their sums like they're, they're nonconformist, but they really are just trying to fit in with a pack. And I would just say like.  for the real non-conformists out there, just find your people. Like you're going to be so much happier when you're surrounding yourself with other people like you. And, you know, we think YC can be a place like that, but like, even if you don't think YC can be a place like that, you'll be more productive when you surround yourself with a group of people like that. And I can say personally going through YC, that's why we got better was because we were surrounding ourselves with these non-conformists who all thought that they were amazing. And we all were like, well, I guess we got to level up.  We think we're better than them. So how do we, what are we going to do? You know? So for the nonconformists, good luck. Great talking to you, Dalton.
<bot>: Sounds good. Talk to you later, man. Bye.
</s>


<human>: No, I'd like that. I would love to say, I'd be Facebook's biggest fuck. I'd be like, I don't know what you think about Facebook.
<bot>: You would want to tell people, hey, I actually met Mark Zuckerberg and he came to my house and I guess they really like, it would be a story. It'd be a story. I was a early customer of Stripe at my startup. And it was invite only and very few people were using it. And my customer experience was Patrick, the founder of Stripe. I had a chat with him, like in Google talk.  That's a long time ago. And he would message me all the time. And they had a big mistake where they overcharged a bunch of my customers. And it was a problem on their end. And so what happened is Patrick  DMed me, told me that it happened, said that they fixed it, and apologized. Do you think that I like Stripe more or less after that experience, even though they messed up? Exactly, exactly.
<human>: Isn't that wild? It's wild. And what's funny is that sometimes big companies can pull this off too. I remember early days at AWS, we were blowing up. We actually, like, there wasn't enough time to buy and rack servers. So, like, we literally needed,  to use EC2 and it was in beta, like you just couldn't sign up for it. And we randomly tweeted, can anyone help us get on EC2? Just like into the world. And like this guy, Jeff Barr, tweeted us back, he was like, yes.  And it was like Amazon had a face and a human and a hero, and he hooked us up and saved our company. And that's Amazon. They did it. And you remember that. You're telling the story now. I'm still telling the story. It planted in your head. So if you can create that experience for customers. Oof.
<bot>: Yeah. If you can blow people away.  by how much you go the extra mile to care and solve their problems and not emulate the big company stuff. You're giving away your power if you don't do that. You got to use that move. Got to do that.
</s>


<human>: Historically, seed funding could dilute companies 25, 30, even 35%. I would say in more recent years, that number was around 15 to 20%. But we really saw a lot of founders able to get the money they need, raise their seed round with 10%, some even a little less, dilution.  which was like huge. I mean, we all know those earlier rounds are where most of the dilution of the company happens. So that was awesome to see. The other thing, and I know you saw this in your group too, it's just founders going into fundraising with confidence. You know, we talk about this all the time. We tell the founders be confident, but it's hard to be confident when you only have six months or three months of runway when you go into fundraising. It's a lot easier to be confident when you come in with half a million bucks. What did you see in your group?
<bot>: Yeah, I think the best founders were just very logical and non-emotional in the way they handle this. It's business, right? Like the best way, imagine any financial transaction, you want to buy a house, you want to buy a car, you name it, the more that you can be  just not manipulated into being emotional or to be FOMO, like there's all these things. If you could just be like, hey, I wanna buy a car, this is my budget, this is what I wanna buy, okay, let's work it out. All right, I bought the car. That's how you wanna approach any kind of financial business relationship, right? Is just to be non-emotional. And so that's having this extra money helps people not be quite as susceptible to being told to be afraid basically, right?
</s>


<human>: Hey, this is Michael Seibel with Dalton Caldwell. Today, we're gonna talk about what does it mean to do things that don't scale, the software edition. In this episode, we're gonna go through a number of great software and product hacks that software companies used to figure out how to make their product work when perhaps they didn't have time to really build the right thing.  Now, Dalton, probably the master of this is a person we work with, a guy named Paul Buchheit, who in front of this term, the 90-10 solution.
<bot>: He always says something like, how can you get 90% of the benefit for 10% of the work? Always. This is what he always puts on to people when they tell him it's really hard to build something or it takes long to code it. He'll just always push on this point. And, you know, founders don't love it.  Right, would you say that's a fair assessment, Michael?
</s>


<human>: What I will say, though, to kind of finish this point, is I think one of the slightly dangerous things that kind of sneaks into this startup game that also causes people to not want to come here  is that people don't realize that they need to be aiming for greatness. I always like to equate this back to sports where it's like, there are so few spots in the NBA, let alone on the all-star team, let alone the hall of fame. The bar is so high to get into the NBA that anytime you're a basketball player anywhere, you want to be the best basketball player.  on your high school team, on your AAU team, on the invitational invite, you want to be the best basketball player anywhere because you know that the average NBA player was the best basketball player anywhere. And I think that sometimes startup founders miss this point. And they're kind of like, I want to be in the game versus I want to win the game.  And I think that like, it's really easy to say, well, you know, I can be in the game in Austin. I can be in the game in Seattle. There are investors there. There are people there. I can be in the game in New York. And I wish that we were more honest that like, yeah, you can play basketball for your high school team, but that's not, that's necessary, but not sufficient to make the NBA. If you want to be a great founder who really impacts the world and helps lots and lots of users, you have to aim for great.
<bot>: You can't just aim for being in the game. And I actually just bring it back to statistics and odds. So let me be really precise, because I can imagine how some people will respond to some of these you're saying here, and they're going to throw anecdotes at us. They're going to say, there's this, and there's this. Shopify is in Canada. Yeah. And it's true. It is. I have nothing to take away from those things.
<human>: MongoDB is in New York, and I've been told that by every fucking New York founder for a decade. MongoDB? Yeah, great.
<bot>: And again, good for them, like rock and roll. They're doing well.  The point is we're actually trying to impart advice to increase your odds of success.  Because just like with people that want to become Hollywood celebrities or rock stars, there's certainly anecdotes of people that were discovered and everything slipped into place for them. But if you actually just look at the numbers of how you increase the odds of success, moving to an area, moving to the big leagues was a key part of it. And so I would just encourage folks that are unsure about this debate or they don't have their mind made up to realize that the anecdotes are true.  that you can do a startup outside the Bay Area. And maybe there's a really good reason you want to do that. I don't know. Sure. Maybe there's health reasons or family. Great. But if all you want to do is play to the odds and optimize for success, I can't really understand why you wouldn't want to be here. And that's not anecdotes.  That's numbers. That's just numbers.
</s>


<human>: Maybe the other message is if you've got a friend who's doing the positive some game, give them a pat on the back. Give her a pat on the back. Like they're probably taking it on the chin right now, but like, man, at least they're trying to play the game the right way.
<bot>: Yeah. I think what you want to do in every situation you're in, whether it is, okay, let's extrapolate this. Whether it's a startup, whether it's a job, even if it's a relationship,  Like, we can frame a lot of things with this. Is this a zero-sum situation or positive-sum situation? Like, in a relationship, imagine if you make each other better, one plus one equals three. Like, with great friendships or romantic relationships, you make each other better. That's positive-sum, right? And so I think this is just like a helpful framework to look at everything through of zero-sum versus positive-sum. And, you know, life's short, man.  Try to put your energy into interacting with positive sum situations as much as you can. And it'll pay back in ways you can't even possibly imagine. And the externalities of it are much better. Like the impact you're gonna have on other people is gonna be better if you always choose to play the positive sum games, you know?
<human>: And even if you say, screw that, be careful with the zero sum games because today you're taking money from a dummy and tomorrow,  You might be the dummy.
<bot>: Yeah.
<human>: All right, man. Great chatting, Dalton.
<bot>: Sounds good. Thanks.
</s>


<human>: I think the second thing that people do is they ask their friends here. This is a situation where like Googling is probably a hundred times better than asking your friends because like if you're a young person whose internet history is like four years old, your friends are probably in the similar position.  And then I think the last thing is a bit of a psychological thing. I think that's what you were getting to, which is, if I'm so excited to do this, why would I want to learn something that would defeat it before it started? Can I live in the illusion and the dream for a little longer? And again, let me be direct on this one.
<bot>: During the dot-com bubble in the 90s, a lot of people started companies, and a lot of them tried pretty much every idea you can imagine.  Every idea that you see today has some analog from the 90s. So dig in, look into it, see if people have tried this before. Same deal, in the 2000s, people pretty much tried every idea.  And again, maybe in the example of something like Instacart, people had tried Instacart before and it didn't work, but the founder of Instacart knew that and they intentionally designed it to be better. You understand what I'm saying? Like they stood on the shoulders of those that came before them. Smart. Versus if you're the founder of Instacart and you didn't realize that Webvan existed,  How does that help? You're not helping yourself to not know about it. Same in the 2010s. Think about how many startups we funded that have tried stuff before. And so from our perspective, we see patterns in the ideas people start constantly.  We get it, you're better, smarter, faster. You have a better programming language or whatever it is. You're better. We get better.
<human>: Better UI, Dalton. I got better UI.
<bot>: Oh, mobile. I remember in our era when we were young founders, it was like, oh, we're an app. We're an iPhone app. iPhone changes everything, which is both true, but doesn't mean we should have discounted history.
</s>


<human>: A WeWork is a classic example of this.
<bot>: So you should actually be looking at senior management and the founders and make a judgment if you think they seem like they're  Competent. Yeah. And again, this is different. Sometimes the press lionizes people that aren't super competent The press shouldn't be involved in this decision.
<human>: So you should make your own decision Yeah, it should be like is the message in the all hands line up with the facts that you see.
<bot>: Yeah, does it seem credible? Yeah, I also would look at  what the rest of the people that work at the company seem like? And do they all seem busy? And do they have enough work to do? And do you just feel like your colleagues are good? Because one signal of a company that's not going well is that  Everyone good is kind of left and the people that are left are just doing make work to try to not get laid off. It's kind of a malaise. Yeah. And often the founders of these companies won't want to, you know, do layoffs or whatever to keep the fiction going that the company's going well. Yeah. And so, again, I think you can make judgment.  you know, hopefully you're correct, but of just how good do your colleagues seem and how much do they have really important work to do that's serving customers versus going through the motions making pitch decks or slide decks or whatever it is that people do at companies that aren't quite well, right? And so I think these are really, you have the information if you're inside of the company.
<human>: You have all the information.
<bot>: Way better than anyone else does. Yes.  And again, if this could all check out, and you're like, you know what? This is going great, and I really like my colleagues, and I'm learning a lot, and I'm doing well. And I should double down. You should double, yeah.
<human>: I should work harder. I should try to get more equity.
<bot>: Yes.
</s>


<human>: You want to talk about this kind of social media piece because I think that a lot of people don't understand how toxic social media is.
<bot>: Yeah, I think you just want to look at your information diet. The metaphor I think about this stuff with is the same way we have a food diet. And like, of course, what we eat and drink affects our moods and how we feel. I actually think the information we consume affects us. And if you think about, again, like myself, all of us, you know, when it's a really heavy time in history, when there's a lot going on, when I'm doom scrolling all the time, reading about pandemic news or war news or whatever,  Of course that affects my state of mind, okay? And so to some extent, you can't completely stick your head in the ground about what's going on in the world. No one's saying to do that. But to the extent your social media habits make you feel bad or compare yourselves to people, or say you follow a lot of like investors and everything they're talking about is the investment market and who's raising and all of that. And this is just every day you're bombarding your brain with stuff about investor shit.  Why? Why is that good? How is that helping you actually run your startup? Reading what a bunch of investors say about the market all the time.
<human>: And I think people are surprised that successful founders explicitly block social media. They do crazy things like they grayscale their phones so it looks less interesting. They turn off notifications. They're aggressive users of screen time tracking. They actually  pretty aggressively audit this stuff.
<bot>: So that illiquidity saves you all. And so again, so if you're consuming media every day and you're reassessing the value, like if you're too paying attention to this stuff, it doesn't make you make better financial decisions, does it? No.
</s>


<human>: So yeah, so just understand that game and I have to be honest like I like games like this like I don't like games where you have to like  convince people to like you or to align with your views. Those are games that are way harder to play. I like games where it's like, hey, if I want to serve this customer and you can be a good legal partner to me, and I give you money and you give me legal services, you can be a good funding partner for me. I give you a check at my company, you give me cash, right? If you can be a good partner to me, a simple to understand partner to me so that I can spend my time working with my customer,  That's what I want. The customer's complicated enough. I like the idea that the money people are like, so if I give you this money, maybe give me a lot of money back? Yes? Yes? Okay. Okay, we're good. End of conversation. I give you money, you don't give me any money back? No. No good. Come back when this is out of my way. Hopefully,  This helps clear up the debate, but I secretly hope this like, I don't know, like doesn't at all. Cause this is like so silly. I hope we get somehow flame award for this. Anyways.
<bot>: Great.
<human>: Good chat.
<bot>: Love it. Okay. Sounds good. Thanks.
</s>


<human>: I also think there's this element of like,  You're not exploited if you're part of the problem.
<bot>: Yes.
<human>: Again, this is a subtle point.
<bot>: Let's see if we can explain it. It's basically.  If it's not working and you have a seat at the table, it's on you, man. You can't just blame, hey, business guy, you're not pulling your weight because no one wants our thing. But if you have a seat at the table, you're equally culpable. If you have equal equity with someone and you have a seat at the table in decision making, just because it's not working doesn't mean you get the right to blame other people. That's not cool.
</s>


<human>: All right, so here's another one that comes up a lot.  Dalton, I'd like to spend two hours really going deep on this problem. But our office hours don't go that long. How do you how do you deal with me? I want to do a deep dive.
<bot>: Yes, this is another one of those question behind the questions.  And again, it can be different things depending on the people. I think sometimes what's going on is you're an idiot and I don't have confidence you can give me advice unless I spend two hours showing you a slide deck so I can explain everything to you.  Sometimes it's, it's not really about the meeting. I just want a lot of face time so we can build a relationship or whatever. And so this is, yes. Yeah. Okay. That's fine. But you see what I'm saying? There's usually when someone asks that there's something else going on. And again, it's usually the first one for me where they think  we don't understand. Yeah, maybe we don't, I don't know. But like, instead of them directly saying, I am concerned that you do not sufficiently understand our business. And so I wanna make sure you do X, Y, and Z. Okay, that's a hard conversation. But then I'm like, okay, I know where you're coming from. All right, I hear you. Yes. But some weird like, can we meet for three hours? Yeah. I'm always like, why?
<human>: I want to know the question behind the question, you know? Yes. Well, and what's so funny is if they just said, I don't think you're smart about this particular thing, we would get to the, we would get to the meeting, right? We would get to the meeting. Now, I think there's a couple others that I see. One is this assumption that we are like godlike advisors with complete understandings of every user base and every problem in the world. And like,  they can kind of like shortcut talking to users if they just spend enough time talking to us. And so that one is just like, folks, like, so often in this one, I'm just like, you're having a conversation with me that you should have with your customers. Like, talk to them. Like, I don't use your product. Talk to the people who do. I think the other one  which I really try to push back on is I'm lazy and I didn't come up with the agenda. I wanna like roam my random thoughts. And over the course of two hours, we will have 20 minutes of productivity, but I don't wanna organize my thoughts. And I want you to accommodate that. And for that one, I'm always just like, that's like, you're not training yourself for success here. Like you expect more from yourself, like,  If your competitors can get 20 minutes of input, 20 minutes of output, they will do way better than two hours of input, 20 minutes of output. And just, you know, that seems to kick people into gear. What's another one that you're excited by?
<bot>: I think we can shift gears to a couple other contexts for hard conversations.
</s>


<human>: Well, and I think that this is a big, there's a big difference. And we've now seen both, right? I think that we've seen the kind of fintech boom and the crypto boom, where the people attracted to them were slightly different. And as tools, they just weren't as useful.  Whereas giving everyone a neobank for every single flavor. Whereas we also saw, literally during our lifetimes, launching a website with closed source expensive tools would cost $5 million. And then with the similar tools that were better and open source would cost like $50,000.
<bot>: We built our companies on MySQL.
<human>: Both of us did. Yes. Postgres.
<bot>: You did Postgres?
<human>: We did Postgres, yeah.  regardless like that shift happened and then I remember when like You had to buy servers and then wait for them to come and then configure them and then have to get more space in the cola like the speed of actually building software was  Incredible.
<bot>: Some people were like, we're going to keep buying server. Like some people rejected that. Yeah. And so there was a moment in time where it did make sense to jump on the bandwagon and start using it. We were on the bandwagon. But it was actually smart.
<human>: It wasn't just bullshit hype. It wasn't bullshit hype. It was real. And so I think it's obvious that now AI is clearly going to be a tool as impactful as mobile or open source backends or cloud computing. And then we'll see from there.  Like LMs are clearly that useful. And so it's stupid to not think about how you can make your users more happy, more productive.
<bot>: And again, I think what's funny about this is you and I were in the room.  when OpenAI was created, because we were working at YC with Sam, and we had YC Research, and it was a non-profit. It was meant to be an enabling technology. The vision here, you were in the room, it was to be a non-profit so that all these startup flowers could bloom, and all these people could be enabled to create value. And so again, I think sometimes people are afraid of a narrative that OpenAI, maybe that will happen,  But the vision was about creating the technology that would be harnessed by other people, and by ideally creating AGI, which is kind of what his goal was, as opposed to, I want to create AI-powered CRMs, and I'm going to destroy every startup that's going to create AI-powered CRMs. That was not what we understood. No.
</s>


<human>: Hey, this is Michael Seibel and 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 these common errors. Let's start with our first anonymous story from YC Founders on Mistakes to Avoid. At the beginning, when everything's going well, you don't know how you're going to handle disagreements or bad actions by the other person.  It's extremely hard to deal with a bad situation after the fact if you don't have anything written down.
<bot>: It's awkward to talk about things like who gets what percentage of the company or do you have founder vesting and you know how human beings are. We don't always remember things quite the way they went down, right?
<human>: And so write it down.  I think the biggest error that I see is founders looking for someone with a skill match versus someone that they actually maybe have had a fight with before, like a friend. A lot of founders assume that whatever skills their co-founder has at the moment they join the company are the only skills they'll ever have.  And in my experience, almost everything you learn, you learn on the job. So you rather work with someone you really like and learn together than work with someone you don't know at all and get into fights and then break up.
<bot>: I mean, to put some facts on that, how many founder breakups have we seen?  where the founder says, my co-founder is excellent A+, they just don't have the skills that we need versus my co-founder is a living nightmare and I can't take it anymore. Right? Like how many people are like, what a great person that I like a lot, they just didn't end up, I shouldn't have made them my co-founder because they just didn't have the right skills, Michael. Do you ever hear that?
</s>


<human>: All right, let's stick with hard ones. We're talking to an early stage company, and it's becoming obvious that they're not going to be able to raise the amount of money that they want to raise, and they're not going to be able to execute this magical  explosion of spending that they want to execute, that they've convinced themselves is what's required to get product market fit. What do you do in those situations?
<bot>: You know, that's a, that's a really tough one because you want people to be optimistic as we've spoken about before. And it's hard to, you never want to be short on someone's startup. And so what I would usually say on this one is think about what a great life philosophy it is to set your expectations low.  and prepare for the worst, and then if you get surprised, you get surprised on the upside, not the downside. And so the key in this hard conversation is not to debate someone that their plan is bad. Keep the optimism, you know? But isn't it better to sort of have a plan for the worst and not be surprised on the downside? And if you're surprised on the upside, fantastic. Right, man? And again, people don't want to hear this. This is a hard conversation to have.  It's like going up in the airplane. Do you want to bring the parachute with you or not? Like, I'm not trying to be grim by saying bring a parachute, but wouldn't you want to bring the parachute? Yeah, if you had the choice. What's the downside of bringing the parachute?
</s>


<human>: I think what's interesting as well, when you think about this game, is that there are very, very, very well-paid people. And you were pointing this out. Very well-paid people who are leaving their jobs  and who are starting startups right now, because they believe that LLMs are a powerful tool.
<bot>: Yeah, the way I think about this is opportunity, cost, and life. There's people that I've been funding, and they have a great job, and they actually like their job, and they're choosing to leave because they know at this moment in history, because they become domain experts at AI, that this is the moment to do a startup.  Like this is that, imagine if you worked on, I don't know, cloud computing for years, and then all of a sudden Amazon Web Services comes out. You'd be like, oh, this is my, they're calling me in, this is my moment in time. And so it's really cool to see these people with all this vast domain expertise that they did before this stuff was cool, realize that this is the moment in time to work on this stuff.
<human>: Well, and I think that we see a second group of people, too. And I feel like those are the people who got the first iPhone when the App Store came out and said,  I'm going to build an app. And it was weird because at that moment, everyone had zero years of experience building apps.
<bot>: That's exactly right. Well, remember the Brex founders, what they did when they were like 15 was jailbreak iPhones. Remember all the kids that were doing jailbreaking? Like this was like a rite of passage to be into this stuff and learn about it because no one knew anything about it.
</s>


<human>: So let's talk about situations where things are going well, right? Signs that this is great.
<bot>: I think one sign is from an opportunity cost perspective, you realize that you're at the best possible place in the world for the risk-reward ratio. And however you're being comped,  you're like, wow, I'm getting a smoking deal. And I know there's no better deal I could be doing. And I'm proud, I feel privileged to be working on this team I am because they care just as much. Like if everyone feels like they're getting a great deal, that's a sign of a good culture.
<human>: Yeah, I also think if you feel like you're being given a lot of responsibility, you have a lot of opportunity to learn. I think most people don't realize that like,  You can learn at a startup pace, or you can learn at a Google pace. And a startup is an amazing option to learn. So if you're getting better faster than your peers who are in big tech.  you might be getting a really good deal. Especially, we see this a lot with people who learn a ton and then they go start their own company. And it's like, well, that startup was incredible for you. Even if it didn't work, you didn't get rich from it.
<bot>: That was like the best education you could have ever gotten.
</s>


<human>: And the other thing is you have to remember, if you want to raise a lot of money, but you can't explain to the investor why you might IPO and give them a lot of money back,  then you can't raise VC. We want to be explicit. It is a business transaction. It's not a faith transaction. Correct. It is, I give you money now, you give me a lot more money later, or at least you try really hard to. And if you can try really hard, but the result can't be a lot of money,  I shouldn't logically give you money now. Not because I don't like you or because you're not a great person or these users you're trying to serve aren't great. It's just because it's not a good business transaction. It's literally nothing personal. And I think sometimes founders kind of  are very confused when VCs say no.
<bot>: Well, it's because, again, if we're trying to stoke outrage. Let's stoke some outrage. You point at something silly that raised a lot of money. Yes. The most extreme silly thing in the world.
<human>: No, no, no, no.
<bot>: You always point to Juicero. That'd be one. Right? Or we were, whatever. You point to something that is like on face silly. Yes. And then you say, well,  If they funded that, why won't they fund my social network for dogs? And so it causes a lot of emotions.  And I understand, I relate, but it's don't fall for the rage pill. Don't let yourself get enraged by obvious engagement bait, which is to cherry pick the craziest, silliest thing and use that to get all worked up and take that personally, like that somehow hurt you.
<human>: Like you were hurt by that thing over there happening. Well, and what's so funny is like you are actually included on the real truth, which is that they screwed up.  Like you're right, they shouldn't have gotten that money. Like you nailed it. That person who funded that company is an idiot. And you're exactly right. But like, hey, that doesn't mean  We should better. Oh, yeah, it's like, okay this dumb thing happened.
<bot>: Therefore up is down black like like forget everything we know. Yes Those are those that doesn't follow that logic doesn't make sense.
</s>


<human>: So where I like to start is audit how you live.  Like, think about where you're waking up in the morning. Did you get enough sleep? Are you in a place that's a home? Are you living in a place that makes you more powerful or less powerful? Are you sacrificing, like, are you losing hit points at home?  And if that's happening, man, that's unforced error, right? So that's who you're living with, what you're eating, do you have easy access to exercise, are you living in a place with a bunch of alcohol and drugs everywhere? I'm not helping you. At the minimum, your home should be neutral, but I think for the most successful people, the home's actually a plus. The home is like...  where they're making points, where they're winning points. And I think that a lot of founders in their early days don't understand how much they could be losing based on just how they're living.
<bot>: Yeah, I think almost from a clinician's perspective, when someone is having  issues, the first thing you look at is sleep disruption, diet, and exercise, right? If you go look at research depression or anxiety and things, that's usually where the 80-20 solution is for a lot of folks that are struggling, is you look at their sleep patterns. Are they sleeping okay? Are they eating okay? Are they getting exercise? Are they getting sun? All these sorts of things. And so if you don't have your house in order on those fronts, you are not  even if you don't currently have depression, you are not well-situated to deal with really hard things that might happen to you, right?
<human>: But Dalton, I went to an Ivy League school, and it was really hard. And I went to a really challenging high school. And I didn't have to change these things to get good grades or to get the good internship. I was able to work hard and play hard.  Why do I have to change now? It's working. It's working for me, this lifestyle.
<bot>: I think it can work for people. You and I know people that certainly don't follow this advice and they still did okay. I just think you and I also know the same people.  where eventually you've got to pay the piper. Like at some point, no matter, it's almost like you're going into debt, like personal health debt or whatever you want to call it. And man, you can go pretty far into debt. You can go five years into debt. You can go 10 years into debt. I don't know. But at some point the debt comes due.  where you can't hold it all in anymore. You can't hold the whole world on your shoulders. And I think what we're just trying to say is if you start off with good habits early, you're not gonna incur this massive debt that one day causes you to have like a breakdown or a meltdown or again, whatever you wanna call it.
<human>: Well, and to double down on that, I might argue that like, you probably can sacrifice these things for five years, like maybe even seven years.  The tricky thing is that like the best companies last multiple decades. The tricky thing is the shit that you can get away with in your 20s, you can't get away with in your 30s. And company running just gets harder. And so I think sometimes people are like, oh, this is gonna be a relative sprint. But it's like, what I like to talk to you about with YC founders a lot is like, what happens if this works? Like, are you set up for this to not work? Or are you set up for this to work? Because if this works, like,  Woo, you're gonna be in it. You're gonna be in it for a while. And I think sometimes people set their lives up for it to not work and then wow, self-fulfilling prophecy.
<bot>: And when you think about it, this isn't an age thing. This is a lifestyle thing. Because you'll see 19-year-olds with all the good habits and you'll see folks that aren't 19 that still live like 19-year-olds. And so this isn't an age thing at all. This is a habits thing, man.
</s>


<human>: So I think what I would say is this is that, you know, this is tricky, right? I think that when we made the video about Fang, fortunately or unfortunately, I think that, you know, Google is going to look very similar five years from now as it looks now. And I think that for those of you who are at unicorns, it can really go either way. So you have to be careful, right? You could leave a unicorn and that company could  do great." And you could look back five years from now and say, like, I made the exact wrong decision. On the flip side, you could be the person, you know, shutting the lights off and five years from now being like, I'm not making the right decision.  Make sure that you're actually doing your own analysis here, I think is the point I want to make. Make sure you're doing first principles analysis, you're looking at data, you're not believing any hype.
<bot>: I think another point to make is the concept of job hopping. Job hopping is not good either. So sometimes you'll see people that swap.  They go to a new unicorn every 12 months or 18 months. It is very hard to ever build a good career or to build expertise. Or even make a lot of money. Or make a lot of money doing that kind of stuff. So again, I don't want folks to interpret what we're saying as, hey, you should be a job offer and just switch jobs. To the extent you are working at a place where, as far as you can tell, the metrics are excellent, the founders are extremely focused, your colleagues are very smart, and you are very impressed continuing to work with them.  You should probably stay a really long time. Yeah.
<human>: I mean, that's kind of what Google looked like, what Facebook looked like.
<bot>: And so again, let me just go through things I would look at if I were someone in one of these companies trying to decide if my company was doing well. All the stuff Michael said.
</s>


<human>: You know, Dalton, as you were saying this, something occurred to me. The platforms change faster than the human problems.  So like you and I have lived through Web 1.0, Web 2.0, mobile, and whatever the hell you call it.
<bot>: The Facebook platform.
</s>


<human>: And I think that what's so tricky is that it's so obvious the society we live in today was built by people who were playing positive sum games. So what it really is, is those people created a little bit of excess capital  that the zero-sum game people are like harvesting. They're kind of like slowly degrading society and as long as like the positive-sum game folks stay ahead, society progresses. But in times where the zero-sum game folks kind of get too far ahead,  I mean, we lived through one of those financial crisis, the last financial crisis, maybe the current one. The second the zero-sum folks get ahead, the world literally goes to shit. It's quite funny how the world starts looking really bad when the zero-sum games take over. It's interesting because this is something you brought up, the idea that people are getting rich out there and I'm missing out.  Like, I think that we've been in the last four or five years in a zone where like, people are kind of seeing people out there getting rich with games that seem too easy. If stocks only go up, it is easy. It is, yeah, you know? And you might as well buy a margin because it'll only go up faster, right? I think that if I can predict the future a little bit, when everything's going up, it's easy to think you're the smart person.  When things start going down, you start realizing who the real smart people are. And it tends to be a way, way smaller group than you might think. And it turns out that they're taking money, like, they're playing the zero-sum game 10x better than you are, and they start taking money from you. And then you start losing faith in the system. Because you ask yourself, well, why did the system not protect me? Like, I didn't do anything wrong. Why am I punished?  And it's like this negative feedback cycle that only exists on the zero-sum side. Because our friends who tried and failed to do positive sum games, they almost always learned something or advanced in some way. They almost always took something from that game with them that made them better off, even if they didn't win.  Whereas the folks who are playing the zero-sum games, if you don't cash out, that was the only thing you could take out. That was the only win, is getting out of the game. They never get the lessons in little dabs along the way. As kids, we're used to getting these little lessons along the way. For these zero-sum games, often the lesson just comes fast and hard at the end. It's like, boom.
<bot>: And then you're blowing up. I mean, you do these office hours with companies where it's just game over.  Like, it's like, it's good, it's good, it's good. Okay, we're dead. There's no warning, especially when you deal with debt and leverage, which is, again, related to this stuff. When you are gambling with money that's not yours, and you're heavily levered, it's rough.  So, so let's make, let's take this positive. So again, like we're seeing all the, what is the advice? Like, how can you make sure what you're doing is positive some, and like, how can you build enduring value and not accidentally.
<human>: You know, what's the move? You know what, Dalton? I don't think people are confused whether they're gambling or building houses. I think that they know whether they're gambling or building houses. But they're so good at fooling themselves, do they? I think they know. I think that the thing they have to resist is the FOMO. I think the more deep question is how do you build houses when you see a lot of people getting rich gambling all around you? How do you kind of stay strong and build a house?  when you see people getting rich getting around you. And, you know, it's funny because I had a friend who was a sports gambler and I think I learned this lesson through him. He would always tell me when he won that weekend and he'd always bring in like stacks of cash and it was like, I'm way up.  And then the weekends he didn't win, he was just silent. And I think I always assumed that like, oh, like he must not have gambled that week. What do I know? I'm not paying attention. And I think that like for those people who are looking at the folks who look like they're winning in those zero-sum games, I think if they looked a little closer,  and they ask themselves, like, are those people actually cashing out? Are those people actually doing something sustainable? Like, are those people drinking the Kool-Aid so hard that when the turn comes, they won't be ready for it? I think we'll start realizing that they should feel less FOMO. That's how I feel. Like, how do you feel about it?
<bot>: Yeah, I think, look, I think  People can convince themselves of anything. In fact, this is definitely something I've learned over the years is like, no matter how crooked someone is being, they have a story that they cling to, and they refuse to see it any other way than that.  I think you kind of want to look for external validation that you're building something of value that's enduring for people and be able to articulate that in a very simple way, what that is. What is the leave behind value that is being created as a consequence of my work? Am I winning because someone else is losing or is something real?  I mean, we're seeing this right now with a bunch of our startups. A lot of folks, okay, you know, it's hard out there. We can't raise whatever, but our startup is still running. Like they're still growing. They're still like, like the company is just doing the same thing. And the stuff happening in the external world is noise. Those people are doing a real thing. That's a positive. Some people were there like, well, we're done. You know, like the people were immediately the music stopped that.  That's rough. Like if you're that sensitive to like market conditions that literally you don't have a company anymore the minute the markets drop.
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<human>: So I mean, to kind of wrap this up, right? Like this idea of do things that don't scale. One, it's gonna be counterintuitive. Two, expect people around you to not understand.  And to actively think you're stupid.
<bot>: Not just not understand, but actively tell you, you are being an idiot. Why are you delivering burritos? What on earth are you thinking? They'll stage an intervention for you. You're screwing up. Your friends will come together. They'll set you down and be like, what are you doing, man? This is a mistake. This is not what you should be doing.
<human>: Expect it to look way different than what your larger competitors are doing now. Expect it to look way different. And expect yourself to be the primary actor. You're not acting through others. You are the doer. Anything else to add though to wrap this up?
<bot>: I think if you look at other companies that raise a lot of money, you're inclined to copy that strategy.  of what they're doing. So again, if you see someone, all these companies are doing, I don't know, 10 minute delivery, right? Like that's the hot new thing. And so they're like, oh, this company raised 50 million. I better raise 50. Do things that don't scale is cool. Yeah, not for you. Go do one delivery. Like when I see people fail a lot, it's that they want to get a thousand customers and they can't get one. Just being able to say one, we've delivered one burrito  separates you from the pack. And so again, maybe this is an inspiring thing. Actually doing something is much better than average. Congratulations, you're in the top half of startup founders if you can get out of your own way enough to do one thing.
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<human>: So to wrap it up, we have a strong disagreement. I think the suburbs are horrible. You clearly like them.  By the end of the day, there's room for both of us.
<bot>: Yeah, we're both in the same ecosystem, right? Who knew? We're both working together. Who knew? Yeah.
<human>: And we're recording this video in the frickin' suburbs, too, which is hilarious.
<bot>: We are. You're right. We came to my zone to do this video. We came to your place to do the video.
<human>: Oh, man.
<bot>: All right.
<human>: Great chat, Dalton.
<bot>: Thanks.
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<human>: So what's the takeaway for founders?
<bot>: Well, the takeaway is you look at these big companies, and you can easily decide to emulate this stuff.  Again, if all I'm doing is from first principles trying to look, how does the world work? Why does the world work the way it does? It's easy to look at these very successful, very valuable companies, know the story of Facebook, and actually attempt to emulate the end state of these companies, which they're so big. The people that work there are very isolated from their customers. The customers are sort of like,  only a small percentage of those companies employ people whose job it is to talk to their customers? Yes. And most people, if you work at those companies, you would never talk to the customers.
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<human>: Like I thought, like, isn't that weird, man? Like why? We have a grand, nefarious strategy of giving founders what we wish we had when we were founders.  I mean, isn't that like so funny? Because it's kind of one of the core guiding principles of YC when we think of what we're going to do. Yeah. It's like, what would I have wanted? Yeah. Like, that's certainly how I think about this. Yes. And the opposite, too. Like, what would I have thought of as bullshit? Like, how do we not do the stuff that I would have just like been like, that's bullshit. Who cares?
<bot>: I mean, it's hard to do in practice. It's just, at the end of the day, more leverage for YC Founders, good. More options for YC Founders, good. That's the game.
<human>: Obviously so.
<bot>: Anything more on the standard deal?
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<human>: And I think that the way that this is kind of embodied was that,  fully embodied how bad of an idea people thought this was, is that he had an impossible time raising money on Demo Day. And so if he had taken the Demo Day signal, the investor's signal of, oh, we don't want to give you money, and quit, we wouldn't have Coinbase. Correct.  All right, last one, Stripe. So you had dabbled with payments pre-Stripe. How easy was it to accept credit cards online pre-Stripe? Share the story with everyone.
<bot>: I have set up, before Stripe existed, I set up accepting credit cards for my companies twice. Once in 2002 or so, believe it or not, when I was very young, and then once again in 2007.  And to get a merchant credit card account was like applying for a mortgage. You had to fill out lots of paper. You had to fax in stuff. You had to personally guarantee things. They had to do fraud checks on you. It was rough. It was expensive. There was minimums. And so it was a possible thing to do.  But I would call it gnarly and the opposite of easy in every way. And I also remember when Stripe came out. I was actually in the Stripe beta. I was one of the first 100 customers of Stripe way back in the day for my third company, the third time I went to accept credit cards.  I really wanted it, in terms of make so many people buy it. When it came out and I read about it on the Hacker News, I immediately wanted Stripe. And I hadn't even seen it yet. I just knew I wanted it. So that's the historical context.
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<human>: I would argue that like there were two fundamental facts that made the existing products not good.  The first is that VRBO and Craigslist did not facilitate payments. So when you arranged a house share with someone or staying in someone's apartment, you still had to pay them either in cash or check or wire. And there was a lot of friction because it's two people who don't know each other having to trust each other to transmit payments. I think the second problem that VRBO had was they charge hosts to list.  And if you think about the core insight of this market, it's that hosts are the game. If you can get the most hosts, you win. You have the best inventory. But if you charge them upfront to be on your site, you're probably doing it wrong. So to me, timing was huge. Existing product did not, there were 10x improvements that could be made. I think the second thing that was really interesting was that they were solving their own problem.  Most people don't realize that Airbnb started because Joe and Nate needed to make rent money. And there was a big conference going on in San Francisco, and they basically rented out room on their floor to host people so that they could make some money. And it's funny, because we always talk about personal problems, but not being able to pay rent, that's a real problem, right?
<bot>: And that doesn't sound like a vacation rental, which was what I was used to seeing on VRBO, which was vacation rentals.
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<human>: Okay, so here's another one that I see a lot, especially with fundraising, stupid comparatives. So like, in 2021, Tiger gave this company $100 million funding when they accomplished blank 500,000 of ARR. Therefore,  we will be able to raise $100 million of funding when we accomplish 500,000. Right, Michael? There's no difference between summer 2022 and summer 2021 at all.
<bot>: Well, and that's how it works, right? As investors, what they do is they just are always consistent and they always make the same decisions. And it's easy for you to tell, reading the TechCrunch announcement, why the investor made the investment.  Right? It's clear. Like I read the article, you know, this VC invested in this company. We're kind of like that company in some superficial ways. It's in the bag. We got it.
<human>: And then the other one that I love about it is like, no, Michael, like that round was announced last week. That just happened. And it's like, sorry, but lots of things are announced way after they happen.
<bot>: Way, way after. And so again, I think what we're saying about what's the stupid goal in this case, playing the stupid game here is trying to create superficial resemblance to other things. Yes.  as opposed to deep, the thing is working, or maybe there's a deeper analog to the other thing. But if you're just focusing on the very surface level stuff, yeah, that is not a smart game to be playing.
<human>: One other example, maybe an old one, we talked about in the past, you know, with Facebook, where you might be able to argue, well, they raised money when they only had a small number of users, right? And then you completely punt on the fact that like,  that small number of users were 95% two hour a day Facebook users. So the engagement was like incredible.
<bot>: If you can replicate Facebook's engagement, then you've got something versus replicating, I don't know, it's for college kids or I don't know, people have very superficial stuff there.
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<human>: Here's another one that's in the news more and more lately. Defrauding your customers. Selling your customers something and telling them it's one thing and you know it's not that thing and your customers lose money or your customers are in some way extremely harmed. What's the prize for doing that, Dalton?
<bot>: No joke. It seems like there's people  going to jail and getting arrested and people whose actual lives are now irreparably harmed by the games that they were playing to get growth or to get money. And yeah, they're gonna spend, you know, best case scenario is spending years and years and years in court and in the court system and just having your life  changed.
<human>: Like this isn't making a mistake. We gotta be clear here. Like your state of mind is extremely important here. This is like knowingly pursuing a strategy that you know is harming your users. And I think what's tricky is that oftentimes people don't think this is happening.
<bot>: I think sometimes people forget  they're not playing a game. And I think especially in COVID land, I don't know, like one of my explanations is if you spend all day on Twitter and Discord and everything's a game and everything's a joke, everything's silly, you can kind of, I just have noticed some folks lose themselves and not realize that the numbers in the spreadsheet are real dollars. And I don't know, it's like, we're not playing Monopoly. We're not playing sellers of Catan.  And I think that the prize that you win is the knock on the door from the police. And that's when you're like, oh, wow, this was real life.
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<human>: This is kind of a fake disagreement, because if you kind of have been parsing our words carefully, we're talking about living in the Bay Area. So I'll ask you straight up, Dalton. Would you recommend someone starts a startup outside of the Bay Area?
<bot>: Yeah. Well, I genuinely would not. We agree. So the part we're agreeing with.  is that, again, think about it. We're working together. We're in the same room right now. We get to live in the same area, even though our personal decisions about where we live are wildly different. We have very different lives. I don't have a yard. I have kids, too. And so what's cool is we get to work together, and we get to work with all these amazing people, and yet we have very different choices on how we want to live.
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<human>: So in the case of Twitch, if not all, most of the examples of this came from this core problem. And it's why I tell people to not create a live video site. A normal website, even a video site, on a normal day will basically have peaks and troughs of traffic. And the largest peaks will be 2 to 4x the steady state traffic. So you can engineer your whole product such that  If we can support 2-4X to steady state traffic, and our site doesn't go down, we're good. On a live video product, our peaks were 20X.  Now, you can't even really test 20x peaks. You just experience them and fix what happens when 20x more people than normally show up on your website because some pop star is streaming something. And so two things kind of happened that were really fun about this. So the first hack we had was if suddenly some famous person was streaming,  On their channel, there'd be a bunch of dynamic things that could load, like your username would load up on the page with their channel, and the view count would load up, and a whole bunch of other things that would basically hit our application servers and destroy them if 100,000 people were trying to request the page at the same time.  So, we actually had a button that could make any page on Justin.tv a static page. All those features would stop working. Your name wouldn't appear, the view count wouldn't update, like literally a static page that loaded our video player and you couldn't touch us. We could just cache that static page and as many people as possible want to look at it. Now to them, certain things might not work right.  But they were watching the video. The chat worked because that was a different system. The video worked. That was a different system. And we didn't have to figure out the harder problems until later. Later, actually, Kyle and Emmett worked together to figure out how to cache parts of the page while make other parts of the page dynamic. But that happened way, way later. Dude, that reminds me.
<bot>: Let me give you a quick anecdote. Yes. Remember Friendster before MySpace?  Yeah, of course. Every time you would log in, it would calculate how many people were two degrees of separation from you. And it would fire off a MySQL thread, where you would log in, it would look at your friends, and it would calculate your friends and friends and show you a live number of how big your extended network was. And the founders, you know, John Abrams, he thought this was like a really important feature. I remember talking to him about it. Guess what Myspace's do things that don't scale solution was?  If they were in your friends list, it would say, this is in your friends, you know, so-and-so is in your friends list. And if it wasn't, it would say, so-and-so is in your extended network.
<human>: There it is.
<bot>: That was it. That was the feature. And so, so Friendster was like trying to like hire engineers and scale MySQL and they're running into like too many threads on Linux issues and like.  updating the kernels, and MySpace was like, ah, so-and-so is your extended network, that's our solution.
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<human>: Yes. Well, and the second thing is, if they do end in acquisition, and many will end in acquisition, oftentimes, you have to re-interview for your job. Oftentimes, they don't want to bring everyone over in the acquisition, and so that's tricky. And also, you might end up at the big tech company you were running away from. That's right. When you're joining a startup. So I think I'd love to put in a little bit of a,  A note here, I think that those 30% that will do well will probably do counterintuitively well. Like really well.
<bot>: Yeah, like very well. Extremely well.
<human>: Yeah. Even going to work at those companies now is probably a good idea. Absolutely. Yeah. And so I think that's what's so tricky about this is you have to be smart. You can't really be like following the bullshit press or stuff.
<bot>: Yeah, or like the memes on Twitter about what's doing well and not doing well.
</s>


<human>: You know, I see another one, because corporate governance, that covers your investment docs and where you're incorporating and all that kind of stuff, your vesting, blah, blah, blah, your classes of shares. I sometimes see founders doing crazy stuff. I see another one that you brought up, though, which I really love, is the, like, I'm going to make this startup, but I'm also going to disprove every piece of startup advice.  Like, I love this, like, I'm only willing to help my customer if I can simultaneously prove that all of the startup advice is incorrect. And it's like, what?
<bot>: And so, yeah, so the example of that is just to take something that is like widely considered useful or true and try to prove the opposite of it. You know, like my thing will be reliant upon making the small town that I live in  the center of the startup ecosystem or something. Like somehow there'll be some other bet they're making that involves a super contrarian thing that has nothing to do. Actually, I can think of an example of these, by the way. One of these was, I remember a founder doing something unrelated, again, I'll keep this anonymous, but they were like, the real thing, the real bet we're trying to make is the hydrogen economy and that no one will use gasoline or solar or wind or, or, or,  But then in the future, we're gonna use hydrogen everywhere. And I was like, hey man, maybe don't mention that. We'll keep this between us.  Maybe when you're- That's the real secret sauce. Maybe you should keep that on the down low. And the case was, maybe he's right, but that had nothing to do with the actual bet of the startup.
<human>: No.
<bot>: And to try to throw in this long shot bet that we're all going to be using hydrogen for everything, again, maybe he's right. I don't know. That seemed like a completely unnecessary risk or thing to innovate on.
<human>: Yeah. And I think that what's so sad about these things is that  I think there's a misunderstanding of how hard it is to make something that people want, where people think that they have these extra points, this extra juice to spread to do other things with. And I just, I always like to tell people, it's like, this game is so hard.  Without this stuff, I'm like, why do you want the game to be harder? Like I never understood that. Is it fun?
<bot>: Yeah, okay. Let me give you an example of something that's fun. Okay, sure. Like nerd bait kind of stuff. Sure. Again, this is my recollection. My recollection is that when, I believe it was Asana, when they started, they wrote their own programming language.  Of course. First. Of course. And why would you do that? Because it's fun. I believe they back that out. Again, someone will correct me if I'm wrong on this. But a lot of times choosing very idiosyncratic programming languages or text stacks, people choose to do it because it's fun. And who am I to fault them for that? But it's like they're optimizing for like, wouldn't it be cool if we wrote our entire thing in this new,  idiosyncratic programming language?
<human>: Yeah, that's such a weird, it's like, I get it on one hand, and your startup should be fun, right? Like you're doing it for a while. I get it on one hand, but I've never seen a founder who didn't have the most fun by helping their customer.
<bot>: Do you remember in the Reddit versus Dig wars, Dig made a lot of technical bets.  along these lines, meaning they made a lot of very high-risk technology choices, while Reddit was just like, not. Let's make a social news site. Well, I don't think they were taking any high-risk technical choices. And so this, again, is an example where Dig was taking on all this extra risk on something that had nothing to do with dig.com loading news stories. It was literally about the technologies they were choosing to power the website. Yes.
</s>


<human>: Do you have any more on the preventative side before we move to treatment?
<bot>: I think it's just this expectation setting. I think so much of life is expectation setting where setting expectations for yourself, setting expectations for people you work with about what to expect.  If you are good at that, people can deal with all sorts of stuff. And when you get into the biggest trouble, both with yourself, managing your own brain, as well as working with other people, is when you say a bunch of stuff that turns out to be really not true, and you set expectations poorly, and you have to dig yourself out of this deep hole that you dug yourself into, because you promised a bunch of shit, or you set expectations in such a way that just weren't true. And so expectation setting is key for prevention.
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<human>: I see this hiring all the time. I see the hiring startup applies to IC, and the thesis is always the same. I'm an engineer. I'm a genius engineer, and I am being assessed by a non-technical recruiter.  This is a crime. This is a crime against humanity. It's dehumanizing that I have to go through this experience. And if only the hiring manager was empowered with software, the entire recruiting team and all recruiters would just go away, disappear off the face of the earth through the hiring manager and software. And what's weird is that I kind of believe the premise. I believe  An engineer is better at determining whether another engineer is good or bad. However, I also look at the way the world is organized and I ask myself, well, if it seems consistently organized that these massive teams of recruiters exist at all these companies, there must be some efficiency going on that I don't understand, right? And the one core thing that I've learned is that even though engineers are better,  at creating other engineers. There are two other facts. One, they don't tend to enjoy doing it. And two, it doesn't tend to be the greatest way to extract value out of a great engineer.
<bot>: Yeah, it's not the best use of their time. Like if you're employing engineers, you don't really want them to spend all their time doing this. You want them to be doing their jobs.
</s>


<human>: Dalton, before we close, what are some tactical tips you'd give folks who are looking for co-founders now, who are extremely early in their journey or thinking about starting a company?
<bot>: I hear from a lot of folks starting companies where they want to come up with the idea first, maybe they want to raise money first, and then they want to add a co-founder. And I actually think that's going about it in a less than ideal way and actually might cause more problems. I would recommend figuring out who the co-founder is first, and then if you come up with the idea together,  and perhaps you fundraise together, then you'll have collective ownership that it's your idea and it's your company versus a lot of times when you add co-founders later, in their mind, it's your company. It's not their company. And even though you worked on the company an extra month than the other person did, which is so silly, right? You'll always have this like, well, this wasn't my idea. This wasn't my company.  which isn't great from our retention perspective. If you can both really feel like you shepherded the idea through the earliest stages, you're going to see a lot more ownership and people stepping up when you go through hard times.
<human>: To reiterate what we talked about at the beginning, I don't want to say co-founders are essential, but man, they're so helpful. It's such a powerful tool.  especially in the hardest part of the startup, the pre-product market fit startup. We still encourage everyone to have a co-founder.  But like the startup game, right? It's not about doing it well, it's about doing it great. Like having a great co-founder can be a superpower for your company. Having a okay co-founder, not taking this seriously, can be the seed of big problems.
<bot>: Absolutely. And sometimes people, they end up with co-founder issues and like, well, I guess I'm just gonna quit and start a new company and we'll, it's so easy to start a new company and then,  It's like, well, good luck. And then you speak to them a year or two later and it's really hard to get back to where they were in the moment. And one of the regrets is they wish they would have spent the time to set up the co-founder relationship well and choose the right person first, then think they can just blow everything up and get a do-over. That's just not how life works. And so the more you can front load this the first time around versus having hard earned lessons.
<human>: Yeah.
<bot>: Would recommend.
</s>


<human>: This is Michael Saibo with Dalton Caldwell. And today we're going to talk about how OpenAI is going to kill all startups. This is our last video.
<bot>: Might as well pack it in. We're done. OpenAI is going to do this. They're going to make the videos next.
<human>: They are, yes. We're the next video.
<bot>: The next video will be SkyNet. AI Dalton and AI Michael.
<human>: You're right. Doing our video for us. And do a better job than us.
<bot>: Yes.
<human>: What do they call it? It's not a deep fake.
<bot>: It's like a complete AI recreation.
<human>: Yes. We're done.  Well, it's been fun, so let's talk about how that happened. So I think to start, people need to understand that companies like OpenAI, Anthropic, et cetera,  They're actually trying to build AGI. They're not trying to build the AI-powered CRM or better search. They're trying to build AGI. And this is not a debate. We're not going to talk about whether they're going to succeed at building AGI.
<bot>: Yeah, there's plenty of videos and there's plenty of experts that are better experts than us to debate whether AGI is about to be created. And I kind of bring this up. I've heard of Godwin's Law.  Please. In an internet debate, when there's people arguing with each other, and one person calls the other person a Nazi, the debate is over, and no good discourse is productive after that. It just means it's over. And so where I'm going with this is, once we start talking about how AI could become God, and we have a Skynet, and take all the things, and we're going to be uploading to the Matrix, I'm arguing nothing useful will happen. That conversation is over with that person. We can't help you.
<human>: in this video about that. Whether or not Skynet is coming is outside the scope of this video. And we would love to talk about it, but we just don't have the expertise.
<bot>: Someone else is the expert on that, not us.
</s>


<human>: This is Michael Seibel with Dalton Caldwell. At YC, we often have to have challenging conversations with founders when giving them advice.  Today, we would like to talk through some of the hard conversations that founders don't want to have.
<bot>: Dalton, why don't you set this up for us? Well, look, let's start by trying to define a hard conversation. By definition, if it's a conversation you're looking forward to having, it is not a hard conversation.  A hard conversation sucks.
<human>: Yeah.
<bot>: That's why it's called a hard conversation. You don't want to have them. They're bad, right? Or they don't feel good.
<human>: They don't feel good.
<bot>: They don't feel good. You dread the hard conversations. And so a hard conversation is when the stakes are high. Like it could go bad. It could go off the rails. It could be you're saying something risky or you're making a point. Maybe you're doing something that's impolite or saying something that's impolite.  Because again, think about an easy conversation. Easy conversation is superficial. You just agree with someone. You're just like, hey, you're great. Way to go. That's an easy conversation, right?
<human>: Yes.
<bot>: Hard conversation is not that. A hard conversation is when you're vulnerable. You're putting yourself out there. You're saying something that someone in the conversation is uncomfortable.
<human>: You know, it's funny, as you set that up,  What's tricky being a startup advisor is that you know it's gonna help someone to have hard conversations with them, but you also know that they're not going to enjoy it. And I think as a YC partner in the early days, I think I measured my effectiveness based on how much fun founders had talking to me. And only after a couple batches did I realize that doesn't really do anything,  And then when I started having honest conversations and talking about my actual opinions about their product or about how hard they were working, oof, the job changed.  Did you experience that?
<bot>: Yeah.
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<human>: How should the CEO set up a company so that if this battle, you know, if there is a co-founder fight, it's not fatal to the company?
<bot>: The closest to equal you can get, the better, because it avoids this, oh, this person has 10% more, so it's their company. You see all this drama that happens over equity splits. So equal is good. However, here's a pro tip for you. A straight 50-50 deadlock is rough, and we see that kill companies a lot. And so it might be reasonable for the CEO to have one extra share.  So you effectively have the same ownership, you're equal co-founders, but that one extra share is you agreeing in writing early that in the event of a 50-50 deadlock, there's a tiebreaker vote.
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<human>: You can't just sprinkle software on the product.
<bot>: Yeah, or like realtors, like buying a house. Why is it so hard to buy a house? Well, you know, I don't even know how to summarize that. But like, like a lot of founders want to believe they can just like start a company and revolutionize the home sales process. Right. So I feel where it's coming from. But in practice,  The simplistic engineering efficiency arguments don't always work when applied to the real world.
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