This Week in Startups - E994: All Turtles CEO Phil Libin shares his state machine that answers all growth questions; Future of Early-Stage VC w/Pete Flint (NFX), Rebecca Lynn (Canvas Ventures), Dave Samuel (Freestyle Capital); plus LAUNCH Scale Partner Talk w/Lever CTO Nate Smith

Episode Date: October 29, 2019

1:03 Jason intros Phil Libin from LAUNCH Scale 2019 1:51 Phil Libin on "The State Machine that Answers All Growth Questions" 32:40 Jason joins Phil on stage for Q&A 39:56 Jason intros Phil (NFX), Rebecca (Canvas Ventures) & Dave (Freestyle Capital) 41:34 Transitioning from founder to VC 44:08 How to let a founder know when they are headed down the wrong path 47:42 At what stage does a founder have to change their mindset? 49:49 Dave Samuel on Airtable CEO Howie Liu not taking his advice and succeeding anyway 52:21 How Rebecca Lynn recruited current LendingClub CEO Scott Sanborn in the early days 55:39 Should startups still relocate to the Bay Area under any circumstances? 1:03:40 How are VCs dealing with the influx in the number of startups over the past 10 years? 1:13:23 LAUNCH Scale Partner Talk: Lever CTO Nate Smith

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credit towards your first job post and cabbage get the money you need to run your small business today go to cabbage.com and use code twist to get a $100 credit on your first loan statement that's kab b a b a g e dot com and use promo code twist terms and conditions apply offer ends November 30th 2019 apply for the next launch accelerator cohort applications are due December 23rd learn more and apply at launchaccelerator.co. This next talk was workshoped

at the launch angel summit. We do this 70 angel investor boondoggle up in Napa. We've done it for four years, I think this will be the fifth year. And my good friend Phil Libbon from All-Turtles has been working on a theory.

He calls it the state machine that answers all startup growth questions. And it was the highest rate of talk this summer or top two, I think. I think it was tied for top two, along with the other Phil's talk for energy. And I asked Phil, and Emmy O'Watering producer, Jackie asked Phil if he would formalize it and then share it with the SCAL audience. So please welcome, my good friend, Phil Libben. Thank you. My name is Phil Libben. I'm the CEO of All Turtles. and I kept kind of having the same problem happen over and over and over again in my career,

which is that people are quoting way too many numbers and ratios to me, and I don't know what actually makes sense. Before all turtles, and at all turtles, we build multiple projects, so we kind of have this issue all the time. We built multiple simultaneous products. We're kind of a multi-threaded startup. Before that, I was a VC. I was at General Catalyst and heard thousands of pitches and had

this problem. Before that, it was running Evernote, and just got all sorts of numbers. So how are we doing? Well, various ratios, various rules of thumb. You heard a bunch of them just now on this stage, right? There's just so much advice about numbers and ratios that you're supposed to listen to as founders or as investors. We got the rule of 72. We got the, what was it, the triple, triple double double with cheese, animal style. I was confused. There was too much stuff. I didn't know what was real and what wasn't real.

And finally, I decided, fuck it, I'll solve it with math, with a state machine. I thought the answer wasn't to make things simpler. I thought maybe the answer was to actually make it a little bit more complicated, but more complicated in an actually mathematically rigorous way. That made sense rather than just a collection of kind of received tribal knowledge about what magical ratios existed and didn't exist. So we started working on this and we came up with, as Jason said, the amazing state machine that answers all startup growth questions. And here it is.

So first thing is, what's a state machine? The short answer is it's math. A state machine is a type of graph that basically represents all of the states that are possible in your kind of of your audience and then all of the transitions between the states. So the circles are states like any of your people. or components or whatever it is your modeling can be in one of those circles. And the arrows are how people or elements or components travel from state to state. So that's it. That's the state machine.

So we're going to make a state machine for startup products, for products, for companies, for whatever you want to measure. And we really refined this at Evernote, and I think it works really well for most types of products that I've seen. I've actually seen very few that it doesn't work for. We originally created it for this Evernote, which was this B2B-B-B-2-C, you know, heavy engagement application. But we've modeled it just as well for, you know,

completely B-to-B products, for hardware, for software, for all sorts of stuff. So it probably doesn't work for everything, but it works for a lot of things. So it starts like this. So let's make a graph of every living person. And let's try to categorize, let's take everyone on the planet

and try to figure out what circles they're in. So there's one circle, which are the people who have never used your product. And that circle has roughly 7.5 billion people in it for just about every product. So that's it. So that's almost everyone. And your goal, as a founder or as an investor that's working with founders, your goal is to, over time, get as many people as possible from that circle, which is the 7.5 billion people who have never used your product up to this circle.

which is high value users. That's it. That's really straightforward, but there's some stuff in the way. And so it's just trying to understand that stuff, one step at a time. So the way that a state machine works is you pick some time interval, and every transition represents some kind of time interval. So I always do this monthly. So these are monthly transitions. Nothing magical about monthly. You can do it daily, you can do it quarterly, kind of whatever feels right.

I like doing it monthly. It's just like we usually have a monthly. We usually have a bunch of these running at any given time, and it's just too much of a pain to do it more frequently. So in month one, this happens. So some number of users go from having never used your product before to using it for the very first time. So in month one, some people make that hop. We call those first time users.

Someone can only be a first time user once, by definition. After they've been in that circle, they're no longer first time user. So then in month two, People go from that circle of first-time users, and they go to three other potential circles. They make this trip. They either go to become high-value users in the next month or low-value users, or they're just inactive.

They're not using your product. What's high-value and what's low-value? We could talk about that, but it's pretty important to define that. And, of course, if you wanted to, you can model it with five different types of users instead of just high-value and low-value, but I found for most things those two are good enough. So for Evernote, high-value users originally was really simple. Originally, high-value users were people that were paying us because we were a freemian model. Later on, we actually evolved it to be a little bit more precise and a little bit more meaningful,

but a good kind of guess as to, well, what does it mean to be high-value is good enough for whatever your business is? Low-value users and then inactive users. And then every subsequent month, they move on any of these arrows. basically they transition the states the only the only circle that you can only be in once is that first-time users afterwards that's it and then if we want to be super anal about this because we do we can kind of put in all of the little self-referential arrows the ones that kind of loop back to themselves and number all of them and so that's it this is the complete state machine so everyone on the planet is currently

traveling on one of those lines for your product. This represents the entire population of the earth and how they react, how they are interacting with your product and company. And each of the arrows are numbered. There's 13 of them. I always remember that there's 13,

because I wind up drawing this a lot. Oh, by the way, as you can tell, I spent minutes making these slides. But I draw them a lot on whiteboards, just kind of explaining this to different teams, kind of trying to figure this out myself, actually instrumenting this and measuring it. And I just always remember that I just reconstruct it

from memory because it's not that complicated. And there's always 13 lines. So when I get to 13, I know, OK, I've drawn all of it. I haven't forgotten. So each arrow means something. And you can do things to increase or decrease the flow on any arrow. So some of these arrows are good.

They're positive. Some of these arrows are bad, they're negative. The way this actually works is all of the arrows that are kind of going up are good. All of the arrows that are kind of going down are bad. It just turned out that way, but I'll take it. So, for example, arrow number one are the people who have never used your product, and then they use it for the first time. Like, those are your first time users.

That's your cack, right? That's a good arrow. Arrow number nine are people who last month were high value users, but this month they dropped off. They didn't use it at all. That's really bad and so on. So for each of these, it's really unambiguous, whether it's good or bad.

There's only one. There's only one arrow on here, which is a little bit ambiguous of whether it's desirable or undesirable. And that's arrow number 13. That's the little ear, the loopback on low value users. That's the error that says that

in one month, this user was a low value. So they interactively, they were some kind of a customer or a user. And in the following, want they're still low value. Is that good or bad? Well, it really depends on, you know, are you making money on the low values or are you losing money? What's your kind of long-term plan? But that's really the only one that's ambiguous. The rest of them, like, it's pretty clear, do you want this or do you not want this? And for each of these arrows, you can measure

them. That's the whole point. Instead of, like, talking about magical ratios, here's the thing. People love dividing a number by another number because it makes them feel smart. And when you hear ratios, you know, DAUs to MAUs, it's pretty meaningless. It means something in some context and something else in some other context. The only reason people do it is because it involves division, and division makes people feel smart. Because it's like it's the thing that was hard in kindergarten or something. I don't know why.

But like I think people carry forward for the rest of their lives. This like this feeling, the smug feeling like, I just divided two numbers. It must mean something. So there's actually no ratios here, right? All of these are just like straight up measurements. You can measure how many people are doing. Sometimes you divide them by other numbers. Sometimes you multiply them.

So each arrow means something, and you can do something to increase or decrease the number of people moving on that arrow. And at Evernote, we got big enough where by the time we had 400 or I don't know, I think just under 500 people, we literally had a team on each of these arrows. So each arrow was a team of people whose job was to like that month, make that arrow bigger or smaller.

And they would come up with tactics, here's what we're going to do, and we would figure all that stuff out. So each arrow means something, and you can do things to increase or decrease it, but they're not all equally important at the same time. So one first question is like, which arrows are the most important right now? And to kind of to Jason's point earlier about focus, like this is a good way to focus.

What should you focus on right now? Well, okay, which of these arrows is the most important? Hey everybody, I want to tell you about a new product I recently purchased and which is now partnering with us here on this week in startups. It's called Tonal. T-O-N-A-L. And this thing is amazing. It's a home gym and you can see it here if you're watching the video. And what it does is it lets you set how much weight you want to do and you get this nice beautiful video and you can do your workout on it. And it has all of this coaching AI that customizes the workout for your body, adjusting the resistance in real time. Now, I did this for the first time, and it is magical. I was doing curls, right?

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This is that hop from never used your product, use it for the first time. This is usually a sales and marketing function, right? this is usually just getting your first-time users. And there's a ton of stuff you can do to increase this arrow. PR, SEO, word of mouth, paid ads, viral growth, channel sales, whatever. The question is, when should you try to grow this? Like, when is this most important? And a lot of startups focus on this and only this, like exclusively.

Because a lot of investors have like all sorts of like magic ratios about, you know, how many new customers and what kind of growth. or something like that, and they're putting pressure on startups to grow this number, usually way before it makes sense to grow this number. So when should you grow it? Well, let's look at the second number. The second arrow, number two, this is called bounce. This is people who were first-time users, they tried your product, you know,

in that first time interval, in that first month, and then they just became inactive. They bounced away. They got there. They bounced away. This is by far the most common. by far the most common problem that I've seen in early products and starter products, and it's the one to fix first. Because if you've got a high bounce rate, you're just wasting all of your customer acquisition efforts,

and you're just leaving a bad taste in people's mouth. So the answer to how much of this do you need early on is, well, you need just enough of this, you need just enough arrow number one to get a statistically meaningful sample, to calculate your bounce rate. And if you don't have enough users to make a meaningful bounce rate calculation, then yeah, you need to get more users.

But as soon as you do, you can stop actually trying to get new users until you're sure that this is pretty healthy, until you're sure that you're not losing, you know, 90%, 70%, 40%, whatever, of your new users this way. And keep in mind this bounce rate, right? This all seems really straightforward, but I was super confused about this. Even at Evernote, I was pretty confused about it until, like we started looking at it this way,

because we were conflating bounds with retention. People talk about retention a lot, but how do you compute retention? Right, it's some ratio, again, it's that dividing things makes you feel smart, some ratio of like the number of users or customers that you have right now over the total number you ever had. And retention is a big thing that people really focus on.

But retention really combines two different things. It combines bounds, where people who used you for the first time and then never used you again, with churn. Churn are people who were using you, who were either low-value users or high-value users and then stopped using you.

And the psychology for why people bounce and why people churn are usually totally different, depending on the kind of product you have, right? But someone may bounce away, meaning they used it once or twice, and they never used it again because of what? Because of bad expectation setting. You know, poor marketing. It's not what they thought they were getting, something like that.

That's pretty different from someone who was a user who actually used it repeatedly, but then stopped. But if all you're measuring is retention, you're kind of conflating these two things, and they're totally different. So first you fix bounce. What's a healthy bounce rate? I don't know. I'm not a fan of giving arbitrary numbers. 30%, it's 30%. You got to be below, you know, 30% is healthy. Or you can like try to figure it out better for your own company. But I usually say, like, if you're bouncing more than 30% of you use, then there's definitely nothing else to work on until you get this right,

because you just have some fundamental disconnect with what people think they're getting to what they're actually getting. Now, for some products, maybe you need to be at 5%. But I've seen this as high as like 90%, 95%, for like a lot of startups. They were spending millions of dollars growing and then losing it all this way. Okay, so then we get the churn.

So there's low value churn. Someone was a low value user and then they stopped using you. Why did that happen? I don't know, maybe they got bored, maybe they forgot, what are you going to do to fix low-value churn? There's high-value churn. This is kind of an emergency. If this kicks up, if you see this rate increasing,

it could mean one of two things. It could mean that there's some new serious bugs or some kind of problem. I say bugs because I'm just kind of used to thinking about things as technology, but this applies, I think, much more broadly. If you have people who are high-value users repeatedly and all of a sudden they're not using you anymore, something's gone wrong. And maybe because there's some fundamental new problem,

like a bug or something, but it could be, it could be, you know, a new regulation, it could be all sorts of things. Some kind of new friction was just added that specifically affects your high value users. At every note, we would see this once in a while if, like, you know, there's a new operating system version, and there was some new bugs, and like the more information you had, the more likely you were to hit the bugs. And so, like, the bugs were actually disproportionately affecting our best users. And so we would see something like this. We would see the high value turn spike up. We would know that's an emergency.

Or there could be a new competitor. There's always new competitors. And what do you do with competition? Well, what I do is ignore it until I start actually seeing that it's like taking away potentially high-value users because otherwise responding to competitors before they become successful,

you know, it seems like that's whack-a-mole. There's going to be tens of thousands. But if you see this, and it's because people are moving to a new product, because someone has figured out how to offer a better value to your most important users, that's potentially really serious. So you want to do something about that.

So you got to fix these fast. So I would say focus on number one until you have enough users to actually, statistically, in a statistically significant way, calculate these are the numbers, and then figure out the churn, fix that. Sorry, figure out the bounds, fix that, and then look at the high value churn. This one is pretty cool. This is the Resurrection Loop.

These are arrows 5 and 9. These are people who in the previous month they didn't use you. They were inactive, they weren't users, and then all of a sudden they they got resurrected. Now they're back. This is great. What are you doing to make this happen? This is like questions. We had people running each of these things, each of these lines. So what are you doing to resurrect users? To resurrect customers. Could be all sorts of stuff.

Over time, this actually becomes a pretty cheap and efficient source of new users or new customers, because you've already paid the cost of acquiring them the first time. if you're not getting any value and then you resurrect them, you're basically getting new users for hopefully much less money than it costs you to get new users, new first-time users. In the beginning, this isn't important. Because for most startups, for most new products, in the beginning,

it takes a while to build up that inactive user base. And so it's okay not to think about this at first. But the problem with startups is things that you get into the habit of not thinking about, you'd never think about. So after a couple of years, this actually becomes really meaningful, but you've already gotten used to not worrying about it. Like, oh, if people aren't using you, they're kind of dead to you.

And that's a big wasted opportunity. So by the time we realize this at Evernote and a couple of other things that I've seen, you know, we've already had millions, sometimes tens of millions of people that were inactive, and resurrecting them became a super profitable way. Much more, the economics than that were much better than the economics of trying to pay for new users. So, you know, re-engagement campaigns, kind of all sorts of things. And of course, what we found in all of the products who have ever done this for is that the cost of resurrecting someone is directly proportional to how long they've been dead. So, like, you kind of want to get on this relatively soon.

Sooner than probably need to in terms of the absolute numbers because developing this practice will really help. This is super important. Line number six, this is upgrade. someone was a low-value user and then they became high-value, right? What is it, like, what happened? How do you do this? So let's talk about here, let's just talk briefly about high-value and low-value, how you draw the line between them, how you determine them.

What we did at Evernote and at a few other things, well, so what we did at Evernote specifically was when we started, you know, we were freemium. So we just said paying users a high-value, not paying users a low-value, because we still want, you know, we still want, users because they might pay someday. Then what we realized is really this is the lifetime value, right? This is meant to represent like who were the high lifetime value customers and whether or not you were paying was a good signal but it wasn't it wasn't actually perfect. There was a better signal which for us

was the number how engaged you were. So for Evernote it turned out into like how many sessions a month did you use it like how engaged were you with a product because engagement really correlated strongly with paying versus not paying but it correlated, it really correlated stronger than whether or not you were already paying. So like, it was more important to me. You were more likely to pay for a long time in the future if you were a very frequent user than if you just happen to be paying right now. And since we didn't care as much about like the revenue in the current month, we cared about your lifetime revenue. We actually saw that it was, it was better to measure engagement levels

here. So we said, above 20 sessions a month, someone went into high value, low 20, it was low value. And for other products, we had like other ways of computing that. The important thing here is keep it relatively simple because you don't want to, like, fool yourself. You know, the more complicated you make the algorithm, the more likely you are to just game it without even knowing. So keep it relatively straightforward, as long as it's a strong signal that actually corresponds with lifetime value. And then change it. You know, as you get better signals, change it. But every time you change it, you have to rerun this model for all of your previous data, right? because you want to have the changes of these lines over time

really tell you whether what you're doing is right or wrong. So how do people upgrade? Well, we realized some habits of people who are high value, like what they were likely to do, for example, just one small example is people who scanned documents to their account, people who stored a lot of PDFs, were very high-value users in general, because they were just like putting substantive things in there. So we had a big campaign to just talk about how awesome it was to scan things into

Evernote and put PDFs into your account. And we just promoted that use case. And we did a partnership with like a big scanner maker with PfU Fujitsu. We did stuff like that. Specifically, like that was part of line six. And it worked. It worked great. Same thing for downgrade.

Someone was high value user and then and now they're not. What happened? What is the psychology behind that? This is probably the best one. This is the bullseye. This is line number four. which is going directly from first-time user to high value. So you use it for the first time,

and then immediately after that, you adapted the correct habits to become a high-value user. This is usually because of some really good expectation setting and a really good first launch experience. And we had a lot of debates, still do, about other products, about whether or is bullseye more important or is upgrade more important? Like, do we get more value by starting slow,

by bringing people on, maybe letting them use it for free or become low values for a while and over time upgrading them? Or do we get more value by trying to get people like into the bull's eye right away? And it was not, it was like a, it was a question answerable by math, because we can actually look at these lines, we can measure it, we can see how much we were spending on each one. Turned out probably more than half of the time that I look at this, probably 60 or 70% the bullseye is better because it comes down to expectation setting.

It's like cheaper to get someone when they're relatively new to your product to adapt the right behaviors that make them high value like in the beginning before they've like, before they've adapted the stupid behaviors or sorry, the lower value behaviors. It's just it's just cheaper. It's more efficient. But it's not always the case. Like both are valuable. Oh my God. I love LinkedIn for hiring. I have hired three out of the last four people on my team through LinkedIn.

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And thanks for the 50. All right, let's get back to this amazing episode. In the end, really, this is the most important one, which is 12. That's the loopback between high-value users. So they were high-value users. One month, they're still high-value users. It's the retention. It's the nurture.

This is the, yeah, you still got it. People are still using it. This is what's going to be the most important in the long term, as you actually have enough people here to get them to stay and use it. And this kind of retention was very different than any of the other ones. How do we do this? How do we talk to people? So basically that's the entire graph. We didn't go through each of the numbers, but we went through the whole structure and it works it really works well even for money Here's how much. This is the graph. What you do is for each line

You just figure out how much you're spending like how much are you spending per user on that line that month and on the activities to either to promote that line to help that line or to do diminish it and how much revenue you're getting from users in that line like each of these you can put dollar amounts into and then you just you just subtract your fixed costs and that's it you have a really quick bottom line and contributed margin calculation so people talk about like different kinds of revenue and like what revenue is better than what other revenue this is all like highly confusing and non-specific um you could just measure it you could just say each line costs us this amount and brings us back that amount and you can see where are you making money, where are you losing money?

And if you're losing money on any of these lines, you decide whether you're doing that strategically. And if you're doing it strategically, why? What exactly is your theory of how that's going to translate? And then you can measure that. Is it happening? Because what you can do is each, the journey, you can pick any journey on this graph,

and it tells a story. It tells a story of a particular user. You could say, okay, number one to number three, to number six, to number 10 to, you know, number nine. Like you just pick any lines in any sequence as long as they connect. And that's a journey. And you can write a story about what is that? Who is that person?

Who is the person that went number one? Okay, first time user, okay, great. And then they went number three. They went from first time user to low value. Okay, yeah, this is pretty good. They're using it. And then they stayed low value for a while, but then they upgraded on line number six, but then they downgraded, and then they stayed inactive for a couple of months,

and then they shot back up to high value. You can write that out. You can write a plausible story, and you can say, like, is that journey meaningful to us? to us. And if, for example, you're losing a lot of money on one of these lines, you can say, well, we're doing it because we think that it's going to enable these other journeys, and then you can measure them to actually see if they're happening. So there's quite a lot here that you can do to actually get to the bottom of what's working and what's not. And in doing this, I think there's this misconception when people talk about high-level ratios and high-level numbers,

that it's like, well, like, getting into the real specifics, like getting into the details is like too complicated and too onerous. So we're going to kind of stay at a high level with these like magic ratios. But the magic ratios are kind of nonsense. And it turns out that like the actual understanding of what's happening is not, like it's not impossible. It's not actually that hard. It's only 13 numbers.

And like it's not infinite. A lot of people like they start counting to 13. They get to like four and they say it's like countless. Like, no, it's not countless. Just keep going a little bit longer. and it's only 13. You can get to 13. So I found this super useful working currently on kind of productizing it a little bit,

just to help other companies and other products think about it. But hopefully it's useful to some of you here. And let me know what you think. And happy to answer any questions on that mic. Thanks. Hi, thank you so much. That is just absolutely brilliant. I'm so excited by it.

Is it possible to identify for my own business, for example, each of those lines and then take, if I'm going to do it monthly, and just plug them in and have it calculate each month? Yeah, I mean, that's what we did. At Evernote and a few other things is we just build this out as a spreadsheet. I originally imagined it as like a big, like, you know how you imagine like control rooms in like the New York City subway and there's like a big map and there's like things lighting up?

Like that's what I wanted, but I was talked down from that. They're like, well, how about a Google sheet instead? Like, fine. But yeah, yeah, you can instrument it like that. Like all of this is easy to compute. There's no mystery, right? Like, actually, if you try to compute this, if you're a CEO or an investor, let's say you're CEO and you ask your team, like, hey, can you compute this?

And they're like, oh, impossible. That's weird, right? Like, which of these things don't you know? Like, which of these things can't you look up? And if you're an investor and you like ask your CEO to do this and they're like unpassable, that's kind of weird too. So, yeah, I think all of this is meant to be stuck in a spreadsheet and compute it. And it's not that hard.

Okay, let's give a big round of applause to Phil. We've been at this for a while, you and I. Yeah. What's your take on entrepreneurship, starting companies, with all the wisdom you've learned, all the battle scars, in light of what seems to be an environment of unlimited startups and unlimited capital.

What does it feel like today in 2019 and then compared to like, I don't know, what, 12 years ago when you started Evernote? Yeah, it was like 12 years ago. I never know it was my third company. I just realized I've been kind of on the treadmill for like 23 years now. It's been, yeah, it's a while.

I think now is the better time than ever, right, to do it. It just really depends on what you're starting. I just heard a talk. that a friend of mine and one of the companies that I invested in, Tammy Sonnet Carrot just gave this talk a few days ago. And she said, well, when should you start a company? And it's really hard.

The first thing is, like, the experience of running a company is, like, amazingly difficult and unpleasant all the time for everyone. So the question is like, when should you do it? And like, the short answer is like, never. But the slightly longer answer is she said, the best advice she ever got was a friend of hers had just written a book as an author. And I've also always wanted to try

write a book and never got around to it. And she said she asked her friend, like, when did you know was the right time to write a book? And her friend said, when I knew I could no longer not write it. Like, when you can't not write this book is the time that you know to start writing the book. And I think that's the best advice, as Tammy said, for companies as well. Like when should you start a company?

Well, when you can no longer not do it. And if you can not do it, then it's not right time. So if you're like sitting here or somewhere else and you're kind of thinking, well, maybe I want to start this, like what's the opportunity? And the mental test is like, well, can I not start this company? Like is it okay? Would I be okay with myself if I didn't do this? And then if the answer is like, yeah, I'd be okay, then don't do it because it's super hard.

But if you're like, no, this is the highest impact I can have for the world. I can't not start, then well, there you go. There's your answer. When should a person know, hey, this didn't work? I need to move on. You had your own move on moment at Evernote. It was for different reasons, I think. I've had the whole life is a series of move-on moments.

Which one door closes two or three more open, and I think this is, I think, you know, I've always struggled with this, is when do you pull the plug on something, when do you move on, when do you put it to bed? Well, and there's multiple reasons. So at Ever note, I was able to move on because it was successful, right? Because, like, I was not enjoying it as a CEO of a big company. I don't think, I think that since I wasn't enjoying,

it probably meant that I wasn't very good at it. We deserve to have a CEO at that point that was going to be great at it. And we were successful enough where we could get someone better than me. You know, at the beginning, like, it doesn't matter whether I'm enjoying it or not. Like, you couldn't get anyone better than me. But once we're successful enough where you could, I kind of think as a founder, that's like a moral obligation. So I think like stepping away personally is different from like shutting, you know, something down. And the shutting something down is just like this, this helps with that.

Because you can kind of quantify it and it's easier not to lie to yourself. the best advice I ever got about this exact thing was from Henry Ellen Boggin who either still runs or used to run a TRO O price big fund he was super well-known investor kind of late stage and he said to me you know when you're the founder and CEO you are the first person to know that it's not working like you're going to be the first person to know that something's not working and you're going to be the last person to believe it

and that's like super true like as a founder you really are the first person to know that it's not working, and you are the last person to believe it, because you have, like, told yourself that it's, like, not true. And so you've got to, like, figure out that superpower, right? And that is, in a way, a feature, not a bug. Well, it's a feature, not a bug, until it becomes a crippling buck,

until it destroys your life. Right, like being delusional and not being willing to give up, even in the knowledge that, hey, this is not going well, right? Is sometimes how the great victories occur. Often. And often how the biggest, hugest defeats and deaths occur as well. So I think that the answer to that, how to split that difference is like, how do you take advantage of that superpower being the first person to know?

Well, you just do that. And then you set something like this up and you tell yourself ahead of time, this is what success looks like. This is what failure looks like. And you do that when you're in a good mood before things are failing. And then you can tell. And then you can like, if you set up the tool so that you're not the, so that you're the first person to know, but you're not the like, last person to believe it because you've kind of like you've done the work ahead of time to say this is what this is what I'm going to believe and this is what I'm not going to believe then maybe you can

like have that advantage without like the crippling side effect of being delusional one of the things I've always found about you is you're relentlessly optimistic but it's somehow mopey and melancholy it's weird right yeah it's kind of like an interesting emo kind of thing yeah no I was going to say you're endlessly optimistic but I think as you've done it a number of times you start to become very pragmatic. And I, that might be, I'm just spitballing here at workshopping with you on top of this great talk, is that there's something about being intellectually honest and pragmatic about the ground truth, about reality, but then being just fabulously delusionally optimistic. And I think that's how I would describe you. Well, thanks. Let's give it up. Let's give it up for Phil, Eben. Listen, you're running a small business. You're running a start. up, you need money, and it shouldn't take all your time to get money to run your business.

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and this offer ends November 30th. Two days after my birthday, individual requests for capital are separate installment loans issued by Celtic Bank, member FDIC. All right, let's get back to this amazing episode. Yesterday we talked to people writing the smaller-sized checks, and today we're going to talk to people writing those series A checks. please welcome Rebecca and Dave and Pete.

Come on up, everybody. Thank you. So Pete, I met when he was running Trulia. But were you a Sequoia Scout ever? Were you in the Scouts program? I wasn't, no. I had a liquidity event. Right.

You didn't need to be in the Scouts. That's a very classy way of saying, I didn't, I had my own bankroll, Jason. I didn't need to use. use the 25-050. Congratulations on Trulia. That was a great journey for you. Thank you.

Yeah, it was 10 years. An overnight success. What did you, and obviously Trulia got sold. It's part of some big conglomerate of like 10 of these things now, right? So, yeah, so I started Trulian 05, and then in 2015 it merged with Zillow. And so it's been interesting because it's, you know, now PropTech and real estate, it's just huge part of the venture community and there's that gets a lot huge amounts of investment of venture capital and so there's obviously Zillow with a which is

sort of acquiring a number of businesses and then many many other billion dollar multi-billion dollar prop tech startups as well the thing that I was saying just as the beauty of it is to take a company public and then be able to sell it and now you're a VC and so I was saying I was saying early in the green room congratulations on that thank you What's the difference between being a founder and a VC in terms of the skill set? What are the differences in terms of what makes you great as an entrepreneur, doesn't make you great as a VC?

How have you had to change your game, as it were? Well, we've got a very experienced set of panelists up here, so I'd love to hear their perspective. But I think just how it relates to kind of NFX and what I'm doing right now, is that one is obviously kind of like really focus on product. market fit. I kind of think as a founder, the early stage of building a business is the most important, finding that product market fit. And then, you know, having been in that kind of in that situation where you're trying to personally find that product market fit is a huge kind of perhaps understanding and insight, not to solve the specific problem, but perhaps

how to go about that. And then really the empathy of going through that journey of building a business of like of helping the founder to navigate the challenges to fundraise to hire just i mean that that empathy comes um you know you can you can build that up in many different ways whether that's just investing in hundreds of companies or being a great uh advisor or great student but kind of going through yourself it just gives you an incredible amount of empathy so i personally have had to change from you know you know that when i started angel investing coming i've not operating role I used to approach my my sort of commentary back to founders was like the way we did it at truly it was X which was like a complete sort of like waste of time it's more folk more and that's not

actually very helpful but now it's really about the way that I would think about solving the problem is the following and then sharing frameworks and perspectives rather than kind of specific tactical you should do it like this I mean frameworks and perspectives are exactly I mean that's a great way to think about it. And it's the biggest thing is just going from the player on the field to the coach, right? And sometimes it's frustrating because you want to get in, you want to throw the ball, you want to fix things, and you have to learn that that's not, it's not your job and it's not your role. And your role is to be the coach. Your role is to help set up the framework, to help the founder think about, you know, the options in front of them and how to, how to,

you know, strategize and prioritize what those next steps are. And then how to set up success criteria so they know if they've hit him or not right and so it's a really it is a big shift I mean it takes a couple years usually to sort of make that shift over but it's really important and it's actually a lot more fun I think so Rebecca this is a good insight of hey you're the coach sometimes the coach can see a player doing something destructive totally inadvisable and they actually know better and they actually need to say to the player, yeah, I know you think you can go play craps until four in the morning and then play in a playoff game the next day, but maybe you should get some sleep.

Michael Jordan. How does one, when they know, and you must have been in the situation, maybe you could take me to an anonymized or a version of a situation of when you just knew they were fucking it up, and you knew this was not going to result in anything good? How do you handle that as a coach, form a player? So if anyone has kids, this happens every day, right? So what happens? First, you always want to be wrong.

Like, you always wish in your heart of hearts that you're wrong, right? But if you pattern match, I mean, our job is entirely pattern matching, right? So you've seen that same pattern a million times before, and you've seen it end the same way the million times before. And I think the definition of insanity is doing the same thing over and over and over again and hoping for a different result or expecting a different result, right? And so when that happens, you're left with a couple things. I mean, one, you usually try to talk to the founder. If anyone's read the book, Influential Mind, it's a really great book. And I read it because of partially this issue.

You try to argue facts. It doesn't really matter. You have to tell a story, right? You have to tell a story. You have to bring them along. And then I think the best way to help somebody maybe see a different way is I introduced them to somebody. So oftentimes the argument is, hey, you need to, I really think it's time to hire a CMO. I really think it's time to hire a CMO. And there's a lot of reasons why they may or may not

think that's a good idea, but you've seen this game so many times, like, oh my God, if you don't do it now, here's what's going to happen down the road, right? And so, you know, what I do is I just, you suggest it. And then what I've learned over time is not, you don't force it. You introduce them to a handful of amazing rock star people in those roles. and they may or may not be available, right? But you at least show them, like, hey, what if you had somebody like this person, right? Wouldn't you love that?

And then they meet that person, and they're like, yeah, that's amazing, I like that person. And sometimes they get that person, but at least it shows them what it's like, right, to have that kind of person in their company. And that's probably the single biggest place I run into that kind of friction is on those sort of, you know, expensive hires,

those people that really are gonna take the company that next rung and trying to get the founder comfortable. But I always find showing them those kinds of people, then we're speaking the same language. I think it's a good segue, Dave, to sort of talk about the area where you invest. You tend to be a series A late seed investor, correct? Well, I think today we're calling it seeds. So the rounds we're doing, the companies are raising two to three million. They've typically raised half, you know, half a million to a million by the time they come to pitch us.

We typically like to see a product in market, so. A product in market already? Yes. With some product market fit, maybe not perfect. Yes, it's typically early. It's typically early. Yes. Which means tens of thousands of month revenue, tens of thousands of users every day,

something in that range. Yes. To get that big check. Now, at what point does what the founders doing in terms of hiring and the team need to change and sort of hit this level Rebecca's talking about of maybe, the team that got us here may not be the same team that gets us there. And then how do you personally handle that? Maybe you could take us through some anecdotes.

I think that when the company is early, you're pretty much betting on the founding team. And so freestyle, for the most part, does not take board seats because if the things aren't working out with the founding team, it's kind of hard to think about changing things out. my main thing that I'm looking at when I'm working with an entrepreneurial team, especially the founding CEO, is I'm interested in confirming they understand what my suggestion is,

and they understand what I'm saying. But if they have a belief that, Dave, I hear what you're saying, but I see the vision going down this road, then I'm like, that's great. It's your vision. I want to be supportive of you. I just want to make sure you understand my view. And so the challenge sometimes is you have entrepreneurs that are, what I would characterize as know-it-alls.

And my advice to many of the entrepreneurs out here is just to stop and listen to the advice that you're getting, and you're going to get conflicting advice from the three of us when you come and pitch us. And your goal as a CEO and your job as a CEO is to try to figure out which advice to follow. So that's my advice to you as the entrepreneurs. Yeah, and often there are multiple ways

in which to solve a problem or be successful Do you have an instance that you can think of where you gave advice and the person didn't follow it and was successful or maybe not as successful as you thought they could have been? In other words, you know, you constantly hear these, you know, folks who are going for the B to C route. They try two or three times for product market fit over 18 months. It doesn't work. And then somebody says, go enterprise and sell it to somebody else and then let them be the take the risk of going to consumer. And you're left wondering, well, that's not going to work. and that's a hell, Mary, why don't you just try the fourth time to do the consumer thing and see if that works?

I think, you know, a good example is one of our portfolio companies is called Airtable. Many of you have probably used it. On a fun side note, Howie was our first intern at Freestyle back in 2009 when he was a senior at Duke. And when he started Airtable, he had a vision and he wanted to keep the company incredibly small. And so my advice to him early on was like, you only had like four or four. five employees for the first two years as he was building what is now the core of air table. And my advice was like, Howie, I'm so excited that you are building this, but you should hire more people and you should try to grow this faster. And he was incredibly methodical with it.

And so even though I advise that he hire more, he kept the core team small. It allowed him to build a tremendous base. And now we have the air table that many people are using today. So there was advice that was not necessarily followed by Howie, but he had a vision, and I'm happy that he continued to follow his vision. I think just building on the team factor, I think one of the hardest challenges for startups is to, you know, they often know they need to complement the team, but one is just where to focus because you look, okay, maybe I need a VP of

NG and VAPE of sales, VAPA marketing, but what is the one critical hire, which will transform? And then also, also just often leveling up, I think founders often go through this sort of imposter syndrome situation. Like I don't, you know, am I really kind of, I'm running the startup, like am I, and you tell them you need to hire the very best person in the world to solve this problem. And some founders just don't kind of like, don't perhaps have the confidence or the, or the capability sometimes to kind of go after the best person. And it's our job often as investors to actually just say, level up.

Why do you try? There's going to be an exceptional executive at Google who maybe just wants to solve this problem that you're solving with the incredible team. Just try and hire that people. So I think as kind of investors and coaches, like a critical part of our role is to identify what that critical role is and then also helping them find that exceptional executive. And bringing them in, right? I think I've placed so many people.

It's just like here, meet this person. have a beer, have a cup of coffee, and connect at some level, right? And that's mostly our job. And how do you convince people in a town where it seems like compensation has been disconnected at the larger companies from contribution? And it's more about taking people off the market. I think specifically about Google and Facebook offering packages to people that don't make logical sense necessarily other than to prevent.

And this was kind of what multiple people did. told me at Google they were doing in the early days, just take this money printing machine, overpay people so they don't start companies that could eventually circle back around and attack us. What is the dialogue like, Rebecca, when you say, here's a small startup with nine months of runway in the bank. I think you should leave your amazing job on the roof of Huli drinking pina coladas to go work in a we were 120 square foot desk with the All by yourself. All by yourself.

What's the dialogue like? Take me to that phone call. Yeah, well, there's a few of this. So first of all, anyone know the average tenure at Facebook and Google? 30 months. 18. Fuck. So it's not quite the like the, you know, the sort of end all be all, right?

That we think of. And that's the shock the hell out of me. I'm like, really? Facebook and Google too. And yeah, it's 18 months. And so part of it is if you're having. that conversation in any depth, you're talking to the wrong person, right? I mean, people, you know, come to the city especially and they're looking for opportunity. And so what you're

selling is an ability to have an impact, make a difference. And if it's, you know, the cash, if the cash is king, then that's really tough. But, I mean, I'll tell you, I mean, Scott Sanborn is an example, right? Scott was our CMO lending club, and I hired him very early on because the one hire we needed was a CMO. And he had a, he had a salary at a public company at that point. He was a point in time, that was in the dark ages, right? Four times what we were able to offer him as a salary at Lending Club. And I remember sitting down and talking to him about it and explaining the merits of the company. And you can get creative sometimes in structuring and things like that, just to guard downside, right? So there are ways to do that. And then I will tell you, too, for the

first four months, I'm like, holy shit, what have I done to this guy? You know, because startups are scary initially and so it was every every week at ellas you know sitting down with scott saying okay what are we looking at how's this going and and helping with that process and and it worked out quite well from in the end he's currently the CEO and you know but it's hard i mean it's it's really you know you there it's not only that you're competing against it's not really probably so much the facebook's and the google oftentimes with these executives often it's just other startups right other very well-funded startups and how are you selling your sort of X versus Y and they may have talked to a recruiter a few times they don't have a lot of depth in that in that industry potentially and how

and that's really where a good board hopefully helps you a ton because that's a lot of what I spend my time doing is convincing those people and then supporting them when they come in to to make sure they feel like you know they they have an access point to the board that we are supportive that we are helpful and it's probably the most fun part of my job actually is that recruiting piece Let's talk for a minute about the Bay Area and the impact that the lack of housing and the cost of doing business here has had. 10, 15 years ago, if you got a term sheet from Santill Road, they wanted you, and it would be in the term sheet that you had to move the company here in order to get the money. Today, what is your advice and thinking about with a seed stage company with $2 million in the bank? they're in Austin, L.A., Miami, New York, Seattle, Portland, whatever, and they ask you,

should I move my four-person company to San Francisco, what do you say? Yes or no? Stay where you are. Okay, so that's no. Do not come here. Pete, yes or no? I would say, come here. You say yes? Yeah, I would say... I'm mixed at freestyle, but I'm saying come here. I would say Josh and Jenny, my GPs would say, you know,

stay in Austin. Okay, so we got two, we got one stay where you are. I'm in the likely stay where you are camp as well, so we have a split vote here. Pete, take me through why a company with two million dollars in cash should come here and ship, you know, $70,000 to a customer support rep to have them hate you for paying them $60,000 or something. Well, I think at the very early stage, it's such a formative time for the company. And there is a very unique network effect within the Bay Area, which is a unique combination of capital, talent, and culture. And I've seen how founders, you know, as you detected, I'm born in England. And so I see founders coming from the UK and they come out here, and they come here for a couple of months. And there's like, whoa,

just like, they've leveled up in a big way. They're sitting in coffee shops. I just met someone who who was like met someone, a mutual friend who sat in a coffee shop and met them. And they're just basically in this ecosystem where they find incredible talent. Now, the early stages are such a formative time that I think you can put yourself at a huge competitive advantage by starting here, but it's very hard to scale here. And I think increasingly you see just this distributed teams. I would say every single one of the companies by the time they get to Series A, certainly B, but probably A, have a significant, certainly have a remote team, and often by B, the majority of

the team is remote in some capacity. And so I think in that way, because of the tools, you can have the best of both worlds. I hope so that you can build this formative team, five people in a, in a cheap accommodation than scale outside. Is it actually interesting, that's the advice I give, is, you know, have a small office here, but then keep everybody else wherever the home offices. So maybe there's a balance here. You were to say something, we're back again?

Yeah, I mean, I think for me, our last two deals were in Seattle. And we like to tell ourselves, I think, here, that everything just happens here, right? But you go to Seattle, and you're like, oh, wow, this little company called Amazon, right? And then you have Tableau, and you've got Remitly, which is killing it,

and you've just got this whole ecosystem, which really, to me, reminds me of San Francisco 10 or 15 years ago, right? And it's not so overwhelming. mean. You've got access to capital. You've got the talent. It's not that quite that expensive. And you've got these large companies that are sort of there with talent pools as well. You also have Utah. And, you know, Qualtricks is kind of created in there. And so it becomes more about kind of what you're doing you with your founder, how we did. You know, same focus, building your company, you know, and staying really

true to yourself. And I think you can do that now. I think there's so much money and so much capital that you can do it. Having lived in San Francisco for 15 plus years and having to dig a hypodermic needle out of the bottom of my kids diaper bag at Dolores Park that's stuck in it when I put it on the ground, I'm just done, you know?

And so I look at that in terms of a quality of life and I'm like, you know, there are other places to do that and you don't have to worry. Now, I do agree with Jason too that at a certain time, especially business development, you look at the companies that are here, you want like a BD kind of office or outpost here, and marketing is really hard to hire outside the Bay Area.

But when you look at the other skill sets, I think you can absolutely do a distributed team elsewhere. I agree with many of Pete's comments about the ecosystem that exists here. I think the main thing that I would think about starting a company today is really expertise around the distributed workforce, which is used broadly, but I know, like, Matt Mullenwegg from WordPress, He now has a podcast. I've not listened to it yet, but he talks about how he believes he has a solution for the true distributed workforce. And so as you young entrepreneurs are thinking about starting a company today, it's really how do you maximize from the beginning about how you manage a distributed workforce.

So many of our companies have kind of corporate headquarters here. and then we have, you know, like I think of Intercom. Intercom has 100 employees here, 300 in Ireland, in Dublin. And so we have many companies that have that setup. But then you have the WordPress setup, which is basically you've got employees all around the globe. And you have the mechanism to manage that. And starting from day one, I think would be a great differentiator. And in a way, Pete, if a person can make it here and actually make it work,

it's a bit of a tell that they're really good or committed, isn't it? If a startup says, you know what, we're going to make it work here. Well, I actually think it's easier to make it work here. So I would say the opposite. I would say it's really freaking hard to make it work outside the Bay Area. And sometimes just because I think it's harder to raise capital. It's harder to find talent. and so I kind of see founders that

you know perhaps they make some progress and then they almost graduate to the Bay Area and then can scale it I actually I mean I've been involved in you know scaling startups in Europe and scaling startups here I just think the you know you've got way more resources available here in a way that you just don't find elsewhere

I think New York is dramatically changing pretty quick I mean, I think New York, when I used to go for the board meetings for lending club in New York, I would try really hard to find five or six, you know, companies to meet with while I was there that were startups as well. And it was challenging back then, right? In like 2014, 2015, I was just at the primary conference, and I could have stayed the entire week. It was amazing, just the sheer quality of startups and in capital. So I think it's in pockets. I don't disagree.

I mean, it's really, I think this is absolutely still the hotbed. but there has been a massive evolution, I would say, in the last three to five years, in just a couple geographies, mostly New York, and then I would say Seattle, Utah is strong, L.A., yeah. And so maybe five places that you can look to. And the funny thing is access to capital. I'm sort of cynical about venture, and I joke all time about what it takes for us, but you literally need to be like one-stop, but you need to be able to get there and back

in one day with everything but New York, right? But it's true. I mean, people look at the flights, and so if you're going to be an entrepreneur and you're going to start a company, you'd demo a better look and make sure that coming out of SFO, it's a lot of flight options and there's no connections. Yeah, if direct flights, it's actually interesting that you mentioned that. Like, it seems like any VC is willing to, and perhaps excited about going to L.A. for board meetings.

It's really easy. And it's fun. Like, you get to go hit a cool restaurant or hang out, the weather's great. But let's talk about how do y'all deal with the absolute 100x in the number of startups over the last 10 years? I mean, it is phenomenally difficult to sort through this many great startups. If you look at just the people who pitched at office hours this morning, these are very nascent companies with 40K in revenue a month, 20K in revenue a month. These would have passed Series A easily 10 or 15 years ago, and now maybe a lot of them with 40K can't get a Series A,

and they're having a hard time closing their bridge funding. How do you sort through all this madness? It's open to all of you. Well, first of all, the biggest challenge going from being an entrepreneur to a VC is I went from a yes man to a no man. And the fact that sadly, I have to say no, 99 times until I say that single yes, And so that's been challenging. And I guess it is...

Just emotionally. Just emotionally. And basically I have to... And what I've learned to do is I've learned to say no very quickly. And so similar to when I go back to my days 20 years ago when I was trying to raise capital for Spinner, internet radio, people were like, well, why would I listen to the music via the computer? Like, that was my biggest reason for passing.

And finally, the one person that invested was Chris Anderson, who now runs Ted. He was my first angel investor. So he saw the vision of what I had. So I guess my feedback to you as the entrepreneur is just you got to get out there in pitch, personalize the pitch. And so for freestyle, I get direct emails to me, but I really can't respond to those. And I think as Jason's aware, and probably others, like you kind of need to network into the firm. And so a deal comes referred.

And so that gives one level of hurdle that an entrepreneur needs to go through. And then I'm looking at the pitch deck because I need to make a decision quickly on whether to engage in a call. And so the pitch deck needs to be solid. The introduction, it can come through a myriad of different ways, but those are kind of the two things that at least allow me to have a certain level

of time because we have so many people knocking on our door. Yeah, just put in context, we see 3,000 deals. We review 3,000 companies a year and we invest in 15 to 20. And there's probably similar numbers. And so, you know, I guess

my advice to founders would be, one is do your research, like to try and find the precision around, okay, this is a firm that leads C deals in this sector, in this geography. Like, it's quite straightforward in terms of doing that research, but that, you know, if you do your research, you're not only saving your own time,

but you're saving time with the person that way more light to respond. Put your best foot forward. You know, there's, I get emails which are like, Hey, we're doing this thing. Do you want to meet up for coffee? And I'll tell you all about it. I'm just not going to meet up for coffee because I've got, you know,

a hundred of those in my inbox. Like, you know, investors will not share information with other people. Otherwise, the reputation is killed. But they will absolutely kind of like, if you share enough information and why this is a compelling business, then you're like, okay, this is pretty cool. It's a huge tell if somebody's like, I need you to sign an NDA or I need to meet you for coffee

in order to tell you what I'm doing. That's just a non-starter, and it's amazing that one-third of emails are which date for coffee worked for you? And it's like, what are you working on? And is this even related to my investment thesis? Well, then you have to figure out whether or not to answer it or say no. And then it's just, yeah, my email box is a Twitter stream. I treat it like a Twitter stream at this point in time.

So you jump in, you do what you can to triage it, but you're not a slave to it anymore. No, I'm not at all. I don't believe in the zero inbox at all. I'm just like, that is a total waste of my time, right? You haven't used superhuman yet, but when you do. I have, actually. Who's on stage next? I actually time box, like, how long I will actually devote to email everything.

I have a solution for you. Okay. It's just the most beautiful solution ever. And it happens? No, no, no, no. You can't let anybody into your email box because somebody in your family is going to write you like a 17-page. narrative that you can't have your assistant reading about like whatever you know like one last tip on this we launched a talk called signal.nfx.com which is a director of 8,000 investors.

Yes. Which helps founders find kind of sector stage geography. And the quickest path because you upload your address book. Exactly. So you kind of helps you to find like warm introductions. You mentioned earlier about warm introductions. It's like, you know, the sign of a great entrepreneur is to find resources that don't control. And that is basically getting people that, that you've met to kind of introduce you to good people. So that's a tool for you to as well.

And everyone out here is one degree, right? So it's pretty linear. For Rebecca, this is what you should do. You create something called bankruptcy, September 2019. And you just take everything and you start October fresh. And then if you can't get through all of October, you just say bankruptcy 2019 October.

And you put everything- Once a month. Well, I'm doing it quarterly or so. And then what I do is I get to start over and try to keep up. And it just makes me feel a little better about it. And then what I do is if I'm on a flight and have time, I go back to that month. And I just spend an hour or two in there, see if I missed anything. And then I changed my Twitter handle to, it's still at Jason,

but my name as displayed is Jason at calicanus.com. I do respond to emails. I consider that my competitive advantage is that I just hit reply and ask them a couple of questions. What is it in an email that makes you reply? Just the number one thing, if you saw it in an email, would make you reply, and we'll wrap up on that. Well, I'll just say that there's an entrepreneur that emailed me prior to this that had a personalized email that was like, you know, spinner, crackle, and he had looked at my bio, and I'm going to meet with him after Alex. And so, as I said, I think the personalized email to understand which companies we've invested in, it demonstrates, as Pete said, that they've done research about. me. It's not a drive-by.

Right. I mean, the blanket emails that you get, or they get the name of your firm wrong. Yes. Yeah. Hi, Rebecca, Graylock. Yeah. Okay, so what's your number one thing in an email? Yeah.

That you see it, and you reply. If you can just imagine the perfect first, you know, page down above the fold. Yeah. So I have X million in revenue. I'm growing Y percentage month over month and I happen to be in Z vertical that you like to invest in. Perfect.

So data, revenue-based data. Team. Why is this an exceptional team that's uniquely suited to solving this problem? Got it. So I worked at Apple on AirPods and now I'm doing X, where I worked at Trulia and now I'm doing the Trulia killer or whatever it is. Fascinating. For me, I love a good chart and the percentage growth on it.

So the ideal construction of an email is, dear Susan, a big fan of your work at your first company and your investment in this company. We're growing 32% month over month for the last six months. Based upon our experiences when we worked at LinkedIn doing growth there, here's a chart. We'd love to get together with you. And also I would suggest having a docksend pitch deck because then you can actually see that David, Freestyle Evackey, clicked in and looked at it. I hate those. I hate docs and because you can't search.

Like, you can't then search. I know there was an attachment. It's so creepy to know, like, have you seen the reporting on it? No, I know. It probably knows how many minutes, how many minutes are on. And it's like, you're on slide 8 for a lot of minutes. You don't like it. I'm surprised, because the advantage is the entrepreneur can change it versus a PDF that goes

around. So, anyway, I put that up with the NDA. I put that up with the NDA. Or I'm going to meet you for, I hate it. Or I'm going to meet you for coffee. I'm not going to show you. Dachsend or not Duxend. Let's talk about things on the edges that mean nothing.

We have another tool called the company brief. The company brief.com is Doxend for fundraising. There you go. Maybe it's not one. The company brief. The company brief. com. You made this at NFX and the one of your tools?

It's a free tool for anyone. So, and it provides not just. You're like, let's do a tool that gets us all the DFO, but it's free for everybody. I don't see it. You guys are sinister and I applaud you. This is so great. Anybody can put their stuff in here. We'll see it.

No, no, no, nobody else. I have a common application. We give you a free tool where we make no money, we spend a lot of many to do it, and we don't. I'd like you to go to YCapplicationperfect.com, where we'll make your YC application perfect before you send it. For me to do the first call that, we need to see the pitch back. That is brilliant, Jason, let's do it.

I'm on it. I'm totally on that one. Yeah, perfect YC app. We do not look at the data. We can't, I can't see the data, but essentially it's like trying to strike. the data in an interesting way. This relevant doxen is for salespeople, primarily, but the company brief is for funding.

We make your YC application perfect.com. But I think the pitch takes to be on the first email, for me at least. I don't know how you guys feel about that. Don't hold back. If you catch somebody's attention, you want them to keep going and not have to hit reply and wait. So have the deck, have the growth.

Just put it all out there. All right. Let's give it up for Pete, Rebecca. And. Thank you, Jason. Thanks, everybody. So I like that the end of the last presentation was like a pitch to hire people

because it pretty much sets up what all of you are doing, which is, holy shit, how do I hire people? And that's a pretty common startup story. We hear from a lot of people, but I've also experienced it myself. So at Lever, we're now 250 people. I'm one of the founders, started the company in 2012, and I've had to hire a lot of people here in San Francisco,

as well as we now have an office in Toronto. And we've got over 2,000 customers at this point. So something that people, ask a lot is more or less like how do I get started starting to hire people seems very daunting and there's just a lot to figure out so I want to save you all time just do this process don't reinvent the wheel and you'll be off to the races my first piece of advice is a little bit of a reality check don't write a job description they're really really useless I know that sounds like complete insanity coming from someone who makes hiring software. But here's why. Job descriptions are basically these long lists of requirements, skills,

things that you expect the ideal candidate to have. No one on earth looks like a job description. You will read these things and you're like, wow, it's weird that Facebook and Google and your startup all want to hire the same person. Isn't that a little strange? And candidates don't like it either because they look at these things and they go, wow, well, you know, how is this company any different? So actually candidates mostly just ignore them. So what I challenge you to write is something very different and we call it an impact description. An impact description is what are your expectations for this person over time? What do you expect this person to actually do for you within the first month? What do you expect them to do for you within three months, six months,

nine months a year? So if you can write all that down, you have a much clear idea of what you're looking for and candidates will appreciate it too. Ultimately impact descriptions are better in many ways, they help you to focus on hiring people for roles once you really understand them and you're able to focus on what you need rather than a wish list. They help you to sell candidates because people come to you and they go, wow, like I've never seen a job description like this. I've never seen something that actually tells me what the job will be like. And I can imagine myself doing this job. I'm really excited about it. They also will help your interviewers to evaluate because people can read the impact description and go, oh, I know how I can actually imagine.

a person doing these things and test for whether people are able to do those kinds of things. And it even saves you time. You know, as a startup founder, a big part of what you need to do is be efficient with your time. And so you can use your impact description as an onboarding plan. The last thing you want to do once you've made a hire is then have to sit down and do a long process to figure out how you're going to ramp this person up. Great news. You've already done the work. So in addition to the time expectations, you also fill out four bullets.

bullets. The four bullets are what is this person going to own? So what are their responsibilities? What are they going to teach you? What are they going to learn? And then what's the ultimate impact? So when you're filling out those bullets, what you're really figuring out is what's the story to this person. So what they're going to own is, you know, their responsibility. It's kind of the clear way of describing the role in terms that employee can understand. What they're going to teach is what they bring to the company. As a startup, you're hiring only people that add something to your team. And what they learn is what's in it for them. No one's going to

take a job and perform at their best unless they're learning and growing, especially not the best people. And then at the end, you want to really quantify the impact that they're going to have. What's the delta between what was the world like before and what's the world like after you hire this person? So you know if it's a good use of your time. So once you have a good idea, you're like, cool I know who I want to hire I have a good understanding of the role I can pitch it to candidates because I know how to describe it in terms that they'll understand and what the expectations are for them over time now it's time to get proactive you are going to get some great candidates come to you but in fact most of the people you're going to hire you're going to have to do the work you're going

to have to go find them you're going to have to bring them in and convince them to join your company So we recommend that you really hone your pitch and everyone you meet, remember that they're a potential candidate. So most people aren't going to be looking. It's not going to be the right time for them. But what you can do is you can just get a meeting with them. Just describe a little bit about your company and then get their name, get their email, and put that in a CRM and start tracking that over time. Eventually, it will be the right time. And once you've already done that pre-work, you can capture them at the right time if you send them a number.

of nurture messages. Honestly, it's a lot like marketing automation. This is something that most companies aren't doing. And so if you actually market to your candidate pool, you're going to have a leg up on the competition. Here's a quick interview process. You don't need to think too hard about what your process is when you're at the early stage, but what I'd encourage you to do is really focus it on real work. So here's some stages that we'll give you as an example. Your first interview should be a quick phone call. So half of the purpose of this call is for you to explain to the person what is this job entail, what's the opportunity, why is this something that's exciting for them. And the other half is you're trying to figure out what kind of a career move are

they looking for, what kind of a job do they want. Don't focus too much on skills right off the bat. Focus on if they have the right motivation fit because the rest of the time is wasted if they aren't going to be excited about and passionate about this job. Then once you figure out that someone's a great fit because they want the role and you're really excited about what they could bring to it you bring them in for an on-site don't do a whole bunch of phone calls you're a startup just do one phone call and then bring them on if it feels like it's a good good chance of success the on site really focus on the skills focus on the things that are proof that this person could be successful doing the things you wrote down in the impact

description and make it as close to real work as possible always challenge yourself what could I do to make this interview even closer approximate what this person's job will be like once they start. Then we recommend this interview format that's a little bit atypical but I think it's really meaningful and you get a lot out of it. We call it the career trajectory. So this interview step what we do is we walk through someone's entire career history. It usually takes about an hour and a half a little bit longer from managers and what you do is you start with what was your first job or even go about as far back as college depending on how much experience

they have. Say why did you join and then who who did you work with and how, you know, how did it go? Like you ask a bunch of questions about what happened, what projects did you work on, what was the impact, what were the dynamics working with the individuals. When you get down to that level of granularity and you do it in chronological order, you get an incredible amount of information about what kinds of experiences set people up for success and what kinds of organizations just aren't a fit for that person.

You also learn a lot about what did that person really accomplish and get a much more clear understanding of what they could bring to your team. Don't forget to sell while you're still going through the entire interview process. A key mistake a lot of people make is they don't sell until the very end. So remember that a great candidate is likely going to have many options.

And so if you start selling before your competitors, you're a lot more likely to close someone. So really sell people on your culture. Bring them in, treat them like a team member, invite them to events that you're doing with your company, even before you extend the company. the offer. And then when you do extend the offer, start with a conversation before you send the written offer. This is really important because you'll discover at that moment what are the things that this person may still have his hang-ups and what are the things that you need to unblock in order to close this person.

Finally, have some fun. When you hire someone that's a really great moment to celebrate with your team. We at Lever have a tradition of making every single hire. We bring in a gif. We send it in an email, CC the team, and then the team chimes in and sends more gifts. It's a lot of fun. And it's a great way to welcome someone to the team. I'll be sending out these slides and also an offer for you to get a discount on Lever and an email to everyone who's an attendee, so don't worry if you missed anything. And Lever is a product that can really help you to do all the things we said and more. So come find me at the booth outside if you like. Also, feel free to contact us when we reach out to you over email. Thank you.