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Y CombinatorSimple Products That Became Big Companies – Dalton Caldwell and Michael Seibel
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20 min read · 4,140 words- 0:00 – 0:42
Rookie Mistakes
- DCDalton Caldwell
A product that doesn't work with lots of features is infinitely worse than a product with one feature that works. And again, like, people-
- MSMichael Seibel
Let's play that out.
- DCDalton Caldwell
[laughs]
- MSMichael Seibel
Let's play that out, right? Imagine if it like, they were like, "You get healthcare, and you get benefits, and you get 401 [k] , and payroll," and none of those features worked [laughs]
- DCDalton Caldwell
And sometimes we lose the money.
- MSMichael Seibel
Yes.
- DCDalton Caldwell
And-
- MSMichael Seibel
Like, you would hate them. You would hate that. [laughs]
- DCDalton Caldwell
That sounds like Verizon or something, you know? Like-
- MSMichael Seibel
Exactly. [laughs] Hey, this is Michael Seibel with Dalton Caldwell, and welcome to Rookie Mistakes. We asked YC founders for their rookie mistakes so we could share them with you and help you avoid them. Here's the first
- 0:42 – 1:02
Note from YC founder
- MSMichael Seibel
mistake that was written in: "In my company, we tried to accommodate more than one use case in our product before nailing a single use case and proving out that they even exist a business serving that customer."
- DCDalton Caldwell
Yeah, this, this is super common. It's definitely a problem.
- 1:02 – 2:00
Boiling the ocean
- DCDalton Caldwell
We call this boiling the ocean, right? It's you're trying to do something that's basically impossible or intractable, and all of your instincts are to build a complete, fully formed product without getting a single user. In your mind, you have this elaborate plan, and so your, your plan to start the elaborate plan is to build it all at once before getting a single user.
- MSMichael Seibel
I think that every founder starts their company with the lie in their head that they know about what their customer wants, and they know how to solve the problem. And the more you build before putting your product in front of a user, the more you just let that lie go wild, whereas as soon as you get something in front of a user, you can actually learn how many of my hypotheses were correct and how much of this stuff was just the lie that got me started doing my company. A useful lie, but maybe not the best lie if you wanna solve your user's problem. I also think there's a little bit of, you know, I'll
- 2:00 – 2:32
Googlitis
- MSMichael Seibel
invent a term, Googlitis, like people looking at companies that they use today and not understanding what they looked like at the beginning. [laughs]
- DCDalton Caldwell
Yeah, they're copying-
- MSMichael Seibel
'Cause you look at Google and it's-
- DCDalton Caldwell
... a current product.
- MSMichael Seibel
Yes.
- DCDalton Caldwell
And you're like, "Oh, we're the next Amazon, so we're gonna build everything Amazon has." And, uh, hey, when Amazon started, it was, like, a really simple website that just sold books. It didn't do anything else. Like, I think people re-
- MSMichael Seibel
It didn't even do that that well.
- DCDalton Caldwell
[laughs] It wasn't that good.
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
Fair.
- MSMichael Seibel
[laughs] Let's talk about some other examples, though. You were mentioning that
- 2:32 – 4:33
OpenSea
- MSMichael Seibel
OpenSea is a good example of something that started super simple.
- DCDalton Caldwell
Yeah, I mean, look, OpenSea is a company in the zeitgeist. It's really famous. It feels like it came out of nowhere. If you're like a, like a normal person, you're like, "Wow, OpenSea, what a huge deal." Well, OpenSea was in YC in 2018, and, you know, it was a rough start. They a- they changed their idea. They were working on something else to begin with, and they pivoted into OpenSea. And they actually spent something like a year to two years grinding it out with this really simple website that just let you buy and sell NFTs and, like, barely worked, and they shipped tons of features. They shipped, like, once a day or once a week constantly. They didn't build their own wallet. Like, if you use OpenSea today, you'll notice this. You have to use a, a third-party wallet. There's all these other things they didn't build, and by grinding away and being super focused on the simple use case, they got something that people wanted. They got network effects, and then, boom, we all woke up one day, and this is one of the hottest companies, you know, [laughs] in the world, and everyone wants to invest, and, you know, they're worth billions of dollars. Well, don't forget the two or three years they g- were grinding away in obscurity just trying to make the dang thing work, doing the simplest thing that had basically no features. The feature was a website to buy an NFT and transfer it to someone else. You know what I'm saying? And it still has a lot of work to do on the basics before they add really complex features. There's a lot more basic work to do on that thing. And so, again, like, the story here is the reason that thing worked is they started simple, and they made the simple thing work, and now they're adding more complexity to it. And so if someone wanted to, like, compete with them or make an NFT startup, they should be s- doing the simple fundamentals first and not try to get feature parity [laughs] with, with all these other companies first, you know?
- MSMichael Seibel
I totally agree. I remember, you know,
- 4:33 – 5:34
Gusto
- MSMichael Seibel
when Gusto, um, went through YC, 'cause they were actually in, in my second batch in, in Winter '12. And another example of, you know, if you look at Gusto today, you would say, "Oh, you can do payroll. You could do benefits. You can see your org chart. You can do 401 [k] ." Like, it's like this tool chest full of amazing HR tools. When Gusto started, it was a company named ZenPayroll. It did exactly one thing, your payroll. Back then, if you didn't use ZenPayroll, you'd have to call up ADP, and ADP would bring someone to your office for you to sign stuff so that you could run payroll. And then every month, you had to call someone on the phone and say, "Yes, I do wanna run payroll this month." [laughs] Like, like, that was state-of-the-art. And then Gusto said, "We can just do that online, and all... that's all it's gonna do, and you're gonna love it, and you're gonna sign up, and you're gonna forget about it," 'cause that's what good payroll is, right? You forget about it.
- 5:34 – 6:26
Having lots of features is infinitely worse than having one that works all right
- MSMichael Seibel
And so time and time again-
- DCDalton Caldwell
It just needs to work
- MSMichael Seibel
That's it.
- DCDalton Caldwell
Like, imagine a version of, of Gusto or ZenPayroll that had a lot of features but constantly didn't pay your employees. [laughs] Like, like a broken version. A product that doesn't work with lots of features is infinitely worse than a product with one feature that works. And again, like, people-
- MSMichael Seibel
Let's play that out.
- DCDalton Caldwell
[laughs]
- MSMichael Seibel
Let's play that out, right? Imagine if it, like, they were like, "You get healthcare, and you get benefits, and you get 401 [k] , and payroll," and none of those features worked [laughs]
- DCDalton Caldwell
And sometimes we lose the money. Yes.
- MSMichael Seibel
It's like you would hate them. You would hate them. [laughs]
- DCDalton Caldwell
That sounds like Verizon or something, you know? Like-
- MSMichael Seibel
Exactly. [laughs]
- DCDalton Caldwell
[laughs] That's a great way to-
- MSMichael Seibel
Oh, man
- DCDalton Caldwell
... build a, a hated company, is to have a lot of features that don't reliably work.
- MSMichael Seibel
All
- 6:26 – 7:04
Note from YC founder
- MSMichael Seibel
right. Here's the next one that was written in by a YC founder. Um, they wrote, "We copied another successful business model from an overseas market and wrongly assumed that product market fit was a given. I mean, if the product works in country X, it's gonna work in country Y. We scaled up hiring quickly and burnt a lot of money before we realized that the users we were selling to did not want our product." Oof, this is something that happens so commonly, and what's tricky is that, um, investors often like funding these ideas 'cause they're so simple, right?
- 7:04 – 7:22
Blank for X - Fail after getting money
- MSMichael Seibel
This is a very simple thesis. If blank works here, it should work there. So oftentimes these companies, like, get money but then fail after getting money. H- how have you seen this?
- DCDalton Caldwell
I think, I think what we wanna believe as founders, and this applied to me too, is that
- 7:22 – 9:06
Validation
- DCDalton Caldwell
by getting validation from investors or the press or my friends or employees or winning a startup competition, whatever, that meant it was good, and that that was the validation. You know, "Hey, I've got, I've got validation." And it's pretty frightening to realize that you can get validation from all those things, and it could still not work, you know? And that getting the stamp of approval, like, ultimately, you're responsible for if the thing works or not, and no one e- it's, like, no one else's problem to make it work other than the founder. You're kinda, you're kinda on your own on this one. Um, and so it's almost like, it's like thinking that if you can pass the driver's license test to get a driver's license, it means you're a good driver.
- MSMichael Seibel
[laughs] No.
- DCDalton Caldwell
Like, I think all of us that have, that have a driver's license know you can still be a pretty bad... [laughs] You know, there's a lot of variation-
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
... in the quality of driving, and lots of people can get into trouble with their driving habits even though you have a driving license. There's no... And there's no mechanism, you know, unless you get pulled over. Like, things have to go bad or you get unlucky for an authority figure to g- to get involved, but for the most part, you can get into all sorts of trouble even though you have a driver's license. That, and that's how I view this-
- MSMichael Seibel
Yeah
- DCDalton Caldwell
... is that, you know, you can have your startup license. "Hey, I have a website. I got, you know, I got an article. I, I raised some money." But man, you can really do poorly, [laughs] and no one's gonna stop you.
- MSMichael Seibel
Yeah. Uh, I think this also comes from historical context. Like, by that I mean I still think that most founders are kind of looking back to what's worked in their past, and almost everything that's happened in their past, almost everything they've learned,
- 9:06 – 10:05
First principles
- MSMichael Seibel
they didn't have to learn from first principles. They didn't have to observe personally, right? You learn physics from a physics teacher. And so I think what's so tricky is what we're basically saying is that, like, all of the ways that you learned in the past don't work here. You actually have to go observe the problem, talk to the people who have the problem, try to figure out what's going on, and iterate. Whereas, like, no one learns things that way in school. Like, no one's like, "Hey," like, "we're gonna drop a rock off of a building, see it fall, and then figure out what happened." Right? You never learn physics that way. And so I think that what happens is, is that when these founders go into startups, they're looking for the teacher, 'cause the teacher is the cheat, right? Like, how much harder would it be to learn physics without the teacher, [laughs] right?
- DCDalton Caldwell
Well, it's funny. I'm sure-
- MSMichael Seibel
Without the book. [laughs]
- DCDalton Caldwell
Like, you know, people, people email you and me sometimes after these vide- they watch these videos, and our whole point is, "Go talk to customers. Go figure it out." And they email us, and they're like, "Can you give me advice?" Like, they kind of aren't getting the video, the point of these videos at all, which is what we're saying,
- 10:05 – 12:06
Ground Truth Answers
- DCDalton Caldwell
which is a little bit frightening, is that authority figures don't have the answers for a lot of these questions. And if you're looking for authority figures to tell you your idea is good, you still aren't really getting the point of these videos. [laughs]
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
We're kind of telling you you have to go get ground truth answers-
- MSMichael Seibel
Yeah
- DCDalton Caldwell
... from customers, and that you really can't substitute anything for ground truth answers.
- MSMichael Seibel
No. And doesn't that suck?
- DCDalton Caldwell
That's scary. Yeah.
- MSMichael Seibel
That sucks.
- DCDalton Caldwell
That sucks. [laughs]
- MSMichael Seibel
[laughs] Sorry. I wish I could tell you that I had all the facts.
- DCDalton Caldwell
Yeah.
- MSMichael Seibel
I feel like we can't make it not suck, but isn't it nice that we're just being honest with you and being like, "This is exactly how much it's gonna suck," you know? It's not, it's not easy. What I find distressing, though, is how investors often get this wrong. Investors often believe that founders don't need this ground truth, or you can just take solution from A and put it in place B and work. Give companies money. Those companies start doing company building, hiring the execs, hiring the team, and this happens to YC companies all the time. You know, you talk to them two years later, and you're like, you know, they come to you, and they're like, "It's not working." And this happens to YC companies a lot. They'll go raise a lot of money, ignore us for two years, come back when it's not working, but they have a team of 50, and be like, "Michael, Dalton," like, "what happened?" It's like, "Well-"
- DCDalton Caldwell
[laughs]
- MSMichael Seibel
"... did anyone like your pro- like, did you solve any problem for anyone?" Like, or like, "Let's look at a core stat," right? Like, "You charge people. What's your revenue look like?" You're... [laughs] You know? And then-
- DCDalton Caldwell
"Well, we're not really focused on revenue right now, Michael."
- MSMichael Seibel
No, no, no.
- DCDalton Caldwell
"We wanna grow."
- MSMichael Seibel
"We wanna grow. We have to increase the nu- we, we know this company personally. I won't say who it is. We have to increase the number of customers who could buy us before we increase the customers who do buy us." [laughs] It's like, well, oof. [laughs]
- DCDalton Caldwell
That's great logic.
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
It's good.
- MSMichael Seibel
I do... What is comforting to me, though, is
- 12:06 – 13:21
Clear thinking
- MSMichael Seibel
that when the runway gets down to about 12 months, the magical thinking starts fading, you know? Suddenly-
- DCDalton Caldwell
It's funny. Don't you wish you could bottle up- Like, if you see someone's performance, say there's, you know, you have 18 months of cash.
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
The first, like, you know, 15 months, eh.
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
When someone's back is against the wall, the quality of their decisions get much better. If there was a way to, like-
- MSMichael Seibel
Yes
- DCDalton Caldwell
... gamify, like if you bottle up the quality of execution and thinking and like... I don't know. We, we see people do great work. It's just you wish they would do this great work when their back is not against the wall. Again, it reminds me of being in college or something-
- MSMichael Seibel
Yes
- DCDalton Caldwell
... where the paper's due.
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
And you know, you didn't go to the class. You didn't show up to anything.
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
And then like in the final 24 hours, you like co- you do great work. [laughs]
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
But you could have done that the whole time and not had a whole fire drill, right?
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
Isn't that a shame?
- MSMichael Seibel
It is a shame. You know, the only solution that's worked for me is just, like, do companies that have such a hard time raising money that it's always a fire drill. [laughs]
- DCDalton Caldwell
[laughs]
- MSMichael Seibel
Um, but yeah, you know, it comes back to that, like, the best
- 13:21 – 15:40
Discipline
- MSMichael Seibel
founders are disciplined. What you talked about is that's discipline, right? That's doing the right thing when no one's forcing to you and no situation's forcing you to. And I think that too often genius is mistaken for discipline. It's just like, you know, a lot of people think, "Oh, this person out-executed all their peers because they were smarter," and it's like that assumes the peers were actually working on the thing they said they were working on as opposed to, like, hiring and going to conferences and talking to reporters. Discipline to avoid the distractions, um, God, I mean, that should be comforting to a lot of people. It's like y- for every ounce of discipline y- you have, you can probably lose five, 10 ounces of intelligence and still-
- DCDalton Caldwell
Yeah
- MSMichael Seibel
... outperform, you know?
- DCDalton Caldwell
Yeah, it... That's a great point. It's funny how many people that we see, again, let me, let me think of how to phrase this, with like... You'd think they'd be really good at a lot of things-
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
... but they... I'm not sure what they do with their time.
- MSMichael Seibel
Yes. [laughs]
- DCDalton Caldwell
They have a great resume, but it appears they just don't really do work.
- MSMichael Seibel
Yes.
- DCDalton Caldwell
And the people that sit down and do the focused work, and again, we all know what this is like. Again, think back to college.
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
You know, lots of reasons to not work on something.
- MSMichael Seibel
Yep.
- DCDalton Caldwell
Um, if you could bottle up those moments where you're actually doing focused work, the people that succeed just seem better at that. That's actually the criteria that they seem better at. And if you, if you looked at their calendar, if you shadowed them or something, the folks that are really good at this are just better at doing focused work. And it's kind of nothing else. I mean, or at least-
- MSMichael Seibel
Yeah. And by the way, you can't, you can't really change your raw intelligence, but you can get better at this. Like, this is a little bit like working out. Like, you can... You know, if doing focused work for someone who likes to procrastinate is a little bit painful, the more they do it, the less painful it gets, you know? And so, hey, you know, smart people certainly have an advantage, but man, hard workers, oof. Hard workers are dangerous. Like, [laughs] hard workers are dangerous. Lazy people are, um... You know, as a startup founder, lazy people, lazy competitors are your friends.
- DCDalton Caldwell
Yeah. It's, it's good when your competitors are focused on the wrong things.
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
Um, along these same lines, like, I wanted to,
- 15:40 – 19:21
Hardware crowdfunding
- DCDalton Caldwell
I wanted to talk about what we learned from, um, hardware crowdfunding a little bit.
- MSMichael Seibel
Yes.
- DCDalton Caldwell
So, so here's the, here's the issue. If you need to manufacture a lot of a product, it's much cheaper to do a big order in quantity, right? You follow me? Like, say we wanna... Oh, let's talk about T-shirts. Let's say we wanna create Dalton and Michael T-shirts.
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
It's much cheaper to do an order for 10,000 than it is to do one at a time, right?
- MSMichael Seibel
Of the same T-shirt.
- DCDalton Caldwell
This is just how the world works.
- MSMichael Seibel
10,000 of the-
- DCDalton Caldwell
Same T-shirt
- MSMichael Seibel
... same T-shirt. Yeah.
- DCDalton Caldwell
Yeah. Makes sense, right? And so crowdfunding and Kickstarter made sense because you could raise, you could sell all the T-shirts at once. We actually had a YC company that did this called Teespring.
- MSMichael Seibel
Yep.
- DCDalton Caldwell
Didn't work out.
- MSMichael Seibel
Yep.
- DCDalton Caldwell
But it was, like, a way to order a bunch of T-shirts in a quantity. And, um, then you get a big pile of money, and then everything goes perfectly, and you engineer it, and you manufacture the product, and all the backers of your Kickstarter get the product, and everyone's happy.
- MSMichael Seibel
Yeah.
- DCDalton Caldwell
And you ride, you know, you ride off into the sunset, right? That's how it works, right, Michael? Like-
- MSMichael Seibel
That's, exactly. And then you have, then you're Apple. [laughs]
- DCDalton Caldwell
Again, I don't think people are gonna get the irony. We're being, I, I'm, I'm being facetious-
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
... for my foreign friends that don't get the irony. So in practice, Michael, what actually happens? What do we see with all these companies that do crowdfunding?
- MSMichael Seibel
No idea how to build it. No idea how much, how much building it would cost. No how mu- no idea how much the thing should cost, so they're charging users for a product that they don't even know what the right price is. The people who buy it have no idea how long it's gonna take to build, which is only matched by the people who are building it having no idea how much it takes to build. And we haven't even gotten to the best part, no idea whether the thing actually solves the problem for the person. But a lot of money up front, and God, like, a lot of expectations, a lot of untested plans, you know? [laughs] Like-
- DCDalton Caldwell
Well, that's, that's what's funny is, like, when you think about it, it seems like the greatest thing in the world to be able to raise money from a crowdfund for your hardware company. But in fact, there's no surer way to make strangers on the internet hate you. [laughs]
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
Like, like, it's a really great way to become, like, infamous on the internet is to be like, you know, "Here's, here's a, a, a cooler with a blender on it, and it's, like, $200, and back my Kickstarter." And then you, like, don't ship it, and, like, you send out updates that the dog ate your homework, and-
- MSMichael Seibel
Yeah
- DCDalton Caldwell
... oh, it's Chinese New Year. Like, I don't know. Like, shit happens.
- MSMichael Seibel
[laughs]
- DCDalton Caldwell
And, like, man, people don't... People really hate you. You're like a villain for, like... And thousands of people spend a lot of time trying to, like, track you down-
- MSMichael Seibel
Yeah
- 19:21 – 21:18
Hardware startup - Best practices
- DCDalton Caldwell
if anyone here is doing a hardware startup, um, I think best practices is you don't do it at the earliest stages and you do it later when you have, like, V2, V3-
- MSMichael Seibel
Yeah
- DCDalton Caldwell
... and you're ready to manufacture at scale 'cause then you won't create thousands of enemies on the internet that think you're trying to scam them, you know? And again, like, n- all these people had good intentions. I don't think anyone... Like, no one was actually trying to scam anyone, but intent doesn't matter to strangers on the internet, does it, Michael?
- MSMichael Seibel
No. You know, there is one better strategy. Do a software company. Lot easier.
- DCDalton Caldwell
[laughs]
- MSMichael Seibel
Lot easier.
- DCDalton Caldwell
Yeah.
- MSMichael Seibel
Like-
- DCDalton Caldwell
And then, and then along these lines, you know, clearly there's a lot of stuff happening in crypto and this, relevant to this, but just, just be aware if you take money from people at scale-
- MSMichael Seibel
Yeah
- DCDalton Caldwell
... on the internet, they rightfully will hold you accountable. And I just-
- MSMichael Seibel
Yes
- DCDalton Caldwell
... don't know if peop- It looks like people are handing out free money on the internet, and I get why people want that. Just understand that there's a cost, and if people think that you, you know, rugged them, if you're, if you rugged the people with your thing, you know, it's gonna be bad for your life. [laughs] Right? Like, there's a cost. Like, there's no, there is no free lunch, I think, in this sense. And so, you know, just be aware of that. I, I don't... And again, I know people that have been on the other side of this. Um, it's not great if they start trying to track you down.
- MSMichael Seibel
And it can change your life forever. I mean, like-
- DCDalton Caldwell
Yeah
- MSMichael Seibel
... literally forever. Like, like, there are a few things in the startup world that kind of are, like, one shot kill and, and, you know, this is one of them. Y- you screw up with enough people's money, it never leaves you. Like, you get that permanent Wikipedia page. [laughs] Like, that's not what, it's not what you want. All right. Well, that was a good wrap-up. Great chatting, Dalton. [outro music]
Episode duration: 21:18
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