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Dalton + MichaelDalton + Michael

Problems Money Can't Solve

In this episode of Dalton + Michael, the two discuss the problems that money won't solve for your startup. If it were easy to convert money in the bank into success, the opportunity for startups to exist vs incumbents wouldn't really exist. For example, Google has $126B in cash and cash equivalents on hand, and could of course sell additional stock or raise debt if they felt a need to. Discussion includes: customers who don't want your product, dumping money into paid ads, not knowing what to build, executive talent, hiring by spreadsheet, culture and more. Dalton + Michael is brought to you by @Standard_Cap Dalton Caldwell on X: https://x.com/daltonc Michael Seibel on X: https://x.com/mwseibel

Dalton CaldwellhostMichael Seibelhost
Jul 22, 202620mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 1:49

    Why “more money = guaranteed victory” is a losing belief

    1. DC

      If you believe that the more money you have, the more unassailable, um, your chance of victory is-

    2. MS

      Yes

    3. DC

      ... you should give up-

    4. MS

      [laughs]

    5. DC

      ... because Apple and Google won.

    6. MS

      They have the money.

    7. DC

      Right?

    8. MS

      Yes.

    9. DC

      They have more money than you.

    10. MS

      Yes.

    11. DC

      And so thank God that more money doesn't equal more success-

    12. MS

      Yes

    13. DC

      ... so that any startup has the chance to succeed, right?

    14. MS

      Exactly. This is Dalton + Michael, and today we're gonna talk about the startup problems that money cannot solve. I can't count the number of times I'll talk to a founder and they'll say, "Well, we have a competitor. They just raised a big round. I'm freaked out they're gonna have all this money to do..." Da, da, da, da, da. And I always love these conversations because my starting point is always, "Ugh, that competitor is scary. What about the incumbent in your space that's a public company with a couple thousand people and infinite money comparatively? Are, are we afraid of them?" Like-

    15. DC

      [laughs]

    16. MS

      "Didn't we start this with them there?" [laughs] Like, y- this idea that we can convert money into success, our industry would be so much more profitable. [laughs]

    17. DC

      [laughs] Well-

    18. MS

      If it were true

    19. DC

      ... we've, we've talked about this in the videos before.

    20. MS

      [laughs]

    21. DC

      But basically, if you believe that the more money you have, the more unassailable, um, your chance of victory is-

    22. MS

      Yes

    23. DC

      ... you should give up-

    24. MS

      [laughs]

    25. DC

      ... because Apple and Google won.

    26. MS

      They have the money.

    27. DC

      Right?

    28. MS

      Yes.

    29. DC

      They have more money than you.

    30. MS

      Yes.

  2. 1:49 – 2:25

    The founder fantasy: ‘Once we raise, we’ll fix everything’

    1. DC

      Yeah, let's enumerate some of this because it's often the case, hey, I'm guilty of this too, when I was a founder-

    2. MS

      Yep

    3. DC

      ... where I'm like, "Man, once we raise this next round, we're on easy street."

    4. MS

      Ah.

    5. DC

      "We can just, like, throw money at this problem."

    6. MS

      Game on, man.

    7. DC

      And like, now there's no more problems. And the exercise I would do, um, with office hours with, with a startup-

    8. MS

      Mm-hmm

    9. DC

      ... is to be like, "Oh, let's break it down. Let's enumerate, what are the problems? What are the bottlenecks in your business-

    10. MS

      Yes

    11. DC

      ... that you can throw money at that will-

    12. MS

      Yeah

    13. DC

      ... that will be solved?"

    14. MS

      Yes.

    15. DC

      And so kind of the goal of this video is let's just, let's go line by line-

    16. MS

      I love it

    17. DC

      ... about problems that more money doesn't actually help you solve.

  3. 2:25 – 3:09

    Product-market fit: money can’t make customers want your product

    1. MS

      So Dalton, when I try to sell customers my product, they don't wanna buy it. [laughs]

    2. DC

      [laughs] So the most fundamental problem, of course, with any startup is making something people want.

    3. MS

      Yes.

    4. DC

      And sadly, more money in your bank account does not make people want your product more.

    5. MS

      No.

    6. DC

      But, but, but oh, uh, advertising, uh, marketing, uh, billboards. Those might lead so- to some top of funnel-

    7. MS

      Yes

    8. DC

      ... but you can't make someone want something that they don't want. No amount of money does that. Like, remember all, like, the wearable things that people... All the, like, bad hardware things.

    9. MS

      Yes.

    10. DC

      Yeah, yeah.

    11. MS

      So much.

    12. DC

      No amount of money made people want to use those things.

  4. 3:09 – 3:47

    The ‘Facebook ads growth chart’ trap: confusing burn with traction

    1. MS

      I mean, I'll go a step further. If you've got a bad product and you're spending advertising dollars on it, you are wasting those do- Like, I almost guarantee-

    2. DC

      Yeah

    3. MS

      ... you are not making more money than you're spending on that advertising. The only company that's winning is Facebook in that scenario. [laughs]

    4. DC

      Yeah. Well, you're diluting yourself to, you're actually hurting yourself than if you didn't have the money-

    5. MS

      Yeah

    6. DC

      ... because you may be faking yourself that you think people want your thing.

    7. MS

      Yeah.

    8. DC

      Like, if you're dumping tons of money into Facebook ads, you're like, "Oh, we're growing. Here's our graph." But then if you plot the graph against your burn, and it's the same graph, what are we learning exactly? Invest in Facebook, that's what we're learning.

    9. MS

      That's, yes. [laughs]

    10. DC

      [laughs] Exactly.

  5. 3:47 – 4:36

    Competition: you don’t ‘win by fiat’ after raising a bigger round

    1. MS

      Yeah, and your company is going to die. So, um, competitor. Now that we have this war chest, oh God, the number of times, like, well, we can, we can buy, we can make some acquisitions, or we can buy this fancy exec. You know-

    2. DC

      Yeah

    3. MS

      ... we can compete with this competitor better.

    4. DC

      Again, sadly, um, the way that you win against a competitor is to be growing faster than them and to have a better product, and that anything that's a distraction from growing faster than them is probably not the panacea that you hope. We have lots of companies on both sides of this particular debate over the years-

    5. MS

      Yes

    6. DC

      ... where they're either the underdog or it's the company that's raised more.

    7. MS

      Yes.

    8. DC

      And, um, yeah, money doesn't really fix that. You don't just win by fiat when you raise more than a competitor.

  6. 4:36 – 5:55

    Knowing what customers value: the Workday example

    1. MS

      You know, it's funny, I was talking about, um, Workday the other day. Workday is an older company. It was interesting 'cause this founder was basically telling me the Workday product absolutely sucks. And it's like full on it sucks, it's the worst product out there. And what was so interesting is I realized at this moment that this founder was a startup founder and had no context for what the customers of Workday want, what they're looking for. And in fact, almost everything that this person hated about Workday was a thing that Workday's customers [laughs] liked about Workday.

    2. DC

      [laughs]

    3. MS

      And you know, and the things that he cared about, like nice UI, his customer, like, the Workday customers did not give a shit about. And so I think what kind of blew my mind when I was thinking about this was just like, oh wait, you wanna spend money to make something better, and you don't even know what the customer wants to buy.

    4. DC

      Yep.

    5. MS

      Like, this will not work out. Like, your imagination of what the customer wants, not correct. And so oftentimes when I think about this spending money, I mean, how many times do we tell people, "Don't spend it"? 'Cause it's like you, y- y- you don't know w- w- how to convert it into value

  7. 5:55 – 6:12

    Spending is sticky: it’s hard to undo bad cost habits

    1. DC

      You're just gonna dig yourself into a deeper hole. It's actually gonna be harder to course correct if you spend it on the wrong things.

    2. MS

      Yes.

    3. DC

      Like, spending money on the wrong things and then stop spending it is like-

    4. MS

      Is so hard [laughs]

    5. DC

      ... it's like being un-addicted to something, you know? You're like, "Wait, you already-

    6. MS

      [laughs] Yeah.

    7. DC

      [laughs] You got used to it.

    8. MS

      Yeah.

    9. DC

      Like, oh, no.

    10. MS

      Yeah.

    11. DC

      It's much harder to get back off of it once you've been on it.

  8. 6:12 – 7:43

    Executive hiring and headcount: money can’t buy readiness or judgment

    1. MS

      What about execs? That's a common place to spend more money. My CRO is going to change the revenue trajectory of my company.

    2. DC

      Again, it's certainly possible, but more money alone does not mean it's going to work. Um, if anything, if you're tempted to start hiring these people before you're ready, it's value destructive. Like, hiring executives ahead of where you need them is notoriously value destructive. And let me extrapolate this a little bit, 'cause you might be like, "Well, Dalton, you know, y- yeah, whatever, you guys are making points," but hiring is one. More money means you can hire more people, right? And I have a nuanced point to make here.

    3. MS

      Okay.

    4. DC

      Certainly having more money is good in the recruiting pitch on why they should work there. If you're like, "Hey, we have $10 million in the bank versus a million"-

    5. MS

      Yeah

    6. DC

      ... I think a job candidate would want to hear that.

    7. MS

      Yes.

    8. DC

      Also, if you're, like, literally going broke and you don't have enough money to hire someone-

    9. MS

      Problems

    10. DC

      ... eh, it's, it solves that issue.

    11. MS

      Yes.

    12. DC

      But here's the very nuanced point, is that if it seems like you have a lot of money, you might be tempted to recruit candidates who are entirely mercenary-

    13. MS

      Mm-hmm

    14. DC

      ... and all they care about is their cash comp-

    15. MS

      Mm-hmm

    16. DC

      ... and they don't actually care about your startup and mission.

    17. MS

      Hmm.

    18. DC

      And so instead of bringing in people that are really aligned with your vision, being aligned with what you're trying to do, you're just, like, throwing money at getting people to work there. Seen a lot of that not work.

  9. 7:43 – 8:44

    Hiring by spreadsheet: money can’t buy your attention or quality control

    1. MS

      The other thing that I see with hiring is I see hiring by spreadsheet. We have money, manager says, "I need a team of N people to do things," you add N people to the head count spreadsheet, the math works out, that's the end of your oversight. [laughs]

    2. DC

      Yeah.

    3. MS

      And then the manager hires eight shitty people.

    4. DC

      Yes.

    5. MS

      And, and-

    6. DC

      Like the machine, you're like, you put money in the machine and what pops out is, like-

    7. MS

      Not quality

    8. DC

      ... not quality.

    9. MS

      Yeah. And but the money's spent.

    10. DC

      The money is spent.

    11. MS

      [laughs] And so it's interesting, 'cause it's like, well, if you wanted to spend that money on hiring, like, did you care who was hired? Were you following up? Were you interviewing them? Were you involved? Oh, you, money doesn't do that stuff. The money can't buy your attention.

    12. DC

      Yep.

    13. MS

      And so that's another area where it's like, ah, it's, it's so painful to see. It's like, oh, I just need three sales pods. Uh, just spend $2 million, get these three sales pods up, and then our enterprise sales is gonna work. It's like, no. [laughs]

    14. DC

      [laughs]

  10. 8:44 – 10:32

    Culture and motivation: perks can’t create true ownership

    1. MS

      No. I'm sorry. Let's think about culture, 'cause I think that's one-

    2. DC

      Yeah, 'cause-

    3. MS

      ... that's a tricky one

    4. DC

      ... 'cause with hiring, this is actually the way money can help with hiring, is if it increases the chance you build a culture that people wanna work in and a place that people want to be a part of.

    5. MS

      Yes.

    6. DC

      And so if the money goes to your bank account and somehow we could draw a line to-

    7. MS

      [laughs]

    8. DC

      ... working at your company is awesome, then okay, thumbs up, that makes sense.

    9. MS

      Yes.

    10. DC

      Like, I don't know, maybe, um, having a nice office or something. Okay, yeah, that's, that's check.

    11. MS

      Maybe. Maybe.

    12. DC

      Like, you got it.

    13. MS

      Yes.

    14. DC

      But go ahead. Uh, talk, talk about the culture bit.

    15. MS

      Yeah. One of the things that I see a lot is that you can spend a lot of money on your office and on your perks and so on and so forth and still have a culture where the average employee doesn't care whether you win or lose. On the flip side, you could be running this company out of a class C basement [laughs] and have a culture where every employee comes in every day and wants to kill it.

    16. DC

      Yep.

    17. MS

      And so certainly it helps to pay people a livable wage.

    18. DC

      Yeah.

    19. MS

      Right? Certainly it helps to give people healthcare and so on and so forth. But I wish that there were ways kind of above the basics that you could actually get a multiplier effect by spending more money, and unfortunately I haven't seen it. And I think the other thing when it comes to hiring is that you might be able to delude yourself on how good your product is. Your employees, they're a little bit less biased.

    20. DC

      Yep.

    21. MS

      And so even if they come in super hyped and super excited, you know, three months in, when they're interacting with customers, when they're looking at the product, when they have more intimate knowledge, they know.

    22. DC

      Yep.

    23. MS

      They know. And money doesn't, "Oh, well, I'm really well paid so I'm just gonna lie to myself and tell myself this product's good." Eh, it doesn't work that well.

  11. 10:32 – 13:04

    Focus vs hedging: extra money enables ‘big company-itis’

    1. DC

      What about focus? So focus is really important. Um, when you're at the earliest stages, you're forced to focus. [laughs]

    2. MS

      Yes.

    3. DC

      And everything we taught people at, at YC was focus, focus, focus, and it, and it works.

    4. MS

      Yes.

    5. DC

      And you would see people fall off of that once they got a bunch of money-

    6. MS

      Yes

    7. DC

      ... because it suddenly became possible-

    8. MS

      To hedge

    9. DC

      ... to do multiple things at once-

    10. MS

      Yes

    11. DC

      ... to hedge-

    12. MS

      Yes

    13. DC

      ... and to hire enough people to like, yeah, just do a bunch of stuff.

    14. MS

      Yes.

    15. DC

      And counterintuitively, this tends to not work.

    16. MS

      Yes.

    17. DC

      And it tends to be counterproductive-

    18. MS

      Yes

    19. DC

      ... to, to lose your focus.

    20. MS

      It is so painful to watch a founder hedge because, like, you will, inevitably in an office hour there'll be, like, those, there's always one thing they're the most excited by. And inevitably in a company that's hedging, they're putting, like, less than 20% of their effort on the thing that they're objectively the most excited by. And you talk to them about why, and it's either like, "Oh, well, we have these other things that we can't stop working on," like, why not?

    21. DC

      Yep.

    22. MS

      Like, is some boss telling you? Or it's, it's safety. I don't feel safe not working on three things at the same time. Which always confuses me, 'cause I'm like, you have a limited number of great people, you have a limited amount of attention, you have a limited amount of time. Why would you dilute those things?

    23. DC

      Yeah.

    24. MS

      Like, what, like, do you, are you safer?

    25. DC

      [laughs]

    26. MS

      I understand you feel safer. [laughs] Like, are you safer? I always encourage people, it's like, I don't mind experimenting or hedging serially, right? Like, you learn something and then you adjust and you iterate. But man, it's really hard to be learning on three different parallel things, especially... I mean, what's interesting is that way later than I would have thought, I think hedging is hard. Like-

    27. DC

      Yeah

    28. MS

      ... even companies generating a billion dollars in revenue-

    29. DC

      Yeah

    30. MS

      ... I see situations where they're-

  12. 13:04 – 15:23

    When raising money does help: scaling a proven machine (with real payback)

    1. DC

      Why should someone raise money? Okay, you guys are enumerating all these, like, horror stories. Maybe I should just, you know, raise a million dollars and never raise another dollar. Like, maybe that's the right thing. Why, why isn't that the right call?

    2. MS

      So I'll, I'll start with the depressing thing. There are so few situations I see where a company is actually doing really well.

    3. DC

      Okay.

    4. MS

      I think that's, like, not talked about enough. That, that, that it is somewhat rare that a company is significantly helping customers and doing it in an interesting and kind of good way. And I think in those scenarios, there are often a lot of things that money can help with. Like, one, that incremental hire oftentimes is extremely helpful. Two, marketing. When you're telling someone about a product that's good, and predictably, if they know about it, they'll try it, and they'll start using it, and they'll like it, and they'll retain, that's very, very good. [laughs]

    5. DC

      Yeah. Again, maybe to riff on that-

    6. MS

      Yeah. [laughs]

    7. DC

      ... I think that's exactly right point, is I think about this in terms of payback periods.

    8. MS

      Yes.

    9. DC

      Where if you have the machine working really well-

    10. MS

      Yes

    11. DC

      ... and you're like, "Oh, our customers pay back in 10 months," and it's like, we know this for a fact. We have so much data. We are, you know-

    12. MS

      Yes

    13. DC

      ... totally convinced we have a 10-month payback period, then you should raise every dollar to do that.

    14. MS

      Like, like-

    15. DC

      Like, like... [laughs]

    16. MS

      But I'll, I'll even caution on that.

    17. DC

      Yeah, yeah. Go ahead.

    18. MS

      Because I work with a number of companies where they would say their payback period is 10 months because the person signed up for an annual subscription.

    19. DC

      No, no. It's, there's too many asterisks.

    20. MS

      Yeah.

    21. DC

      I, I hear you.

    22. MS

      Exactly. Yeah.

    23. DC

      I hear you.

    24. MS

      No aster- Like-

    25. DC

      [laughs]

    26. MS

      ... at 10 months, when you've broken even the customer, the customer loves you-

    27. DC

      Yeah

    28. MS

      ... can't imagine their life without you, and will pay you indefinitely-

    29. DC

      Yeah

    30. MS

      ... then, oh, incredible.

  13. 15:23 – 17:11

    Precise capital plans vs hand-waving: Uber/Lyft and DoorDash examples

    1. MS

      Yes. I'll throw a couple others in. I think that once you have a machine working well, there are forward investments that you-

    2. DC

      Yeah

    3. MS

      ... can actually plan for that can create significant value for you, right? And I think that fundraising can help. So I, I'll give an example. Tell me if this is too messy, but, um, you know, Uber comes out. It is working on black cars.

    4. DC

      Yep.

    5. MS

      It invents this space, and then Lyft comes out, and it is working with normal people's cars-

    6. DC

      Yep

    7. MS

      ... and normal drivers. You know, if I'm Uber in that position, it's kind of like, oh, I understand the space is great. I understand that's a, maybe a better model that I want to iterate towards. If I want to raise money to help me get there-

    8. DC

      Yes

    9. MS

      ... I know a lot, like, you know, like, I'm doing this as a very intelligent investment. That makes sense.

    10. DC

      Yep.

    11. MS

      Um, another example is, you know, DoorDash getting its first, uh, like, 12 markets profitable and then being like, "All right. We understand how to sign up stores, how to do promotions, what types of markets to go to, da, da, da, da. Let's go do our next 50." Okay. Like, that's the-

    12. DC

      Yeah

    13. MS

      ... you know, like, th- those types of intelligent investments when you actually have some expertise, when you have ex- an aggressive amount of proof that your customers love the product.

    14. DC

      Awesome. Yeah.

    15. MS

      Awesome.

    16. DC

      And to be super direct, what we're saying is hand-waving, oh, we have $10 million. We're gonna, like, hire some people, and we're gonna do some billboards. That is hand-waving.

    17. MS

      Awesome.

    18. DC

      Versus the examples you just gave-

    19. MS

      Yes

    20. DC

      ... are super precise-

    21. MS

      Yes

    22. DC

      ... and specific.

    23. MS

      Yes. Yes.

    24. DC

      And I would just encourage the viewers to, to delineate between those examples.

    25. MS

      Yes. Yes.

    26. DC

      How specific, um, are, are your uses of capital?

  14. 17:11 – 20:46

    Fundraising’s hidden costs: board stress and shifting employee expectations

    1. MS

      I wanna throw in a last cautionary tale here. I think there's two things that founders don't realize when they raise capital, and they're not in this position. One is more often than not, they bring on a board member who thought the company was doing better than it is, and then they have to interact with that person quarterly. I cannot tell you how often I do office hours where, like, a top two stressor in a pre-product market fit CEO's life is the fact that they have an investor board member who doesn't like the company.

    2. DC

      Yes.

    3. MS

      And, like, as much as I tell them those are words, they can't do anything, yadi, yadi, yadi, it's just, like, hard to have, like, a negative cheerleader-

    4. DC

      As a significant shareholder in your company [laughs]

    5. MS

      Um, yes.

    6. DC

      It's, like, not fun. Like, not fun.

    7. MS

      And just because it's, like, it's hard to not have a little bit of a respectful, like-

    8. DC

      I understand

    9. MS

      ... you wanna see them as, like, this aspirational, as helpful, and they're kind of like, "Oh, I fucked up investing in you."

    10. DC

      Yeah.

    11. MS

      That's not fun. And then the second is how employees' expectations change when there's a lot of money.

    12. DC

      Yeah.

    13. MS

      I cannot tell you how many YC companies I talk to where the founder knows the company is not doing well, and the employees think because Sequoia gave them $20 million they are, and they start treating the company like it's Google.

    14. DC

      Yeah.

    15. MS

      And, like, when people think the company has made it, they actually start thinking, "How can I get mine?"

    16. DC

      Yep.

    17. MS

      Whereas when they realize the company hasn't, and they believe in the mission, and the team has a good culture, they think about how to sacrifice for the company. And the worst case scenario is you have a bunch of people in your company who are trying to get theirs, and your company's not working. Good luck. Good luck.

    18. DC

      Yeah.

    19. MS

      Money, hell, that's not a problem that money doesn't solve. It's a problem money creates [laughs] .

    20. DC

      Amen. I mean, look, I think my parting thought is, my suggestion is to treat money as a tool if you're a startup founder, and you have a whole box of tools. There's lots of tools that you have.

    21. MS

      Lots of tools.

    22. DC

      And there are certain types of problems that you can use this tool to fix or to hack, and if you're very good, if you're good at using this tool, good for you. Like, if you're good at fundraising, hooray. But it is not in itself the answer.

    23. MS

      Yeah.

    24. DC

      It is not the panacea. And if you start hitting everything with a hammer, right? [laughs] If all you have is a hammer, or if all you have is money, and you try to fix every problem with it, it's not gonna work.

    25. MS

      Not gonna work. It's so funny, 'cause sometimes I think to myself, you know, startups, the kind of theory behind startups is that, like, ambition, intensity, intelligence, and scarcity of resources is a better environment for invention. And so only startups can... Like, you know, big companies, like, pretend like they can create that, but it's really hard for them to do, but startups c- can create that. And it's interesting when people want so much money that there's no scarcity, yet they still want invention. I just think if I could bottle up what I've seen the best companies do when they're low on cash, and if I could put that into a pill-

    26. DC

      I know, right? [laughs]

    27. MS

      ... right? Like, it's like, man, the gun to your head when you're low on cash, that creates so much more invention [laughs] than the, the six months after you raise that round-

    28. DC

      Yep

    29. MS

      ... when you're like, "Now we can spend money on things." [laughs] It's a gift. It's a gift to be resource limited when you're, when you're early. Great chat.

    30. DC

      All right. Thanks, Michael. [laid-back music]

Episode duration: 20:46

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