Lessons from 1,000+ YC startups: Resilience, tar pit ideas, pivoting, more | Dalton Caldwell (YC)

1. 0:00 – 4:41

   Dalton’s background

   1. DCDalton Caldwell0:00

      (instrumental music) ... seen everything people apply to YC with. People all kinda have the same idea.

   2. LRLenny Rachitsky0:04

      One of these themes is simple, pragmatic advice: sell shit, make money.

   3. DCDalton Caldwell0:07

      One of my mantras is, "Just don't die." Being coached and being reminded of the fundamentals and basics puts you in the right mindset.

   4. LRLenny Rachitsky0:15

      You have this concept of tarpit ideas.

   5. DCDalton Caldwell0:17

      Seems like an unsolved problem. You'll get all this positive feedback from the world, and people have been starting that startup since the '90s.

   6. LRLenny Rachitsky0:23

      Recently, you put out a request for startups, 20 categories of ideas that YC wants to fund.

   7. DCDalton Caldwell0:28

      We're trying to mix up some of the information diet about what kind of ideas people might be contemplating they aren't currently.

   8. LRLenny Rachitsky0:34

      A lot of people say you're the king of the pivot.

   9. DCDalton Caldwell0:36

      A good pivot is like going home. It's warmer, it's closer to something that you're an expert at.

   10. LRLenny Rachitsky0:41

       Are there other patterns do you find across startups that do well?

   11. DCDalton Caldwell0:43

       There's a lot of founders that come this close to it all being over and, through sheer will, kinda just keep it going.

   12. LRLenny Rachitsky0:50

       (instrumental music) Today, my guest is Dalton Caldwell. Dalton is managing director and group partner at Y Combinator, where he's worked for over 10 years across 21 different YC batches, including working closely in the earliest days of Instacart, Retool, Brex, Deel, DoorDash, Webflow, Replit, Amplitude, WhatNot, Razorpay, and 20 other unicorns. Prior to Y Combinator, Dalton was the co-founder and CEO of imeme, which was acquired by MySpace, and co-founder and CEO of App.net, which was an early ads-free competitor to Twitter. Dalton has seen and worked with more startups than nearly any human alive. And, in our conversation, we get incredibly tactical and deep on the startup journey: why it all comes down to simply not losing hope and not letting your startup die; what to do when your startup is struggling and how to know when it is time to give up; what makes a great pivot and signs it's time to pivot; how to actually talk to customers; why every single startup goes through a point where they feel like all hope is lost; why investors say no to startups; what most often leads to startups failing; why you need to avoid over-delegating early on; plus startup ideas that you should avoid, and also 20 ideas Dalton is looking to fund. Also, so many great stories and lessons. This episode is action-packed. With that, I bring you Dalton Caldwell, after a short word from our sponsors. And if you enjoy this podcast, don't forget to subscribe and follow it in your favorite podcasting app or YouTube. It's the best way to avoid missing future episodes, and it helps the podcast tremendously. This episode is brought to you by Eppo. Eppo is a next generation A/B testing and feature management platform built by alums of Airbnb and Snowflake for modern growth teams. Companies like Twitch, Miro, ClickUp, and DraftKings rely on Eppo to power their experiments. Experimentation is increasingly essential for driving growth and for understanding the performance of new features, and Eppo helps you increase experimentation velocity while unlocking rigorous deep analysis in a way that no other commercial tool does. When I was at Airbnb, one of the things that I loved most was our experimentation platform, where I could set up experiments easily, troubleshoot issues, and analyze performance all on my own. Eppo does all that and more with advanced statistical methods that can help you shave weeks off experiment time, an accessible UI for diving deeper into performance, and out-of-the-box reporting that helps you avoid annoying prolonged analytic cycles. Eppo also makes it easy for you to share experiment insights with your team, sparking new ideas for the A/B testing flywheel. Eppo powers experimentation across every use case, including product, growth, machine learning, monetization, and email marketing. Check out Eppo at geteppo.com/lenny and 10X your experiment velocity. That's geteppo.com/lenny. This episode is brought to you by Vanta. When it comes to ensuring your company has top-notch security practices, things get complicated fast. Now you can assess risk, secure the trust of your customers, and automate compliance for SOC 2, ISO 27001, HIPAA, and more with a single platform, Vanta. Vanta's market-leading trust management platform helps you continuously monitor compliance alongside reporting and tracking risks. Plus, you can save hours by completing security questionnaires with Vanta AI. Join thousands of global companies that use Vanta to automate evidence collection, unify risk management, and streamline security reviews. Get $1,000 off Vanta when you go to vanta.com/lenny. That's vanta.com/lenny. (instrumental music)

2. 4:41 – 7:04

   The value of simple advice

   1. LRLenny Rachitsky4:41

      Dalton, thank you so much for being here, and welcome to the podcast.

   2. DCDalton Caldwell4:45

      Yeah. Thanks so much, Lenny. I'm real excited to talk to you today. It's gonna be great.

   3. LRLenny Rachitsky4:48

      So, to prep for this podcast interview, I asked a bunch of founders that worked with you during YC what advice you shared with them along the journey that was most transformative to the way they think about product, the way they think about building their startup, the way they operate. And, there's a bunch of themes that emerged, and I'm gonna touch on a number of these themes. One of these themes is just how often you get to like very simple pragmatic advice, and how much of your message is just like sell shit, make money, don't run out of money. Why do you think founders need to hear this advice, which is seemingly simple and obvious?

   4. DCDalton Caldwell5:22

      Have you ever seen, um... In, in like NBA basketball or college basketball where they have the coach miced up, and it shows what they're actually saying in the huddle? (laughs) You ever listen to what they actually are saying? They're like, "Okay, we, we need to really focus and get the ball and win this game." Like, if you actually listen to what the greatest, smartest, most successful athletes are talking about, like if you listen to what Tiger Woods is saying to his caddie, it all sounds like pretty mundane stuff. They're not... It's not like what Tiger's- Tiger Woods is talking about with his caddie is some, you know, impossible to decipher jargon. It's like, "Yeah, you really need to keep your head down on this one." (laughs) ... it's things like that. And, and I think the reason this is true is that even if you're the, the best in the world, being coached and being reminded of the fundamentals and basics is what puts you in the right mindset. And that you already know everything, right? You're at the top of your game if you make it to the elite levels of being a startup founder, or basically doing anything that's really hard, um, psychologically. And so yeah, one of my mantras is just, "Just don't die." (laughs) "Just keep your startup going. Just keep going." And I say that over and over again. And, and honestly, that is often what people tell me is the most impactful thing I said. It's not that I said some ninja 5D chess move that they never would've thought of before. It's just the constant affirmation that (laughs) continuing to keep going and doing high quality reps is the game.

3. 7:04 – 8:39

   Dalton’s advice: “Just don’t die”

   1. DCDalton Caldwell7:04

   2. LRLenny Rachitsky7:04

      I know that you give a talk that's exactly called that. How, How Not to Die. Just to pull on this thread a little bit more, what is, what is the general advice you share there for people that also don't want to die?

   3. DCDalton Caldwell7:14

      The way to summarize that is if you look at all the startup stories that we have at YC, and all the companies we funded over all the years, the underlying theme is that rationally, the founders should've given up at some point. (laughs) And so, again, let's talk about Airbnb, obviously something you know a lot about. You know, when they probably should've shut down, like, three or four times before they got into YC. It objectively wasn't working, they were basically ruining their lives, they were disappointing their parents. Everything was wrong, and it was, it was a purely irrational act for the founders of Airbnb to keep working on their goofy startup. And so, and again, that's just one story. If you look across the, across the portfolio of YC and non-YC companies, there has to be this irrational, you know, intention to keep going even when the world tells you it's not working, and you feel completely defeated. And you likely have to go through this many times and have these near death experiences. And then you get lucky, and then you look like an overnight success.

   4. LRLenny Rachitsky8:24

      Mm-hmm.

   5. DCDalton Caldwell8:25

      (laughs) Right? A- and so that's, that's, that is the theme, that is a summary. And I provide, you know, lots of data and lots of stories there. But this is one of those things that the, the longer I've had this job, the more I really, really believe this is true.

4. 8:39 – 11:45

   Knowing when to stop

   1. LRLenny Rachitsky8:39

      What's your advice kind of on the flip side of that where there's a lot of startups, especially these days, that are just super struggling, have been at it for a while, there are mental health challenges. They're really, they'd be very sad if they had to shut this thing down, but often it's probably the right move. What's your advice to folks of deciding, "Okay, it actually does make sense to give up in this case?"

   2. DCDalton Caldwell9:01

      I think this is a nuanced question, and it's hard for me to say something on a podcast that'll actually be useful to people. But here, here's, here's a couple of thoughts. One, are you still having fun? Do you still enjoy doing what you're doing? Do you enjoy spending time with your co-founders? You know, like, is this actually a fun thing you're doing? And if the answer is, is yes, I would tend to lean on the keep going. And then if it's more of, "Wow, this is actually profoundly affecting me in a negative way and my relationships with people in my life, and my team... You know, I don't really wanna work with my co-founder anymore," and things like that, then I would lean on the probably don't do it anymore. Something that a lot of the folks that turn it around have in common is they actually do love their customers and they love their product. And again, if you... In the Airbnb story, again, you know it really well, but they really liked Airbnb. (laughs) Like, and they liked working with each other, and they liked the first hosts that they met, and they knew all their names. You know what I'm saying? Like, they were actually... They loved their startup, even though it was going bad.

   3. LRLenny Rachitsky10:08

      (laughs)

   4. DCDalton Caldwell10:10

      (laughs) And so that's kind of, to me, a signal to keep going is that you really, really love what you're doing and the people you're, you're doing it with, and you love your customers and you love the problem. Versus where you're just like, "Yeah, I could care less about any of those things. I'm just having a bad time." Eh. Hard- harder to be encouraging in that situation, you know?

   5. LRLenny Rachitsky10:29

      Yeah.

   6. DCDalton Caldwell10:29

      And this is a fixable situa- You know, you can make it more like the thing you love, can't you?

   7. LRLenny Rachitsky10:34

      Yeah. This is actually very practical and great advice. Like, this is something people can sense, "Okay, am I actually enjoying this? Do I want to keep doing this?" Versus like, "Man, such a drag that I have to keep running this startup." Is there anything you could say to folks that are just like, "I can't stop 'cause it'll feel like I failed"?

   8. DCDalton Caldwell10:50

      If it's really going poorly or if you're having a really bad time, it's no big deal. No one will remember that you, that you shut down your company probably in 10 years or 20 years. Like, time... As long as you have integrity, as long as you're an honest person, as long as you handle yourself well through good times and bad, people will remember you fondly. And it's, you know, better... We have such a short life. (laughs) There's only so many years we get to, to, to have our careers. Doing something that makes you miserable and the only reason you're doing it is to avoid losing face, and you know in your heart it's not gonna work, I don't know, that seems like a pretty big opportunity cost on, on literally your life. Right?

   9. LRLenny Rachitsky11:30

      That's... Yeah. That's exactly what I tell founders all the time. Life is short. There's no need to force yourself to work on this.

   10. DCDalton Caldwell11:36

       Yeah.

   11. LRLenny Rachitsky11:36

       And I really like your point of just, like, is it still enjoyable? Do you like working with your founders? Kinda following this thread of the struggle train a little bit more.

   12. DCDalton Caldwell11:44

       Mm-hmm.

5. 11:45 – 14:26

   Deciding to pivot

   1. DCDalton Caldwell11:45

   2. LRLenny Rachitsky11:45

      One of the founders that was... Uh, worked with you during YC, uh, his name is Danny Alverson-

   3. DCDalton Caldwell11:50

      Yeah.

   4. LRLenny Rachitsky11:50

      ... shared a story how during one of the batches of YC, someone, one of the founders raised his hand and asked you, "What is wrong with our batch? Everyone is struggling. Nobody is doing well. What had we done? What have we done wrong?" And you shared a story, uh, about Brex that made everyone feel a little better. Can... Does that ring a bell? And if so, can you share that?

   5. DCDalton Caldwell12:08

      That definitely happened. And I think the story is the story of the winter '17 batch.And in the winter '17 batch, I funded something like, I don't know, 35, 40 companies in my group. So we subset them into groups. So it wasn't, like, a lot of companies, and I knew, I knew all of them really well. And founders can't help but compare themselves with other founders all the time about who's doing well and who's not doing well. And there was this one company in, in my group this batch. It was called Vyond, that was their name at the time. And it was like a VR headset thing from these, uh, Stanford dropouts. And they basically showed up to group office hours and were just ashamed, they're like, "Our idea is horrible. You know, we might want to shut our company down. This is, like, really embarrassing." Like, they just, I had to, like, beg them to not give up, basically. And if you would have asked people in the batch what the worst company was, (laughs) I think they would have said this one.

   6. LRLenny Rachitsky13:07

      Wow.

   7. DCDalton Caldwell13:07

      Again, not 'cause like they were, like, bad people, but it was just, like, the founders themselves seemed, like, despondent about how it was going. And then funnily enough, this is in the story too, there was another startup also in my group called Cashew, which was this P2P for, uh, the UK, P2P Venmo, excuse me, um, uh, in the UK. And it was going really poorly also and not growing. And so if you just took this snapshot in time in the middle of the batch of, like, who is definitely not doing well, it would clearly have been this Vyond company and this Cashew company. And so to cut to the chase, Vyond changed their idea and got really excited about it and renamed to Brex, and this was Brex, which is like a decacorn. And Cashew changed their idea and renamed to something called Retool. And so out of my 35 companies, the ones that objectively seemed the worst, (laughs) in terms of, like, it's just everything is going bad, were by far, in retrospect, the most successful companies in that group.

   8. LRLenny Rachitsky14:08

      Wow. Uh, wait, so you're saying, uh, Brex was a VR headset company?

   9. DCDalton Caldwell14:14

      (laughs)

   10. LRLenny Rachitsky14:14

       Wow.

   11. DCDalton Caldwell14:14

       They thought it was really high tech. They wanted to do a really high tech startup, and so they were like, "We're gonna build a new VR headset." And, you know, they were good programmers, but they just didn't know anything about optics or the things you might want to be an expert in to build a headset.

6. 14:26 – 17:53

   Characteristics of a good pivot

   1. DCDalton Caldwell14:26

   2. LRLenny Rachitsky14:26

      Wow. That's an amazing story and it's a great segue to s- another theme that emerged from talking to founders about advice that you shared. A lot of people say, tell me, you're kind of the, the king of the pivot, of helping people figure out how to pivot. I'm curious just what you've seen makes a good pivot.

   3. DCDalton Caldwell14:45

      Usually, a successful pivot gets warmer instead of colder from what you're an expert at, and somehow builds on what you learned on the prior idea. Right? And so in the case of Brex, it was let's, they had worked on a, a fintech company in Brazil when they were younger. And so I'm like, "You need to work more on the thing you know all about and not the thing you know nothing about." And that was what worked for them. In the case of Retool, it was the same thing, they had built similar internal tools both at their internships as well as at, for Cashew, they had all these dashboards they'd built to, like, operate their, their Venmo competitor. And so they knew a lot about what to build. In the case of Posthog pivoting into their idea, they knew a lot about analytics and had strong opinions about it. And so it was much closer than what their original idea is. In the case of Zip, Rejul knows a lot about a lot of things, and, um, he knew a lot about, like, the crazy procurement process at Airbnb, (laughs) 'cause he worked there. And so it was kind of like, a good pivot is like going home, you know? It's, it's warmer, it's closer to something that you... And it never occurred to you that this thing you know all about would be a good idea, or maybe you co- consciously you're like, "I don't want to work on this 'cause I'm burnt out on it." Like, sometimes you have to, someone, someone has to get over this barrier they have on why they don't want to work on a certain idea.

   4. LRLenny Rachitsky16:18

      These are amazing. I like how modest you are, and like, oh, here's, like, a big idea, and then you just give very tactical, uh, items to look for. So essentially, a good pivot, in your experience, is you're getting closer, warmer towards something you have experi- actual experience in. And two, it builds on something you've done, k- essentially the core idea of a pivot, right, where you're like...

   5. DCDalton Caldwell16:38

      It, in the, in the example of Segment, which is obviously a really big, successful company, um, they started with something to tell your professor you were confused in class, it was, like, software, that they sold to universities, (laughs) and then they ended up pivoting to something kind of like a Mixpanel competitor after, like, two years, and it's because they didn't, they learned about how analytics works running their first idea.

   6. LRLenny Rachitsky17:01

      Okay.

   7. DCDalton Caldwell17:02

      And then no one wanted to adopt their Mixpanel competitor, and so they were like, "We should make this JavaScript thing that you embed on your website, that can send events to multiple endpoints at the same time, so that way people would be willing to try our Mixpanel competitor side-by-side with Mixpanel, to s- show that it's better." And then they were like, "Oh, yeah, no one actually wants that, they just want this JavaScript to send events to different locations." And so there's no way those founders could have started with the final idea. You get what I mean? There, there was no universe where they would've made up the idea for Segment, 'cause they didn't know anything about how analytics worked. But because they were grinding for multiple years and became experts on these things as a side effect of their earlier ideas, they ended up with really good, unique insights.

   8. LRLenny Rachitsky17:45

      I think that's a really important point there, is you don't need to necessarily have that experience before you start the company, it could come from trying to build the company.

   9. DCDalton Caldwell17:51

      Exactly.

7. 17:53 – 19:03

   Knowing when to pivot

   1. DCDalton Caldwell17:53

   2. LRLenny Rachitsky17:53

      A big question people are always wondering is, like, should I pivot? Like, is this the time to pivot? Is this, should I keep trying this idea? What's your advice there of just like, okay, now you should really be thinking about something else?

   3. DCDalton Caldwell18:02

      Again, this is one of those where I like to give very bespoke, nuanced advice on a case by case basis to the folks in YCE. But again, just to give you a preview of how I would think about it, um, I would look at...... how many more ideas the founder has on how to make it grow. Like if it's not going well, and you're out of ideas, that is usually a good time to pivot. But when there's a, you know, when you have like half a dozen or a dozen really good growth ideas that you haven't tried yet, eh, you, try 'em. Right? Like, yeah (laughs) give it a shot. Again, in the, in the Airbnb story, right, they, they tried, uh, all sorts of stuff including cereal and conventions. Like they had a bunch of zany ideas on growth, and they didn't run out of them. And so I think when you, I think when there's still, uh, gas in the tank, um, on an idea, that might be a reason to stay the course. And when, when l- when literally the founder's like, "Yeah, I don't know. I guess maybe we should pay influencers or something," when that's, when that's the kind of ideas they're coming up with, eh, that's, that might be a better sign to pivot.

8. 19:03 – 21:22

   Zip’s journey and finding a market

   1. LRLenny Rachitsky19:03

      That is incredibly helpful. Coming back to Zip real quick, they went through I think six different pivots before they-

   2. DCDalton Caldwell19:08

      They did.

   3. LRLenny Rachitsky19:08

      ... landed on this idea that is now a billion-dollar business. Is there anything from that specific journey that you found really interesting? 'Cause they went in so many different directions, like accounting, marketplaces, and-

   4. DCDalton Caldwell19:18

      Yeah. I think in the example of the Zip founders, they were both such great experts. And, you know, I knew Rajul really well. He actually worked with me at, at YC as a visiting partner, and so I was, I was really close to Rajul, and he had done this marketplace called Flight Car when he was younger, which was, you know, raised as series B, it didn't work out, but it was a really cool company. And, um, I had a lot of confidence in his competence on running a business and executing fast, and just having great instincts. Like he really knows the fundamentals. And the problem was, they weren't as clear on what market to go into. You still with me? And so I actually suggested he s- to do something in their case, again this is very bespoke, um, but my suggestion was to start by looking at what companies are, um, publicly traded, uh, and/or owned by private equity that are large, and that also are hated, um, by their customers. (laughs) And to try to intentionally find where there's a knowable big market with an incumbent, um, combined with, the software is horrible, and they kind of did that. Like they basically found out about all this procurement software and what the state of the art was, and that was, that was the prompt. Again, maybe he told you this. That was, that was basically the process.

   5. LRLenny Rachitsky20:41

      He did tell me that. I love that example and piece of advice so much. I don't know why more people don't do this. Basically find a large incumbent with very low MPS, uh, and try to disrupt them. So straightforward. (laughs)

   6. DCDalton Caldwell20:54

      Yeah. I mean, it, it, I can't promise that works for everyone, but again, in the ca- in the very bespoke situation with Rajul, it worked really well, because he actually knew exactly, once he locked in on that prompt, oh man, he was, he ran a master class.

   7. LRLenny Rachitsky21:09

      (laughs)

   8. DCDalton Caldwell21:09

      You know? Like they did, they did a, they did a A+ job. It was really good.

   9. LRLenny Rachitsky21:12

      Also Lew, his co-founder. Credit to him too.

   10. DCDalton Caldwell21:14

       Of course. Like, sorry, uh, yeah. We gotta give Lew the shout-out. Lew did an amazing job. I just didn't know Lew as well before he did YC, but you're right, we gotta give Lew the credit.

9. 21:22 – 23:45

   Why Dalton says to “Move towards the mountains and the desert”

   1. DCDalton Caldwell21:22

   2. LRLenny Rachitsky21:22

      I was watching your chat with Michael Seibel talking about pivots, and you, e- either you or he used this phrase of you wanna move towards the mountains and the desert to find the gold of a new startup idea, versus the middle of the city, you're unlikely to find gold in the middle of San Francisco. Is there anything along those lines that you, you can share?

   3. DCDalton Caldwell21:41

      Yeah. I think maybe this pertains into what we see from applications and interviews, which is, from where I sit seeing everything people apply to YC with and what they interview with and, and whatnot, um, people don't, people all kind of have the same idea.

   4. LRLenny Rachitsky21:59

      (laughs)

   5. DCDalton Caldwell22:00

      Like, like basically imagine this. Imagine your information consumption where you're listening to the same podcast, wink wink, um, you're reading the same people on Twitter, you're reading the same blog posts. Basically you have the same information diet of all these other founders-

   6. LRLenny Rachitsky22:15

      Mm-hmm.

   7. DCDalton Caldwell22:15

      ... and you're friends with all the same people. Does it seem surprising then that you would all end up with similar startup ideas or similar philosophies on what makes a good startup idea? Of course you are. So this is the metaphor on cities is that if you just are following the same principles and have the same information flow into your brain, you're gonna come up with the same ideas as everybody else. And so the prompt here is to try to go more off the beaten path, either from your personal experience, like in the case of Brex and Retool or whatnot, you know, there was no one else trying to build marketplaces for Funko Pops.

   8. LRLenny Rachitsky22:49

      (laughs)

   9. DCDalton Caldwell22:50

      (laughs) You know, go, go deeper in your own personal interests or experience to find something that just the, the, your exact peer wouldn't come up with in exactly the same way. And again, the Zip example, I don't think other people were trying to build wonky procurement software. That was just a, that was not an idea that we saw much of. And so again, the prompt to people is try to mix up what your information diet is or what areas of expertise you have, and, and mine that well, (laughs) versus just having all the same thoughts as everybody else. And so again, let me give one more example. A few years ago, startups around trucking were super new and fresh because no one was doing them and they worked really well, and then it became completely conventional wisdom to do like trucking-related startups. And I'm not trying to diss anyone, but you- you'll see things that become fashionable really quickly because someone found success in this unfashionable space, and then it becomes fashionable.

10. 23:45 – 26:49

    Tar pit ideas

    1. DCDalton Caldwell23:45

    2. LRLenny Rachitsky23:45

       This is a good segue to something I definitely want to spend time on, which is you have this concept of tarpit ideas, which are essentially ideas people all kind of gravitate towards and get stuck in and either pivot into and then can't pivot out of or try to pivot out of, and essentially it's just like consistently bad startup ideas that people continue to try to start. Can you just talk about this and then what are some, what are some examples of just like bad startup ideas that people should stop trying to start?

    3. DCDalton Caldwell24:10

       For people that are familiar with this terminology from us, sometimes they get defensive and don't get what we were saying. So let me... By definition, it is only a tarpit if it seems like it's not-Like, like, if it's just a regular idea that is hard, that is not a tar pit. The, the weird aspect of what we call a tar pit idea is an idea that a lot of people come up with, and then it seems like an unsolved problem, and you get lots of positive feedback for, right? And you have a really good set of arguments that it's a really good startup idea. And that's different than a bad startup idea. Do you get what I'm trying to say? A bad startup idea is like, I don't know, something that is obviously bad or something where you just can't get any positive, uh, feedback on. But some of the... The most common tar pit would be something like building, um, like an app to coordinate with your friends to decide where to go out at night or where to meet up with people, which is e- which is a really... It's coming from a good place, like it's a good idea. If you ask your friends, "Hey, would you like an app for us to coordinate to hang out more so we can be friends?" They're like, "Yeah, I would love that." Like, you'll, you'll get, you'll get all this positive feedback from the world. And, man, people have been starting that startup since like the '90s. (laughs) And so you can validate it. Like part of being a true tar pit is that you can get good initial validation. Do, do you get what I mean? And so anyway... And, and honestly, I worked on tar pit ideas myself as a founder, which is, uh, music discovery. This is something I did in my first startup. That was def- you know, music startups are hard. Um, and trying to be like, "Oh, we're gonna fix music discovery," is, was classic things where you can get lots of positive feedback and even get users to work on those things. But there are aspects of it that make it a very hard idea. So does that make... Does that make sense?

    4. LRLenny Rachitsky25:59

       Absolutely. I'm also guilty of this. I had this startup called Local Mind that, uh, allowed you to talk to people checked in, in various locations around the city on Foursquare and Goala back in the day, and ask them how's it going. And everyone, when they used it, they're like, "Holy shit, this is the most incredible thing I've ever seen. I could see what's happening at this bar that I'm about to go to," and then they never use it again.

    5. DCDalton Caldwell26:19

       Do you remember when Foursquare clones was all anyone worked on for a few years?

    6. LRLenny Rachitsky26:22

       Yeah. They told, they told us, "Foursquare is gonna own this. Y- there's no way this idea you're building is gonna be its own thing." And now, yeah, Foursquare is a B2B business.

    7. DCDalton Caldwell26:30

       Yeah. And a- all the Foursquare clones, if they didn't pivot out of doing what they're doing, wouldn't have worked. So anyway, that's, that's a tar pit. It's just something that's super appealing and a lot of people do it, and that you can, you can kind of get validation. And that's why, that's why it is a tar pit, is it draws you in and you get stuck.

    8. LRLenny Rachitsky26:45

       Mm-hmm.

    9. DCDalton Caldwell26:45

       Because it seems like it's like a good idea and you get all this positive feedback.

11. 26:49 – 29:14

    Understanding why investors say no

    1. DCDalton Caldwell26:49

    2. LRLenny Rachitsky26:49

       Kind of along these lines, I was talking to a founder recently and she's asking me, "What causes an investor to say no to you when you're trying to raise money from them?" And I know there's... Every investor has a very different perspective on what turns them off to a startup. But is there anything that you find is just like, "Here, if you do these things, investors will say no"?

    3. DCDalton Caldwell27:09

       Maybe my best advice here is for founders to put themselves in the shoes of investors and just imagine what their life is like and how, if you were in their shoes, you would make decisions. And so given this framework, a lot of investors just don't make that many investments. And as per what we talked about earlier, life is short. And so there's lots of things that an investor that in their hearts thinks is like pretty good and like, "Oh, like, I like this person and I like their pitch. But I only am gonna do a few investments. And so even though I really like a lot about this, I'm gonna say no." And then I, I often think that founders think that there's some secret truth that's being held from them on why someone says no, or like they're, you know, like they want more feedback. "I need feedback," and it's like, well, the feedback is we didn't want to invest. (laughs) And, and it, and it really is just that. And, and so I think if you put yourself in the m- in the shoes of an investor of like, "Hey, I only can do a few of these a year. I have very limited budget," they're really just trying to pick the things that they're either personally most excited about or things that they think could be truly phenomenally big in some way. Or, you know, again, you... I know you do investments too. So it's, it's, it's that you only get so many shots as an investor. And so anything that doesn't seem like this is the one, this is the one I want to do is a no.

    4. LRLenny Rachitsky28:36

       (laughs)

    5. DCDalton Caldwell28:37

       And that that's actually why they're saying no versus this, "You did..." you know, "Oh, you, you had a bad Zoom setup," or something, you know, "Oh, we didn't, we didn't like what color your shirt was, we said no." I don't think that's, I don't think that's how this actually works, you know?

    6. LRLenny Rachitsky28:51

       I think that's such a good piece of advice, that it's not necessarily they don't believe in what you're doing, it's they have better options and they're waiting for something that hits the higher bar just 'cause, because they have a lot of options.

    7. DCDalton Caldwell29:00

       Yeah. 'Cause again, and, and if you, if you ask someone, "Well, put yourself in an investor's shoes, wouldn't you be making decisions the same way?" Usually founders are like, "Yeah." (laughs) Like, like they come... If you, if you do that exercise, a lot of this starts to make way more sense.

    8. LRLenny Rachitsky29:13

       Hmm.

12. 29:14 – 32:16

    The importance of market size

    1. LRLenny Rachitsky29:14

       Specifically when you're evaluating startups, I wasn't gonna go into this, but I think it might be interesting, is mar- market size. How do you think about the importance of, of large TAM as an, as an investor at YC?

    2. DCDalton Caldwell29:25

       I think it really depends on what stage you're investing at. And it's absolutely critical the later stage you get, right? If you're gonna invest at a very high valuation, it is really important. Um, the earlier you go, the less it matters. And some of the most phenomenally good startups, if you're really, uh, pedantic ab- about it, the TAM would be like tiny.

    3. LRLenny Rachitsky29:52

       Yeah.

    4. DCDalton Caldwell29:52

       Like the, the TAM of Uber would be like nothing, right? Like how... (laughs) Um, the TAM of Airbnb would've been nothing. The TAM of... I, I was, uh, I funded Razorpay, which is I think the largest payment processor in India. And the TAM of that was tiny because no one was using credit cards in 2015 in India. So you had to believe that the size of the credit card industry in India were like 100X. Well, guess what happened? You know what I'm saying? And so, so I'm not saying that the, uh, having a large market someday doesn't matter. Of course it does eventually. But trying to be super pedantic about market size when you're, when it's like a pre-seed company or someone applying to YC is not...You know, it's just not something I put a lot of thought into. Again, what not, ooh, what's the TAM of the collectible Funko Pop industry? I don't know. I don't think it's that big, man. I don't know if you did that analysis when you invested. But I, you know, thing's pretty small, but I-I wasn't worried about it. That was like the last thing I was worried about.

    5. LRLenny Rachitsky30:49

       It makes so much sense that at YC you don't think about it that much because of, as you said, many startups pivot anyway. So if you like the team.

    6. DCDalton Caldwell30:56

       Yeah. But, and I'm not saying it's not important. I just, it's not-

    7. LRLenny Rachitsky30:59

       Yeah.

    8. DCDalton Caldwell30:59

       And the things I'm worried about is like, "Hey, how do you get users? Hey, how do you grow?" Things like that. Like, are you making something people want? Those are the things I'm really worried about, as opposed to, "Ooh, I ran an Excel model and I'm worried this might not be a big enough TAM." That's, that's not at the top of my list.

    9. LRLenny Rachitsky31:15

       I think it's important to acknowledge that a lot of investors are very, like YC I think is unique in a lot of ways, where you invest very early and you help people through this journey. A lot of investors are very focused on TAM, so you may find you're getting turned down because they don't think there's a big enough market for you to build a big business, right?

    10. DCDalton Caldwell31:32

        Yeah. Or that you're asking them to believe a crazy leap of faith. That, again, they can say, "Well, it's theoretically possible you'll be able to sell more than Funko Pops, and I understand that that is your pitch, but I am, I have other opportunities that are less risky." You know what I'm saying? Like, like it's not 'cause the mar- a lot of founders make the argument that the TAM is big, and you can say, "Wow, that's a really interesting argument and I have no re- I have no, you know, I'm not gonna argue with you about it," but, "No, I'm not going to..." (laughs) . And so again, it's, it's hard to get someone to engage in a debate about TAM even if you have a, you know, even if you have some proof points, ultimately, uh, a lot of investors just don't like that risk. Fair enough.

    11. LRLenny Rachitsky32:15

        Fair enough.

13. 32:16 – 36:43

    Avoiding over-delegation and hiring senior people too early

    1. LRLenny Rachitsky32:16

       Going a slightly different direction. So, uh, someone else that worked with you, uh, another Lenny, uh, Lenny Bogdanov who started-

    2. DCDalton Caldwell32:23

       Yeah.

    3. LRLenny Rachitsky32:23

       ... a company called Milk and then he was head of growth at OpenAI for a bit. He asked me to ask you about things product leaders and startups should watch out for. Does that ring a bell?

    4. DCDalton Caldwell32:35

       I don't remember the specific Office Hours, but I, I understand the question and I of course remember Lenny. Um, I think that the advice that he's referencing here is just how important it is to not overdelegate (laughs) and for the founders to stay close to things, um, as well as watch out for the trap of hiring super senior people with fancy resumes really early in a startup. I think that's what he's referencing there. And again, this is, uh, definitely one of those very basic things that we find ourselves repeating a lot, um, where they're like, "Yeah, yeah, I get it. Like, don't overdelegate. We get it at Dalton." And then like two years later, they're like, "Wow, we overdelegated." (laughs) Uh, "We need to, we need to go clean that up." So that is probably the best product advice and the folks that are really great at product, the founders that are, are always deeply in the weeds on product and still care a lot and are still talking to customers, no matter how late stage it gets. Again, I'm sure you experienced this in Airbnb culture, but, you know, you can't delegate caring about your users and you can't delegate caring that the product is great. That is so critical.

    5. LRLenny Rachitsky33:36

       To make this even more real, what are, what is it that you see them do? It's they hire a PM too early, they hire a senior salesperson too early. What are the-

    6. DCDalton Caldwell33:43

       Yeah.

    7. LRLenny Rachitsky33:44

       ... common mistakes?

    8. DCDalton Caldwell33:44

       I think just, I think that you get pushed often by investors to hire executives or to scale the team or, "We need, you know, we need, we... You raise all this money. You gotta spend it, you know. We gotta, you gotta show you're serious about growth and building a world-class organization." Whatever, stuff like that. And so you end up with super nice people with super shiny resumes from, from big tech companies. "Oh, wow, they, they did this amazing thing at Google," and then you hire them and then you wake up one day and you're like, "Oh, wow, everything went wrong." It's not really anyone's fault. It's just that you, you, you o- you took your eye off the ball and this is what happens, um, to first time founders a lot.

    9. LRLenny Rachitsky34:24

       How do you as a founder then have time to do all these things? Is there any guidance you give just like don't overdelegate, don't over-hire, but also you need to, you, you have, you have 24 hours in a day. Is it just find the time to prioritize well or is there more, more to it?

    10. DCDalton Caldwell34:39

        I think if you just care a lot about your customers and you care a lot about the product, your instincts are pretty good on what to spend time on. And so for example, spending tons and tons of time like hanging out with investors and networking is probably not, is probably the thing that I would be cutting. Um, you, you know what I'm saying? Like it's, it's what we talked about earlier. If you really love what you're doing, no one needs to tell you how to reprioritize your time. Your intuition will be correct on what you should be spending all your time on, which is being obsessed with product.

    11. LRLenny Rachitsky35:12

        I love that advice. (instrumental music) This episode is brought to you by Coda, and I mean that literally. I use Coda every day to help me plan each episode of this very podcast. It's where I keep my content calendar, my guest research, and also the questions that I plan to ask each guest. Also, during the recording itself, I have a Coda page up to remind myself what I want to talk about. Coda is an all-in-one platform that combines the best of documents, spreadsheets, and apps to help you and your team get more done. Now is the perfect time to get started with Coda, especially its extensive planning capabilities. With Coda, you can stay aligned and ship faster by managing your planning cycles in one location, you can set and measure OKRs with full visibility across teams and stakeholders, you can map dependencies, create progress visualizations, and identify risk areas. Plus, you can access hundreds of pressure-tested templates for everything from roadmap strategy to final decision-making to PRDs. If you want a platform that empowers your team to strategize, plan, and track goals together, you can get started with Coda today for free. And if you want to see for yourself why product teams at high growth companies like Pinterest, Figma, and Qualtrics run on Coda, take advantage of this special limited time offer just for startups. Head over to coda.io/lenny to sign up and get $1,000 in credit. That's C-O-D-A dot I-O slash Lenny to sign up and get $1,000 in credit. Coda.io/lenny.Okay.

14. 36:43 – 40:30

    Why startups fail

    1. LRLenny Rachitsky36:43

       So one of your former... One of your colleagues, current (laughs) colleagues, not former colleagues, Gustav, was on the podcast previously. His episode is, I think, the fourth most popular episode of all time currently, so no pressure.

    2. DCDalton Caldwell36:54

       Oh, cool.

    3. LRLenny Rachitsky36:54

       Uh-

    4. DCDalton Caldwell36:54

       Okay. I don't know if I can compete with that. All right.

    5. LRLenny Rachitsky36:56

       I think you can. So I asked him what is often the most common reason a startup fails, and his answer was, "They don't talk to customers. They don't find product market fit. Nothing else matters if they can't do that." And so his advice is talk to customers more often. So two questions here. First of all, just is there anything else you would add to why do startups fail? I know we talked about some of these already, but just what comes to mind there?

    6. DCDalton Caldwell37:23

       I completely agree with what Gustav said. But to, to look at this from a different frame, I think it's that the founders lose hope. And when you and your heart is like, "Yeah, we're failing," like once... I can see it when I'm meeting with a founder when they've resigned themselves that they're failing, versus when like, "We got one more move in us. We got one more try." Like you can see in their eyes when they feel like there's more ideas or there's some last-ditch Hail Mary thing. Um, it doesn't always work, but it's, it's almost like you have to not accept that you're going to fail. (laughs) And as long as you don't accept that that's going to happen, there's usually a lot more moves you can try to save the company. What... Maybe it's to get profitable. Maybe it's to, like, do some other zany thing. Maybe it's, you know, to launch a new product. Um, and so it's pretty rare, I would argue, that the cause of death is that they had lots of firepower and they were feeling really positive and they just ran out of money. That's actually, like, more rare than founders think. Um, it's much more common that they still have some money left, I'm not saying a lot, but some money, and they're just like, "Yeah, I'm done. I'm out of ideas. I don't want to do this anymore." And again, fair enough, you know? But, but do you get what I'm saying? Like, I think founders are afraid that they're gonna run out of money and that's why they're gonna shut down, and it's way more common that they, like... Their idea doesn't work and they have a big fight with their co-founder and then they can't agree on what to work on and then they just, like... Or like, "I don't want to do this anymore," and they shut down. That is the most common cause of death, is something that sounds like that story.

    7. LRLenny Rachitsky38:58

       Hmm. That is so interesting. And again, this comes back to your core advice, don't die. Just don't die.

    8. DCDalton Caldwell39:06

       Yeah.

    9. LRLenny Rachitsky39:06

       We talked about this already of just, like, sometimes it's actually okay to die. And I guess just to refresh that lesson is if you're not having fun anymore, maybe it's okay.

    10. DCDalton Caldwell39:16

        Yeah. If you're out of ideas, you're like, "I'm just... I'm done," like if you know in your heart that you're done, you don't have to keep going through the motions. No one benefits from that, right?

    11. LRLenny Rachitsky39:23

        And you've also seen enough cases now, you've shared a few of these, where they... All hope was potentially lost, but they kept going and then they turned into a huge success story. And I think most people don't see those examples. I guess, is there anything you can share just like how often that happens, how often you see that turn around?

    12. DCDalton Caldwell39:41

        I would argue that if we define it as the company had a near-death experience where it was going poorly and the founders seriously wondered if it was all gonna be over, 100% of the time people go through that. You know, where the founder's like, "Yeah, I guess we're done. I guess we should pack it in." (laughs) And at least you feel that way at some point in your startup journey.

    13. LRLenny Rachitsky40:00

        Hmm.

    14. DCDalton Caldwell40:00

        I mean, everyone goes through that. Um, and again, there's gradations. People that actually truly got down to very, very hard situations, it's still a high percentage, like maybe 50%. I mean, you can ask founders. There's a lot of founders that come this close to it all being over and through sheer will kinda just keep it going, you know?

    15. LRLenny Rachitsky40:21

        That is really, uh, empowering, I imagine, for many founders hearing this of just knowing every single founder goes through, "Okay-"

    16. DCDalton Caldwell40:27

        Oh, yeah.

    17. LRLenny Rachitsky40:27

        "... I think it's actually over."

    18. DCDalton Caldwell40:29

        Yep.

15. 40:30 – 45:17

    Effectively talking to customers

    1. DCDalton Caldwell40:30

    2. LRLenny Rachitsky40:30

       Following on this real quick, the advice that Gustav shared, which is about talking to customers, I'm just gonna keep trying to pull wisdom out of your head, do you have any advice for just how to effectively talk to customers? We're always hearing, "Talk to customers, build things they want." Easier said than done. You get a lot-

    3. DCDalton Caldwell40:45

       Yeah.

    4. LRLenny Rachitsky40:45

       ... of asks. You get one customer asking for a lot of stuff. There's a big company that's like, "Build this thing. We'll buy, pay you a million dollars." Just do you have general guidance of just, like, what to pay attention to and what to build versus avoid?

    5. DCDalton Caldwell40:57

       Yeah. I think when I talk to, to, to aspiring founders about this a lot, they're like, "Yeah, yeah, yeah. I talk to customers. We get it. Cool." And I'm like, "Cool. Well, how many customers do you talk to?" And they're like, "Well..." and they get really quiet. And so I think this is one of those things like, "Hey, you should have a healthy diet and exercise every day," or, or whatever, where people know it and that doesn't mean they do it. And so I think to start with, you have to get out in the world and talk to people in person, and you can't just hide behind your keyboard and call that talking to customers, right? And I think a lot of folks, their inclinations are to, like, you know, build a landing page and buy some Instagram ads and try to get people to sign up for something. And again, maybe. I... Maybe that's something, but I think a lot of the reason people do that is they- they're just shy and they don't want to put themselves out there 'cause it's a little awkward to go talk to people. And, (laughs) and you kind of have to psych yourself up to go out in the physical world, get people to meet with you, get them to take you seriously, show them a product you're building. And so we're gonna be very tactical here. (laughs) You can do a self-assessment. In the past month, how many in-person physical meetings have I had with potential customers? Maybe you've done a lot. I don't know, listener. Maybe, maybe you have. But, you know, it's- it's shocking how many companies I talk to, they're like, "Well, we're focused on raising our pre-seed round before we talk to customers." Like, things like that. And, and again, I think the core- the core, core thing going on is, um, just social anxiety (laughs) and, like, looking stupid. And I think you just gotta get past that, you know? You just gotta start doing it until it doesn't feel bad anymore. Uh, you know, think about how, how stupid the Airbnb founders must have felt they were,... like, "Hey, you should rent out your house. And I'm gonna come and sleep in your house. And here's an air bed." Like- like, it's, the whole thing is a little awkward, right? So you gotta power through the awkwardness (laughs) of talking to people. And, um, once you start doing it, it's actually kind of fun. And so once you, once you get used to- to overcoming this awkwardness, um, I think people do much better at talking to customers.

    6. LRLenny Rachitsky43:08

       When someone does the self-evaluation, is there a heuristic that tells you this is enough? What do you look for? Is there a number? Even like how many per week, how many per month?

    7. DCDalton Caldwell43:17

       Yeah. I don't know if I know a good number. I think it's look at your calendar, and there should be, you know, 20 or 30% of your time that the calendar says something like, "Customer meeting, customer call," like, "Meeting with Fu, meeting with this person." And when the calendar is not that or it's all, you know, again, what you're actually doing is just buying ads to try to validate your idea, that, I don't- I don't think that's talking to customers, you know? I think that's something else. Um...

    8. LRLenny Rachitsky43:46

       That's an awesome heuristic. So roughly a fifth of your time at least should be talking to customers.

    9. DCDalton Caldwell43:50

       Yeah. And again, it depends on the idea space you're working on. Some are more, some are less. Um, so again, I just, it should be a- a fair amount of time. And nothing substitutes for an actual conversation versus just staring at analytics dashboards.

    10. LRLenny Rachitsky44:02

        Makes so much sense. So Airbnb is a classic example of they went to New York and talked to their hosts and things like that. Is there another startup that comes to mind that did this really well? Uh, found just a really cool way and hustle to talk to customers?

    11. DCDalton Caldwell44:14

        Well, again if you- if you, some of the companies we talked about, I mean, for Brex, they were just talking to other people in their batch. And that worked extremely well. Um, s- same with Retool is they just sold it inside of the YC network. I think with Zip, they were just beasts at getting companies on calls with them to ask them about procurement.

    12. LRLenny Rachitsky44:34

        (laughs)

    13. DCDalton Caldwell44:34

        And I think they had way more than 20% of their time. Like if, when you looked at their calendars, oh man. I think they were doing, they were talking to customers a lot to- to build their first product and kind of pre-selling it before they built it. Same with Posthog. I guess that's a different go-to-market. They launched this open source thing to start with. And it was, uh, th- they, their calendars are filled with people that were trying to implement the first open source version of Posthog or were so excited about it. And people on Hacker News were excited about it. And like, they had this, like, huge influx of people that were excited that Posthog existed and had lots of feedback and, um, web reports. (laughs) Like, it wasn't always positive, but they never lacked for, uh, people that wanted to talk to them once- once they launched that, which was very helpful.

16. 45:17 – 48:01

    Examples of startups hustling to talk to customers

    1. DCDalton Caldwell45:17

    2. LRLenny Rachitsky45:17

       Hmm. On Zip, I actually have a lot of their story in one of my series on how to build a B2B startup. And what they did actually, as you know, uh, is they just cold DMed people on LinkedIn and asked them for advice on, "Hey, we're- we're trying to understand how you enjoy your current procurement product." And then, they ended up being early beta testers. And I think they had, and I think they did a hundred, like hundreds of these. They just had-

    3. DCDalton Caldwell45:38

       Oh yeah. No, it was a numbers game. They- they- they were just grinding at this.

    4. LRLenny Rachitsky45:41

       Yeah.

    5. DCDalton Caldwell45:41

       And so yeah, that was, that was very good.

    6. LRLenny Rachitsky45:43

       The other classic, uh, YC story is the- the Calls and Collision, I think it's called. Or the...

    7. DCDalton Caldwell45:48

       Calls- Calls and Install is what it's called.

    8. LRLenny Rachitsky45:49

       Oh, Calls and Install. (laughs) Okay.

    9. DCDalton Caldwell45:51

       Yeah.

    10. LRLenny Rachitsky45:51

        What, can you tell that story briefly?

    11. DCDalton Caldwell45:53

        The Calls and Install is, um, what often happens with customers is that they say, "Yes, I want to buy your product." And then they do not implement it. They just go quiet. They're like, (laughs) there's no implementation. And this is very bad if you're selling software to someone. If they never implement it, they're gonna churn and you're not, you know, you basically failed on the- on the one yard line. Okay? And so they kind of developed this tactic to be like, "Oh, well, you know, I'm in the neighborhood. You know, I'll drop by your office to help you implement Stripe." And kind of just like create, again, it was a little awkward like we talked about earlier. But you would, you would be like, "Yeah, yeah. You know, I'm- I'm in, I'm in the neighborhood. Like, how about I drop by?" And then they would show up and they would be like, "Cool, cool. Can you, like, pull up your text editor? Oh yeah. Cool. All right. Um, hey, can you, can I, can I drive? Can I have the keyboard?" And they would just sort of, like, install Stripe into the customer's website. You know, smiling, being like charming, charming guys. And they'd be like, "Oh, that's cool. Okay. Well, like, can we, like, roll out the website now?" And- and they basically would kind of not go away until you, uh, finish the implementation of Stripe. And like, again, it was actually helpful 'cause they were doing all this white glove service to get it implemented. That was very effective. And I think the takeaway from that story is even when you get a yes, you're not actually done with sales. You have to finish the last mile to get the thing implemented. And, uh, they were very good at that.

    12. LRLenny Rachitsky47:18

        That was an incredible story. (laughs)

    13. DCDalton Caldwell47:20

        (laughs)

    14. LRLenny Rachitsky47:20

        And, uh, now they're like, I don't know, $100 billion in business and that's how it all begins.

    15. DCDalton Caldwell47:24

        Yeah. I was an early, uh, Stripe customer at my startup. And yeah, Patrick would like, um, we used Google Talk at the time. Patrick would be sending me messages like on a weekly basis, just like checking in. And so again, it's funny how successful these folks get. But yeah, Patrick was very hands-on with all of his customers and was extremely available. Um, like I- I can say that because I was one of them. Um, yeah.

    16. LRLenny Rachitsky47:47

        And I'm sure he had social anxiety going through all that. That wasn't a comfortable thing to do, just like keep pushing people to install your software and deploy.

    17. DCDalton Caldwell47:54

        Oh, surely not. It's just you gotta do, like if you want your startup to work, this is just what you gotta do, you know?

    18. LRLenny Rachitsky47:59

        Yeah.

    19. DCDalton Caldwell47:59

        Comes with the territory.

17. 48:01 – 52:05

    Patterns of successful startups

    1. DCDalton Caldwell48:01

    2. LRLenny Rachitsky48:01

       This is gonna be just a way broad question, and I don't know if you'll have an answer. But just are there other just patterns you find across startups that do well? This is like maybe the (laughs) 64th million dollar question of just founders and what they do that ends up leading to success.

    3. DCDalton Caldwell48:15

       I don't think personality types matter as much. I've seen very quiet people, very extroverted people, very, you know, you name it. I've seen all sorts of personality types. So for me personally, I don't think that there's a right or I don't think there's a personality type that people should copy and be like, "I need to be like this person. You know? I need to be like Steve Jobs. I need to be like Elon." You know, I- I don't really believe in that 'cause there's just so much variation. Like, Tony from DoorDash is so different (laughs) than a lot of folks. And Rejul is so different and Grant from whatnot. These are all very, very different people. Patrick is a different kind of person. Ryan from Flexport. Like, these- these are just...... very different personality types. But the thing that I would argue folks that build really big companies have in common is they just really want it, and they really believe in themselves, and they really believe they can make it work. And that they've somehow, deep in their internal psyche, there's something that's like, "I'm the one." (laughs) And I won't take n- I won't accept n- this not working. And even though objectively, there's all, there's all this data coming in, "This isn't working. This is bad. You know, my employees wanna quit. My executives wanna quit." You know, whatever it is, somewhere deep down in there, they're like, "Oh, yeah. I'm gonna make this work. This is g- this company is gonna be big." And they, and they, they just believe. And it's almost like that internal gravitational force inside of them is so large, it kind of warps the world- (laughs) to bend to that will, and people start to believe it, because they believe it so much. And they convince their employees to believe it, and they convince everyone around them that this is going to happen for them. And so again, this is not a personality trait. This is, I'm arguing this is like, um, a core belief.

    4. LRLenny Rachitsky50:10

       So interesting, and it connects so much to what we've been talking about. Just don't die. Don't lose hope in what you're working on. A founder hearing this might feel like, "Man, I don't know if I'm like so convinced this is gonna work." In your experience, how much of this is internally they're so certain and convinced, versus externally they need to show this confidence?

    5. DCDalton Caldwell50:31

       Well, I think it's internally they're convinced. I, I, again, I'm not sure it's external. But, and this is a big but, no one has this at the early stages when they don't have a good idea, and they don't have customers, and, like, it's objectively not working. And so I, again, I, I know a lot of founders are like, "Well, I don't feel that way. Oh, no. Maybe I'm, you know, maybe I'm an imposter and I shouldn't do a startup." Well, of course you don't feel that way if you haven't talked to any customers and haven't built a product. Like, you know. (laughs) But what, what usually happens is you pivot to a good idea, or you start with a good idea that you care about, and customers you care about, and you launch it. And the better the product does, the more obsessed you get with your own company. Like I, I think in the case of Stripe, I don't wanna, you know, tell Patrick's story for him, but I recall him saying at, at some point, he wasn't as sure that Stripe was gonna work until they were like a year or two in. And then once it started working, and then he, you know, they really believed in it. But it wasn't like he woke up one day and was like, "Stripe is the thing. It's gonna be, it's gonna work." Um, I think, I think you build conviction, and you have this like, um, network effect virtual cycle, where you get more conviction the more customers reflect back to you, and data reflects back to you that you're on the right track.

    6. LRLenny Rachitsky51:45

       This is exactly what Scott Kelsky shared in our episode when I asked him when to pivot, is, do you have more conviction this is gonna work, or less conviction over time? And so, I like that connection we just made there. Okay, so we've talked about all these ways startups fail, bad ideas, tarpit ideas. I wanna go to the flip side and talk about good startup ideas.

18. 52:05 – 55:37

    YC’s Request for Startups

    1. LRLenny Rachitsky52:05

       So, recently you put out a request for startups, which is essentially 20 categories of ideas that you wanna fund, that YC wants to fund. Can you share some of these ideas that you're excited about, and basically you're looking to fund, and looking for founders to work on?

    2. DCDalton Caldwell52:21

       Yeah. Um, and so we, we put out the request for startups just to inspire people to maybe apply with ideas that aren't the ones that we always see. It's not like prescriptive, like we will only fund ideas on this list. It is not that at all. It's just sort of, remember when I talked about earlier with information diet? (laughs) We're trying to mix up some of the information diet about what kind of ideas people might be contemplating they aren't currently. And so, um, a couple of the ones that we, we put out there, one of them, I made one about ERPs, which is, you know, enterprise resource planning software. And I did that because I get so few applications on that, and they're usually pretty good, and I just would love to see more people look at that and learn about what ERPs are, just because it's so rare that people apply with that. And now, I have a feeling we're gonna see a lot more applications working on that. (laughs) And so it kinda worked as intended, which is to introduce this idea space to founders that didn't even know what an ERP was. Now they'll go learn about it. Um, another one is, you know, we'd like to fund open source companies, and so that's one of the RFSs, where, you know, if there, if more people applied to YC with open source ideas, I think we'd be pretty excited about that, and that might o- maybe founders didn't realize that would be something we wanna fund. Same with space companies. Yeah, we've had a lot of success with space companies. Um, you know, uh, several of the folks that are actually going to space right now, that aren't Space X, are YC companies. And so, I think sometimes founders feel like those ideas are too bold and ambitious. But no, we, you know, I'd love if more people applied with space companies. And so think about it that way, where we're just trying to put out, we're trying to plant seeds of idea spaces that perhaps someone subconsciously filtered out as what might be a good startup idea. And, and, you know, hopefully that creates a, a, a new set of startup ideation for the person.

    3. LRLenny Rachitsky54:08

       And we're gonna link to this page in the show notes, for folks that wanna explore. I'll give a couple more real quick. Uh-

    4. DCDalton Caldwell54:13

       Yep.

    5. LRLenny Rachitsky54:13

       ... a way to end cancer.

    6. DCDalton Caldwell54:15

       Yep.

    7. LRLenny Rachitsky54:15

       No, no big deal. Spatial computing, new defense technology, bring manufacturing back to America. So like hard science-

    8. DCDalton Caldwell54:23

       Yeah.

    9. LRLenny Rachitsky54:23

       ... deep tech stuff, which is, which is maybe a new... I don't know, I know, I imagine you guys have invested in this in the past. But it feels like a trend.

    10. DCDalton Caldwell54:30

        We totally have, right? So these aren't like, "Oh, we've never invested in these before." It's more of like, "Hey, it'd be cool if we saw more applications along these lines, it would be nice." Um, because it, it currently feels a little bit under, uh, you know-

    11. LRLenny Rachitsky54:44

        Yeah.

    12. DCDalton Caldwell54:44

        ... there, there could be more startups working on this stuff.

    13. LRLenny Rachitsky54:46

        Yeah, instead of the tarpit ideas. (laughs) Uh, a couple more real quick. Better enterprise glue?

    14. DCDalton Caldwell54:51

        Yep. I like that idea.

    15. LRLenny Rachitsky54:53

        Say more about that. What does that look like?

    16. DCDalton Caldwell54:55

        ... the software to connect all these business systems is usually pretty brittle and janky, and there's been lots of good startups founded to solve this problem. Um, I think there's still a lot more room for improvement, and likely LMS will improve. Like, we'll probably be able to create better and better glue so all sorts of software systems can talk to each other. And so again, very broad idea, but yeah. I think we'll see a lot of very successful companies where that's the kernel of the idea they start with.

    17. LRLenny Rachitsky55:20

        Awesome. One last one. Small fine-tuned models as an alternative to gigantic generic ones.

    18. DCDalton Caldwell55:25

        Yep.

    19. LRLenny Rachitsky55:26

        Sweet. And so we'll send, we'll include this link in the show notes, and folks can click on each of these and you basically, there's a lot more explanation of what it is you're thinking about there. Awesome. Okay. Just a couple more questions.

19. 55:37 – 1:05:33

    Early days of Silicon Valley

    1. LRLenny Rachitsky55:37

    2. DCDalton Caldwell55:37

       Yep.

    3. LRLenny Rachitsky55:37

       One is just, uh, your background. So from what I've read, in the early 2000s you were, you were basically hanging out with some of the biggest success stories of today, folks like Zuck and Reid Hoffman, Sam Altman, Elon, Sean Parker. This is before they really became anyone, and they all became very successful. I'm curious just what, looking back at that, what you've noticed is consistent across these folks that end up being really successful over time.

    4. DCDalton Caldwell56:06

       Back in 2003, being in Silicon Valley and being interested in startups, there just, it was a really small space. There just weren't that many people that were into this stuff. And so I remember, um, I cold emailed Reid Hoffman when LinkedIn was like 12 employees, and he just responded, and he is like, "Oh, let's have lunch."

    5. LRLenny Rachitsky56:26

       (laughs)

    6. DCDalton Caldwell56:28

       (laughs) And it wasn't, it w- he, he, he was just like a guy, and everyone else that was doing, I guess you could call it social networking, um, where that was sort of the people that I knew, there was a few conferences you would go to and there'd be like 30 people there. It reminds me of stories about the Homebrew Computer Club. I'm not saying this is as cool, but when I read stories about what it was like when, when the Homebrew Computer Club existed, it was a very small number of people that all knew each other, that were real, like, weirdo outsiders that were into this stuff. Okay? And so that's what in the post dot-com boom Bay Area startup scene, that's legitimately what it felt like. And so I didn't think a lot about the personality traits of these people. Um, they were all, again, they were all pretty different people. But what they had in common is the folks that are now the really big names just had a lot of staying power, right? So when I, when I met Sam, he had dropped out of Stanford to work on Loopt, which is hilariously a way to find people around you to hang out with.

    7. LRLenny Rachitsky57:24

       (laughs)

    8. DCDalton Caldwell57:24

       Hmm, an interesting theme here, huh? He was cool. He was just, he was this really young guy and, um, he just kind of did that. It wasn't huge. And then he got into other stuff and ended up working at YC, ended up getting involved in hard tech, and is now kind of like reinvented himself as, um, the, the big mind behind AI, which is, which again, awesome. But if I think about who he was back in the day, he was, yeah, he was like a 23-year-old working on a thing for feature phones to find friends in your neighborhood. (laughs) Their customer was Boost Mobile. I bet you could go find the commercials for Loopt that Boost Mobile put out-

    9. LRLenny Rachitsky58:03

       Mm-hmm.

    10. DCDalton Caldwell58:03

        ... on YouTube. Those are actually pretty funny. Have you seen those commercials?

    11. LRLenny Rachitsky58:05

        No, but I'm-

    12. DCDalton Caldwell58:06

        Oh.

    13. LRLenny Rachitsky58:06

        ... going to go check them out.

    14. DCDalton Caldwell58:07

        Anyway, it's pretty funny. So yeah, like that's, that's the, the real story. Um, and then, yeah, I remember I was in downtown Palo Alto at the time, and, um, you, some of, some of the folks I was friends with were friends with Sean Parker, and this was actually before Sean Parker went to Facebook. He was part of Napster.

    15. LRLenny Rachitsky58:24

        Mm-hmm.

    16. DCDalton Caldwell58:25

        And so one of my friends were like, "Oh, we need to get my friend a ride to the airport." And so I ended up giving Sean Parker a ride to the Oakland Airport. And again, I-

    17. LRLenny Rachitsky58:33

        (laughs)

    18. DCDalton Caldwell58:33

        What was he like? I don't know. He just basically sat in the backseat on the phone the whole time. (laughs) But, but again, my point is I wasn't like, "Wow, these are gonna be really big, successful people that one day will be important in the world." It just felt like a bunch of nerds that really liked the internet and computers kind of doing things that they were interested in, and were just obsessed with this. Like, there was no... They, they weren't like, "Gee, should I move to New York? Oh, gee, should I, maybe I should, uh, go to law school." Like, it was people that were very bought in to, to staying working on internet companies. And so you'll see these folks just reinvent themselves multiple eras, right? Okay. Like Reid Hoffman, right? He was a, worked at PayPal, right? And then, uh, he did LinkedIn, and then he was like a VC and like, like he's kind of had like all these different eras where it's the same person, but it's, it's almost like a different figure, right?

    19. LRLenny Rachitsky59:28

        There's a lot of interesting lessons there. One is that your career is long and you will have the opportunity to do many things, and you can continue to shift. Like in my example, this is my fourth career, I realize. I was an engineer, then a founder, then a product manager, and now whatever this job is. And I think that's really common. I think the other, again, is the personality types point, which I didn't comment on, but I think it's so important, that you can be super introverted and be super successful. You can be super extroverted and be very successful, and I think the key there is use your skills and strengths to achieve the same things. You don't have to be the amazing presenter on Steve Jobs type stage. You can do the same thing in a different way. And then the other point there is, again, coming back to you just need to be really excited and enjoy the work you're doing, 'cause that'll drive you forward and make you be successful. So I like that that, I love that this story is kind of a summary of so many of the things you've shared so far. There's other, two other fun stories. Maybe pick one or the other. One is you sold your startup to Myspace and your job was basically to save Myspace. Uh, and then the other is you're the reason Andreessen Horowitz missed out on Instagram-

    20. DCDalton Caldwell1:00:34

        Yeah.

    21. LRLenny Rachitsky1:00:34

        ... and couldn't invest. So which of those would you want to share? (laughs)

    22. DCDalton Caldwell1:00:37

        Well, it's, it's kind of the same story.

    23. LRLenny Rachitsky1:00:38

        Okay, great.

    24. DCDalton Caldwell1:00:39

        Um, and, and the way that it's the same story is, um, my, my second company, um... Basically I sold my first company into Myspace. It was the music company that I worked on. And the, they recruited a new CEO, um, who was formerly the COO of Facebook called Owen Van Ada. So again, hilariously part of the same little circle of people.

    25. LRLenny Rachitsky1:01:01

        Yeah.

    26. DCDalton Caldwell1:01:02

        And Owen was like, "Okay, we need to fix Myspace."... you know, Rupert Murdoch's got the juice. We... He wants me to fix it. Like, we're gonna turn... We're gonna, we're gonna do it, so come up with some ideas. And kind of the best idea that I could come up with at the time was doing something around, uh, mobile photo sharing, something kind of like Twitter but for photos. And I figured with MySpace's user base, that would work pretty well. This was like in 2010, so it was right as the App Store was getting big. And I had a lot, I had a lot of success in the App Store with iMeme. It was one of the top music... top downloaded music apps. And so I was like, "Wow, the App Store is really good." And I was really into apps being the thing. And at this time, Facebook was a little early on. They were trying to do cross-platform mobile apps, if you recall.

    27. LRLenny Rachitsky1:01:45

        Mm-hmm.

    28. DCDalton Caldwell1:01:45

        And their apps were not great. This was, again, ancient history. And so that was sort of like my plan. And then immediately, uh, Hoan Van Ahdout was fired, and so I didn't even really get onboarded.

    29. LRLenny Rachitsky1:01:58

        (laughs)

    30. DCDalton Caldwell1:01:58

        And so I just like left. I think I worked th- at MySpace for like a month because the person that acquired my company got fired. And there was like... I think the whole org chart got fired, so I didn't even know... I didn't even know who to talk to. It was really great. It was a great experience.
20. 1:05:33 – 1:09:28

    Contrarian corner: growth hacking for early startups

    1. LRLenny Rachitsky1:05:33

       We can do both or we can pick one or the other. Failure Corner, share a story of something, a time in your career where you failed and what you learned from that experience. Contrarian Corner, what's something you believe that a lot of... that most other people don't believe?

    2. DCDalton Caldwell1:05:45

       Yeah. I think for Contrarian Corner, I know where I would start and I think it's relevant-

    3. LRLenny Rachitsky1:05:49

       Hmm.

    4. DCDalton Caldwell1:05:50

       ... for your listener. Like, I think this is relevant to this, um, and so... And yeah, maybe... And you could argue this isn't contrarian, but here is... Here's what I think. I think growth and growth hacking and ha- doing all this analytics, A/B testing stuff, um, is a total waste of time for very early startups. And that one of the weird things about having, uh, lots of startup advice on the internet... Uh, again, this is one of the reasons we started making videos at YC, is a lot of the advice was catered towards later stage companies. Like, "Oh, here's how you set up your board and here's how you motivate your sales team." Like it wa- it was all aimed at Series A, Series B founders and not for seed stage founders. And the problem was seed stage founders would consume all the later stage advice and get really confused. And so the anti-pattern I see is there are lots of founders that are very familiar with your awesome work, which again, I really recommend. (laughs) I like it. But when you have no customers and you're reading, you know, Lenny's guides on how to set up split testing and how you did growth at Airbnb, oh man, that is so dumb. (laughs) That is so not helpful. And so you see this inclination away from getting a first customer, getting one customer and talking to that person, and instead, they have like all this really complex growth hacking theory-I think this also happens if you worked in big tech, where there are... Your, your product already has scale. And so, you know, if you work at Facebook and your job is to launch new little features, yeah of course you should make heavy use of analytics and A/B testing and split testing and feature flags. Like, yeah, yeah, yeah, it makes sense. But when you have no users, what are you doing?

    5. LRLenny Rachitsky1:07:28

       (laughs)

    6. DCDalton Caldwell1:07:29

       Um, so do you think that's contrarian? What do you think? Like I'm, I'm just trying to argue, this advice applied to a startup that's too early is, like, actively not helpful.

    7. LRLenny Rachitsky1:07:38

       I, I think it's contrarian for many people, 100%. I also 100% agree with it. Makes me feel like I need to, at the top of my post share, "Here's who this is for, if you're earlier than this, ignore it. If you're later than this, ignore it."

    8. DCDalton Caldwell1:07:49

       I mean, again, I'm not saying you're doing anything wrong, but i- imagine if the OG Airbnb founders took all of your current advice and applied it when they had like four users and they knew their names, and they were, like, trying to run complicated growth hacking split testings.

    9. LRLenny Rachitsky1:08:03

       Yeah. Maybe just to, uh, clarify when you talk about growth, growth hacking. So obv- obviously when you're starting something, say a consumer app, there's a... You need to get a bunch of users somehow. What's your sense of just, like, when you say, "Don't do this sort of thing, but this is okay," what kind of falls in those buckets?

    10. DCDalton Caldwell1:08:20

        (sighs) I think it depends on the idea. Um, I think in the case of Whatnot, they obviously... It was a consumer app and they needed to get users, um, but they were very intellectually honest on the metrics for how you get a marketplace off the ground.

    11. LRLenny Rachitsky1:08:33

        Mm-hmm.

    12. DCDalton Caldwell1:08:33

        And they didn't just go dump all their money into Instagram ads and-

    13. LRLenny Rachitsky1:08:37

        (laughs)

    14. DCDalton Caldwell1:08:38

        ... like, they effectively knew they needed to focus on buyers and on the buy side and build momentum on the buy side. Um, they really understood marketplaces. And so for consumer, I think it's having a sophisticated view of how you get the consumer company off the ground. I think if you look at the Facebook story, them getting 100% penetration on the Harvard campus first instead of launching overall, again, good strategy. Would recommend, um, that strategy. So again, the way to extrapolate that is know what your comps are of what companies you... Your archetype is, and then look at what they did on the zero to one and ignore what they do today, right?

    15. LRLenny Rachitsky1:09:20

        (laughs)

    16. DCDalton Caldwell1:09:20

        Don't pay attention to what Facebook does today if you're a brand new startup founder. Pay attention to Facebook when they were getting their first thousand users. What were those tactics?

21. 1:09:28 – 1:11:15

    Failure corner

    1. DCDalton Caldwell1:09:28

    2. LRLenny Rachitsky1:09:28

       I feel like this should be its own episode where we just go into how to get your first thousand users. I know there's a video actually we'll link to that Gustav made, uh, with YC's advice on how to get your users. Did you want to visit Failure Corner or not? Or shall we move on?

    3. DCDalton Caldwell1:09:43

       I failed at tons of stuff.

    4. LRLenny Rachitsky1:09:45

       Hmm.

    5. DCDalton Caldwell1:09:46

       Um, I, I... As an investor, I f- I make lots of bad investments as well as good ones. I think in my startups, I pivoted a lot and a lot of things I did didn't work out. And so again, I just gave you a specific story with, with, with PicPlease, right? You just heard a specific story there. I guess what I learned is that you just can't let it get to you too much, (laughs) and you gotta keep going, and that if you keep going, no one really remembers those as much, and it doesn't really define you, and it shouldn't... You know, fear of failure shouldn't dominate all of your thoughts. And instead, you should use your energy and positivity to keep trying to do good work, right? 'Cause back, back in the day, if I would've been like, "Well, you know, I guess startups aren't for me, I guess tech isn't for me," I, I wouldn't have had a career doing any of this stuff. I wouldn't be working at YC. I wouldn't be advising companies, right? So I always had to have, in my life, um, a lot of optimism and energy and used that energy and motor to keep me going, and it served me really well, right? Even if lots of stuff I tried didn't work and continue to not work, you know? Again, obvious stuff, I know, but yeah, (laughs) that doesn't mean it's not true, even though it's obvious.

    6. LRLenny Rachitsky1:10:58

       I feel like that's a recurring theme here. And I love that it's another version of just how not to die. There's, like, the startup itself that shouldn't die, and then there's your just drive and motivation to keep going and try new things when things don't work out.

    7. DCDalton Caldwell1:11:11

       Yep.

    8. LRLenny Rachitsky1:11:11

       I love all the recurring themes and messages for people here.

22. 1:11:15 – 1:12:22

    Closing thoughts

    1. LRLenny Rachitsky1:11:15

       Dalton, is there anything else you wanna leave listeners with before we get to our very exciting lightning round?

    2. DCDalton Caldwell1:11:20

       Yeah, I guess, I guess the final thought is, um, you know, if someone wants to do a startup and doesn't know where to start, just to give you permission to talk to potential customers and try to pre-sell something before you write code, and have those conversations. I think so many folks don't know where to begin on starting a startup, and my tactical advice is start doing customer validation first, versus building a PowerPoint deck, versus trying to raise money, versus, like, all these other things. I think a lot of people don't use that strategy. And, and basically if you, if you find people that are really excited and you, you do line up customers, that is a great green light that it, it is time to do a startup, right? That can get you down the path. So yeah, I think that's my final advice.

    3. LRLenny Rachitsky1:12:09

       And then with that, when does the building come in? Is it build it while you're talking, build it before you...

    4. DCDalton Caldwell1:12:13

       Yeah.

    5. LRLenny Rachitsky1:12:13

       It depends on basically where-

    6. DCDalton Caldwell1:12:14

       Build it once you have some conviction that you're like, "Oh, I think I would have a customer... I think at least one person would use this thing I want to build."

    7. LRLenny Rachitsky1:12:20

       Yeah.

    8. DCDalton Caldwell1:12:20

       At least one.

23. 1:12:22 – 1:13:16

    Lightning round

    1. DCDalton Caldwell1:12:22

    2. LRLenny Rachitsky1:12:22

       I love it. I like, I love the simplicity and pragmatism of all of your advice. Dalton, welcome to the very exciting lightning round. I've got six questions for you. Are you ready?

    3. DCDalton Caldwell1:12:33

       Let's do it.

    4. LRLenny Rachitsky1:12:35

       What are two or three books that you recommend most to other people?

    5. DCDalton Caldwell1:12:38

       I think a lot of founders are afraid of doing sales, and they don't know how to do sales, and they think they need these really experienced sales coaches and they need all this training. And I'll be like, "Well, go onto Amazon and find the most popular sales books, like Getting to Yes, that everyone reads, and just read those, and that'll get you 80% of the way there." You know what I'm saying? Like, they want to hire someone for millions of dollars to give them sales coaching. I'm like, "Well, have you read these really basic sales books?" And they're like, "No." (laughs) And so I think as a low-cost way to go onto Amazon, Getting to Yes and a few other of the top sellers, I forget the names, and just read those, and that is your crash course on how to be great at sales.

Episode duration: 1:20:52