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Save Your Startup During an Economic Downturn - YouTube
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i remember we had this meeting
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um
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with a lot of our employees
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and we were like look we got three
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options we can die in two months
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we can try to get to break even or we
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can try to get this thing profitable
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hello this is michael seibel with dalton
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caldwell and today we're going to talk
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about whether your startup is default
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alive or default debt so this is a
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concept that was actually invented by
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one of the co-founders of yc paul graham
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dalton do you just want to start by
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explaining what this means
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yeah i mean so to start with you should
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read his blog post it is excellent it is
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short it is easy to read and so you
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should read it but let me try to give
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you my crash course in it
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here's here's what he means by default
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alive default dead
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as founders
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we we like to ignore the truth a lot of
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the time and one of those truths are is
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my startup going to go out of business
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right
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it's kind of an awkward thing to talk
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about you know you don't want to bring
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that up in polite company and so the
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point of default default dead is it
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forces you to be honest with yourself
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if i don't raise any more money am i
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gonna die am i out of business
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or am i gonna make it
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and default alive is different than
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profitable profitable means today i make
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enough money that i am profitable my
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bank account grows every month you sell
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with me default alive means i may be
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burning money today but my growth rate
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is high enough on revenue that i will
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become profitable before my bank account
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goes to zero
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does that make sense and so if not a
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single other dollar of investor money
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comes into the business my growth rate
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is high enough such that i don't have to
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lose sleep that i'm gonna have to raise
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a round before i die
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and his point is this is a binary either
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you are default alive or you are not
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default alive thus default dead there's
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no third option here friends
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it forces you to pin yourself down in
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your own mind right does that sound
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right to you michael did i get that
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right
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you nailed it and and what's interesting
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is that another yc co-founder trevo
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blackwell basically made a calculator
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that allows you to calculate this
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because you know
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i would argue it's easy to calculate but
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it's just nice to have a tool there
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where you could just input some numbers
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and we'll make sure that's linked to as
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well
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so
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i think that with this concept of
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default debt or default alive
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what's so weird is how obvious it is
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like it's weirdly the kind of concept
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that like the entrepreneur who runs a
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barber shop will understand
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before a startup founder well right it's
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like
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it's it's so logical what do you think
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are some of the reasons why founders
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have a hard time
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understanding this is important math to
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do like what what's what's distracting
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them from this truth i think the context
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is it if you've raised some money
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say you're a yc company raise money demo
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day
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the belief that you'll be able to raise
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more money
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it's hard to not take that for granted
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and you're like yeah yeah but but really
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once you started raising money you get
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hooked on it you know like you get
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hooked on the juice okay and so the idea
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that maybe you won't be able to raise
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the next round or that'll go harder than
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you want
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to say that out loud is almost a showing
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like it's like you're not confident
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enough like i think you i think it's
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awkward to speak of these things with
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your co-founders with whoever because
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it's almost like well of course you can
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raise the next round like of course like
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we're gonna make it
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and so
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i think it's that man i think i think
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again we've both been founders i don't
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think you want to say this stuff out
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loud too much it makes it sound like
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you're worried or scared and you
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certainly would not want to admit this
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to your investors
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well i think that
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here's the tricky bit in my mind not
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only is it that
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this idea of like well if we question
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our ability to raise the next round are
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we not confident or are we going to
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psych some people out in our team and
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make them not want to work here
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it's that plus raising the next rounds
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harder
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so you kind of get screwed both ways
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like
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like i think oftentimes
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founders believe that raising the next
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round is going to be like the last round
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even though they kind of understand that
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the next round
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there's a smaller pool of people who can
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do it they're investing more money
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so so
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logically it should be harder right like
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mathematically there are fewer
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series a's than seed rounds and fewer
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series b's and series
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right and so but i don't think they
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internalize that and one of the things
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you talk about a lot in the yc batch is
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this idea that
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startups are series of mini games and
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the minigames change and get harder i
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think people weirdly think that this
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fundraising minigame doesn't change
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when of course it does look of course
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and sometimes it's easier when you have
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a great product and great design
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sometimes your next round is far easier
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to be clear yes we're not saying it's
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always harder but and here's the big but
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it's a moving target
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and there's this thing called the
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economy
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yeah this is a thing called like
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investors who are people that are not
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within your control
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we don't know interest rates
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and so what you'll see is whenever
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there's like choppy waters
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the default dead people that we're
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banking on the next round being easy
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die simple as that okay
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it's in the companies that are default
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alive when there's choppy waters they
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live
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and i think it's funny because
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i like your phrasing we can't tell you
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whether it's going to be
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harder or easier to raise your next
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round we can just tell you it's probably
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going to be different than the last one
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so you should be planning for a wider
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range of possibilities than same as last
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time and i think about this in terms of
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margin of error like last thing on the
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screen yeah the margin of error when
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your default alive is huge you can go
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out
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and try to raise around and fail
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and be fine
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there's huge margin for error and what's
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funny i always talk about this
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imagine if techcrunch wrote an article
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about every failed fundraise
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it'd be
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that's yeah we're only reading about the
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successful one there's lots of failed
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fundraisers friends lots and lots and
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lots and lots the majority of
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fundraising the majority the vast
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majority so i think the folks that are
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just reading techcrunch
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think
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that most fundraisers succeed so you're
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getting a really warped view and so so
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again like bear with me so most of them
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fail well guess what if your default
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alive
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all right like that's not good news that
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your fundraise failed but you can live
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to fight another day but if you're
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running your business tight where you
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have like three months of runway and
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you're banking that it's gonna work and
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it's you're running this thing super
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tight
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what happens if your fundraise doesn't
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work is you die i think about default
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live default ad is
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if you actually control
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if you're actually in control of your
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company and not
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outside parties i.e investors
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actually hold the key to your company
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you're kind of working for your
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investors they're they're actually your
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boss when your default's alive
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you're the it's you're in control of
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everything right yeah it's kind of
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awesome it's a it's a question of agency
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over the outcome you know
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well in dalton we talk so much in the
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batch about
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leverage when it comes to fundraising
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and when i think about being default to
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live there's there's multiple levels of
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leverage one
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is confidence right if you don't need a
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deal
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man you're gonna pitch better like like
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this that's the way life works like when
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you don't need something you're way more
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convincing than when you're begging for
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something
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um
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and then two leverage being the investor
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knows you don't need them so not only is
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your pitch better right the investor
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knows your business is stronger and
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knows there's going to be more
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competition to invest in your business
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and therefore is more likely to want to
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invest in your business so you get like
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double leverage
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whereas on the flip side if you run your
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business default dead you take two
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average hits like when you really think
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deep down especially like you said when
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you're on low runway you're like if
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i don't threat this needle or this
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fundraiser we're dead
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a good investor can always tell
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whether the company's pitching them is
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going to die
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and even if you want to invest
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you offer worse terms or you put in
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sneaky
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you know there's all sorts of sneaky
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things ratchet investors can do yeah
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yeah
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not good by the way like i would argue
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that that's an investor being a good
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business person if they have more
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leverage they should get more
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positive terms if you have more leverage
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you should get more positive terms
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so michael why why is this
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the thing that so many investors don't
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like us as yc partners telling yc
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founders why do they hate when we say
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this stuff out loud so much they're
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allergic to this advice you know i think
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that in general investors are allergic
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when we tell founders that there might
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be situations where their incentives and
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the founders incentives are not aligned
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perfectly it's yeah it's like a magic
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trick we're like telling people how the
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magic trick is performed
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it's like a faux pas they don't like it
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why do they they always tell us to shut
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up when we tell people this they always
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tell and there's like and and
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i think it's also funny because they
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also always tell us like hey like
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we're funding your companies like you
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shouldn't be like you know like telling
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the founders not to have high burn yeah
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exactly like i pat your back you pat my
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back you know
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put all this together
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and it's like yeah but man we got to put
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those founders first and i think that
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like
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the other thing that's really tricky
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and we were talking about this earlier
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is that unfortunately founders get
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caught up with this math around
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default dead default live because
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the math they use to pitch their company
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to investors is only a subset of the
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math they need to run their business
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and i think this point is really tricky
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like when you're going in and pitching
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for a series a or a series b so often
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especially in a good economy
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you're talking about top line revenue
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you're talking about new accounts that
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you've opened you're talking about your
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month over month growth and often times
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you're talking about your head count
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your hiring plans slash the execs you've
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brought on so on and so forth like
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the that's the math that you're putting
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front and center
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that's the math that investors
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especially in good times over focus on
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whereas i'd argue when you're running
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your company those numbers are important
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but there's also your burn rate your
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retention
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how much your existing customer accounts
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are expanding your revenue expansion
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over time
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those metrics are the ones that
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can better help you when you're trying
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to figure out how to make sure my
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company stays alive and i think this is
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where things are tricky is that in many
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ways investors are setting
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the agenda on what metrics are important
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for a company and the investors
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are a little biased
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like they they have they have a a point
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of view that might be not oriented
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around keeping the company alive
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and you know pg talked about this right
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what was pg's line on on this stuff
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yeah um he calls this in the blog post
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killer cure where he just points out
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that
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a founder and investor
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have completely opposite incentives
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where
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as an investor with a portfolio of
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companies
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if you push them all to grow fast and
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some of them
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successfully grow really fast with a
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high burn and thread the needle
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and you know become uber or whatever
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and some of them completely explode like
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fly the plane into the side of the
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mountain like fast
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and there's lots more fast out there
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it actually makes sense from a portfolio
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theory to advise people to do this
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because either way either it works great
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or it dies and goes away and you get to
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spend your time on something else but
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like either way it's explosive right
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it's explosive good explosive bad well
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and for a good fund that time is the
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limiting factor right not money yeah
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and board seats you're limited as a vc
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on how many boards you can sit on and so
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you don't want to set so so basically if
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you're a vc and you sit on a board of a
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company
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that takes forever to get big
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with like low burn
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that's kind of boring and kind of bad
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for your career and look you look bad to
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your colleagues like there's all these
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dynamics that founders are not aware of
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um that's not a good
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move to be on the several boards of
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companies doing just okay versus if
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you're a founder
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and you're choosing between do you want
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a zero
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literally zero or do you want to keep
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going and give yourself more time to
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figure out product market fit and maybe
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you can figure out an exit and make
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life-changing money
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yep
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then that to a vc doesn't matter at all
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like man that sure sounds like misline
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incentives right michael like
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massively so
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sometimes the investor in this equation
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is kind of is
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perceived by founders who haven't raised
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money yet is like
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demanding
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that the company grows or demanding the
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company burns a lot of money
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as if they were the boss and i think
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this is a very bad misconception like
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i don't i think that's extremely rare
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for an investor to be demanding you to
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like burn like crazy
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i think that the horrible truth is that
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founders don't need much of a push
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oh it's like it's like how michael i
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hear you're demanding people to raise at
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high valuations
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yes
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exactly aren't you demanding why i am
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i'm i'm i'm i'm twisting their arms to
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dilute less it's i'm so powerful
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i think this is the tricky bit is that
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like
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deep down inside every founder wants
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permission to blitz scale and that
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they're special and they're going to
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build the next big one and so if you
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talk to you know half a dozen people and
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one of them is like yeah i don't know
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maybe you should grow faster i don't
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know maybe burns on our biggest concern
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like that's actually the fly on the wall
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recording i wish you could have a reply
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on the wall it's like yeah you know
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these numbers i think you want to get
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these up but i don't know if burns my
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biggest concern and then the founder
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hears that and they're like we're going
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it's time i knew it
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what did fast do they raised 100 million
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and they burned it in 10 months they got
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into a 10 million a month burn
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that's incredible
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i'm i'm actually super impressed you
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have to really try you'd have to be
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working pretty hard on it we certainly
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need a lot of recruiters
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you gotta hire a lot of people
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yeah cause like
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what else are they spending money on
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there's no inventory like if it was a
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hardware company i'd understand but
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there's no inventory like and it's it's
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i assume they weren't getting offices it
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was during covid right so it's like
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i have no idea i just it's
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that takes effort is my point you don't
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you don't just wake up one day with a 10
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million a month burn
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and be like oh you know we're cutting
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free stacks
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this spinning is out of control in these
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stacks we need to
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friends tricky
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so
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there's another concept in
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um
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this default a live default dead uh
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article that was linked to it was
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another pg essay called the fatal pinch
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i think it's so interesting because we
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see this in office hours so frequently
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like it is so common that we will
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talk to a founder who's in the fatal
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pinch and doesn't realize it and it's
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funny because at the end of the batch
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you tell everything everybody a very
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simple concept it's basically
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stay lean until you have something and
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then spend money on growing it
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yet founders
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inevitably
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get frustrated get tired get distracted
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and somehow always come to the
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conclusion that spending more money
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allows product market fit to happen
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faster
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and what's sad is that like probably at
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least for me more than 50 percent of the
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time
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i don't get the office hour
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before the founders decide to ratchet up
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the spend
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right as always when it's too late
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they're like yes i always get the office
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hour when they're down to low runway and
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they they're like
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we're we're dead we're bleeding out you
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know plea please help and it's like if
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you would talk to me six months earlier
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we could have tied a tourniquet around
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your gaping leg wound and you'd be alive
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hell we could have saved the lag
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what's tricky is that
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if you find yourself even suspecting you
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could be in this situation
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like you need to do this math as soon as
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humanly possible right like you're
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probably too late to do this math in all
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cases and no one wants to do it because
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it's too late because it's a buzz kill
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man no one like who wants to be that guy
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everyone's gonna be mad at you your
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investors are gonna be like oh why are
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you bringing this stuff up you need to
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focus on growth like like i didn't you
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know like people will give you a hard
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time to bring this stuff up until it's
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too late and then everyone's like why
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didn't you bring this up earlier to play
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devil's advocate though
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well we have a bunch of great engineers
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at dalton we could always get accu-hired
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right
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yeah
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so
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we have the data here at yc
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and i will not tell you that
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no acquisitions ever happened but
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similarly what i was saying earlier
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where if you only read techcrunch about
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the successful fundraisers it gives you
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a warped perspective on how common
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they get are successful and that most
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series a fundraisers fail well guess
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what
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no one gets acquired effectively like
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there's an asterix next to no one but
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the the companies of the companies that
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attempt when they're low on runway
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they're they're they flew the plane into
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the side of the the mountain
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there's no acquisition coming man like
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i'm sorry like maybe you could get lucky
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maybe you built a great team everyone
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says that but again like to keep picking
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on the fast thing i think a firm
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paid them zero dollars i believe to get
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all of their engineering talent
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what would the incentive have been for a
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firm to pay any money for a company
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that's rapidly dying there's no market
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for a company that's out of money right
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anyone that's smart on the buy side
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knows that a company that is
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hemorrhaging cash will soon be bankrupt
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why would you want to buy that problem
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you're almost worth less than nothing
[1126]
because you often have legal liability
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and so no one wants to buy problems
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and and i think that that's
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so unfortunate because once again
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if you're sitting at 12 or 18 months of
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runway
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there's even flexibility on the
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acquisition front that doesn't exist
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when you're sitting at three to six
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months of runway like
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you can do all all of the moves that you
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can do to rescue your company require
[1156]
time
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so
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let's talk about that let's talk about
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the moves
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what are some of the tough decisions
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that you might have to make if you find
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yourself default dead
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and you want to change that
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let's go through the list of pain uh
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what's number one
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nothing well for most folks it's it's
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it's literally head count it's not
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office snacks i'm sorry
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that's probably not the thing that's you
[1185]
know perks are not bankrupting the
[1186]
company it's that you hire too many
[1188]
folks people are expensive
[1192]
and this is
[1193]
80 like i've just seen so many people's
[1196]
like burn
[1197]
spreadsheets you know you have two
[1198]
that's always the thing they want to be
[1200]
like well but we're very cheap or we're
[1202]
you know they want to
[1204]
tell a story but it it's
[1206]
it's people over hiring is the thing
[1208]
and i think it's sad
[1210]
because
[1211]
no one likes letting people go no one
[1213]
let's like like let's go letting good
[1215]
people go right it's it's horrible
[1217]
the best founders if they have to do
[1219]
this will make sure that they get other
[1220]
jobs we'll make sure that they that
[1222]
they're well and the best thing is to
[1224]
never over hire to begin with like like
[1226]
honestly
[1227]
yes actual hack is to not over hire yes
[1230]
once we start having that we over hire
[1232]
now what do we do conversation
[1234]
let's not have that conversation like
[1236]
that's like too far so the actual advice
[1238]
is
[1240]
don't
[1241]
make it a problem and then you don't
[1242]
have to worry about how to fix it
[1244]
the number two
[1246]
is ad spend and and man we see this all
[1249]
the time
[1250]
it's well
[1251]
we have this top line goal we need to
[1254]
hit 80k mri right michael wait we need
[1256]
to we need to hit 80k mrr we got to hit
[1258]
it and so we got to spend this much
[1260]
money on ads in fact we have to spend
[1262]
more money on ads every month
[1264]
because we're growing to hit our growth
[1266]
going yeah
[1268]
and unfortunately
[1270]
the result of that is also that like our
[1273]
payback period for every customer that
[1275]
we're acquiring
[1277]
is either super long or long and growing
[1281]
so our ad dollars are getting
[1283]
more
[1284]
ineffective as we are scaling them up
[1288]
and we have to show growth because if we
[1290]
if we stop
[1292]
increasing our ad spend basically if we
[1294]
stop steering the plane into the
[1296]
mountain and putting the gas yeah we're
[1298]
like putting throttle in
[1300]
if we don't do that we won't raise and
[1303]
so you'll talk to founders but they know
[1304]
the problem they're like yeah yeah we're
[1306]
in trouble we need to raise and we're
[1308]
like well
[1309]
maybe don't like don't crash the plane
[1312]
to the mountain and they're like yeah
[1313]
yeah but
[1314]
you don't get it if we don't
[1316]
put the throttle into the side of the
[1318]
mountain we won't be able to raise
[1320]
and it's like these are the most
[1321]
frightening conversations it's so bad
[1323]
and i think what they and what they
[1325]
don't want to do is take the l like they
[1327]
don't wanna they don't want to
[1330]
take the growth hit because they they
[1332]
the the idea that maybe someone would
[1335]
fund them or maybe they could sell their
[1337]
company in some long shot scenario
[1339]
prevents them
[1341]
from not steering the company in the map
[1343]
right and i think this isn't talked
[1345]
about enough like
[1347]
many successful companies have had to
[1349]
take l's along the way oh yeah like
[1352]
learning how to take a punch is not a
[1354]
bad thing losing face no one cares no
[1358]
one care oh you reduced your ad spend
[1360]
your growth evaporated
[1362]
but you're around to live
[1364]
to fight for another day that's fine
[1367]
and then the last one and you brought
[1368]
this up in previous conversations
[1370]
raising prices
[1372]
it's like wow well the thing that we're
[1374]
selling now money this thing we're
[1375]
selling a lot of right now we lose money
[1378]
every time we sell it maybe we could
[1380]
increase prices so that we are break
[1382]
even or we make a dollar every time you
[1384]
sell it oh no
[1386]
that means we're going to sell it to
[1387]
fewer people it's like
[1389]
yes
[1391]
so our plan is to sell a dollar for 99
[1393]
cents and it's going well
[1396]
and we're like well have you considered
[1398]
not losing money on every transaction
[1400]
like absolutely not
[1402]
well how dare you even suggest that you
[1405]
talk about this a lot like i think it
[1407]
exercises a different muscle in your
[1409]
customers brain
[1412]
when they know they're getting a deal
[1415]
right it's like like in some weird way
[1417]
they're willing to use a product that's
[1419]
like they would never use in any other
[1421]
circumstance if they know they're
[1423]
getting a dollar worth of value for 75
[1425]
cents
[1426]
well and you see this in new york
[1428]
recently with uh the 10-minute delivery
[1430]
stuff there was like eight of them
[1432]
and you could go get free they all had
[1434]
coupons
[1436]
so as a consumer you could like
[1438]
get a lot of free stuff and that was all
[1440]
vc subsidized
[1442]
every time that company is losing money
[1445]
and
[1445]
like everything it's a wealth transfer
[1448]
from investors to consumers yeah i
[1450]
actually appreciate that you know yeah
[1452]
it's and to be clear
[1454]
some of these companies may make it
[1455]
there maybe one or two
[1457]
yes but my guess is the ones that make
[1459]
it are very very very smart about this
[1462]
stuff i mean yes as per doordash who i
[1464]
guess we always talk about but you know
[1466]
they were good at numbers and they they
[1468]
understood default to live defaulted and
[1470]
they understood burn like very
[1472]
sophisticated and so even though they
[1474]
were pla they were they were flying the
[1476]
plane very close to the mountain
[1478]
yes but they were also very aware of the
[1480]
mountain they knew what they were doing
[1482]
they were test pilots
[1484]
versus hey i don't know like i i read in
[1488]
techcrunch that if the more i burn the
[1490]
more i raise so i guess look do you see
[1492]
the difference folks like doing high
[1494]
risk things when you're sophisticated
[1497]
and you know the risks
[1499]
is going to work out better for you
[1501]
than wishful thinking high risk takers
[1503]
that never works
[1505]
not racial yes and so
[1507]
what's interesting here is this idea
[1510]
that you know i i
[1512]
was thinking about this
[1514]
taking one of these hits right taking a
[1516]
big hit to your growth rate in order to
[1518]
get to default to live
[1520]
it sounds a lot like bankruptcy
[1522]
it kind of sounds a little bit like
[1523]
personal bankruptcy where it's like you
[1525]
take a hit on your credit score to kind
[1527]
of clear your debts
[1530]
and the benefit though is you clear your
[1532]
debt like like you you are now living
[1534]
sustainably
[1536]
as opposed to
[1538]
um unsustainably
[1539]
now here's why it's better than
[1541]
bankruptcy i think in a traditional
[1542]
bankruptcy it takes seven years for your
[1544]
credit to kind of get repaired
[1546]
um the startup world works a lot faster
[1549]
than that
[1550]
so at any given time in your startup
[1551]
you're being judged on the last six to
[1553]
18 months
[1557]
and so if you take this hit you cut your
[1560]
revenue in half but you get to default
[1562]
to live
[1563]
and the result of that is you get to
[1565]
spend the next six to 18 months
[1568]
building a better product getting closer
[1570]
to product market food or getting
[1571]
product market fit you're going to be
[1573]
judged on just that last six to 18
[1575]
months you're not going to be judged on
[1577]
when you had
[1578]
a horrible business that was burning
[1580]
more money than it was making
[1581]
structurally
[1583]
and you're gonna have a huge advantage
[1585]
and
[1586]
what's tricky was like this was kind of
[1588]
our story at justin tv and twitch like
[1590]
almost exactly like yeah you had the
[1593]
choice you looked into the precipice you
[1595]
guys could have jumped in you could have
[1597]
just let it go like right you could have
[1599]
let it go so i mean we had raised about
[1601]
seven or eight million dollars
[1603]
we had grown to about
[1606]
i don't know let's say like 30 million
[1608]
monthly
[1609]
um
[1610]
people were watching content
[1613]
we were making about 750 000 a month in
[1615]
revenue but we were
[1617]
we had a million dollars a month in
[1618]
expenses we were burning 250 000 a month
[1622]
and i swear to god like
[1624]
to come to jesus moment was with half a
[1626]
million bucks in the bank
[1628]
and i always loved this because like you
[1629]
know as yc founders we don't talk about
[1631]
these mistakes and want to give you the
[1633]
impression that we didn't make them like
[1635]
we made this exactly we were right there
[1643]
they taught me this mckinsey and harvard
[1645]
business like no like you know that's
[1646]
what's nice about being former founders
[1648]
is yeah man we got all this wrong
[1650]
yes like no one's actually
[1652]
playing right towards the mountain like
[1654]
straight on like
[1656]
like deep deep mountain not top mountain
[1659]
and we i remember we had this meeting
[1662]
um
[1664]
with a lot of our employees
[1666]
and we were like look we got three
[1668]
options we can die in two months
[1671]
we can try to get to break even
[1673]
um
[1675]
or we can try to get this thing
[1676]
profitable
[1678]
and i remember like i had to call this
[1679]
meeting and it was one of the most
[1680]
embarrassing things i've ever had to do
[1683]
up front because i'm just like talking
[1685]
about admitting defeat i'm like
[1687]
here's the thing we're gonna die i
[1689]
messed up you blew it yeah everybody
[1692]
i'm bad at my job
[1693]
exactly like raising my hand
[1696]
i suck at this hey guys i let us astray
[1699]
yes
[1701]
and i remember thinking
[1704]
and i think this is the silver lining i
[1705]
remember thinking i have no idea whether
[1708]
everyone's just gonna quit
[1711]
or whether they're gonna rally
[1714]
and everyone rallied and it shocked me
[1717]
but then like i thought about it more
[1718]
and i was like what kind of person joins
[1720]
a startup right
[1722]
it's not the kind of person who's like
[1725]
well i don't see any risk here like this
[1727]
seems like smooth sailing all the way
[1729]
right these are very uh mature
[1732]
um
[1732]
veterans
[1735]
absolutely not right and so you know we
[1737]
selected for the right people on the
[1738]
pirate ship right like the pirate ship
[1740]
they knew they're on a pirate ship um
[1743]
and i remember everyone was like we are
[1746]
going to get this thing profitable we
[1747]
had to do some bad stuff we definitely
[1749]
had to let go of some people
[1751]
our version of raising prices we had to
[1752]
put ads on everything like we put
[1756]
pre-roll video ads on anything that
[1759]
moved i remember it was
[1761]
we had this we literally had this easel
[1764]
with a big piece of paper on it and i
[1766]
was like on this side we're going to
[1767]
write down everything we can do to cut
[1769]
costs on this side we're going to write
[1770]
down everything we can do to make more
[1771]
money and we're not going to leave this
[1773]
shitty little conference room until
[1776]
there's a hundred thousand dollars of
[1778]
revenue somehow a profit here
[1781]
and what's crazy is that we had that
[1783]
meeting in august by october we were
[1785]
break even
[1787]
by the end of december we generated 1.2
[1789]
million dollars in profit
[1791]
and we saved the company and i remember
[1795]
the feeling of not needing vcs anymore
[1798]
and that's because that's not the last
[1798]
time we pitched vcs but just it was the
[1800]
last time that i feel well it wasn't the
[1803]
last time
[1804]
there was a nice little window
[1806]
where for a second we didn't need vcs to
[1808]
like us in order for our business to be
[1811]
alive and like and what's funny man is
[1813]
that was the moment
[1815]
you were actually tested and you guys
[1818]
like you and your co-founders like that
[1819]
was it
[1820]
in retro in hindsight
[1822]
you guys had a choice and you did you
[1825]
took the l
[1827]
you took the hard
[1829]
hard
[1830]
but now here you are and that was like
[1832]
really smart and we just see so many
[1834]
folks
[1835]
that don't do it
[1837]
they have that it's like sitting there
[1838]
in front of them the hard move and they
[1840]
don't do it for whatever reason
[1842]
well and what's crazy is the idea for
[1844]
twitch happened after that and like i it
[1847]
makes sense in hindsight why like we
[1849]
were
[1850]
if you're not just freaked out about
[1852]
dying all the time
[1853]
maybe you can apply your brain to like
[1856]
how to make this thing work i think
[1858]
sometimes it's okay to do a startup
[1860]
bankruptcy like sometimes it's okay to
[1862]
take that l
[1863]
get to sustainable and figure out
[1866]
and especially if you've raised
[1868]
like yeah you see people that raise
[1870]
and again like let's keep picking on
[1872]
fast like
[1873]
they could have just not spent the money
[1875]
no one forced them to
[1876]
seven months in they could have stopped
[1878]
spending the money and they'd still have
[1880]
a ton of money yeah
[1882]
and so there's some amount of like
[1886]
playing along like like there's some
[1888]
amount of like founder
[1890]
choosing making a proactive choice to
[1892]
not course correct because they believe
[1894]
the fundraising to come in and again
[1895]
this is the point of pg's blog post
[1897]
which is don't do that right and
[1899]
sometimes you know this is what happened
[1900]
to my startup and this would have this
[1901]
what happens to the delivery ones is you
[1903]
have contractual
[1906]
like lease obligations kill people i had
[1907]
deals with the music industry and
[1909]
there's nothing
[1910]
literally nothing i could do about that
[1912]
and that sucked you know and so to the
[1914]
extent you have a startup that doesn't
[1916]
have contractual requirements to burn
[1918]
lots of money like we work or something
[1920]
you know i'd recommend not starting one
[1922]
of those but if you're in one you should
[1923]
be really careful of this stuff
[1927]
yes um well by the way venture dad is
[1930]
similar
[1931]
right like i am
[1933]
like right when you're hurting you got
[1935]
to start paying more money out
[1938]
and they can very very similar yeah
[1941]
so
[1941]
what's the big takeaway here i think the
[1943]
takeaway is one
[1945]
um
[1947]
before you thrive you have to survive
[1950]
and
[1952]
sometimes you're within you know
[1954]
sometimes you're gonna hit product
[1955]
market fit in the first 18 months of
[1957]
your company sometimes you're not
[1959]
and if you're running your company
[1961]
default to live you're giving yourself
[1963]
enough time to figure out product market
[1964]
fit
[1965]
and man sometimes you're getting a
[1966]
product market if it's complicated and
[1968]
you're not losing sleep
[1970]
about the macro environment think about
[1972]
how many founders right now are sweating
[1974]
bullets watching the stock market
[1976]
and watching interest rates and i don't
[1978]
blame them right like i'm not saying
[1979]
that's wrong but the default life
[1981]
founders are kind of like eh
[1983]
whereas the ones who know they need to
[1985]
raise soon
[1986]
there's they're work there's they they
[1988]
ask a lot of questions and i get where
[1990]
it's coming from but they seem nervous
[1992]
i think the second big takeaway here is
[1994]
that
[1995]
investors are not going to twist your
[1997]
arm to burn
[2000]
but you should also be careful to not
[2002]
react to the slightest suggestion that
[2005]
burning more might be okay
[2007]
like unfortunately or fortunately you're
[2010]
in control here
[2011]
and like if someone whispers to you oh
[2013]
maybe you should slam that
[2016]
slam that airplane into the mountain
[2018]
that's not like that doesn't mean that
[2019]
you're not the pilot holding onto the
[2021]
stick and you can control where the
[2022]
airplane's going like they're gonna be
[2024]
fine
[2025]
and you're gonna be fine yeah this is
[2026]
the thing this is what's so weird about
[2028]
this business is like
[2030]
who has to live with the rest of their
[2032]
lives
[2033]
that that was their startup
[2035]
or that they could have done something
[2036]
different they weren't able to versus
[2038]
the investors like yeah whatever cool
[2040]
and they go you know they don't think
[2041]
about it at all ever again and then
[2044]
maybe the last take away here is that if
[2045]
you if you are in an operationally
[2048]
intensive business you know a lot
[2050]
doordash you better be
[2053]
10x better than the people around you at
[2056]
knowing your numbers
[2058]
at steering that plane well yeah the ceo
[2061]
the founders have to be
[2063]
pushing for this not the board not the
[2065]
vps not your cfo
[2068]
founders have to care about this and i'd
[2070]
argue this is one of the dirty little
[2071]
secrets behind amazon they've always
[2074]
known that they were in a low margin
[2076]
business
[2077]
and they've always run their company
[2079]
that way and i'm sure they were so
[2081]
tempted to look at a google or a
[2083]
facebook and say why don't we do those
[2085]
things
[2086]
and like they had to be strong enough to
[2088]
say because we're not in ridiculous
[2090]
high margin businesses like they are
[2092]
like we're going to play our game
[2094]
anything i missed dalton any other final
[2095]
takeaways
[2098]
i think you got it i mean i think
[2100]
anyone who's anyone out there who's
[2102]
stressed about raising the next round
[2104]
this is just a helpful reminder you
[2105]
should read the blog post you do the
[2106]
math but
[2107]
you don't have to be
[2110]
as stressed out if your default alive it
[2112]
actually completely changes it's like a
[2113]
weight is lifted off your shoulders it's
[2116]
crazy because you don't yeah
[2119]
you're not hoping that some stranger
[2121]
somewhere is going to bail you out it's
[2123]
a bad feeling but when you're in control
[2125]
you feel you feel much better so i'd
[2127]
recommend it
[2129]
all right great chatting dalton
[2131]
thanks
[2136]
[Music]
[2143]
[Music]
[2145]
you
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