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EVERY SPOKEN WORD
20 min read · 4,318 words- 0:00 – 0:47
Introduction
- HTHarj Taggar
First time founders can actually take more risk on the ideas that they pick because they don't, they don't have other startup friends, or they don't care as much.
- MSMichael Seibel
[laughs]
- HTHarj Taggar
They're just working on stuff they find interesting.
- MSMichael Seibel
I love that. They have nobody to impress. [laughs]
- HTHarj Taggar
Yeah, basically. [upbeat music]
- MSMichael Seibel
Hello, this is Michael with Harj and Brad. Welcome to Inside the Group Partner Lounge.
- HTHarj Taggar
As YC Group Partners, we often find ourselves repeating the same advice over and over again to startup founders we work with.
- BFBrad Flora
Before COVID, we'd often gather together in the group partner lounge at the YC office to try to figure out why this was the case and how we could help startups figure it out faster.
- MSMichael Seibel
Today, we're gonna talk about all of the advantages that first-time founders have over second-time founders.
- 0:47 – 1:35
Setup
- MSMichael Seibel
Brad and Harj, set this up.
- BFBrad Flora
So, um, we talked to a lot of founders where it's the first time they've ever started their business, and some of you listening at home, this might be working on your first startup ever, or you're thinking about working on your first startup. And one thing we see is, uh, founders love to read, uh, all the tech news. Uh, they love to read VC Twitter. They're out there consuming all of this content information about the startup world. Oftentimes, they get pretty psyched out by the fact that a lot of the coverage is about repeat founders, people that have sold companies, they've IPO'd companies, they've built huge companies, had huge successes, and now they are building some new company maybe in the space that the founder is thinking about starting a business in, and it can be really discouraging. How the heck are you gonna compete with them, considering all the success they've had?
- 1:35 – 4:07
Expert opinions are not what you want
- MSMichael Seibel
So Harj, one of the things that you mentioned before we started recording is the idea that as a second-time founder, you had access to a lot of expert opinions. Now, on the surface, that would seem incredibly helpful when creating a company. But tell us why counterintuitively maybe that, uh, that that's, that's not exactly what you want.
- HTHarj Taggar
Yeah, I think as a, it's, as a second-time founder, you both have access to more people, like more smart people, uh, who know a lot about startups, and you've had a lot more of your own experiences. And so every time you have a decision to make, you just have a lot more data to check the decision against. And I think that obvious, there are obvious reasons that's great. Having had the experience of choosing a startup idea or running a startup idea by your smart startup friends or mentors is, has obvious advantages, but it can also just slow you down. I think this is something I felt myself, is that it took me much longer to pick the idea or commit to working on an idea for my second startup than the first startup, and I think it's because we had so many people we could run the idea by and get feedback and opinions from. And then digesting all of that feedback and thoughtful, and thoughtful ideas can actually just mean you move slower.
- BFBrad Flora
And let's pick at what that means. Like when you're in that scenario, you're not talking to your potential customers and your users there, right? You're talking to all these other startup people that you've made friends with as the, over the course of doing your first startup. I remember, uh, I was at a Camp YC once, and I had this idea, and I pitched it to 10 people, and they all told me it was terrible. So I, I didn't work on it, but had I gone and talked to actual customers for it, maybe they could've helped me, like find a better version of that idea that actually would've solved a real problem for them.
- MSMichael Seibel
I also think this concept of expert is a really interesting concept, right? 'Cause I'm so happy you said this idea of separating the expert from the user because there are so many people who are really smart about startups but who don't really have the problem you're trying to solve and really can't give you great advice, to be honest. But they will give you advice that sounds very expert. Um, and then there's other people who are users who might not be able to tell you whether this can be a billion-dollar company, but they can easily tell you they have the problem. Um, and I think as a second-time founder, it's, it's just as hard to talk to your users, but it's 10 times easier to talk to experts. So almost by extension, it's like even harder to talk to your users, and that's a, it's a, it's a tricky, it's a tricky thing. Um, another area
- 4:07 – 5:37
Picking your market
- MSMichael Seibel
that's interesting is this idea of picking your market, right? Like, oh, you know, like I don't wanna get caught by the trap of having a s- be- building in a small market, you know. God forbid I build a small company that only makes $100 million in revenue. But I see so many founders who don't understand that markets can grow or that you can move to an adjacent market. You know, it's like, "Oh no, I have to be in the trillion dollar energy market. That's the only place that can contain my ambition." H- have y'all seen some of this, um, disadvantage for second-time founders?
- HTHarj Taggar
I, I call this like the dinner party or the drinks problem. Uh, i- it's that when you're a second-time founder, you start optimizing for how impressive what you're working on sounds at like dinner parties-
- MSMichael Seibel
Mm
- HTHarj Taggar
... or when you go for drinks with people. And so it's like-
- MSMichael Seibel
[laughs]
- HTHarj Taggar
... yes, I'm working on like, like revolutionizing energy and blah, blah, blah, right? But like you don't wanna sound like you're working on some dumb idea at like air, bed, and breakfast [laughs] as like an example, right?
- MSMichael Seibel
[laughs]
- HTHarj Taggar
And so, like y- it actually is all like, you know, like it, come 2011, 2012, like, um, if you were pitching the idea for Coinbase, like it's hard to do that as like a second-time founder 'cause it would just seem so dumb. Um, and so I think-
- MSMichael Seibel
[laughs]
- HTHarj Taggar
... that like first time, right, like first-time founders can actually take more risk on the ideas that they pick because they don't, they don't have other startup friends, or they don't care as much. They're just working on stuff they find interesting.
- MSMichael Seibel
[laughs] I love that. They have nobody to impress. [laughs]
- HTHarj Taggar
Yeah, basically. [laughs]
- MSMichael Seibel
[laughs] Oh, man.
- 5:37 – 6:58
Novel
- MSMichael Seibel
Now, what about this concept of like the novel? Like it's, a- as a first-time founder, you experience so many things for the first time, which can be so energizing. You know, second-time founders, like, you know, one of the things we've been saying is like, the lows are just as low, but the highs aren't as high. Like how have you guys seen that?
- BFBrad Flora
Well, w- with my company, I know that, that first time we got anyone to pay us anything for anything was incredible. And we were dancing around the apartment, right? We're, you know, j- j- uh, cracking beers left and right. Like, what a, what a rush. And yet, you know, the next day we didn't feel that way. It was just more, more revenue. And so, yeah, if you, if you take away all those fun little moments, um, where do you find the motivation to go further and to push harder? It's gotta come from somewhere else.
- MSMichael Seibel
Yeah, that one's also fun because you know the lows are gonna suck, right? So it's actually, it hits you on both sides. Like, you know that there are gonna be moments you hate your life as second time founder, but you also know, like, the first amazing hire will just feel like, yeah, that's one of the first 100 people I have to hire, great, and then 1,000 people. You know, it's like none of these moments kind of stick as much anymore in your head and, and, and that can be demoralizing.
- 6:58 – 8:08
First time founder have to innovate more
- MSMichael Seibel
Um, I think one of the other tricky, um, advantages first time founders is that, like, because they're gonna have harder times typically raising money or hiring employees, they tend to have to innovate more. Like, they, they tend to have to ... They're, they're constrained into building something good, whereas, like, the lack of constraints so often lead people astray.
- HTHarj Taggar
Yeah, I think that's a common one. That's a ... What's the phrase? Like, constraints breed creativity. Like, I definitely see that, especially with early stage startups because, yeah, as a second time founder, all of these things play in again. Like, you can us- you have an easier time raising funding, so you don't need to have the product be necessarily as amazing to raise your first round. Um, you often have other people who are willing to try it out and be beta users or testers or whatever, so it can, uh, you know, your ex- your friends and family network is, is potentially larger, whereas a first time founder ... Or you can get press to write about what you write, um, what you're launching as well, right? Whereas a first time founder, the only way you're getting your first few users is having a really great product and being really great at selling it. And I think you can just get a little bit lazy on that front as a second time founder.
- MSMichael Seibel
Yeah, and then the
- 8:08 – 9:57
Honesty
- MSMichael Seibel
other one is this idea of honesty. Like, Brad, do you think as a second time founder it's really possible to get honest feedback from your investors or friends or things like that? Or, or do people have a hard time being honest with you at that point?
- BFBrad Flora
Yeah. I, I think it's harder. Um, I ... W- when you're a first time founder, nobody cares about you because they don't have any sort of relationship with you yet, that, you know, you talk to some investor and you're just the product, and they tell you if the, if they wanna invest or not. Um, and but then after you've been through a process with people and you've built some sort of rapport and relationship, it's now costly to tell them what you really think about what they're working on. It, you know, it, it basically, it, it all just comes from it's just a continuation of the same, the, the first startup being carried through into the second one and not having, like, a clean break and resetting all those relationships. Um, but, but yeah, I definitely, um, um, just it's really hard to get, uh, you know, real true feedback from people.
- HTHarj Taggar
Yeah, it's just part of the, the broader thing that first time founders often don't get is that when you're getting feedback on your idea from i- investors in particular, like, they're not ... Their pure motivation is not to just give you the highest quality feedback they possibly can. Like, they're often playing a different game, which is how do they set themselves up to get referrals to other good startups in the future? And it's like when you're a second time founder, the investors know that you know more people. They don't want to, um, give you bad feedback, right? Like, they're incentivized to tell you nice things so that you'll continue being nice to them, whereas when you're a first time founder, you're less useful to an investor in that way, so they kind of can be a little bit more, like, just direct with what they think, um, about you. They, they can treat you without the, the kid gloves or the, they don't wrap you up in cotton wool as much.
- 9:57 – 12:07
Auto pilot initially but it shuts off
- MSMichael Seibel
Yeah. What I've also seen for second time founders is that oftentimes for an investor it's more of a catch. It, like, helps you build your reputation in your firm or it helps you get the deal approved. And like, so oftentimes there's, like, internal political reasons why you might be getting funded that have, like, nothing to do with your product being great or your users loving you, you know? And, and you, you're never told that stuff, right? Like, it's just kinda happening in the background and, and, and you don't really know that you're being graded on a different front, whereas, like you said, when you're a first time founder, you're nobody. Nobody cares. [laughs]
- HTHarj Taggar
You're the ... I, I'll say you, you find out eventually though. It's a little bit like taking out debt, honestly, where it's like maybe early on-
- MSMichael Seibel
Mm
- HTHarj Taggar
... as a second time founder, like, maybe the seed round's easier, maybe even a series A is easier. But the later, the longer you have wr- worked in your startup for, the more people just care about the results. And like-
- MSMichael Seibel
[laughs]
- HTHarj Taggar
... sooner or later if you don't have a product, if it doesn't actually have product market fit, if you don't have customers who love you and will do a reference call saying how great your product is, like, the whole thing falls down. Um, and so I think that's another thing often we can see with, like, a first time founder. Like, they never had it easy, so they just have to learn how to operate, like, at a certain, like, level of execution from day one, whereas a second time founder, you sometimes it's a little bit like you're, like, driving on, like, autopilot or something, and then it, like, the autopilot gets shut off and now you're like-
- MSMichael Seibel
[laughs]
- HTHarj Taggar
... "Oh, crap," like, like, "I have to actually figure out, like, how to get, like, a great product shipped. I have to, like, actually fix all these problems because now I'm not gonna be able to raise investment or get to, like, the next revenue milestone unless I have something that's really good."
- MSMichael Seibel
It's funny, I love that analogy, 'cause in that analogy when the autopilot gets shut off you're, like, going 120 miles an hour-
- HTHarj Taggar
Yes. Yeah [laughs]
- MSMichael Seibel
... down, like, a curvy mountain road, right? [laughs] And then it's like-
- HTHarj Taggar
Yeah. It's like-
- MSMichael Seibel
"Well, I, I thought everything was good. The, the computer was driving. Things seemed to be going great."
- HTHarj Taggar
I thought I was the world's best driver. It's like ... [laughs]
- MSMichael Seibel
Yeah. [laughs] Whereas at least as a first time founder you, you start on, like, some suburban road going two miles an hour. [laughs] Oh, man. All right.
- 12:07 – 12:25
Devil's advocate
- MSMichael Seibel
Well, let's be clear though, like- So much to play devil's advocate, because certainly there are some advantages to being second-time founder. Um, what, what do y'all think is, like, the, the first kind of big boy here on, on a massive advantage being a second-time founder?
- BFBrad Flora
Well,
- 12:25 – 14:04
Financial independence to think bigger
- BFBrad Flora
I think if you have... Did, did your first startup and got some semblance of financial independence from it, then you don't carry the same, like, massive weight of asking yourself constantly, "How the heck am I going to survive, eat, sleep," whatever, um, that first-time founders often carry with them, right? We, we work with a lot of these first-time founders. I... We, we know lots of first-time founders. That desperation in their eyes, which is a great thing sometimes, it helps drive them forward, also comes with a cost of just being stressed out all the time, and it can lead to some short-term thinking, um, in terms of what to work on, how to sell your product, what even... what go-to-market strategy. We... I see a lot of companies that, that just wanna do product-led growth, for example, because they think that'll get them their first revenue, uh, when really they should be selling enterprise, which might take a while, but actually be the fit for their business, for example. Um, whereas if you have some financial independence, like a lot of second-time founders, you can think bigger and actually, like, play out the implications of the business that you're going after and try to build something that's optimized to get big from day one.
- MSMichael Seibel
Yeah, you know, and that's a big one when you wanna have family or wanna own a house. Just like, you know, being able to not... I- if you're successful, as you mentioned, being... Uh, using that money to free your life of distractions can be a big advantage, you know. You can up the childcare, you can up the quality of the home, the quality of the space you live in, and so on and so forth. Like, for sure, um, that's one. What do you think, Harj? Another devil's advocate position here on why second-time advantages, founders have an advantage?
- HTHarj Taggar
Another
- 14:04 – 17:33
Capital intensive businesses
- HTHarj Taggar
very specific type of startup that seems to be suited to second-time founders, uh, are capital-intensive businesses. Um, and by that I mean, you know, a- any, any startup where, like, more money raised or just more money is a strategic advantage, uh, second-time founders who are good at raising money can benefit, right? So, like, let's make some examples around it. Like, there's famous ones, like Elon Musk, probably the most famous one, right? Like, he started, I think it was Zip2 or something, then PayPal, but now, you know, now SpaceX and Tesla. But from our own orbit, like, we have example. Uh, I speak a personal one. Um, a friend and former roommate of mine, Eric Wu, is a YC founder who started a company called Movity. It was acquired by Trulia, um, pretty early on, but, like, it was a, a good exit for him, and then he started Opendoor, right? Opendoor's now a public company worth billions of dollars, and I think Opendoor's a company... He's raised, like, well over a billion dollars for that company, and I think that mu- was much easier for him to do as a second-time founder.
- MSMichael Seibel
Well, but t- people probably won't know. Why is Opendoor so capital intensive?
- HTHarj Taggar
Oh, 'cause they're actually buying and selling houses. They're like [laughs] They're like-
- MSMichael Seibel
[laughs]
- HTHarj Taggar
Yeah. It's, it's... Yeah. Couldn't be more capital intensive. Like, they actually go out and just buy, like, tens of thousands of homes across America. So yeah, definitely helps. Definitely helps to have a lot of money.
- MSMichael Seibel
[laughs] Good software, not sufficient.
- HTHarj Taggar
Yeah.
- MSMichael Seibel
[laughs]
- HTHarj Taggar
Software plus money.
- MSMichael Seibel
Yeah. Oh, man. Another classic example is, is Blake from Boom, who started a software company and sold it and then decided to make, you know, a supersonic jet company, right? And, um, another example of a company that, like, will take a decade to make the first flight, and at least, and that's, like, on an aggressive timeframe. That would be an, a massive accomplishment. And so, you know, yeah, being able to say, "I've already exited, I've already given my investors cash back," like, that's really helpful when you have to build a su- supersonic jet company. Any other examples here, Brad?
- BFBrad Flora
Um, I, I, I mean, I think you can look at Cruise, for example. Um, and, you know, um, you can, you can look at, like, what Max has done, Max Levchin, with all the different companies that he's built, and each one just gets more and more and more and more ambitious. Um, and it's just something you can do more as a second-time founder.
- MSMichael Seibel
I think what I will say, though, is that so many founders are confused about whether they're building a business where money is the real advantage. Like, I would certainly say that's the minority of businesses here. You know, when we describe what's going on, we have, like, large physical... Like, our examples are large physical things, right? Rockets, cars, self-driving cars, and, um, hypersonic planes, right? So large physical things clearly need a lot of money. Also lending, right? You know, Brex, second-time founders, they extend credit to, to startups. Max Levchin with Affirm extending credit. So it's like lending and big physical things definitely require a lot of money. It's not obvious to me that there are many other business categories [laughs] that require a lot of money where cash is the advantage. So, um, if you're doing one of those two, it might make sense.
- BFBrad Flora
Yeah, and, and if you're one of the many people listening at home who's thinking about building a software company, like, it's not gonna help the incumbents, right? Uh, having all this access to capital is not gonna do it. You go out and talk to your users. That's what's gonna make the difference.
- MSMichael Seibel
In fact, it'll hurt them, right? 'Cause they'll spend it on... Instead of spending it on, you know, rockets and stuff, they'll spend it on too many employees, and then, yeah. We'll see. We all know what, know what's gonna happen
- 17:33 – 20:07
Building in a space you know really well
- MSMichael Seibel
then. So maybe the last area is when you're building in a space you know really well. You know, Harj, you know Parker, um, Conrad well. Like, you've seen him build two companies in the same space. What are your thoughts on this?
- HTHarj Taggar
Yeah, he's... Parker is a great example, right? Like, he built Zenefits, which was worth, like, $4 billion at its peak, and then, like, he started Rippling, which is now worth, like, over $10 billion. And I think if you, if you sort of... I... If you, if you ask him to sort of explain that a little bit, he'll say that the experience of working on Zenefits gave him really deep domain expertise around how to build, like, high-quality HR software and sell it, and he used all of that expertise to build something even bigger with Rippling, right? Like, he's clearly a world-class, um, domain expert in how to build effective HR software.
- MSMichael Seibel
And you know, I've looked it up, the Workday founder's very similar. You know, one of the Workday founders was a CEO of PeopleSoft, and then he saw how the world was moving to the cloud, and he decided to move along with it. So there's definitely advantage if you've got, like, intense, deep knowledge about a space. And by the way, and you're not sick of that space, and you wanna go back to it for another couple decades. [laughs]
- BFBrad Flora
But, but Michael, that, that raise, that raises the w- the other point I wanted to make about this, which is that it's so common to talk to a second-time founder, and they just hate the market they were just working in. And they, "Oh," like, "Oh, never do th- those, one of those startups. It's the worst." What- what- whatever the market is, if they did a startup in it, it's terrible. And yet we're highlighting that when they go back, that's one of the times when it can be really good.
- HTHarj Taggar
A- another really important point about that, though, Brad, is that it's why it's really important if you're a first-time founder and you get feedback on your idea from a founder who had tried the idea before and failed, is you have to be very careful, 'cause on the one hand, there's probably interesting learning for you there. But the other hand, you have to remember that, like, sometimes when founders don't succeed in a market, they end up hating that market, and they kind of don't want anyone to succeed, 'cause [laughs] otherwise, it's sort of like, uh, it sort of, like, hurts their own self-image, right? Like, and so, uh, this is something I notice.
- BFBrad Flora
I, I always, I often tell YC founders to talk to other YC founders that have worked on similar things before, and maybe they've moved on. But the trick is to listen to just the facts of what they did and what happened.
- MSMichael Seibel
Yeah.
- BFBrad Flora
Not what they think about it. [laughs]
- MSMichael Seibel
Yeah.
- BFBrad Flora
Because we're all so deluded about-
- MSMichael Seibel
Yeah
- BFBrad Flora
... why things happened or what they mean or the significance of them, that it's just not useful signal to founders that are building a new business.
- MSMichael Seibel
So
- 20:07 – 21:52
Wrap up
- MSMichael Seibel
if we're gonna wrap this up, w- how, for the person who is thinking about being a first-time founder, but is worried that they don't have the advantages, what's the kind of parting message we wanna give them?
- BFBrad Flora
Y- you're actually well-situated to build a unique, novel business that delivers, um, real value to your users. And a lot of the, um, glamour that comes with being a repeat founder is a trap, and they have their own problems that they're working through, and it's, it's not gonna help 'em. So don't be discouraged by that. Understand that you can, you can and should take your swing.
- HTHarj Taggar
Yeah. I, I'd say to first-time founders, just don't get sucked into grass is greener syndrome. Like, don't think that just because you've got a competitor that's started by a com- founder who's on their second or third company, that they're gonna crush you. Like, f- we, as we speak from our own personal perspectives here, often those same second- and third-time founders are wishing that they had the benefits and advantages of a first-time founder.
- MSMichael Seibel
And you know, I think we would be remiss without adding that, you know, some of the biggest companies ever, Google, Facebook, Microsoft, first-time founders.
- HTHarj Taggar
That's right.
- MSMichael Seibel
So [laughs] you're in good company-
- HTHarj Taggar
Yeah
- MSMichael Seibel
... as a first-time founder. Always remember that. [laughs] You know, your company is maybe the best founders who ever existed, Jeff Bezos, you know? [laughs] So with that, good luck out there.
- HTHarj Taggar
Okay.
- BFBrad Flora
Yeah.
- MSMichael Seibel
See you guys later.
- HTHarj Taggar
See ya. [upbeat music]
Episode duration: 21:52
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