#87 - Elad Gil

Hey, how's it going? This is Craig Cannon, and you're listening to Y Combinator's podcast. Applications for the winter 2019 YC batch are now open. You can learn more at ycombinator.com slash apply.

Today's episode is with Elad Gill. Elad is an entrepreneur, operator, and investor. He co-founded Collegeonomics and Mixer Labs, worked at Google and Twitter, and has invested in companies including Airbnb, Coinbase, and Stripe. He just released the High Growth Handbook, which is a guide to scaling startups published by Stripe Press.

The book contains tactical advice on key issues for post-product market fit companies, such as the role of the CEO, hiring executives, late-stage fundraising, M&A, and other topics. It also includes interviews with people in tech, including YC's own Sam Ullman. You can find the book on Amazon, and I'll link it up in the description. All right, here we go.

The first question I wanted to ask you, the book is called High Growth Handbook, not the High Growth Handbook, but just High Growth Handbook. Given that so few companies ever make it to high growth, you know, thousands of employees, why should an average entrepreneur read this book? Yeah, I think the book contains some more universal principles, so things like how do you go about hiring people and what you look for when you hire people, including executives. How do you, you know, if somebody's trying to buy your company and you actually want to read the section on M&A, because it'll basically reveal how the company that's trying to buy you is actually thinking about it.

There's also product management best practices in there and how do you think about product management. So I do think there's a variety of other sections. There's also a section on PR, comms, and marketing. So, you know, what's the difference between the different disciplines and how do you think about them?

So I do think that there are areas of the book that touch upon things that are universal, but ultimately it was geared for either employees who are going through high growth or executives or founders who are going through high growth, and in part simply because there wasn't any information out there, in my opinion, that was really pulled together and codified around that. Yeah, and what inspired you to shift this into a book rather than, you know, your own personal blog site, you know, SEO-targeted content? Yeah, I originally was thinking of doing it as a website, and John Collison, one of the co-founders of Stripe saw the content and got excited about it and thought it would be really relevant to both other founders who are working on high growth, but also sort of the broader community of developers and company builders that Stripe serves. And so that led to the genesis of Stripe publishing it.

Okay, gotcha. I have a question about, before even page one, maybe this is counted as a page, the dedication. I was just curious what you meant. So the first line is, to my lovely wife, Jennifer, and suddenly everything is possible again.

What does that mean? There's a great book from Jonathan Stafford, I think it's called Eating Animals. And it's about, it's sort of a mixed book, but it talks a little bit about his own son. And he says that when he had a kid, somebody sent him a card that said suddenly everything is possible again about his son.

And really what that means is, when you look at your child, you realize that every possibility is suddenly ahead of them. And there's a reinvention of life through that child. In other words, they could go and become an Olympic skater, they could, you know, become the next Mark Zuckerberg, or they could have a terrible life. But really, all the possibilities in the world, in some sense, are available to them.

And so that's really what that means. And do you take it to heart for you as well? I'm too old for that. So I think the incineration is that everything is possible for them, barring some breakthrough in anti-aging or something.

I think my path is reasonably clear. All right, fine. So with all these interviews, I know they were edited and kind of, they're transcribed and then edited. Were there any large arguments you got into when you're doing interviews before you compiled them for the book?

There's no arguments. And the interviews are actually very close to the actual conversation. So the editing was very light and it was more for clarity or to rearrange the section so it went together better. But there weren't big chunks taken out unless it was a side conversation that was unrelated to the interview.

There are areas where I've disagreed with some of the things that people said. And that's one of the reasons I wanted to make sure it was in the book. Because ultimately, I think the only good generic startup advice is that there's no good generic startup advice. And ultimately, it's all about context.

And each person who I interviewed came from a very different set of experiences, a very different context. And that's one of the reasons I wanted to include those discussions in the book, because they provided a different viewpoint for my own. What are good examples of that? Honestly, almost every interview, there may have been one or two things that I would have picked.

And I'm sure those people read my book. They'll feel the same way. Or they're like, well, in my case, it really wasn't like that. Or the advice I give is a little bit different from that.

And I think that's actually great. It's almost like you're baking a cake. And you can get into a philosophical argument about the right way to bake a cake. And when all said and done, there's a few core components you always need when making a cake.

But there's lots of different ways to do it. And I think that's true of startups as well. There's a few fundamental things you absolutely have to do. Otherwise, it's not really a cake or not a startup.

I think that I found was interesting. He said the companies that charge more tend to grow faster. Do you believe that, too? I think if you can get away with charging more, then it means that you have a product that people truly want.

It means that you can grow faster in part because people truly want your product and in part because the capital leverage that Mark talks about is actually crucial. In other words, and he makes this point, I think, really well in the book, which is that if you have higher margins or pricing power, you can reinvest that money in hiring additional engineers. Your sales team can actually afford to go and sell or whatever customer acquisition that you have. You can scale it up more because you have more margin to give away.

So actually being able to raise prices is a very powerful tool for growth. And I think one of the big fallacies in Silicon Valley is everybody thinks that they're going to charge as low a price as possible, so you can get as much market share as possible. And actually, it's possible that you get to more market share if you charge more for your products versus less. So that's actually a point that I agree with them quite strongly.

Right. And it's also that you talk about this in relation to investing or not investing in Lyft, that not all markets are winner-take-all Amazon-type situations. Yeah, exactly. So I think most founders assume with any network effect, they win.

Yeah. I think that in general, there's a set of myths that have built up over time in Silicon Valley around what is a great startup. Yeah. And in the social networking era, things really were winner-take-all because there were social networks and it was definitely there a winner-take-all.

And there's lots and lots and lots of businesses all over the world that exist in markets that are winner-take-all. And there's actually a great book called The Rule of Three, I think is what it's called. And it basically talks about how many industries collapse into oligopoly markets, where there's two to three dominant companies, and then that's the stable point in the industry. And so I think the market structure really matters.

And one of the things that people in Silicon Valley don't think about very much is what's the actual market structure, and does that mean it's a good opportunity or a bad opportunity to actually start a company in? A great example would be EdTech, where I think that's a terrible market. It's a really tough one. It's very impactful, so I'm really glad that people are working on it.

But there's all sorts of structural issues in the market that make it a really hard one to be successful in, and therefore it's really hard to start a company in that market. Yeah, there was a related question that came in from Twitter. Leon Coe asked, what types of businesses do you avoid investing in, and what, quote, good businesses do you have no interest in? Are there other markets that have a negative signal to you in that way?

Yeah, EdTech is definitely one. So I've never invested in an EdTech company. And again, I think the social impact is massive. I just think it's very hard to succeed, in part because there's nobody who is able or willing to pay in the U.S.

for the product. I think in certain parts of Asia, actually, EdTech is a great market to be in, but they just don't invest very much outside of the U.S. But if you think about it, teachers either can't afford or don't have the world to buy certain products. Parents often don't want to actually buy extra products for their kids.

Children obviously can't afford it. School districts are often cash-strapped and can't afford it. And so there's just not a payer in the education market. I think there's also markets where it's better for a large incumbent to do it versus a small startup.

So Internet of Things is a great example where I think most of the interesting things in that market will come from large electronics players who can just integrate it in something and distribute it versus a new sort of one-off company that's just making a smart light bulb or just making a smart door lock or just making a smart, you know, you name it. Yeah, I think those companies have really struggled after their first Kickstarter. Yeah, it seems like unless you're selling a smart backpack. Yeah, yeah, exactly, yeah.

So you mentioned Asia, and I want to jump from the beginning to the very end of your book because I thought that was funny. You have a page that says things to just say no to. And I'll go through that list, but I do want to talk about Asia. One, envelope full of cash.

Two, China. Three, giant Chrome pandas. And four, pool tables. Could you explain?

Oh, yeah. That part was very much meant as a joke, and it was kind of thrown in the last minute. So basically, you know, as I've been in Silicon Valley for the last decade plus, there have been a variety of different things that seemed like great ideas at the time, and then hindsight maybe weren't as good. And so the envelope full of cash, for example, when I was at Google at Christmas time, the company used to give out literally an envelope.

I think it was $100 bills. It was sort of the annual bonus for everybody. And the urban myth around it, I don't know if that was actually true, but the urban myth was that as people would get off the Google shuttle or the bus in San Francisco, we'd have an envelope full of cash to get mugged. I don't know if that really happened, but it was more, you know, maybe distributing millions of dollars in cash is that idea.

It sounds almost like the mob or something. China is just, most companies that have tried to enter the China market have failed. There's always kind of examples of that. I actually think Uber strategy in China was quite smart in terms of their eventual merger with DD, and I think they own 15 to 20% of DD, which in and of itself is going to be $100 billion plus companies.

So I actually think that worked out really well for them. And similarly, Airbnb appears to be doing very well in China as well. So I do think it can be done, but most companies try to enter China. They don't have a real strategy to it.

They don't understand the local presence. They don't understand the competition, and they kind of get quashed. And it's hard to do business there in part because of government controls around the ability for foreign countries to enter the market. So that's China.

The Chrome Pandas, you know, Dropbox bought a giant Chrome Panda, and then later they used it as a symbol for frugality. And so I think that was a very smart approach by them to basically say, hey, let's take something and turn it into a symbol of how we should act as a company. So that was a very smart call for me by them. And the last thing, PoolTables, was I moved out here right after the last sort of bubble collapsed.

And I was working at the startup where I joined at 120 people and agreed to 160. And then it shrank to 15 people or so after five rounds of layoffs. And so after the second round of layoffs, it was probably like 60, 70 people. And the founders bought a PoolTable to try and increase morale after all these layoffs were happening in a collapsing industry.

And I don't know that PoolTable is how you increase morale, but, you know, that's what they decided to do. And it was a nice gesture. But what would happen is the people who had time to play pool obviously weren't essential to the operations of a company that was in freefall, which meant that the people who play pool would suddenly disappear within a couple of weeks because they'd get laid off. And so the PoolTable became the symbol of, like, don't go play pool because you're going to be the next person to be fired.

Yeah, okay. I've never lived through one of those, but it sounds terrible. I don't think anybody in Silicon Valley in this era has because we've been in an eight-year bull market. So obviously companies have gone under and that's been painful.

But we haven't seen the systemic raising of an entire sector at once. And it's inevitable that at some point that will happen again. And I think that will cause an enormous change in terms of how people do things. Yeah, timing the market is impossible, though.

Related to that, are there any ideas right now that you think might – they're being raised on but are potentially too early? In other words, like ideas from the 99-2001 bubble that later turned into big companies now. Do you think any of those ideas in existence now are actually going to be part of the next cycle? I think there's two big areas where – that's definitely true.

One is AR, VR, which I think most of it is too early, and I do think it will eventually happen. So I think the other area is actually in crypto. So I actually think there's a great analogy between the cryptocurrency world today and the Internet world in the late 90s. And in the late 90s, there was a handful of things that truly became massive franchises, right?

PayPal and Google and Amazon and et cetera were all from that first era. And then there was a bunch of stuff that didn't even exist at that point that became massive of Facebook. But there are also a lot of companies that people started then that ended up failing and were pointed out as these stupid ideas but are now actually giant companies in their own right. So, for example, Webvan raised over a billion dollars and failed, and now we have Instacart, which is sort of a reinvention of that concept.

There was Pets.com, which was broadly derided, you know, why would you ship pet food online? And that became Chewy, which was acquired for, I think, $3 billion. And so there was this whole wave of companies that were just too early or in the wrong format in the late 90s that have now become major franchises. And I think the same thing is true in the crypto world where there's still a real lack of infrastructure in crypto.

And so there's all sorts of really interesting ideas of how you decentralize different services, and I think many of those things will fail. And then in 10, 15 years, a new form of that idea will exist and be successful. And in parallel, I think there's things that exist today that are sort of the Amazons of crypto that are going to be massive in their own right and already exist. You know, maybe it's Bitcoin, maybe it's Ethereum, maybe it's the privacy token like Monerozy Cash.

But I do think that a subset of the crypto world from today will also continue to just be massive. Yeah, and a certain percentage of people out there as employees will be able to pick those companies. Yeah. Which is a, that's a Naval quote I really like.

I don't know if it was in the first or the second interview. It must be the second. It's on page 311. Naval says, Naval Robicon, the most successful class of people in Silicon Valley on a consistent basis are either venture capitalists or people who are very good at identifying companies that have just hit product market fit.

They have a background, expertise, and references that those companies really want to help them scale. And I think the question is, how do you find those companies? Yeah, I think there's a few signals that a company is breaking out. And to the point of the quote from the ball, there's a few people who have been very good at that.

For example, Matt Kohler was early at LinkedIn and then he was at Facebook and then of course he eventually joined a benchmark. But that's a great example of a career where somebody just sort of identified a few sequential really interesting things. I think the three key signs of something really breaking out really has to do with, number one, just anecdotal customer traction. So you can just ask people what they're using at different companies or you can, you know, try to pick up on market signals.

And so one is just what is being adopted by the market and how rapidly is it being adopted. And there's certain metrics you can look at in terms of churn and recurrence and a few other things. The second thing is, what's the network of people around it? So, you know, in general, you're only able to pull in certain people to help with something if that thing is really working.

And then lastly, you know, sometimes fundraising is a signal, sometimes it's not. But in general, the best companies that are breaking out, if they want the capital or they need the capital, will be raising you around the capital every 9 to 18 months. And that's, in some cases, given by the fact that people are running out of money. But for the best companies, it's often a sign of people just coming in preemptively and giving them a very high valuation.

So sometimes that's a way to track it too. In general, if you want to do best from a career perspective and you didn't join in the very, very early days, the best time to join is when a company is probably on the order of 40, 50 people and is worth, you know, somewhere between 50 and $500 million as long as it can turn into a $10, $20 million company. And it's really hard to know which company will do that. But usually that's when a company goes from 50 people to 1,000 people or 50 people to 5,000 people.

And that's when you have the most growth opportunities as somebody joining one of those companies. But also you have the biggest financial upside because your option package will go up in value between 20 and 100x, which can be quite significant. Yeah. Would you be willing to call someone out and say, what are those companies right now?

It's always hard to know exactly which companies are going to be the biggest. I think some that are really promising right now are Airtable, Checker, and Front in terms of the three companies that I'm involved with that I just think are, you know, amazing founders, great traction, and doing really interesting things. I see. Okay.

So we should talk about best practices a little bit. We don't want to just talk about founder mistakes. One thing I really thought was cool, which I hadn't heard about before, was Stripe's COO, Claire Hughes-Johnson, issued this letter out to the company when she started about how to work well with her. I'm curious.

Have you done this before? Do other people do it now? What's the story? Yeah.

I haven't done it before. When she told me about it, I thought it was brilliant. And, you know, each person as they join a company, especially if they're in a leadership role, will have a certain set of ways that they'd like to be interacted with. And often it takes the company six months or 12 months or a year or longer to figure it out.

And especially if you're growing really fast, each incremental hire two years later has to figure it out as well. And so by publishing this letter, she basically spelt out what are the best ways to work with her. Is it better to send her emails or to cut her life for five minutes? Is it better to communicate via data or, you know, are there other mechanisms that really resonate with her in terms of the things that grab her attention?

And so I thought that was just a brilliant onboarding tool that perhaps any executive joining a high-growth company or any manager joining a high-growth company should issue so that people just understand this is the fastest, best way to interact with me and just, you know, ramp up on how to be effective in the organization. I think everyone should do it at every company. I think it's such a great idea. Yeah.

So, like, you can't – well, it's not totally fair to rely on everyone to be able to read everyone else because some people can just put on a good face and others can't in some struggle. And also people have their own quirks. And so I think being explicit about the quirk actually helps a lot. Like, when I worked at Twitter, I used to do a lot of yoga and I literally sit in Lotus on the floor in the middle of executive team meetings.

And I was the only person on the floor in board meetings. And people eventually were like, okay, fine, that's a quirk, right? So I just think, like, being upfront about this actually gets rid of a bunch of stuff. Yeah, I think it's such a great idea.

All right, let's go into some Twitter questions for you. Masood Hussain asks – he actually has three questions. How did most of the companies you interviewed get their first 10 customers? And, yeah, I'm from there.

Okay, sure. First 10 differs a lot by company. And so some companies will literally go and just hand-recruit those first 10 people to use their product. And – You know, the founders of Stripe were famous for any time they meet with somebody, they try and show them Stripe and use it.

The call's and install. Yeah, the call's and install. There's other companies where honestly, they just put up a product online and it starts working and spreading. Yeah.

And so I think, you know, that's sort of the rumor about how Facebook got started was I've just kind of put it up and told us about it and just started spreading because there's a bit more of a rally built into it. So I think each product is different. On average, though, you kind of have to grind it out. You have to find your first few customers.

If you're building an enterprise-focused application, you probably want to find early test customers or partners that you work with, what people call design partners. So they'll give you feedback as you build it and you can kind of steer the product based on their feedback. So you're actually building something that people want. So it really depends a lot on the type of product it is as a consumer versus enterprise and then how you want to go about getting the first few people.

Yeah. And what about going to 1,000? Because Masood asked a question related, like, is content really king? Meaning, is content the way for, like, infinite growth?

Not always. It depends on what you're doing. If you're building a consumer social product, then there's probably mechanics built into the product itself that cause it to spread. So sometimes things spread a bit organically and then you kind of use it through different tactics.

So with Facebook, that was email scrapers and it was, you know, they were literally running ads against people's names in Europe to try and hire European users, for example. So I think that best companies actually focus on aggressive distribution early and often you see a company that taps out in market cap or market size because the founders weren't aggressive early about distribution and then later other companies caught up to them. And so examples where people were very aggressive about distribution with things like Google where they were spending hundreds of millions of dollars a year on things like Firefox, having Google prominently displayed on its own page. They literally paid for, at least have this client application called their toolbar that would, you know, install against a browser in terms of being, you know, effectively like a browser client.

And they were paying hundreds of millions of dollars a year to co-install that with different apps that you download. So you download Adobe and suddenly you install the Google toolbar. And this story is never told. People always say, oh, these things just were organically and isn't it amazing?

But almost every company that's ended up in, you know, tens of billions or hundreds of millions of market cap have been very aggressive about distribution often from their early days. And I think a lot of people create, in the content category, they're often playing the game that whatever system they're on wants them to play. And that's good to a point, but you're like, it's hard to achieve outside rewards in any of these categories by just playing by like the exact rules. I'm not saying like break the rules, but be a little more creative with your strategy.

All right. Next question. Narayan Malaper asks, where do founders make the most mistakes? Is it on hiring?

And whatever mistake that might be, what steps should they avoid to avoid these pitfalls? Yeah. It depends a lot on the stage of a company. You know, for an early company, people make mistakes around how much money to raise.

They raise too little and they run out of cash before they can demonstrate to raise more money. It could be hiring mistakes. It could be firing with, it could be fighting with a co-founder. So, you know, early on, I think there's all sorts of mistakes you can make.

I think that the single biggest common issue to the point of the question probably is around hiring either in terms of not having a very good selection process or alternatively not getting, letting go of people who didn't work out. And so there's an old saying that people either hire well or fire well. And if you at least do one of those, then you can build a really good organization. You know, fundamentally, most companies are kind of bad at both.

And that really ends up biting them because they're just desperate to get people in instead of saying, you know what, it's painful, but we'll wait to find the right people. Right. It's the company who has a thousand people and you're like, wait a second, aren't we like 500 jobs right now? Yeah.

Yeah, I think it's tough. Do you have a ballpark number for how many employees end up working out percentage-wise? It varies a lot. Again, it depends on your hiring practices.

And so Google was an example of a company that hired extremely well. They had, I think it was a minimum for a while of eight interviews per person, literally. And if you didn't do all eight, you wouldn't be able to get in kind of thing. And they were terrible at firing in the early days.

So they were absolutely awful at letting people go once they made it in, but they just let in so few bad people that it worked for them for a while. Other companies like Facebook were known as not as good at hiring early on, although they'd gotten much better over time. But in the very early days, they were known as not great at hiring, but they were very good at actually letting people go if they didn't work out. And so both companies ended up, I think, eventually in very good spots.

And so I think it really depends on the practices of the company. Okay. Brian Kimmel asked a question around regulation. So you've both worked with Stripe.

Like, by attack, you're kind of aware of these regulated sectors. What are some lessons learned in highly regulated sectors? When should you hire a general counsel, for example? And how do you prioritize public policy and lobbying efforts?

I think it depends a lot on the sector that you're in. So some companies will actually hire a compliance person or a general counsel very early. PointBase is an example of that where they hired somebody to that profile, I think, in the first 10 people or so. And so they were always focused on being regularly compliant.

You can also do it through hiring things like external consultants, or you can get very good lawyers for certain areas, for example, in the biotech or healthcare sphere. If you're a scientist working on a problem, you probably don't need a full-time compliance person. You probably want to start thinking about FDA and how you think about regulations. That could be done through a consultant, for example.

So I think you should think about it early, but it shouldn't get in the way of you just doing core things that you need to build a product, because if you don't have a product and you're on the market, it really doesn't matter, because you're not dealing with regulations as a non-launched thing. In terms of prioritizing public policy and lobbying, I think that tends to come later in the life of a company. Many companies in Silicon Valley wait way too long, so they'll sort of become huge, and then they'll realize in hindsight they should have been thinking about it. And really what it's about is, I view it less as lobbying and more about how can you educate people who actually want to do the right thing, but may only get one side of the story if the incumbents are the only ones talking to them.

So how do you sort of share the story of what the industry is evolving to, what the company is about, and who should you be educating? And that doesn't necessarily mean you should be talking to politicians, or maybe other stakeholders you should be talking to. Maybe you should be talking to certain medical groups if you're a biotech, or a teacher's association if you're an ad tech. So I would just think more broadly about who should I educate about what am I doing, what I'm doing, and how do I start those conversations early so that people are aware and in some cases can actually become supportive instead of antagonistic.

Do you have opinions on the ad campaigns Facebook's running right now to kind of like say, hey, we're sorry, and we're not about fake news? Oh, I haven't seen those ads. A couple people told me about them. They said that Silicon Valley is sort of running all these apologetic ad campaigns.

There are multiple, so Wells Fargo, Facebook, and I think there's another one. Yeah, you know, one thing that I think has really changed a lot since I moved out here is there's been a real decrease in overall what I call optimism about the future in Silicon Valley, and I think that's awful. I think really the best people that I know who work in technology are doing it because they think they can use it truly as a force for good and to help change the world for the better, and if you think about what technology has done in terms of basically putting a supercomputer in the pocket of a billion plus people, in terms of creating transparency in the pricing and markets and other things, so you're a farmer somewhere, you're able to sell your goods on the right day and the right location, you know, it's really sort of transformed the world in really positive ways, and somehow I feel that people really lost sight of it, and to me one of the saddest moments is when people write the blog post four years after leaving a company that they joined early where they self-flagellate, and they talk about how terrible that company is and how ashamed they are, and you're like, oh my god, what are you talking about, like, you know, these companies have actually done really valuable things for the world, and when they've made mistakes, they need to go and correct those mistakes rapidly, and, you know, you need to early on think about how people are creating damage in the world, but I think fundamentally technology is something that's very powerful, very important, and ultimately has largely been a force for good in the world, and we should not lose sight of that, and we should really emphasize it, because, you know, if you don't think you're doing great things, you're not going to go and do great things. No, but being here, I'm more optimistic than ever.

There are so many cool things happening. It's just tricky. I mean, I know it from talking to my family on the East Coast, who isn't, you know, connected in the same way, and all they hear are horror stories from, you know, whatever it might be. Yeah, I think in general, what you find, and this is, I've seen on the company level, when you work with different companies, they always end up in some media cycle, where they get built up, and then they get torn down, and then later they get built up again, it's sort of a redemption story, so usually the story arc is, look at this amazing company, they're changing the world, they're doing good things, and then there's some minor crisis, and it blows up in the press into, oh my god, this company's now doing bad things, and they're failing, and they're going to die, and it's awful, and then the press writes a story a little bit later about, oh, the company's now redeemed, and they changed what they're doing, and look at the great things they're doing again, and I think that Silicon Valley may be in one of those cycles at a macro level, where we had the upswing in the 2000s of, oh, look, tech is so great, and there's the iPhone, and all these other things, and look at how people's helping people, and now we're in sort of the, oh my gosh, tech is only bad, and my hope is that we come back in the redemption period.

Yeah, I think technology's probably going to be whipped a little bit more in the next election cycle, because it's like a very obvious target, it seems, unfortunately, especially when people are making such cool stuff. Yeah, I know, I think one of the most telling moments for me was a founder that I started helping really early ping me and said, hey, I was at some dinner party with some friends, and I brought up the fact that I'm really excited about what I'm doing, and I hope I can change the world of it, and everybody started making fun of me at the dinner, and I said, well, you should find better friends, you know, like, ultimately, you should be surrounding yourself with different opinions over time, but you should also be surrounding yourself with positive voices, because ultimately, I do think that there's a lot left to be done, and technology will continue to have this transformative impact on the world, and people should be proud of what they're working on. Yeah, yeah, I mean, I'm all for talking shit and having fun, but I think, like, penalizing people for being eager is not the right thing to do. All right, let's go to another question.

So, Marius Chawa asks, this is such a common question, what are the top three things a startup must achieve before VC firms or, say, an angel investor would line up to fund them? There's a huge range of answers to that. If I were to rank things in a hierarchy, I think the single biggest thing, and this is going to be obvious, we'll sort of work on a hierarchy, the single biggest thing would be to have a high margin, rapidly growing, high traction product. In other words, you're growing 30% month over month, you have 90% margins, and everybody's buying it.

You have big brands buying it, you have small brands buying it, or if it's consumer product is just, you know, scaling like crazy with extremely high retention and spread. And so, the number one thing is traction. The second best thing to have is a product in an interesting or exciting or hot market that people want to fund or get involved with. Cryptocurrencies is one area that's like that right now, where all sorts of things are getting funded simply because it's in the crypto market versus because it's good.

Third thing would be a great team. And then the last thing is none of those, but a compelling story. So, that's sort of the hierarchy. Now, the thing is that in Silicon Valley, in general, there's different trends.

So, people get excited about a specific area, they'll fund anything in the area, whether it has traction or not. You know, similarly to maybe teams or individuals that are very well regarded, and they'll just get funded no matter what. And so, you know, sometimes you just need one of those things, and it's good enough. Yeah, and sometimes, I mean, I think PG, they've talked about Airbnb as like cockroaches, like just staying alive.

Because I assume the question is about like getting your first funding. But if it's not about that, just reaching profitability and being able to stay alive makes you much more attractive to a company. Because that's how you generate leverage. I don't know.

Oftentimes, I've talked to Michael Seibel, who's written a lot about this. Companies come to him, and they're like, oh, we need to raise a Series A right now. And unfortunately, they have no leverage anymore. Yeah, I think to your point, or to build on that point, VC funding isn't the only way to build a business either.

Like Bloomberg is, you know, tens of billions of dollar company, private company, that is only raised outside capital once. And I think it was from Morgan Stanley. Like Morgan Stanley or somebody bought, I don't know what it was, 10% or 15% of the company. But he basically bootstrapped it.

And I think one of the things that people think about too little is other sources of funding. If your customer is just paying you for your products, so that you're profitable. Sometimes you can get what are known as NREs, non-recurring engineering charges, where you charge up front to develop something for somebody that you can then resell to everybody else. Microsoft actually used to do this in the early days.

And they similarly never had to raise funding. They took one round right before they went public because of a relationship. But fundamentally, it was just bootstrapped. So I think too often people think that they should be on the VC train, when really there's lots of different ways to build a business.

And sometimes those are actually much better for founders in terms of where you end up. Oh, definitely. I think way too few people think about what game they're about to enter. When they even just start thinking about ideas.

Because if you think about ideas with the framework of this has to be fundable in Silicon Valley, that by nature constricts your ideas. And yeah, people don't consider what it means to be running a thousand-person company and what that trickles down to in your life. Or you could be running a thousand-person company without ever having to raise extra money. Totally.

Which is great. And I think the value judgments are the hard part. Because whatever. Whatever works for you.

That's fine. All right. Let's go to another question on the first page. So Taylor Coforio asks, My company is at our early MVP stage.

What is the best way to balance giving our earliest customers rate treatment while also focusing on growth? Yeah, I'm going to give two things that are exactly opposite points of advice. The first point of advice is really what you want to do is delight a small number of customers with them become your advocates and sort of scale on top of that word of mouth. It really depends on what business you're in and whether that's important or not to the business.

It also depends on what the product is, what's going to prevent growth or not. Can you automate some of the things that are the six-hour service? How long will it take you to automate it? So there's a lot behind that question.

The opposing piece of advice is, look, if you have five customers and you screw up, it's unfortunate you should do what you can to remedy it, but it's only five customers. So if you sort of screw up, as long as you know anything truly damaging to these people, which you shouldn't do, you can recover because your next 10,000 customers are the ones that are going to matter. So you should be willing to experiment and try things and fail things. And Reid Hoffman used to have this great quote that if you aren't embarrassed by your first product, you wait too long to launch it.

Now, he qualifies that depending on what you're building and everything else, but I think that's a great quote in terms of often people wait too long to launch versus launching too soon. And so it's okay to give yourself permission to screw up a little. Yeah, I think it's too easy, especially for people who are compelled to be makers, to get attached to your solution to the problem, when in reality, it's about solving the problem. The only place where I'd qualify that is if you're doing something in healthcare where you don't want to sort of move fast and break things if you're building a pacemaker.

So if you're actually going to hurt somebody, you shouldn't do it. But if it's a SaaS product that is around a customer support tool, maybe it's okay if it doesn't quite work perfectly. The first time, you should just be transparent with your customers that it's a new product and it's bugging you and iterating. Yeah, but it's not cute if the wheels on your autonomous car fall off.

Yeah, that's not a good idea. Related to that, there's a question about hiring from Tanmay Kondawal. They asked, when you're sprinting in growth stage, how do you predict engineers will hire and hire accordingly? Yeah, there's sort of two things.

I think the general philosophy should be things should always feel tight. So you should never feel like, hey, I have too many people. You should always feel like you have too few people. So in general, if you start to feel like, hey, there's a lot of people showing up and not enough to do, then you've definitely screwed up.

From a planning process perspective, and this is actually something that the Hagrid Handbook touches on with Claire Hughes-Johnson and the conversation with hers, there are a set of simple planning processes that you can undergo where you basically start to ask, what do I want to build over what time frame? How many people do I need to actually do it? What's the relative priorities of these things? And therefore, you come up with a hiring plan, and usually that hiring plan isn't staggered over the course of a year.

And so even when you're very early on, and you're three people or four people, and you have to build a bunch of stuff, if you've just been funded, I would advocate that going into the fundraiser, you actually have that hiring plan, because it tells you what your burn is going to be. It tells you how much money you actually need to raise. I think too often funders just say, oh, I'm going to raise, I'm making up a number for $2 million, when maybe they should raise three, or maybe they should raise less. But the number feels very arbitrary, versus having an underlying plan which says, this is where we're going to spend money, this is how we're going to spend it, this is how long it'll last us.

I actually think that's a very useful exercise for anybody to go through. And it also then informs what you're actually going to build. Yeah, but very few people, surprisingly few people do it. I'm aware, yeah.

I'm around it, because raising money has been turned into this game that people want to win, and that in and of itself feels like an end to them, but it's not. Yeah. So, all right, we have a couple more questions. TD Bryant, the second, asks the question, when your organization is experiencing exponential growth, how do you choose which functions to outsource versus build, you know, hire someone to build?

Sure. It depends on what you're actually building. So, you know, Instagram, for example, famously had a dozen employees when they were required by Facebook. And so they actually kept the team really lean, because at the time, they hadn't quite gone into the phase of monetizing the product, building out ads, building out a bunch of other stuff.

And so they really just kept it to engineering and, you know, maybe one or two other functions. So it depends a little bit on your objective as a company. Do you want to sell? Do you want to build out the whole thing?

So if your focus is on, you know, going for it, then there's a few functions that you're going to add, and it really depends on the type of business you're in when you add them. So there's an earlier question around when should you add somebody who's a general counsel or a compliance person. If you're in a highly regulated industry, you may want to add that person quite early, in the first 10 people or the first 50 people. But if you're not a highly regulated industry, maybe you don't add a GC until you're a much larger.

And so I think it really depends a bit. But when all this had it done, you know, I can't think of very many functions. that you want to outsource. I think there are aspects of functions that you want to outsource.

So for example, on the benefit side, you're not going to come up with your own benefits plans. You're going to go and you're going to work with somebody and they're going to say, here's your insurance policy and you're for 1K. That's like a framework you used to invest, right? In terms of what are the things you personally?

Yeah, like Stripe or business benefits or whatever. Yeah, I view that less as outsourcing functions unless I'm misunderstanding the question and more about outsourcing pieces of infrastructure that everybody keeps building. In my mind, function means HR or engineering or product or the functional org. If what you're asking is like, what pieces of my IT stack I should, or my stack I should, as far as then, yeah, I would definitely try and use other party services for payments or other things because it's really onerous to rebuild those from scratch.

Yeah, I think, again, this maker mindset causes people to feel like they should innovate everything and you don't have to innovate. Yeah, there's actually a great, I think I can use a blog poster or podcast on the Andreessen site where they talk about how technical founders always want to reinvent sales. And there's a way to do sales that's worked for tens of years and you don't need to necessarily hire technical people for every role and you don't need to hire a PhD in engineering for sales unless it's a very, very technical sale. Yeah, I see it too.

Like, companies getting really creative with how their shares are issued or equity or whatever it's like. Yeah, there are things that are important to the company in its survival and things that really don't matter. And sometimes it's okay to do the things that don't matter because it's fun and it keeps the job interesting and exciting and sometimes it's just a waste of time. Yeah, agreed.

All right, so I want to get to the Dragon Ball Z question because I think that's like obviously the most pressing and important one here. All right, Andrew Pakul asks, who is your favorite Dragon Ball Z slash GT slash super villain? And this is based on your avatar on Twitter. Yeah, that's right.

Goku is my avatar on Twitter. You know, lately I'd say, and this is still an old anime slash manga. I'm more of a Naruto person and really what I would have wanted to have is Itachi Uchiha as my avatar. But it was just a little bit too gruesome for Twitter and obviously as well he's a very misunderstood character in terms of really always focused on trying to do the right thing but then sort of taking the fall for the Henley Village and everything else by doing the Akatsuki.

So, you know, I just thought that I'd keep it simple and have Goku. And if people have any good anime or manga suggestions, please just send me up on Twitter. Right on. If people want to reach out to you, if they want to buy the book, where should they go?

Yeah, for the book, the best place is Amazon. Right now it's temporarily out of stock. You can ignore that. It just means that there's a bunch of books that are just sort of piled up waiting to get processed or that are being shipped over.

So you can still just order and it'll show up within a week or two. And your website is youlikeyale.com? Correct. Cool.

All right. Thanks, man. All right. Thanks for listening.

So as always, you can find the transcript and video at blog.ycommodator.com. And if you have a second, it would be awesome to give us a rating and review wherever you find your podcast. See you next time.