See all Y Combinator transcripts on Youtube

Speaker 1

00:00

The first question I wanted to ask you, the book is called High Growth Handbook. Not not the high growth handbook, but just high growth handbook. Given that so few companies ever make it to high growth, you know, thousands of employees, why should an average entrepreneur read this book?

Speaker 2

00:17

Yeah, I think the book contains some more universal principles. So things like how do you go about hiring people and what should you look for when you hire people, including executives. If somebody's trying to buy your company, You may actually want to read the section on M&A because it'll basically reveal how the company that's trying to buy you is actually thinking about it.

Speaker 2

00:37

There's also product management best practices in there and how do you think about product management. So I do think that there's a variety of other sections. There's also a section on PR, comms and marketing. So what's the difference between those different disciplines and how should you think about them?

Speaker 2

00:51

So I do think that there are areas of the book that touch upon things that are universal, but ultimately it was geared for either employees who are going through high growth or executives or founders who are going through high growth and in part simply because there wasn't any information out there in my opinion that was really pulled together or codified around that.

Speaker 1

01:08

Yeah. And what inspired you to shift this into a book rather than you know your own personal blog site you know SEO targeted. Sure content. Yeah

Speaker 2

01:17

I originally was thinking of doing it as a website. And John Collison, 1 of the co-founders of Stripe, saw the content and he got excited about it and thought it would be really relevant to both other founders who are working on Hageroth, but also sort of the broader community of developers and company builders that Stripe serves. That led to the genesis of Stripe publishing it.

Speaker 2

01:39

Peter Graham-Harris

Speaker 1

01:39

Okay, gotcha. I have a question about, before even page 1, maybe it is counted as a page, the dedication. I was just curious what you meant.

Speaker 1

01:51

So the first line is, to my lovely wife Jennifer, and suddenly of, suddenly everything is possible again. What does that mean?

Speaker 2

01:58

There's a great book from Jonathan Safran Foer called, I think it's called Eating Animals. And it's about, it's sort of a mixed book, but it talks a little bit about his own son. And he says that when he had a kid, somebody sent him a card that said, suddenly everything is possible again about his son.

Speaker 2

02:18

And really what that means is when you look at your child, you realize that every possibility is suddenly ahead of them. And there's a reinvention of life through that child. In other words, they could go and become an Olympic skater. They could become the next Mark Zuckerberg or they could have a terrible life But really all the possibilities in the world in some sense are available to them And so that's really what that means

Speaker 1

02:40

and do you take it to heart for you as well?

Speaker 2

02:44

I'm too old for that. So I think Next generation is a everything is possible for them.

Speaker 1

02:49

Okay,

Speaker 2

02:50

Barring some breakthrough and anti-aging or something. I think my path is reasonably clear.

Speaker 1

02:55

All right, fine. So with all of these interviews, I know they were edited and kind of, they're transcribed and then edited. Were there any large arguments you got into when you're doing the interviews before you compiled them for the book?

Speaker 2

03:10

There's no arguments, and the interviews are actually very close to the actual conversation. So The editing was very light and it was more for clarity or to rearrange a section so it went together better. But there weren't big chunks taken out unless it was a side conversation that was unrelated to the interview.

Speaker 2

03:26

There are areas where I've disagreed with some of the things that people said. And that's 1 of the reasons I wanted to make sure it was in the book. Because ultimately I think the only good generic startup advice is that there's no good generic startup advice. And ultimately it's all about context.

Speaker 2

03:39

And each person who I interviewed came from a very different set of experiences, a very different context. And that's 1 of the reasons I wanted to include those discussions in the book as they provided a different viewpoint from my own.

Speaker 1

03:49

Mm-hmm What are good examples of that?

Speaker 2

03:53

Honestly almost every interview there may have been like 1 or 2 things that I would have nitpicked and I'm sure that as people Read my book. They'll feel the same way or they're like well in my case it really wasn't like that. Or the advice I give is a little bit different from that.

Speaker 2

04:06

And I think that's actually great. It's almost like you're baking a cake. And you can get into a philosophical argument about the right way to bake a cake, and when all's said and done, there's a few core components you always need when making a cake, but there's lots of different ways to do it.

Speaker 1

04:18

And I

Speaker 2

04:18

think that's true of startups as well. There's a few fundamental things you absolutely have to do, otherwise it's not really a cake or not a startup. But besides that, go at it.

Speaker 2

04:26

There's all sorts of ways to do things.

Speaker 1

04:29

Yeah, I was re-watching your investor school talk this morning, and you were talking about how you pick companies based on market and then market again. And then the third was maybe team or something like that. Yeah.

Speaker 1

04:41

Do you find that I think you got into it with Mark Andreessen a little bit in the same topic right. And what he said I found was interesting. He said, the companies that charge more tend to grow faster. Do you

Speaker 2

04:51

believe that too? I think if you can get away with charging more, then it means that you have a product that people truly want,

Speaker 1

04:58

which means

Speaker 2

04:58

that you can grow faster in part because people truly want your product, and in part because the capital leverage that Mark talks about is actually crucial. In other words, and he makes this point I think really well in the book, which is that if you have higher margins or pricing power, you can reinvest that money in hiring additional engineers. Your sales team can actually afford to go and sell or whatever customer acquisition method you have you can scale it up more because you have more margin to give away.

Speaker 2

05:24

So actually being able to raise prices is a very powerful tool for growth. And I think 1 of the big fallacies in Silicon Valley is everybody thinks that they're Amazon. And they basically say every business model should be Amazon's, which is I'm gonna charge as low of a price as possible so I can get as much market share

Speaker 1

05:37

as possible.

Speaker 2

05:38

And actually, it's possible that you'd get to more market share if you charged more for your products versus less. So That's actually a point that I agreed with him quite strongly. Paul Weaver

Speaker 1

05:47

Right, and it's also that you talked about this in relation to investing or not investing in Lyft, that not all markets are win or take all Amazon type situations. Which I think most founders assume with any network effect they win. Brian

Speaker 2

06:00

Kardell Yeah, I think that in general, there's a set of myths that have built up over time in Silicon Valley around what is a great startup. And in the social networking era, things really were winner take all because they were social networks. And almost definitionally they were winner take all.

Speaker 2

06:14

And There's lots and lots and lots of businesses all over the world that exist in markets that aren't winner take all. There's actually a great book called The Rule of 3, I think is what it's called. It basically talks about how many industries collapse into oligopoly markets where there's 2 to 3 dominant companies. Then that's the stable point in the industry.

Speaker 2

06:33

And so I think the market structure really matters. And 1 of the things that people in Silicon Valley don't think about very much is, what's the actual market structure, and does that mean it's a good opportunity or a bad opportunity to actually start a company in? A great example would be ed tech, where I think that's a terrible market. It's a really tough 1.

Speaker 2

06:50

It's very impactful, so I'm really glad that people are working on it. But there's all sorts of structural issues in the market that make it a really hard 1 to be successful in. And therefore, it's really hard to start a company in that market.

Speaker 1

07:00

Yeah, there was a related question that came in from Twitter. Leon Coe asked, what types of businesses do you avoid investing in? And what quote good businesses do you have no interest in?

Speaker 1

07:12

Are there other markets that have a negative signal to you in that way?

Speaker 2

07:16

Ed Tech is definitely 1. I've never invested in an Ed Tech company. And again, I think the social impact is massive.

Speaker 2

07:23

I just think it's very hard to succeed. In part because there's nobody who is able or willing to pay in the US for the product. I think in certain parts of Asia actually a tech is a great market to be in but I just don't invest very much outside of the US. But if you think about it, teachers either can't afford or don't have the wherewithal to buy certain products.

Speaker 2

07:43

Parents often don't want to actually buy extra products for their kids. Children obviously can't afford it. School districts are often cash strapped and can't afford it. And so there's just not a payer in the education market.

Speaker 2

07:54

I think there's also markets where it's better for a large incumbent to do it versus a small startup. So Internet of Things is a great example where I think most of the interesting things in that market will come from large electronics players who can just integrate it into something and then distribute it versus a new sort of one-off company that's just making a smart light bulb or just making a smart door lock or just making a smart, you know, you name it.

Speaker 1

08:17

Yeah, I think those companies have really struggled after their first Kickstarter, like to launch again. I mean, yeah, it seems like unless you're selling like a smart backpack, you're gonna have a tough time.

Speaker 2

08:27

Yeah, yeah, exactly, yeah.

Speaker 1

08:29

So you mentioned Asia and I wanna jump from the beginning to the very end of your book because I thought that was funny. You have a page that says, things to just say no to. I'll go through that list but I do want to talk about Asia.

Speaker 1

08:42

1, envelopes full of cash. 2, China. 3, giant chrome pandas and 4, pool tables. Could you explain?

Speaker 2

08:51

That part was very much meant as a joke and it was kind of thrown in last minute. So basically, as I've been in Silicon Valley for the last decade plus, there have been a variety of different things that seemed like great ideas at the time and then in hindsight maybe weren't as good. And so the envelopes full of cash, for example, when I was at Google at Christmas time, the company used to give out literally an envelope with, I think it was $1,100 bills as sort of the annual bonus for everybody.

Speaker 2

09:19

And the urban myth around it, I don't know that it was actually true, but the urban myth was that as people would get off the Google shuttle or the bus in San Francisco with their envelope full of cash, they'd get mugged. I don't think that really happened, but it was more maybe distributing millions of dollars in cash is a bad idea to your employees. It sounds almost like the mob or something. China is just most companies that have tried to enter the China market have failed.

Speaker 2

09:43

There's always counter examples of that. I actually think Uber's strategy in China was quite smart in terms of their eventual merger with DD. And I think they own 15 to 20 percent of DD, which in and of itself is going to be a $100 billion plus company. So I actually think that worked out really well for them.

Speaker 2

09:56

And similarly, Airbnb appears to be doing very well in China as well. So I do think it can be done, but most companies try to enter China, they don't have a real strategy to it, they don't understand the local presence, they don't understand the competition, and they kind of get quashed. And it's hard to do business there in part because of government controls around the ability for foreign countries to enter the market. So that's China.

Speaker 2

10:18

The Chrome Pandas, Dropbox bought a giant Chrome Panda, and then later they used it as a symbol for frugality. I think that was a very smart approach by them to basically say, hey, let's take something and turn it into a symbol of how we should act as a company, so I thought that was a very smart cultural move by them. And then lastly, pool tables was, I moved out here right after the last sort of bubble collapsed, and I was working at this startup where I joined at 120 people and it grew to 160, and then it shrank to 15 people or so after 5 rounds of layoffs. And so after the second round of layoffs, it was probably like 60, 70 people, and the founders bought a pool table to try and increase morale.

Speaker 2

10:56

After all these layoffs were happening in a collapsing industry, and I don't know that pool table's how you increase morale, but that's what they decided to do. It was a nice gesture. But what would happen is the people who had time to play pool obviously weren't essential to the operations of a company that was in freefall, which meant that the people who'd play pool would suddenly disappear within a couple weeks because they'd get laid off. And so the pool table became the symbol of like, don't go play pool because you're going to be the next person to get fired.

Speaker 2

11:21

Paul

Speaker 1

11:21

Andrews Yeah, okay. I have never lived through 1 of those, but it sounds terrible.

Speaker 2

11:25

I don't think anybody in Silicon Valley in this era has because we've been in an 8 year bull market. So obviously companies have gone under and that's been painful, but we haven't seen the systemic raising of an entire sector at once. And it's inevitable that at some point that will happen again.

Speaker 2

11:40

And I think that will cause an enormous sea change in terms of how people do things.

Speaker 1

11:46

Timing the market is impossible though. Related to that, are there any ideas right now that you think might, they're being raised on, but are potentially too early? In other words, like ideas from the 99-2001 bubble that later turned into big companies now.

Speaker 1

12:05

Do you think any of those ideas in existence now are actually going to be part of the next cycle?

Speaker 2

12:11

I think there's 2 big areas where that's definitely true. 1 is AR, VR, which I think most of it is too early. And I do think it will eventually happen.

Speaker 2

12:20

I think the other area is actually in crypto. I actually think there's a great analogy between the cryptocurrency world today and the internet world in the late 90s. And in the late 90s there was a handful of things that truly became massive franchises. PayPal and Google and Amazon and etc.

Speaker 2

12:37

Were all from that first era. And then there was a bunch of stuff that didn't even exist at that point that became massive like Facebook. But there were also a lot of companies that people started then that ended up failing and were pointed at as these stupid ideas, but are now actually giant companies in their own right. So for example, Webvan raised over a billion dollars and failed, and now we have Instacart, which is sort of a reinvention of that concept.

Speaker 2

12:59

There was pets.com, which was broadly derided. Why would you ship pet food online? And that became Chewy, which was acquired for I think $3 billion. And so there was this whole wave of companies that were just too early or in the wrong format in the late 90s that have now become major franchises.

Speaker 2

13:15

And I think the same thing is true in the crypto world, where there's still a real lack of infrastructure in crypto. And so there's all sorts of really interesting ideas on how you decentralize different services, and I think many of those things will fail. And then in 10, 15 years, a new form of that idea will exist and be successful. And then in parallel I think there's things that exist today that are sort of the Amazons of crypto that are going to be massive in their own right and already exist.

Speaker 2

13:40

Maybe it's Bitcoin, maybe it's Ethereum, maybe it's a privacy token like Monero, Zcash. But I do think that a subset of the crypto world from today will also continue to just be massive?

Speaker 1

13:50

Yeah, and a certain percentage of people out there as employees will be able to pick those companies. Which is a, that's a Naval quote I really liked. I don't know if it was in the first or the second interview.

Speaker 1

14:00

It must be the second, it's on page 311. Naval says, Naval Ravikant, the most successful class of people in Silicon Valley on a consistent basis are either venture capitalists or people who are very good at identifying companies that have just hit product market fit. They have the background, expertise, and references that those companies really want to help them scale. And I think the question is, how do you find those companies?

Speaker 2

14:25

Yeah, I think there's a few signals that a company is breaking out. And to the point of the quote from Naval, there's a few people who have been very good at that. For example, Matt Kohler was early at LinkedIn, and then he was at Facebook, and then of course he eventually joined Benchmark.

Speaker 2

14:39

But that's a great example of a career where somebody just identified a few sequential really interesting things. I think the 3 key signs of something really breaking out really has to do with number 1, just anecdotal customer traction. So you can just ask people what they're using at different companies, or you can try to pick up on market signals. And so 1 is just what is being adopted by the market and how rapidly is it being adopted.

Speaker 2

15:07

And there's certain metrics you can look at in terms of churn and recurrence and a few other things. The second thing is what's the network of people around it? So in general, you're only able to pull in certain people to help with something if that thing is really working. And then lastly, sometimes fundraising is a signal, sometimes it's not.

Speaker 2

15:29

But In general, the best companies that are breaking out, if they want the capital or they need the capital, will be raising new rounds of capital every 9 to 18 months. And that's in some cases driven by the fact that people are running out of money, but for the best companies it's often a sign of people just coming in preemptively and giving them a very high valuation. So sometimes that's a way to track it too. In general, if you want to do best from a career perspective and you didn't join in the very, very early days, the best time to join is when a company is probably on the order of 40, 50 people and is worth somewhere between 50 and 500 million dollars, as long as it can turn into a 10, 20 billion dollar company.

Speaker 2

16:06

It's really hard to know which companies will do that, but usually that's when a company goes from 50 people to 1,000 people, or 50 people to 5,000 people. And that's when you have the most growth opportunities as somebody joining 1 of those companies, but also you have the biggest financial upside because your option package will go up in value between 20 and 100x, which can be quite significant.

Speaker 1

16:25

Yeah, would you be willing to call someone out and say, where do those companies right now?

Speaker 2

16:31

It's always hard to know exactly which companies are going to be the biggest. I think some that are really promising right now are Airtable, Checker, and Front, in terms of 3 companies that I'm involved with that I just think are amazing founders, great traction, and doing really interesting things.

Speaker 1

16:49

Yeah, I see. Okay, so we should talk about best practices a little bit. We don't want to just talk about founder mistakes.

Speaker 1

16:55

1 thing I really thought was cool, which I hadn't heard about before, was Stripe's COO, Claire Hughes-Johnson, issued this letter out to the company when she started about how to work well with her. I'm curious, have you done this before? Do other people do it now? What's the story?

Speaker 1

17:12

Brian D.

Speaker 2

17:12

Rubinstein Yeah, I haven't done it before. When she told me about it, I thought it was brilliant. Each person, as they join a company, especially if they're in a leadership role, will have a certain set of ways that they like to be interacted with.

Speaker 2

17:25

And often it takes the company 6 months or 12 months or a year or longer to figure it out. And especially if you're growing really fast, each incremental hire 2 years later has to figure it out as well. And so by publishing this letter, she basically spelled out what are the best ways to work with her. Is it better to send her emails or to catch her live for 5 minutes?

Speaker 2

17:41

Is it better to communicate via data? Or there are other mechanisms that really resonate with her in terms of the things that grab her attention. And so I thought that was just a brilliant onboarding tool that perhaps any executive joining a high growth company or any manager joining a high growth company should issue so that people just understand, this is the fastest, best way to interact with me and just ramp up on how to be effective in the organization. Paul Wiltz I

Speaker 1

18:07

think everyone should do it at every company. I think it's such a great idea. It's not totally fair to rely on everyone to be able to read everyone else.

Speaker 1

18:18

Because some people can just put on a good face, and others can't, and some struggle.

Speaker 2

18:22

And also people have their own quirks, and so I think being explicit about the quirk actually helps a lot. When I worked at Twitter, I used to do a lot of yoga, and so I'd literally sit in Lotus on the floor in the middle of executive team meetings, and I was the only person on the floor in board meetings. And then people eventually were like, okay, fine, that's his quirk, right?

Speaker 2

18:40

So I just think being upfront about those actually gets rid of a bunch of stuff. Paul Matzkoff

Speaker 1

18:44

Yeah, I think it's such a great idea. All right, let's go into some Twitter questions for you. Masood Hussain asks, he actually asked 3 questions.

Speaker 1

18:54

How did most of the companies you interviewed get their first 10 customers? And yeah, then from there. Brian Fitzpatrick-McCabe

Speaker 2

18:59

Okay, sure. First 10 differs a lot by company. And so some companies will literally go and just hand recruit those first 10 people to use their product.

Speaker 2

19:08

And the founders of Stripe were famous for anytime they'd meet with somebody, they'd try and show them Stripe and get them to use it. It's called

Speaker 1

19:15

the call us and install.

Speaker 2

19:16

Yeah, the call us and install. There's other companies where honestly they just put up a product online and it just starts working and spreading. And so I think that's sort of the rumor about how Facebook got started, was that Zuck just kind of put it up and told his friends about it and just started spreading.

Speaker 2

19:33

Because there was a bit more virality built into it. So I think each product is different. On average though, you kind of have to grind it out. You have to find your first few customers.

Speaker 2

19:41

If you're building an enterprise focused application, you probably want to find early test customers or partners that you work with who are what people call design partners. So they'll give you feedback as you build it and you can kind of steer the product based on their feedback. So you're actually building something that people want. So it really depends a lot on the type of product it is as a consumer versus enterprise, and then how you want to go about getting the first few people.

Speaker 2

20:04

Paul Wiltz

Speaker 1

20:04

Yeah, and what about going to a thousand? Because Masoud asked a question related, like is content really king? Meaning, is content the way for infinite growth?

Speaker 2

20:14

James Hanks Not always, It depends on what you're doing. If you're building a consumer social product, then there's probably mechanics built into the product itself that cause it to spread. So sometimes things spread a bit organically and then you kind of use it through different tactics.

Speaker 2

20:28

So with Facebook that was email scrapers and they were literally running ads against people's names in Europe to try and acquire European users, for example. So I think the best companies actually focus on aggressive distribution early, and often you see a company that taps out in market cap or market size because the founders weren't aggressive early about distribution and then later other companies caught up to them. And so examples where people were very aggressive about distribution with things like Google where they were spending hundreds of millions of dollars a year on things like Firefox, having Google prominently displayed on its homepage, they literally paid for, they used to have this client application called their toolbar that would install against a browser in terms of being effectively like a browser client. And they were paying hundreds of millions of dollars a year to co-install that with different apps that you'd download.

Speaker 2

21:20

So you'd download Adobe and suddenly you'd install the Google toolbar. And those stories are never told. People always say, oh, these things just grew organically and isn't it amazing? But almost every company that's ended up in tens of billions or hundreds of billions of market cap had been very aggressive about distribution often from the earliest days.

Speaker 1

21:37

And I think a lot of people create in the content category, they're often playing the game that whatever system they're on wants them to play. And that's good to a point, but it's hard to achieve outsized rewards in any of these categories by just playing by the exact rules. I'm not saying break the rules, but be a little more creative with your strategy.

Speaker 1

22:00

All right, next question. Narayan Malapur asks, where do founders make the most mistakes? Is it on hiring? And whatever mistake that might be, what steps should they avoid to avoid these pitfalls?

Speaker 2

22:13

Yeah, it depends a lot on the stage of a company. For an early company, people make mistakes around how much money to raise. They raise too little and they run out of cash before they can hit a milestone to raise more money.

Speaker 2

22:24

It could be hiring mistakes. It could be fighting with their co-founder. So Early on, I think there's all sorts of mistakes that you can make. I think the single biggest common issue to the point of the question probably is around hiring, either in terms of not having a very good selection process, or alternatively not letting go of people who didn't work out.

Speaker 2

22:45

And so there's an old saying that people either hire well or fire well. And if you at least do 1 of those, then you can build a really good organization. You know, fundamentally, most companies are kind of bad at both. And that really ends up biting them because they're just desperate to get people in instead of saying, you know what, it's painful, but we'll wait to find the right people.

Speaker 1

23:05

Right, it's the company who has a thousand people and you're like, wait a second, aren't we like 500 jobs right now? Yeah, I think it's tough. Do you have like a ballpark number for how many employees end up working out percentage wise?

Speaker 2

23:20

It varies a lot. Again, it depends on your hiring practices. Google was an example of a company that hired extremely well.

Speaker 2

23:27

I think it was a minimum for a while of 8 interviews per person, literally. And if you didn't do all 8, you wouldn't be able to get in kind of thing. And they were terrible at firing in the early days. So they were absolutely awful at letting people go once they made it in.

Speaker 2

23:40

But they just let in so few bad people that it worked for them for a while. Other companies like Facebook were known as not as good at hiring early on, although they'd gotten much better over time. But in the very early days, they were known as not great at hiring, but they were very good at actually letting people go if they didn't work out. So both companies ended up, I think, eventually at very good spots.

Speaker 2

24:00

And so I think it really depends on the practices of the company.

Speaker 1

24:03

Okay. Brianne Kimball, Kimmel, asked a question around regulation. So you've both worked with Stripe, like biotech, you're kind of aware of these regulated sectors. What are Some lessons learned in highly regulated sectors, when should you hire a general counsel for example and how do you prioritize public policy and lobbying efforts?

Speaker 2

24:26

I think it depends a lot on the sector that you're in. So some companies will actually hire a compliance person or a general counsel very early. Coinbase is an example of that where they hired somebody of that profile I think in the first 10 people or so.

Speaker 2

24:38

And so they were always focused on being regulatory compliant. You can also do it through hiring things like external consultants or you can get very good lawyers for certain areas. So for example, in the biotech or healthcare sphere, if you're a sick scientist working on a problem, you probably don't need a full-time compliance person, but you probably want to start thinking about FDA and how you think about regulations. And so that could be done through a consultant, for example.

Speaker 2

25:04

So I think you should think about it early, but it shouldn't get in the way of you just doing core things that you need to build a product, because if you don't have a product and you're not on the market, it really doesn't matter. Because you're not dealing with regulations as a non-launch thing. In terms of prioritizing public policy and lobbying, I think that tends to come later in the life of a company. Many companies in Silicon Valley wait way too long, so they'll sort of become huge and then they'll realize in hindsight that they should have been thinking about it.

Speaker 2

25:34

And really what it's about is, I view it less as lobbying and more about how can you educate people who actually want to do the right thing, but may only get 1 side of the story if the incumbents are the only ones talking to them. So how do you sort of share the story of what the industry is evolving to, what the company is about, and who should you be educating? And that doesn't necessarily mean you should be talking to politicians, or maybe other stakeholders you should be talking to. Maybe you should be talking to certain medical groups if you're in biotech, or a teacher's association if you're in edtech.

Speaker 2

26:02

So I would just think more broadly about who should I educate about what I'm doing and how do I start those conversations early so that people are aware and in some cases can actually become supportive instead of antagonistic. Paul Friedman

Speaker 1

26:13

Do you have opinions on the ad campaigns Facebook's running right now to say, hey, we're sorry, and we're not about fake news?

Speaker 2

26:23

I haven't seen those ads. A couple people told me about them. They said that Silicon Valley is running all these apologetic ad campaigns right now.

Speaker 1

26:30

They're multiple, so Wells Fargo, Facebook, and I think there's another 1. Uber.

Speaker 2

26:35

Brian Kardell You know, 1 thing that I think has really changed a lot since I moved out here is there's been a real decrease in overall what I'd call optimism about the future in Silicon Valley. And I think that's awful. I think really the best people that I know who work in technology are doing it because they think they can use it truly as a force for good and to help change the world for the better.

Speaker 2

26:56

And if you think about what technology has done in terms of basically putting a supercomputer in the pocket of a billion plus people in terms of creating transparency and pricing and markets and other things. So you're a farmer somewhere, are you able to sell your goods on the right day in the right location? You know, it's really sort of transformed the world in really positive ways. And somehow I feel that people have really lost sight of it.

Speaker 2

27:18

And to me, 1 of the saddest moments is when people write the blog post 4 years after leaving a company that they joined early where they self-flagellate and they talk about how terrible that company is and how ashamed they are. And you're like, oh my God, what are you talking about? These companies have actually done really valuable things for the world. And when they've made mistakes, they need to go and correct those mistakes rapidly.

Speaker 2

27:40

And you need to early on think about how you avoid creating damage in the world. But I think fundamentally, technology is something that's very powerful, very important, and ultimately has largely been a force for good in the world, and we should not lose sight of that, and we should really emphasize it, because if you don't think you're doing great things, you're not gonna go and do great things.

Speaker 1

27:58

No, but being here, I'm more optimistic than ever. There are so many cool things happening. It's just tricky.

Speaker 1

28:06

I know it from talking to my family on the East Coast, who isn't connected in the same way, and all they hear are horror stories from whatever it might be, whatever's happening.

Speaker 2

28:16

I think in general, what you find, and this is, I've seen on the company level, when you work with different companies, they always end up in some media cycle where they get built up and then they get torn down and then later they get built up again as sort of a redemption story. So usually the story arc is, look at this amazing company, they're changing the world, they're doing good things. And then there's some minor crisis and it blows up in the press into, oh my God, this company's now doing bad things and they're failing and they're going to die and it's awful.

Speaker 2

28:44

And then the press writes a story a little bit later about, oh, the company's now redeemed and they've changed what they're doing and look at the great things they're doing again. And I think that Silicon Valley may be in 1 of those cycles at a macro level where we had the upswing in the 2000s of, oh, look, tech is so great, and there's the iPhone and all these other things, and look at how Google's helping people. And now we're in sort of the, oh my gosh, tech is only bad, and my hope is that we come back into the redemption period.

Speaker 1

29:09

Paul Matzkoff Yeah. I think technology's probably going to be whipped a little bit more in the next election cycle, because it's a very obvious target, it seems, unfortunately. Especially when people are making such cool stuff.

Speaker 1

29:22

Paul Matzkoff

Speaker 2

29:22

Yeah, I know. I think 1 of the most telling moments for me was a founder that I started helping really early pinged me and said, hey, I was at some dinner party with some friends, and I brought up the fact that I'm really excited about what I'm doing, and I hope I can change the world with it. And everybody started making fun of me at the dinner, and I said, well, you should find better friends.

Speaker 2

29:42

Ultimately, you should be surrounding yourself with differing opinions over time, but you should also be surrounding yourself with positive voices, because ultimately I do think that there's a lot left to be done and technology will continue to have this transformative impact on the world and people should be proud of what they're working on.

Speaker 1

29:57

Paul Wiltz Yeah, I mean, I'm all for talking shit and having fun, but I think penalizing people for being eager is not a right thing to do. All right, let's go to another question. So, Marius Chawa asks, this is such a common question, what are the top 3 things a startup must achieve before VC firms or say an angel investor would line up to fund them?

Speaker 1

30:20

Paul Matzkoff

Speaker 2

30:20

There's a huge range of answers to that. If I were to rank things in a hierarchy, I think the single biggest thing, and this is going to be obvious and we'll sort of work down the hierarchy, The single biggest thing would be to have a high margin, rapidly growing, high traction product. In other words, you're growing 30% month over month, you have 90% margins, and everybody's buying it.

Speaker 2

30:43

You have big brands buying it, you have small brands buying it, or if it's a consumer product, it's just scaling like crazy with extremely high retention. And so the number 1 thing is traction. The second best thing to have is a product in an interesting, or exciting, or hot market that people want to fund or get involved with. Cryptocurrencies is 1 area that's like that right now, where all sorts of things are getting funded simply because it's in the crypto market versus because it's good.

Speaker 2

31:10

Third thing would be a great team. And then last thing is none of those but a compelling story. So that's sort of the hierarchy. Now the thing is that in Silicon Valley, there's different, or in general, there's different trends.

Speaker 2

31:23

So people get excited about a specific area, they'll fund anything in the area, whether it has traction or not. Similarly, there may be teams or individuals that are very well regarded, and they'll just get funded no matter what. And so, sometimes you just need 1 of those things and it's good enough.

Speaker 1

31:40

Yeah, and sometimes, I mean, I think PG, they've talked about Airbnb as cockroaches, like just staying alive. Because I assume the question is about getting your first funding, but if it's not about that, just reaching profitability and being able to stay alive makes you much more attractive to a company. Because that's how you generate leverage.

Speaker 1

32:00

Because I don't know, oftentimes, I've talked to Michael Seibel, who's written a lot about this, Companies come to him and they're like, oh we need to raise a series A right now. And unfortunately they have no leverage anymore.

Speaker 2

32:12

I think to build on that point, VC funding isn't the only way to build a business either. Bloomberg is tens of billions of dollar private company that has only raised outside capital once. I think it was from Morgan Stanley.

Speaker 2

32:29

Morgan Stanley or somebody bought, I don't remember what it was, 10% say, or 15% of the company. But he basically bootstrapped it. And I think 1 of the things that people think about too little is other sources of funding. It could be your customers just paying you for a great product so that you're profitable.

Speaker 2

32:44

Sometimes you can get what are known as NREs, non-recurring engineering charges, where you charge up front to develop something for somebody, that you can then resell to everybody else. Microsoft actually used to do this in the early days, and they similarly never had to raise funding. They took 1 round right before they went public because of a relationship. But fundamentally they're just bootstrapped.

Speaker 2

33:03

So I think too often people think that they should be on the VC train when really there's lots of different ways to build a business. And sometimes those are actually much better for founders in terms of where you end up.