Y Combinator Startup Podcast - The Secrets To Setting Smarter Goals

Episode Date: January 16, 2023

If you're looking to maximize your startup's potential, start by setting the right goals. Michael Seibel and Dalton Caldwell provide tips and strategies for setting goals that will help keep you and your new business focused on success—plus provide examples of bad goals to avoid.  Apply to Y Combinator: https://yc.link/DandM-apply Work at a Startup: https://yc.link/DandM-jobs

Did you learn calculus and then get the A, or did you cheat and get the A? Like, it's like, you know the answer to that question. Yeah, you're right. Like, the A isn't the goal. It's the representation of your knowledge and your mastery. This is Michael Seibel with Dalton Caldwell. Today we're going to talk about setting goals. More specifically, all of the pitfalls involved in setting or trying to accomplish goals

that start of founders we work with tend to fall for. Dalton, why don't you set this one up? Yeah, you know, when we were talking about it this morning, the phrase or the meme that came to mind was the one, play stupid games, win stupid prizes. You know, and again, what I think it means in this context is if you set goals or if you start playing one specific game that is silly to begin with or that it's like clearly a bad call, yeah, the prizes, the implications of that, the things that you win are going to be. equally silly or nonsensical or non-productive. Okay? And so we see a lot of people who set goals to, in effect, play kind of stupid games. Let's talk about the stupid games.

And then we'll talk about the stupid prizes at the end. Those are maybe even more fun. So, you know, I think it's, it makes sense to split this up into mistakes that people make setting goals and then mistakes people make trying to accomplish these goals. So I would say like the first one, and maybe I'll start with the simplest, is when people set goals that are so aggressive, they aren't motivational. And they're basically missing the understanding of what the purpose of setting a goal is, right? Like you want to motivate yourself to act smarter, faster, more intelligently than you would otherwise. And oftentimes people are setting goals that are too aggressive because they're motivated by fear.

You know, in YC, we see this all the time. And what's an example of a too aggressive goal? Like, what do you think? I can give you an example. What do you think? Yeah, you know, I'll see a YC founder who comes into YC just starting to build their product. And they tell me, by Demo Day, we want to have, you know, 30K and MRR. And we want to do that because some alum told us that, like, that's how much MRR you need in order to raise money on Demo Day.

And it's just like how many errors can be said in three sentences. you know, is my thought. What's an example that comes to your mind? My most common example is someone that believes once they launch a product, it will immediately succeed and take off. And so it's like, we're going to spend three months building this app. We're going to put it in the app store. We're going to launch.

And then we're going to get 100,000 DEU. Yeah. Yeah. And it's always, it's always the plan is they're going to put it out. and then it's going to immediately take off. Those are always the goals that are rough. And what's funny is we're always like, why do you launch sooner so you have more time to make it grow after our launches?

And like, no, no, no, no, no. We're going to spend all the time making it good. And so then when it goes, it's going to immediately take off top the app stores 100%. Dalton, why would we launch something bad? Then it won't take off, Dalton. Jesus. Yeah, we're going to talk to some influencers.

You know, we're going to do a social media launch. We've got it all lined up. or have a wait list. So yeah, top of the charts, definitely. Game on. So both examples of being too aggressive. The next one that comes up a lot is fake metrics. And we've talked about this a little bit, but for companies who charged their customers money, somehow creating a goal incremented in something that's not money. Hey, my product costs $10 a month, but I'm measuring registered users. I want to hit, you know, a thousand registered users. And it's like, that's weird. Like, hell, if users is going to be the metric, like, why wouldn't it be active users, right?

Like, just like if we're going to be in that world. Well, that's too hard, Michael. That's why. Well, fair. But if we're charging them, why wouldn't it be the amount of money we make? Like, that seems even simpler. But I think you've seen a wide variety of fake metrics that goes way further than users, right? Yeah. Counting hits on your website. That's an oldie, but a goody. Counting downloads, but not registrations is a good one.

Yeah. Counting users as people that started the registration process and didn't finish it. Counting users as people that downloaded your product, opened it, closed it after five seconds, and never opened it again as users. Yes. Yes. We've heard that one. Just basically like a thousand and one different ways to avoid the actual meaning of the metric,

which is to capture if it's working or not. You know, it's like every which way. People are so creative in finding ways to like not actually measure the thing that they know they're supposed to be measuring. And I can never tell if they're doing it to fool themselves or to fool like, investors or authority. You know what I'm saying? Like, it's hard for me to tell when someone is practicing self-deception that like number of downloads is the right metric or if they think that no one else realizes that that's obviously like no one's can tell what they're trying to do. We can tell. And honestly, it's probably both, right? It's probably a combination of both, right?

Like, okay, so here's another one that I see a lot, especially with fundraising, stupid comparatives. So like in 2021, Tiger gave this company a $100 million funding when they accomplished blank, 500,000 of ARR. Therefore, we will be able to raise $100 million of funding when we accomplish 500,000 of ARR. Right, Michael? Right? Like, there's no difference between, you know, summer 2022 and summer 2021 at all. Well, and that's how it works, right? Is investors, what they do is they just are always consistent and they always make the same decisions. And it's easy for you to tell reading the tech crunch announcement why the investor made the investment. Right? It's clear. Like I read the article, you know, this VC invested in this company,

we're kind of like that company in some superficial ways. It's in the bag. We got it. And then the other one that I love about it is like, no, Michael, like that, round was announced last week. That just happened. And it's like, sorry, but lots of things are announced way after they happen. Way, way after. And so again, I think what we're saying about what's the stupid goal in this case? Playing the stupid game here is trying to create superficial resemblance to other things. Yes. As opposed to deep the thing is working. Or maybe there's a deeper analog to the other thing. But if you're just focusing on the very surface level stuff, yeah, that is not a smart game to be playing. One other example, maybe an old one we talked about in the

past, you know, with Facebook, where you might be able to argue, well, they raised money when they only had a small number of users, right? And then you completely punt on the fact that like, that small number of users were 95% two hour a day Facebook users. Yes. So the engagement was like incredible. Yeah. If you can replicate Facebook's engagement, then you've got something versus replicating, I don't know, it's for college kids or I don't know.

People have very superficial stuff there. Oh, God. You bought up one on our list about sandbagging. Let's talk about sandbagging a little bit. Yeah. So sandbagging, I don't know how much people are used to that term. I think it's, I think it's a. off term. But sandbagging is basically where you set goals that are intentionally way easy to hit

with the goal of blowing them out of the water. So say, you know you can accomplish something in one week. The sandbagged version of the goal is to give yourself a month. And then when you go around and you hit the goal, you look like a genius. And what's funny is when you are working for the man, when you are working at a company, like office space, you know, you're in a cube farm, somewhere. It makes sense to sandbag goals. And that's actually great career advice, I suppose, is that you know, you set really, you convince people that somebody's really hard to do and then you exceed their expectations. What a great way to get promoted or whatever. However there's a problem. If you're used to doing that, and that's how you think all things should work, when you start

working for yourself, when you are your own boss, you are screwing yourself. And what may be a strategy to like rest invest working at Google or Facebook and to just do as little work as possible by sandbagging goals and working three hours a week or whatever people do. When you're the boss, do you see how that's like not great? Well and you better believe that big company you work for didn't have that culture when it was starting. Yeah, the founders of that company were not doing that. No. All right. Let's talk about accomplishing goals. So okay, let's say I set a good goal, right? I'm a post-launch, B2B SaaS company with a couple users and I am setting a goal of getting my first 10 paying users, right? Great. Like we're in the right ballpark. Let's hear about how people screw up accomplishing

goals and somehow kind of still play the stupid game. Right out of the gate, it's the way that you accomplished it is something that you know in your heart is not like. What's the word I want to use? kosher? I don't know. What word would you use, Michael? Like, I like using the word cheating. Like, you know, it's like you're taking a calculus test. Did you learn calculus and then get the A? or did you cheat and get the A? Like, it's like, you know the answer to that question. Yeah, you're right. The A isn't the goal. It's the representation of your knowledge and your mastery. I'm not good. You didn't, if you didn't learn something when accomplishing the goal, maybe you didn't

accomplish the goal. You know, you can fool investors, you can fool co-found. You can fool a lot of people. Yeah. Yeah. People are very trusting. And so I think the way the mistake people make is they think that because they fooled people in a short term, they won something.

They didn't hit the goal. They're like, yeah, you know, what I actually did was I got my friends and family to do blah, blah, blah. Or what I actually, you know, there's like something where you're like, yeah, this didn't, we cheated. But no one else needs to be aware of us. You're like, well, I guess, I guess this worked. I guess this is how this goes. So another way that people screw up the accomplishing goals is not understanding how to take the L. Okay, maybe you set the wrong goal.

And instead of realizing that and setting. a new goal. You cheat or do one of these other tactics to try to accomplish it because you feel as though not accomplishing your goal is a failure in of itself. Man, I find founders screw this up constantly. It's like, you don't have to assume you're going to be good at setting goals. Like, you can give yourself some slack, assume you're going to be bad at it. And like, you can adjust over time. You can set better goals over time. You cannot accomplish your goals and learn from it. There isn't this, you know, sometimes, YC, I think people feel this like, oh, we're grading them on whether they accomplish their goals.

And it's like, first of all, we're not grading. We're not your teacher. We're not your boss. And second of all, like, your job is to work on the hardest problem in your company. Like that, like, if you've made progress on the hardest problems in your company, you're doing well. That's the, that's the whole gist of this. It's not like, oh, did you like release that feature when you said you were going to, you know, that no one's going to use. Oh, man. And then you talk about excuses a lot. How do people screw that up when they don't accomplish their goal? I just notice a lot that when folks set goals and not able to hit them, that's okay. But when folks are in a position where they really think it's important to make a lot of excuses on why it's not their fault and everyone else's fault, and they just have this like

inner desire to like tell me all the excuses. I think that's not helpful. In the that like again I'm not the boss like I don't care okay you didn't hear a goal great let's move on like like like it's like they want redemption and so I just think that it's good if something doesn't work to accept it to acknowledge it to look at it but realize you're the boss of yourself and you should just not feel a need to make a million excuses or have like like create this long narrative where you're the victim and everyone else it's not your fault and your heart was in the right place and you did everything right, but everyone else was wrong. This is usually stuff about sales cycle. Well, you know, the sale cycle is just long. Like, this is just too hard. And it's

just when people do this, my message to them is like, hey, that's fine. I'm not saying your excuses wrong, but like, why are you spending all this energy trying to plead a case like you're in court that the thing didn't work as opposed to like, well, move on and make something that does work. How about that? Spend energy in a positive proactive direction. then weaving the narrative of yourself as the person who did great, but you're misunderstood by the universe. This is an internal tool. Like, this is a tool for you to use your help yourself. This is not a tool for you to please someone else.

Like, that's kind of irrelevant. So let's do the takeaway here. You know, you set this up with play stupid games, win stupid prizes. Let's talk about some of the stupid prizes that we see companies win. Where do you want to start here? Yeah, the last thing is, if you set bad goal, if you start playing a silly game, you can win at the game. We see lots of people win at the game.

And so one of the stupid games sometimes people play is just how much money can I raise? The more money I raise, the better. My goal is most dollars raised. And the bigger that number is, the better I am. So you're playing the game. You won the game. Congratulations. What's the prize you win, Michael?

What's the stupid prize if you play the raise as much as you can game? often you lose control of your company. So like when you confront the challenges, suddenly, you know, your board can fire you. Often you find yourself burning tons of money because all the people who gave you money expect you to spend it. Oftentimes you have the wrong people on your team.

You have a bunch of people who think you've made it, who think that this is, you know, the next Google when in reality it's not. And then last, you might have to change what you're working on or change the problem or pivot in some significant way. But now there are all of these people and all this money and all this momentum going down a direction that's driving a company off the cliff. And that pivot becomes ten times harder or damn near impossible oftentimes. But you did win the fundraising game.

Yeah, it's like congratulations. So congratulations. Here's your prize. you have a messed up company that shouldn't have raised all the money and you've got to dig yourself out of a disaster and everyone's mad at you. Here you go. You won the prize. Have fun. The next fun one is I want to feel like someone running a big company. I want to have 50 employees. I want to have 100 employees. I want to have 500 employees. I want to be a boss of a lot of people. My metric is number of employees. I want a real big team. I want to move real fast. That's my game. Yeah. It's always about moving fast. That's the lie. It's like if we had

this, we could finally move as fast as like, you know, we could finally build all the things that I want us to build. So what's the stupid prize on that one, Dalton? Now you wake up one day and you look at the spreadsheet of your burn and you look at all the people that work at your company and you're like, oh no. And guess what? It's now your problem because now you might have to do a layoff. You might have to let people go. You might mess up people's lives that believed in you. You might mess up that or have moral issues there. It's like the worst thing ever to over hire and have to deal with it. And if you talk to someone that's had to deal with this, this is usually one of the more the biggest failures if you look at your life. I know that's how I feel like personally is the biggest failures I've ever

had were definitely having to let people go that I shouldn't have hired. So congratulations. You win the prize. You hired a bunch of people. You're a big, important person. Now you're responsible for all of this. Yes. Yes. Here's the other one. I love this one. Dalton, I need an executive team. It's time for my company to become a real serious company. And to do that, I need an executive team. And so I'm going to spend the next year recruiting the executive team. Like, it's time. I'm, I'm, I'm, I'm ready to grow up, Dalton. I'm ready to grow up. What do you think about this one? How many great executives have we encountered over the year?

I mean, look, I think if all you do is consume like VC content, this is an idea that gets introduced into your brain. And I think maybe there is a time where this is a good answer. But it's like so much of the VC content is aimed at late stage founders, which is pretty weird. it's like putting out content that's like you know how to care for your um your Ferrari or something like again I don't really know who a lot of this stuff is being that the majority of the people that consume it are like two or three person startups and if you if all of your advice is like hire an executive team

when you have like a three person pre-pmF startup like oh man like you can get someone to leave you can get someone with a title to leave Google or Facebook or somewhere really impressive and you think you're like a big winner that you got someone from this cool company to join your company. But then you wake up and you're like, wow, what did I do? Like what usually happens is they either are, either they join your startup because they weren't doing well. I'm trying to think of a nice way to say it. Either there's a reason they joined your startup and left Google or they had expectations that you were farther or along or more successful than you actually are, and they get very upset with you when they realize that your startup sucks. Tricy. All right. The next one, the next gift that you

receive when you play a stupid game, we've touched on this a little bit, is I'm now burning tons of money because I just scaled negative margins. You know, I had something that wasn't working in this city, and I expanded that thing to 30 other cities. And now it's not working at a massive scale. and I did it because my investors told me to and now those investors aren't taking my phone call and this is like so hard because I think people don't realize that either some stage of investors or at some point in your company

someone's going to pull out your finances and do basic arithmetic and ask themselves is this real and like eventually you will be judged based on like is this real and sustainable And if it's not, like, you know, hey, sometimes you even get post-IPO, but like at some point. Those people are having a bad time. We're not going to name any name.

No, we're not having fun. It's not being post-IPO and then having your stock lose 95% of its value. I don't think those people are having a good, they played a game and here's, like, the prize they have is having a rough time. So I definitely feel as though founders make this mistake of like, if I raise the last round by massively scaling my negative margins, I'll be able to raise the next round. And that luck runs out at some point. You know, the next topic is on, you know, acquiring companies. And I think that this comes in a number of flavors.

One is, once again, we're finally grown up. We can make our first acquisition. Or like, we want to get good at this acquisition thing. so we got to start doing it. There's a lot of talent out there, Michael, and some really talented failing startups would love to be acquired by us, and this will help us grow faster.

So we're going to acquire them. And by the way, that doesn't mean that, like, acquiring companies is bad. It just often means the folks who are thinking about it in startup land tend to be thinking about it too early. This is, like, another example of, like, taking later stage advice too early. early when like the advice you should be taking is make your core business work like just make

your core business. If you're pre-PMF, if you don't have product market fit yourself, probably you're not going to acquire one. Probably not a great idea. You're laughing, but people are probably like, wait, really? Yeah, really. You know, I, Dalton, I, you're right. I am laughing because that's like, that's an inconceivable concept in my mind.

Like, oh, we're pre-product market fit. We should definitely be spinning up court. have. Here's another one that's in the news more and more lately. Defrauding your customers, selling your customers something and telling them it's one thing and you know it's not that thing and your customers lose money or your customers are in some way extremely harmed. What's the prize for doing that, Dalton? No joke. It seems like there's people going to jail and getting arrested and people whose actual lives are now irreparably harmed by the games that they were playing to get growth or to get money. And yeah, they're going to spend, you know, best case scenario is

spending years and years and years in court and in the court system and just having your life changed. Like this isn't making a mistake. We want to be clear here. Like your state of mind is extremely important here. This is like knowingly pursuing a strategy. that you know is harming your users. Like, and, and, um, I think what's tricky is that oftentimes people don't think this is happening. I think sometimes people forget that they're not playing a game. And I think especially in COVID land, I don't know, like one of my explanations is if you

spend all day on Twitter and Discord and everything's a game and everything to joke or everything 's silly, you can kind of, I just have noticed. some folks lose themselves and not realize that the numbers in the spreadsheet are real dollars. And I don't know, it's like we're not playing monopoly. We're not playing sellers of Catan. And I think that the prize that you win is the knock on the door from the police. And that's when you're like, oh, wow, this was real life. And the last one on our list, playing the game of using your position as a startup found

to become an amazing investor. And I think this one's like really tricky because for one thing, you definitely see a lot of famous startup founders have written kind of angel and checks into companies that tend to do well. And so I think sometimes people confuse that for, oh, I should be spending a significant amount of my time looking around and trying to be an angel investor instead of making my company work. And I think that what, if I can try to explain to you what's actually happening, when you're a good founder, oftentimes you know other good people and the opportunity you have

to give them money requires almost no time or effort. And so you just, and like if you're a good founder, oftentimes people are offering you deals. And so like, you know, you're spending five minutes saying, yes, this is an obviously good thing. I use it. Or this is my friend. I want to support them. And the amount of time and effort you're spending writing these angel checks is basically nil. Like, you know, I remember when I was starting Social Cam, I emailed Brian Chesky saying, do you want to Angel Invest? He was like, sure. That's it. Like, that was the entire time that he spent, probably less than 15 seconds. I think people don't see this. So they think, oh, I need, to copy what I see investors on Twitter doing. I need to go network. I need to go meet founders and

advise them and do office hours and like all these things. And it's like, oh, like classic example of cargo cullting, right? Like not really understanding what's going on. The stupid game you're playing is a status game. Like if you play status games where what you want to do is level up, you want to put angel investor in your Twitter bio or something. Okay, you're playing a status game. Fair enough. the prizes that you win playing the game is congratulations. Now a bunch of your money is tied up in ill-equid investments that may or may not show up. So now maybe you're like financially strapped. Maybe you're worried about other stuff.

You're worried about your startup. So maybe you're performing worse because your money is tied up somewhere. You have spent a bunch of time and stuff. You've totally pissed off your employees. Whether or not they would say it to your face, that is not a great way to win. awards with your team. Yeah, you're a scenester. Congratulations.

Yeah. So I think to wrap this up, right? Sometimes founders don't think enough about the bad consequences of the games they're playing. And once they really do the whole logic tree down to the end, they'll realize that maybe it's not worth playing those games and you might as well just build a good business. and even if that's a tricky message for you to internalize, think about what you're teaching your team if you're making these mistakes, right? Like they will copy what you're doing because you define success in your company.

And so even if you're like, oh, for me, this is cool, right? Like, you know, a perfect example. If becoming a status seeking angel investor is like, what seems cool in your company, people in your company start trying to do it instead of doing their work. And so if they see you fudge, Make sure. Yeah. People in the company start doing it.

It's kind of like a little bit, you know, we're both parents. It's kind of like, hey, like if you don't want your kid to be a screw up, you don't do screw up shit in front of them. Like, it's like a pretty simple like one to one year. And on the flip side, to kind of end with a positive note, some of our best companies get so good at goal setting. and accomplishing goals, that they, they move faster than we would ever imagine possible. Like, they are just machines at doing this well. And I would argue that most people don't start doing this well. Most people who focus on setting goals and accomplishing them get better at it over time.

But, man, the rate of improvement is sometimes shocking. You know, sometimes their founders who are kind of fooling themselves who are thinking, like, hey, I'm smart so I can coast on this stuff. It's like, man, outliers are smart and great executors and great trainers, right? Like they have multiple things they're great at. They don't sandbag themselves. Any of the thoughts here, Dalton? I think we're good.

I think it's well said. Thanks, man. Awesome. Talk you later.