Y Combinator Startup Podcast - Dealing With Setbacks And The Startup Gut Punch

Episode Date: July 27, 2022

Dalton Caldwell and Michael Seibel discuss the best approaches to managing the many setbacks startup founders can face over the lifetime of starting and running a business.   Apply to Y Combinator: https://www.ycombinator.com/apply/   Work at a startup: https://www.ycombinator.com/jobs

It's like saying that you want to be a boxer, but like after you get really good at boxing, you'll never have to take a punch again. It's like, no, the sport. That's the sport. That's the game we're playing. All right, this is Michael Seibel with Dalton Caldwell, and today we're going to talk about dealing with setbacks. Needless to say, in both of our startups, we experienced a wide variety of setbacks.

And I think working with so many startups over the last 10 years, which probably become most obvious to us is how I don't think I've ever seen founders who don't get hit with a lot of punches. Like, dodging the punches is impossible. Like, even, I'll freeze another way. You might dodge some of the punches, but some of the punches are going to land. So this is going to be a bit of a talk about what types of punches land and what you might have to deal with if you're in this game for a long time. What do you think, Dalton? Did you all have a couple of punches? punches land over the years. Yeah.

I mean, that was my experience as a founder, was taking punches constantly. And I think what comes up in office hours with me a lot, man, is I think people want to talk to me about one specific thing and asking for advice about that thing. And I'm happy to do it. But a lot of what I want to encourage them to think about is the meta thing, which is that the thing will keep happening over and over again. And so developing a set of skills of identifying a situation of like, oh, this is one of these where like something bad happened and approaching it is part of like the sun rises, the sunsets, bad things happen. You know, like it's this is this is as much a part of of being a startup founder as literally anything else versus thinking you, you're never going to have them or that each each setback is different.

they're not. They just come, just like every sunrise comes, right? So let's jump into the first area that produces setbacks, investors and fundraising, the classic. The classic. I went in fundraise with this expectation. I came out with the bloody nose and a black eye. Yeah, I thought they liked me. I thought they were my friends. I thought I was special. I thought everyone else is raising. you know everyone else is this oh i i got all the right intros i know they're interested in my thing i did the networking like it's it's some version of i believed with good reason x was going to happen x did not happen w t f like how dare they are the universe like you end up like going kind of nuts on feeling wronged by a person or a system or whatever you want to call it.

Like someone did you wrong, right? What I think the scary thing about fundraising is that one fundraising process can produce so many of these experiences. Consent. Well, they. So many of them. And, you know, I remember personally the first full partnership meeting, like we were raising a round, like from a real investment.

investor and had my first full partnership meeting. And I remember thinking like, this is it. Like, this is, you know, this is destiny. Like, this is going to happen. Like, you know, it's taken me so many meetings to get here. And I remember in front of everyone, one of the VCs in the meeting eviscerated me for 45 minutes. And everyone else was quiet. And the person who like invited me to the meeting was quiet. And I just watched that person very logically take apart my entire startup, almost in a way that I would have had our roles been reversed? It was like, it's like, well, they were probably right, right, Michael? They were right.

No, no, it was, it wasn't, they weren't wrong, right? But like, you know, in some way they were right. In other ways, I think we were right. I mean, our company did well in the end. Precisely. Yeah, yeah. You could take apart any startup logically at that stage, like where there's no defense. And I just remember leaving that meeting being like, oh shit.

Like, I can't imagine how I felt an hour ago compared. to how I feel now. Literally, those seem like two different years of my life. We see this at YC where, like, you know, statistically most folks don't get into YC. This is the game. And you see the way folks react to it in very different ways. When we deal with in the context of YC founders,

the best people who don't get in realize this isn't a one-shot game. Yeah, they apply again. they make progress to their company. Like, you know, we, we send a reject email to every company. And, like, the best people will be like, you know, you're making good points. We're going to, we're going to improve on those things and we'll, we'll apply again. And I think that, like, they realize that that's a plus what? Like, you, like, you've earned some respect in that moment.

Like, put another way, there's an opportunity to get an advantage even when you feel like you just failed. whereas almost the worst founders feel like, oh, now the game is off. If I, like, curse, it won't be counted because, like, the, you know, it's, the time is over, right? Like, you know, nothing's counted after the clock runs the zero. And it's like, the game's not off. Like, what are you talking about? And we see this all the time with Series A's where, man, I talk about this so much. No one puts out a press release when they fail to raise an A.

No. So what's going on is most. A's fail. But no one ever tells anyone, but everyone tells everybody when it succeeds. And so it creates this warped reality that everyone thinks everyone is raising A's and everyone has an easy time. Everyone but me is raising a series A. Everyone but me is having an easy time.

What's wrong with me? And it's like, no, no, no, no, no. Like, I think it's just the virtue by which this information is shared. And so people have this warped view of reality. that causes everyone to think that they are personally, you know, everything bad has happened to them and no one else. Well, and this touches on the next subject, which is co-founders. Because, you know, this is something that I definitely experienced, you know, my co-founders are reading TechCrunch, watching idiots raise tens of millions of dollars every day.

And then looking at me as the fundraiser being like, hey, Mike, like, what's going on? Like, there's a couple of idiots with no products just raised 10 million from, you know, da-da-da-da-famous fund. Why is our Series A taking this long? And, man, co-founder fights suck. You know, co-founder disputes, they are the, in some ways, I think it rocks you to your core more than investor issues because, like, that's your home. Like, when your home feels broken, well. it feels bad. And YC, we encourage people to do startups with their friends.

And I think that a lot of people think about that and they say, well, that seems so risky. Like if my startup doesn't work, won't my friendship break? And, you know, we always talk about the other side of that. It's like if you don't have a strong relationship with this person, when things go bad, it's guaranteed to break. You know, at least if you have a friendship, there's a fighting chance. Every co-final relationship is always tested, right? And so you want to have enough connective tissue.

that like you can survive the inevitable friction and to think that there will never be friction that's not again not realistic and so you actually want to have enough of a relationship so when the inevitable friction happens there's still a relationship and it's not just like boom so the other thing that comes up a lot is this concept of the magical deal and I always love the magical deal because like the magical deal can punch you in the face when it doesn't happen and the magical deal can punch you in the face when it does happen because it turns out it's not as magical as you thought our first six-figure advertising contract with Microsoft which we were like oh man this is it like this is this breaks open our entry into the monetization game which required us to

redesign our entire site go to L.A. and produce a live television show lose way more than $100,000 of money. The show wasn't very good and complete waste of time and effort. Like literally three months of our lives, like down the drain. And if we think about the burn we had during that period of time, like let alone we didn't make money on the advertising, like the burn in the wasted opportunity. And in me, it's like, wow. But at the moment, we were like, these are the deals that will save the company. Like, this is the most important thing happening. You see it a lot, right? The The founder is like, this is the magical, here's the potion. This is what's going to fix up.

Yeah, I think it's that you reduce your entire startup to you just need one thing to happen. And then you're on Easy Street. I always picture, you know, at the end of the movie when they roll credits, you know, like something happens. And then like the music plays and they, you know, roll credits. Like, we won. Like I think people think that's how life actually is. And they're like, yeah, well, once I get this deal, you know, roll credits. And what's funny.

working with a lot of startups and when I was a founder is sometimes you'd get the deal and the credits don't roll you're like oh now what? Wait, I'm still here. I thought the movie was over and then you're like shit. I guess I guess we actually have to like run a startup still. We got into YC Michael like where are we rich like Like, are we, we won, right? We're successful.

We have to, we have to break this news to people all the time to get into YCE that like, it's still hard. I love that too because I think founders have this moment, have this thought in their head that that moment is going to be in the first two and a half years. Like the play the credits off, it's all inevitable from here will be in the first two and a half years. And we talked to so many alums who are like eight to ten years to their red, ridiculously successful companies, no music, like no, no credits, like no public companies, no credits, like, they're still doing it and it's still the same problem. Like, they have setbacks. I think, like, it's no fun. Like, these people have a hard time. Like, they have constant setbacks. Constant setbacks. I mean, that's the game. It's like saying, like, I don't know,

it's like saying that you want to be a boxer, but like after you get really good at boxing, you'll never have to take a punch again. It's like, no, the sport. People, that's the sport. That's the sport the game we're playing. If you want to reach that, like, retire, stop. If you don't want to take punches, stop playing this game. You had some thoughts on when a launch goes bad. Yeah, I mean, I think a lot of folks think that launches will be like the movie. Again, I think we're, we can't help but be influenced by television and movie and books

where, you know, an actual realistic movie that showed a startup would just be like people sitting at their keyboard typing all day not talking probably would be like lots of that punctuated by pretty boring conversations but that's not good in a movie and so anyway I think this translates to how people thinks a launch will go where they think

they're going to launch and everyone's going to care and like things will happen to them and like you know like they have a movie in their head of all these like amazing things happening and all these user signing up and the reason it's really good to launch fast is to get that shit out of your head as fast

you can and realize you put it out and no one cares whatever you thought like you this movie that you had is not realistic and what actually happens is like no one cares and sometimes they care a little and sometimes they care but in a bad way and they're like you're bad and this idea is bad and you like like you're like by lunch and everyone's like this is bad and you should feel bad And you're like, that wasn't what, this isn't the movie. I was, I was promised a movie here. I love that because it's like two levels worse than you can imagine. Bad is no one cares.

Worse is everyone hates you. People on Hacker News are like, you should be ashamed of yourself. And you're bad and all of your ideas are bad. And I could have built this in three days. And startups are dumb and you're wasting your time. You know, it's like, it's not great. And so again, the good thing about launching is you just get, you flush this out of your system. You're like, yeah, okay, cool.

This isn't like the movie. This is real life. And here in real life, you put out a launch and most people don't care most of the time. And you just have to keep launching over and over and over again. And like, that's the work. Right? Well, the movie analogy is so perfect because when you think about the launches that most people experience, I think one of the most famous types of launch that you would see in the world is a movie launch, right?

is a movie premiere. That gives you the exact opposite of impression of how a startup is, right? It's like a whole bunch of press, whole bunch of hula, hoopla, a whole bunch of people watching that movie quickly, and then it fading to nothing over the course of like a month or two. Whereas a startup is the exact opposite of that. It's like a whole bunch of nobody gives a shit for a really long time. And then at some point, 10 years from now, everyone really cares. But I don't know that people experience those.

Can you imagine actual time lapse? of the Facebook story. Like if there was a camera mounted on Mark Zuckerberg's head for like the first 10 years, what that would actually be versus what people think it was from watching the freaking movie. Like, again, like, it was a lot of someone sitting at a keyboard writing code and like staring at graphs a lot. And it wasn't that interesting. Like it was not entertaining. Not entertaining.

Well, and especially in the early days where it was exciting to move to another school. Like getting another population of 5,000 users was like excited was a big moment inside of the company. Yeah. Well, and again, if the actual movie would be them sitting at their desk in the house being like typing some stuff into a terminal being like, okay, we just launched a new school. And they're like, yay. You know what I'm saying? Like there's no music. There's no backing track.

They're just kind of sitting there staring at a screen being like, okay. Oh, wait, something just broke. Fuck. Oh, hold on. Sites down. Okay, sites down. All right. All right, well, it looks good. Sites back up. All right, cool. I'll be back. And so I think movies hurt us here. I guess they're good because they inspire us. But I think movies mess people up a lot of what they think normal is.

Well, the other thing that I think movies screw up is legal. So I remember getting our first angry letter. And like during my startup career, I went from angry letter from law firm, getting sued by the company owned by the prime minister of Italy, getting sued by the UFC, getting very aggressively invited to testify in front of Congress about sports piracy issue. Like, it was like, that first letter, I thought was a disaster. and if only it described all the other shit that was going to happen. Like, I might have just quit. Like, I just shut this down. And, like, I remember having this conversation with YC founders now

because it'll always be like, oh, God, we got sued. And I'm just like, and? Like, welcome to running a business. Like, you got sued. Like, check that box off. It just comes with a territory. Like, there's no way to avoid it. Like, there's not a universe where you could do big.

things and not have these setbacks where folks will tell you you're over. Folks will tell you, you know, you're bad and you should feel bad. Well, those are the two, maybe those are the two kind of silver linings, right? I think the two several lines is like, one, everyone you respect out there who's doing great things is dealing with all this stuff. And so that should make you feel good. Like every single person you respect who's done something hard is dealt with all this crap and 10x more. So you're not getting some hand, some bad hand. Like everyone gets this

hand. What's not about you? This is just the thing. This is just the game. This is, this is the thing is that you're going to every day have to deal with things that feel like setbacks. Well, and you can get, I think that's the second silver lining here is you can get good at this. Right? Like you can get good at dealing with these setbacks. You can actually get better over time. You can learn how to take a punch. You can't control whether or not you're going to have setbacks.

You can't. You have to let it wash over you, but you can completely control your reaction. Yeah. That's 100%. Like what happens in your brain after a setback happens is within your control.

And so you want to have acceptance. Yeah, some bad stuff's going to happen. happen and I can't fix it. But man, you have a lot of choices in how you deal with setbacks. And it can be anger, it could be fear, it could be bartering, it could be denial. Like, we've seen it all. But this is something that you can practice and good at and the folks that are great at whatever their thing is. Again, like, whether it's athletes or whether it's people putting out music or making movies, like, how do they, like, you can get better at dealing with like criticism or people not caring. And like, you can just do that. I'm just do that. I

That's your choice. There's no structural reason you can't have a better or more productive reaction to the setback, right? One, this is the only thing that I would add to that is that you're the example. Like in so many things in startups, the punch in the face is the moment where you can still win points. How you react influences how your co-founders react, how your employees react, influences how they will react when bad things happen to them. And so like the victory you can rescue out of the jaws of defeat for any of these setbacks is reacting in the way that you'd want everyone else around you to act react.

And like in some fun ways, it's like if people see you taking punch as well, they'll learn to take punch as well. And one day you're going to have a large organization and you're not going to be there to cover everyone. And there will have learned from you. They'll learn the good from you or the bad from you. Well, they will learn from you. And I think that's what's fun.

You know, sometimes this kind of stuff happens at YC. And it's, I actually like, I love it. Like, I love when people are freaking out. And I'm like, oh, it's going to be fine. Because it's like, it turns out freaking out doesn't help anyone. And it turns out of someone in the room is like, ah, it's going to be fine. Everyone like pauses for moments. Like, well, fine.

Maybe it will be fine. To be really tactical, what I tell people to do is you do an inventory. And you're like, okay, are we running out of money? Yep. Do we still have a product? Like, are we in legal trouble? Yeah. Like, are we arrested?

Okay. Like, are we? Am I in jail? You know, okay, well, could things have been worse? Like, is this recoverable? Like, you kind of just do an inventory. where you check in, you go, you know, reboot the whole machine. Yeah.

And you're like, well, how bad is this? Because sometimes it is really bad. I'm not going to lie to you. Sometimes it's real bad. But a lot of the times you do this inventory and you're like, okay, well, we have, we have three years of runway and, you know, we can do that. Okay. Oh, this isn't bad.

And that, that inventory, I like to call that the worst case analysis. Like, I actually like to like, okay, this bad thing happens. is one of the five things we're most afraid of now. And like when we say them out loud, did they just sound less scary? Because they didn't happen. It's like, oh, all of our customers are going to leave. Have they left? Has anyone even emailed you?

Like saying they want to leave. No. Learn how to get better at this because this is the game. Learn how to take a punch. Learn how to get good at doing hard things. That's the message, yeah. And it's weird because it's a superpower, right? In some weird way, the coolest thing about a startup is that like if you, even if the company fails, you can get this superpower.

I mean, it's great. Like you, this is a great person to have in your family. This is a great person to have in your friend. Like someone that's a rock. Yeah. Someone that will listen. Like, oh, something's bad. Let me listen.

Like, let me assess the situation. Tell me what's going on. Okay. So this, okay. That, all right. Like, I could see why this is a setback. But, you know, seems like everything else is going. Okay.

So, like, that's a valuable person to have around. Oh, man. All right. Well, to wrap this up, bad things are going to happen. Your reaction is completely under your control. Use it as an opportunity to get better at taking punches and be the example for the people around you. By uploading yourself, you can uplevel your team to. All right, man.

Great chat. Sounds good. Thanks, man.