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Dalton + MichaelDalton + Michael

Startup Problems Growth Doesn't Solve

Dalton Caldwell and Michael Seibel discuss how growth is amazing but there are a few problems that growth doesn't solve. Discussion includes: what does growth actually help with (can't raise money, burnout, etc.), unit economics, how economies of scale might get worse as you grow, CAC rising with marketing spend, fraud increasing costs, why growing fast might not be a moat, passion for your customers or customers, having a clear vision for the future, how Tony from Doordash had a vision for delivery, Paul Graham's vision for YC, how public companies have a clear vision, bad hiring, startup job hoppers, why growth doesn't mean you are solving customer problems but it does mean you are gaining evidence, seat usage, founder personal or emotional problems, and more. – Standard Capital is the AI-native Series A fund. Learn more at standardcap.com – About Dalton: Dalton Caldwell is Co-Founder and Partner of Standard Capital. He spent 12 years at Y Combinator, where he served as Managing Partner, worked across 25 YC batches, and advised more than 1,000 startups. His investments include Whatnot, Brex, GitLab, PostHog, Retool, Rappi, Razorpay, and Oklo. Before becoming an investor, Dalton founded imeem and App.net. About Michael: Michael Seibel is a Partner Emeritus at Y Combinator, where he served as a group partner and leader of the early stage accelerator from 2014 - 2024. Michael also serves on the board of three companies: Reddit, Dropbox, and Kalshi. He moved to the bay area in 2006, and was a co-founder and CEO of two Y Combinator startups Justin.tv/Twitch (2007 - 2011) and Socialcam (2011 - 2012). In 2012 Socialcam sold to Autodesk Inc. for $60m and in 2014, under the leadership of Emmett Shear (CEO) and Kevin Lin (COO) Twitch sold to Amazon for $970m. – Are you an AI builder? Check out StandardDB. Discover offers, credits, tools, and partner programs from the StandardDB ecosystem.

Dalton CaldwellhostMichael Seibelhost
Aug 24, 202618mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 0:17

    Self-management mindset: be your own fan vs. your own critic

    1. DC

      When things aren't going well, you have to be your own biggest fan.

    2. MS

      Yes, yes.

    3. DC

      And when things are going well, you have to be your own biggest critic.

    4. MS

      Biggest critic, yes.

    5. DC

      And it's a very different-

    6. MS

      Very different

    7. DC

      ... uh, state of mind to be in.

    8. MS

      Very different.

    9. DC

      Right?

    10. MS

      Well, and also, you know, and, and especially because, like, you don't want to be deputy downer in your company and going, "Well, but, like..."

    11. DC

      Who else is?

  2. 0:17 – 2:06

    Why this episode: growth fixes a lot—yet doesn’t fix everything (AI-era context)

    1. MS

      Right? [upbeat music] This is Dalton + Michael, and today we're gonna talk about the problems that growth doesn't solve. So we've been accused of telling founders, "Just grow, grow, grow, grow, grow."

    2. DC

      Yep.

    3. MS

      And we're not, um, retracting that advice.

    4. DC

      [laughs]

    5. MS

      However [laughs] ...

    6. DC

      There's some nuance.

    7. MS

      However, there's some nuance.

    8. DC

      There's a nuance.

    9. MS

      There's nuance. So let's go through some of that nuance here.

    10. DC

      Growth does solve a whole lot of problems. Often when someone is dealing with burnout-

    11. MS

      Oh, yeah

    12. DC

      ... or they're dealing with-

    13. MS

      Oh, yeah

    14. DC

      ... we can't raise money.

    15. MS

      Oh, yeah.

    16. DC

      Like, there's just a whole set of problems where if you, the actual fix is just to grow.

    17. MS

      Yes.

    18. DC

      And then suddenly this money problem, oh, that just got fixed.

    19. MS

      Yes.

    20. DC

      And suddenly the motivation or the burnout problem gets fixed.

    21. MS

      Yes.

    22. DC

      So growth is very good and does fix a whole lot of problems.

    23. MS

      We're not knocking growth.

    24. DC

      We're not knocking growth.

    25. MS

      That's like saying, like-

    26. DC

      Growth is good

    27. MS

      ... oh, like, like being rich has a lot of problems. Like, yeah, but it's better.

    28. DC

      So, so growth is still good, but there's some nuance here that we wanted to talk about.

    29. MS

      Yes.

    30. DC

      And, and part of the reason we were, we were discussing why to make a video about this, I think it's that there are AI-related companies right now-

  3. 2:06 – 3:10

    The dangerous middle: the illusion of inevitability from $1M to $100M+

    1. MS

      There's some things that we want them to dig into because unfortunately, and especially what's interesting to me is that there's a phase of growth that's kind of dangerous. Like, I'll, I'll, I'll put too big of an error bar around it, and you tell me what you think, right? I think between a million in revenue and 100 million in revenue, that is a very dangerous error bar. That's a very dangerous zone because I think companies in that zone just raw assume anything that's happening that's going well will continue until they pass through that zone, until, let's call it pre-IPO zone. Whereas you and I know, and like, you know, I think is general knowledge, that every company that reaches a million dollars in revenue does not IPO, right? [laughs]

    2. DC

      Yeah.

    3. MS

      And so it's like we know all of the death stories that happen in that zone.

    4. DC

      Yep.

    5. MS

      And there's probably one more zone in the 100 to 500, and then, like, you know, things are, are, are more predictable. And so when founders are in that kind of, that first zone, and they're just like, "Man, we're making it," what are some of the questions you'd tell them to ask themselves?

  4. 3:10 – 4:16

    Unit economics: growth can scale losses, not profits

    1. DC

      Okay, well, one classic one, um, is the old, uh, unit economics thing. And so this is the-

    2. MS

      Uh-oh. Uh-oh

    3. DC

      ... if you give away stuff for free that costs you money... Like, let's say you had a website where, that was like free money website.

    4. MS

      Yes.

    5. DC

      Um, that would grow. Like, people would go to that website. They would... [laughs]

    6. MS

      Pay me 75 cents, I'll give you a dollar.

    7. DC

      Revenue through the roof. [laughs]

    8. MS

      Yeah.

    9. DC

      You can, you can reliably grow-

    10. MS

      Yes

    11. DC

      ... um, losing money. And again, you could be like, "Well, guys, sometimes-

    12. MS

      What about economies of scale?

    13. DC

      Yeah, and that, and that's fair. There, there's, there are certainly very educated, sophisticated strategies around-

    14. MS

      Yes

    15. DC

      ... losing money to get something off the ground.

    16. MS

      Yes.

    17. DC

      But by and large, just growing faster doesn't mean you're gonna solve unit economic issues. Like, it's not self-evident.

    18. MS

      We see more companies die by assuming that there are economies of scale without deeply probing it-

    19. DC

      Yeah

    20. MS

      ... and discovering that perhaps in their company, those economies of scale never arise.

    21. DC

      Yeah. This is a hard thing to just hand wave.

    22. MS

      Yeah.

  5. 4:16 – 5:36

    Paid acquisition traps: CAC, payback, and hidden scaling costs (support, fraud, ops)

    1. DC

      Um, again, to give another just, like, classic textbook example, it's where you get growth by spending a lot of money on ads.

    2. MS

      Yes.

    3. DC

      And you're like, "Oh, yeah, yeah. You know, like, the payback period's gonna be great. You know-

    4. MS

      Yeah

    5. DC

      ... we don't have any retention data yet-

    6. MS

      Yes

    7. DC

      ... but this is gonna be fine."

    8. MS

      Yes.

    9. DC

      That's a classic one where actually a ton of ad-supported growth doesn't mean all of your problems are solved. You might still have problems.

    10. MS

      I mean, and I'll go one step further. When you see people who are using marketing, and they're like, "Well, the marketing numbers at this scale, my CAC, my cost to acquire a customer at this scale, will remain if I 100x my marketing budget," and it's like, I've never seen that. [laughs]

    11. DC

      Indeed.

    12. MS

      And so, like, the assumptions around unit economics at small scale need to be reassessed at every order of magnitude scale 'cause oftentimes they change. It's interesting to watch people realize that their products become more expen- Like, their unit economics get worse as they scale 'cause they have all these hidden costs like-

    13. DC

      Indeed

    14. MS

      ... customer service-

    15. DC

      Well, like fraud

    16. MS

      ... and employees.

    17. DC

      Fraud is one that bites people-

    18. MS

      Fraud. [laughs]

    19. DC

      ... that you never see.

    20. MS

      Yeah.

    21. DC

      Is you get successful enough-

    22. MS

      Yeah

    23. DC

      ... that fraud rings spend a lot of time attacking your startup. It's a high-cost problem. Again, like, if you're lucky enough-

    24. MS

      Yes

    25. DC

      ... that there's a lot of people professionally trying to rip you off, it means you did something good.

    26. MS

      But-

    27. DC

      But man, that's hard.

    28. MS

      That's really hard.

    29. DC

      [laughs]

    30. MS

      That's really, really hard. Okay, so unit economics, that's a big one. Uh, where would you go next is?

  6. 5:36 – 6:51

    Defensibility and moats: fast growth doesn’t mean you can’t be copied

    1. DC

      I think moats, again, this is one of those things that likely, uh, some people are annoyed of hearing about. Like, yeah, yeah, moats, whatever.

    2. MS

      Yeah.

    3. DC

      But I think it's just we've seen people grow really, really, really fast and have no clue how to make it defensible or what, how they'll prevent... I always use this thought experiment. Why won't there be some YC company in the next batch-

    4. MS

      Yeah

    5. DC

      ... that sees that your thing is working-

    6. MS

      Yeah

    7. DC

      ... and then just does the same thing? Like, what prevents them from Just taking your customers.

    8. MS

      I mean, historically, the canonical example of this was ad tech, where it was kind of like, "Oh, I'm this thin layer between, like-

    9. DC

      Yeah

    10. MS

      ... a whole bunch of customers and a super big social media site," right? This is sustainable.

    11. DC

      Yeah.

    12. MS

      And, like, the su- sh- super big social media's, like, site's like, "Maybe I want a direct relationship with my customer." [laughs]

    13. DC

      Yeah.

    14. MS

      It's, this is a tricky one.

    15. DC

      And, and, and so again, the point here is not that you must have an A+ perfect answer all the time. No, no, no, we're not just saying, saying that. We're just saying it is not self-evident that because you are growing fast-

    16. MS

      You have a moat

    17. DC

      ... that you have a moat. Those are not-

    18. MS

      Yeah. Yes.

    19. DC

      [laughs]

    20. MS

      Yes.

    21. DC

      You know.

    22. MS

      And I think, like, that just means probe.

    23. DC

      Probe, yeah, be curious.

    24. MS

      Like, ask yourself the hard question.

    25. DC

      Yeah, be cur-

    26. MS

      Yeah, yeah.

    27. DC

      Don't, don't let the future YC company probe you.

    28. MS

      No, no.

    29. DC

      [laughs]

  7. 6:51 – 7:39

    Why founders must self-critique during hype: no one else will

    1. MS

      Well, and this might be a, a, a point to, to make an interesting aside here. Maybe the meta reason why we're telling you to do these things is because others won't.

    2. DC

      Yeah.

    3. MS

      Like, that investor that's seeing the revenue go up to the right, they're gonna be like, "Great. Those employees, great." Like, oftentimes the press, great. Like, like, when you're in that kind of inflection, oftentimes you have to be your biggest critic.

    4. DC

      Correct.

    5. MS

      'Cause no one else will do that work.

    6. DC

      Yeah, it's almost like when things aren't going well, you have to be your own biggest fan.

    7. MS

      Yes, yes.

    8. DC

      And when things are going well, you have to be your own biggest critic.

    9. MS

      Biggest critic, yes.

    10. DC

      And it's a very different-

    11. MS

      Very different

    12. DC

      ... uh, state of mind to be in.

    13. MS

      Yeah.

    14. DC

      Right?

    15. MS

      Well, and also, you know, and, and especially because, like, you don't wanna be Deputy Downer in your company and going, "Well, but, like..."

    16. DC

      Who else is?

    17. MS

      Right, right.

    18. DC

      [laughs]

    19. MS

      We're getting these mega valuations.

    20. DC

      Yeah.

  8. 7:39 – 9:10

    Passion and customer empathy: growth doesn’t guarantee you care

    1. MS

      Everyone loves you. All right. So one thing that you brought up that I really like is this idea of, like, passion. So just because you're growing doesn't mean you care about your product or your customers. And, you know, it was interesting. I experienced this one personally. There was this point where Justin.tv was pivoting into Twitch, and we went from kind of more of a general audience, which is what it is, to a very specific video gaming audience, people who are really hardcore video gamers. And I, I liked video games. I have video game systems, [laughs] you know, it's like... But, you know, I remember kinda trying to take stock of, like, is this, are these my people? Like, is this what I'm gonna enjoy? And what was so interesting is that while on one hand the company was doing better in some respects than it ever had been, on the other hand, I kinda was realizing I don't know that these are my people.

    2. DC

      Yeah.

    3. MS

      I don't know that this is something that I am super passionate about.

    4. DC

      If you don't care about your customers, you don't care about the problem, growth won't im- you know, it won't inherently make you more... Sometimes it does.

    5. MS

      Sometimes it does.

    6. DC

      But it won't just solve that issue.

    7. MS

      Yeah.

    8. DC

      You know?

    9. MS

      And you, you make a good point about nuance, right? Like, sometimes it does.

    10. DC

      Yeah.

    11. MS

      I've been shocked at founders who I wouldn't expect would be super into this thing, and they, they grow into it.

    12. DC

      Totally.

    13. MS

      Yeah. Um, but sometimes it doesn't, so it's a question to ask yourself.

  9. 9:10 – 12:16

    Vision as a competitive weapon: having a clear picture of the future

    1. DC

      One that I think about a lot is, is vision.

    2. MS

      Mm-hmm.

    3. DC

      Which is-

    4. MS

      Mm-hmm

    5. DC

      ... I have a lot of positive correlations of when you talk to founders, even at the early stages-

    6. MS

      Yeah

    7. DC

      ... they have a picture in their brain of what their company is supposed to be, and it's a very clear picture, and they can explain it to you, versus people where you ask them for far future expectations, and it just is, they don't have a picture in their brain.

    8. MS

      Yeah.

    9. DC

      And so I feel like that's important to me, like, with the work that I'm doing, um, at Standard, is I have a very clear picture about what I want it to be. I don't, I don't know if it'll work or not, but I can promise you-

    10. MS

      Yeah

    11. DC

      ... I, I can see it.

    12. MS

      Yeah.

    13. DC

      Okay? And so my job is to manifest this thing I can see in my head.

    14. MS

      Yes.

    15. DC

      And this reminds me so much of the really successful founders. I remember doing office hours with Tony from Doordash when he was in the batch.

    16. MS

      That's who I was thinking about, yeah.

    17. DC

      And he could explain what Doordash was supposed to be perfectly well when it was two months old.

    18. MS

      Yes.

    19. DC

      And that's exactly what it became. [laughs]

    20. MS

      It kills me 'cause when you talk to Tony at various different levels, he would always refer to Amazon.

    21. DC

      Yeah.

    22. MS

      And you would just be like, "Really?" And but then, like, over the years, it was like-

    23. DC

      He did it.

    24. MS

      Well, [laughs] you know.

    25. DC

      [laughs]

    26. MS

      And there was this one point where he was like, "You know, we're N percent of Amazon's daily deliveries," and that was a large percent, [laughs] and I remember just being like, oh my God. When you said that, the other thing that I think about is that when you have a vision, you almost have, like, a philosophy. You have, like, a weird explanation about what your customers want, how you can build a company that can serve them over a long period of time, and y- you can nerd out about-

    27. DC

      Yeah

    28. MS

      ... your company in a way that's, like, pretty deep. And I will say, I think I only truly had that experience at YC.

    29. DC

      Yeah.

    30. MS

      And, you know, I remember thinking about YC as, like, it's going to be this 100-year institution. It's gonna be this combination of a university and a VC-

  10. 12:16 – 13:04

    Competing at scale: big incumbents bundle your idea unless you out-think them

    1. MS

      100%. [laughs] And, and, and I think the ones who don't Really dig in and ask themselves these questions. What's interesting is that they end up, you know, when you hockey stick enough, you stop competing with little startups, and you start competing with the actual companies that make up the economy, and they all, all, many of them have very in-depth visions. [laughs]

    2. DC

      [laughs]

    3. MS

      And when you get under their radar, and if you're just like ho-hum, and they're like, "Oh yeah, part of our vision is taking the best startup ideas from this space and just bundling them into our product" [laughs]

    4. DC

      Yeah. [laughs] Like you're the-

    5. MS

      That is certainly a strategy.

    6. DC

      [laughs] Like you're like, oh man.

    7. MS

      Yeah.

    8. DC

      Am I... [laughs] Was all my work just to further their business model? And it's like-

    9. MS

      Yeah

    10. DC

      ... it was. [laughs] Unless you had a vision to compete against it, yeah. No, we've seen that time and again.

  11. 13:04 – 15:04

    Hiring under hypergrowth: impressive candidates, bad fits, and ‘tourists’

    1. MS

      One thing we see in companies that are growing really fast is they make bad decisions, specifically hiring decisions.

    2. DC

      Yeah.

    3. MS

      And this, I think, comes from unclear thinking. You know, it's like it's a disaster. There's a fire. Tell me who the firemen are. And, like, when you're an advising company and be like, "There are no firemen."

    4. DC

      Yeah.

    5. MS

      Like, there, that's not something people wanna hear. People wanna hear, "If you hire this exec or you hire this person, or you do step one, two, and three, the fire will go out," as opposed to hearing, "Your goal was to, to live in the fire." Like that, that's what winning-

    6. DC

      Yeah

    7. MS

      ... looks like. [laughs] There's no, if the fire goes out, it's a bad thing. [laughs]

    8. DC

      [laughs] Like-

    9. MS

      Tony is in the fire.

    10. DC

      Yeah.

    11. MS

      [laughs] Brian and everybody's in the fire.

    12. DC

      Just because it's growing doesn't mean hiring is easy. It's not f- like, and it doesn't mean you're gonna make the right call.

    13. MS

      Well, I would argue it's harder.

    14. DC

      Yeah.

    15. MS

      'Cause when you're not growing, you don't even have the choice to hire-

    16. DC

      Yeah, that's right

    17. MS

      ... for the most part, right? Suddenly all these people who seem impressive wanna work with you.

    18. DC

      Yeah.

    19. MS

      And man, I remember this conversation. I, I have to change the names of the company slightly, but let's say a friend of mine, I went to visit their company, and it was a high-flying company, and I met an employee who didn't realize who I was or my re- or my relationship with the, the founder, and so they gave me, like, this moment of honesty, and they were like, "I've picked five companies, and I think these are the five kind of winning companies, and my goal is to spend 18 months at each company getting over my, like, [laughs] vesting threshold."

    20. DC

      Wonderful.

    21. MS

      "And I'll have these five" And I'm just like, "Oh, [laughs] you really thought this out. I see." You're more of a taker than you are a contributor. Um, and I was just like, oh, you know, the, it's easy to miss those kinds of people when you're growing fast. Um, and, and they come. Another tricky one, um, that's very, very tricky is just because you're growing fast doesn't mean you're solving your customer's problem.

  12. 15:04 – 16:27

    Revenue vs real value: selling doesn’t mean customers are actually succeeding

    1. DC

      Yep.

    2. MS

      I would say the longer you are growing, the more evidence is accumulating that you are solving a customer problem, but I cannot tell you how many companies... Let's remove AI for a second. Let's just go to B2B SaaS days. I loved asking people the question, "Oh, great, so you've sold this company this number of seats for your software." It's like, "Yeah." It's like, "Wow, great deal." Da, da, da. How many of those people who have seats go to your product?

    3. DC

      Oh, man.

    4. MS

      And th- th- that's the-

    5. DC

      They love you for that question. [laughs]

    6. MS

      Well, the best answer is the most innocent answer, which is like, "How would we know?" [laughs] Like we're-

    7. DC

      They're like, "Michael, I've never thought about it"

    8. MS

      We've never really been tracking. [laughs]

    9. DC

      "We got the, we got the customer. We got the signed contract. Why would I ask who's using it?"

    10. MS

      They have the seats, yeah. [laughs] The kind of darker answer is, like, when the founder does know, and they're just like-

    11. DC

      "We're working on retention"

    12. MS

      "We're working on retention." It's like they already bought the thing. [laughs] They don't even wanna use it.

    13. DC

      Yeah.

    14. MS

      Like, that's a... And so you would be shocked at how often software is purchased in a company that no one wants, is told about, uses, and then how often it is unpurchased. That is a standard thing that happens I think people aren't talked about. And so especially if your company kinda gets in the zeitgeist a little bit.

    15. DC

      Yeah.

    16. MS

      That's a common, common one. Where else would you go?

  13. 16:27 – 18:31

    Founder life constraints: growth can worsen health, relationships, and stress

    1. DC

      I think, I think my last one here is it doesn't necessarily solve the founder's ability to just, like, deal with their day-to-day life.

    2. MS

      Yeah.

    3. DC

      And if they're dealing with other tricky stuff-

    4. MS

      Yeah

    5. DC

      ... uh, I don't know, like health issues-

    6. MS

      Yes

    7. DC

      ... or, or-

    8. MS

      Relationship stuff

    9. DC

      ... personal issues.

    10. MS

      Yeah, yeah.

    11. DC

      Growth won't necessarily fix those and can make them worse.

    12. MS

      Yes.

    13. DC

      Like, if you have str- if there's some, like, big stressor in your life, growth won't necessarily fix that.

    14. MS

      Well, and what's unfortunate is that when you're growing, you just have to put more of your day-to-day resources towards your company.

    15. DC

      Correct.

    16. MS

      And so if you were just holding on, things are, are, are tricky. I remember having this conversation with the former batch director at YC, and I remember, you know, she was like, "Hey, look, this growth thing's an emotional struggle. Startups are emotional struggle." And, you know, it took me a while to think back and realize that, like, I'd been with my now wife during my, almost my entire startup journey.

    17. DC

      Yeah.

    18. MS

      And so it was like I took it for granted-

    19. DC

      Yep

    20. MS

      ... just having that, and, like-

    21. DC

      It sure helps

    22. MS

      ... phew, like I can't even, I can't imagine, literally. [laughs] Like I cannot imagine. And so, um, that's a tricky thing. Your life gets exposed a little bit when you're growing and when your company's demanding more. So congratulations on the growth.

    23. DC

      [laughs]

    24. MS

      We're excited for you.

    25. DC

      Yeah, growth is good.

    26. MS

      Yeah, yeah.

    27. DC

      Growth is the main thing. We're just trying to flag-

    28. MS

      Grow more, yes

    29. DC

      ... some of the stuff that if you're growing well still is a problem.

    30. MS

      Yeah.

Episode duration: 18:32

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