Lessons from 1,000+ YC startups: Resilience, tar pit ideas, pivoting, more | Dalton Caldwell (YC)

[00:00] Seeing everything people apply to YC with, people all kind of have the same idea. One of these themes is simple, pragmatic advice. Sell shit, make money. One of my mantras is just don't die. Being coached and being reminded of the fundamentals and basics puts you in the right mindset. You have this concept of tar pit ideas. Seems like an unsolved problem. You'll get all this positive feedback from the world. And people have been starting that startup since the 90s. Recently, you put out a request for startups, 20 categories of ideas that YC wants to fund.

[00:30] information diet about what kind of ideas people might be contemplating they are currently. A lot of people say you're the king of the pivot. A good pivot is like going home. It's warmer, it's closer to something that you're an expert at. Are there other patterns you find across startups that do well? There's a lot of founders that come this close to it all being over and through sheer will kind of just keep it going. [00:50] Today, my guest is Dalton Caldwell. Dalton is Managing Director and Group Partner at Y Combinator, where he's worked for over 10 years across 21 different YC batches, including working closely in the earliest days of Instacart, Retool, Brex, Deal, DoorDash, Webflow, Replit, Amplitude, Whatnot, Razorpay, and 20 other unicorns.

Prior to Y Combinator, Dalton was the co-founder and CEO [01:20] Myspace, and co-founder and CEO of net, which was an early ads-free competitor to Twitter. Dalton has seen and worked with more startups than nearly any human alive. And in our conversation, we get incredibly tactical and deep on the startup journey. Why it all comes down to simply not losing hope and not letting your startup die. What to do when your startup is struggling and how to know when it is time to give up. What makes a great pivot and signs it's time to pivot.

[01:50] Every single startup goes through a point where they feel like all hope is lost. Why investors say no to startups. What most often leads to startups failing. Why you need to avoid over-delegating early on. Plus, startup ideas that you should avoid. And also 20 ideas Dalton is looking to fund. Also, so many great stories and lessons. This episode is action-packed. With that, I bring you Dalton Caldwell after a short word from our sponsors. [02:20] favorite podcasting app or YouTube. It's the best way to avoid missing feature episodes, and it helps the podcast tremendously.

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com slash lenny. That's V-A-N-T-A dot com slash lenny. [04:38] Dalton, thank you so much for being here and welcome to the podcast. Yeah, thanks so much, Lenny. I'm really excited to talk to you today. It's going to be great. [04:48] So to prep for this podcast interview, I asked a bunch of founders that worked with you during YC, [04:54] What advice you shared with them along the journey that was most transformative to the way they think about product, the way they think about building their startup, the way they operate? [05:02] And there's a bunch of themes that emerge, and I'm going to touch on a number of these themes.

[05:07] One of these themes is just how often you get to like very... [05:10] Simple, pragmatic advice. And how much of your message is just like, [05:14] Sell shit. [05:15] make money, don't run out of money. Why do you think founders need to hear this advice, which is seemingly simple and obvious? [05:22] Have you ever seen... [05:24] in NBA basketball or college basketball, where they have the coach mic'd up, and it shows what they're actually saying in the huddle, [05:32] You ever listen to what they actually are saying? They're like, [05:36] "Okay, we need to really focus and get the ball "and win this game."

Like if you actually listen, [05:42] to what the greatest, smartest, [05:45] most successful athletes are talking about. If you listen to what Tiger Woods is saying to his caddy, [05:51] It all sounds like pretty mundane stuff. [05:54] They're not it's not like what Tigers Tiger Woods is talking about with his caddy is some. [05:58] you know, [05:59] impossible to decipher jargon [06:01] It's like, yeah, you really need to keep your head down on this one. [06:06] It's things like that. And I think the reason... [06:09] this is true is that [06:13] Even if you're the best in the world, [06:15] Being coached and being reminded of the fundamentals and basics is what puts you in the right mindset.

And that you already know everything, right? You're at the top of your game if you make it to the elite levels of being a startup founder or basically doing anything that's really hard. [06:31] psychologically. [06:32] And so, yeah, [06:34] One of my mantras is just don't die. Just keep your startup going. [06:42] "Just keep going." And I say that over and over again. And honestly, that is often what people tell me is the most impactful thing I say. It's not that I said some ninja 5D chess move that they never would have thought of before.

[06:54] It's just the constant affirmation [06:57] that continuing to keep going and doing high quality reps [07:02] is the game. [07:04] I know that you'd give a talk that's exactly called that, How Not to Die. [07:08] Just to pull on this thread a little bit more, what is the general advice you share there for people that also don't want to die? [07:14] The way to summarize that is if you look at all the startup stories that we have at YC and all the companies we funded over all the years, [07:23] The underlying theme [07:25] is that rationally the founder should have given up at some point.

[07:31] And so, again, let's talk about Airbnb, obviously something you know a lot about, you know, when they probably should have shut down like three or four times before they got into YC. [07:40] It objectively wasn't working. They were basically ruining their lives. [07:46] They were disappointing their parents. Everything was wrong. [07:50] And it was it was a purely irrational act for the founders of Airbnb to keep working on their goofy startup. [07:57] And so that's just one story. If you look across the. [08:02] across the portfolio of YC and non-YC companies.

[08:05] There has to be this irrational [08:09] you know intention to keep going even when the world tells you it's not working and you feel completely defeated [08:16] And you likely have to go through this many times and have these near death experiences. [08:21] And then you get lucky and then you look like an overnight success. [08:24] Right? And so that is the theme, that is a summary, and I provide lots of data and lots of stories there, but, [08:33] This is one of those things that the longer I had this job, the more I really, really believe this is true.

[08:39] What's your advice kind of on the flip side of that, where there's a lot of startups, especially these days, that are just super struggling, have been at it for a while. [08:46] their mental health challenges, [08:49] They're really... [08:50] They'd be very sad if they had to shut this thing down, but often it's probably the right move. [08:56] What's your advice to folks of deciding, okay, actually does make sense to... [08:59] give up in this case. [09:00] I think this is a nuanced question and it's hard for me to say something on a podcast that will actually be useful to people.

But here's here's a couple of thoughts. One. [09:10] Are you still having fun? Do you still enjoy doing what you're doing? Do you enjoy spending time with your co-founders? [09:19] You know, like, is this actually a fun thing you're doing? [09:22] And if the answer is yes, I would tend to lean on the keep going. [09:27] And then if it's more of, wow, this is actually profoundly affecting me in a negative way in my relationships with people in my life and... [09:35] "I don't really want to work with my co-founder anymore," and things like that, then I would lean on the "probably don't do it anymore."

[09:42] Something that a lot of the folks that turn it around have in common is they actually do love their customers and they love their product. [09:51] And again, in the Airbnb story, again, you know it really well, but they really liked Airbnb. [09:57] And they liked working with each other. And they liked the first hosts that they met. And they knew all their names. [10:03] You know what I'm saying? Like they were actually, they loved their startup. [10:07] even though it was going bad and so that's kind of to me a signal to keep going is that you really really love what you're doing and the people you're you're doing it with and you love your customers and you love the problem [10:19] Versus when you're just like, yeah, yeah.

[10:21] "I could care less about any of those things. "I'm just having a bad time." Harder to be encouraging in that situation, you know? [10:28] And this is a fixable situation. You know, you can make it more like the thing you love, can't you? [10:33] Yeah, this is actually very practical and great advice. [10:36] Like this is something people can sense. Okay, am I actually enjoying this? Do I want to keep doing this? Versus like, man, such a drag that I have to keep running this startup. [10:44] Is there anything you could say to folks that are just like, I can't stop because it'll feel like I failed?

[10:49] If it's really going poorly or if you're having a really bad time, [10:53] It's no big deal. No one will remember that you shut down your company probably in 10 years or 20 years like time. As long as you have integrity, as long as you're an honest person, as long as you handle yourself well through good times and bad, people will remember you fondly. [11:09] And it's better. We have such a short life. There's only so many years we get to have our careers. [11:17] Doing something that makes you miserable, and the only reason you're doing it is to avoid losing face, [11:22] and you know in your heart it's not gonna work, [11:24] I don't know.

That seems like a pretty big opportunity cost on literally your life. [11:29] Right? Yeah, that's exactly what I tell founders all the time. Life is short. There's no need to force yourself to work on this. And I really like your point of just like, is it still enjoyable? Do you like working with your founders? [11:41] Kind of following the thread of the struggle train a little bit more, one of the founders that worked with you during YC, his name is Danny Albertson, shared a story. [11:51] how during one of the batches of YC, one of the founders raised [11:55] his hand and asked you, [11:57] "What is wrong with our batch?

Everyone is struggling. Nobody is doing well. What have we done wrong?" And you shared a story about Brex that made everyone feel a little better. Does that ring a bell? And if so, can you share that? That definitely happened. And I think the story is the story of the Winter 17 batch. [12:13] And in the Winter 17 patch, I funded something like, I don't know, [12:17] 35 40 companies in my group so we subset them into groups so it wasn't like a lot of companies and I knew I knew all of them really well and [12:25] Founders can't help but compare themselves with other founders all the time about who's doing well and who's not doing well.

[12:32] And there was this one company in my group dispatch. It was called Vyond. That was their name at the time. And it was like a VR headset thing from these Stanford dropouts. [12:42] And, [12:43] They basically showed up to group office hours and were just [12:46] ashamed and they're like, "Our idea is horrible. [12:49] you know, we might want to shut our company down. This is like really embarrassing. [12:53] Like they just, I had to like beg them to not... [12:56] give up basically [12:58] And [12:59] If you would have asked people in the batch, [13:03] "what the worst company was."

I think they would have said this one. Not 'cause they were bad people, but it was just like, the founders themselves seemed despondent about how it was going. And then funnily enough, this is in the story too, there was another startup also in my group [13:18] called Cashew, which was this P2P for the UK, P2P Venmo, excuse me, [13:25] in the UK and it was going really poorly also and not growing. And so if you just took the snapshot in time, the middle of the batch of like, who is definitely not doing well?

[13:34] it would clearly have been this Vyond company and this cashew company. [13:38] And so to cut to the chase, beyond [13:42] changed their idea and got really excited about it and renamed to brex and this was brex which is like a deca corn [13:48] And Cashew changed their idea and renamed to something called Retool. [13:54] And so out of my 35 companies, the ones that objectively... [13:58] seemed the worst in terms of like it's everything is going bad or by far [14:04] in retrospect, the most successful companies in that group.

[14:08] Wow. Wait, so you're saying Brex was a VR... [14:12] Headset company? They thought it was really high tech. They wanted to do a really high tech startup, and so they were like, we're gonna build a new VR headset. And they were good programmers, but they just didn't know anything about optics or the things you might want to be an expert in to build a headset. [14:26] Wow. [14:27] That's an amazing story. It's a great segue to another theme that emerged. [14:31] from talking to founders about advice that you've shared.

[14:34] A lot of people say, tell me, you're kind of the king of the pivot. [14:37] of helping people figure out how to pivot. [14:40] Thank you. [14:40] I'm curious just what you've seen makes a good pivot. [14:45] Usually, [14:47] A successful pivot... [14:49] gets warmer instead of colder from what you're an expert at [14:54] and somehow build on what you learned on the prior idea. [14:58] Thank you. [14:59] Right. And so in the case of Brexit, it was let's then worked on a. [15:04] a fintech company in Brazil when they were younger.

And so I'm like, you need to work more on the thing you know all about and not the thing you know nothing about. [15:12] And that was what worked for them. In the case of Retool, it was the same thing. They had built similar internal tools. [15:18] both at their internships as well as for Cashew. They had all these dashboards they built to like operate their, their, [15:25] Venmo competitor? [15:28] And so they knew a lot about what to build. [15:31] In the case of post-hog pivoting into their idea, they knew a lot about analytics and had strong opinions about it.

And so it was much closer than what the original idea is. [15:41] In the case of Zip, [15:42] Rijul knows a lot about a lot of things and, um, [15:47] He knew a lot about the crazy picture process at Airbnb because he worked there. And so it was kind of like a good pivot is like going home. It's warmer. It's closer to something that you and it never occurred to you that this thing you know all about would be a good idea. Or maybe you caught. [16:07] consciously you're like, I don't want to work on this because I'm burnt out on it.

[16:11] Like sometimes you have to someone someone has to get over this barrier they have on why they don't want to work on a certain idea. [16:18] These are amazing. I like how modest you are. I'm like, oh, here's a big idea. And then you just give very tactical items to look for. [16:26] Essentially, [16:27] A good pivot in your experience is you're getting closer, warmer towards something you have actual experience in. [16:33] and two, it builds on something you've done. Essentially, the core idea of a pivot, right? Where you're like...

In the example of Segment, which is obviously a really big, successful company, they started with... [16:44] something to tell your professor you were confused in class. It was like software that they saw at universities. And then they ended up pivoting to something kind of like a mixed panel competitor after like two years. And it's because they didn't, they learned about how analytics works running their first idea. [17:01] Okay? [17:02] And then no one wanted to adopt their Mixpanel competitor. And so they were like, we should make this JavaScript thing that you embed on your website that can send events to multiple endpoints at the same time.

So that way people would be willing to try our Mixpanel competitor side by side with Mixpanel to show that it's better. [17:18] And then they were like, oh yeah, no one actually wants that. They just want this JavaScript to send events to different locations. [17:24] And so there's no way those founders could have started with the final idea. [17:29] You get what I mean? There was no universe where they would have made up the idea for segment because they didn't know anything. [17:34] about how analytics worked, but because they were grinding for multiple years and became experts on these things is a side effect of their earlier ideas.

They ended up with really good unique insights. [17:45] I think that's a really important point there is you don't need to necessarily have that experience before you start the company. It could come from trying to build the company. Exactly. [17:52] Thank you. [17:52] A big question people are always wondering is like, should I pivot? Like, is this the time to pivot? Is this should I keep trying this idea? What's your advice there? Just like, okay, now you should really be thinking about something else. Again, this is one of those where I like to give very bespoke, nuanced advice on a case by case basis to the folks in YC.

But again, just to give you a preview of how I would think about it. [18:11] Um [18:12] I would look at [18:14] how many more ideas the founder has on how to make it grow. Like if it's not going well, [18:21] and you're out of ideas that is usually a good time to pivot [18:25] But when you have like half a dozen or a dozen really good growth ideas that you haven't tried yet, try them. [18:32] Like, hey, give it a shot. Again, in the Hair Me and V story, right, they tried all sorts of stuff, including cereal and...

[18:41] conventions like they had a bunch of zany ideas on growth and they didn't run out of them. And so I think when you I think when they're still gas in the tank, [18:49] on an idea, that might be a reason to stay at the course. And when literally the founder's like, yeah, I don't know, [18:56] Maybe we should pay influencers or something. When that's the kind of ideas they're coming up with, that might be a better sign to pivot. That is incredibly helpful. [19:04] Coming back to Zip real quick, they went through, I think, six different pivots before they landed on this idea that is now a billion-dollar business.

[19:11] Is there anything from that specific journey that you found really interesting? Because they went in so many different directions, like accounting. [19:17] marketplaces and yeah i think of the example of the zip founders they were both such great experts and you know i knew ritual really well he actually worked with me at yc as a visiting partner and so i was i was really close to ritual and he had done this marketplace called flight car when he was younger which was you know raised a series b it didn't work out but it was [19:38] A really cool company and [19:40] Okay.

[19:41] I had a lot of confidence. [19:43] And [19:44] his competence on running a business and executing fast and just having great instincts. He really knows the fundamentals. [19:54] And the problem was they weren't. [19:56] is clear on what market to go into is still with me and so i actually suggested to do something in their case again this is very bespoke [20:03] Um, [20:03] But my suggestion was to start by looking. [20:07] at what companies are publicly traded, [20:11] and or owned by private equity that are large and that also are hated by [20:17] by their customers and to try to intentionally find where there's a knowable big market within a comment [20:26] combined with the software is horrible.

And they kind of did that. Like they basically found out about all this procurement software and what the state of the art was. [20:35] And that was that was the prompt. Again, maybe he told you this. That was that was basically the process. [20:41] He did tell me that I love that example and piece of advice so much. I don't know why more people don't do this. Basically, find a large incumbent with very low NPS and try to disrupt them. [20:52] So straightforward. [20:54] Yeah, I mean, I can't promise that works for everyone, but again, in the very bespoke situation with Rajul, it worked really well because he actually knew exactly once he locked in on that prompt.

Oh, man, he ran a master class. [21:09] They did an A-plus job. It was really good. [21:12] Also, Lou, his co-founder, credit to him, too. Of course. Sorry. Yeah, we got to give Lou the shout out. Lou did an amazing job. I just didn't know Lou as well before he did YC. But you're right. We got to give Lou the credit. I was watching your chat with Michael Seibel talking about pivots and you... [21:25] Either you or he used this phrase. [21:27] You want to move towards the mountains and the desert to find the gold.

[21:32] of a new startup idea versus the middle of the city. You're unlikely to find gold in the middle of San Fransisco. [21:38] Is there anything along those lines that you... [21:39] You can share. [21:41] Yeah, I think maybe this pertains into what we see from applications and interviews, which is, [21:48] from where I sit, seeing everything people apply to YC with and what they interview with and whatnot, [21:56] People don't kind of have the same idea. Basically, [22:01] Imagine this. Imagine your information consumption where you're listening to the same podcast.

Wink, wink. You're reading the same people on Twitter. You're reading the same blog post. Basically, you have the same information diet of all these other founders. [22:15] and you're friends with all the same people. [22:16] Mm-hmm. [22:17] Does it seem surprising then that you would all end up with similar startup ideas or similar philosophies on what makes a good startup idea? [22:24] Of course you are. [22:26] So this is the metaphor on cities is that if you just are following the same principles, [22:31] and have the same information flow into your brain [22:34] you're going to come up with the same ideas as everybody else.

[22:37] And so the prompt here is to try to go more off the beaten path, either from your personal experience, like in the case of Brax and Retool or whatnot. You know, there was no one else trying to build marketplaces for Funko Pops. You know, go deeper in your own personal interest or experience to find something that just, [22:56] Your exact peer wouldn't come up with in exactly the same way. And again the zip example, I don't think other people were trying to build a [23:04] wonky procurement software. That was not an idea that we saw much of.

[23:08] And so again, the prompt to people is, [23:12] try to mix up what your information diet is or what areas of expertise you have [23:17] and mind that well, versus just having all the same thoughts as everybody else. And so again, let me give you one more example. A few years ago, [23:26] Startups around trucking were super new and fresh, because no one was doing them and they worked really well. And then it became completely conventional wisdom to do trucking related startups. I'm not trying to diss anyone, but... [23:37] You'll see things that become fashionable really quickly because someone found success in this unfashionable space and then it becomes fashionable.

[23:45] This is a good segue to something I definitely want to spend time on, which is you have this concept of tar pit ideas. [23:50] which are essentially ideas people... [23:52] all kind of gravitate towards and get stuck in and either pivot into and then can pivot out of or try to pivot out of. [23:58] And essentially, it's just like consistently bad startup ideas that people continue to try to start. [24:04] Can you just talk about this and then what are some examples of just like bad startup ideas that people should stop trying to start?

For people that... [24:10] are familiar with this terminology for most sometimes they [24:13] get defensive and don't get what we were saying so let me by definition it is only a tar pit [24:19] If it seems like it's not like like if it's just a regular idea that is hard, that is not a tar pit. [24:27] The weird aspect of what we call a target idea is an idea that a lot of people come up with, and then it seems like an unsolved problem, and you get lots of positive feedback for.

[24:38] Right. And [24:40] You have a really good set of arguments that it's a really good startup idea. [24:44] And that's different than a bad startup idea. You get what I'm trying to say? A bad startup idea is like, I don't know. [24:49] something that is obviously bad or something where you just can't [24:52] get any positive feedback on. But the most common target would be something like, [24:59] Building like an app to coordinate with your friends to decide where to go out at night or where to meet up with people, which is which is a really it's coming from a good place.

Like it's a good idea. If you ask your friends, hey, would you like an app? [25:13] For us to coordinate, to hang out more so we can be friends? They're like, yeah, I would love that. [25:18] Like you'll get you'll get all this positive feedback from the world. And people have been starting that startup since like the 90s. [25:24] And so you can validate it. Like part of being a true target is that you can get good initial validation. [25:33] Do you get what I mean? And so anyway, and honestly, I worked on Tarpon Ideas myself as a founder, which is a music discovery.

This is something I did in my first startup. [25:42] Music startups are hard and trying to be like, oh, we're going to fix music discovery. This was classic things where you can get lots of positive feedback and even get users to work on those things. [25:53] but there are aspects of it that make it a very hard idea. [25:56] Does that make sense? Absolutely. I'm also guilty of this. I had this startup called LocalMind. [26:02] that allowed you to talk to people, checked in in various locations around the city, [26:07] on Foursquare and Gawala back in the day.

And I'll see you guys how it's going. [26:10] And everyone, when they used it, they're like, holy shit, this is the most incredible thing I've ever seen. I could see what's happening at this bar. [26:16] that I'm about to go to. [26:17] And then they never use it again. [26:19] Do you remember when Foursquare clones was all anyone worked on for two years? Yeah, they told us Foursquare is going to own this. There's no way this idea you're building is going to be its own thing. [26:28] And now, yeah, Foursquare is a B2B business.

[26:30] Yeah, and all the Foursquare clones, if they didn't pivot out of doing what they're doing, wouldn't it work. So anyway, that's how Tartipet is just something that's super appealing and a lot of people do it. And you can kind of get validation and that's why it is a Tartipet, is it draws you in and you get stuck. Because it seems like it's like a good idea and you get all this positive feedback. [26:49] Kind of along these lines, I was talking to a founder recently, and [26:52] She's asking me, what [26:54] causes an investor to say no to you when you're trying to raise money from them.

[26:59] And I know every investor has a very different perspective on what turns them off to a startup. [27:03] But is there anything that you find is just like, here, if you do these things, investors will say no. [27:09] Maybe my best advice here [27:11] is for founders to put themselves in the shoes of investors [27:15] and just imagine what their life is like and how if you were in their shoes, you would make decisions. [27:21] And so given this framework, [27:23] A lot of investors just don't make that many investments.

And as per what we talked about earlier, life is short. [27:30] And so there's lots of things that an investor that in their hearts thinks is like pretty good. And like, oh, like, I like this person and I like their pitch. [27:38] But I only am going to do a few investments. And so even though I really like [27:43] a lot about this. [27:45] I'm going to say no. [27:47] And I often think that founders think that there's some secret truth that's being held from them on why someone says no.

[27:54] Or like they want more feedback, I need feedback. That's like, well, the feedback is we didn't want to invest. And it really is just that. [28:04] And so I think if you put yourself in the shoes of an investor of like, hey, I only could do a few of these a year. I'm very limited budget. [28:11] They're really just trying to pick the things that they're either personally most excited about or things that they think, [28:16] can be truly phenomenally big in some way or [28:20] I know you do investments too.

So it's... [28:23] It's. [28:24] Thank you. [28:25] Thank you. [28:26] It's that you only get so many shots as an investor. And so anything that doesn't seem like this is the one, this is the one I want to do is a no. [28:35] And that that's actually why they're saying no versus this, you did, you know, oh, you, you had a bad Zoom set up or something. You know, oh, we didn't, we didn't like what color your shirt was. We said no. I don't think that's. [28:48] I don't think that's how this actually works.

[28:50] I think that's such a good piece of advice that it's not necessarily they don't believe in what you're doing. It's they have better options and they're waiting for something that hits a higher bar just because they have a lot of options. [29:00] yeah because again and if you if you ask someone well put yourself in investors shoes wouldn't you be making decisions the same way [29:06] Usually founders are like, yeah. [29:09] If you do that exercise, a lot of this starts to make way more sense. [29:14] specifically when you're evaluating startups.

I wasn't going to go into this, but I think it might be interesting is market size. [29:20] How do you think about the importance of large TAM as an investor YC? [29:24] - I think it really depends on what stage you're investing at, and it's absolutely critical the later stage you get. [29:33] If you're going to invest in a very high valuation, it is really important. [29:38] Um, [29:39] The earlier you go, the less it matters. And some of the most phenomenally good startups are [29:47] If you were really penantic about it, the TAM would be tiny.

[29:52] Like the TAM of Uber... [29:54] would be like nothing, right? Like how the TAM of Airbnb would have been nothing, the TAM of... [30:01] I funded Razorpay, which is I think the largest payment processor in India. [30:05] And the TAM of that was tiny because no one was using credit cards in 2015 in India. [30:10] So you had to believe that the size of the credit card industry in India would like 100x. Well, guess what happened? [30:15] Thank you. [30:16] You know what I'm saying? And so... [30:19] I'm not saying that the...

[30:21] Having a large market someday doesn't matter, of course it does eventually, but trying to be super pedantic about market size when it's like a pre-seed company or someone applying to YC, [30:31] is not [30:32] It's just not something I put a lot of thought in. Again, what not? Ooh, what's the TAM of the collectible Funko Pop [30:39] industry [30:40] I don't know. I don't think it's that big, man. I don't know if you did that house when you invested, but I, you know, I think it's pretty small, but I wasn't worried about it.

That was like the last thing I was worried about. [30:49] It makes so much sense that at YC you don't think about it that much because of, as you said, many startups pivot anyway. So if you like the team. Yeah, and I'm not saying it's not important. And the things I'm worried about is like, hey, how do you get users? Hey, how do you grow? [31:03] Things like that, like are you making something people want? Those are the things I'm really worried about. [31:08] as opposed to, ooh, I ran an Excel model, and I'm worried this might not be a big enough TAM.

That's out of the top of my list. [31:14] I think it's important to acknowledge that a lot of investors are very, like YC I think is unique. [31:19] in a lot of ways where you invest very early and you help people through this journey. [31:23] A lot of investors are very focused on TAM, so you may find [31:26] you're getting turned down because they don't think there's a big enough market for you to build a big business, right? [31:31] Yeah, or that you're asking them to believe a crazy leap of faith.

[31:36] that again they could say well it's theoretically possible you'll be able to sell more than Funko Pops [31:41] And I understand that that is your pitch. [31:44] but I have other opportunities that are less risky. You know what I'm saying? It's not because of market, a lot of founders make the argument that the TAM is big, and you can say, wow, that's a really interesting argument, and I have no, I'm not gonna argue with you about it, but, [31:59] No, I'm not going to. [32:01] And so again, it's hard to get someone to engage in a debate about TAM, even if you have a [32:08] you know, even if you have some proof points, [32:10] Ultimately, a lot of investors just don't like that risk.

Fair enough. [32:15] Fair enough. [32:16] Going in a slightly different direction. So someone else that worked with you. Another Lenny, Lenny Bogdanoff, who started a company called Milk, and then he was head of growth at OpenAI for a bit. [32:26] He asked me to ask you about things product leaders and startups should watch out for. [32:33] Does that ring a bell? [32:34] - I don't remember the specific office hours, but I understand the question, and I of course remember Lenny. I think that the advice that he's referencing here is just how important it is to not over delegate, and for the founders to stay close to things.

[32:49] as well as watch out for the trap of hiring people [32:53] "super senior people with fancy resumes "really early in a startup." I think that's what he's referencing there. And again, this is definitely one of those very basic things that we find ourselves repeating a lot, [33:03] where they're like, "Yeah, yeah, I get it. "Don't overdelegate, we get it at Dalton." And then two years later they're like, "Wow, [33:09] We overdelegated. [33:11] We need to... [33:12] We need to go clean that up. So that is probably the best product advice.

And the folks that are really great at product, the founders that are, are always deeply in the weeds on product and still care a lot and are still talking to customers, no matter how late stage it gets. Again, I'm sure you experienced this in Airbnb culture. [33:28] You know, you can't delegate caring about your users and you can't delegate caring that the product is great. That is so critical. [33:36] To make this even more real, what is it that you see them do? They hire a PM too early, they hire a senior salesperson too early.

What are the challenges there? Yeah, I think that you get pushed often by investors to hire executives or scale the team or we need, you know, [33:50] You raise all this money, you gotta spend it, you gotta show you're serious about growth and building a world class organization, whatever, stuff like that. [33:58] And so you end up with [34:00] super nice people with super shiny resumes from big tech companies. [34:05] "Oh wow, they did this amazing thing at Google." [34:09] You hire them and then you wake up one day and you're like, "Oh wow, everything went wrong."

[34:14] It's not really anyone's fault. It's just that you... [34:16] You took your eye off the ball and this is what happens. [34:22] to first-time founders a lot. [34:24] how do you as a founder then have time to do all these things? Is there any guidance you give just like, [34:29] Don't overdelegate, don't overhire. [34:31] But also... [34:32] You have 24 hours in a day. [34:35] Is it just find the time, prioritize well, or is there more to it? [34:38] I think if you just care a lot about your customers and you care a lot about the product,

[34:44] your instincts are pretty good on what to spend time on. [34:47] And so for example, [34:49] Spending tons and tons of time like... [34:51] hanging out with investors and networking, probably not, it's probably the thing that I would be cutting. [34:58] You know what I'm saying? Like it's what we talked about earlier. If you really love what you're doing, no one needs to tell you how to reprioritize your time. Your intuition will be correct on what you should be spending all your time on. [35:07] which is, [35:09] Being obsessed with product.

[35:11] Thank you. [35:11] I love that advice. [35:14] This episode is brought to you by Coda. And I mean that literally. I use Coda every day to help me plan each episode of this very podcast. It's where I keep my content calendar, my guest research, and also the questions that I plan to ask each guest. Also, during the recording itself, I have a Coda page up to remind myself what I want to talk about. Coda is an all-in-one platform that combines the best of documents, spreadsheets, and apps to help you and your team get more done.

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And if you want to see for yourself why product teams at high growth companies like Pinterest, Figma, and Qualtrics run on Coda, take advantage of this special limited time offer just for startups. Head over to io slash Lenny to sign up and get $1,000 in credit. That's io slash Lenny to sign up and get $1,000 in credit. [36:39] io/lenny. [36:43] Okay, so... [36:44] One of your former, one of your colleagues, current colleagues, not former colleagues, Gustav was on the podcast. [36:49] previously. This episode is, I think, the fourth most popular episode of all time currently, so no pressure.

Oh, cool. I don't know if I can keep that. All right. I think you can. [36:58] So I asked them what [37:00] is often the most... [37:01] Common reason a startup fails. [37:04] And his answer was, they don't talk to customers. They don't find product market fit. Nothing else matters if they can't do that. [37:10] And so his advice is talk to customers more often. [37:13] So two questions here. First of all, just is there anything else you would add to [37:18] Why do startups fail? I know we talked about some of these already, but just what comes to mind there?

[37:22] I completely agree with what Gustav said, but to look at this from a different frame, [37:28] I think is that the founders lose hope. [37:31] Thank you. [37:32] and when you and your heart is like, yeah, we're failing. Like once, I can see it when I'm meeting with a founder, when they've resigned themselves that, [37:42] They're failing. [37:43] Versus when like we got one more move in us. We got one more try. Like you can see in their eyes when they feel like there's. [37:50] more ideas or some last ditch Hail Mary thing.

Um, [37:54] It doesn't always work, but... [37:56] It's almost like you have to not accept that you're going to fail. [38:01] And as long as you don't accept that that's going to happen, [38:05] there's usually a lot more moves you can try to save the company. Maybe it's to get profitable. Maybe it's to like... [38:11] Do some other Zany thing. Maybe it's... [38:13] to launch a new product. [38:16] Um, [38:17] And so it's pretty rare, I would argue, that the cause of death is that they had lots of firepower and they were feeling really positive and they just ran out of money.

[38:25] That's actually like more rare than founders think. [38:28] It's much more common that they still have some money left. I'm not saying a lot, but some money. And they're just like, yeah, I'm done. I'm out of ideas. I don't want to do this anymore. And again, fair enough. [38:39] But do you get what I'm saying? Like I think founders are afraid that they're gonna run out of money and that's why they're gonna shut down. And it's way more common. [38:45] that their idea doesn't work and they have a big fight with their co-founder, [38:50] and then they can't agree on what to work on.

And then they just like, or like, I don't want to do this anymore and they shut down. [38:55] That is the most common cause of death is something that sounds like that story. That is so interesting. [39:00] And again, this comes back to your core advice. Don't die. [39:03] Just don't die. [39:06] We talked about this already of just like... [39:08] Sometimes it's actually okay to die. [39:10] And I guess just to refresh that, [39:12] lesson is if you're not having fun anymore [39:15] Maybe. Yeah, you're out of ideas. You're like, I just I'm done.

Like, if you know in your heart that you're done, you don't have to keep going through the motions. No one benefits. [39:23] And you've also seen enough cases now, you've shared a few of these, where [39:27] their all hope was potentially lost [39:30] But they kept going, and then they turned into a huge success story. [39:33] And I think most people don't see those examples. I guess, is there anything you can share, just like how often that happens, how often you see that turn around? [39:40] I would argue that... [39:43] If we define it as the company had a near-death experience where it was going poorly and the founders seriously wondered if it was all going to be over, 100% of the time people go through that.

You know, the founders are like, yeah, I guess we're done. I guess we should pack it in. And at least you feel that way at some point in your startup journey. I mean, everyone goes through that. [40:01] And again, there's gradations, people that actually truly got down to [40:06] very, very hard situations, it's still a high percentage, like maybe 50%. I mean, you can ask founders, [40:11] There's a lot of founders that [40:13] come this close to it all being over and [40:17] through sheer will, kind of just keep it going, you know?

[40:21] That is really empowering, I imagine, for many founders hearing this, of [40:25] Just knowing every single founder goes through. Okay, I think it's actually over. [40:29] Yep. [40:30] Following on this real quick, the advice that Gustav shared, which is about talking to customers, [40:35] I'm just going to keep trying to pull wisdom out of your head. [40:37] Do you have any advice for just how to effectively talk to customers? We're always hearing, talk to customers, build things they want. Easier said than done. You get a lot of asks. [40:46] You get one customer asking for a lot of stuff.

There's a big company that's like, "Build this thing, we'll buy you, pay you a million dollars." [40:51] Just the general guidance of just like what to pay attention to and what to build versus avoid. [40:57] Yeah, I think when I talk to aspiring founders about this a lot, they're like, "Yeah, yeah, yeah, talk to customers, we get it, cool." And I'm like, "Cool, whoa." [41:05] How many customers have you talked to? And they're like, well, and they get really quiet. [41:09] And so I think this is one of those things like, hey, you should have a healthy diet and exercise every day or whatever, where people know it and that doesn't mean they do it.

[41:18] And so I think to start with, [41:20] You have to get out in the world and talk to people in person. [41:24] and you can't just hide behind your keyboard, [41:27] and call that talking to customers. [41:29] Right. And I think a lot of folks, their inclinations are to like, you know, [41:33] build a landing page and buy some Instagram ads and try to get people to sign up for something. And again, maybe I, maybe that's, [41:41] something but I think a lot of the reason people do that is they [41:44] They're just shy and they don't want to put themselves out there because it's a little awkward to go talk to people.

[41:49] And and you kind of have to set yourself up to go out in the physical world, get people to meet with you. [41:57] Get them to take you seriously. Show them a product you're building. [42:01] And so again, to be very tactical here, [42:03] You can do a self-assessment. [42:05] In the past month, how many in-person physical meetings have I had with potential customers? [42:11] Maybe you've done a lot. I don't know, listener, maybe you have, but you know, [42:15] It's shocking how many companies I talk to, they're like, well, [42:19] we're focused on raising our pre-seed round before we talk to customers, like things like that.

And again, I think the core thing going on is, [42:28] Just social anxiety and like looking stupid. [42:35] And I think you just got to get past that. [42:37] You know, you just got to start doing it until it doesn't feel bad anymore. [42:40] Think about how stupid the Airbnb founders must have felt they were [42:45] Like, hey, you should run out in your house, and I'm gonna come and sleep in your house, and here's an air bed. Like, I guess the whole thing is a little awkward, right? [42:53] So you got power through the awkwardness of talking to people.

[42:58] And once you start doing it, it's actually kind of fun. And so once you get used to overcoming this awkwardness, I think people do much better at talking to customers. [43:07] When someone does this self-evaluation, is there a heuristic that tells you this is enough? [43:13] What do you look for? Is there a number? How many per week? How many per month? [43:17] Yeah, I don't know if I know a good number. I think it's look at your calendar. [43:21] And there should be, you know, [43:23] 20 or 30 percent of your time that the calendar says something like, [43:27] customer [43:29] meeting, customer call, like...

[43:32] meeting with Foo, meeting with this person. And when the calendar is not that or it's all, you know, again, what you're actually doing is just buying ads, [43:41] to try to validate your idea. I don't think that's talking to customers. I think that's something else. That's an awesome heuristic. So roughly a fifth of your time at least should be talking to customers. Yeah. And again, it depends on the idea space you're working on. Some are more, some are less. So, yeah, I just... [43:55] It should be a fair amount of time and nothing substitutes for an actual conversation versus just staring at analytics dashboards.

[44:02] Makes so much sense. So Airbnb is a classic example of they went to New York and talked to their host and things like that. Is there another startup that comes to mind that did this really well? [44:10] I've found just a really cool way and hustle to talk to customers. [44:14] Well, again, if you if you some of the companies we talked about, I mean, [44:18] For Brex, they were just talking to other people in their batch, and that worked extremely well. Same with Retool, is they just sold it inside of the YC network.

I think with Zip, they were just beasts at getting companies on calls with them to ask them about procurement. And I think they had way more than 20% of their time. Like when you looked at their calendars, oh, man. [44:40] I think they were talking to customers a lot to build their first product and kind of pre-selling it before they built it. [44:46] Same with Postdoc, I guess that's a different go to market. They launched this open source thing to start with. [44:50] And it was... [44:52] Let's do it. [44:53] their calendars are filled with people that were trying to implement the first open source version of PostHog, or were so excited about it, and people on Hacker News were excited about it.

And they had this huge influx of people that were... [45:05] excited that post hog exists and had lots of feedback and uh by reports like it wasn't always positive but they never lacked for uh people that wanted to talk to them once once they launched that which was very helpful [45:17] On Zip, I actually have a lot of their story in one of my series on how to build a B2B startup. And what they did actually, as you know, is they just called DM people on LinkedIn. [45:26] and ask them for advice on, hey, we're [45:28] We're trying to understand how you enjoy your current procurement products.

And then they ended up being early beta testers. [45:35] And I think they did hundreds of these. Oh, yeah. It was a numbers game. They were just grinding at this. And so, yeah, that was very good. [45:43] The other classic YC story is the Colson Collision, I think it's called. Colson Install. Oh, Colson Install. Okay. [45:51] Can you tell that story briefly? [45:53] The constant install is what often happens with customers. [45:58] is that [45:59] "They say, yes, I want to buy your product." And then they do not implement it.

They just go quiet. They're like, there's no implementation. And this is very bad if you're selling software to someone. If they never implement it, they're gonna churn. And you're not, you know, you basically failed on the one yard line, okay? [46:16] And so they kind of developed this tactic to be like, oh, well, [46:21] I'm in the neighborhood, I'll drop by your office to help you implement Stripe. [46:25] And kind of just like create, again, it was a little awkward, like we talked about earlier, but you would be like, yeah, you know.

[46:31] "I'm in the neighborhood, how about I drop by?" And then they would show up and they'd be like, "Cool, cool, can you pull up your text editor?" [46:38] Oh yeah, cool. All right. Hey, can I drive? Can I have the keyboard? [46:42] And they would just sort of like install Stripe into the customer's website. [46:48] you know smiling being like charming charming guys and then be like oh that's cool okay well like can we like roll out the website now and and they basically would [46:56] kind of not go away until you finish the implementation of Stripe.

And like, again, it was actually helpful because they were doing all this white glove service to get it implemented. That was very effective. [47:06] And I think the takeaway from that story is, [47:09] Even when you get a yes, you're not actually done with sales. You have to [47:13] finish the last mile to get the thing implemented. And they were very good at that. [47:18] That was an incredible story. And now they're like, I don't know, $100 billion in business, and that's how it all begins. Yeah, I was an early Stripe customer at my startup.

And yeah, Patrick would like, we used Google Talk at the time. Patrick would be sending me messages like on Facebook. [47:33] a weekly basis just checking in. And so again, it's funny how successful these folks get, but yeah, Patrick was very hands-on with all of his customers and was extremely available. Like I can say that because I was one of them. [47:46] And I'm sure he had social anxiety going through all that. That wasn't a comfortable thing to do, just keep pushing people to install your software and deploy. Oh, surely not.

If you want your startup to work, this is just what you've got to do. It comes with the territory. [48:01] This is going to be just a way broad question, and I don't know if you'll have an answer, but just [48:04] Are there other just patterns you find across startups that do well? This is like maybe the 64th million dollar question. [48:11] of just founders and what they do that ends up leading to success. [48:15] I don't think personality types matter as much. I've seen very quiet people [48:21] very extroverted people very you know you name it i've seen all sorts of personality types so for me personally i don't think that there's a right [48:29] Or I don't think there's a personality type that people should copy and be like, I need to be like this person.

[48:34] I need to be like Steve Jobs. I need to be like Elon. I don't really believe in that because there's just so much variation. Tony from DoorDash is so different. [48:42] than a lot of folks and Rajul is so different and Grant from whatnot these are all very very different people Patrick is a different kind of person [48:50] Right from Flexport, like these are just... [48:53] Very different personality types. [48:56] but, [48:57] The thing that I would argue folks that build really big companies have in common is [49:02] is they just really want it.

[49:05] and they really believe in themselves, [49:08] And they really believe they can make it work. [49:11] And then there's somehow deep in their internal psyche, there's something that's like, [49:16] I'm the one. [49:18] *laughs* [49:20] And I won't accept this not working anymore. [49:25] And even though objectively there's all this data coming in, this isn't working, this is bad, you know, my employees want to quit, my executives want to quit, you know, whatever it is, [49:34] Somewhere deep down in there, they're like, oh yeah, I'm gonna make this work.

This company is gonna be big. [49:42] And they and they just believe. [49:44] And it's almost like that internal... [49:47] gravitational force inside of them is so large, it kind of warps the world. [49:53] to bend to that will and people start to believe it because they believe it so much and they convince their employees to believe in they convince [50:00] everyone around them that this is going to happen for them. [50:03] And so again, this is not a personality trait. I'm arguing this is like... [50:08] A core belief. So interesting.

And it connects so much to what we've been talking about. [50:13] Just don't die. Don't lose hope in what you're working on. [50:16] A founder hearing this might feel like, man, I don't know if I'm so convinced this is going to work. [50:22] In your experience, how much of this is... [50:24] Internally, they're so certain and convinced versus externally they need to show this. [50:30] confidence well i think it's internally they're convinced i i mean i'm not sure it's external but and this is the big bud [50:36] No one has this at the early stages when they don't have a good idea and they don't have customers and like it's objectively not working.

[50:44] And so again, I know a lot of times like, "Whoa, I don't feel that way." [50:47] Oh, no, maybe I'm, you know, [50:49] maybe i'm an imposter and i shouldn't do a startup well of course you don't feel that way if you [50:53] "Haven't talked to any customers "and haven't built a product." Like, you know. [50:58] But what usually happens is you pivot to a good idea, or you start with a good idea that you care about, and customers you care about, and you launch it, and the better the product does, the more obsessed you get with your own company.